ANNUAL REPORT 2016 Fiscal year ended March 2016
B Contents
1 Avex Snapshot 2 Avex History 4 Dear Fellow Stakeholders 9 New Management Structure 10 At a Glance 11 Review of Operations
11 Music Business
12 Video Business
13 Management & Live Business
14 Other Businesses 15 The Avex Group’s CSR Activities 16 Compliance Policy 17 Corporate Governance 20 Directors, Auditors and Corporate Executives 21 Corporate Data and Investor Information 22 Financial Section Avex Snapshot (Fiscal years ended March 31)
Performance Indicators Per Share
Revenue and earnings decreased in the fiscal year ended March The operating income margin and ROE declined in the fiscal year The Avex Group has identified payout ratio and minimum dividend 31, 2016. This was largely attributable to a downturn in the number ended March 31, 2016. This largely reflected the downturn in earn- payment targets of at least 35% and ¥50 per share, respectively. of live performances at large venues, a drop in album production ings across all businesses. Despite this downturn, the shareholders’ Turning to the fiscal year under review, the annual dividend was ¥50 sales in the Music Business, and an upswing in expenses in line with equity ratio remains stable, exceeding 40%. Looking ahead, the per share and the payout ratio 50.1%. the revamp of video distribution service in the Video Business. Avex Group will continue to strengthen its financial base.
Net Sales Operating Income Margin Net Income per Share
(¥ billion) (%) (¥) 180 12 200 154.1 9 150 120 99.88 6 4.7 100 60 3 50
0 0 0 ’12 ’13 ’14 ’15 ’16 ’12 ’13 ’14 ’15 ’16 ’12 ’13 ’14 ’15 ’16
Operating Income ROE Equity per Share
(¥ billion) (%) (¥) 15 20 1,200 1,144.82
15 900 10 7.2 10 8.7 600 5 5 300
0 0 0 ’12 ’13 ’14 ’15 ’16 ’12 ’13 ’14 ’15 ’16 ’12 ’13 ’14 ’15 ’16
Net Income Attributable to Owners of the Parent Shareholders’ Equity Ratio Cash Dividends
(¥ billion) (%) (¥) 8 50 44.2 60 50.00 40 50 6 40 4.2 30 4 30 20 20 2 10 10 0 0 0 ’12 ’13 ’14 ’15 ’16 ’12 ’13 ’14 ’15 ’16 ’12 ’13 ’14 ’15 ’16 1 Consolidated Net Sales (¥ billion) (Fiscal years ended March 31)
200 200
April 1988 Founded in Machida, Tokyo December 1999 as a record importer October 1998 Listed on the First Section of and wholesaler Began trading on the OTC market (currently JASDAQ) the Tokyo Stock Exchange 150 150 September 1990 January 2000 Started music Current logo production and October 1997 (corporate identity) adopted established the record Established an in-house music label, “avex trax” package distribution company
100 100 July 1995 Went into the artist management business
May 1993 50 Relocated to 50 Minami-Aoyama in Avex History Tokyo’s Minato Ward
0 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95* ’96 ’97 ’98 ’99 ’00 ’01 ’02 0 (Fiscal years ended August 31 in 1994 and earlier) * Seven-month fiscal period Since its foundation in 1988, the Avex Group has been October 2001 considering changes in its business environment as Opened Avex Artist Academy opportunities and has been providing people with ex- in Harajuku, Tokyo citement through entertainment. February 1990 August 1993 Although there was a phase during which growth Released a dance compilation album 50,000 people turned out for the free “avex leveled off, the Avex Group was able to sustain its ever- SUPER EUROBEAT VOL. 1 rave ’93” dance event that for one night only increasing growth by the implementation of structural turned the Tokyo Dome into a disco reforms heralded as its Second Takeoff. February 1992 May 2016 saw the announcement of the “avex group JULIANA’S TOKYO dance compilation album growth strategy 2020—towards an innovative future of en- became a major hit tertainment.” Positioning the formulation of the strategy as its Third Takeoff, the Avex Group will work to further im- prove its corporate value by implementing Companywide reforms relating to strategy, organization and principles.
2 September 2014 Due to the reconstruction, headquarters location changed to Roppongi 1-chome, Minato Ward November 2013 (Izumi Garden Tower) Plans for rebuilding Avex December 2014 headquarters building Established AWA Co. Ltd. as a joint announced venture with CyberAgent, Inc. Planned for completion April 2009 in 2017 200 Established Avex Broadcasting & Communications Inc. as 200 a joint venture with NTT DOCOMO, Inc.
October 2004 May 2016 Shifted to a holding company system Announced “avex group growth
150 April 2005 150 strategy 2020” Second Takeoff. Implementation of structural reforms, ramp up The Avex Group will promote “avex group 360-degree strategy growth strategy 2020—towards an innovative
100 100 future of entertainment,” while working to maximize Group value and providing its cus- tomers with more surprises and excitement.
50 50
0 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 0
December 2007 April 2015 Gained top share of music software Redesigned and renamed “d-VIDEO” market for both Japanese and as “dTV International music May 2015 May 2009 Launched subscription music streaming service “AWA” Launched the “BeeTV” video distribution service that provides original programing
August 2002 November 2011 February 2013 Started the “a-nation” nationwide circuit Launched the “d-VIDEO” Launched UULA, the video and music entertainment live music event video distribution service distribution service developed for smartphones
3 Dear Fellow Stakeholders
Masato Matsuura Representative Director, CEO
Dear Fellow Stakeholders Implementing Companywide reforms based on a new growth strategy
4 Fiscal Year Results and Shareholder Returns Market Conditions and Identified Issues
For the fiscal year ended March 31, 2016, the Avex Group reported net sales of Since its founding, the Avex Group has been considering changes in its business ¥154,122 million (down 8.9% from the previous fiscal year), operating income of environment as opportunities and has been providing people with excitement ¥7,277 million (down 16.1%) and net income attributable to owners of the parent through entertainment. totaling ¥4,292 million (down 28.2%). Although there was a phase during which growth leveled off, the Avex Group was The decrease in revenue and earnings was attributable to a variety of factors. Major able to sustain its ever-increasing growth by the implementation of structural reforms factors including a downturn in the number of live performances at large venues in the heralded as its Second Takeoff in 2005. Management & Live Business, a drop in album sales in the Music Business, and an Over the past few years, the operating environment for the Avex Group has been upswing in expenses in line with the revamp of a video distribution service in the characterized by a shrinking market for music software but a growing market for Video Business. entertainment centered on live events, anime and digital content. As indicated by our Net income attributable to owners of the parent contracted owing to the decline recent performance, however, the Avex Group has not been able to keep pace with in operating income and investments made in new digital music distribution services. all the changes in the business environment. Regarding shareholder returns, Avex has a policy of paying a minimum annual In order to overcome the issues that arose while advancing our Mid-Term dividend of ¥50 per share while targeting a consolidated payout ratio of at least 35%. Strategy 2018 announced in the previous year and accelerate growth further, we In accordance with this policy, the Company distributed a dividend of ¥50 per share decided to reset the timeframe of our management plan, and unveiled a new growth for the fiscal year ended March 31, 2016, for a consolidated payout ratio of 50.1%. strategy in May 2016 called “avex group growth strategy 2020—towards an innova- tive future of entertainment.” Positioning the formulation of the strategy as its Third Takeoff, the Avex Group will work to further improve its corporate value by imple- menting Companywide reforms relating to strategy, organization and principles.
Music (software, distribution) market*1 Live event market*2 Anime market*3 Digital (video distribution) market*4
(¥ billion) (¥ billion) (¥ billion) (¥ billion) 600 Annual contraction 400 Roughly doubled in size 2,000 About 1.3x larger in size 200 About 1.9x larger in size in market over past four years over past four years over past four years (35% smaller than in 2007) 300 1,500 150
300 200 1,000 100
100 500 50
0 0 0 0 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’10 ’11 ’12 ’13 ’14 ’11 ’12 ’13 ’14 ’15
*1 Source: Recording Industry Association of Japan *2 Source: All Japan Concert & Live Entertainment *3 Source: The Association of Japanese Animations *4 Source: Nomura Research Institute, Ltd. Promoters Conference 5 avex group growth strategy 2020 1 Selection and Concentration in Growth Markets —towards an innovative future of entertainment
Position and Outline of Growth Strategy The Avex Group will tap into growth in the live event market and Live peripheral markets by leveraging its expertise as a leading producer Positioned as its “Third Takeoff,” the Avex Group has created the new “avex events of live events in Japan and partnerships with external parties. group growth strategy 2020” with plans to implement Companywide reforms to strengthen its growth strategy, reform the organization and review its princi- 1 Increase the number of live events by expanding our library ples. Avex is focusing on creating new hits while working to enhance profit- In areas where it is unable to act on its own, the Avex Group aims to increase the ability without relying solely on the hits. number of both Japanese and International live music events that it produces and manages on consignment, by eyeing partnerships with external parties. In Strengthening the Growth Strategy addition, we are aggressively expanding content, including major festivals over- Defining and Clarifying Key Business Fields seas, as well as theatrical shows and musicals. The Avex Group has identified growth markets in live entertainment, anime and 2 Strengthen businesses peripheral to live events and maximize earnings digital content, and will aggressively develop business in these markets. Avex aims per live event by entering new fields to expand business while thoroughly optimizing Companywide operations in order The Avex Group will reinforce operations peripheral to the live event business, to generate synergies between businesses. Leveraging our unique 360-degree including fan clubs, merchandise sales, ticket sales and sponsorship acquisi- business foundation, we will implement measures to create new hits. tions. Eyeing the “flow of people” to live events, the Avex Group intends to enter travel agency business, in a bid to increase earnings across all businesses that begin with live events, instead of just for live events.
Anime 3 Aggressively expand content as a platform provider 1 Selection and Concentration in Digital We aim to cover a broad range of genres by proactively offering platforms for mer- Live events Growth Markets content chandise and ticket sales in sports and other fields. In the live performance market, we aim to increase earnings opportunities by expanding content through the de-
Artists velopment of business that addresses the needs of content owners.
Packaged Merchandise/ products New FunFan Club
Content Creators
Music Education publishing
Management Other 2 Thorough Optimization of 3 New Measures to Companywide Operations Create Hits
6 Selection and Concentration in Growth Markets
The Avex Group aims to increase sales of content by expanding Digital Pushing ahead the digitization of Anime our 360-degree business in anime to include growing markets content entertainment business. such as game apps, merchandising and digital distribution.
1 Maximize sales with hit content 1 Establishing a growing presence as a video distribution platform We aim to improve the monetization of content and create a winning formula, by The Avex Group has established an advantage over domestic and foreign competi- increasing sales of merchandise and through game apps that feature popular tors, having solidified its position as the largest video distribution platform in Japan. content, while moving into other IP*. 2 Synergies among digital services and higher value added 2 Acquisition of new IP* and expansion of rights We aim to increase the value added of all our services by creating synergies We intend to develop and acquire rights to original anime and expand secondary within the Avex Group in video distribution, fan clubs, e-commerce and other usage channels such as overseas licensing business, distribution, merchandise digital services. sales, and game apps. 3 Aggressively tap into digital-related business opportunities outside the 3 Reinforce the content procurement business, centered on The Anime music and distribution businesses Times Company We aim to accelerate the expansion of business opportunities in live event ticket We aim to strengthen further synergy effect with “dTV” and “GEO CHANNEL,” and sales, fan clubs and merchandise sales by advancing the digitization of the en- also enhance our ability to provide anime content to external distribution services. tertainment business.
* IP: Intellectual property
2 Thorough Optimization of Companywide Operations
As we moved to expand business domains and strengthen each Systems for thoroughly optimizing Companywide operations business, we have optimized each business unit as a separate en- Framework for sharing information, resources and best practices tity, and in the process fell short of realizing the full potential of the Avex Group. We accordingly believe there is considerable scope for further monetization and cost reductions. In order to fully optimize Maximize Group synergies by thoroughly Companywide operations, we are working to maximize Group syn- optimizing Companywide operations ergies by rolling out a framework for sharing information, resources and best practices throughout the organization.
7 Organizational Reforms 3 New Measures to Create Hits Invigorating organizations and employees / designing a personnel evaluation system The Avex Group is implementing new measures to supplement methods used to date for creating hit content. We aim to dis- Avex Group Holdings is building a structure for carrying out its growth strategy by cover and nurture talent via new methods while making diverse, revising its personnel evaluation system and working to invigorate the organization groundbreaking content. and employees. The Company is changing its structure, where representative direc- tors were also in charge of business execution, to one that delegates authority to 1 Initiatives for diverse content corporate executives in charge of each business field, clarifying the division of deci- We are going back to the origins of the Avex Group in discovering and nurturing sion-making and supervision by the Board of Directors of the Company, and busi- talented performers, with the aim of discovering artists and creators able to im- ness execution by the corporate executives. Corporate executives in charge of each pact the entire world. We aim to maximize earnings opportunities centered on business of the Group will be appointed by the Company and clarified as managers creators by providing them with the opportunities and resources needed to spur responsible for business execution. These changes will create a structure that im- their growth, while leveraging the business foundation of the Avex Group. proves the speed of decision-making, clarifies responsibilities, fosters next-genera- tion managers, and advances Companywide optimization. 2 Overseas business development Looking ahead, the Avex Group is laying the groundwork for greater involvement Revisions to Our Principles in overseas markets, moving beyond its limited involvement to date, namely the Redefining our management philosophy and code of conduct import of content from Europe and the U.S. into Japan, and the export of content With the aim of maximizing Group value, Avex has decided to completely rewrite its from Japan to Asia. We are building an organization that will be able to discover, management philosophy and code of conduct in order to orient employees in the import and export content that aligns with the preferences and desires of local same direction and provide customers with pleasant surprises and excitement. We consumers, while strengthening coordination between Japan, the U.S., and Asia are redefining our management philosophy into one where the same values are from a central hub in North America. We aim to enhance our presence in Asia, shared by management and employees. By improving and encouraging internal especially in China, while adding momentum to the export of Japanese content, communications, and ensuring increased awareness, we aim to ultimately enhance mainly manga and anime. the value we provide to our customers. 3 Venture capital model We will invest in talented individuals who have the ambition to succeed in the The Avex Group is making every effort to provide customers with more surprises entertainment industry, with the aim of creating new hits and invigorating the and excitement with the aim of maximizing Group value while advancing the “avex entertainment industry. We will provide these talented individuals with the re- group growth strategy 2020—towards an innovative future of entertainment.” We sources and support systems to nurture their growth and development. As the appreciate the continued support of our shareholders and investors as we move factors behind hit content grow increasingly diverse amid changes in consumer forward on these initiatives. tastes and media, the Avex Group aims to create new hits in ways that break with tradition, through co-creation using its resources and functions, as well as open July 2016 innovation using external resources. Masato Matsuura Representative Director, CEO
8 New Management Structure (As of July 1, 2016)
Outside Director Director, Corporate Executive Director, Corporate Executive, COO Representative Director, CEO Director (Part-time) Outside Director Hiroyuki Ando Richard Blackstone Shinji Hayashi Masato Matsuura Toru Kenjo Kiichiro Kobayashi*
* The assignment of independent officers tasked with safeguarding the interests of ordinary shareholders is mandated by the Tokyo Stock Exchange.
Corporate Executives
Takahiro Miura Yasuhiro Yamamoto Hiroaki Ito Yoshiki Terashima Seiichi Hatamoto Tomoaki Sato Katsumi Kuroiwa Hideo Katsumata Masahiro Anan Shintaro Higuchi Toshiro Hayashi Hisaou Wakaizumi Hajime Shibata Akira Akutsu Yoshihito Aoki Shinta Yoshida Kimitaka Kato
9 At a Glance (Fiscal years ended March 31)
Net Sales Composition by Business
Music 38% Video 23% Management & Live 37% Others 2% ’15 ¥169.2 billion
38% 26% 34% 2% ’16 ¥154.1 billion
50 100 150 200 (¥ billion)
As of March 31, 2016
Music Business Video Business Management & Live Business Other Businesses
Group Companies Group Companies Group Companies Group Companies
• Avex Digital Inc. • Avex Digital Inc. • Avex Music Creative Inc. • Avex Planning & Development Inc. • Avex Music Creative Inc. • Avex Music Creative Inc. • Avex Management Inc. • Avex Nico Inc. • Avex Music Publishing Inc. • Avex Pictures Inc. • Avex Vanguard Inc. • Avex Taiwan Inc. • Avex Broadcasting & Communications Inc. • Avex Live Creative Inc. • Avex Hawaii, Inc. • UULA Inc. • Avex Sports Inc. • Avex Shanghai Co., Ltd. • The Anime Times Company • Avex Classics International Inc.
Sales Sales Sales Sales (¥ billion) (¥ billion) (¥ billion) (¥ billion) 80 50 80 4 41.8 61.2 55.7 2.9
40 25 40 2
0 0 0 0 ’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16
Operating Income Operating Income Operating Income Operating Loss (¥ billion) (¥ billion) (¥ billion) (¥ billion) 8 5.0 4 1 6.5
4 2.5 2 1.5 0
0.08 0 0 0 -1 (0.7) ’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16 ’14 ’15 ’16 10 Review of Operations Music Business The Music Business plans, produces, sells and distributes music content, and operates music publishing.
Music Business: Overview of the Fiscal Year Ended March 31, 2016 Market Size and Sales Breakdown In the fiscal year ended March 31, 2016, the Music Business generated sales of ¥61.2 billion, a decrease of 9.5% compared with the (Fiscal years ended March 31) previous fiscal year. In the Music Package sales fell 12.5% year on year to ¥41.9 billion, reflecting a decline in album sales, and Digital Music Package Market*1 254.4 254.1 (¥ billion) Music Distribution sales decreased 5.6% to ¥11.8 billion. Digital Music Distribution Market*1 The gross margin improved by 8.6 percentage points for Digital Music Distribution, owing to a higher ratio of back catalog sales, 47.0 (¥ billion) but worsened by 2.9 percentage points for Music Package. Accordingly, operating income in the Music Business contracted by 16.1% Subscription Market*2 43.6 12.3 to ¥6.5 billion. Net Sales (¥ billion) (¥ billion) Key Initiatives in the Fiscal Year Ended March 31, 2016 80 7.8 and Future Aims
60 Music Publishing and Others Amid a growing shift toward enjoying music through digital devices such as smartphones and tablets, the Avex Group is actively pro- posing new avenues to enjoy music that meet the diverse needs of its users with the aim of invigorating the entire music market. Digital Music Distribution 40 As one such new avenue, Avex pushed into the growing subscription music streaming market by launching AWA in May 2015 and LINE MUSIC in June 2015. Aiming to vitalize the market further, Avex is making available its musical content not only to its related ser- vices, but also to other competing streaming services so that users of other streaming ser- 20 Music Package vices can also enjoy its music catalog. *1 Source: Recording Industry The Avex Group has launched the “Sumapura Movie” and the “Sumapura Music” ser- 0 Association of Japan (One-year period up to December vices as new ways of enjoying the content for customers purchasing CD and DVD/Blu-ray ’15 ’16 of the previous year) *2 Part of the digital music distribution market packages. Using a free app with this service, customers can immediately enjoy their pur- chased content from smartphones and tablets via download and/or streaming. The service Indicators of Music Packages* Sumapura Movie / also offers 360-degree panoramic videos, a new form of entertainment that conventional (Fiscal years ended March 31) Sumapura Music disc media could not offer. ’15 ’16 Also from the perspective of its copyright business, the Avex Group merged its equity- 2,853 3,035 Average Price (Yen) method affiliated companies e-License Inc. and Japan Rights Clearance Inc. in February Albums 7,050 4,978 Units (Thousands) 2016 in an effort to flexibly address the changing needs of users. The surviving company’s name was subsequently changed to NexTone, Inc. NexTone aims to contribute to the further 971 829 Average Price (Yen) Singles development of the music industry and culture by realizing an approach to copyright man- 9,048 7,876 Units (Thousands) agement appropriate for a new era.
DVDs / 5,334 5,333 Average Price (Yen) The Avex Group will flexibly adapt to the evolution of user audio/visual environments and technology in the years ahead while working to create hit content under “avex group Blu-ray Discs 2,221 2,382 Units (Thousands) growth strategy 2020.” NexTone, Inc. *Indicators of music packages do not include back catalog sales.
11 Video Business The Video Business plans, produces, sells and distributes video content, and distributes films.
Video Business: Overview of the Fiscal Year Ended March 31, 2016 Market Size and Sales Breakdown In the fiscal year ended March 31, 2016, sales in the Video Business increased 4.9% to (Fiscal years ended March 31) ¥41.8 billion, reflecting an increase in the number of subscribers to video distribution ser- 229.9 vices and the anime “Mr. Osomatsu” becoming a big hit. Video Distribution sales rose 2.0% Video Package Market* 218.1 (¥ billion) to ¥32.1 billion, and Video Package sales expanded 43.7% to ¥14.4 billion. Operating income declined 95.3% year on year to ¥0.8 billion due to expenditures to procure content as well as higher spending on advertising for the revamp of the dTV video Net Sales distribution service. (¥ billion) 50 Key Initiatives in the Fiscal Year Ended March 31, 2016 40 Video Package and Future Aims The video entertainment world is undergoing significant changes driven by technological 30 innovation such as the development of distribution infrastructure and devices that allow 20 users to enjoy audio/visual content anytime, anywhere. Against this backdrop, all eyes have Video Distribution turned to the video distribution market as the leading edge of mobile digital entertainment. 10 In light of these market conditions, Avex Digital Inc. (ADG) provided know-how related GEO CHANNEL * Source: Japan Video Software to systems development and content procurement and organization to Geo Corporation 0 Association (One-year period up to December for its GEO CHANNEL subscription video distribution service, which launched in February ’15 ’16 of the previous year) 2016. ADG will work to further enhance convenience and content as Japan’s largest video distribution service provider, which includes “dTV” and “UULA.” In addition, ADG will under- Indicators of Video Business Top screen of the take initiatives to generate additional business opportunities in the digital business field (Fiscal years ended March 31) GEO CHANNEL app promoted under “avex group growth strategy 2020” by incorporating the latest technology ’15 ’16 and identifying user needs. 466 475 ARPU (Yen) Moreover, Group company Avex Pictures Inc. (API) engages in such activities as the d-VIDEO+BeeTV 5.36 5.51 Subscribers (Millions) production and sale of anime and other video content. API has made a major contribution to the Group’s earnings growth owing to sales of packaged videos of anime TV series “Mr. 467 467 ARPU (Yen) UULA Osomatsu,” which has become a major hit in all categories, including video distribution, live 1.57 0.88 Subscribers (Millions) events, merchandising, and game apps.
DVDs / 5,476 5,228 Average Price (Yen) Leveraging its experience and know-how cultivated through such hit content to create Blu-ray Discs* new hits, API focuses on developing and acquiring new rights, and will also take steps to “Mr. Osomatsu” 861 801 Units (Thousands) © Fujio Akatsuka/ maximize content sales. Mr. Osomatsu Project *Indicators of DVDs / Blu-ray discs do not include back catalog sales.
12 Management & Live Business The Management & Live Business involves the management of artists and talents, merchandising, operation of fan clubs, as well as the planning, production and operation of concerts and events.
Management & Live Business: Overview of the Fiscal Year Ended March 31, 2016 Market Size and Sales Breakdown In the fiscal year ended March 31, 2016, the Management & Live Business recorded sales (Fiscal years ended March 31) of ¥55.7 billion, a year-on-year decrease of 14.7%. Sales of Live Concerts fell 24.9% to Live Concert Market* 318.6 (¥ billion) ¥32.1 billion, owing to a decline in the number of live events. As areas with high synergies with Live Concerts, sales decreased 10.3% and 0.2% in Merchandising and Fan Club op- erations, to ¥11.3 billion and ¥4.6 billion, respectively. Management services reported sales of ¥17.0 billion, unchanged from the previous fiscal year. Net Sales 274.9 Operating income dropped 42.7% to ¥1.5 billion as a result of a decline in audiences, (¥ billion) 80 owing to a decrease in the number of shows at large venues.
Fan Club and Others 60 Key Initiatives in the Fiscal Year Ended March 31, 2016 Merchandising and Future Aims
40 Management The live event market continues to expand as consumers become more interested in ac- tual “experiences”. Avex Live Creative Inc. (ALC) in charge of the Live Concert Business, has focused on expanding content amid these business conditions. With the aim of further 20 Live Concerts enhancing its content and library, ALC will expand into other non-music categories by le- * Source: All Japan Concert & Live veraging its know-how cultivated to date mainly in the music-oriented areas of live perfor- a-nation stadium fes. 0 Entertainment Promoters Conference mance productions, ticket sales, merchandising, and fan clubs operations. ’15 ’16 (One-year period up to December of the previous year) To strengthen initiatives involving “Yahoo! Ticket,” a ticket sales service operated through its alliance with Yahoo Japan Corporation, ALC and Yahoo Japan Corporation Indicators of Management & Live Business jointly established Passrevo Corporation in May 2016. In addition to music events, we plan (Fiscal years ended March 31) to diversify into other types of event tickets in such areas as the leisure field, which consists ’15 ’16 of sports and theme parks, etc.
Concert Ticket 9,234 9,025 Average Price (Yen) In the Management business, we manage and nurture a diverse range of people, ULTRA JAPAN from celebrities to athletes. While drawing out each and every person’s unique traits and
Audience 3.55 2.46 (Million people) individuality, we aim to discover and foster talented entertainers that meets diversified likes and tastes. Subscribers By pursuing these initiatives, Avex will work to further expand earnings generated from Fan Club 1,309 1,426 (Thousands) live events, promoted as a growth market under “avex group growth strategy 2020.” At the same time, Avex will work with talented individuals to help with the creation of hit content. Passrevo Corporation
13 Other Businesses Other Businesses discover and nurture new artists, operate schools, run a restaurant business, and manage and maintain real estate.
Overview of the Fiscal Year Ended March 31, 2016 In Other Businesses, the Avex Group operates schools, a dance business, restaurants, and a real estate business. In the fiscal year ended March 31, 2016, sales in Other Businesses fell 9.3% to ¥2.9 billion. Operating losses totaled ¥0.7 billion, basically unchanged from the previous fiscal year.
Key Initiatives in the Fiscal Year Ended March 31, 2016 and Future Aims The scope of the dance industry is expected to continue expanding owing to the impact of dance Avex Artist Academy in Tokyo avex life design lab classes becoming mandatory in the physical education curriculums of junior high schools in Japan. With this optimistic outlook, Avex Planning & Development Inc. (APD) aims to grow the dance and school businesses with a system of skill-based classes for students from novices to advanced danc- ers, through Avex Artist Academy, which operates in four locations in Japan. In order to target an even broader age range, APD launched the “avex life design lab” in Octo- ber 2015 to give adults an opportunity, place and time to learn and socialize in a relaxed atmo- sphere. We will hold unique classes featuring lessons by the individuals on the front-lines of their profession. Moreover, to lay the groundwork for growth in new business fields, we established Avex Nico Inc. (ANC) in June 2015 to provide various hands-on programs for assisting mothers with small children as well as working women. ANC will proactively provide “cotsumic—its proprietary method of pelvic exercises for women after childbirth—and introduce the “bambeat!” hands-on music play program for “cotsumic” pelvic exercises for women “bambeat!” hands-on music play program preschoolers at nursery schools, kindergartens, local governments, and companies. after childbirth for preschoolers In addition, we established Avex Travel Creative Inc. in June 2016 with the aim of helping to maxi- mize profitability in the “Live events” under the “avex group growth strategy 2020.” Eyeing the travel business peripheral to entertainment as a growth opportunity, the new company will provide new ways of enjoying travel by utilizing the Group’s content and live entertainment platform.
Based on the concept of “travel and watch,” we offer a new form of travel for pleasure by combining live events with sightseeing under a new “music trip” brand.
14 The Avex Group’s CSR Activities
At the Avex Group, we engage in CSR activities through our business of providing entertainment with the aim of “becoming a company that creates an exciting experience.”
Reconstruction Assistance Support for Para-Sports —Cooperating with the Parent/Child Exercise Fukushima Genki Up Project —Actively hiring physically challenged athletes
Driven by our corporate mission to bring excitement and dreams Since 2008, Avex has been actively recruiting top athletes who, despite their disabilities, are at the forefront to life via entertainment, we are making an ongoing effort to help of sports. Today, we support 11 athletes and 1 team competing in 8 different sports. In April 2015, Avex out in the areas devastated by the Great East Japan Earthquake. concluded an official partnership agreement with the Japanese Para-Sports Association. Avex was certified Avex has held the Parent/Child Exercise dance events in coopera- as a Fiscal 2015 Tokyo Sports Promotion Company in recognition of its social contribution initiatives in the tion with the Fukushima Minyu Shimbun newspaper at six loca- sports field, which include lending forward-looking support for training areas tailored to physically challenged tions in Fukushima Prefecture since March 2015. This event gives athletes, disseminating information on physically challenged athletes in-house, and holding yoga lessons for children a chance to get the exercise they need while deepening employees. Looking ahead, we will promote various activities to enable physically challenged athletes to bonds between parents and children who have been living apart reach their dreams and provide excitement through their performances. since being evacuated. At all seven events, around 1,740 parents and children had a fun time dancing together.
—Dance Lessons for Elementary and Avex athletes / team Junior High School Students in Disaster-Hit Areas (As of May 2016) Kento Masaki Yui Kamiji Airi Ike
We have been donating 4-5 music CDs to 21 elementary and junior high schools in Minami-Soma every month since January 2014 and engaging in a number of other activities. In June 2014, we started photo by ShugoTAKEMI dispatching professional dancers to these areas. We launched this Yuji Takada Keiichi Sato Chika Uemura Yui Kamiji dance program with an eye to not only providing kids with an op- Yuka Kiyama Kento Masaki Hiroki Saegusa Saki Takakuwa portunity to get some exercise, but also to give them some insights Airi Ike Shizuka Hangai Yoshikazu Kanaji Minemura Para Swim Squad into the world of entertainment in order to enrich their lives. We will continue this initiative onward with the hope of bringing joy to the lives of more elementary and junior high school children. Activities and achievements (Fiscal year ended March 31, 2016) Track record of dispatching dancers (Fiscal year ended March 31, 2016) A vex Group Holdings concluded an official partnership agreement Haramachi Dai-san Elementary School, Haramachi Dai-ichi Junior High School, June November with the Japanese Para-Sports Association (April) Odaka Elementary School Kashima Junior High School Y ui Kamiji certified as the youngest female wheelchair tennis player to reach Oomika Elementary School, Ooda Elementary School, July December the Grand Slam in the Guinness World Records (September) Haramachi Dai-san Elementary School Ishigami Dai-ichi Elementary School Haramachi Dai-ni Elementary School, Odaka Elementary School, Y uka Kiyama and Saki Takakuwa won bronze medals at the IPC Athletics World Championships (October) August January Haramachi Dai-ichi Junior High School Ishigami Junior High School A vex and Aeon Mall co-sponsored the Let’s Try Para Sports Ishigami Junior High School, Takahira Elementary School, September February with World Top Athletes Ice Sledge Hockey trial event (December) Kashima Junior High School Ishigami Dai-ichi Elementary School A vex Group Holdings certified as a Fiscal 2015 Tokyo Sports Promotion Company (December) Yasawa Elementary School, October Haramachi Dai-san Junior High School 12 schools in total A vex was a sponsor for the International Women’s Wheelchair Basketball Friendship Games (February) 15 Compliance Policy
At Avex, the following compliance policy is positioned as the cornerstone of all actions and judgments to conduct business activities.
Don’t cheat. Don’t steal from others. 1. Engage in fair, transparent and open competition. Protect intellectual property rights of the company, 2. Do not contradict the legitimate interests of the company to and respect that of others. promote your own or a third party's interests. 3. Do not employ dishonest means in business activities. Don’t rely on power. 1. Do not associate with anti-social forces or groups that pose a threat Don’t bully. to order and safety in civil society. 1. Respect human rights and do not engage in acts of discrimination. 2. Build highly transparent relationships with politics and government. 2. Interact with business partners in a proper, honest, fair, and open manner. Don’t be selfish. 1. Be conscious of the support received from colleagues and the Don’t play around with other people’s money. need to reciprocate. Do not socialize with business partners in ways that depart from 2. Refrain from insider trading. sound commercial practice or common sense. Don’t betray your colleagues. Don’t lie. 1. Do not speak or behave in ways that damage trust, credibility or honor. 1. Disclose accurate information. 2. Manage corporate secrets and personal information appropriately, 2. Engage in proper promotion and advertising. and avoid unauthorized disclosure and leakage.
Don’t be arrogant. Take pride in the team Comply with laws and regulations, and respect social norms. 1. Create a working environment where employees find it comfortable to work. Don’t be wasteful. 2. Actively contribute to society as a good corporate citizen. Recognize the importance of environmental issues and make effective use of company assets.
Above all, love and admire talent. (Never be jealous.)
16 Corporate Governance
The Avex Group is acting in a united manner towards “an innovative future of entertainment,” by focusing on the growth markets of “Live,” “Anime,” and “Digital,” in accordance with the newly formulated “avex group growth strategy 2020,” working to thoroughly optimize the Company as a whole, and implementing measures for the creation of new hits. To push forward with these growth strategies, the Group recognizes that it is essential to build a more robust corporate governance framework in order to properly meet the expectations and trust placed in us by our shareholders and all other stakeholders. The Group’s basic philosophy of corporate governance is to build a management framework that provides the functions of accurate managerial decision-making, and prompt and appropriate business execution, and the adequate monitoring of these functions, while at the same time working to maintain and improve corporate ethics.
Overview of Corporate Governance Structure tices, and ethical transgressions occurring within Avex. The Avex Group uses the corporate auditor system. There is a Board of Auditors with As regards the risk control structure, the Group has developed a structure to provide risk 4 members, including 2 outside auditors, that monitors the performance of the directors. In management by establishing risk management regulations, specifying divisions bearing execu- addition, there is a Board of Directors with 6 members, including 2 outside directors, which tive responsibility for risk, designating risks that may be faced by Avex and Group companies meets once a month, as a general rule, to decide on the main issues facing Avex and its Group and preparing their countermeasures, and appointing directors with responsibility for risk con- companies. Comprising corporate executives and charged with ensuring the control and flex- trol to manage the comprehensive risks that face the Group as a whole. ibility of Group management, Management Meetings are, as a general rule, convened weekly Furthermore, concerning this risk management approach, we have arranged that the Inter- to discuss significant matters related to the management and business execution of the Avex nal Affairs Department conducts audits of the risk control situation facing the Company and its Group. Furthermore, to ensure proper business operations by Avex and its Group companies, Group companies and reports its findings to the representative director and CEO and to the the Internal Affairs Department conducts monitoring in the form of operational audits. Mean- auditors. When potential issues are found, the Department takes steps to resolve them in part- while, management control staff members are dispatched to all Group companies to carry out nership with the Risk Management Division and other relevant divisions. This system ensures appropriate monitoring of the state of their business activities in an effort to maintain and im- that the risk control structure remains robust, and is constantly maintained and improved. prove the Group’s governance system. Furthermore, with the aim of ensuring the effectiveness and soundness of business opera- Internal Audits and Auditors’ Audits tions, the Group has established 3 committees, details of which are outlined on page 19. Reporting directly to the representative director and CEO, the Internal Affairs Department is responsible for the Company’s internal audits. This department is made up of 6 staff includ- Other Matters Relating to Corporate Governance ing the department general manager. In addition to certified public accountants, department The Group has a system of internal controls for increasing the effectiveness and efficiency of members also comprise personnel with experience in business operations including key its business operations and ensuring the reliability of its financial reporting. In accordance with positions at the Company and Group subsidiaries. The Internal Affairs Department oversees its “Fundamental Policy for Internal Controls,” the Group checks the status and configuration operational audits of the Company and Group subsidiaries. After detailed deliberations with of its system of internal controls every fiscal year. Moreover, to maintain and improve its sys- departments responsible for putting in place the Group’s internal control structure and sys- tem, the Group sets a compliance policy that underlies its corporate ethics stance, and all tems, the Internal Affairs Department checks the status of control for each operation. In the executives and employees are made aware of and fully understand the importance of strict event that an issue is identified, the Department puts forward recommendations for reme- compliance with laws and regulations. Furthermore, the Group has established an Internal dial action and improvement while also engaging in the necessary follow-up. Moreover, the Reporting System (“Helpline”) and allocated external lawyers and industry counselors to the Internal Affairs Department exchanges opinions with the independent auditor on a timely Helpline to continually strive to guard against infractions of laws and regulations, unfair prac- basis and submits reports to the representative director and CEO as well as auditors. In
17 addition to ensuring that information is shared among all relevant parties, the Department is good faith on the part of the non-executive directors and outside auditors, as well as the ab- actively engaged in bringing about an early resolution to any issues. sence of any substantial losses pertaining to their respective duties. Auditors’ audits are carried out by 2 full-time auditors and 2 outside auditors. Full-time auditors boast considerable knowledge in the conduct of business operations having held key Executive Compensation management positions at either the Company or its Group subsidiaries as well as the positions Avex has adopted a three-person Compensation Committee chaired by an outside director of director and representative director at Group subsidiaries. Moreover, auditors consistently and with an additional outside director and a director as members. The committee reviews attend meetings of the boards of directors of the Company and Group subsidiaries as well as the contents of the executive compensation system and its procedures for determining other important meetings while monitoring management from a fair and objective perspective. compensation. This has resulted in a highly transparent executive compensation system that In principle, the Board of Auditors meets once a month and also works diligently to enhance incorporates an objective, external viewpoint. auditing operations with the vigorous exchange of information with the independent auditor. Executive compensation under this system is composed of basic remuneration, perfor- mance-linked compensation and stock options. The performance-linked compensation is Outside Directors and Outside Auditors paid to directors (excluding part-time and outside directors) and linked to the consolidated Avex appoints 2 outside directors and 2 outside auditors. When these outside directors and net income attributable to owners of the parent for each business term. Avex also offers auditors are selected, Avex stipulates the Independent Assessment Standards stated on page stock options for directors (excluding part-time and outside directors) who are judged to 19 and assesses their independence. In an effort to strengthen the management and corporate have made significant contributions to performance. governance framework of Avex, these outside officers are selected on the basis of their charac- Total Amount of Remuneration for Directors and Auditors ter and insight in addition to their experience. The current outside officers hold qualifications as (Fiscal year ended March 2016) Remuneration breakdown (Millions of yen) certified public accountants or hold a Ph.D. in management studies, and possess the knowl- Total remuneration Basic Total number edge required to execute their professional duties. These attributes serve the officers well in Classification (Millions of yen) remuneration Stock options Bonus of payees Directors their work to bolster and enhance Avex’s management and corporate governance structure. 1,051 543 141 366 5 (Excluding outside directors) The outside directors attend the meetings of Avex’s Board of Directors, which are held Auditors 39 36 — 3 2 once a month as a general rule. Along with monitoring the status of management, the outside (Excluding outside auditors) Outside directors and 22 22 — — 4 directors render advice and exchange opinions when necessary with respect to business deci- auditors sions. The outside auditors also attend the monthly meetings of the Board of Directors and the Board of Auditors meetings, which are also held once a month as a general rule, and so are Financial Audits aware of the situation regarding business execution by directors of Avex and its Group com- Avex has a contract with Deloitte Touche Tohmatsu LLC to conduct financial audits as stipu- panies. The outside auditors also verify the results of internal audits carried out by the Internal lated in the Companies Act and Japan’s Financial Instruments and Exchange Law. Affairs Department, as well as the audit reports made by the accounting auditor and of the structural condition of the system for internal controls. This knowledge enables them to liaise Status of IR Activities with the relevant departments to ensure that the necessary actions are taken to make correc- Having in place an IR system to work on its sustainable growth and medium- to long-term tions to and ensure the appropriateness of the Group’s business operations. improvements in its corporate value, Avex proactively provides forums for dialog with its share- Pursuant to Article 427, Paragraph 1 of the Companies Act of Japan, Avex has entered holders and investors to gain their understanding of the Company’s management strategies into contracts with all of the non-executive directors and outside auditors to limit the liability of and performance. Avex holds financial result briefings for analysts and institutional investors each non-executive director/outside auditor to Avex under Article 423, Paragraph 1 of the after the announcements of these financial reports and the second-quarter earnings. Also same act. The amount of liability set forth in each contract is the minimum liability stipulated by proactively holding smaller-scale meetings, Avex is working to improve communications with Article 425, Paragraph 1 of the Companies Act. These limitations of liability are prefaced on analysts and institutional investors.
18 Structure of Corporate Governance Units and Internal Control System (As of July 1, 2016)
General Shareholders’ Meeting Report Oversight of performance Independent Accountant Board of Auditors Report of ethical judgment of Board of Directors products and content Questions/consulting collaboration 2 Production Ethics Committee Extensive Confirms suitability of compensation 1 Compliance Committee Management Meetings for directors and corporate auditors Opinions and reports 3 Compensation Committee
Instructions Report Report
Financial auditing CEO Director for Compliance
Global Artist Development Office of the CEO AffairsInternal Instructions Report
Global IP International Strategic Development Monitoring Compliance Committee Office
General Affairs & Personnel Management Information Report Administration Administration Corporate Planning Legal Affairs
Helpline Group Companies
1 Compliance Committee 2 Production Ethics Committee 3 Compensation Committee The Compliance Committee, which includes members from outside The Production Ethics Committee is comprised of members of the The Compensation Committee consists mainly of independent the Company such as lawyers, deliberates on the main compliance- Management Meetings and deliberates on any doubtful points and directors, who examine the propriety of executive compensation related issues facing the Company. The Committee also strives to problems that arise with regard to the presentation and reproduction from an objective standpoint. effect improvements by checking and discussing the content of the of the music and visual images handled by the Group, in addition to reports made to the internal Helpline system. considering the response guidelines to be followed.
“Independence Assessment Standards” for Outside Directors and Outside Auditors
Avex deems that the outside officer (outside director and outside auditor) is independent if he/she does not meet any of the following criteria. a Executive of the Company or its subsidiary (hereinafter the "Group"). d The major shareholder of the Company*1 b Major client of the Group (client with annual total amount of transactions exceeding 1% of the Group's con- (or an executive of said major shareholder if the shareholder is a legal entity). solidated net sales) or an executive thereof, or major supplier of the Group (supplier with total amount of e An executive of the Group's major lender*2 transactions exceeding 1% of their consolidated net sales) or an executive thereof. f Those that correspond to any of the items (a) to (e) during the past 10 years. c Consultant, accountant or legal professional who receives a large amount of monetary consideration or g Relatives (spouse or relatives within the second degree of kinship) of those who correspond to any of the other property (annual total amount of transactions exceeding 1% of their consolidated net sales) from the items (a) to (f), (excluding insignificant persons). Group besides compensation as director/auditor, or who has concluded an advisory contract (or a person *1 A major shareholder is a shareholder who possesses more than 10% of the voting rights held by all shareholders, under his/her name or who belongs to such organization and is directly in charge of the Group if the entity receiving the assets is another’s name. an organization such as a legal entity or an association). *2 A major lender is a group of financial institutions from which the Group receives loans (those related to the consolidated group to which the actual lender belongs), where the total amount of loans made by the Group to the said group of financial institution, as of the end of the previous fiscal year, exceeded 5% of the Group's total consolidated assets. 19 Directors, Auditors and Corporate Executives (As of June 27, 2016)
MASATO MATSUURA [ Representative Director, CEO ] HIROYUKI ANDO [ Outside Director ]
Apr. 1988 Founded the company; named Director Apr. 1986 Joined HOYA Corporation Mar. 1991 Named Senior Managing Director Jan. 1992 Joined Sanno Institute of Management as a Researcher of Headquarters for Consulting and Training Sep. 2004 Named Representative Director, President Apr. 2004 Concurrent faculty staff of Sanno Institute of Management Apr. 2010 Named Representative Director, CEO, Avex Group Holdings Inc. (current) Sep. 2005 Obtained Master of Science from University of Wales, U.K. Oct. 2013 Named Representative Director, Chairman, Avex Management Inc. (current) Apr. 2006 Principal Researcher, Headquarters for Consulting and Training of Sanno Institute of Management Dec. 2014 Named Representative Director, Chairman, AWA Co. Ltd. (current) Apr. 2008 Professor, Graduate School (MBA Course) of Sanno Institute of Management Nov. 2009 Senior Consultant of Keio Academic Enterprise. Co., Ltd. (Keio Marunouchi City Campus) SHINJI HAYASHI [ Director, Corporate Executive, COO ] May 2013 Retired from Keio Academic Enterprise. Co., Ltd. and was appointed as a full-time consultant May 1990 Joined the company of Keio Marunouchi City Campus (current) Apr. 1993 Named Director Jun. 2016 Named Outside Director, Avex Group Holdings Inc. (current) Jun. 1996 Named Managing Director [ Auditor (Standing) ] Apr. 2010 Named Representative Director, CBO (Chief Business Administration Officer), SHINKICHI IWATA Director in charge of compliance, Avex Group Holdings Inc. (current) Apr. 1993 Joined the company Jun. 2016 Named Director, Corporate Executive, COO, Compliance Committee Chairman, Compensation Mar. 1995 Named Director Committee member, Director in charge of risk management, Avex Group Holdings Inc. (current) Jun. 2002 Named Representative Director, President, Avex Network Inc.*1 Jun. 2005 Named Auditor, Avex Group Holdings Inc. (current) RICHARD BLACKSTONE [ Director, Corporate Executive ]
Jun. 1987 Attorney-at-law, Marshall, Morris & Wattenberg NOBUYUKI KOBAYASHI [ Auditor (Standing) ] Aug. 1989 Director of Business Affairs, Zomba Enterprises Oct. 1998 Joined Avex Distribution, Inc.*1 Jun. 1997 Head of Creative & Head of Business Affairs, Zomba Enterprises Apr. 2004 Named Executive Director, Avex Distribution, Inc.*1 Aug. 2003 President of Zomba/BMG, North America Jul. 2011 Named Corporate Executive, Head of Administration Division, Avex Marketing Inc.*1 May 2005 Worldwide Chairman/CEO of Warner Chappell Music Publishing Jun. 2013 Named Auditor, Avex Group Holdings Inc. (current) Sep. 2010 Chief Creative Officer of BMG Rights Management (U.S.) Feb. 2012 Executive Vice President of Creative & Business Development, BMG (U.S.) TOSHIAKI KATSUSHIMA [ Outside Auditor ] [ Certified Public Accountant ] [ Certified Tax Accountant ]
Jan. 2015 CEO of Blackstone Entertainment (current) Feb. 1990 Representative, Deloitte Touche Tohmatsu*2 Feb. 2016 Named Corporate Executive, Avex Group Holdings Inc. Oct. 2003 Opened Katsushima Toshiaki Certified Public Accountant and Jun. 2016 Named Director, Corporate Executive, Avex Group Holdings Inc.; Tax Accountant Office as Principal Proprietor (current) Representative Director, President, Avex International Inc.; Jun. 2006 Named Outside Auditor, Avex Group Holdings Inc. (current) Representative Director, Vice President, Avex International Holding Corporation (current) Apr. 2007 Outside Corporate Auditor, SKY Perfect JSAT Holdings Inc. (current) Jun. 2007 Named Compliance Committee member, Avex Group Holdings Inc. (current) TORU KENJO [ Director (Part-time) ] Nov. 1993 Established Gentosha Inc., named Representative Director, President (current) AKIHIRO TAMAKI [ Outside Auditor ] [ Certified Public Accountant in the U.S. ]
May 2009 Named Chief Advisor, Avex Broadcasting & Communications Inc. (current) Jun. 2006 Establishment of PSY-fa Co., Ltd., Representative Director (current) Jun. 2010 Named Director, Avex Group Holdings Inc. (current) Jun. 2008 Outside Auditor, Avex Group Holdings Inc. (current) Jun. 2010 Outside Director, SBI Holdings Inc. (current) KIICHIRO KOBAYASHI [ Outside Director ] Dec. 2014 Compensation Committee member, Avex Group Holdings Inc. (current) Apr. 1980 Joined Mitsukoshi, Ltd. (now Isetan Mitsukoshi Holdings Ltd.) Mar. 1989 Obtained MBA from Keio Business School Apr. 1989 Senior Researcher, Management Consulting Division of Mitsubishi Research Institute, Inc. Sep. 1996 Obtained Ph.D. in Business Administration from Keio Business School Apr. 1997 Visiting Scholar of Harvard Business School Apr. 2006 Professor of Keio University Graduate School of Business Administration / The assignment of independent officers tasked with safeguarding the interests of ordinary shareholders is mandated by the Tokyo Business School (current) Stock Exchange. Jun. 2016 Named Outside Director, Compensation Committee Chairman, Avex Group Holdings Inc. (current) *1 Currently Avex Music Creative Inc. *2 Currently Deloitte Touche Tohmatsu LLC
20 Corporate Data and Investor Information
Corporate Data (As of March 31, 2016) Stock Information (As of March 31, 2016) Company name: Avex Group Holdings Inc. Number of shares issued: 45,000,000 Established: April 11, 1988 Stock exchange listing: First Section of Tokyo Stock Exchange Paid-in capital: ¥4,229.6 million Stock code: 7860 Number of employees: 271 (Number of Group employees 1,453) Trading unit: 100 shares Headquarters: 1-6-1, Roppongi, Minato-ku, Tokyo 106-6036, Japan General Shareholders’ Meeting: June URL: http://www.avex.co.jp/e_site/ Transfer agent: Mitsubishi UFJ Trust and Banking Corporation, Corporate Agency Division 7-10-11 Higashisuna, Koto-ku, Tokyo 137-8081, Japan
Top 10 Shareholders (As of March 31, 2016) Breakdown of Shareholders (As of March 31, 2016)
Number of shares held Other Japanese corporations Treasury stock T'S Capital Inc. 2,250,000 8,176,515 shares 2,059,724 shares 18.17% 4.58% Max 2000 Inc. 2,050,000
Total Japanese CyberAgent, Inc. 2,000,000 Foreign investors 45,000,000 financial institutions 11,795,249 shares shares 6,981,284 shares GOLDMAN, SACHS & CO. REG 1,992,800 26.21% 15.51%
Toshio Kobayashi 1,157,818 Japanese Japanese individual investors and others securities companies Japan Trustee Services Bank, Ltd. (Trust account) 1,119,300 14,971,419 shares 1,015,809 shares 33.27% 2.26% The Master Trust Bank of Japan, Ltd. (Trust account) 1,114,900
Daiichikosho Co., Ltd. 1,020,000
Masato Matsuura 857,924
THE BANK OF NEW YORK-JASDEC TREATY ACCOUNT 810,200
Notes: 1. In addition to the above table, there are 2,059,724 shares of treasury stock owned by the Company. 2. Representative Director, CEO Masato Matsuura serves as a Representative Director of Max 2000 Inc.
IR data is also available on the Company’s website. (http://www.avex.co.jp/e_site/ir/) 21 Financial Section
11-Year Summary 23 Management Discussion and Analysis 24 Risk Factors 26 Consolidated Balance Sheet 27 Consolidated Statement of Income/ Consolidated Statement of Comprehensive Income 28 Consolidated Statement of Changes in Equity 29 Consolidated Statement of Cash Flows 30 Segment Information 31
22 11-Year Summary
Fiscal years ended March 31
(Millions of yen) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 For the year Net sales 89,783 101,626 104,639 117,819 118,142 111,561 121,027 138,764 156,935 169,256 154,122 Operating income 8,650 8,691 8,510 6,480 5,566 11,343 12,263 14,029 10,427 8,675 7,277 Net income (loss) attributable to 4,478 3,063 909 (905) 975 5,308 4,934 7,322 6,791 5,975 4,292 owners of the parent Cash flows from operating activities 3,450 1,210 7,293 1,718 9,093 11,335 13,171 10,115 6,451 11,337 8,169 Cash flows from investing activities (11,644) (18,156) (980) (3,508) (2,572) (2,422) (2,403) 2,495 1,780 (1,330) (6,778) Free cash flow (8,194) (16,946) 6,313 (1,790) 6,521 8,913 10,768 12,610 8,231 10,007 1,391 Cash flows from financing activities 8,275 17,929 (2,552) 5,067 (9,982) (7,541) (7,370) (9,038) (7,382) (3,040) (5,969) At year-end Cash and cash in banks 5,486 6,371 10,093 13,166 9,717 11,039 14,422 17,974 18,757 25,699 21,107 Equity 33,446 33,699 32,812 29,760 30,266 33,547 36,932 48,878 53,347 53,394 52,392 Total assets 83,826 105,894 102,124 107,013 94,593 93,315 99,258 108,756 114,390 117,564 111,208 Current assets 37,521 45,069 45,819 52,748 39,999 40,377 49,271 54,004 60,112 69,160 63,620 Current liabilities 42,232 57,543 40,117 42,089 33,095 35,977 51,466 53,369 55,723 59,460 55,478 Interest-bearing liabilities 19,500 39,000 38,175 45,069 34,813 29,053 23,698 15,846 11,319 10,205 9,220
Amounts per share (yen) Net income (loss) 93.79 71.33 21.17 (21.09) 22.72 123.60 115.06 172.69 161.51 141.90 99.88 Equity 768.32 772.31 751.05 684.89 668.82 747.13 821.97 1,059.45 1,150.22 1,131.29 1,144.82 Cash dividends 40.00 40.00 40.00 40.00 40.00 40.00 40.00 55.00 60.00 50.00 50.00
Key ratios (%) Operating income margin 9.6 8.6 8.1 5.5 4.7 10.2 10.1 10.1 6.6 5.1 4.7 Net income (loss) margin 5.0 3.0 0.9 (0.8) 0.8 4.8 4.1 5.3 4.3 3.5 2.8 ROE 14.1 9.2 2.8 (2.9) 3.4 17.5 14.7 18.4 14.6 12.2 8.7 ROA 6.0 3.2 0.9 (0.8) 1.0 5.6 5.1 7.0 6.1 5.2 3.8 Current ratio 88.8 78.3 114.2 125.3 120.9 112.2 95.7 101.2 107.9 116.3 114.7 Shareholders’ equity ratio 39.9 31.3 31.6 27.5 30.4 34.4 35.4 40.9 42.4 41.9 44.2 D/E ratio (times) 0.6 1.2 1.2 1.5 1.2 0.9 0.6 0.3 0.2 0.2 0.2
23 Management Discussion and Analysis
Operating results form strongly, increasing in scale by 15.9% to Status of consolidated assets, liabilities, During the fiscal year ended March 31, 2016, the ¥318,634 million (January to December 2015; ac- and net assets Japanese economy continued to trace a modest cording to a survey by the All Japan Concert & Live At the end of the consolidated fiscal year under re- recovery path, albeit with a certain amount of weak- Entertainment Promoters Conference). view, total assets had decreased by ¥6,356 million ness in evidence. Looking ahead, the economy is In the midst of this business environment, the compared to the end of the previous consolidated fis- expected to continue recovering modestly, helped Avex Group has been working to achieve medium- cal year, to ¥111,208 million. This was mainly due to along by continued improvements in the employ- term growth, by focusing on strengthening content, decreases of ¥4,592 million in cash and cash in ment and income environments, and the effects of evolving digital services and expanding its live busi- banks, ¥1,055 million in other current assets, and various government policies. ness, and by establishing a continuous cycle linking ¥881 million in programs and works in progress. In the environment surrounding the entertainment content and platforms. Specifically, the Group has Liabilities decreased by ¥5,353 million compared industry, to which the Group belongs, production of partnered with an external production company, in- to the end of the previous consolidated fiscal year, to music software, including music videos, increased vested in the copyright management business, and ¥58,816 million. This was mainly the result of decreas- 0.1% year on year to ¥254,449 million (January to De- launched digital services with a new external partner. es of ¥2,634 million in accounts payables—other, cember 2015; according to a survey by the Recording The Group is also looking into groupwide reform, in ¥1,031 million in other current liabilities and ¥625 million Industry Association of Japan), while sales of paid an effort to map out scenarios for further growth in in long-term loans payable (including current portion). digital music distribution increased 7.7% year on year line with the changing environment. Total equity fell by ¥1,002 million compared to the to ¥47,073 million (January to December 2015; ac- Consequently, the Group’s consolidated net sales end of the previous consolidated fiscal year, to cording to a survey by the Recording Industry Asso- totaled ¥154,122 million (down 8.9% year on year), ¥52,392 million. This was mainly due to an increase of ciation of Japan). In the video-related market, sales of due in part to a decline in the number of live perfor- ¥1,667 million in treasury stock (decrease in net as- video software fell 5.1% year on year to ¥218,113 mil- mances at large venues and a drop in sales of albums sets), and decreases of ¥665 million in noncontrolling lion (January to December 2015; according to a sur- in the Music Business. Along with factors such as an interests and ¥458 million in the total of defined retire- vey by the Japan Video Software Association). The increase in expenses due to rebranding of digital vid- ment benefit plans, in spite of a ¥2,014 million increase digital video distribution market on the other hand in- eo distribution service to make it more competitive, in retained earnings. creased in scale by 11.1% year on year to ¥149.5 bil- operating income came to ¥7,277 million (down lion (January to December 2015; according a survey 16.1%). Net income attributable to owners of the par- Cash flows by Nomura Research Institute, Ltd.), and is expected ent totaled ¥4,292 million (down 28.2%), due in part to The balance of cash and cash equivalents at the to continue increasing in the future, thanks to develop- equity in losses of associated companies as a result of end of the consolidated fiscal year under review ments such as new digital video distribution services investment in digital music distribution services. was ¥21,107 million (¥25,699 million a year earlier). entering the market, from both Japan and overseas. Segmented cash flows according to respective The live entertainment market also continued to per- business activities were as follows:
24 Cash flows from operating activities Source of capital and liquidity in place to redeem the current portion of bonds main- Net cash provided by operating activities stood at Currently, the Avex Group secures debt finance main- ly through the use of operating cash flows. Avex is ¥8,169 million (¥11,337 million a year earlier). ly from financial institutions to fund its working capital, confident in its ability to secure cash on hand through This was mainly attributable to reductions in net capital expenditure, and business investment needs. the drawdown of short-term loans payable utilizing its cash, due to ¥3,328 million in income taxes—paid For its short-term funding requirements, the Group available funding agreements. and a ¥2,775 million decrease in other accounts has executed current account overdraft and commit- payable, offset by increases in net cash due to ment line agreements to a maximum amount of Basic profit distribution policy and dividend ¥7,938 million in income before income taxes, ¥14,500 million with five banks. payout for the period under review ¥3,300 million in depreciation, and ¥1,553 million in As of March 31, 2016, cash and cash in banks One of our most important management tasks is to income taxes refunded. stood at ¥21,107 million, down ¥4,592 million com- ensure comprehensive, long-lasting profit distribution pared with the end of the previous fiscal year. Despite to our shareholders. In determining the amount of Cash flows from investing activities reporting income before income taxes of ¥7,938 mil- dividends, we thoroughly evaluate factors such as Net cash used in investing activities was ¥6,778 lion, this decrease was mainly due to the downturn in performance, cash flows, and future funding require- million (¥1,330 million a year earlier). cash flows from investing activities attributable to ments. The level of performance-linked dividends is a This was mainly due to factors that decreased such factors as purchases on non-current assets, dividend ratio of 35% on a consolidated basis or net cash, including ¥3,349 million for the purchases and the drop in cash flows from financing activities more. The minimum level of the annual dividend per of intangible assets, ¥1,000 million for the purchases mainly reflecting the purchase of treasury stock and share is ¥50. of marketable securities, and ¥829 million for the dividends paid. The consolidated current ratio as of Based on our basic policy to achieve a dividend purchases of investment securities. the end of the period was 114.7%, a decrease of 1.6 ratio of more than 35% on a consolidated basis, the percentage points from 116.3% as of March 31, Company paid a year-end dividend of ¥25 per share Cash flows from financing activities 2015. In addition to the balance of cash and cash in for the fiscal year ended March 31, 2016. Combined Net cash used in financing activities stood at banks, which stood at ¥21,107 million as of March with the interim dividend of ¥25 per share, the annual ¥5,969 million (¥3,040 million a year earlier). 31, 2016, the Avex Group maintains current account dividend was ¥50 per share. This chiefly reflected factors decreasing net overdraft and commitment line agreements to a max- cash, including ¥2,201 million for the purchase of imum amount of ¥14,500 million with banks (with an treasury stock, ¥2,163 million in dividends paid, unused portion of ¥6,000 million as of the end of the and ¥762 million in dividends paid to noncontrolling fiscal year under review). Taking each of the afore- shareholders. mentioned into consideration, the Group believes that it maintains an appropriate level of liquidity. Plans are
25 Risk Factors
Trends in major titles, artists and talents Impairment loss Business in the digital domain The Avex Group utilizes the rights that it holds as a When market values of the assets held by the Group The Group is actively expanding business in the content holder in its various businesses. Consequent- decrease significantly, or business profitability deterio- digital domain, but there is the undeniable possibil- ly, the Group’s business performance can be affected rates, an impairment loss in noncurrent assets may ity of risks arising in the process of execution of this by whether or not the Group has any hit artists and hit be recorded by applying impairment accounting, business due to a sudden change in the business content, and by the popularity of major artists and which would affect the Group’s businesses and finan- environment, such as technical innovation and talents, contract duration, and growth of new artists cial position. emergence of competition, or an unforeseeable and talent. problem which materializes afterwards, and this Fundraising may affect the Group’s performance. Operations in overseas markets The Group raises some of the funds used to acquire The major markets for our overseas businesses are in real estate through borrowings from financial institu- Dependency on the specific corporate manager Southeast Asia where significant growth is expected tions and the issuing of bonds. If interest rates Representative Director, CEO Masato Matsuura, one in the future. change, the Group’s performance may be affected. of the founders of Avex, has been playing the core In the event that an unexpected incident occurs in In addition, certain of the borrowings have a finan- role in formulating and determining Group manage- any of the overseas markets due to a change in po- cial restriction clause. Infringement of the clause may ment strategies and concluding contracts with impor- litical or economic conditions or legal or regulatory affect the business performance and financial posi- tant business partners and artists. In the event that elements, disadvantageous taxes, or social disorder tion of the Group. For example, the borrowing interest Mr. Matsuura leaves the Group for any reason, the caused by terrorist attacks, war, or the like, it is pos- rate will be raised, and/or the benefit of time will be performance of the Group may be affected. sible that our overseas operations and performance forfeited, etc. may be affected.
26 Consolidated Balance Sheet
AVEX GROUP HOLDINGS INC. and Subsidiaries March 31, 2016 Thousands of Thousands of Millions of Yen U.S. Dollars Millions of Yen U.S. Dollars 2016 2015 2016 2016 2015 2016
ASSETS LIABILITIES AND EQUITY CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash in banks...... ¥ 21,107 ¥ 25,699 $ 187,318 Notes and accounts payable—trade...... ¥ 2,020 ¥ 1,601 $ 17,926 Marketable securities...... 1,003 8,901 Short-term bank loans...... 8,500 8,500 75,434 Notes and accounts receivable—trade...... 21,271 21,209 188,773 Current portion of long-term loans...... 250 Inventories: Current portion of long-term bonds...... 720 360 6,389 Merchandise and finished products...... 1,300 1,168 11,537 Accounts payables—other...... 24,356 26,990 216,151 Programs and work in process...... 6,616 7,497 58,714 Accrued royalties...... 8,748 9,224 77,635 Raw materials and supplies...... 610 372 5,413 Income taxes payable...... 865 680 7,676 Deferred tax assets...... 3,742 4,129 33,209 Provision for bonuses...... 1,066 1,536 9,460 Advance payments—trade...... 1,226 1,143 10,880 Provision for sales returns...... 4,163 4,247 36,945 Prepaid expenses...... 1,280 1,151 11,359 Other...... 5,038 6,070 44,710 Prepaid royalties...... 2,002 2,340 17,767 Total current liabilities...... 55,478 59,460 492,350 Other...... 3,711 4,766 32,933 Allowance for doubtful accounts...... (252) (319) (2,236) LONG-TERM LIABILITIES: Long-term bonds...... 720 Total current assets ...... 63,620 69,160 564,607 Long-term loans...... 375 Liability for retirement benefits...... 2,126 2,121 18,867 PROPERTY, PLANT AND EQUIPMENT: Other...... 1,210 1,492 10,738 Land...... 29,770 29,770 264,199 Buildings and structures—net...... 1,492 1,939 13,241 Total long-term liabilities...... 3,337 4,709 29,614 Other property—net...... 891 1,019 7,907 COMMITMENTS AND CONTINGENT LIABILITIES Total property, plant and equipment...... 32,154 32,728 285,356 EQUITY: INVESTMENTS AND OTHER ASSETS: Shareholders’ equity: Investment securities...... 5,310 5,501 47,124 Common stock—authorized, 184,631,000 shares; Long-term prepaid expenses...... 147 436 1,304 issued, 45,000,000 shares in 2016 and 2015...... 4,229 4,229 37,531 Intangible assets...... 5,457 4,471 48,429 Capital surplus...... 4,999 5,001 44,364 Deferred tax assets...... 1,943 2,779 17,243 Retained earnings...... 44,906 42,891 398,526 Other assets ...... 2,839 2,785 25,195 Treasury stock—at cost, 2,059,724 shares in 2016 Allowance for doubtful accounts (263) (298) (2,334) and 1,417,596 shares in 2015...... (4,033) (2,365) (35,791) Total...... 50,102 49,756 444,639 Total investments and other assets...... 15,434 15,675 136,971 Accumulated other comprehensive loss: TOTAL ...... ¥ 111,208 ¥ 117,564 $ 986,936 Unrealized gain on available-for-sale securities...... 55 90 488 Deferred (loss) gain on derivatives under hedge accounting..... (1) 8 (8) Note: The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers Foreign currency translation adjustments...... (139) (152) (1,233) outside Japan and have been made at the rate of ¥112.68 to $1, the approximate rate of exchange at March 31, 2016. Defined retirement benefit plans...... (857) (398) (7,605) Total...... (943) (451) (8,368) Stock acquisition rights...... 643 835 5,706 Noncontrolling interests...... 2,589 3,255 22,976
Total equity...... 52,392 53,394 464,962
TOTAL ...... ¥ 111,208 ¥ 117,564 $ 986,936
See notes to consolidated financial statements.
27 Consolidated Statement of Income Consolidated Statement of Comprehensive Income
AVEX GROUP HOLDINGS INC. and Subsidiaries AVEX GROUP HOLDINGS INC. and Subsidiaries Year Ended March 31, 2016 Thousands of Year Ended March 31, 2016 Thousands of Millions of Yen U.S. Dollars Millions of Yen U.S. Dollars 2016 2015 2016 2016 2015 2016 NET SALES...... ¥ 154,122 ¥ 169,256 $ 1,367,784 NET INCOME ...... ¥ 4,387 ¥ 6,595 $ 38,933
COST OF SALES...... 107,867 118,503 957,286 OTHER COMPREHENSIVE LOSS: Gross profit...... 46,255 50,752 410,498 Unrealized loss on available-for-sale securities...... (32) (4,980) (283) Deferred (loss) gain on derivatives under hedge accounting...... (11) 4 (97) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...... 38,978 42,077 345,917 Foreign currency translation adjustments...... 5 (65) 44 Operating income...... 7,277 8,675 64,581 Defined retirement benefit plans...... (452) (129) (4,011) Share of other comprehensive (loss) income in associates...... (1) 179 (8) OTHER INCOME (EXPENSES): Interest income...... 15 5 133 Total other comprehensive loss...... (492) (4,991) (4,366) Dividend income...... 14 52 124 Interest expense...... (40) (72) (354) COMPREHENSIVE INCOME...... ¥ 3,895 ¥ 1,604 $ 34,566 Commission fee...... (10) (15) (88) Foreign exchange gain (loss)...... 77 (88) 683 Gain on adjustment of accrued royalties...... 35 110 310 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: (Loss) gain on investments in partnership...... (178) 40 (1,579) Owners of the parent...... ¥ 3,800 ¥ 986 $ 33,723 Equity in losses of associated companies...... (1,158) (179) (10,276) Noncontrolling interests...... 94 618 834 Gain on cancellation...... 2,000 17,749 Gain on reversal of subscription rights to shares...... 329 2,919 See notes to consolidated financial statements. Gain on change in equity...... 44 390 Gain on sales of investment securities...... 3,512 Loss on impairment of long-lived assets...... (199) (779) (1,766) Expenses related to rebuilding...... (244) (280) (2,165) Loss on valuation of investment securities...... (38) (337) Loss on disposal of noncurrent properties...... (9) (16) (79) Other—net ...... 22 82 195
Other income—net...... 661 2,371 5,866
INCOME BEFORE INCOME TAXES...... 7,938 11,046 70,447
INCOME TAXES: Current...... 2,155 4,673 19,124 Deferred...... 1,395 (222) 12,380
Total income taxes...... 3,551 4,450 31,514
NET INCOME 4,387 6,595 38,933
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS...... 95 620 843
NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT...... ¥ 4,292 ¥ 5,975 $ 38,090
Yen U.S. Dollars 2016 2015 2016 PER SHARE OF COMMON STOCK: Basic net income...... ¥ 99.88 ¥ 141.90 $ 0.89 Diluted net income...... 99.28 140.60 0.88 Cash dividends applicable to the year...... 50.00 50.00 0.44
See notes to consolidated financial statements.
28 Consolidated Statement of Changes in Equity
AVEX GROUP HOLDINGS INC. and Subsidiaries Year Ended March 31, 2016
Millions of Yen
Shareholders’ Equity Accumulated Other Comprehensive Loss
Unrealized Deferred Gain on (Loss) Gain Foreign Defined Available- on Derivatives Currency Retirement Stock Common Capital Retained Treasury for-Sale under Hedge Translation Benefit Acquisition Noncontrolling Total Stock Surplus Earnings Stock Total Securities Accounting Adjustments Plans Total Rights Interests Equity
BALANCE, MARCH 31, 2014 (APRIL 1, 2014, as previously reported)...... ¥ 4,229 ¥ 5,001 ¥ 39,326 ¥ (4,596) ¥ 43,961 ¥ 5,070 ¥ 2 ¥ (202) ¥ (332) ¥ 4,538 ¥ 656 ¥ 4,191 ¥ 53,347
Cumulative effect of accounting change...... 16 16 16
BALANCE, APRIL 1, 2014 (as restated)...... 4,229 5,001 39,343 (4,596) 43,977 5,070 2 (202) (332) 4,538 656 4,191 53,364
Net income attributable to owners of the parent.... 5,975 5,975 5,975 Cash dividends, ¥50 per share...... (2,087) (2,087) (2,087) Purchase of treasury stock...... (1,789) (1,789) (1,789) Disposal of treasury stock...... (371) 4,020 3,648 3,648 Transfer to capital surplus from retained earnings...... 371 (371) Change of scope of consolidation...... 31 31 31 Net change in the year...... (4,979) 6 50 (66) (4,989) 178 (936) (5,747)
BALANCE, MARCH 31, 2015...... 4,229 5,001 42,891 (2,365) 49,756 90 8 (152) (398) (451) 835 3,255 53,394
Net income attributable to owners of the parent.... 4,292 4,292 4,292 Cash dividends, ¥50 per share...... (2,160) (2,160) (2,160) Purchase of treasury stock...... (2,200) (2,200) (2,200) Disposal of treasury stock...... (148) 533 385 385 Transfer to capital surplus from retained earnings.... 148 (148) Change of scope of consolidation...... 30 30 30 Change in treasury shares of the parent arising from transactions with noncontrolling shareholders...... (1) (1) (1) Net change in the year...... (35) (10) 12 (458) (491) (191) (665) (1,348)
BALANCE, MARCH 31, 2016...... ¥ 4,229 ¥ 4,999 ¥ 44,906 ¥ (4,033) ¥ 50,102 ¥ 55 ¥ (1) ¥ (139) ¥ (857) ¥ (943) ¥ 643 ¥ 2,589 ¥ 52,392
Thousands of U.S. Dollars
Shareholders’ Equity Accumulated Other Comprehensive Loss
Unrealized Deferred Gain on (Loss) Gain Foreign Defined Available- on Derivatives Currency Retirement Stock Common Capital Retained Treasury for-Sale under Hedge Translation Benefit Acquisition Noncontrolling Total Stock Surplus Earnings Stock Total Securities Accounting Adjustments Plans Total Rights Interests Equity
BALANCE, MARCH 31, 2015...... $ 37,531 $ 44,382 $ 380,644 $ (20,988) $ 441,569 $ 798 $ 70 $ (1,348) $ (3,532) $ (4,002) $ 7,410 $ 28,887 $ 473,855
Net income attributable to owners of the parent.... 38,090 38,090 38,090 Cash dividends, $0.44 per share...... (19,169) (19,169) (19,169) Purchase of treasury stock...... (19,524) (19,524) (19,524) Disposal of treasury stock...... (1,313) 4,730 3,416 3,416 Transfer to capital surplus from retained earnings...... 1,313 (1,313) Change of scope of consolidation...... 266 266 266 Change in treasury shares of the parent arising from transactions with noncontrolling shareholders...... (8) (8) (8) Net change in the year...... (310) (88) 106 (4,064) (4,357) (1,695) (5,901) (11,963)
BALANCE, MARCH 31, 2016...... $ 37,531 $ 44,364 $ 398,526 $ (35,791) $ 444,639 $ 488 $ (8) $ (1,233) $ (7,605) $ (8,368) $ 5,706 $ 22,976 $ 464,962
See notes to consolidated financial statements.
29 Consolidated Statement of Cash Flows
AVEX GROUP HOLDINGS INC. and Subsidiaries Year Ended March 31, 2016 Thousands of Thousands of Millions of Yen U.S. Dollars Millions of Yen U.S. Dollars 2016 2015 2016 2016 2015 2016
OPERATING ACTIVITIES: INVESTING ACTIVITIES: Income before income taxes...... ¥ 7,938 ¥ 11,046 $ 70,447 Purchases of property, plant and equipment...... (367) (1,809) (3,257) Adjustments for: Payments for retirement of property, plant and equipment...... (524) (4,650) Depreciation...... 3,300 5,618 29,286 Purchases of intangible assets...... (3,349) (2,346) (29,721) Loss on impairment of long-lived assets...... 199 779 1,766 Proceeds from sales of intangible assets...... 12 106 Interest and dividend income...... (30) (58) (266) Purchases of marketable securities...... (1,000) (8,874) Interest expense...... 40 72 354 Purchases of investment securities...... (829) (1,411) (7,357) Gain on sales of investment securities...... (3,512) Proceeds from sales of securities...... 5,029 Loss (gain) on investments in partnership...... 178 (40) 1,579 Payments of loans receivable...... (500) (10) (4,437) Equity in losses of associated companies...... 1,158 179 10,276 Proceeds from collection of loans receivable...... 11 Gain on cancellation...... (2,000) (17,749) Payments for lease and guarantee deposits...... (11) (803) (97) Gain on reversal of subscription rights to shares...... (329) (2,919) Proceeds from collection of lease and guarantee deposits...... 21 12 186 Expenses related to rebuilding...... 244 280 2,165 Other—net ...... (230) (1) (2,041) Loss on valuation of investment securities...... 38 337 Net cash used in investing activities...... (6,778) (1,330) (60,152) Share-based compensation expenses...... 300 291 2,662 Changes in assets and liabilities: FINANCING ACTIVITIES: Increase in trade accounts receivable...... (80) (1,249) (709) Repayments of long-term loans...... (625) (754) (5,546) Decrease in inventories...... 509 939 4,517 Repayments of lease obligations...... (86) (47) (763) (Increase) decrease in advance payments—trade...... (83) 108 (736) Proceeds from stock issuance to noncontrolling shareholders..... 44 Decrease (increase) in prepaid royalties...... 336 (813) 2,981 Redemption of bonds...... (360) (360) (3,194) Increase (decrease) in trade accounts payable...... 424 (392) 3,762 Purchase of treasury stock...... (2,201) (1,790) (19,533) (Decrease) increase in other accounts payable...... (2,775) 5,604 (24,627) Disposal of treasury stock...... 229 3,557 2,032 (Decrease) increase in accrued royalties...... (409) 848 (3,629) Dividends paid...... (2,163) (2,090) (19,195) Decrease in provision for bonuses...... (470) (249) (4,171) Dividends paid to noncontrolling shareholders...... (762) (1,599) (6,762) (Decrease) increase in provision for sales returns...... (83) 262 (736) Net cash used in financing activities...... (5,969) (3,040) (52,973) Decrease in provision for expenses related to rebuilding...... (500) (Decrease) increase in liability for retirement benefits...... (626) 283 (5,555) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS Other—net...... 137 (28) 1,215 ON CASH AND CASH EQUIVALENTS...... (13) (23) (115) Subtotal...... 7,919 19,470 70,278 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (4,592) 6,942 (40,752) Interest and dividends received...... 65 147 576 Interest paid...... (41) (75) (363) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...... 25,699 18,757 228,070 Proceed from cancellation...... 2,000 17,749 CASH AND CASH EQUIVALENTS, END OF YEAR...... ¥ 21,107 ¥ 25,699 $ 187,318 Income taxes—refund...... 1,553 766 13,782 Income taxes—paid...... (3,328) (8,972) (29,534) See notes to consolidated financial statements.
Net cash provided by operating activities...... ¥ 8,169 ¥ 11,337 $ 72,497
30 Segment Information
AVEX GROUP HOLDINGS INC. and Subsidiaries Year Ended March 31, 2016 Millions of Yen 2016 Reportable Segment
Music Video Management/ Business Business Live Business Total Other Total Reconciliations Consolidated
Sales:...... Sales to external customers...... ¥ 58,871 ¥ 41,361 ¥ 51,195 ¥ 151,428 ¥ 2,694 ¥ 154,122 ¥ 154,122 Intersegment sales or transfers...... 2,353 440 4,561 7,355 281 7,637 ¥ (7,637)
Total...... ¥ 61,224 ¥ 41,801 ¥ 55,756 ¥ 158,783 ¥ 2,976 ¥ 161,759 ¥ (7,637) ¥ 154,122
Segment profit...... ¥ 6,583 ¥ 85 ¥ 1,583 ¥ 8,252 ¥ (779) ¥ 7,473 ¥ (195) ¥ 7,277 Segment assets...... 19,366 22,463 10,936 52,765 705 53,471 57,737 111,208 Other: Depreciation...... 903 1,265 881 3,050 83 3,134 166 3,300 Investment in associated companies accounted for by equity method...... 2,670 1,467 4,138 4,138 4,138 Increase in property, plant and equipment and intangible assets...... 287 2,126 518 2,932 69 3,002 1,216 4,218
Millions of Yen 2015 Reportable Segment
Music Video Management/ Business Business Live Business Total Other Total Reconciliations Consolidated
Sales:...... Sales to external customers...... ¥ 65,463 ¥ 39,620 ¥ 61,482 ¥ 166,566 ¥ 2,690 ¥ 169,256 ¥ 169,256 Intersegment sales or transfers...... 2,164 210 3,852 6,227 592 6,819 ¥ (6,819)
Total...... ¥ 67,628 ¥ 39,831 ¥ 65,334 ¥ 172,793 ¥ 3,282 ¥ 176,076 ¥ (6,819) ¥ 169,256
Segment profit...... ¥ 7,849 ¥ 1,832 ¥ 2,765 ¥ 12,447 ¥ (716) ¥ 11,731 ¥ (3,055) ¥ 8,675 Segment assets...... 15,585 18,485 16,017 50,088 1,075 51,164 66,400 117,564 Other: Depreciation...... 732 1,299 1,007 3,038 461 3,500 2,118 5,618 Investment in associated companies accounted for by equity method...... 3,142 1,013 4,155 4,155 4,155 Increase in property, plant and equipment and intangible assets...... 220 738 180 1,139 80 1,219 3,014 4,233
Thousands of U.S. Dollars 2016 Reportable Segment
Music Video Management/ Business Business Live Business Total Other Total Reconciliations Consolidated
Sales:...... Sales to external customers...... $ 522,461 $ 367,066 $ 454,339 $ 1,343,876 $ 23,908 $ 1,367,784 $ 1,367,784 Intersegment sales or transfers...... 20,882 3,904 40,477 65,273 2,493 67,776 $ (67,776)
Total...... $ 543,343 $ 370,970 $ 494,817 $ 1,409,149 $ 26,411 $ 1,435,560 $ (67,776) $ 1,367,784
Segment profit...... $ 58,422 $ 754 $ 14,048 $ 73,233 $ (6,913) $ 66,320 $ (1,730) $ 64,581 Segment assets...... 171,867 199,352 97,053 468,272 6,256 474,538 512,397 986,936 Other: Depreciation...... 8,013 11,226 7,818 27,067 736 27,813 1,473 29,286 Investment in associated companies accounted for by equity method...... 23,695 13,019 36,723 36,723 36,723 Increase in property, plant and equipment and intangible assets...... 2,547 18,867 4,597 26,020 612 26,641 10,791 37,433
31 http://www.avex.co.jp/
Avex Group Holdings Inc. 1-6-1, Roppongi, Minato-ku, Tokyo 106-6036, Japan
A
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Financial Statements for the Year Ended March 31, 2016, and Independent Auditor's Report
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of AVEX GROUP HOLDINGS INC.:
We have audited the accompanying consolidated balance sheet of AVEX GROUP HOLDINGS INC. and its subsidiaries as of March 31, 2016, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates 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. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AVEX GROUP HOLDINGS INC. and its subsidiaries as of March 31, 2016, and the consolidated results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in Japan. Convenience Translation Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.
June 27, 2016
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Balance Sheet March 31, 2016
Thousands of U.S. Dollars Millions of Yen (Note 1) ASSETS 2016 2015 2016
CURRENT ASSETS: Cash and cash in banks (Notes 14 and 17) ¥ 21,107 ¥ 25,699 $ 187,318 Marketable securities (Notes 3 and 14) 1,003 8,901 Notes and accounts receivable—trade (Note 14) 21,271 21,209 188,773 Inventories: Merchandise and finished products 1,300 1,168 11,537 Programs and work in process 6,616 7,497 58,714 Raw materials and supplies 610 372 5,413 Deferred tax assets (Note 10) 3,742 4,129 33,209 Advance payments—trade 1,226 1,143 10,880 Prepaid expenses 1,280 1,151 11,359 Prepaid royalties 2,002 2,340 17,767 Other 3,711 4,766 32,933 Allowance for doubtful accounts (252 ) (319 ) (2,236 )
Total current assets 63,620 69,160 564,607
PROPERTY, PLANT AND EQUIPMENT (Notes 4 and 5): Land 29,770 29,770 264,199 Buildings and structures—net 1,492 1,939 13,241 Other property—net 891 1,019 7,907
Total property, plant and equipment 32,154 32,728 285,356
INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 3 and 14) 5,310 5,501 47,124 Long-term prepaid expenses 147 436 1,304 Intangible assets 5,457 4,471 48,429 Deferred tax assets (Note 10) 1,943 2,779 17,243 Other assets 2,839 2,785 25,195 Allowance for doubtful accounts (263 ) (298 ) (2,334 )
Total investments and other assets 15,434 15,675 136,971
TOTAL ¥ 111,208 ¥ 117,564 $ 986,936
- 2 - (Continued)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Balance Sheet March 31, 2016
Thousands of U.S. Dollars Millions of Yen (Note 1) LIABILITIES AND EQUITY 2016 2015 2016
CURRENT LIABILITIES: Notes and accounts payable—trade (Note 14) ¥ 2,020 ¥ 1,601 $ 17,926 Short-term bank loans (Notes 5 and 14) 8,500 8,500 75,434 Current portion of long-term loans (Notes 5 and 14) 250 Current portion of long-term bonds (Notes 5 and 14) 720 360 6,389 Accounts payables—other (Note 14) 24,356 26,990 216,151 Accrued royalties (Note 14) 8,748 9,224 77,635 Income taxes payable (Note 14) 865 680 7,676 Provision for bonuses 1,066 1,536 9,460 Provision for sales returns 4,163 4,247 36,945 Other 5,038 6,070 44,710
Total current liabilities 55,478 59,460 492,350
LONG-TERM LIABILITIES: Long-term bonds (Notes 5 and 14) 720 Long-term loans (Notes 5 and 14) 375 Liability for retirement benefits (Note 6) 2,126 2,121 18,867 Other 1,210 1,492 10,738
Total long-term liabilities 3,337 4,709 29,614
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 13 and 15)
EQUITY (Notes 7, 8 and 9): Shareholders' equity: Common stock—authorized, 184,631,000 shares; issued, 45,000,000 shares in 2016 and 2015 4,229 4,229 37,531 Capital surplus 4,999 5,001 44,364 Retained earnings 44,906 42,891 398,526 Treasury stock—at cost, 2,059,724 shares in 2016 and 1,417,596 shares in 2015 (4,033 ) (2,365 ) (35,791 ) Total 50,102 49,756 444,639 Accumulated other comprehensive loss: Unrealized gain on available-for-sale securities 55 90 488 Deferred (loss) gain on derivatives under hedge accounting (1 ) 8 (8 ) Foreign currency translation adjustments (139 ) (152 ) (1,233 ) Defined retirement benefit plans (857 ) (398 ) (7,605 ) Total (943 ) (451 ) (8,368 ) Stock acquisition rights 643 835 5,706 Noncontrolling interests 2,589 3,255 22,976
Total equity 52,392 53,394 464,962
TOTAL ¥ 111,208 ¥ 117,564 $ 986,936
See notes to consolidated financial statements.
- 3 - (Concluded)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Statement of Income Year Ended March 31, 2016
Thousands of U.S. Dollars Millions of Yen (Note 1) 2016 2015 2016
NET SALES ¥ 154,122 ¥ 169,256 $ 1,367,784
COST OF SALES 107,867 118,503 957,286
Gross profit 46,255 50,752 410,498
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 11) 38,978 42,077 345,917
Operating income 7,277 8,675 64,581
OTHER INCOME (EXPENSES): Interest income 15 5 133 Dividend income 14 52 124 Interest expense (40 ) (72 ) (354 ) Commission fee (10 ) (15 ) (88 ) Foreign exchange gain (loss) 77 (88 ) 683 Gain on adjustment of accrued royalties 35 110 310 (Loss) gain on investments in partnership (178 ) 40 (1,579 ) Equity in losses of associated companies (1,158 ) (179 ) (10,276 ) Gain on cancellation 2,000 17,749 Gain on reversal of subscription rights to shares 329 2,919 Gain on change in equity 44 390 Gain on sales of investment securities 3,512 Loss on impairment of long-lived assets (Note 4) (199 ) (779 ) (1,766 ) Expenses related to rebuilding (244 ) (280 ) (2,165 ) Loss on valuation of investment securities (38 ) (337 ) Loss on disposal of noncurrent properties (Note 12) (9 ) (16 ) (79 ) Other—net 22 82 195
Other income—net 661 2,371 5,866
INCOME BEFORE INCOME TAXES 7,938 11,046 70,447
INCOME TAXES (Note 10): Current 2,155 4,673 19,124 Deferred 1,395 (222 ) 12,380
Total income taxes 3,551 4,450 31,514
NET INCOME 4,387 6,595 38,933
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 95 620 843
NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT ¥ 4,292 ¥ 5,975 $ 38,090
- 4 - (Continued)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Statement of Income Year Ended March 31, 2016
Yen U.S. Dollars 2016 2015 2016
PER SHARE OF COMMON STOCK (Notes 2.v and 19): Basic net income ¥ 99.88 ¥ 141.90 $ 0.89 Diluted net income 99.28 140.60 0.88 Cash dividends applicable to the year 50.00 50.00 0.44
See notes to consolidated financial statements.
- 5 - (Concluded)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Statement of Comprehensive Income Year Ended March 31, 2016
Thousands of U.S. Dollars Millions of Yen (Note 1) 2016 2015 2016
NET INCOME ¥ 4,387 ¥ 6,595 $ 38,933
OTHER COMPREHENSIVE LOSS (Note 16): Unrealized loss on available-for-sale securities (32 ) (4,980 ) (283 ) Deferred (loss) gain on derivatives under hedge accounting (11 ) 4 (97 ) Foreign currency translation adjustments 5 (65 ) 44 Defined retirement benefit plans (452 ) (129 ) (4,011 ) Share of other comprehensive (loss) income in associates (1 ) 179 (8 )
Total other comprehensive loss (492 ) (4,991 ) (4,366 )
COMPREHENSIVE INCOME ¥ 3,895 ¥ 1,604 $ 34,566
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the parent ¥ 3,800 ¥986 $ 33,723 Noncontrolling interests 94 618 834
See notes to consolidated financial statements.
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AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Statement of Changes in Equity Year Ended March 31, 2016
Millions of Yen Accumulated Other Comprehensive Loss Deferred Unrealized (Loss) Gain Foreign Defined Shareholders' Equity Gain on on Derivatives Currency Retirement Stock Common Capital Retained Treasury Available-for- under Hedge Translation Benefit Acquisition Noncontrolling Total Stock Surplus Earnings Stock Total Sale Securities Accounting Adjustments Plans Total Rights Interests Equity
BALANCE, MARCH 31, 2014 (APRIL 1, 2014, as previously reported) ¥ 4,229 ¥ 5,001 ¥ 39,326 ¥ (4,596 ) ¥ 43,961 ¥ 5,070 ¥ 2 ¥ (202 ) ¥ (332 ) ¥ 4,538 ¥ 656 ¥ 4,191 ¥ 53,347
Cumulative effect of accounting change 16 16 16
BALANCE, APRIL 1, 2014 (as restated) 4,229 5,001 39,343 (4,596 ) 43,977 5,070 2 (202 ) (332 ) 4,538 656 4,191 53,364
Net income attributable to owners of the parent 5,975 5,975 5,975 Cash dividends, ¥50 per share (2,087 ) (2,087 ) (2,087 ) Purchase of treasury stock (1,789 ) (1,789 ) (1,789 ) Disposal of treasury stock (371 ) 4,020 3,648 3,648 Transfer to capital surplus from retained earnings 371 (371 ) Change of scope of consolidation 31 31 31 Net change in the year (4,979 ) 6 50 (66 ) (4,989 ) 178 (936 ) (5,747 )
BALANCE, MARCH 31, 2015 4,229 5,001 42,891 (2,365 ) 49,756 90 8 (152 ) (398 ) (451 ) 835 3,255 53,394
Net income attributable to owners of the parent 4,292 4,292 4,292 Cash dividends, ¥50 per share (2,160 ) (2,160 ) (2,160 ) Purchase of treasury stock (2,200 ) (2,200 ) (2,200 ) Disposal of treasury stock (148 ) 533 385 385 Transfer to capital surplus from retained earnings 148 (148 ) Change of scope of consolidation 30 30 30 Change in treasury shares of the parent arising from transactions with noncontrolling shareholders (1 ) (1 ) (1 ) Net change in the year (35 ) (10 ) 12 (458 ) (491 ) (191 ) (665 ) (1,348 )
BALANCE, MARCH 31, 2016 ¥ 4,229 ¥ 4,999 ¥ 44,906 ¥ (4,033 ) ¥ 50,102 ¥ 55 ¥ (1 ) ¥ (139 ) ¥ (857 ) ¥ (943 ) ¥ 643 ¥ 2,589 ¥ 52,392
- 7 - (Continued)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Statement of Changes in Equity Year Ended March 31, 2016
Thousands of U.S. Dollars (Note 1) Accumulated Other Comprehensive Loss Deferred Unrealized (Loss) Gain Foreign Defined Shareholders' Equity Gain on on Derivatives Currency Retirement Stock Common Capital Retained Treasury Available-for- under Hedge Translation Benefit Acquisition Noncontrolling Total Stock Surplus Earnings Stock Total Sale Securities Accounting Adjustments Plans Total Rights Interests Equity
BALANCE, MARCH 31, 2015 $ 37,531 $ 44,382 $ 380,644 $ (20,988 ) $ 441,569 $ 798 $ 70 $ (1,348 ) $ (3,532 ) $ (4,002 ) $ 7,410 $ 28,887 $ 473,855
Net income attributable to owners of the parent 38,090 38,090 38,090 Cash dividends, $0.44 per share (19,169 ) (19,169 ) (19,169 ) Purchase of treasury stock (19,524 ) (19,524 ) (19,524 ) Disposal of treasury stock (1,313 ) 4,730 3,416 3,416 Transfer to capital surplus from retained earnings 1,313 (1,313 ) Change of scope of consolidation 266 266 266 Change in treasury shares of the parent arising from transactions with noncontrolling shareholders (8 ) (8 ) (8 ) Net change in the year (310 ) (88 ) 106 (4,064 ) (4,357 ) (1,695 ) (5,901 ) (11,963 )
BALANCE, MARCH 31, 2016 $ 37,531 $ 44,364 $ 398,526 $ (35,791 ) $ 444,639 $ 488 $ (8 ) $ (1,233 ) $ (7,605 ) $ (8,368 ) $ 5,706 $ 22,976 $ 464,962
See notes to consolidated financial statements.
- 8 - (Concluded)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Statement of Cash Flows Year Ended March 31, 2016
Thousands of U.S. Dollars Millions of Yen (Note 1) 2016 2015 2016
OPERATING ACTIVITIES: Income before income taxes ¥ 7,938 ¥ 11,046 $ 70,447 Adjustments for: Depreciation 3,300 5,618 29,286 Loss on impairment of long-lived assets 199 779 1,766 Interest and dividend income (30 ) (58 ) (266 ) Interest expense 40 72 354 Gain on sales of investment securities (3,512 ) Loss (gain) on investments in partnership 178 (40 ) 1,579 Equity in losses of associated companies 1,158 179 10,276 Gain on cancellation (2,000 ) (17,749 ) Gain on reversal of subscription rights to shares (329 ) (2,919 ) Expenses related to rebuilding 244 280 2,165 Loss on valuation of investment securities 38 337 Share-based compensation expenses 300 291 2,662 Changes in assets and liabilities: Increase in trade accounts receivable (80 ) (1,249 ) (709 ) Decrease in inventories 509 939 4,517 (Increase) decrease in advance payments—trade (83 ) 108 (736 ) Decrease (increase) in prepaid royalties 336 (813 ) 2,981 Increase (decrease) in trade accounts payable 424 (392 ) 3,762 (Decrease) increase in other accounts payable (2,775 ) 5,604 (24,627 ) (Decrease) increase in accrued royalties (409 ) 848 (3,629 ) Decrease in provision for bonuses (470 ) (249 ) (4,171 ) (Decrease) increase in provision for sales returns (83 ) 262 (736 ) Decrease in provision for expenses related to rebuilding (500 ) (Decrease) increase in liability for retirement benefits (626 ) 283 (5,555 ) Other—net 137 (28 ) 1,215 Subtotal 7,919 19,470 70,278 Interest and dividends received 65 147 576 Interest paid (41 ) (75 ) (363 ) Proceed from cancellation 2,000 17,749 Income taxes—refund 1,553 766 13,782 Income taxes—paid (3,328 ) (8,972 ) (29,534 )
Net cash provided by operating activities— (Forward) ¥8,169 ¥ 11,337 $ 72,497
- 9 - (Continued)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Consolidated Statement of Cash Flows Year Ended March 31, 2016
Thousands of U.S. Dollars Millions of Yen (Note 1) 2016 2015 2016
Net cash provided by operating activities—(Forward) ¥ 8,169 ¥ 11,337 $ 72,497
INVESTING ACTIVITIES: Purchases of property, plant and equipment (367 ) (1,809 ) (3,257 ) Payments for retirement of property, plant and equipment (524 ) (4,650 ) Purchases of intangible assets (3,349 ) (2,346 ) (29,721 ) Proceeds from sales of intangible assets 12 106 Purchases of marketable securities (1,000 ) (8,874 ) Purchases of investment securities (829 ) (1,411 ) (7,357 ) Proceeds from sales of securities 5,029 Payments of loans receivable (500 ) (10 ) (4,437 ) Proceeds from collection of loans receivable 11 Payments for lease and guarantee deposits (11 ) (803 ) (97 ) Proceeds from collection of lease and guarantee deposits 21 12 186 Other—net (230 ) (1 ) (2,041 )
Net cash used in investing activities (6,778 ) (1,330 ) (60,152 )
FINANCING ACTIVITIES: Repayments of long-term loans (625 ) (754 ) (5,546 ) Repayments of lease obligations (86 ) (47 ) (763 ) Proceeds from stock issuance to noncontrolling shareholders 44 Redemption of bonds (360 ) (360 ) (3,194 ) Purchase of treasury stock (2,201 ) (1,790 ) (19,533 ) Disposal of treasury stock 229 3,557 2,032 Dividends paid (2,163 ) (2,090 ) (19,195 ) Dividends paid to noncontrolling shareholders (762 ) (1,599 ) (6,762 )
Net cash used in financing activities (5,969 ) (3,040 ) (52,973 )
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (13 ) (23 ) (115 )
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,592 ) 6,942 (40,752 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 25,699 18,757 228,070
CASH AND CASH EQUIVALENTS, END OF YEAR (Note 17) ¥ 21,107 ¥ 25,699 $ 187,318
See notes to consolidated financial statements.
- 10 - (Concluded)
AVEX GROUP HOLDINGS INC. and Subsidiaries
Notes to Consolidated Financial Statements Year Ended March 31, 2016
1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards.
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 more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2015 consolidated financial statements to conform to the classifications used in 2016.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which AVEX GROUP HOLDINGS INC. (the "Company") is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥112.68 to $1, the approximate rate of exchange at March 31, 2016. 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.
Japanese yen figures less than a million yen are rounded down to the nearest million yen, except for per share data.
U.S. dollar figures less than a thousand dollars are rounded down to the nearest thousand dollars, except for per share data.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Consolidation—The consolidated financial statements as of March 31, 2016, include the accounts of the Company and its 19 significant (21 in 2015) subsidiaries (together, the "AVEX Group").
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the AVEX Group has the ability to exercise significant influence are accounted for by the equity method.
(Consolidated Subsidiaries)
Avex Digital Inc.*1 Avex Music Creative Inc. Avex Pictures Inc. Avex Management Inc.*1 Avex Vanguard Inc. Avex Live Creative Inc. Avex Planning & Development Inc. Avex Sports Inc. Avex Music Publishing Inc.
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Avex Nico Inc.*2 Avex Broadcasting & Communications Inc. UULA Inc. The Anime Times Company Avex Classics International Inc. Avex Asia Pte. Ltd.*3 Avex Taiwan Inc. Avex Hawaii Inc. Avex Shanghai Co., Ltd. Avex International Holdings Ltd.
*1 For the year ended March 31, 2016, ET Square Inc. was merged into Avex Digital Inc. and Avex Vibe Production Inc. was merged into Avex Management Inc. in absorption-type merger. ET Square Inc. and Avex Vibe Production Inc. were excluded from the scope of consolidation in the year ended March 31, 2016.
*2 Avex Nico Inc. was included in the scope of consolidation from the year ended March 31, 2016, due to its establishment.
*3 For the year ended March 31, 2016, the company name of Avex International Holdings Singapore Pte. Ltd. was changed to Avex Asia Pte. Ltd.
*4 Avex Hong Kong Ltd. was excluded from the scope of consolidation in the year ended March 31, 2016, due to its liquidation.
Investments in eight (six in 2015) associated companies are accounted for by the equity method.
(Associated Companies Accounted for by Equity Method)
Memory-Tech Holdings Inc. AWA Co. Ltd. NexTone, Inc.*2 LINE MUSIC Corporation RecoChoku Co., Ltd. Asia Cross Inc.*1 Asia Promotion Inc.*1 Orange Sky Entertainment Group (International) Holding Co., Ltd.
*1 Japan Rights Clearance Inc., Asia Cross Inc. and Asia Promotion Inc. were included in the scope of equity method from the year ended March 31, 2016, due to acquisition of their shares.
*2 For the year ended March 31, 2016, e License Inc. merged Japan Rights Clearance Inc. in absorption-type merger and changed its name to NexTone, Inc.
Investments in the remaining associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.
(Main Associated Company Not Accounted for by Equity Method)
East Empire International Holding Ltd.
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The excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the date of acquisition is amortized over 5 to 10 years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the AVEX Group is also eliminated.
Accounts of subsidiaries whose year-ends differ from March 31 have been consolidated using pro forma financial information prepared as of March 31. b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—In May 2006, the Accounting Standards Board of Japan (the "ASBJ") issued ASBJ Practical Issues Task Force ("PITF") No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements" which was subsequently revised in February 2010 and March 2015 to reflect revisions of the relevant Japanese GAAP or accounting standards in other jurisdictions. PITF No. 18 prescribes that the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America (Financial Accounting Standards Board Accounting Standards Codification) tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting. c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method— In March 2008, the ASBJ issued ASBJ Statement No. 16, "Accounting Standard for Equity Method of Accounting for Investments" which was subsequently revised in line with the revisions to PITF No. 18 above. The standard requires adjustments to be made to conform the associate's accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate's financial statements are used in applying the equity method unless it is impracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting. d. Business Combinations—In October 2003, the Business Accounting Council issued a Statement of Opinion, "Accounting for Business Combinations," and in December 2005, the ASBJ issued ASBJ Statement No. 7, "Accounting Standard for Business Divestitures" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business Combinations and Business Divestitures."
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In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21, "Accounting Standard for Business Combinations." Major accounting changes under the revised accounting standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result, the pooling-of-interests method of accounting is no longer allowed. (2) The previous accounting standard required research and development costs to be charged to income as incurred. Under the revised standard, in-process research and development costs (IPR&D) acquired in the business combination are capitalized as an intangible asset. (3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes the 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. The revised standard was applicable to business combinations undertaken on or after April 1, 2010.
In September 2013, the ASBJ issued revised ASBJ Statement No. 21, "Accounting Standard for Business Combinations," revised ASBJ Guidance No. 10, "Guidance on Accounting Standards for Business Combinations and Business Divestitures," and revised ASBJ Statement No. 22, "Accounting Standard for Consolidated Financial Statements." Major accounting changes are as follows:
(a) Transactions with noncontrolling interest—A parent's ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of 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. Under the previous accounting standard, 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 an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised accounting standard, such difference is accounted for as capital surplus as long as the parent retains control over its subsidiary.
(b) Presentation of the consolidated balance sheet—In the consolidated balance sheet, "minority interest" under the previous accounting standard is changed to "noncontrolling interest" under the revised accounting standard.
(c) Presentation of the consolidated statement of income—In the consolidated statement of income, "net income before minority interest" under the previous accounting standard is changed to "net income" under the revised accounting standard, and "net income" under the previous accounting standard is changed to "net income attributable to owners of the parent" under the revised accounting standard.
(d) Provisional accounting treatments for a business combination—If the initial accounting for a business combination is incomplete by the end of the reporting 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. Under the previous accounting standard guidance, the impact of adjustments to provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss in the year in which the measurement is completed. Under the revised accounting standard guidance, during the measurement period, which shall 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 as of 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 the acquisition date.
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(e) Acquisition-related costs—Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs to effect a business combination. Under the previous accounting standard, the acquirer accounts for acquisition-related costs by including them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be accounted for as expenses in the periods in which the costs are incurred.
The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs are effective for the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of annual periods beginning on or after April 1, 2014, except for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income. In the case of earlier application, all accounting standards and guidance above, except for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income, should be applied simultaneously.
Either retrospective or prospective application of the revised accounting standards and guidance for (a) transactions with noncontrolling interest and (e) acquisition-related costs is permitted. In retrospective application of the revised standards and guidance, the accumulated effects of retrospective adjustments for all (a) transactions with noncontrolling interest and (e) acquisition-related costs which occurred in the past shall be reflected as adjustments to the beginning balance of capital surplus and retained earnings for the year of the first-time application. In prospective application, the new standards and guidance shall be applied prospectively from the beginning of the year of the first-time application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income shall be applied to all periods presented in financial statements containing the first-time application of the revised standards and guidance.
The revised standards and guidance for (d) provisional accounting treatments for a business combination are effective for a business combination which occurs on or after the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted for a business combination which occurs on or after the beginning of annual periods beginning on or after April 1, 2014.
The Company applied the revised accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs above, effective April 1, 2015, and (d) provisional accounting treatments for a business combination above for a business combination which occurred on or after April 1, 2015. The revised accounting standards and guidance for (a) transactions with noncontrolling interest and (e) acquisition-related costs were applied prospectively.
With respect to (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income, the applicable line items in the 2015 consolidated financial statements have been accordingly reclassified and presented in line with those in 2016.
The impact from these accounting changes on the accompanying consolidated financial statements for the year ended March 31, 2016, was not material.
The impact on per share information for the year ended March 31, 2016, was not material.
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e. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value.
Cash equivalents include time deposits, certificate of deposits, commercial paper and bond funds, all of which mature or become due within three months of the date of acquisition. f. Inventories—Merchandise, finished products and supplies are stated at the lower of cost, determined by the moving average cost method, or net selling value.
Raw materials are stated at the lower of most recent purchase price which approximates cost determined by the first-in, first-out method, or net selling value.
Programs and work in process (including the right to use of audiovisual) are stated at the lower of cost, determined by the specific identification method, or net selling value.
Valuation losses due to declines in profitability included in cost of sales for the years ended March 31, 2016 and 2015, were ¥2,788 million ($24,742 thousand) and ¥1,347 million, respectively. g. Marketable and Investment Securities—Marketable and investment securities classified as available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity.
Compound financial instruments that incorporate derivative transactions which do not separate the fair value of the embedded derivatives are included in marketable and investment securities with measuring them as a whole at fair value. Unrealized gains (losses) are charged to current earnings.
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 to income.
Investments in limited partnerships are accounted for by the equity method. h. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its consolidated domestic subsidiaries is computed by the declining-balance method based on the estimated useful lives of the assets, while the straight-line method is applied to buildings (excluding accompanying facilities) acquired after April 1, 1998.
Depreciation of property, plant and equipment of consolidated foreign subsidiaries is computed by the straight-line method.
The range of useful lives is principally from 3 to 43 years for buildings and structures and from 2 to 20 years for other.
Accumulated depreciation of property, plant and equipment as of March 31, 2016 and 2015, was ¥5,954 million ($52,839 thousand) and ¥12,166 million, respectively. i. Long-Lived Assets—The AVEX Group reviews its long-lived assets 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 group exceeds 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 the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
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j. Intangible Assets—Intangible assets are amortized by the straight-line method over the estimated useful life (2–5 years). k. Leases—The AVEX Group leases certain studio facilities and vehicles as finance leases that do not transfer ownership of the leased property to the lessee. Finance leases that do not transfer ownership of the leased property to the lessee are depreciated by the straight-line method over the terms of the respective leases with no residual value. l. Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the companies' past credit loss experience and a valuation of potential losses in the receivables outstanding. m. Provision for Bonuses—Provision for bonuses is provided for the bonus payments to employees in estimated bonus amounts attributable to the current fiscal year. n. Provision for Sales Returns—Provision for sales return is provided for estimated losses arising from sales return based on the experiences in the past years.
Such estimated losses are directly charged to sales and the amount of sales return is reduced from provision for sales return. o. Retirement and Pension Plans—The AVEX Group (excluding certain consolidated subsidiaries) has defined benefit pension plans.
Additional retirement benefits are paid in certain circumstances.
Effective April 1, 2000, the Company adopted a new accounting standard for retirement benefits and 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 are attributed to periods on a straight-line basis. Actuarial gains and losses are amortized on a straight-line basis over 1 year within the average remaining service period. Past service costs are amortized on a straight-line basis over 11 years within the average remaining service period.
In May 2012, the ASBJ issued ASBJ Statement No. 26, "Accounting Standard for Retirement Benefits" and ASBJ Guidance No. 25, "Guidance on Accounting Standard for Retirement Benefits," which replaced the accounting standard for retirement benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009.
(a) Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).
(b) The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service period of the employees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss are included in other comprehensive income, and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period, are treated as reclassification adjustments (see Note 16).
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(c) The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods, the discount rate, and expected future salary increases.
With respect to (c) above, the Company changed the method of attributing the expected benefit to periods from a straight-line basis to a benefit formula basis, the method of determining the discount rate from using the period which approximates the expected average remaining service period to using a single weighted average discount rate reflecting the estimated timing and amount of benefit payment. p. Stock Options—In December 2005, the ASBJ issued ASBJ Statement No. 8, "Accounting Standard for Stock Options" and related guidance. The new standard and guidance are applicable to stock options newly granted on and after May 1, 2006. This standard requires companies to measure the cost of employee stock options based on the fair value at the date of grant and recognize compensation expense over the vesting period as consideration for receiving goods or services. The standard also requires companies to account for stock options granted to non-employees based on the fair value of either the stock options or the goods or services received. In the balance sheet, the stock options are presented as a stock acquisition right as a separate component of equity until exercised. The standard covers equity-settled, share-based payment transactions, but does not cover cash-settled, share-based payment transactions. In addition, the standard allows unlisted companies to measure options at their intrinsic value if they cannot reliably estimate fair value. q. Employee Stockownership Plan—In December 2013, the ASBJ issued PITF No. 30, "Practical Solution on Transactions of Delivering the Company's Own Stock to Employees etc. through Trusts." This PITF is effective for the beginning of annual periods beginning on or after April 1, 2014, with earlier application permitted from the beginning of annual periods first ending after the date of issuance of this PITF, and applied retrospectively.
In accordance with the PITF, upon transfer of treasury stock to the employee stockownership trust (the "Trust") by the entity, any difference between the book value and fair value of the treasury stock shall be recorded in capital surplus. At year-end, the entity shall record (1) the entity stock held by the Trust as treasury stock in equity, (2) all other assets and liabilities of the Trust on a line-by-line basis, and (3) a liability/asset for the net of (i) any gain or loss on delivery of the stock by the Trust to the employee shareholding association, (ii) dividends received from the entity for the stock held by the Trust, and (iii) any expenses relating to the Trust.
The Company applied this PITF effective April 1, 2014, while trust agreements entered into before April 1, 2014, are treated under previously used accounting methods. r. 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 and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.
The AVEX Group files a tax return under the consolidated corporate-tax system, which allows companies to base tax payments on the combined profits or losses of the parent company and its wholly owned domestic subsidiaries. s. 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 balance 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.
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t. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the 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" under accumulated other comprehensive income in a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate. u. Derivatives and Hedging Activities—The AVEX Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange. Foreign exchange forward contracts are utilized by the AVEX Group to reduce foreign currency exchange risks. The AVEX Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments are classified and accounted for as follows: (1) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statement of income; and (2) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.
Foreign currency forward contracts applied for forecasted transactions are measured at fair value but the unrealized gains/losses are deferred until the underlying transactions are completed. v. Per Share Information—Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants.
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. w. New Accounting Pronouncements
Tax Effect Accounting—On December 28, 2015, the ASBJ issued ASBJ Guidance No. 26, "Guidance on Recoverability of Deferred Tax Assets," which included certain revisions of the previous accounting and auditing guidance issued by the Japanese Institute of Certified Public Accountants. While the new guidance continues to follow the basic framework of the previous guidance, it provides new guidance for the application of judgment in assessing the recoverability of deferred tax assets.
The previous guidance provided a basic framework which included certain specific restrictions on recognizing deferred tax assets depending on the company's classification in respect of its profitability, taxable profit and temporary differences, etc.
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The new guidance does not change such basic framework but, in limited cases, allows companies to recognize deferred tax assets even for a deductible temporary difference for which it was specifically prohibited to recognize a deferred tax asset under the previous guidance, if the company can justify, with reasonable grounds, that it is probable that the deductible temporary difference will be utilized against future taxable profit in some future period.
The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Earlier application is permitted for annual periods ending on or after March 31, 2016. The new guidance shall not be applied retrospectively and any adjustments from the application of the new guidance at the beginning of the reporting period shall be reflected within retained earnings or accumulated other comprehensive income at the beginning of the reporting period.
The Company expects to apply the new guidance on recoverability of deferred tax assets effective April 1, 2016, and is in the process of measuring the effects of applying the new guidance in future applicable periods. x. Changes in Presentation
Consolidated Balance Sheet—"Accrued consumption taxes" of ¥1,589 million and "Deposits received" of ¥453 million for the year ended March 31, 2015, which were presented separately in prior periods, have been reclassified into "Other" in current liabilities to conform to the current year's presentation.
Consolidated Statement of Income—"Loss on sales and disposal of noncurrent properties" of ¥(16) million in other income (expenses) for the year ended March 31, 2015, has been presented as "Loss on disposal of noncurrent properties" since the AVEX Group has not recorded loss on sales of noncurrent properties for the year ended March 31, 2016 or 2015.
Consolidated Statement of Cash Flows—"Loss on sales and disposal of noncurrent properties" of ¥16 million for the year ended March 31, 2015, which was presented separately in prior periods, has been reclassified into "Other—net" in operating activities to conform to the current year's presentation. y. Additional Information
Employee Stockownership Plan—In September 2010, the Company introduced Employee Stockownership Plan (the "ESOP") as an incentive plan (the "Plan") for employees of the AVEX Group in order to generate employees' motivation and promote participation in the AVEX Group's management and raise a corporate value over the medium to long term.
Under the Plan, the ESOP purchases beforehand the planned amount of the stocks of the Company that the Trust purchases, and sells them to the Trust over five years. For the year ended March 31, 2016, sales of the stocks of the Company held by the ESOP have been completed.
Upon purchase and transfer of treasury stock by the ESOP, any difference between the book value and fair value of the treasury stock shall be recorded in capital surplus. In the year ended March 31, 2016, the Company recorded (1) the entity stock held by the ESOP as treasury stock in equity, (2) all other assets and liabilities of the ESOP, and (3) a liability/asset for the net of (i) any gain or loss on delivery of the stock by the ESOP to the Trust, (ii) dividends received from the Company for the stock held by the ESOP, and (iii) any expenses relating to the ESOP.
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The Company applied PITF No. 30, "Practical Solution on Transactions of Delivering the Company's Own Stock to Employees etc. through Trusts" effective April 1, 2014, while trust agreements entered into before April 1, 2014, are treated under previously used accounting methods.
Details of the stock held by the ESOP are as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Book value of the stock ¥ 6
The book value of the stock held by the ESOP was recorded as treasury stock in equity.
Thousands of Shares 2016 2015
Number of shares at the end of the year 5 Average number of shares 21
The number of shares at the end of fiscal year and the average number of shares during fiscal year were included in treasury stock, which is excluded from the calculation of per-share data.
3. MARKETABLE AND INVESTMENT SECURITIES
The costs and aggregate fair values of marketable and investment securities at March 31, 2016, were as follows:
Millions of Yen Unrealized Unrealized Fair March 31, 2016 Cost Gains Losses Value
Securities classified as available-for-sale— Debt securities ¥ 1,000 ¥ 3 ¥ 1,003
Thousands of U.S. Dollars Unrealized Unrealized Fair March 31, 2016 Cost Gains Losses Value
Securities classified as available-for-sale— Debt securities $ 8,874 $ 26 $ 8,901
Securities classified as available-for-sale—debt securities are compound financial instruments that incorporate derivative transactions which do not separate the fair value of the embedded derivatives.
The compound financial instruments are included in marketable and investment securities with measuring them as a whole at fair value. Unrealized gains (losses) are charged to current earnings.
The costs and aggregate fair values of marketable and investment securities at March 31, 2015, are not disclosed since their fair value cannot be reliably determined.
The information for available-for-sale securities which were sold during the year ended March 31, 2016, is not disclosed since the AVEX Group did not sell any available-for-sale securities.
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The information for available-for-sale securities which were sold during the year ended March 31, 2015, is as follows:
Millions of Yen Realized Realized March 31, 2015 Proceeds Gains Losses
Available-for-sale—Equity securities ¥ 4,939 ¥ 3,488
Investments in associated companies included in investment securities at the years ended March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Equity securities ¥ 4,155 ¥ 4,172 $ 36,874
4. LONG-LIVED ASSETS
The AVEX Group performs asset groupings in units that facilitate the ongoing assessment of earnings based on reportable segment classifications for business assets, as a minimum unit that generates independent cash flow.
For the year ended March 31, 2016, revising down the book value of asset groups to their recoverable value, the Company records impairment loss of ¥199 million ($1,766 thousand) as other expense for the amount of this downward revision for business assets in the video business, due to persistent losses arising from business activities.
The Company measures recoverable amounts based on the value in use. Residual value is used to evaluate business assets in the video business, due to the likelihood of negative future cash flow.
Details of impairment loss for the year ended March 31, 2016, were as follows:
Millions Thousands of Purpose of Use Location Type of Assets of Yen U.S. Dollars
Business use (video Tokyo Tools, furniture ¥ 40 $ 354 business) and fixtures Software 158 1,402
For the year ended March 31, 2015, revising down the book value of asset groups to their recoverable value, the Company records impairment loss of ¥779 million as other expense for the amount of this downward revision for business assets in the music business, due to the emergence of unrecoverable investments, and in the other business, due to persistent losses or projected losses arising from business activities.
The Company measures recoverable amounts based on the value in use. Residual value is used to evaluate business assets in the music business, due to the difficulty of reasonably estimating future cash flow, and in the other business, owing to the likelihood of negative future cash flow.
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Details of impairment loss for the year ended March 31, 2015, were as follows:
Millions Purpose of Use Location Type of Assets of Yen
Business use (music business) Tokyo Software ¥ 443 Business use (other business) Tokyo and Facilities attached to buildings 245 other 3 groups Tools, furniture and fixtures 5 of assets Software 12
Impairment losses other than the aforementioned are not disclosed since they are immaterial.
5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans and long-term debt at March 31, 2016 and 2015, consisted of the following:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Short-term bank loans, with weighted-average rate of 0.25% (2016) and 0.42% (2015) ¥ 8,500 ¥ 8,500 $ 75,434
Long-term loans: Current portion of long-term loans, with weighted-average rate of 2.75% (2015) 250 Long-term loans excluding current portion, due serially to 2017 with weighted-average rate of 2.75% (2015) 375
Lease obligation: Current portion of lease obligations 83 87 736 Lease obligations excluding current portion 82 110 727
Total ¥ 8,666 ¥ 9,322 $ 76,908
Long-term bonds—2nd unsecured 0.71% (floating rate) bond, due 2016 ¥ 720 ¥ 1,080 $ 6,389 Less current portion 720 360 6,389
Long-term bonds, less current portion ¥ 720
Annual maturities of long-term debt at March 31, 2016, were as follows:
Millions of Yen Year Ending Long-Term Long-Term Lease March 31 Bonds Loans Obligation
2017 ¥ 720 ¥ 83 2018 72 2019 5 2020 3 2021 and thereafter 1
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Thousands of U.S. Dollars Year Ending Long-Term Long-Term Lease March 31 Bonds Loans Obligation
2017 $ 6,389 $ 736 2018 638 2019 44 2020 26 2021 and thereafter 8
The carrying amounts of assets pledged as collateral as of March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Land ¥ 18,613
Total ¥ 18,613
The obligations collateralized by the above assets as of March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Current portion of long-term loans ¥ 250 Long-term loans, excluding current portion 375
Total ¥ 625
For the purpose of obtaining working funds effectively, for the years ended March 31, 2016 and 2015, the AVEX Group has entered into overdraft agreements and the commitment line with five financial institutions.
Information of overdraft agreements and loan commitment agreement was as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Contract amounts ¥ 14,500 ¥ 14,000 $ 128,682 Borrowings outstanding 8,500 8,500 75,434
Unused balance ¥ 6,000 ¥ 5,500 $ 53,248
There are financial covenants attached to the commitment line, which has a maximum limit of ¥9,500 million ($84,309 thousand) that the Company has with its three main banks. These financial covenants are based on certain indicators calculated using figures in equity of the consolidated balance sheets and operating income on the consolidated statements of income for each quarter and fiscal year.
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As of the years ended March 31, 2016 and 2015, the balance of debt subject to these financial covenants was as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Short-term bank loans by the commitment line ¥ 6,000 ¥ 5,000 $ 53,248
6. RETIREMENT AND PENSION PLANS
The AVEX Group (excluding certain consolidated subsidiaries) has defined benefit pension plans.
Additional retirement benefits are paid in certain circumstances.
(1) The changes in defined benefit obligation for the years ended March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Balance at beginning of year (as previously reported) ¥ 4,035 ¥ 3,356 $ 35,809 Cumulative effect of accounting change (24 ) Balance at beginning of year (as restated) 4,035 3,332 35,809 Current service cost 477 436 4,233 Interest cost 60 50 532 Actuarial losses (gains) 470 (68 ) 4,171 Benefits paid (88 ) (58 ) (780 ) Past service cost 344
Balance at end of year ¥ 4,952 ¥ 4,035 $ 43,947
(2) The changes in plan assets for the years ended March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Balance at beginning of year ¥ 1,913 ¥ 1,622 $ 16,977 Expected return on plan assets 38 337 Actuarial (losses) gains (65 ) 127 (576 ) Contributions from the employer 1,027 203 9,114 Benefits paid (88 ) (39 ) (780 )
Balance at end of year ¥ 2,825 ¥ 1,913 $ 25,070
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(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Funded defined benefit obligation ¥ 4,952 ¥ 2,412 $ 43,947 Plan assets (2,825 ) (1,913 ) (25,070 ) Total 2,126 498 18,867 Unfunded defined benefit obligation 1,622
Net liability arising from defined benefit obligation ¥ 2,126 ¥ 2,121 $ 18,867
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Liability for retirement benefits ¥ 2,126 ¥ 2,121 $ 18,867
Net liability arising from defined benefit obligation ¥ 2,126 ¥ 2,121 $ 18,867
(4) The components of net periodic benefit costs for the years ended March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Service cost ¥ 477 ¥ 436 $ 4,233 Interest cost 60 50 532 Expected return on plan assets (38 ) (337 ) Recognized actuarial gains (195 ) (81 ) (1,730 ) Amortization of prior service cost 99 71 878
Net periodic benefit costs ¥ 405 ¥ 476 $ 3,594
(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for the years ended March 31, 2016 and 2015
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Prior service cost ¥ 99 ¥ 272 $ 878 Actuarial gains (731 ) (114 ) (6,487 )
Total ¥ (631 ) ¥ 158 $ (5,599 )
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(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March 31, 2016 and 2015
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Unrecognized prior service cost ¥ 704 ¥ 804 $ 6,247 Unrecognized actuarial losses (gains) 535 (195 ) 4,747
Total ¥ 1,240 ¥ 608 $ 11,004
(7) Plan assets
a. Components of plan assets
Plan assets consisted of the following:
2016 2015
General insurance account 33 % 31 % Debt investments 25 26 Equity investments 19 20 Alternative investments 17 22 Others 6 1
Total 100 % 100 %
Alternative investments are mainly investment funds.
b. 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.
(8) Assumptions used for the years ended March 31, 2016 and 2015, were set forth as follows:
2016 2015
Discount rate 0.6% 1.5% Expected rate of return on plan assets 2.0 0.0
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7. EQUITY
Japanese 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 the year-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. However, the Company does not meet all the above criteria.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts 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 (a component of retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account charged upon the payment of such dividends, until the aggregate amount of legal reserve and additional 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.
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 by resolution 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, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.
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8. INFORMATION RELATED TO CONSOLIDATED CHANGES IN EQUITY
Changes in the outstanding number of shares of common stock and treasury stock for the years ended March 31, 2016 and 2015, were as follows:
Shares 2016 2015
Issued—Common stock: Balance at beginning of year 45,000,000 45,000,000
Balance at end of year 45,000,000 45,000,000
Treasury stock—Common stock: Balance at beginning of year 1,417,596 2,834,946 Increase 921,828 1,000,350 Decrease 279,700 2,417,700
Balance at end of year 2,059,724 1,417,596
Notes: 1. As of April 1, 2015 and 2014, treasury stock included 5,800 shares and 35,900 shares held by the ESOP, respectively.
2. As of March 31, 2015, treasury stock included 5,800 shares held by the ESOP.
3. For the year ended March 31, 2016, the major breakdown of changes in treasury stock was as follows:
March 31, 2016 Shares
Increase—Purchase of shares based on the resolution of the Board of Directors 921,400 Decrease: Exercise of stock options 273,900 Sales of treasury stock owned by the ESOP to the Trust 5,800
4. For the year ended March 31, 2015, the major breakdown of changes in treasury stock was as follows:
March 31, 2015 Shares
Increase—Purchase of shares based on the resolution of the Board of Directors 1,000,000 Decrease: Allocation of treasury stock to third-parties based on the resolution of the Board of Directors 2,000,000 Exercise of stock options 387,600 Sales of treasury stock owned by the ESOP to the Trust 30,100
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Dividends paid to shareholders for the years ended March 31, 2016 and 2015, were as follows:
Amount Amount* per Share Millions March 31, 2016 Type of Shares of Yen Yen Record Date Effective Date
Resolution approved by: Annual general meeting of shareholders held on June 19, 2015 Common stock ¥ 1,089 ¥ 25.00 March 31, 2015 June 22, 2015 The Board of Directors' meeting held on November 5, 2015 Common stock 1,070 25.00 September 30, 2015 December 7, 2015
March 31, 2015
Resolution approved by: Annual general meeting of shareholders held on June 24, 2014 Common stock ¥ 1,055 ¥ 25.00 March 31, 2014 June 25, 2014 The Board of Directors' meeting held on November 6, 2014 Common stock 1,032 25.00 September 30, 2014 December 5, 2014
Amount Amount* per Share Thousands of U.S. March 31, 2016 Type of Shares U.S. Dollars Dollars Record Date Effective Date
Resolution approved by: Annual general meeting of shareholders held on June 19, 2015 Common stock $ 9,664 $ 0.22 March 31, 2015 June 22, 2015 The Board of Directors' meeting held on November 5, 2015 Common stock 9,495 0.22 September 30, 2015 December 7, 2015
* Dividends paid to the ESOP (excluding dividends approved by the Board of Directors' meeting held on November 5, 2015) were included in the amounts of dividends paid in the above table.
Dividends declared after the fiscal year ended March 31, 2016, were as follows:
Amount Amount* per Share Millions March 31, 2016 Type of Shares of Yen Yen Record Date Effective Date
Resolution approved by—Annual general meeting of shareholders held on June 24, 2016 Common stock ¥ 1,073 ¥ 25.00 March 31, 2016 June 27, 2016
Amount Amount* per Share Thousands of U.S. March 31, 2016 Type of Shares U.S. Dollars Dollars Record Date Effective Date
Resolution approved by—Annual general meeting of shareholders held on June 24, 2016 Common stock $ 9,522 $ 0.22 March 31, 2016 June 27, 2016
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9. STOCK OPTIONS
Expenses related to stock options for the years ended March 31, 2016 and 2015, are as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Selling, general and administrative expenses ¥ 300 ¥ 291 $ 2,662
Gains on cancellation of vested stock options for the years ended March 31, 2016 and 2015, are as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Gains on reversal of subscription rights to shares ¥ 329 $ 2,919
The stock options outstanding as of March 31, 2016, are as follows:
1st Stock Option 2nd Stock Option
Date of resolution April 28, 2006 May 29, 2006 Persons granted 6 directors of the Company 84 outside contractors of the 26 employees of the Company Company and subsidiaries 133 directors and employees of subsidiaries Number of options granted 760,000 shares 229,500 shares Date of grant April 28, 2006 June 6, 2006 Exercise price ¥3,400 ¥3,405 Exercise period From July 1, 2008 to June 25, 2015 From July 1, 2008 to June 25, 2015
4th Stock Option 5th Stock Option
Date of resolution September 27, 2010 September 26, 2011 Persons granted 40 employees of the Company 4 directors of the Company 9 directors of subsidiaries 130 employees of subsidiaries Number of options granted 493,000 shares 107,600 shares Date of grant October 18, 2010 October 17, 2011 Exercise price ¥1,239 ¥1 Exercise period From September 28, 2012 to From October 18, 2014 to September 30, 2015 September 30, 2021
6th Stock Option 7th Stock Option
Date of resolution September 26, 2011 September 24, 2012 Persons granted 47 employees of the Company 4 directors of the Company 9 directors of subsidiaries 126 employees of subsidiaries Number of options granted 502,000 shares 101,400 shares Date of grant October 17, 2011 October 16, 2012 Exercise price ¥1,008 ¥1 Exercise period From October 18, 2013 to October From October 17, 2015 to 17, 2016 September 30, 2022
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8th Stock Option 9th Stock Option
Date of resolution September 24, 2012 September 30, 2013 Persons granted 46 employees of the Company 4 directors of the Company 7 directors of subsidiaries 123 employees of subsidiaries Number of options granted 468,000 shares 60,100 shares Date of grant October 16, 2012 October 17, 2013 Exercise price ¥1,601 ¥1 Exercise period From October 17, 2014 to October From October 18, 2016 to 16, 2017 September 30, 2023
10th Stock Option 11th Stock Option
Date of resolution September 30, 2013 September 29, 2014 Persons granted 41 employees of the Company 4 directors of the Company 7 directors of subsidiaries 128 employees of subsidiaries Number of options granted 463,000 shares 105,100 shares Date of grant October 17, 2013 October 17, 2014 Exercise price ¥3,003 ¥1 Exercise period From October 18, 2015 to October From October 18, 2017 to 17, 2018 September 30, 2024
12th Stock Option 13th Stock Option
Date of resolution September 29, 2014 September 28, 2015 Persons granted 54 employees of the Company 4 directors of the Company 5 directors of subsidiaries 118 employees of subsidiaries Number of options granted 465,000 shares 101,500 shares Date of grant October 17, 2014 October 16, 2015 Exercise price ¥1,773 ¥1 Exercise period From October 18, 2016 to October From October 17, 2018 to 17, 2019 September 30, 2025
14th Stock Option
Date of resolution September 28, 2015 Persons granted 55 employees of the Company 6 directors of subsidiaries 117 employees of subsidiaries Number of options granted 462,000 shares Date of grant October 16, 2015 Exercise price ¥1,608 Exercise period From October 17, 2017 to October 16, 2020
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The stock option activity is as follows:
Shares 1st 2nd 4th 5th Stock Stock Stock Stock Year Ended March 31, 2016 Option Option Option Option
Non-vested
March 31, 2015—Outstanding Granted Canceled Vested March 31, 2016—Outstanding
Vested
March 31, 2015—Outstanding 485,500 229,500 38,000 14,000 Vested Exercised (25,000) (14,000) Canceled (485,500) (229,500) (13,000) March 31, 2016—Outstanding
Exercise price ¥3,400 ¥3,405 ¥1,239 ¥1 ($30 ) ($30 ) ($10 ) ($0 ) Average stock price at exercise ¥1,703 ¥2,128 ($15 ) ($18 ) Fair value price at grant date ¥1,422.40 ¥208 ¥689 ($12 ) ($1 ) ($6 )
Shares 6th 7th 8th 9th Stock Stock Stock Stock Year Ended March 31, 2016 Option Option Option Option
Non-vested
March 31, 2015—Outstanding 101,400 60,100 Granted Canceled Vested (101,400) March 31, 2016—Outstanding 60,100
Vested
March 31, 2015—Outstanding 160,500 360,000 Vested 101,400 Exercised (47,600) (101,400) (85,900) Canceled (2,000) (4,000) March 31, 2016—Outstanding 110,900 270,100
Exercise price ¥1,008 ¥1 ¥1,601 ¥1 ($8 ) ($0 ) ($14 ) ($0 ) Average stock price at exercise ¥2,074 ¥1,457 ¥2,182 ($18 ) ($12 ) ($19 ) Fair value price at grant date ¥125 ¥1,236 ¥188 ¥2,550 ($1 ) ($10 ) ($1 ) ($22 )
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Shares 10th 11th 12th 13th Stock Stock Stock Stock Year Ended March 31, 2016 Option Option Option Option
Non-vested
March 31, 2015—Outstanding 444,000 105,100 462,000 Granted 101,500 Canceled (2,000) (4,000) Vested (442,000) March 31, 2016—Outstanding 105,100 458,000 101,500
Vested
March 31, 2015—Outstanding Vested 442,000 Exercised Canceled (2,000) March 31, 2016—Outstanding 440,000
Exercise price ¥3,003 ¥1 ¥1,773 ¥1 ($26 ) ($0 ) ($15 ) ($0 ) Average stock price at exercise Fair value price at grant date ¥559 ¥1,282 ¥220 ¥1,464 ($4 ) ($11 ) ($1 ) ($12 )
Shares 14th Stock Year Ended March 31, 2016 Option
Non-vested
March 31, 2015—Outstanding Granted 462,000 Canceled (2,000) Vested March 31, 2016—Outstanding 460,000
Vested
March 31, 2015—Outstanding Vested Exercised Canceled March 31, 2016—Outstanding
Exercise price ¥1,608 ($14 ) Average stock price at exercise Fair value price at grant date ¥397 ($3 )
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The Assumptions Used to Measure the Fair Value of the September 28, 2015 Stock Options
13th Stock Option 14th Stock Option
Date of resolution September 28, 2015 September 28, 2015 Estimate method Black-Scholes option Black-Scholes option pricing model pricing model Volatility of stock price 43.768% 42.817% Estimated remaining outstanding period 3.0 years 3.5 years Estimated dividend ¥50 ($0.44) per share ¥50 ($0.44) per share Risk free interest rate 0.020% 0.025%
10. INCOME TAXES
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in normal effective statutory tax rates of approximately 33.1% and 35.6% for the years ended March 31, 2016 and 2015, respectively.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2016 and 2015, are as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Deferred tax assets: Provision for sales returns ¥ 1,227 ¥ 1,331 $ 10,889 Depreciation 855 2,018 7,587 Tax loss carryforwards 816 1,973 7,241 Programs and work in process 670 667 5,946 Liability for retirement benefits 654 683 5,804 Loss on valuation of shares of associated company 493 540 4,375 Merchandise and finished products 490 490 4,348 Advance payments—trade 374 393 3,319 Provision for bonuses 323 503 2,866 Deposits received 289 439 2,564 Other 1,886 2,048 16,737 Subtotal 8,081 11,089 71,716 Less valuation allowance (2,346 ) (4,074 ) (20,820 )
Total 5,735 7,015 50,896
Deferred tax liabilities: Unrealized gain on available-for-sale securities (28 ) (43 ) (248 ) Asset retirement obligations (27 ) (52 ) (239 ) Other (44 )
Total (56 ) (140 ) (496 )
Net deferred tax assets ¥ 5,678 ¥ 6,875 $ 50,390
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A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2016, with the corresponding figures for 2015, is as follows:
2016 2015
Normal effective statutory tax rate 33.1 % 35.6 % Expenses not deductible for income tax purposes 6.2 4.2 Equity in earnings or losses of associated company 4.8 0.6 Adjustment to deferred tax assets and liabilities from changes in the statutory tax rate 2.3 4.5 Valuation allowance (2.6) (4.0) Other—net 0.9 (0.6)
Actual effective tax rate 44.7 % 40.3 %
New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on or after April 1, 2016, to approximately 30.9% and for the fiscal year beginning on or after April 1, 2018, to approximately 30.6%. The effect of these changes was to decrease deferred tax assets, net of deferred tax liabilities, by ¥190 million ($1,686 thousand) and increase accumulated other comprehensive income for unrealized gain on available-for-sale securities by ¥1 million ($8 thousand) and defined retirement benefit plans by ¥(10) million ($(88) thousand) in the consolidated balance sheet as of March 31, 2016, and to increase income taxes—deferred in the consolidated statement of income for the year then ended by ¥181 million ($1,606 thousand).
11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years ended March 31, 2016 and 2015, consisted of the following:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Advertising expenses ¥ 9,665 ¥ 8,972 $ 85,773 Promotion expenses 1,812 2,056 16,080 Provision of allowance for doubtful accounts (53 ) (470 ) Salaries and bonuses for employees 6,440 6,499 57,152 Provision for bonuses 1,066 1,536 9,460 Net periodic retirement benefit costs 405 476 3,594 Depreciation 1,728 3,868 15,335 Commission fee 4,728 4,993 41,959 Other 13,185 13,675 117,012
Total ¥ 38,978 ¥ 42,077 $ 345,917
12. OTHER INCOME (EXPENSES)
Loss on disposal of noncurrent properties for the years ended March 31, 2016 and 2015, consisted of the following: Thousands of Millions of Yen U.S. Dollars 2016 2015 2016 Loss on disposal of noncurrent properties: Property, plant and equipment—other property ¥ 8 ¥ 4 $ 70 Intangible assets 1 12 8
Total ¥ 9 ¥ 16 $ 79
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13. LEASES
Obligations and future minimum payments under non-cancelable operating leases as of the years ended March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Due within one year ¥ 1,114 ¥ 1,102 $ 9,886 Due after one year 752 1,839 6,673
Total ¥ 1,866 ¥ 2,941 $ 16,560
14. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
(1) AVEX Group Policy for Financial Instruments
The AVEX Group uses financial instruments, mainly long-term debt including bank loans for working capital. Cash surpluses, if any, are invested in short-term time deposits, etc. Derivatives, including compound financial instruments that incorporate derivative transactions, are used, not for speculative purposes, but to manage exposure to financial risks as described in (2) below.
(2) Nature and Extent of Risks Arising from Financial Instruments and Risk Management for Financial Instruments
Receivables, such as trade notes and trade accounts, are exposed to customer credit risk.
The AVEX Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of customers.
Marketable and investment securities mainly consist of compound financial instruments that incorporate derivative transactions, investment in partnerships and others and equity instruments of customers and suppliers of the AVEX Group.
Compound financial instruments that incorporate derivative transactions comprise equity-linked bonds that are in turn exposed to the risk of fluctuations in the Nikkei stock average. In order to manage this risk, the AVEX Group takes steps to properly identify and deliberate on all foreseeable risks while restricting its investment activities to financial institutions that exhibit a high credit standing. In addition, every effort is made to continuously monitor trends in the Nikkei stock average and to gather information on market values provided by financial institutions together with other pertinent data.
Investment in partnerships and others whose fair value is not readily determinable is managed by monitoring its financial condition on a regular basis. The results thereof are reported to the Director in charge.
The AVEX Group has no equity instruments exposed to the risk of market price fluctuations.
Equity instruments whose fair value is not readily determinable are managed by monitoring its financial condition on a regular basis.
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Payment terms of payables, such as notes and accounts payable—trade, accounts payable—other, accrued royalties and income tax payable are less than one year. Although some payables related to licenses of video works in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are hedged by using foreign currency forward contracts.
The AVEX Group uses short-term bank loans mainly for working capital.
Derivative transactions are approved by the Director in charge or the Board of Directors based on the internal guidelines which prescribe the authority and the limits for each transaction. Because the counterparties to these derivatives are limited to major financial institutions, the AVEX Group does not anticipate any losses arising from credit risk.
Payables and loans are subject to liquidity risk (the risk of not being able to make payments on the date that they are due). The AVEX Group, however, finances the borrowing needs of its domestic consolidated subsidiaries (excluding some subsidiaries) through a cash pooling system (CPS) in order to efficiently manage liquidity based on the cash management plans drawn up by each subsidiary every month.
(3) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, another rational valuation technique is used instead.
(a) Fair value of financial instruments
Millions of Yen Carrying Fair Unrealized March 31, 2016 Amount Value Gain/Loss
Assets: (1) Cash and cash in banks ¥ 21,107 ¥ 21,107 (2) Notes and accounts receivable—trade 21,271 Allowance for doubtful accounts (40 ) 21,231 21,231 (3) Marketable securities—Available-for-sale 1,003 1,003
Total ¥ 43,341 ¥ 43,341
Liabilities: (1) Notes and accounts payable—trade ¥ 2,020 ¥ 2,020 (2) Short-term bank loans 8,500 8,500 (3) Accounts payables—other 24,356 24,356 (4) Accrued royalties 8,748 8,748 (5) Income taxes payable 865 865 (6) Long-term bonds 720 720
Total ¥ 45,210 ¥ 45,210
Derivatives ¥ (99 ) ¥ (99 )
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Millions of Yen Carrying Fair Unrealized March 31, 2015 Amount Value Gain/Loss
Assets: (1) Cash and cash in banks ¥ 25,699 ¥ 25,699 (2) Notes and accounts receivable—trade 21,209 Allowance for doubtful accounts (90 ) 21,119 21,119
Total ¥ 46,819 ¥ 46,819
Liabilities: (1) Notes and accounts payable—trade ¥ 1,601 ¥ 1,601 (2) Short-term bank loans 8,500 8,500 (3) Accounts payables—other 26,990 26,990 (4) Accrued royalties 9,224 9,224 (5) Income taxes payable 680 680 (6) Long-term bonds 1,080 1,080 (7) Long-term loans 625 639 ¥ (14 )
Total ¥ 48,702 ¥ 48,716 ¥ (14 )
Derivatives ¥ 152 ¥ 152
Thousands of U.S. Dollars Carrying Fair Unrealized March 31, 2016 Amount Value Gain/Loss
Assets: (1) Cash and cash in banks $ 187,318 $ 187,318 (2) Notes and accounts receivable—trade 188,773 Allowance for doubtful accounts (354 ) 188,418 188,418 (3) Marketable securities—Available-for-sale 8,901 8,901
Total $ 384,637 $ 384,637
Liabilities: (1) Notes and accounts payable—trade $ 17,926 $ 17,926 (2) Short-term bank loans 75,434 75,434 (3) Accounts payables—other 216,151 216,151 (4) Accrued royalties 77,635 77,635 (5) Income taxes payable 7,676 7,676 (6) Long-term bonds 6,389 6,389
Total $ 401,224 $ 401,224
Derivatives $ (878 ) $ (878 )
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Assets
(1) Cash and Cash in Banks
The carrying values of cash and cash in banks approximate fair value because of their short maturities.
(2) Notes and Accounts Receivable—Trade
The carrying values of notes and accounts receivable approximate fair value because they are settled in the short term.
(3) Marketable Securities
The fair values of marketable securities are measured at the quoted price obtained from the financial institution.
Fair value information for marketable and investment securities by classification is described in Note 3.
Liabilities
(1) Notes and Accounts Payable—Trade, (2) Short-Term Bank Loans, (3) Accounts Payables—Other, (4) Accrued Royalties and (5) Income Taxes Payable
The carrying values of these liabilities approximate fair value because they are settled in the short term.
The fair values of payables are measured at the amount to be paid at maturity discounted at the AVEX Group's assumed corporate discount rate.
(6) Long-Term Bonds and (7) Long-Term Loans
For long-term bonds and long-term loans with floating interest rates, the carrying values of these liabilities approximate fair value because their floating rates reflect market interest rates within a short period.
For long-term bonds and long-term loans with fixed interest rates, the fair values are determined by discounting the cash flows related to the debt at a discount rate that is the sum of the credit spread and an appropriate benchmark rate.
Derivatives
Fair value information for derivatives is included in Note 15.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Investments in equity instruments that do not have a quoted market price in an active market ¥ 5,310 ¥ 5,501 $ 47,124
For the year ended March 31, 2016, the impairment loss on investments in equity instruments, unlisted securities and other was ¥38 million ($337 thousand).
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(4) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen Due after Due after Due in 1 Year 5 Years 1 Year through through Due after March 31, 2016 or Less 5 Years 10 Years 10 Years
Cash and cash in banks ¥ 21,107 Notes and accounts receivable—trade 21,271 Marketable securities—Available-for-sale securities with contractual maturities 1,000
Total ¥ 43,378
Thousands of U.S. Dollars Due after Due after Due in 1 Year 5 Years 1 Year through through Due after March 31, 2016 or Less 5 Years 10 Years 10 Years
Cash and cash in banks $ 187,318 Notes and accounts receivable—trade 188,773 Marketable securities—Available-for-sale securities with contractual maturities 8,874
Total $ 384,966
Please see Note 5 for annual maturities of long-term debt.
15. DERIVATIVES
The AVEX Group enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain payables denominated in foreign currencies.
All derivative transactions are entered into to hedge foreign currency exposures incorporated within the AVEX Group's business. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged assets or liabilities.
Fair value information for derivatives was as follows:
Derivative Transactions to Which Hedge Accounting Is Not Applied
Millions of Yen Contract Amount Contract Due after Fair Unrealized March 31, 2016 Amount One Year Value Gain/Loss
Foreign currency forward contracts— Buying U.S.$ ¥ 1,511 ¥(96 ) ¥(96 )
March 31, 2015
Foreign currency forward contracts— Buying U.S.$ ¥ 1,002 ¥ 139 ¥ 139
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Thousands of U.S. Dollars Contract Amount Contract Due after Fair Unrealized March 31, 2016 Amount One Year Value Gain/Loss
Foreign currency forward contracts— Buying U.S.$ $ 13,409 $ (851 ) $ (851 )
Compound financial instruments that incorporate derivative transactions are included in marketable securities with measuring them as a whole at fair value, since it is impossible to measure them separately their fair value reasonably at the year ended March 31, 2016.
Fair value information for marketable and investment securities by classification is described in Note 3.
The AVEX Group did not have compound financial instruments that incorporate derivative transactions at the year ended March 31, 2015.
Derivative Transactions to Which Hedge Accounting Is Applied
Millions of Yen Contract Amount Contract Due after Fair March 31, 2016 Hedged Item Amount One Year Value
Foreign currency forward contracts— Buying U.S.$ Payables ¥71 ¥(2 )
March 31, 2015
Foreign currency forward contracts— Buying U.S.$ Payables ¥ 676 ¥ 13
Thousands of U.S. Dollars Contract Amount Contract Due after Fair March 31, 2016 Hedged Item Amount One Year Value
Foreign currency forward contracts— Buying U.S.$ Payables $ 630 $ (17)
The fair value of derivative transactions is measured at the quoted price obtained from the financial institution.
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16. OTHER COMPREHENSIVE LOSS
The components of other comprehensive loss for the years ended March 31, 2016 and 2015, were as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Unrealized loss on available-for-sale securities: Losses arising during the year ¥ (47 ) ¥ (3,557 ) $ (417 ) Reclassification adjustments to profit or loss (3,488 ) Amount before income tax effect (47 ) (7,045 ) (417 ) Income tax effect 14 2,065 124
Total ¥ (32 ) ¥ (4,980 ) $ (283 )
Deferred (loss) gain on derivatives under hedge accounting: Gains arising during the year ¥ 39 ¥ 271 $ 346 Adjustments of acquisition cost of asset (55 ) (264 ) (488 ) Amount before income tax effect (16 ) 6 (141 ) Income tax effect 5 (2 ) 44
Total ¥ (11 ) ¥ 4 $ (97 )
Foreign currency translation adjustments: Adjustments arising during the year ¥ 6 ¥ (88 ) $ 53 Reclassification adjustments to profit or loss (1 ) 23 (8 ) Amount before income tax effect 5 (65 ) 44
Total ¥ 5 ¥ (65 ) $ 44
Defined retirement benefit plans: Adjustments arising during the year ¥ (535 ) ¥ (171 ) $ (4,747 ) Reclassification adjustments to profit or loss (96 ) 13 (851 ) Amount before income tax effect (631 ) (158 ) (5,599 ) Income tax effect 179 28 1,588
Total ¥ (452 ) ¥ (129 ) $ (4,011 )
Share of other comprehensive (loss) income in associates: Gains arising during the year ¥ 3 ¥ 179 $ 26 Reclassification adjustments to profit or loss (4 ) (35 )
Total ¥ (1 ) ¥ 179 $ (8 )
Total other comprehensive loss ¥ (492 ) ¥ (4,991 ) $ (4,366 )
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17. SUPPLEMENTAL CASH FLOW INFORMATION
Reconciliation between cash and cash in banks in the consolidated balance sheets as of March 31, 2016 and 2015, and cash and cash equivalents in the consolidated statements of cash flows for the years ended March 31, 2016 and 2015, was as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Cash and cash in banks ¥ 21,107 ¥ 25,699 $ 187,318
Cash and cash equivalents ¥ 21,107 ¥ 25,699 $ 187,318
18. RELATED PARTY TRANSACTIONS
The following summarize related party transactions between the Company and related parties for the years ended March 31, 2016 and 2015.
Officers and Individual Major Shareholders
Year Ended March 31, 2016
Description of Ownership Transaction Balance Business or Ratio of Description of Millions Thousands of Millions Thousands of Name Occupation Voting Rights Transaction of Yen U.S. Dollars Account of Yen U.S. Dollars
Touchdown, Co., Ltd. (Note 2) Publishing company — Consulting fee (Note 3) ¥ 25 $ 221
Notes: 1. The terms and conditions such as prices are decided based on market price.
2. Mr. Toru Kenjo, Director (part-time) of the Company, owns all shares of Touchdown, Co., Ltd.
3. The Company consults Touchdown, Co., Ltd. on business strategy such as secondary use of media contents.
Year Ended March 31, 2015
Ownership Transaction Balance Description of Ratio of Millions Millions Name Business or Occupation Voting Rights Description of Transaction of Yen Account of Yen
Ryuhei Chiba Representative Director, CSO Direct 0.67% Exercise of subscription (Note 2) ¥ 13 Shigekazu Takeuchi Representative Director, CFO Direct 0.02% Exercise of subscription (Note 2) 19 Shinji Hayashi Representative Director, CMO Direct 1.44% Exercise of subscription (Note 2) 13 Touchdown, Co., Ltd. (Note 3) Publishing company — Consulting fee (Note 4) 25
Notes: 1. The terms and conditions such as prices are decided based on market price.
2. The exercise of stock options granted by resolution at the general shareholders' meeting held on June 27, 2010, resolution at the Board of Directors' meeting held on September 27, 2010, resolution at the general shareholders' meeting held on June 26, 2011, and resolution at the Board of Directors' meeting held on September 26, 2011
The transaction volume is calculated by multiplying the number of shares issued as a result of exercise of the option by the amount paid.
3. Mr. Toru Kenjo, Director (part-time) of the Company, owns all shares of Touchdown, Co., Ltd.
4. The Company consults Touchdown, Co., Ltd. on business strategy such as secondary use of media contents.
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The following summarize related party transactions between the consolidated subsidiaries and related parties for the years ended March 31, 2016 and 2015.
Unconsolidated Subsidiaries and Associated Companies
Year Ended March 31, 2016
Description of Ownership Transaction Balance Business or Ratio of Description of Millions Thousands of Millions Thousands of Name Occupation Voting Rights Transaction of Yen U.S. Dollars Account of Yen U.S. Dollars
Associated company Delivery of Indirect 20.00% Digital products ¥ 4,612 $ 40,930 Notes and ¥ 1,132 $ 10,046 RecoChoku Co., Ltd. audio/video sales accounts content receivable
Note: The terms and conditions such as prices are decided based on market price.
Year Ended March 31, 2015
Description of Ownership Transaction Balance Business or Ratio of Description of Millions Millions Name Occupation Voting Rights Transaction of Yen Account of Yen
Associated company Delivery of audio/video Indirect 20.00% Digital products sales ¥ 4,852 Notes and accounts ¥ 1,166 RecoChoku Co., Ltd. content receivable
Note: The terms and conditions such as prices are decided based on market price.
Officers and Individual Major Shareholders
Year Ended March 31, 2016
Description of Ownership Transaction Balance Business or Ratio of Description of Millions Thousands of Millions Thousands of Name Occupation Voting Rights Transaction of Yen U.S. Dollars Account of Yen U.S. Dollars
Touchdown, Co., Ltd. (Note 2) Publishing company — Consulting fee (Note 3) ¥ 12 $ 106
Notes: 1. The terms and conditions such as prices are decided based on market price.
2. Mr. Toru Kenjo, Director (part-time) of the Company, owns all shares of Touchdown, Co., Ltd.
3. The Company consults Touchdown, Co., Ltd. on secondary use of media contents.
Year Ended March 31, 2015
Description of Ownership Transaction Balance Business or Ratio of Description of Millions Millions Name Occupation Voting Rights Transaction of Yen Account of Yen
Touchdown, Co., Ltd. (Note 2) Publishing company — Consulting fee (Note 3) ¥ 12 GENTOSHA INC. (Note 4) Publishing company — Purchase of books 14 Notes and accounts payable
Notes: 1. The terms and conditions such as prices are decided based on market price.
2. Mr. Toru Kenjo, Director (part-time) of the Company, owns all shares of Touchdown, Co., Ltd.
3. The Company consults Touchdown, Co., Ltd. on secondary use of media contents.
4. Mr. Toru Kenjo, Director (part-time) of the Company, owns 59% of shares of GENTOSHA INC.
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The condensed financial information of a significant associated company, AWA Co. Ltd., as of the year ended March 31, 2016, was as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2016
Current assets ¥ 600 $ 5,324 Current liability 1,371 12,167 Long-term liability 41 363 Equity (812 ) (7,206 )
Sales 355 3,150 Loss before income taxes (2,790 ) (24,760 ) Net loss (2,793 ) (24,787 )
AWA Co. Ltd. was recognized as a significant associated company from the year ended March 31, 2016, because of increased materiality of the company.
19. NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended March 31, 2016 and 2015, is as follows:
Millions Thousands of Yen of Shares Yen U.S. Dollars Net Income Attributable Weighted- to Owners of Average Year Ended March 31, 2016 the Parent Shares EPS
Basic EPS—Net income available to common shareholders ¥ 4,292 42,979 ¥ 99.88 $ 0.89 Effect of dilutive securities— Stock acquisition right 256
Diluted EPS—Net income for computation ¥ 4,292 43,235 ¥ 99.28 $ 0.88
Year Ended March 31, 2015
Basic EPS—Net income available to common shareholders ¥ 5,975 42,113 ¥ 141.90 Effect of dilutive securities— Stock acquisition right 389
Diluted EPS—Net income for computation ¥5,975 42,502 ¥ 140.60
Net assets per share as of March 31, 2016 and 2015, were as follows:
Yen U.S. Dollars 2016 2015 2016
Net assets per share ¥ 1,144.82 ¥ 1,131.29 $ 10.16
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The bases for calculation of net assets per share for the years ended March 31, 2016 and 2015, were as follows:
Millions Thousands of Yen of Shares Yen U.S. Dollars Number of Shares of Net Common Year Ended March 31, 2016 Assets Stock Net Assets per Share
Total net assets ¥ 52,392 Amounts deducted from total net assets: Stock acquisition right (643 ) Noncontrolling interests (2,589 )
Net assets as of the year-end attributed to common shareholders ¥ 49,158 42,940 ¥ 1,144.82 $ 10.16
Year Ended March 31, 2015
Total net assets ¥ 53,394 Amounts deducted from total net assets: Stock acquisition right (835 ) Noncontrolling interests (3,255 )
Net assets as of the year-end attributed to common shareholders ¥ 49,304 43,582 ¥ 1,131.29
20. SEGMENT INFORMATION
(1) Description of Reportable Segments
The AVEX Group's reportable segments are those for which separate financial information is available and regular evaluation by the Company's management is being performed in order to decide how resources are allocated among the AVEX Group.
The AVEX Group comprises the holding company, the Company, and associated operating companies.
Each operating company engages in business activities centered on music, visual entertainment and performing artists. Major business activities entail the planning, production, bundled sales and distribution of music and video content, the management of artistic talent, and the planning, production and management of merchandising and live concerts.
Accordingly, the AVEX Group reports its operations in music, video and artists as three business segments comprising the music business, video business, and management/live business.
Therefore, the AVEX Group's reportable segments consist of three reportable segments, music business, video business and management/live business.
Music business plans, produces, bundle sells and distributes music content.
Video business plans, produces, bundle sells and distributes video content.
Management/live business manages artistic talent, and plans, produces, and manages merchandising and live concerts.
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(2) Methods of Measurement for the Amounts of Sales, Profit, Assets, Liabilities 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, Assets, Liabilities and Other Items Millions of Yen 2016 Reportable Segment Music Video Management/ Business Business Live Business Total Other Total Reconciliations Consolidated Sales: Sales to external customers ¥ 58,871 ¥ 41,361 ¥ 51,195 ¥ 151,428 ¥ 2,694 ¥ 154,122 ¥ 154,122 Intersegment sales or transfers 2,353 440 4,561 7,355 281 7,637 ¥ (7,637 )
Total ¥ 61,224 ¥ 41,801 ¥ 55,756 ¥ 158,783 ¥ 2,976 ¥ 161,759 ¥ (7,637 ) ¥ 154,122
Segment profit ¥ 6,583 ¥ 85 ¥ 1,583 ¥ 8,252 ¥ (779 ) ¥ 7,473 ¥ (195 ) ¥ 7,277 Segment assets 19,366 22,463 10,936 52,765 705 53,471 57,737 111,208 Other: Depreciation 903 1,265 881 3,050 83 3,134 166 3,300 Investment in associated companies accounted for by equity method 2,670 1,467 4,138 4,138 4,138 Increase in property, plant and equipment and intangible assets 287 2,126 518 2,932 69 3,002 1,216 4,218
Millions of Yen 2015 Reportable Segment Music Video Management/ Business Business Live Business Total Other Total Reconciliations Consolidated Sales: Sales to external customers ¥ 65,463 ¥ 39,620 ¥ 61,482 ¥ 166,566 ¥ 2,690 ¥ 169,256 ¥ 169,256 Intersegment sales or transfers 2,164 210 3,852 6,227 592 6,819 ¥ (6,819 )
Total ¥ 67,628 ¥ 39,831 ¥ 65,334 ¥ 172,793 ¥ 3,282 ¥ 176,076 ¥ (6,819 ) ¥ 169,256
Segment profit ¥ 7,849 ¥ 1,832 ¥ 2,765 ¥ 12,447 ¥ (716 ) ¥ 11,731 ¥ (3,055 ) ¥ 8,675 Segment assets 15,585 18,485 16,017 50,088 1,075 51,164 66,400 117,564 Other: Depreciation 732 1,299 1,007 3,038 461 3,500 2,118 5,618 Investment in associated companies accounted for by equity method 3,142 1,013 4,155 4,155 4,155 Increase in property, plant and equipment and intangible assets 220 738 180 1,139 80 1,219 3,014 4,233
Thousands of U.S. Dollars 2016 Reportable Segment Music Video Management/ Business Business Live Business Total Other Total Reconciliations Consolidated Sales: Sales to external customers $ 522,461 $ 367,066 $ 454,339 $ 1,343,876 $ 23,908 $ 1,367,784 $ 1,367,784 Intersegment sales or transfers 20,882 3,904 40,477 65,273 2,493 67,776 $ (67,776 )
Total $ 543,343 $ 370,970 $ 494,817 $ 1,409,149 $ 26,411 $ 1,435,560 $ (67,776 ) $ 1,367,784
Segment profit $ 58,422 $ 754 $ 14,048 $ 73,233 $ (6,913 ) $ 66,320 $ (1,730 ) $ 64,581 Segment assets 171,867 199,352 97,053 468,272 6,256 474,538 512,397 986,936 Other: Depreciation 8,013 11,226 7,818 27,067 736 27,813 1,473 29,286 Investment in associated companies accounted for by equity method 23,695 13,019 36,723 36,723 36,723 Increase in property, plant and equipment and intangible assets 2,547 18,867 4,597 26,020 612 26,641 10,791 37,433
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Notes: 1. "Other" for the years ended March 31, 2016 and 2015, represents businesses such as school business and restaurant business, etc., which are not included in reportable segments.
2. "Reconciliations" of segment profit of ¥(195) million ($(1,730) thousand) for the year ended March 31, 2016, were mainly corporate expenses of ¥(166) million ($(1,473) thousand), unallocated to each reportable segment, and eliminations of intersegment transaction of ¥(29) million ($(257) thousand).
"Reconciliations" of segment profit of ¥(3,055) million for the year ended March 31, 2015, were mainly corporate expenses of ¥(3,017) million, unallocated to each reportable segment, and eliminations of intersegment transaction of ¥(38) million.
3. "Reconciliations" of segment assets for the year ended March 31, 2016, were corporate assets of ¥57,737 million ($512,397 thousand) unallocated to each reportable segment.
Corporate assets mainly consisted of land and cash and cash in bank held by the Company.
"Reconciliations" of segment assets for the year ended March 31, 2015, were corporate assets of ¥66,400 million unallocated to each reportable segment.
Corporate assets mainly consisted of land and building of headquarters and cash and cash in bank held by the Company.
4. "Reconciliations" of depreciation of ¥2,118 million for the year ended March 31, 2015, were related to corporate assets and unallocated to each reportable segment.
5. "Reconciliations" of increase in property, plant and equipment and intangible assets of ¥1,216 million ($10,791 thousand) for the year ended March 31, 2016, were mainly due to increase in software and other.
"Reconciliations" of increase in property, plant and equipment and intangible assets of ¥3,014 million for the year ended March 31, 2015, were mainly due to increase in buildings related to rebuild headquarters and software and other.
6. Segment profit is reconciled to operating income in the consolidated statement of income.
(Related Information)
Information by product and service for the years ended March 31, 2016 and 2015, is not disclosed since similar information is disclosed as information by reportable segment.
Information by geographical area for the years ended March 31, 2016 and 2015, is not disclosed since sales to domestic customers exceeded 90% of the sales amount in the consolidated statement of income and property, plant and equipment in Japan exceeded 90% of that in the consolidated balance sheet.
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Information about major customers for the years ended March 31, 2016 and 2015, is as follows:
Thousands of Millions of Yen U.S. Dollars 2016 2015 2016
Sales to—NTT DOCOMO, Inc. ¥ 22,859 ¥ 21,649 $ 202,866
Impairment loss on fixed assets by reportable segment for the years ended March 31, 2016 and 2015, was as follows:
Millions of Yen 2016 Reportable Segment Music Video Management/ Business Business Live Business Total Other Eliminated Total
Impairment loss ¥ 199 ¥ 199 ¥ 199
Millions of Yen 2015 Reportable Segment Music Video Management/ Business Business Live Business Total Other Eliminated Total
Impairment loss ¥ 516 ¥ 516 ¥ 263 ¥ 779
Thousands of U.S. Dollars 2016 Reportable Segment Music Video Management/ Business Business Live Business Total Other Eliminated Total
Impairment loss $ 1,766 $ 1,766 $ 1,766
21. SUBSEQUENT EVENT
Issuance of Stock Acquisition Rights to Certain Employees of the Company and Certain Directors and Employees of Its Subsidiaries
At the 29th General Meeting of Shareholders held on June 24, 2016, a special resolution was passed to issue stock acquisition rights as stock options at no cost to certain employees of the Company and certain directors and employees of its subsidiaries, based on Articles 236, 238 and 239 of the Companies Act.
Overview of the stock options is as follows:
(1) Persons granted Certain employees of the Company and certain directors and employees of subsidiaries (2) The upper limit of the number of granted shares 500,000 shares (3) Exercise period Three years from the day when two years have passed since the subsequent day of the allotment of stock acquisition rights
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