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January 9, 2019

Consolidated Financial and Operating Results for the Third Quarter of the Fiscal Year Ending February 28, 2019 (JGAAP)

Company Name: Tri-Stage Inc.

Listed Exchange: Tokyo Stock Exchange (Code Number: 2178)

URL: https://www.tri-stage.jp/

Representative: Akio Maruta, CEO and Representative Director

Contact for Inquiries: Shinya Nishida, General Manager, Accounting & Finance Department

TEL: (03) 5402-4111

Scheduled Date for Submitting the Quarterly Securities Report: January 15, 2019

Scheduled Date for Commencement of Dividend Payments: —

Availability of Supplementary Briefing Material on Quarterly Results: Yes

Schedule of Quarterly Result Briefing Sessions: Yes (for institutional investors and analysts)

(Amounts less than one million yen are rounded down.)

I. Consolidated Financial and Operating Results for the Third Quarter of FY 2018 (from March 1, 2018 to November 30, 2018)

1. Operating Results Percentages indicate year-on-year increase / (decrease)

Net sales Operating profit Ordinary profit Loss attributable to

owners of parent

Millions of yen % Millions of yen % Millions of yen % Millions of yen %

Third Quarter of FY 2018 40,712 (3.7) 652 (24.6) 128 (21.3) (1,128) –

Third Quarter of FY 2017 42,284 20.1 865 (31.9) 163 (86.9) (129) –

Note: Comprehensive income: Third quarter of FY2018: (1,259) million yen, –%; Third quarter of FY2017: (135) million yen, –%

Earnings per share Diluted earnings

per share

Yen Yen

Third Quarter of FY 2018 (38.74) –

Third Quarter of FY 2017 (4.46) –

Note: Regarding diluted earnings per share in the third quarter of FY2017 and FY2018, although there were dilutive shares, they are not

shown due to a quarterly net loss per share.

2. Financial Position

Total assets Net assets Equity ratio

Millions of yen Millions of yen %

As of November 30, 2018 16,633 7,373 43.1

As of February 28, 2018 18,019 8,914 48.2

Reference: Shareholders’ equity: As of November 30, 2018: 7,162 million yen; As of February 28, 2018: 8,682 million yen

II. Dividends

Dividends per share

First quarter Second quarter Third quarter Fourth quarter Annual

Yen Yen Yen Yen Yen

FY 2017 – 0.00 – 10.00 10.00

FY 2018 – 0.00 –

FY 2018 (forecast) – 7.00 7.00

Note: Revision to the dividend forecast published most recently: None

Note: This English translation is solely for reference purposes and not a legally definitive translation of the original Japanese text. In the event

a difference arises regarding the meaning herein, the original Japanese version will prevail as the official authoritative version.

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III. Consolidated Forecast for FY 2018 (From March 1, 2018 to February 28, 2019)

Percentages indicate year-on-year increase/(decrease)

Net sales Operating profit Ordinary profit

Loss attributable to

owners of parent

Earnings per share

Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen

Full year 53,214 (4.6) 658 (36.2) 111 (87.8) (1,179) – (40.48)

Note: Revision to the consolidated earnings forecast published most recently: None

For details, please refer to “Notice Regarding Earnings Forecast Revisions” announced on December 25, 2018.

IV. Other Items

1. Changes in the scope of consolidation for significant subsidiaries during the third quarter of the fiscal year under review (changes in specified subsidiaries resulting in change in the scope of consolidation): None

2. Application of special accounting practices in the preparation of the quarterly consolidated financial statements: None 3. Changes in accounting policies, changes in accounting estimates and restatements:

(1) Changes in accounting policies in accordance with revision of accounting standards: None

(2) Changes in accounting policies other than (1) above: None

(3) Changes in accounting estimate: None

(4) Restatements: None

4. Issued and outstanding common shares

(1) Number of shares issued and outstanding

at the end of the period, including treasury

shares:

Third quarter

of FY 2018: 30,517,200 shares FY2017: 30,517,200 shares

(2) Number of treasury shares at the end of the

period:

Third quarter

of FY 2018: 1,389,360 shares FY2017: 1,399,352 shares

(3) Average number of shares outstanding for

each period

Third quarter

of FY 2018: 29,122,273 shares

Third quarter

of FY 2017: 29,079,301 shares

⚫ Disclosure related to the implementation status of audit procedures

This summary report is not subject to audit procedures based on the Financial Instruments and Exchange Act; audit procedures for the consolidated

financial statements were being conducted when this report was disclosed.

⚫ Explanation regarding the appropriate use of forecasts of business results

1. The forecasts and future projections contained herein have been prepared on the basis of rational decisions given the information available as

of the date of announcement of this document, and do not represent promises with regard to the Company’s future results. Actual

performance may differ substantially from forecasts for a variety of reasons. Please refer to the “I. Qualitative Information on the Results for

the Subject Period, 3. Explanation of Forecasts for the Consolidated Financial and Operating Results of FY2018” on page 4 of the

attachment to this document for cautionary statements concerning the conditions and performance forecasts that serve as the basis for these

forecasts.

2. The Company plans to hold an annual result briefing session for institutional investors on Wednesday, January 9, 2019. We intend to

publish the briefing materials used during this meeting on our website promptly following the presentation.

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(Reference) Summary of Non-Consolidated Financial and Operating Results

I. Financial and Operating Results for the Third Quarter of FY 2018 (From March 1, 2018 to November 30, 2018)

1. Operating Results Percentages indicate year-on-year increase/(decrease)

Net sales Operating profit Ordinary profit Profit (loss) attributable

to owners of parent

Millions of yen % Millions of yen % Millions of yen % Millions of yen %

Third Quarter of FY 2018 22,352 (12.9) 766 (2.6) 757 (2.9) (1,413) –

Third Quarter of FY 2017 25,676 0.7 787 (37.1) 779 (37.4) 105 (86.7)

Earnings per share Diluted earnings

per share

Yen Yen

Third Quarter of FY 2018 (48.54) –

Third Quarter of FY 2017 3.63 3.60

Note: Regarding diluted earnings per share in the third quarter of FY2017 and FY2018, although there were dilutive shares, they are not

shown due to a quarterly net loss per share.

2. Financial Position

Total assets Net assets Equity ratio

Millions of yen Millions of yen %

As of November 30, 2018 13,446 7,508 55.5

As of February 28, 2018 15,075 9,203 60.8

Reference: Shareholders’ equity: As of November 30, 2018: 7,469 million yen; As of February 28, 2018: 9,170 million yen

II. Forecast for FY 2018 (From March 1, 2018 to February 28, 2019)

Percentages indicate year-on-year increase/(decrease)

Net sales Operating profit Ordinary profit

Loss attributable to

owners of parent

Earnings per share

Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen

Full year 28,995 (12.7) 852 (12.3) 838 (12.9) (1,389) – (47.71)

Note: Revision to the earnings forecast published most recently: None

For details, please refer to “Notice Regarding Earnings Forecast Revisions” announced on December 25, 2018.

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Index of the Attachment

I. Qualitative Information on the Results for the Subject Period

1. Explanation of Operating Results …………………………….…………………………….………….………. 2

2. Explanation of Financial Position …………………………………………..………………….……….……… 4

3. Explanation of Forecast for the Consolidated Financial and Operating Results of FY2018 ………………….……. 4

II. Consolidated Financial Statements and Primary Notes

1. Consolidated Balance Sheets …………………………….….…………………….………….………….………. 5

2. Consolidated Statements of Income and Comprehensive Income …..……………………..……………….…..… 7

(1) Consolidated Statements of Income ………………………………………………………….……………….. 7

(2) Consolidated Statements of Comprehensive Income …………………………………………………………. 8

3. Notes to Consolidated financial Statements ………………………………………………………………..………. 9

Segment information ………………………………………..…………………………………..…………… 9

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I. Qualitative Information on the Results for the Subject Period

1. Explanation of Operating Results

During the nine months ended November 30, 2018, despite remaining uncertainties about the future, the Japanese

economy was characterized by a rebound in personal consumption and gradual continuing recovery, against a backdrop

of increased corporate earnings and improvements in the employment and income environments.

At the same time, the direct marketing market associated with Tri-Stage Group client companies continued to

expand as mail order sales become more firmly entrenched.

Amid this environment, the consolidated fiscal year under review is positioned as a period in which the

Company will prepare for long-term growth, focusing efforts on increasing profitability and creating Group synergies

while attempting to establish a direct data marketing platform.

Also, in response to a marked decline in the market value of shares in equity method affiliate TV Direct Public

Company Limited at the end of the first quarter of the consolidated fiscal year under review, we recognized the

temporary amortization of goodwill equivalent to ¥495,166 thousand. As of November 30, 2018, the market value of

shares continued to decline, resulting in the recording of equity in losses of affiliates of ¥464,247 thousand included in

non-operating expenses. The total amount of equity in losses of affiliates was ¥505,239 thousand, reflecting equity

related to the performance of TV Direct Public Company Limited and other factors.

Furthermore, at the end of the first half of the fiscal year under review, based on considerations in light of the

progress of business plans and future business outlook for consolidated subsidiaries PT. Merdis International and JML

Singapore Pte. Ltd., an extraordinary loss was recorded as an impairment loss on non-current assets of ¥102,233

thousand and the entire balance of unamortized goodwill amounting to ¥851,070 thousand recorded when shares in

both companies were acquired.

As a result, during the nine months ended November 30, 2018, Group net sales were ¥40,712,719 thousand

(down 3.7 % year on year) and gross profit was ¥4,398,267 thousand (up 3.7% year on year). Selling, general and

administrative expenses were ¥3,745,552 thousand (up 10.9% year on year), operating profit was ¥652,715 thousand

(down 24.6% year on year), ordinary profit was ¥128,766 thousand (down 21.3% year on year), and loss attributable to

owners of parent was ¥1,128,143 thousand (a loss of ¥129,691 thousand in the same period of the previous year).

In light of the above, we recognize the need to quickly revise our Group growth strategy. We will revise our

Group growth strategy and reformulate our medium-term management plan, including future policies with respect to

overseas business, all of which we plan to disclose by the announcement of FY2018 financial results. Furthermore,

some Group companies are already promoting revisions to their business strategies.

Performance by segment is described below.

From the first quarter of the consolidated fiscal year under review, the method of calculating the profit or loss for

business segments has been revised. The year-on-year comparisons have been adjusted to reflect the method of

calculating profit or loss after this revision. For details, please see “Ⅱ. Notes to Consolidated Financial Statements and

Primary Notes, 3. Notes to Consolidated Financial Statements, Segment Information, 2. (4) Matters Related to Changes

in Reportable Segments.”

(1) Direct Marketing Support Business

In the TV Business, we leveraged our existing strengths of “providing optimal media provision based on data

analysis,” “video production able to sell” and “efficient order management” in an effort to maximize client company

TV shopping sales and profit. Regarding the issue of improving the gross profit margin this fiscal year with respect

to the purchase of an appropriate amount of media slots and performance-based transactions with poor profitability,

we reviewed transaction terms and attempted to reduce risks. Additionally, we successfully launched programs and

commercials with excellent profitability among new and existing client companies. As a result, despite a year-on-

year decline in net sales, the gross profit margin improved 1.9 points.

In the Web Business, we conducted mutual TV and online proposals driven mainly by adflex

communications, Inc., and aggressively introduced AI tools in an effort to acquire new customers and expand

transactions with existing customers while maximizing client company sales and profit. Although sales and gross

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profit declined in response to major client company ad placement plan revisions, with respect to the AdScale AI tool

for optimizing listing advertisements that has been introduced at over 4,000 companies overseas, in September a

service development partnership with SOPHOLA Corporation was launched to provide preferential services in

Japan. We have already introduced it to more than 10 companies, where it is steadily improving listing

advertisement efficiency. Furthermore, in terms of expenses, we are proactively recruiting staff to invest in human

resources for future growth. The number of employees has increased by 10 people compared to the same period in

the previous year.

As a result, net sales were ¥23,976,291 thousand (down 12.2% year on year) and operating profit was

¥938,650 thousand (down 9.8% year on year).

(2) Direct Mail Business

In the Direct Mail Business, we engaged in the handling of direct mail items for “Yu-mail” and “Kuroneko DM-

bin” mainly through mail customer center Co., Ltd. Despite concerns about the recent impact of shipping fee hikes,

the volume of direct mail handling reached a record high as the acquisition of new client companies has steadily

progressed. Despite concerns about the recent impact of shipping fee hikes, the volume of direct mail handling

reached a record high as the acquisition of new client companies has steadily progressed. We also reviewed sales

prices for existing client companies and promoted the maintenance and improvement of gross profit margins.

As a result, net sales were ¥13,926,439 thousand (up 9.5% year on year) and an operating profit was

¥299,537 thousand (up 33.3% year on year).

(3) Overseas Business

In the Overseas Business, PT. Merdis International and JML Singapore Pte. Ltd. are primarily engaged in product

sales and wholesale business via TV shopping, e-commerce and retail in ASEAN countries. Conditions remained

severe in the third quarter of the fiscal year under review, but detailed status inspections conducted onsite led to the

identification of problem areas and the promotion of business strategy revisions. Accordingly, as part of our business

restructuring in Thailand, we have decided on the dissolution of Tri-Stage Merchandising (Thailand) Co., Ltd. We

will continue revise our business strategy including selection and concentration to quickly improve performance in

this segment.

As a result, net sales were ¥1,438,372 thousand (up 18.1% year on year) and an operating loss was

¥313,611 thousand (an operating loss of ¥235,895 thousand in the previous fiscal year).

(4) Mail Order Business

In the Mail Order Business, we engaged in careful counseling conducted by pharmacists and mail order sales of

herbal preparations for general use led mainly by Nippon Healthcare Advisors Inc. This business is gaining

customers for the Watashi no Kanpoyaku series through mail order sales via television, radio and newspapers. We

are also engaged in counseling to ensure this product continues to be used.

As a result, net sales were ¥277,884 thousand (up 917.3% year on year) and an operating loss was ¥253,631

thousand (an operating loss of ¥171,184 thousand in the previous fiscal year).

(5) Other Business

The Other Business segment is comprised of the Nippon Department Store, a retail business operated by Nippon

Department Store Inc. With respect to the Nippon Department Store, we are engaged in expanding earnings at each

store and strengthening the wholesale business. In addition to the existing seven stores, “Nippon Department Store

Sakaba,” a first dining bar in the Tokyo Marunouchi district, was opened in May. In November, Tonarini, a shop

handling food and sundries, was opened at Hachioji Opa. Expenses increased due to these store openings and higher

labor costs in line with management system enhancements.

As a result, net sales were ¥1,093,730 thousand (up 7.8% year on year) and an operating loss was ¥18,888

thousand (an operating profit of ¥7,239 thousand in the previous fiscal year).

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2. Explanation of Financial Position

(1) Assets

At the end of the third quarter under review, total assets stood at ¥16,633,369 thousand, a decrease of ¥1,386,481

thousand compared to the end of the previous fiscal year. This decrease was mainly due to a ¥516,085 thousand

increase in notes and accounts receivable-trade, a ¥1,027,244 thousand decline in goodwill and a ¥605,013 thousand

decrease in investment securities.

(2) Liabilities

At the end of the third quarter under review, total liabilities amounted to ¥9,260,099 thousand, an increase of

¥155,231 thousand compared to the end of the previous fiscal year. This increase was mainly due to a ¥104,775

thousand increase in accounts payable-trade and a ¥80,638 thousand rise in income taxes payable.

(3) Net assets

At the end of the third quarter under review, total net assets stood at ¥7,373,270 thousand, a decrease of ¥1,541,712

thousand compared to the end of the previous fiscal year. This decline was mainly due to factors including a

¥1,128,143 thousand in loss attributable to owners of parent and dividends of surplus amounting to ¥291,178

thousand.

3. Explanation of Forecasts for the Consolidated Financial and Operating Results of FY2018

We revised the full-year consolidated earnings forecasts for the consolidated fiscal year ending February 28, 2019. The

revisions were announced on December 25, 2018. In light of recent earnings trends, the revision to the full-year

consolidated earnings forecasts for the consolidated fiscal year ending February 28, 2019, were made because Tri-Stage

expects recurring profit (for which it had projected a loss) to finish in the black. For details, please refer to “Notice

Regarding Earnings Forecast Revisions.”

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II. Consolidated Financial Statements and Primary Notes

1. Consolidated Balance Sheets (Thousands of yen)

Period

Item

As of February 28, 2018 As of November 30, 2018

Amount Amount

(Assets)

Current assets:

Cash and deposits 6,230,129 6,270,701

Notes and accounts receivable-trade 7,038,191 7,554,276

Merchandise 553,914 342,442

Work in process 16,375 9,328

Supplies 14,294 4,739

Other 287,575 281,490

Allowance for doubtful accounts (3,239) (3,610)

Total current assets 14,137,241 14,459,368

Non-current assets:

Property, plant and equipment 471,332 359,487

Intangible assets:

Goodwill 1,496,371 469,127

Other 290,162 298,302

Total intangible assets 1,786,534 767,429

Investments and other assets:

Investment securities 1,124,445 519,431

Other 472,683 515,781

Allowance for doubtful accounts (34,239) (41,173)

Total investments and other assets 1,562,889 994,039

Total non-current assets 3,820,756 2,120,956

Deferred assets 61,853 53,044

Total assets 18,019,850 16,633,369

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(Thousands of yen)

Period

Item

As of February 28, 2018 As of November 30, 2018

Amount Amount

(Liabilities)

Current liabilities:

Accounts payable-trade 4,601,557 4,706,333

Short-term loans payable 425,548 1,405,909

Income taxes payable 94,845 175,484

Provision for bonuses 3,814 81,898

Provision for directors’ bonuses 21,880 –

Other provision 18,708 24,485

Other 567,314 390,805

Total current liabilities 5,733,669 6,784,917

Non-current liabilities:

Long-term loans payable 3,080,560 2,192,597

Net defined benefit liability 106,116 110,184

Asset retirement obligations 79,786 80,401

Other 104,736 91,997

Total non-current liabilities 3,371,199 2,475,182

Total liabilities 9,104,868 9,260,099

(Net assets)

Shareholders’ equity:

Capital stock 645,547 645,547

Capital surplus 746,108 744,808

Retained earnings 7,851,739 6,432,485

Treasury shares (702,726) (697,820)

Total shareholders’ equity 8,540,669 7,125,021

Accumulated other comprehensive income:

Valuation difference on available for sale securities 350 423

Foreign currency translation adjustment 141,241 37,242

Total accumulated other comprehensive income 141,591 37,665

Subscription rights to shares 33,493 39,000

Non-controlling interests 199,227 171,582

Total net assets 8,914,982 7,373,270

Total liabilities and net assets 18,019,850 16,633,369

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2. Consolidated Statements of Income and Comprehensive Income

(1) Consolidated Statements of Income

(Thousands of yen)

Period Item

Third quarter of FY2017

(Nine months ended

November 30, 2017)

Third quarter of FY2018

(Nine months ended

November 30, 2018)

Amount Amount

Net sales 42,284,362 40,712,719

Cost of sales 38,001,003 36,272,621

Gross profit 4,283,359 4,440,098

Provision for sales returns 40,033 41,830

Gross profit, net 4,243,325 4,398,267

Selling, general and administrative expenses 3,377,945 3,745,552

Operating profit 865,380 652,715

Non-operating income:

Interest income 6,474 6,609

Dividend income 70 1

Foreign exchange gains 6,705 –

Commission fee 3,023 3,055

Other 4,972 3,689

Total non-operating income 21,246 13,355

Non-operating expenses:

Interest expenses 19,436 18,649

Share of loss of entities accounted for using equity method 691,135 505,239

Foreign exchange losses – 1,772

Other 12,515 11,643

Total non-operating expenses 723,087 537,304

Ordinary profit 163,539 128,766

Extraordinary income:

Gain on sales of non-current assets 1,472 267

Gain on reversal of share acquisition rights 349 566

Gain on sales of investment securities – 27,703

Total extraordinary income 1,821 28,537

Extraordinary loss:

Impairment loss – 959,173

Loss on retirement of non-current assets 18,538 549

Other – 5,455

Total extraordinary loss 18,538 965,178

Profit (loss) before income taxes 146,823 (807,874)

Income taxes-current 156,680 361,161

Income taxes-deferred 106,533 (29,349)

Total income taxes 263,214 331,812

Loss (116,391) (1,139,686)

Profit (loss) attributable to non-controlling interests 13,299 (11,543)

Loss attributable to owners of parent (129,691) (1,128,143)

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(2) Consolidated Statements of Comprehensive Income

(Thousands of yen)

Period

Item

Third quarter of FY2017

(Nine months ended

November 30, 2017)

Third quarter of FY2018

(Nine months ended

November 30, 2018)

Amount Amount

Loss (116,391) (1,139,686)

Other comprehensive income:

Valuation difference on available-for-sale securities 118 (80)

Foreign currency translation adjustment (40,110) (121,531)

Share of other comprehensive income of entities accounted for

using equity method 20,766 1,583

Total other comprehensive income (19,225) (120,027)

Comprehensive income: (135,616) (1,259,713)

Comprehensive income attributable to owners of parent (142,940) (1,232,069)

Comprehensive income attributable to non-controlling interests 7,324 (27,644)

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3. Notes to Consolidated Financial Statements

(Notes regarding assumption of a going concern)

Not applicable

(Notes to significant changes in shareholders' equity)

Not applicable

(Additional information)

Application of Consolidated Taxation System

Tri-Stage Inc., and certain of its consolidated subsidiaries adopted the consolidated taxation system from the first

quarter of FY 2018.

Segment information

1. For the Third Quarter of FY 2017 (from March 1, 2017 to November 30, 2017)

(1) Information on Net Sales and Operating Profit (Loss) by Reportable Segment (Thousands of yen)

Reporting segments

Other1 Total Adjustments2

Amount Stated in

the Consolidated

Statement of

Income 3

Direct Marketing

Support Business

Direct Mail

Business

Overseas

Business

Mail Order

Business Subtotal

Net sales

Sales to customers 27,302,464 12,722,396 1,217,693 27,316 41,269,871 1,014,490 42,284,362 – 42,284,362

Inter-segment

sales and transfers 58,214 1,526 3,064 – 62,804 4,471 67,275 (67,275) –

Total 27,360,678 12,723,923 1,220,757 27,316 41,332,676 1,018,962 42,351,638 (67,275) 42,284,362

Segment profit (loss) 1,040,505 224,663 (235,895) (171,184) 858,089 7,239 865,329 51 865,380

Note1: The “Other” category includes the Nippon Department Store and other business segments not included in reportable segments.

Note2: Adjustments to segment profit (loss) are mainly due to adjustments of provision of allowance for doubtful accounts.

Note3: Segment profit (loss) is adjusted to the operating profit indicated in the consolidated statement of income.

(2) Information Related to Assets by Reportable Segment

During the nine months ended November 30, 2017, the market value of the shares of TV Direct Public Company

Limited, an equity-method affiliate, were down considerably, so we wrote off an amount equivalent to that

decrease as a lump sum against goodwill. As a result, assets in the Overseas Business segment declined by

¥599,333 thousand, compared to the end of the previous consolidated fiscal year.

(3) Information Related to Impairment Losses on Non-current Assets and Goodwill by Reportable Segment

(Significant impairment losses on non-current assets)

Not applicable

(Significant changes in amounts of goodwill)

Not applicable

(Significant income generated from negative goodwill)

Not applicable

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2. For the Third Quarter of FY 2018 (from March 1, 2018 to November 30, 2018)

(1) Information on Net Sales and Operating Profit (Loss) by Reportable Segment (Thousands of yen)

Reporting segments

Other1 Total Adjustments2

Amount Stated in

the Consolidated

Statement of

Income 3

Direct Marketing

Support Business

Direct Mail

Business

Overseas

Business

Mail Order

Business Subtotal

Net sales

Sales to customers 23,976,291 13,926,439 1,438,372 277,884 39,618,988 1,093,730 40,712,719 – 40,712,719

Inter-segment

sales and transfers 238,189 10,243 12,666 – 261,099 1,147 262,246 (262,246) –

Total 24,214,481 13,936,683 1,451,038 277,884 39,880,088 1,094,878 40,974,966 (262,246) 40,712,719

Segment profit (loss) 938,650 299,537 (313,611) (253,631) 670,945 (18,888) 652,057 657 652,715

Note1: The “Other” category includes the Nippon Department Store and other business segments not included in reportable segments.

Note2: Adjustments to segment profit (loss) are mainly due to elimination of inter-segment receivables and payables.

Note3: Segment profit (loss) is adjusted to the operating profit indicated in the consolidated statement of income.

(2) Information Related to Assets by Reportable Segment

During the nine months ended November 30, 2018, the market value of the shares of TV Direct Public Company

Limited, an equity-method affiliate, were down considerably, so we wrote off an amount equivalent to that

decrease as a lump sum against goodwill. As a result, assets in the Overseas Business segment declined by

¥464,247 thousand, compared to the end of the previous consolidated fiscal year.

(3) Information Related to Impairment Losses on Non-current Assets and Goodwill by Reportable Segment

(Significant impairment losses on non-current assets)

In the Oversea Business, based on considerations in light of the progress of business plans and future business

outlook for consolidated subsidiaries PT. Merdis International and JML Singapore Pte. Ltd., an extraordinary loss

was recorded as an impairment loss on non-current assets of ¥953,304 thousand related to their businesses for the

nine months ended November 30, 2018.

(Significant changes in amounts of goodwill)

In the Oversea Business, based on considerations in light of the progress of business plans and future business

outlook for consolidated subsidiaries PT. Merdis International and JML Singapore Pte. Ltd., an extraordinary loss

was recorded as an impairment loss of the entire balance of unamortized goodwill amounting to ¥851,070

thousand posted when shares in both companies were acquired.

The impairment loss of the goodwill is included in the above (Significant impairment losses on non-current

assets).

(Significant income generated from negative goodwill)

Not applicable

(4) Matters Related to Changes in Reportable Segments

As of the first quarter of the consolidated fiscal year under review, the criteria for allocating common expenses and

the method of calculating business segment profit or loss has been revised to more appropriately evaluate and

manage performance in each reporting segment.

Moreover, segment information for the third quarter of the previous consolidated fiscal year have been

created to reflect calculation method revisions.