Financial Statements
Year ended March 31, 2019

SMS CO., LTD.
Sumitomo Fudosan Shibakoen Tower,
2-11-1, Shibakoen, Minato-ku,
Tokyo, 105-0011, Japan

Consolidated Balance Sheets
SMS CO., LTD. and Its Consolidated Subsidiaries
As of March 31, 2018 and 2019
(Millions of yen)
As of March 31, 2018

As of March 31, 2019

AssetsCurrent assets
Cash and deposits
Accounts receivable - trade

9,515
4,308

10,703
4,323

50
29

1
13

20
3,474

36
4,478

Prepaid expenses
Other

571
12

634
46

Allowance for doubtful accounts

(224)

(114)

17,75920,123Merchandise and finished goods
Work in process
Supplies
Accounts receivable - otherTotal current assets
Non-current assets
Property, plant and equipment
Buildings

413

459

Accumulated depreciation

(252)

(276)

Buildings, net

160

183

Tools, furniture and fixtures

687

749

Accumulated depreciation

(454)

(498)

Tools, furniture and fixtures, net

233

251

Machinery, equipment and vehicles

39

42

Accumulated depreciation

(27)

(30)

Machinery, equipment and vehicles, net

11

12

405

447

11,53910,574

SoftwareTrademark rights

1,382
9,412

1,174
9,246

Customer-related assets
Other

2,368
0

2,088
0

Total intangible assets

24,70323,083

Total property, plant and equipment
Intangible assets
Goodwill

Investments and other assets
Investment securities*

Deferred tax assets
Lease and guarantee deposits

1,721
730
746

Other
Total investments and other assets
Total non-current assets
Total assets

1

*

2,048
855
880

20

30

3,219

3,814

28,32827,34446,08747,467

(Millions of yen)
As of March 31, 2018

As of March 31, 2019

Liabilities
Current liabilities
Accounts payable - trade

292

353

Short-term loans payable
Current portion of long-term loans payable

8
1,395

–
2,487

Accounts payable - otherAccrued expenses

5,061
289

6,064
529

Income taxes payable
Accrued consumption taxes

1,068
406

623
435

Advances received
Deposits received

1,183
70

583
78

Provision for bonuses
Provision for refund

445
153

481
227

Other

22

24

10,40011,891Long-term loans payable
Net defined benefit liability

9,690
160

17,632
311

Deferred tax liabilities
Other

2,175
19

2,078
13

Total non-current liabilities

12,046

20,03722,44631,928

Shareholders’ equity
Capital stock

2,167

2,208

Capital surplus
Retained earnings

3,965
14,545

13
14,971(0)(0)

20,677

17,193

Valuation difference on available-for-sale securities
Foreign currency translation adjustments

0(1,423)0(1,834)

Total accumulated other comprehensive income

Total current liabilities
Non-current liabilities

Total liabilities
Net assets

Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income(1,423)(1,833)

Subscription rights to shares
Non-controlling interests

135
4,252

179
–

Total net assets

23,641

15,53946,08747,467

Total liabilities and net assets
See the accompanying Notes to Consolidated Financial Statements.

2

Consolidated Statements of Income
SMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2018 and 2019
(Millions of yen)
Fiscal year ended
March 31, 2018
Net sales
Cost of sales

Fiscal year ended
March 31, 2019

26,611
3,289

Gross profit

30,836
3,535

23,322

Selling, general and administrative expenses*1

Operating income

19,30027,301*1

22,558

4,021

4,743

29
8

–
11

950
58

1,352
66

1,047

1,430

–

51

Interest expenses
Arrangement fee

48
–

66
46

Other

13

30

Total non-operating expenses

61

194

5,007

5,979

Gain on sales of non-current assets
Gain on sales of shares of subsidiaries and associates

5
–

1
6

Total extraordinary income

5

8

3

–

Non-operating income
Foreign exchange gains
Interest income
Share of profit of entities accounted for using equity method
Other
Total non-operating income
Non-operating expenses
Foreign exchange losses

Ordinary income
Extraordinary income

Extraordinary losses
Impairment loss
Loss on sales of shares of subsidiaries and associates
Loss on sales and retirement of non-current assets
Loss on valuation of investment securities
Loss on business withdrawal
Other

*2
*3

28
31

*4

19
14
–

Total extraordinary losses

*2
*3

–
165

*4

4
233
49

98

453

Profit before income taxes

4,914

5,534

Income taxes – current
Income taxes – deferred

1,707
(299)

1,564
(221)

Total income taxes

1,408

1,342

Profit

3,506

4,191

145

(25)

3,361

4,216

Profit attributable to non-controlling interests
Profit attributable to owners of parent
See the accompanying Notes to Consolidated Financial Statements.

3Consolidated Statements of Comprehensive Income
SMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2018 and 2019
(Millions of yen)
Fiscal year ended
March 31, 2018
ProfitOther comprehensive income

Fiscal year ended
March 31, 2019
3,506

4,191

Valuation difference on available-for-sale securities
Foreign currency translation adjustments

(0)
(800)

0
(399)

Share of other comprehensive income of entities accounted
for using equity method

(25)

(3)

Total other comprehensive income (loss)

*

(825)

*

(402)

Comprehensive income

2,680

3,788

Comprehensive income attributable to:Comprehensive income attributable to owners of parent

2,776

3,806

(95)

(17)

Comprehensive income attributable to non-controlling interests
See the accompanying Notes to Consolidated Financial Statements.

4Consolidated Statements of Changes in Net Assets
SMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2018 and 2019
(Millions of yen)
Shareholders' equity
Capital stock
Balance at April 1, 2017

Capital surplus

2,153

4,148

Issuance of new shares

14

Dividends of surplus－

Profit attributable to ownersof parent

Retained earnings

Total shareholders'equityTreasury shares

11,662(0)

17,963

14

－

－

29

－

(478)

－

(478)

－

－

3,361

－

3,361

－

(197)

－

－

(197)

－

－

－

－

－

Purchase of treasury shares

－

－

－

(0)

(0)

Net changes of items otherthan shareholders' equity

－

－

－

－

－

Total changes of items during
period

14

(183)

2,882

(0)

2,713

Balance at March 31, 2018

2,167

3,965

14,545(0)

20,677

Changes of items during period

Net increase (decrease)
due to change in scope of
consolidation
Change in ownership interestof parent due to transactions
with non-controlling interests

Accumulated other comprehensive income
Valuationdifference on
available-for-salesecurities

Foreign currencytranslation
adjustments

Total accumulated
Subscription rights
otherto shares
comprehensive
income

0

(838)

(838)

Issuance of new shares－－

Dividends of surplus－－

Profit attributable to ownersof parent－

Net increase (decrease)
due to change in scope of
consolidation

Non-controllinginterests

Total net assets

110

4,347

21,583

－

－

－

29

－

－

－

(478)

－

－

－

－

3,361

－

－

－

－

－

(197)

Change in ownership interestof parent due to transactions
with non-controlling interests

－

－

－

－

－

－

Purchase of treasury shares

－

－

－

－

－

(0)

Net changes of items otherthan shareholders' equity

(0)

(584)

(584)

25

(95)

(655)

Total changes of items during
period

(0)

(584)

(584)

25

(95)

2,058

Balance at March 31, 2018

0

(1,423)(1,423)

135

4,252

23,641

Balance at April 1, 2017
Changes of items during period5

(Millions of yen)
Shareholders' equity
Capital stock
Balance at April 1, 2018

Capital surplus

2,167

3,965

Issuance of new shares

41

Dividends of surplus－

Profit attributable to ownersof parent

Retained earnings

Total shareholders'equityTreasury shares

14,545(0)

20,677

41

－

－

82

－

(564)

－

(564)

－

－

4,216

－

4,216

Net increase (decrease)
due to change in scope of
consolidation

－

－

－

－

－

Change in ownership interestof parent due to transactions
with non-controlling interests－(3,992)(3,225)－(7,218)Purchase of treasury shares

－

－

－

(0)

(0)

Net changes of items otherthan shareholders' equity

－

－

－

－

－

Total changes of items during
period41(3,951)426(0)(3,484)

Balance at March 31, 2019

2,208

13

14,971(0)

17,193

Changes of items during period

Accumulated other comprehensive income
Valuationdifference on
available-for-salesecurities

Foreign currencytranslation
adjustments

Total accumulated
Subscription rights
otherto shares
comprehensive
income0(1,423)(1,423)Issuance of new shares－－

Dividends of surplus－

Non-controllinginterests

Total net assets

135

4,252

23,641

－

－

－

82

－

－

－

－

(564)

－

－

－

－

－

4,216

－

－

－

－

－

－

Change in ownership interestof parent due to transactions
with non-controlling interests

－

－

－

－

－

(7,218)Purchase of treasury shares

－

－

－

－

－

(0)

Net changes of items otherthan shareholders' equity

0

(410)

(410)

44

(4,252)(4,618)

Total changes of items during
period

0

(410)

(410)

44

(4,252)(8,102)

Balance at March 31, 20190

(1,834)(1,833)179－

15,539Balance at April 1, 2018
Changes of items during period

Profit attributable to ownersof parent
Net increase (decrease)
due to change in scope of
consolidation

See the accompanying Notes to Consolidated Financial Statements.

6

Consolidated Statements of Cash FlowsSMS CO., LTD. and Its Consolidated Subsidiaries
Fiscal years ended March 31, 2018 and 2019
(Millions of yen)

Cash flows from operating activities
Profit before income taxes

Fiscal year ended

Fiscal year ended

March 31, 2018

March 31, 2019
4,914

5,534

Depreciation
Amortization of goodwill

965
741

1,061
807

Loss (gain) on sales and retirement of non-current assets
Impairment loss

26
3

163
–

Loss (gain) on valuation of investment securities
Loss (gain) on sales of shares of subsidiaries and associates

19
28

4
–

Share-based remuneration expenses
Loss on withdrawal from business
Share of (profit) loss of entities accounted for using equity
methodIncrease (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses

33
14

71
233

(106)

(334)

95
126

(109)
39

Increase (decrease) in provision for refund
Increase (decrease) in net defined benefit liability

10
24

74
150

Foreign exchange losses (gains)
Interest expenses

(29)
48

51
66

Decrease (increase) in notes and accounts receivable - trade
Increase (decrease) in accrued consumption taxes

(279)
159

(34)
28

Decrease (increase) in accounts receivable - other
Decrease (increase) in prepaid expenses

(956)
182

(1,004)(64)

Increase (decrease) in advances received
Increase (decrease) in accounts payable - other

60
806

(581)
993

Other, net

(160)

73

Subtotal

6,731

7,225

Interest and dividend income received

11

11Interest expenses paid
Income taxes paid

(48)
(1,883)(62)(2,018)Net cash provided by (used in) operating activities

4,811

5,156

Cash flows from investing activities
Payments into time deposits(998)(1,047)

Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment

1,024
(214)

982
(216)

Purchase of intangible assets
Purchase of shares of subsidiaries resulting in change inscope of consolidation
Payments for sales of shares of subsidiaries resulting inchange in scope of consolidation
Other, net

(707)

(731)

(1,197)

(23)

(11)

–

Net cash provided by (used in) investing activities

7

9

(29)

(2,095)(1,066)(Continued)

(Millions of yen)
Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 2019

Cash flows from financing activities
Decrease in short-term loans payable
Proceeds from long-term loans payable

(32)
973

–
10,953

Repayments of long-term loans payable(1,359)–(1,941)
4

17

50

(478)

(557)

(230)

(11,453)

Proceeds from issuance of share acquisition rights
Proceeds from issuance of shares resulting from exerciseof share acquisition rights
Cash dividends paid
Payments from changes in ownership interests in
subsidiaries that do not result in change in scope of
consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year*

See the accompanying Notes to Consolidated Financial Statements.

8

2

(0)

(1,107)(2,943)

19

(24)

1,627

1,122

7,140

8,768

8,768

* 9,890

Notes to Consolidated Financial Statements(Significant matters forming the basis for the preparation of consolidated financial statements)
1. Matters related to the scope of consolidation
Number of consolidated subsidiaries: 39
Names of major consolidated subsidiaries
SMS Career CO., LTD.
SENIOR MARKETING SYSTEM ASIA PTE. LTD.
MIMS Pte. Ltd.
MIMS (Shanghai) Ltd.
KIMS Limited
Medica Asia Australia (Holdco) Pty Ltd
MIMS Australia Pty Ltd
MIMS (NZ) Limited and otherFor the fiscal year ended March 31, 2019, SMS Medical Ad Sdn. Bhd. and two other companies were included in thescope of consolidation due to acquisition of shares or establishment of new companies.
For the fiscal year ended March 31, 2019, SENIOR MARKETING SYSTEM (THAILAND) CO., LTD. and three othercompanies were excluded from the scope of consolidation due to completion of liquidation.
2. Application of equity method(1) Number of affiliates accounted for using equity method: 3Name of major affiliate
M3 Career, Inc.
3. Fiscal year of consolidated subsidiaries
The fiscal year-end of SMS Career CO., LTD., SMS Support Service CO., LTD., SMS Financial Service CO., LTD., Zweig
Co., Ltd., WorkAmbitions Co., Ltd., and WILLONE Co., Ltd. is March 31, which is the same as the Company’s fiscal year-end.
The fiscal year-end of consolidated subsidiaries other than those above is December 31. Since the difference in fiscal yearends is not more than three months, financial statements as of December 31 are used in preparing the consolidated financial
statements. For significant transactions that occurred in the period from their fiscal year-end to the Company’s fiscal year-end,
necessary adjustments have been made upon consolidation.
4. Matters related to the accounting policies(1) Basis and method of valuation of significant assets
a. Securities
Available-for-sale securities
Available-for-sale securities without a determinable market value are stated at cost determined by the moving-averagemethod.
b. Inventories
Merchandise and finished goods, work in process and supplies
Inventories are mainly measured at cost determined by the weighted-average method. (The amounts on the consolidatedbalance sheets are calculated using a method of writing down the book value due to decreased profitability.)9(2) Depreciation and amortization method of significant depreciable assets
a. Property, plant and equipment
Property, plant and equipment is depreciated using the declining-balance method. Buildings and accompanying fixturesand structures acquired on or after April 1, 2016 are depreciated using the straight-line method.
Major useful lives are as follows:
Buildings
6 to 15 years
Tools, furniture and fixtures
3 to 9 years
Machinery, equipment and vehicles
2 to 5 years
b. Intangible assets
Intangible assets are amortized using the straight-line method.
Major useful lives are as follows:
SoftwareEstimated period of internal use (within 5 years)
Trademark rights
Not amortized
Customer-related assets
12 years(3) Basis of significant allowances and provisions
a. Allowance for doubtful accounts
For normal trade receivables, allowance for doubtful accounts is provided at an amount determined based on thehistorical experience of bad debt. For certain receivables such as doubtful receivables, uncollectible amounts areindividually estimated.
b. Provision for bonuses
Provision for bonuses is provided for the payment of employees’ bonuses based on the estimate of future payments
attributed to the fiscal year.
c. Provision for refund
In order to meet refund payments due to applicants’ resignation based on the refund clause stipulated in job placement
contracts between the Company and clients, provision for refund is provided at an amount estimated based on historicalexperience.
(4) Methods for significant hedge accounting
a. Hedge accounting method
Deferral hedge accounting is applied. For interest rate swaps, special accounting treatment is applied if the criteria for
special accounting treatment are met. For currency swaps, the allocation method is applied if the criteria for the allocation
method are met.
b. Hedging instruments and hedged items
Hedging instruments:
Interest rate swaps and currency swaps
Hedged items:
Long-term loans payable and associated interest denominated in foreign currencies
c. Hedge policy
As a policy, the Company uses interest rate swaps and currency swaps in order to mitigate and avoid interest rate
fluctuation risk and foreign exchange fluctuation risk.
d. Method of evaluating hedge effectivenessHedge effectiveness is evaluated by comparing the total changes in values of hedging instruments and hedged items forthe periods from the commencement of hedge contracts to the evaluation dates. For interest rate swaps which meet thecriteria for special accounting treatment, the evaluation of hedge effectiveness is omitted.
(5) Accounting treatments for retirement benefit
a. The method of attributing expected benefit to periods
The straight-line method is used as the method of attributing expected benefit to periods through the fiscal year-end in
calculating the projected benefit obligations.
b. The method of recognizing actuarial gain or loss
Actuarial gain or loss is charged to income in the fiscal year when such gain or loss is incurred.

10(6) Basis of translation of significant assets and liabilities denominated in foreign currencies into Japanese yen
All monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rates
prevailing as of the fiscal year-end, and resulting gains and losses are included in income.
Assets and liabilities of overseas consolidated subsidiaries are translated into yen at the year-end exchange rates, andincome and expenses are translated into yen at average exchange rates during the year. Differences arising from thetranslations are included in “Foreign currency translation adjustments” and “Non-controlling interests” under net assets.
(7) Amortization of goodwill – method and period of amortization
Goodwill is amortized over its effective period, not exceeding 20 years, on a straight-line basis.
(8) Cash and cash equivalents in consolidated statements of cash flows
The Company considers cash on hand, readily available deposits, and all easily convertible short-term instruments with amaturity of three months or less when purchased that are exposed to insignificant risk of changes in value to be cash andcash equivalents.
(9) Other significant matters for preparation of consolidated financial statementsa. Accounting treatment of consumption taxes
Consumption taxes are accounted for by the tax-excluded method.
b. Consolidated taxation system
The Company and certain consolidated subsidiaries have applied the consolidated taxation system, with the Company
being a parent company under the system.
(Changes in accounting policies)
The Company has adopted “Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which
Involve Considerations, with Vesting Conditions” (Practical Issue Task Force (“PITF”) No. 36, January 12, 2018) on and after April
1, 2018, and accordingly treats transactions granting employees and others stock acquisition rights, which involve considerations,with vesting conditions in accordance with the “Accounting Standard for Share-based Payment and its Implementation Guidance”(Accounting Standards Board of Japan (“ASBJ”) Statement No.8, December 27, 2005).
Regarding the application of PITF No. 36, the Company follows the transitional treatment as stipulated in Paragraph 10 (3) of PITF
No. 36 and continues to apply the previous accounting treatment for transactions granting employees and others stock acquisitionrights before the date of the application of PITF No. 36.
(Changes in presentation)
1. The application of the “Partial Amendments to Accounting Standard for Tax Effect Accounting”
The Company has applied the “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28,
February 16, 2018) effective from the beginning of the fiscal year ended March 31, 2019. Accordingly, deferred tax assets arepresented under investments and other assets and deferred tax liabilities are presented under non-current liabilities.
As a result, ¥353 million of “Deferred tax assets” under “Current assets” in the previously disclosed consolidated balance sheet asof March 31, 2018 is included in ¥730 million of “Deferred tax assets” under “Investments and other assets” in the accompanying
consolidated balance sheet as of March 31, 2018.
The Company added disclosures in the notes to the accompanying consolidated financial statements in accordance with Note 8(except for total amount of valuation allowance) and Note 9 of “Accounting Standard for Tax Effect Accounting” as stipulated in
Paragraph 3, 4 and 5 of ASBJ Statement No. 28.
However, the Company omitted the detailed disclosures for the fiscal year ended March 31, 2018 in accordance with thetransitional treatment as stipulated in Paragraph 7 of ASBJ Statement No. 28.
2. Consolidated Statements of Income
MIMS group companies previously accounted for a part of expenses incurred in business activities as “Cost of sales.” However,these expenses are included in “Selling, general and administrative expenses” from the fiscal year ended March 31, 2019. Whilethese expenses were previously included in cost of sales due to immateriality, after re-evaluating their nature because theirmateriality had increased, MIMS group companies changed their accounting and presentation approach to align it with theCompany’s in order to carry out consistent group performance management and more appropriate presentation of operational
results.
Accordingly, “Cost of sales” was restated to ¥3,289 million and “Selling, general and administrative expenses” was ¥19,300
million in the accompanying consolidated statement of income for the fiscal year ended March 31, 2018.
3. Consolidated Statements of Cash Flows11

“Share-based remuneration expenses,” “Interest expenses” and “Loss on withdrawal from business,” which were previously
included in other under “Net cash provided by (used in) operating activities,” are presented as separate line items because theirmateriality had increased. Reclassifications have been made in the prior year’s consolidated financial statements to conform to theclassification used in the current year.
As a result, ¥(63) million of “Other” under “Net cash provided by (used in) operating activities” previously shown on the
consolidated statement of cash flows for the year ended March 31, 2018 is reclassified to ¥33 million of “Share-based remuneration
expenses,” ¥48 million of “Interest expenses,” ¥14 million of “Loss on withdrawal from business” and ¥(160) million of “Other.”(Consolidated balance sheets)* Investment in non-consolidated subsidiaries and affiliates included in investment securities is as follows:(Millions of yen)
As of March 31, 2018
Investment securities (shares)

As of March 31, 2019

1,707

2,038

(Consolidated statements of income)*1 Major items and amounts included in selling, general and administrative expenses are as follows:(Millions of yen)
Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 2019

Salaries and allowance
Advertising expenses

6,621
3,413

7,871
4,106

Amortization of goodwill
Depreciation

741
966

807
1,061

Business consignment expenses
Legal welfare expenses

2,575
961

2,545
1,246

Rents
Provision for bonuses

1,122
266

1,284
389

41
146

95
39

Retirement benefit expenses
Provision of allowance for doubtful accounts(Note)

Due to changes in presentation, the amounts included in “Cost of sales” in the previously disclosed consolidated
statement of income for the fiscal year ended March 31, 2018 are reclassified to relevant expense accounts as follows:¥754 million to “Salaries and allowance,” ¥72 million to “Business consignment expenses” and ¥57 million to “Legal
welfare expenses.”*2 Loss on sales of shares of subsidiaries and associates is as follows:
Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 2019

Losses mainly on sale of shares of SMS Medicare Service CO., LTD.

–

*3 Loss on sales and retirement of non-current assets is as follows:(Millions of yen)
Fiscal year ended
March 31, 2019

Fiscal year ended
March 31, 2018
Buildings

80Tools, furniture and fixtures
Machinery, equipment and vehicles

2
2

0
8

Software

17

155

31

165

Total
*4 Loss on business withdrawal is as follows:12

Fiscal year ended March 31, 2018
The loss is incurred in connection with business withdrawal of “purenurse,” a catalog mail order business operated by SMS
Career CO., LTD.

13

Fiscal year ended March 31, 2019
The breakdown of loss on business withdrawal is as follows:(Millions of yen)
Loss on withdrawal of overseas subsidiary’s business (Note)

135

Loss on withdrawal of publishing business
Other

55
43

Total
233
(Note) It mainly includes ¥125 million of loss on software impairment in connection with the liquidation of SENIOR
MARKETING SYSTEM SDN.BHD.
(Consolidated statements of comprehensive income)* Reclassification adjustments and tax effects in connection with other comprehensive income(Millions of yen)
Fiscal year ended
March 31, 2019

Fiscal year ended
March 31, 2018
Valuation difference on available-for-sale securities:
Amount arising during the year

(0)0

Reclassification adjustments––

Amount before tax effects(0)0

Tax effects

0(0)Valuation difference on available-for-sale securities(0)0Amount arising during the year

(800)

(412)

Reclassification adjustments

–

12

(800)

(399)

Amount arising during the year

(25)

(3)

Reclassification adjustments

–

–

(25)

(3)

(825)

(402)

Foreign currency translation adjustments:

Foreign currency translation adjustments
Share of other comprehensive income of entities
accounted for using equity method:

Share of other comprehensive income of entities
accounted for using equity method
Total other comprehensive income (loss)(Consolidated statements of changes in net assets)
Fiscal year ended March 31, 2018
1. Matters regarding class and number of issued shares and class and number of treasury shares(Shares)Number of shares at
beginning of year

Increase

Number of shares at
end of year

Decrease

Issued shares:
Common stock (Note 1)
Total

43,382,600

38,400–43,421,000

43,382,600

38,400–43,421,000

113

42

–

155

113

42

–

155

Treasury shares:
Common stock (Note 2)
Total(Notes) 1. The Company implemented a 2-for-1 stock split effective July 1, 2018. The figures above are those before the stock
split.
14

2. Increase in issued shares (38,400 shares) is due to the exercise of subscription rights to shares.
3. Increase in treasury shares (42 shares) is due to the acquisition of treasury shares.
2. Matters regarding subscription rights to sharesClassification

Number of shares subject to subscription rights to shares (shares)

Description of subscription
rights to sharesClass of sharessubject to
subscription
rights to shares

August 2011No.7 Stock Option

Common
stock

6,400

–

–

6,400

0

July 2012No.8 Stock Option

Commonstock

57,600–43,20014,4004

62,400–4,800

57,60024

200,000––

200,000

90

Beginning ofyear

Increase

Decrease

Balance at endof year(Millions ofyen)

End of year

July 2013

CommonThe
Company

No.9 Stock Option

stock

July 2014

Common(Parent
company)

No.10 Stock Option

stock

July 2016
No.11 Stock Option

Commonstock

18,000––18,00011

July 2016
No.12 Stock Option

Commonstock

206,000–

2,000

204,000

1

May 2017

CommonNo.13 Stock Option

stock

–

159,000

1,000

158,0002

550,400

159,000

51,000658,400

135

Total

–

(Notes) 1. The stock options above will be exercisable in the following schedule: No. 7 Stock Option on August 19, 2016; No.8
Stock Option on July 20, 2017; No.9 Stock Option on July 18, 2018; No.10 Stock Option on July 17, 2021; No.11
Stock Option on July 20, 2019; No.12 Stock Option on July 1, 2019; and No.13 Stock Option on July 1, 2020.
2. Decreases are due to the exercise and the expiration of subscription rights to shares.
3. The Company implemented a 2-for-1 stock split effective July 1, 2018. The figures above are those before the stock
split.
3. Matters regarding dividend(1) Dividend payment
Resolution
Ordinary General
Meeting of
Shareholders heldon June 22, 2017
(Note)Class

Dividend amount(Millions of yen)

Dividend per share
(Yen)

477

11

Common stock

Record date

Effective date

March 31, 2017

June 23, 2017

The Company implemented a 2-for-1 stock split effective July 1, 2018. The dividend per share above is the amount
before the stock split. The dividend per share reflecting the stock split is ¥5.5.

(2) Of the dividends whose record date belongs to the fiscal year ended March 31, 2018, the dividend whose effective date falls
in the fiscal year ended March 31, 2019.
Resolution

Class

Ordinary General
Meeting ofCommonRetainedstock

earnings

Shareholders heldon June 21, 2018
(Note)

Resource

Dividend
amount(Millions of yen)

564

Dividend
per share
(Yen)

13

Record date

Effective date

March 31, 2018

June 22, 2018

The Company implemented a 2-for-1 stock split effective July 1, 2018. The dividend per share above is the amount
before the stock split. The dividend per share reflecting the stock split is ¥6.5.
15

16

Fiscal year ended March 31, 2019
1. Matters regarding class and number of issued shares and class and number of treasury shares(Shares)Number of shares at
beginning of year

Increase

Number of shares at
end of year

Decrease

Issued shares:
Common stock(Notes 1 and 2)
Total

43,421,000

43,577,800–

86,998,800

43,421,000

43,577,800–

86,998,800

155

217

–

372

155

217

–

372

Treasury shares:
Common stock(Notes 1 and 3)
Total(Notes) 1. The Company implemented a 2-for-1 stock split effective July 1, 2018.
2. Increase in issued shares (43,577,800 shares) is due to the stock split (43,421,000 shares) and the exercise ofsubscription rights to shares (156,800 shares).
3. Increase in treasury shares (217 shares) is due to the stock split (155 shares) and the acquisition of treasury shares (62shares).
2. Matters regarding subscription rights to shares

Description of subscription
rights to sharesClass of sharessubject to
subscription
rights to shares

August 2011 No.7

CommonStock Option (Note 1)stock

July 2012 No.8 Stock

CommonOption (Note 1)stock

July 2013 No.9 Stock
Option (Note 1)
The
Company(Parent
company)

Classification

Number of shares subject to subscription rights to shares (shares)
Beginning ofyear

Increase

Decrease

End of year

Balance at endof year(Millions of
yen)

6,400

6,400

12,800––14,40014,40028,800––Commonstock

57,60057,600115,200––

July 2014 No.10 Stock
Option (Note 1)

Commonstock

200,000

200,000–

400,000

114

July 2016 No.11 Stock

CommonOption (Note 1)

stock

18,00018,000–36,00018

July 2016 No.12 Stock

CommonOption (Note 1)

stock

204,000

204,000–

408,000

1

May 2017 No.13 Stock
Option (Note 1)

Commonstock

158,000

158,000–

316,000

2

July 2018
No.14 Stock Option

Commonstock–

180,000–

180,000

43–

658,400

838,400

156,800

1,340,000

179

Total

(Notes) 1. The Company implemented a 2-for-1 stock split effective July 1, 2018.
2. The stock options above will be exercisable in the following schedule: No.10 Stock Option on July 17, 2021; No.11
Stock Option on July 20, 2019; No.12 Stock Option on July 1, 2019; No.13 Stock Option on July 1, 2020, and No.14
Stock Option on July 1, 2021.
3. Decreases are due to the exercise of subscription rights to shares.

17

3. Matters regarding dividend(1) Dividend payment
Resolution

Class

Dividend amount(Millions of yen)

Dividend per share
(Yen)

564

13

Record date

Effective date

March 31, 2018

June 22, 2018

Ordinary General
Meeting of
Shareholders held

Common stockon June 21, 2018
(Note)The Company implemented a 2-for-1 stock split effective July 1, 2018. The dividend per share above is the amount
before the stock split. The dividend per share reflecting the stock split is ¥6.5.

(2) Of the dividends whose record date belongs to the fiscal year ended March 31, 2019, the dividend whose effective date falls
in the fiscal year ending March 31, 2020.
Dividend
Dividend
Resolution
Class
Resource
amountper share
Record date
Effective date(Millions of yen)
(Yen)
Ordinary General
Meeting of
Shareholders held

Commonstock

Retainedearnings

652

7.5

March 31, 2019

June 20, 2019

on June 19, 2019
4. Matters regarding significant changes in the amount of shareholders’ equity
On September 28, 2018, the Company acquired additional shares of Medica Asia (Holdco) Limited, a consolidated subsidiary of
the Company. Due to this acquisition of shares from non-controlling interests, capital surplus decreased by ¥3,992 million andretained earnings also decreased by ¥3,225 million for the fiscal year ended March 31, 2019. As a result, capital surplus amounted
to ¥13 million and retained earnings to ¥14,971 million as of March 31, 2019.
(Consolidated statements of cash flows)* Reconciliation of cash and cash equivalents in the consolidated statements of cash flows to accounts and amounts in theaccompanying consolidated balance sheets(Millions of yen)
Fiscal year ended
Fiscal year ended
March 31, 2018
March 31, 2019
Cash and deposits
Time deposits with maturity in excess of threemonthsCash and cash equivalents

9,515

10,703

(747)

(812)

8,768

9,890

(Leases)
Disclosure is omitted due to immateriality.
(Financial instruments)
1. Status of financial instruments(1) Policy on financial instruments
As a policy, the Company generally operates its business using funds provided by operating activities, and invests temporary
surplus funds in very safe financial instruments. The Company does not enter into financial transactions for trading or
speculative purposes.
(2) Types of financial instruments, related risk and risk management
Accounts receivable - trade and accounts receivable - other are exposed to the credit risk of customers; however, the risk islimited because most of these receivables are due within two months. In accordance with the Company’s credit management
policy, the Company manages such risk by monitoring due dates and outstanding balances by customer and evaluating their18

credit status.
Accounts payable - other and income taxes payable have payment due dates within one year, in general. Current liabilities
including these payables are exposed to liquidity risk at time of settlement. However, the Company avoids such risk byreviewing the cash management plan on a monthly basis.
Long-term loans payable are primarily for share acquisitions related to M&A transactions. The Company manages interest
rate fluctuation risk and the foreign exchange fluctuation risk of each contract by using derivative transactions such as interest
rate swaps and currency swaps as hedging instruments, except for those of some syndicated loans payable.
(3) Supplemental information regarding fair value of financial instruments
The fair value of financial instruments is based on their market prices, if available. Where there is no market price available,
fair value is reasonably estimated. Because estimations of fair value incorporate variable factors, the fair value may vary whendifferent assumptions are applied.
2. Matters regarding fair value of financial instruments
The carrying amount, fair value and the difference between them are as follows. Financial instruments for which fair value isextremely difficult to estimate are excluded from the following table (See Note 2 below).
As of March 31, 2018
(Millions of yen)
Carrying amount

Fair value

Difference(1) Cash and deposits

9,515

9,515

–

(2) Accounts receivable - trade

4,308

4,308

–

(224)

(224)

–

4,084

4,084

–

3,474

3,474

–

17,074

17,074–(4) Long-term loans payable (*2)

11,086

11,046(39)(5) Accounts payable - other

5,061

5,061

–

(6) Income taxes payable

1,068

1,068

–

Total liabilities

17,216

17,176

(39)

–

–

–

Allowance for doubtful accounts (*1)(3) Accounts receivable - otherTotal assets

Derivative transactions(*1) The amount is presented as allowance for doubtful accounts receivable - trade.
(*2) The amount includes current portion of long-term loans payable.

19

As of March 31, 2019
(Millions of yen)
Carrying amount

Fair value

Difference(1) Cash and deposits

10,703

10,703–(2) Accounts receivable - trade

4,323

4,323

–

(114)

(114)

–

4,209

4,209

–

4,478

4,478

–

19,391

19,391–(4) Long-term loans payable (*2)

20,12020,090(29)(5) Accounts payable - other

6,064

6,064

–

(6) Income taxes payable

623

623

–

Total liabilities

26,80926,779

(29)

–

–

–

Allowance for doubtful accounts (*1)(3) Accounts receivable - otherTotal assets

Derivative transactions(*1) The amount is presented as allowance for doubtful accounts receivable - trade.
(*2) The amount includes current portion of long-term loans payable.
(Notes) 1. Measurement method of fair value of financial instruments and information on securities
Assets(1) Cash and deposits, (2) Accounts receivable - trade, (3) Accounts receivable - other
Since these items are settled in a short period of time, their carrying amount approximates fair value. Since it isextremely difficult to estimate credit risk of each receivable, the Company estimates the fair value of accounts
receivable - trade by deducting allowance for doubtful receivables from the carrying amount, considering thatallowance for doubtful accounts approximates the amount of credit risk.
Liabilities(4) Long-term loans payable (including current portion)
For loans payable whose interest is fixed rate or fixed using interest rate swaps, the fair value is calculated bydiscounting the total of principal and interest classified by the remaining period to the maturity using an assumed
interest rate applicable to a similar type of new borrowings. For loans payable with variable interest rate as of March
31, 2019, the fair value is measured in the same manner as those with fixed interest rate using TIBOR as of thebalance sheet date.
(5) Accounts payable - other, (6) Income taxes payable
Since these items are settled in a short period of time, their carrying amount approximates fair value.
Derivative transactions
Interest rate swaps under the special accounting treatment and currency swaps under the allocation method areaccounted for as an integral component of long-term loans payable designated as hedged items. Thus, their fair value
is included in those of the loans payable.
2. Financial instruments whose fair value is extremely difficult to determine(Millions of yen)Classification

As of March 31, 2018

As of March 31, 2019

Investment securities
Unlisted shares

1,721

2,048

These securities are not included in the table above, as there were no market prices available and it is extremely
difficult to determine the fair value.
20

21

3. Maturity analysis for financial assets and securities with contractual maturities
As of March 31, 2018
(Millions of yen)Due in one year or
less

Due after one year
through five years

Due after five years
through ten years

Due after ten years

Cash and deposits

9,447

–

–

–

Accounts receivable -trade

4,308

–

–

–

Accounts receivable -other

3,474

–

–

–

Total

17,230–––

As of March 31, 2019
(Millions of yen)Due in one year or
less

Due after one year
through five years

Due after five years
through ten years

Due after ten years

Cash and deposits

10,662–––

Accounts receivable -trade

4,323

–

–

–

Accounts receivable -other

4,478

–

–

–

Total

19,464–––4. Maturity analysis for bonds, long-term loans payable, leases payable and other interest-bearing debts and other interestbearing debts
As of March 31, 2018
(Millions of yen)Due in one
year or less
Short-term loans

Due after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Due after
five years

payableLong-term loans payable

8

–

–

–

–

–

1,395

1,395

1,395

1,395

1,298

4,204

Total

1,404

1,395

1,395

1,395

1,298

4,204

Due in one
year or lessDue after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

As of March 31, 2019
(Millions of yen)

Short-term loans

Due after
five years

payableLong-term loans payable

–

–

–

–

–

–

2,487

2,487

2,487

2,394

2,301

7,961

Total

2,487

2,487

2,487

2,394

2,301

7,961

(Securities)
1. Impairment of securities
Fiscal year ended March 31, 2018
The disclosure is omitted due to immateriality.
22

Fiscal year ended March 31, 2019
The disclosure is omitted due to immateriality.
2. Available-for-sale securities sold during the fiscal year
Fiscal year ended March 31, 2018
None to report.
Fiscal year ended March 31, 2019
None to report.

(Derivative transactions)
1. Derivatives transactions for which hedge accounting has not been applied
None to report.
2. Derivatives transactions for which hedge accounting has been applied(1) Currency-related
As of March 31, 2018
(Millions of yen)
Hedge accounting
methodTransaction
Currency swaps

Allocation method

Receive: U.S. dollar/
Pay: Yen

Main hedged
itemLong-termloans payable

Contract amountContract amountover one year
12,012

9,009

Fair value(Note)(Note) Currency swaps under the allocation method are accounted for as an integral component of long-term loans payable
designated as hedged items. Thus, their fair value is included in those of the loans payable.
As of March 31, 2019
(Millions of yen)
Hedge accounting
methodTransaction
Currency swaps

Allocation method

Receive: U.S. dollar/
Pay: Yen

Main hedged
itemLong-termloans payable

Contract amount

12,012Contract amountover one year
7,807

Fair value(Note)(Note) Currency swaps under the allocation method are accounted for as an integral component of long-term loans payable
designated as hedged items. Thus, their fair value is included in those of the loans payable.
(2) Interest rate-related
2018(Millions of yen)
Hedge accounting
methodSpecial accounting
treatment

Transaction
Interest rate swaps
Receive: Floating /Pay: Fix

Main hedged
itemLong-termloans payable

Contract amount

12,012Contract
amount over
one year
9,009

Fair value(Note)(Note) Interest rate swaps under special accounting treatment are accounted for as an integral component of long-term loans
payable designated as hedged items. Thus, their fair value is included in those of the loans payable.
As of March 31, 2019
Hedge accounting

Transaction

Main hedged
23

Contract amountContract(Millions of yen)
Fair valueitem

methodSpecial accounting
treatmentInterest rate swaps
Receive: Floating /Pay: Fix

amount over
one yearLong-termloans payable

12,012

7,807(Note)(Note) Interest rate swaps under special accounting treatment are accounted for as an integral component of long-term loans
payable designated as hedged items. Thus, their fair value is included in those of the loans payable.

(Retirement benefit)
1. Summary of retirement benefit plans
The Group has only a lump-sum payment plan.
2. Defined benefit plan
(1) Reconciliation between beginning balance and ending balance of projected benefit obligations(Millions of yen)
Fiscal year ended
March 31, 2019

Fiscal year ended
March 31, 2018
Balance at beginning of year

135

160

Service cost

38

82

Interest cost00Actuarial gain or loss

2

12

Retirement benefits paid

(16)

(39)

–

94

160

311

Other
Balance at end of year

(2) Reconciliation between the ending balance of projected benefit obligations and net defined benefit liability recorded on the
consolidated balance sheets(Millions of yen)
As of March 31, 2018

As of March 31, 2019

Unfunded retirement benefit obligations

160

311

Net defined benefit liability

160

311

(3) The components of retirement benefit expenses and their amounts(Millions of yen)
Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 2019

Service cost

38

82

Interest cost00

Amortization of actuarial gain or loss

2

12

Total retirement benefit expenses

4195(4) The major assumptions used for the actuarial calculation (weighted average)
As of March 31, 2018

As of March 31, 2019

0.1%

0.1%

Discount rate

24

(Stock options)
1. The amount of costs incurred for the stock option plans and the account recorded are as follows:(Millions of yen)

Share-based compensation expenses included in general andadministrative expenses

Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 201933

71

2. Outline, number and status of changes in number of stock options(1) Outline of stock options

Position and number ofgrantees
Number of options granted(Notes 1 and 2)
Date of grantVesting condition

Service period
Exercise period

No.7 Stock Option

No.8 Stock Option

No.9 Stock Option

4 directors, 9 employees

5 directors, 9 employees

4 directors, 13 employees

108,800 shares

182,400 shares

201,600 shares

August 19, 2011

July 20, 2012

July 18, 2013

The grantee shall be in theposition of director or

The grantee shall be in theposition of director or

The grantee shall be in theposition of director or

employee of the Company or
its associates. This shall not

employee of the Company or
its associates. This shall not

employee of the Company or
its associates. This shall not

apply in cases where thegrantee resigned the position

apply in cases where thegrantee resigned the position

apply in cases where thegrantee resigned the position

due to expiration of the termof office, retired due to thedue to expiration of the termof office, retired due to thedue to expiration of the termof office, retired due to theage of retirement or other
legitimate reasons.

age of retirement or other
legitimate reasons.

age of retirement or other
legitimate reasons.

Other terms and conditions
shall be stipulated in the

Other terms and conditions
shall be stipulated in the

Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.

contract for allotment ofsubscription rights to shares.

contract for allotment ofsubscription rights to shares.

August 19, 2011 –August 18, 2016

July 20, 2012 –July 19, 2017

July 18, 2013 –July 17, 2018

August 19, 2016 –July 20, 2017 –July 18, 2018 –August 18, 2021

July 19, 2022

July 17, 2023

25

No.10 Stock Option

No.11 Stock Option

No.12 Stock Option

Position and number ofgrantees
Number of options granted(Notes 1 and 2)

1 director

3 directors

3 directors, 40 employees

400,000 shares

36,000 shares

412,000 shares

Date of grant

July 17, 2014

August 9, 2016

August 9, 2016

The grantee shall be in theposition of director of the

The grantee shall be in theposition of director of the

Only when EBITDA for the
fiscal year ended March 31,

Company. This shall not
apply in cases where theCompany. This shall not
apply in cases where the2019 (Note 3) exceeds (a),(b), or (c) stated below,

grantee resigned the position
due to expiration of the term

grantee resigned the position
due to expiration of the term

subscription rights to sharesshall become exercisable. Ofof office or other legitimate
reasons.

of office or other legitimate
reasons.

the subscription rights allottedto each grantee, the number

Other terms and conditions
shall be stipulated in the

Other terms and conditions
shall be stipulated in theof rights which become
exercisable (“exercisable

contract for allotment ofsubscription rights to shares.

contract for allotment ofsubscription rights to shares.

ratio”) shall be determined asfollows:(a) EBITDA exceeds ¥4,977
million: exercisable ratio is

Vesting condition

10%(b) EBITDA exceeds ¥6,462
million: exercisable ratio is50%(c) EBITDA exceeds ¥8,216
million: exercisable ratio is100%
Other terms and conditions
shall be stipulated in thecontract for allotment ofsubscription rights to shares.
Service period
Exercise period

July 17, 2014 –July 16, 2021

August 9, 2016 –July 19, 2019–

July 17, 2021 –July 20, 2019 –July 1, 2019 –July 16, 2024

July 19, 2026

June 30, 2024

26

Position and number ofgrantees
Number of options granted(Notes 1 and 2)
Date of grantNo.13 Stock Option

No.14 Stock Option

2 directors, 44 employees

2 directors, 45 employees

318,000 shares

180,000 shares

June 19, 2017

August 7, 2018

Only when operating income

Only when EBITDA for thefor the fiscal year ending
March 31, 2020 exceeds (a),fiscal year ending March 31,
2021 (Note 4) exceeds (a),(b), or (c) stated below,
subscription rights to shares(b), or (c) stated below,
subscription rights to sharesshall become exercisable. Of shall become exercisable. Of
the subscription rights allotted the subscription rights allotted

Vesting condition

to each grantee, the numberof rights which become

to each grantee, the numberof rights which become

exercisable (“exercisable
ratio”) shall be determined as

exercisable (“exercisable
ratio”) shall be determined asfollows:
follows:(a) Operating income exceeds (a) EBITDA exceeds ¥7,670¥4,853 million: exercisable
ratio is 10%

million: exercisable ratio is
10%(b) Operating income exceeds (b) EBITDA exceeds ¥8,764¥6,301 million: exercisable
million: exercisable ratio isratio is 50%50%(c) Operating income exceeds (c) EBITDA exceeds ¥9,958¥8,011 million: exercisable
ratio is 100%

million: exercisable ratio is100%

Other terms and conditions

Other terms and conditions

shall be stipulated in thecontract for allotment ofshall be stipulated in thecontract for allotment ofsubscription rights to shares.

subscription rights to shares.

Service period––

Exercise period

July 1, 2020 –June 30, 2025

July 1, 2021 –June 30, 2026

(Notes)1. It is converted and stated as number of shares.
2. The Company implemented a 2-for-1 stock split effective January 1, 2015. In addition, the Company implemented
another 2-for-1 stock split effective July 1, 2018. The number of shares above represents those after these stock splits.
3. EBITDA is calculated by adding the amounts of depreciation and amortization of goodwill on the Consolidated
Statements of Cash Flows to the amount of operating income on the Consolidated Statements of Income for the fiscal
year ended March 31, 2019.
4. EBITDA is calculated by adding the amounts of depreciation and amortization of goodwill on the Consolidated
Statements of Cash Flows, and the amount of share-based remuneration expenses described in Notes to Consolidated
Financial Statements to the amount of operating income on the Consolidated Statements of Income for the fiscal year
ending March 31, 2021.

27

(2) Number and status of changes in number of stock options
The following tables are based on the stock options that existed for the fiscal year ended March 31, 2019. The number ofstock options is converted and stated as the number of shares.
a. Number of stock options(Shares)No.7 Stock Option

No.8 Stock Option

No.9 Stock Option

Outstanding at March 31, 2018––57,600Granted–––Increase due to stock split (Note 1)––

57,600Forfeited–––

Vested––115,200

Outstanding at March 31, 2019

–

–

–

6,400

14,400–––115,200

Increase due to stock split (Note 1)

6,400

14,400–Exercised

12,80028,800115,200

Forfeited–––

Outstanding at March 31, 2019

–

–

–

No.10 Stock Option

No.11 Stock Option

No.12 Stock Option

200,000

18,000204,000–––

200,000

18,000204,000

Forfeited–––

Vested–––400,000

36,000408,000

Outstanding at March 31, 2018

–

–

–

Vested–––Increase due to stock split

–

–

–

Exercised–––

Forfeited–––

Outstanding at March 31, 2019

–

–

–

Non-vested:

Vested:Outstanding at March 31, 2018
VestedNon-vested:
Outstanding at March 31, 2018
GrantedIncrease due to stock split (Note 1)

Outstanding at March 31, 2019
Vested:28

No.13 Stock Option

No.14 Stock Option

158,000––

180,000

158,000–

Forfeited––

Vested––316,000

180,000

Outstanding at March 31, 2018––

Vested––Increase due to stock split––

Exercised––

Forfeited––

Outstanding at March 31, 2019––Non-vested:
Outstanding at March 31, 2018
GrantedIncrease due to stock split (Note 1)

Outstanding at March 31, 2019
Vested:(Note) The Company implemented a 2-for-1 stock split effective July 1, 2018.
b. Price information of stock options

Exercise price
Average market price of the stockat the time of exercise
Fair unit value(date of grant)

Exercise price
Average market price of the stockat the time of exercise
Fair unit value(date of grant)

Exercise price
Average market price of the stockat the time of exercise
Fair unit value(date of grant)(Yen)
No.7 Stock Option

No.8 Stock Option

No.9 Stock Option

107

234

372

2,389

1,980

1,914

56

147

229

No.10 Stock Option

No.11 Stock Option

No.12 Stock Option

736

1,205

1,190

–

–

–

422

569

3

No.13 Stock Option

No.14 Stock Option

1,528

1,978

–

–

8

25

(Note) The Company implemented a 2-for-1 stock split effective January 1, 2015. In addition, the Company implemented another 2for-1 stock split effective July 1, 2018. The number of shares above represents those after these stock splits.
29

30

3. Methods to estimate fair values of stock options
The methods to estimate fair values of No. 14 stock option granted for the fiscal year ended March 31, 2019 are as follows:
No.14 Stock Option
a. Valuation techniqueMonte Carlo simulation

b. Major assumptions and estimation method
No.14 Stock Option
Volatility of stock price (Note 1)

47.07%

Estimated remaining period to maturity (Note 2)

5.4 years

Estimated dividend (Note 3)¥6.5 per share

Risk-free interest rate (Note 4)(0.05)%(Notes) 1. The volatility of stock price is estimated based on the actual stock prices from March 14, 2013 to August 7, 2018.
2. Since it is difficult to make reliable estimates due to insufficient historical data, the remaining period was
calculated based on the assumption that the rights were exercised in the middle of each exercise period.
3. An amount of the actual dividend for the fiscal year ended March 31, 2018 is used for the assumption. The
Company implemented a 2-for-1 stock split effective July 1, 2018. The dividend per share above represents thoseafter the stock split.
4. Yield of Japanese government bonds corresponding to the estimated remaining period.
4. Method of estimating number of stock options vested
Since it is difficult to reasonably estimate the number of stock options that will expire in the future, only the number of options
that has been forfeited is reflected.

31

(Tax-effect accounting)
1. Major components of deferred tax assets and deferred tax liabilities(Millions of yen)
As of March 31, 2018
Deferred tax assets:
Enterprise tax payable
Provision for bonuses
Provision for refund
Legal welfare expenses payable
Allowance for doubtful accounts
Amortization of software
Provision for retirement benefits
Incidental costs of share acquisition
Loss carryforward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Offset by deferred tax liabilities
Deferred tax assets, net
Deferred tax liabilities:
Customer-related assets
Valuation difference on available-for-sale securities
Other
Total deferred tax liabilities
Offset by deferred tax assets
Deferred tax liabilities, net

As of March 31, 2019

82
101
53
14
34
191
53
93
406
21
1,054
(323)
730
–
730

79
119
81
14
24
205
64
142
585
186
1,504
(640)
864
(9)
855

2,175
0
–
2,175
－

2,078
0
9
2,087
(9)
2,078

2,175

2. Reconciliation between the statutory tax rate and the effective tax rate reflected in the consolidated statements of income
As of March 31, 2018
Statutory tax rate
The disclosure is omitted
Special corporation tax credit granted upon increase in because the difference
salary and bonus payments
between the statutory tax
Amortization of goodwill and otherrate and the effective tax
rate reflected in the
Share of profit/loss of entities accounted for using
consolidated statements ofequity method
income is 5% or less of the
Otherstatutory tax rate.
Effective tax rate32

As of March 31, 201930.62%(4.01)%
5.77%(7.48)%(0.63)%
24.26%

(Business combinations)
Transaction under common control
Additional acquisition of subsidiary’s shares
1. Overview of business combination(1) Name of acquired company and description of its business
Name of acquired company:
Business description:

Medica Asia (Holdco) Limited
Holding company(2) Date of business combination
September 28, 2018(3) Legal form of business combination
Share acquisition from non-controlling interests(4) Company name after business combination
No change to the name of the company(5) Matters regarding overview of business combination
The Company additionally acquired the remaining 40% of voting rights of Medica Asia (Holdco) Limited, thereby making it awholly owned consolidated subsidiary of the Company. Through this acquisition, the Company aims to expedite the decisionmaking process and create further synergy in the Group in order to enhance its corporate value.
2. Overview of the accounting treatment appliedAmong transactions under common control, the Company treated this transaction as a transaction with non-controlling interestsin accordance with the “Revised Accounting Standard for Business Combinations” (ASBJ Statement No. 21) and the “Revised
Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ
Guidance No. 10).
3. Matters regarding additional acquisition of subsidiary’s shares
Breakdown of the acquisition cost and type of consideration
Consideration for acquisition

Cash and deposits

Acquisition cost¥

11,453 million¥

11,453 million

4. Matters regarding changes in the ownership interest of parent due to transactions with non-controlling interests(1) Major reason for changes in capital surplus (including retained earnings)
Additional acquisition of subsidiary’s shares(2) The amounts decreased in capital surplus and retained earnings through the transaction with non-controlling interests
Capital surplus¥
3,992 million
Retained earnings¥

3,225 million(Asset retirement obligations)
The Group has obligations to restore assets to their original state on leaving the properties based on real estate lease contracts foroffice spaces, which are asset retirement obligations.
Based on the lease contracts, the Group has paid deposits, which normally cover significant portion of restoration costs, andrecorded the amounts as lease and guarantee deposits. Instead of recording liabilities for asset retirement obligations, the Groupreasonably estimates the amounts which would not be recoverable at the end of the lease periods and recognizes expenses for theyear by amortizing the amounts of deposits over the expected periods of use.
For the estimate, the Group assumes the expected periods of use to be a lease period from the commencement of real estate lease
contracts to the end of the lease term.
The total amount assumed to be non-recoverable as of March 31, 2019 is ¥191 million, of which the amount recognized as
expenses for the fiscal year ended March 31, 2019 is ¥34 million.
33

(Segment information and other)【Segment information】
Overview of reportable segments
The Company and its consolidated subsidiaries consist of a single business, which aims to build information infrastructure
suitable for the aging society, and operations incidental thereto.
Accordingly, there is no segment information to be disclosed and as such the disclosure is omitted.
【Related information】
Fiscal year ended March 31, 2018
1. Information
The Company
by products
and its consolidated
and services subsidiaries consist of a single business, which aims to build information infrastructure
suitable for the aging society, and operations incidental thereto. Accordingly, there is no segment information to be disclosed andas such the disclosure is omitted.
2. Information by geographical areas(1) Net sales(Millions of yen)
Japan

Other
21,502

Total
5,109

26,611(Note) The amount of net sales is classified by country and region based on customers’ location.
(2) Property, plant and equipment(Millions of yen)
Japan

Other
228

Total
176

405

3. Information on major customers
Information on major customers is omitted since there is no single customer with 10% or more of the amount of net sales
presented in the consolidated statements of income.
Fiscal year ended March 31, 2019
1. Information by products and services
The Company and its consolidated subsidiaries consist of a single business, which aims to build information infrastructure
suitable for the aging society, and operations incidental thereto. Accordingly, there is no segment information to be disclosed andas such the disclosure is omitted.
2. Information by geographical areas(1) Net sales(Millions of yen)
Japan

Other
25,372

Total
5,464

30,836(Note) The amount of net sales is classified by country and region based on customers’ location.
(2) Property, plant and equipment(Millions of yen)
Japan

Other
322

Total
125

447

3. Information on major customers
34

Information on major customers is omitted since there is no single customer with 10% or more of the amount of net sales
presented in the consolidated statements of income.
【Information on impairment loss of non-current assets by reportable segment】
The disclosure is omitted since there is only one segment in the Group.
【Information on amortization of goodwill and balance of unamortized goodwill by reportable segment】
The disclosure is omitted since there is only one segment in the Group.
【Information on negative goodwill incurred by reportable segment】
None to report.
【Related party transactions】
1. Related party transactions
Transactions between the Company and related parties
Fiscal year ended March 31, 2018
None to report.
Fiscal year ended March 31, 2019
None to report.
2. Notes on parent company or major affiliates
Summary of financial information of major affiliates
As of and for the fiscal year ended March 31, 2019, M3 Career, Inc. was a major affiliate of the Company and its condensed
financial information is as follows:(Millions of yen)
M3 Career, Inc.
2018

2019

Total current assets

4,140

5,411

Total non-current assets

1,197

1,156

Total current liabilities

1,848

2,458

95

88

Total net assets

3,393

4,020

Net sales
Profit before income taxes

10,8792,843

13,7093,726

Profit

2,010

2,704

Total non-current liabilities(Amounts per share)

Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 2019

Net assets per share (Yen)

221.72176.55

Profit per share (Yen)
Diluted profit per share (Yen)

38.72

48.51

38.57

48.24

(Note) The basis for calculating profit per share and diluted profit per share is as follows:35

Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 2019

Profit per share:
Profit attributable to owners of parent(Millions of yen)

3,361

4,216

–

–

3,361

4,216

86,815,332

86,934,982––

Increase in number of common stock (Shares)

335,137

475,622[Of which, exercise of subscription rights to shares(Shares)][335,137][475,622]

Amount not attributable to common stock
shareholders (Millions of yen)
Profit attributable to common stock owners ofparent (Millions of yen)
Weighted average number of shares (Shares)
Diluted profit per share:
Adjustment to profit attributable to owners ofparent (Millions of yen)

Details of potential shares excluded from calculation ofdiluted profit per share due to no dilutive effectNo.12 Subscription rights to sharesbased on the resolution of theNo.12 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon July 20, 2016:

Board of Directors’ meeting heldon July 20, 2016:

Common stock

Common stock

367,200 shares

204,000 shares

No.13 Subscription rights to sharesbased on the resolution of theNo.13 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon May 29, 2017:

Board of Directors’ meeting heldon May 29, 2017:

Common stock

Common stock

316,000 shares

316,000 shares

No.14 Subscription rights to sharesbased on the resolution of theBoard of Directors’ meeting heldon July 18, 2018:
Common stock

180,000 shares(Note) The Company implemented a 2-for-1 stock split effective July 1, 2018. Net assets per share, profit per share, diluted profit per
share, weighted average number of shares, increase in number of common stock, and potential shares excluded from calculationof diluted profit per share due to no dilutive effect are calculated on the assumption that the stock split was executed at the
beginning of the fiscal year ended March 31, 2018.
(Significant subsequent events)
None to report.

36

【Consolidated statements schedules】【Details of bonds】
None to report.
【Details of loans payable】

Classification

Balanceat beginning of year
(Millions of yen)

Short-term loans payable

Balanceat end of year
(Millions of yen)

Average interest rate(%)

Repayment date

8

–

0.00

–

1,395

2,487

0.45

–

Long-term loans payable(excluding current portion)

9,690

17,632

0.35

From 2020 to 2028

Total

11,094

20,120––Current portion of
long-term loans payable(Notes)1. The average interest rate represents the weighted-average rate applicable to the balance at end of year.
2. The five-year repayment schedule of long-term loans payable (excluding current portion) subsequent to the fiscal year
end is as follows:(Millions of yen)
Due after one year
through two years

Long-term loans payable

Due after two years
through three years

2,487

2,487

Due after three years
through four years

Due after four years
through five years

2,394

2,301

【Details of asset retirement obligations】
For asset retirement obligations, instead of recording liabilities for asset retirement obligations, the Group reasonably estimates
the amounts which would not be recoverable at the end of the lease periods and recognizes expenses for the year by amortizing
the amounts of deposits over the expected periods of use.
Thus, there is nothing to report.
【Other】
Quarterly information for the fiscal year ended March 31, 2019Year-to-date data

First quarter

Second quarter

Fiscal year ended
March 31, 2019

Third quarter

Net sales (Millions of yen)

8,067

15,04022,02430,836

Profit before income taxes(Millions of yen)

2,092

2,866

3,160

5,534

Profit attributable to owners ofparent (Millions of yen)

1,644

2,157

2,390

4,216

Profit per share (Yen)

18.94

24.84

27.51

48.51

Quarterly data
Profit per share (Yen)First quarter

Second quarter

18.94

5.90

Third quarter

Fourth quarter
2.67

21.00

(Note) The Company implemented a 2-for-1 stock split effective July 1, 2018. Profit per share is calculated on the assumption thatthe stock split was executed at the beginning of the fiscal year ended March 31, 2018.

37

TRANSLATIONThis is a translation of the original Independent Auditors’ Report filed under the Financial Instruments and Exchange Act, preparedin the Japanese language. This report is presented merely as supplemental information. Ernst & Young ShinNihon LLC has not
audited the English language version of the consolidated financial statements of SMS CO., LTD. for the fiscal year from April 1,2018 to March 31, 2019.

Independent Auditors’ Report
June 19, 2019
To the Board of Directors of
SMS CO., LTD.
Ernst & Young ShinNihon LLC
Designated and Engagement Partner, Certified Public Accountant
Hisafumi Nomoto (Seal)
Designated and Engagement Partner, Certified Public Accountant
Keiichi Wakimoto (Seal)
Pursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited the consolidated financial
statements included in the Financial Section, namely, the consolidated balance sheet, and the consolidated statements of income,comprehensive income, changes in net assets and cash flows, the significant matters forming the basis for the preparation of
consolidated financial statements, the other notes and consolidated supplementary schedules of SMS CO., LTD. for the fiscal year
from April 1, 2018 to March 31, 2019.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance withaccounting principles generally accepted in Japan, and for designing and operating such internal control as management determines isnecessary to enable the preparation and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit inaccordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatementof the consolidated financial statements, whether due to fraud or error. The purpose of an audit of the consolidated financial statements
is not to express an opinion on the effectiveness of the entity’s internal control, but in making these risk assessments the auditor
considers internal controls relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order todesign audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
SMS CO., LTD. and its consolidated subsidiaries as at March 31, 2019, and the results of their operations and their cash flows for theyear then ended in conformity with accounting principles generally accepted in Japan.
Conflicts of Interest
We have no interest in the Company which should be disclosed in compliance with the Certified Public Accountants Act.