LINE Corporation (NYSE:LN) (TOKYO:3938) announces its
consolidated financial results for the nine months ended September
30, 2017.
[This is an English translation of the original
Japanese-language document. Should there be any inconsistency
between the translation and the original Japanese text, the latter
shall prevail. All references to the “Company,” “we,” “us,” or
“our” shall mean LINE Corporation and, unless the context otherwise
requires, its consolidated subsidiaries.]
Cautionary statement with respect to
forward-looking statements, and other information
This document contains forward-looking statements with respect
to the current plans, estimates, strategies and beliefs of the
Company. Forward-looking statements include, but are not limited
to, those statements using words such as “anticipate,” “believe,”
“continues,” “expect,” “estimate,” “intend,” “project” and similar
expressions and future or conditional verbs such as “will,”
“would,” “should,” “could,” “might,” “can,” “may,” or similar
expressions generally intended to identify forward-looking
statements. These forward-looking statements are based on
information currently available to the Company, speak only as of
the date hereof and are based on the Company’s current plans and
expectations and are subject to a number of known and unknown
uncertainties and risks, many of which are beyond the Company’s
control. As a consequence, current plans, anticipated actions and
future financial position and results of operations may differ
significantly from those expressed in any forward-looking
statements in the document. You are cautioned not to unduly rely on
such forward-looking statements when evaluating the information
presented and the Company does not intend to update any of these
forward-looking statements. Risks and uncertainties that might
affect the Company include, but are not limited to:
i. its ability to attract and retain
users and increase the level of engagement of its users; ii. its
ability to improve user monetization; iii. its ability to
successfully enter new markets and manage its business expansion;
iv. its ability to compete in the global social network services
market; v. its ability to develop or acquire new products and
services, improve its existing products and services and increase
the value of its products and services in a timely and
cost-effective manner; vi. its ability to maintain good
relationships with platform partners and attract new platform
partners; vii. its ability to attract advertisers to the LINE
platform and increase the amount that advertisers spend with LINE;
viii. its expectations regarding its user growth rate and the usage
of its mobile applications; ix. its ability to increase revenues
and its revenue growth rate; x. its ability to timely and
effectively scale and adapt its existing technology and network
infrastructure; xi. its ability to successfully acquire and
integrate companies and assets; xii. its future business
development, results of operations and financial condition; xiii.
the regulatory environment in which it operates; xiv. fluctuations
in currency exchange rates and changes in the proportion of its
revenues and expenses denominated in foreign currencies; and xv.
changes in business or macroeconomic conditions.
LINE CorporationIndex
Cover
A. Corporate information
I. Corporate overview
1. Selected consolidated financial data
2. Business description
II. Business
1. Risk factors
2. Material contracts
3. Analysis of financial position, operating results and cash
flow position
III. Company information
1. Share information
(1) Total number of shares
(2) Stock acquisition rights
(3) Exercises of bonds with stock acquisition
rights with exercise price amendment clause
(4) Rights plans
(5) Total number of shares issued, share
capital, etc.
(6) Principal shareholders
(7) Voting rights
2. Directors and executive officers
IV. Accounting
1. Interim condensed consolidated financial statements
(Unaudited)
(1) Interim condensed consolidated statement
of financial position (Unaudited)
(2) Interim condensed consolidated statement
of profit or loss (Unaudited)
(3) Interim condensed consolidated statement
of comprehensive income (Unaudited)
(4) Interim condensed consolidated statement
of change in equity (Unaudited)
(5) Interim condensed consolidated statement
of cash flows (Unaudited)
2. Others
B. Information on guarantors
LINE Corporation
A. Corporate information
I. Corporate overview
1. Selected consolidated financial data
Term
17th termNine months endedSeptember 30,
2016
18th termNine months endedSeptember 30,
2017
17th term
Accounting period
From January 1,2016 toSeptember 30,
2016
From January 1,2017 toSeptember 30,
2017
From January 1,2016 toDecember 31,
2016
Revenues 103,239 121,233 140,704 [Third quarter] (Millions
of yen) [35,929] [42,537] Profit before tax from continuing
operations
(Millions of yen)
15,266 21,198 17,990 Profit for the period
(Millions of yen)
5,684 12,184 7,104
Profit for the period attributable to the
shareholders of the Company
(Millions of yen) 5,315 12,074
6,763
[Third quarter] [2,756] [1,801] Total comprehensive
income for the period, net of tax
(Millions of yen)
4,331 13,334 5,852 Equity attributable to the shareholders of the
Company
(Millions of yen)
156,480 177,277 160,834 Total assets
(Millions of yen)
218,088 283,412 256,089 Basic profit for the period 28.54 55.09
34.84 [Third quarter] (Yen) [13.23] [8.19] Diluted profit
for the period
(Yen)
25.68 50.90 31.48 Ratio of equity attributable to the shareholders
of the Company to total assets
(%)
71.8 62.6 62.8 Net cash provided by operating activities
(Millions of yen)
16,347 4,076 28,753 Net cash used in investing activities
(Millions of yen)
(4,059) (16,959) (34,086) Net cash provided by financing activities
(Millions of yen)
84,427 2,266 106,628 Cash and cash equivalents at the end of the
period
(Millions of yen)
129,515 123,981 134,698 Notes: 1. Trends in these
selected financial data for the Company on a stand-alone basis are
not separately discussed as we prepare quarterly consolidated
financial statements. 2. Revenues do not include consumption taxes.
3. The above financial data were prepared based on the unaudited
interim condensed consolidated financial statements and the
consolidated financial statements prepared in accordance with
International Financial Reporting Standards (IFRS). 4. As of
September 30, 2017, equity attributable to the shareholders of the
Company and total assets held by the shareholders of the Company
increased as a result of the issuance of common stock for the
following reason:
• Exercise of stock acquisition rights
5.
In 2017, the Company and its subsidiaries
(collectively, the "Group") changed the rounding of its financial
statements from thousands to millions. Prior periods have been
revised to reflect this change in presentation.
2. Business description
During the nine months ended September 30, 2017, there were no
material changes in the business of the Group (the Company or the
principal subsidiaries and affiliates of the Company).
II. Business
1. Risk factors
During the nine months ended September 30, 2017, we entered into
new businesses that may further expose the Group to certain
operational risks described in the previous fiscal year’s
securities report. Such new businesses are described below.
Note that any forward-looking statements herein are based on
judgments of the Group as of this document’s submission date.
Also, the item numbers attached to the below headlines
correspond to the item numbers of “A. Corporate information, II.
Business, 4. Risk factors” in the previous fiscal year’s securities
report.
(1) Attracting, keeping and monetizing
users
The Group is promoting the cloud artificial
intelligence (“AI”) platform business which includes the Group’s AI
assistant technology “Clova.” Going forward, the Group plans to
proactively invest in the development, and sale of new AI products,
engage in promotional activities, etc., to secure a competitive
edge in the market early on. However, it is uncertain whether or
not the Group’s AI platform business will be profitable or
competitive going forward.
For readers of this English
translation: There were no material changes from the
information presented in the Risk Factors section of the Company's
Annual Report on Form 20-F (No. 001-37821) filed with the
Securities and Exchange Commission (the "SEC") on March 31,
2017.
2. Material contracts
No important operational contracts, etc. were decided or entered
into during the third quarter ended September 30, 2017.
For readers of this English
translation: With respect to material contracts, there were
no material changes from the information presented in the Company's
Annual Report on Form 20-F (No. 001-37821) filed with the SEC on
March 31, 2017.
3. Analysis of financial position, operating results and cash
flow position
The analysis of financial position, operating results and cash
flow position of the Group is as follows:
(1) Operating results
In the first nine months of 2017 (from January 1, 2017 to
September 30, 2017), there was ongoing uncertainty in the global
economy overall, including with respect to foreign exchange trends,
primarily as a result of concern over the new U.S. administration’s
protectionist economic policies and increased geopolitical risks in
the Middle East and North Korea. At the same time, emerging
economies in Asia, particularly the Chinese economy, began to show
signs of respite from economic slowdown. Thailand, one of the
Company’s key countries, enjoyed brisk exports despite appreciation
of the baht, and achieved a year-on-year increase in GDP growth
rates, while Taiwan increased its exports at a growth rate
exceeding 10% for the first six months of 2017 compared with the
same period of the previous year and maintained positive GDP growth
rates for five consecutive years.
Meanwhile, in the Japanese economy, there were signs of recovery
in exports in industries such as the IT industry, firm improvement
in employment rates and personal income levels, while personal
spending showed moderate improvement.
Amid such circumstances, in the internet industry in which the
Group is engaged, the total number of mobile phone shipments in
Japan for the fiscal year ended December 31, 2016 was 36.06
million, a decrease of 3.0% year on year. The ratio of smartphones
to the total number of mobile phone shipments in Japan was 81.6%,
an increase of 3.6 percentage points year on year. Although the
overall number of mobile phone shipments in Japan has hit a
ceiling, there was an increase in users switching from feature
phones to smartphones and an increase in the number of SIM-free
smartphones. Current estimates suggest that the number of
smartphone contracts in Japan will exceed 100 million by year 2018,
and the mobile internet market is expected to continue to grow on
the back of this expansion (Source: MM Research Institute, Japan
mobile phone handset shipment estimates for year 2016 and Overview
of domestic mobile phone shipments for FY 2016).
In this business environment, the Group actively moved forward
with the LINE business and portal segment. As of September 30,
2017, MAUs* in our four key countries (Japan, Taiwan, Thailand and
Indonesia) reached 168 million, a year-on-year increase of
4.1%.
* Monthly Active Users (“MAUs”) in a given month refers to the
number of user accounts that (i) accessed the LINE messaging
application or any LINE Games through mobile devices; (ii) sent
messages through the LINE messaging application from personal
computers; or (iii) sent messages through any other LINE
application from mobile devices, in each case at least once during
that month.
Revenues
The Group’s revenues from continuing operations from its major
services in the first nine months of 2016 and 2017 are as
follows:
(In millions of yen)
For the nine-month period ended September 30,
2016 2017 LINE business and portal segment
Communication and content Communication(1) 22,317 23,141 Content(2)
34,025 30,400 Others(3) 7,921 13,217 Sub-total 64,263 66,758
Advertising LINE advertising(4) 31,423 46,634 Portal advertising
7,553 7,841 Sub-total 38,976 54,475 Total 103,239 121,233
(1) Revenues from communication increased
mainly due to the steady growth of Creators’ Themes released in
April 2016, as well as a shortening of the time taken for stickers
to pass the review process and enhancement of products by popular
creators for Creators’ stickers. (2) Revenues from content
decreased mainly due to a decrease in revenues generated by the
LINE Games business as a result of fewer new title releases,
although we are steadily promoting existing services such as LINE
Manga, LINE Fortune and LINE MUSIC. (3) Revenues from others
increased mainly due to the expansion of LINE Friends service
primarily overseas as well as the launch of LINE Mobile in
September 2016. (4) Revenues from LINE advertising increased mainly
due to the continued growth of existing “messenger ads” such as
Official Accounts as well as a significant increase in revenues
generated by “performance ads” on Timeline and LINE NEWS provided
by the LINE Ads Platform released in June 2016.
Profit from operating activities
Profit from operating activities consists of revenues and other
operating income reduced by operating expenses. In the first nine
months of 2017, other operating income included 10,444 million yen
in gain on transfer of business resulting from restructuring of the
camera application business. With respect to operating expenses,
there was an increase in employee compensation expenses due to
headcount growth in accordance with business expansion, an increase
in marketing expenses due mainly to the active running of TV
commercials for LINE Mobile, an increase in authentication and
other service expenses due mainly to additional network costs for
LINE Mobile accompanying arising number of users, an increase in
depreciation expenses of furniture and fixtures which were newly
purchased due to the relocation of the headquarter offices, and an
increase in other operating expenses due to an increase in rent
payments for the new headquarter offices, which were partially
offset by a decrease in share-based payment expenses. Accordingly,
the Group recorded operating expenses of 108,269 million yen, a
year-on-year increase of 20.1%.
As a result, for the first nine months of 2017, the Group
recorded profit from operating activities of 24,479 million yen, a
year-on-year increase of 33.8%.
Profit for the period from continuing operations
The Group recorded profit before tax for the period from
continuing operations of 21,198 million yen in the first nine
months of 2017, a 38.9% increase year on year, due in part to an
increase in profit from operating activities, a decrease in loss on
foreign currency transactions, net, an increase in other
non-operating income and a decrease in other non-operating expenses
due to the revaluation of conversion right and redemption right of
preferred stock which were offset in part by an increase in share
of loss of associates and joint ventures mainly related to the
Group’s interest in Snow Corporation. Income tax expense increased
by 15.1% to 9,003 million yen for the first nine months of 2017
compared to the first nine months of 2016. On an after-tax basis,
profit for the period from continuing operations was 12,195 million
yen in the first nine months of 2017, an increase of 63.8% year on
year. The effective tax rate for the nine-month period ended
September 30, 2017 of 42.5% differed from the Japanese statutory
tax rate of 31.7% for the year ending December 31, 2017. The
effective income tax rate of 42.5% was primarily due to pre-tax
losses recorded by subsidiaries on a standalone basis and pre-tax
losses recorded by associates for which no deferred tax assets were
recognized as the related tax benefits could not be recognized and
due to recognition of share of loss on associates and joint
ventures.
Profit for the period
Loss for the period from discontinued operations, which relate
to the MixRadio business, for the first nine months of 2017
decreased from the corresponding period in 2016. Therefore, after
subtracting the loss for the period from discontinued operations,
profit for the period was 12,184 million yen in the first nine
months of 2017, an increase of 114.3% year on year. Profit for the
period attributable to the shareholders of the Company was 12,074
million yen in the first nine months of 2017, an increase of 127.2%
year on year.
(2) Financial position
Regarding the financial position of the Group as of September
30, 2017, total assets of the Group increased by 27,323 million yen
compared to the end of the previous fiscal year to 283,412 million
yen. The main factors of increase were a 9,794 million yen increase
in investments in associates and joint ventures mainly due to the
acquisition of additional shares of Snow Corporation, an associate
of the Group, in exchange for the camera application business, a
7,939 million yen increase in trade and other receivables due to
increase in revenue, a 5,937 million yen increase in goodwill
resulting from acquisition of subsidiaries, a 5,126 million yen
increase in other financial assets, non-current, mainly due to the
acquisition of debt instruments and the acquisition and revaluation
of available-for-sale financial assets, and a 4,646 million yen
increase in property and equipment, which related mainly to the
relocation of the headquarter offices, while the main factor of
decrease was a 10,717 million yen decrease in cash and cash
equivalents.
Total liabilities increased by 7,105 million yen to 102,171
million yen as of September 30, 2017. The main factors of increase
were a 3,811 million yen increase in advances received mainly due
to an increase in unused LINE Points, a 2,772 million yen increase
in other financial liabilities, current, mainly due to an increase
in the balance of charges payable in the LINE Pay service, a 2,069
million yen increase in trade and other payables due to increased
costs associated with increased revenues, and a 1,800 million yen
increase in provisions, non-current, caused by an increase in
provision for asset retirement associated with the relocation of
the headquarter offices, while the main factor of decrease was a
2,860 million yen decrease in income taxes payables due to tax
payments.
Total shareholders’ equity increased by 20,218 million yen to
181,241 million yen as of September 30, 2017. The main factors of
increase were recognition of 12,074 million yen of profit for the
period attributable to the shareholders of the Company, a 4,516
million yen increase in share capital and a 2,705 million yen
increase in share premium mainly due to exercise of stock options,
recognition of share-based compensation expenses and issuance of
common shares due to the introduction of the Employee Stock
Ownership Plan (J-ESOP), and a 3,775 million yen increase in
non-controlling interests mainly due to acquisition of
subsidiaries. Such increases were offset in part by the acquisition
of 4,000 million yen worth of treasury shares following the
introduction of the Employee Stock Ownership Plan.
(3) Cash flow position
The balance of cash and cash equivalents (hereinafter, "cash")
as of September 30, 2017 decreased by 10,717 million yen from
the end of the previous fiscal year to 123,981 million
yen.
The respective cash flow positions are as follows.
Cash flows from operating activities
Net cash provided by operating activities was 4,076 million yen
in the first nine months of 2017, compared to net cash provided by
operating activities of 16,347 million yen in the first nine months
of 2016. Cash provided by operating activities in the first nine
months of 2017 primarily consisted of profit before tax of 21,181
million yen and gain on loss of control of subsidiaries of 10,444
million yen, which were partly offset by adjustment for non-cash
items including depreciation and amortization expenses of 4,887
million yen and share of loss of associates and joint ventures of
4,308 million yen. Cash used in operating activities in the first
nine months of 2017 primarily consisted of income taxes paid of
11,151 million yen and an increase of 7,522 million yen in trade
and other receivables, partially offset by an increase of 3,686
million yen in advances received.
Cash flows from investing activities
Net cash used in investing activities was 16,959 million yen in
the first nine months of 2017, compared to net cash used in
investing activities of 4,059 million yen in the first nine months
of 2016. Factors affecting the cash outflows in the first nine
months of 2017 are primarily related to acquisition of property and
equipment and intangible assets of 8,413 million yen, purchase of
debt instruments of 4,433 million yen and acquisition of
subsidiaries and business, net of cash acquired of 3,876 million
yen.
Cash flows from financing activities
Net cash provided by financing activities was 2,266 million yen
in the first nine months of 2017, compared to net cash provided by
financing activities of 84,427 million yen in the first nine months
of 2016. The cash inflows in the first nine months of 2017 are
primarily related to proceeds from exercise of stock options of
2,030 million yen.
(4) Operational and financial issues to be addressed
During the nine months ended September 30, 2017, there were no
material changes in operational and financial issues to be
addressed by the Group.
(5) Research and development activities
Not applicable.
III. Company information
1. Share information
(1) Total number of shares
a. Total number of shares authorized
Total number of shares authorized Class
(Share) Common stock 690,000,000 Total 690,000,000
b. Number of shares issued
Class
Number of sharesissued as of end
ofperiod(Shares; as ofSeptember 30, 2017)
Number of sharesissued as of filing
date(Shares; as ofNovember 14, 2017)
Name of securitiesexchange
where the shares aretraded or thename of
authorizedfinancialinstruments firmsassociationwhere the shares
areregistered
Details Common stock 221,658,310 222,739,810
Tokyo Stock Exchange(First Section) andNew
York Stock Exchange
100 shares constituteone "unit" of
commonstock. Common stock isnot restricted by anysignificant
limitationsin terms ofshareholders' rights.
Total 221,658,310 222,739,810 — — Note: "Number of shares
issued as of filing date" does not include the number of shares
issued upon the exercise of the stock options during the period
from November 1, 2017 until the filing date of this Quarterly
Securities Report.
(2) Stock acquisition rights
Stock options (warrants) issued during the third quarter period
are as follows:
a. 20th series of stock options (warrants)
Date of resolution June 26, 2017 Number of
stock options (Units) 12,621 (Note 1) Number of treasury stock
options included in stock options (Units) — Class of share to be
issued upon exercise of stock options Common stock Number of shares
to be issued upon exercise of stock options (Shares) 1,262,100
(Note 2) Exercise price of each stock option (Yen) 4,206 (Note 3)
Exercise period for stock options From July 18, 2018 to July 18,
2027 Per share issue price and amount incorporated into capital per
share upon exercise of stock options (Yen) (Note 4)
Issue price:Amount incorporated into
capital:
5,7512,876
Conditions for exercise of stock options (Note 5, 7) Matters
relating to transfer of stock options Acquisition of stock options
by transfer will be subject to approval of the Company’s Board of
Directors. Matters relating to substitute payment — Matters
relating to granting of stock options in association with
organizational restructuring (Note 6)
Notes:
1. The number of shares to be issued upon
exercise of one warrant shall be 100.
2. If the Company conducts a share split
(including gratuitous allotment of shares of common stock of the
Company; the same applies below to the description of a share
split) or share consolidation of shares of common stock of the
Company, the Company shall adjust the number of allotted shares
using the following formula; and any fractions less than 1 share
arising due to such adjustment shall be rounded down.
Number of AllottedShares After
Adjustment
=
Number of Allotted SharesBefore
Adjustment
×
Share split orshare consolidation
ratio
Number of Allotted Shares After Adjustment
shall be applied, in the case of a share split, on or after the
record date of the share split (if no record date is determined,
the effective date of the share split); and in the case of a share
consolidation, on or after the effective date of the share
consolidation. However, if a share split is conducted on condition
that a proposal is passed at the Company’s shareholders’ meeting to
reduce the amount of surplus and increase the amount of stated
capital or capital reserve, and where the date of the close of that
shareholders’ meeting or any date before that is to be the record
date for the share split, then the Number of Allotted Shares After
Adjustment shall be applied on or after the date immediately
following the date on which the shareholders’ meeting is
closed.
3. If the Company conducts a share split or
share consolidation after the allotment date with respect to its
common stock, it shall adjust the exercise price using each of the
respective formulas set forth below; and any fractions less than 1
yen arising due to the adjustment shall be rounded up.
1) When conducting a share split or a share
consolidation
Exercise PriceAfter Adjustment = Exercise
PriceBefore Adjustment × 1 Share split or share
consolidation ratio
Exercise Price After Adjustment shall be
applied, in the case of a share split, on or after the record date
of the share split (if no record date is determined, the effective
date of the share split); and in the case of a share consolidation,
on or after the effective date of the share consolidation. However,
if a share split is conducted on condition that a proposal is
passed at the Company’s shareholders’ meeting to reduce the amount
of surplus and increase the amount of stated capital or capital
reserve, and where the date of the close of that shareholders’
meeting or any date before that is to be the record date for the
share split, then the Exercise Price After Adjustment shall be
applied on or after the date immediately following the date on
which the shareholders’ meeting is closed.
2) When issuing new shares of the Company’s
common stock or disposing of treasury shares at a price lower than
the market value (excluding where the foregoing is conducted by
exercising warrants)
Number of SharesAlready Issued
+ Number of sharesto be newly issued ×
Amount to bePaid-in Per Share
Exercise PriceAfterAdjustment
=
Exercise PriceBeforeAdjustment
× Market Value Per Share Number of Shares
Already Issued +Number of Shares to be Newly Issued
3) In addition to the above, if it is
appropriate to adjust the exercise price because of the Company’s
merger with another company, among others, after the allotment
date, the Company shall adjust the exercise price as necessary to a
reasonable extent.
4. Per share issue price upon exercise of
stock options is the sum of 4,206 yen, which is the exercise price
of each stock option and 1,545 yen, which is the fair value of each
stock option when the stock option was granted.
5. Conditions for exercise of warrants
1) In the case of death of a warrant holder,
an heir of that holder cannot exercise that holder’s warrants.
However, the foregoing shall not apply if the Company’s Board of
Directors approves such exercise.
2) Warrant holders must be in the position of
director of the Company or its associated companies (i.e., the
associated companies as set forth in the Ordinance on Terminology,
Forms, and Preparation Methods of Financial Statements, etc.) when
exercising the warrants. However, this shall not apply in cases of
the retirement of a director of the Company or its associated
companies due to the expiration of his or her term of office, or
other cases determined to have a reason to be justified by the
Company’s Board of Directors.
3) Each warrant cannot be exercised
partially.
6. If the Company conducts a merger (limited
to where the Company will disappear in a merger), absorption-type
split or incorporation-type split (in each case, limited to where
the Company becomes a splitting company), or share exchange or
share transfer (in each case, limited to where the Company becomes
a wholly-owned subsidiary) (collectively, the “Organizational
Restructuring”), the Company shall deliver to warrant holders who
hold the remaining warrants (the “Remaining Warrants”) at the time
immediately preceding the effective date of the Organizational
Restructuring (i.e., in each case, the date on which the
absorption-type merger becomes effective, the date on which a stock
company is incorporated through the consolidation-type merger, the
date on which the absorption-type split becomes effective, the date
on which a stock company is incorporated through the
incorporation-type split, the date on which the share exchange
becomes effective, or the date on which a wholly-owning parent
company is incorporated through the share transfer; the same below)
warrants of any of the stock companies listed in Article 236,
Paragraph 1, Item 8, (a) to (e) of the Companies Act (the
“Restructured Company”), upon the respective Organizational
Restructuring. In this case, the Remaining Warrants shall
disappear, and the Restructured Company shall newly issue warrants.
However, an absorption-type merger agreement, consolidation-type
merger agreement, absorption-type split agreement,
incorporation-type split plan, share exchange agreement, or share
transfer plan shall state that warrants of the Restructured Company
shall be delivered according to each of the following:
(i) Number of warrants of the Restructured Company to
be delivered The number equivalent to the number of the Remaining
Warrants held by the respective Warrant Holders shall be delivered.
(ii) Class of shares of the Restructured Company subject to
warrants Common stock of the Restructured Company (iii) Number of
shares of the Restructured Company subject to warrants To be
determined according to “Number of share to be issued upon exercise
of stock options” above by taking into consideration the conditions
and the like for the Organizational Restructuring. (iv) Value of
assets to be contributed upon the exercise of warrants The value of
assets to be contributed upon the exercise of each warrant to be
delivered shall be the amount obtained by taking into consideration
the conditions and the like of the Organizational Restructuring,
and by multiplying (a) the Exercise Price after the Organizational
Restructuring, which is obtained by adjusting the exercise price
determined according to “Amount of payments for stock options”
above, by (b) the number of shares of the Restructured Company
subject to the warrants, which is determined according to (iii)
above. (v) Exercise period of warrants The exercise period shall be
from the later of either (a) the commencement date of the period in
which warrants may be exercised as set forth in “Exercise period
for stock options” above, or (b) the effective date of the
Organizational Restructuring, to the expiration date of the period
in which warrants may be exercised as set forth in “Exercise period
for stock options” above. (vi) Matters regarding stated capital and
capital reserve that are to increase when shares are issued upon
the exercise of warrants To be determined according to “Share issue
price and amount incorporated into capital in the event of issuance
of shares upon exercise of stock options” above. (vii) Restriction
on acquisition of warrants by transfer
The acquisition of warrants by transfer
shall require the approval of the Board of Directors of the
Restructured Company.
(viii)
Clauses regarding acquisition of
warrants
To be determined according to “Grounds on
which the Company may acquire warrants and conditions related to
acquisition of warrants” below.
7. Grounds on which the Company may acquire
warrants and conditions related to acquisition of warrants
If a proposal under the following items 1),
2), 3), 4), or 5) is approved at the Company’s shareholders’
meeting (in the case where a resolution at a shareholders’ meeting
is not required, if a resolution is passed by the Company’s Board
of Directors or a determination is made by a delegated executive
officer in accordance with Article 416, paragraph 4 of the
Companies Act), the Company may acquire a warrant without
compensation on a date separately determined by the Board of
Directors (or by a delegated executive officer in accordance with
Article 416, paragraph 4 of the Companies Act):
1) a proposal to approve a merger agreement
by which the Company will be disappearing company;
2) a proposal to approve a split agreement or
a split plan by which the Company will be a splitting company;
3) a proposal to approve a share exchange
agreement or a share transfer plan by which the Company will be a
wholly-owned subsidiary;
4) a proposal to approve an amendment to the
Company’s articles of incorporation establishing a provision, with
respect to all issued shares of the Company, that an acquisition of
those shares by transfer shall require the Company’s approval;
or
5) a proposal to approve an amendment to the
Company’s articles of incorporation establishing a provision, with
respect to shares of the class subject to the warrants, that an
acquisition of those shares by transfer shall require the Company’s
approval, or with respect to the shares of that class, that the
Company shall acquire all of those shares by a resolution of the
Company’s shareholders’ meeting.
b. 21st series of stock options (warrants)
Date of resolution June 26, 2017 Number of
stock options (Units) 11,239 (Note 1) Number of treasury stock
options included in stock options (Units) — Class of share to be
issued upon exercise of stock options Common stock Number of shares
to be issued upon exercise of stock options (Shares) 1,123,900
(Note 2) Exercise price of each stock option (Yen) 4,206 (Note 3)
Exercise period for stock options From July 18, 2018 to July 18,
2027 Per share issue price and amount incorporated into capital per
share upon exercise of stock options (Yen) (Note 4)
Issue price:Amount incorporated into
capital:
5,751
2,876
Conditions for exercise of stock options (Note 5, 7) Matters
relating to transfer of stock options Acquisition of stock options
by transfer will be subject to approval of the Company’s Board of
Directors. Matters relating to substitute payment — Matters
relating to granting of stock options in association with
organizational restructuring (Note 6) Notes: 1. Same as note
1 for “a. 20th series of stock options (warrants)” above. 2. Same
as note 2 for “a. 20th series of stock options (warrants)” above.
3. Same as note 3 for “a. 20th series of stock options (warrants)”
above. 4. Same as note 4 for “a. 20th series of stock options
(warrants)” above. 5. Same as note 5 for “a. 20th series of stock
options (warrants)” above. 6. Same as note 6 for “a. 20th series of
stock options (warrants)” above. 7. Same as note 7 for “a. 20th
series of stock options (warrants)” above.
(3) Exercises of bonds with stock acquisition rights with
exercise price amendment clause
Not applicable.
(4) Rights plans
Not applicable.
(5) Total number of shares issued, share capital,
etc.
Date Change in the numberof shares
issued
(Shares)
Balance of sharesissued
(Shares)
Change in sharecapital
(Millions of yen)
Balance of
share capital
(Millions of yen)
Change in legalcapital reserve(Millions of yen) Balance of legal
capital reserve
(Millions of yen)
July 18, 2017 (Note 2) 1,007,810 220,414,810 1,999 81,918 1,999
71,983 July 1, 2017 to September 30, 2017 (Note 3) 1,243,500
221,658,310 453 82,371 453 72,436 Notes: 1. Amounts
less than one thousand yen are rounded down. 2. Third-party
offering (Employee Stock Ownership Plan (J-ESOP))
Issue price
3,969 yen
Amount incorporated into capital
1,984.5 yen
Allottees
Trust & Custody Services Bank, Ltd.
(Trust E)
3. Increase in total number of shares issued as a result of the
exercise of stock options. 4. Total number of shares issued
increased by 1,081,500 shares, and share capital and legal capital
reserve each increased by 212 million yen upon the exercise of the
stock options during the period from October 1, 2017 to October 31,
2017.
(6) Principal shareholders
The principal shareholders are not presented on account of the
current quarterly accounting period being the third quarter
period.
(7) Voting rights
a. Shares issued
(As of September 30, 2017)
Classification
Number of shares
(Shares)
Number of voting rights
(Units)
Details Shares without voting rights — — — Shares with restricted
voting rights (treasury stock, etc.) — — — Shares with restricted
voting rights (others) — — — Shares with full voting rights
(treasury stock, etc.) — — — Shares with full voting rights
(others) Common stock
221,641,400
2,216,414
100 shares constituteone "unit" of
commonstock. Common stock isnot restricted by anysignificant
limitations interms of shareholders'rights.
Shares constituting less than one unit Common stock
16,910
— — Total number of shares issued Common stock
221,658,310
— — Total number of voting rights held by all shareholders —
2,216,414 — Notes: 1. Common stock in “Shares with
full voting rights (others) “includes 1,007,800 stocks held by the
Trust for Employee Stock Ownership Plan (J-ESOP). 2. “Shares
constituting less than one unit “includes 10 stocks of the Group,
which is held by the Trust for the Employee Stock Ownership Plan
(J-ESOP).
b. Treasury stock, etc.
In connection with the Company’s implementation of an Employee
Stock Ownership Plan (J-ESOP), Trust & Custody Services Bank,
Ltd. (Trust E) holds 1,007,810 shares of the Company’s stock as
trust property. Said shares are recorded as treasury stock in the
interim condensed consolidated financial statements as per
accounting policies. However, these shares hold voting rights and
do not qualify as treasury stock as set forth in the Companies Act.
As such, in the above “a. Shares issued,” they are included in
“Shares with full voting rights (others)” and are not included in
“Shares with restricted voting rights (treasury stock, etc.)” or
“Shares with full voting rights (treasury stock, etc.).” Therefore,
there is nothing to disclose in this section.
2. Directors and executive officers
Not applicable.
IV. Accounting
Preparation of interim condensed consolidated financial
statements
The interim condensed consolidated financial statements of the
Group are prepared in conformity with International Accounting
Standard 34, "Interim Financial Reporting" pursuant to the
provisions of Article 93 of the Ordinance on Terminology, Forms and
Preparation Methods of Quarterly Consolidated Financial Statements
(Cabinet Office Ordinance No. 64 of 2007; hereinafter referred to
as the "Ordinance on QCFS").
In 2017, the Group changed the rounding of its interim condensed
consolidated financial statements from thousands to millions. Prior
periods have been revised to reflect this change in
presentation.
1 Interim condensed consolidated financial statements
(1) Interim Condensed Consolidated Statement of Financial
Position - Unaudited
(In millions of yen)
Notes
December 31,2016
September 30,2017
Assets Current assets Cash and cash equivalents
134,698 123,981 Trade and other receivables 7 28,167 36,106 Other
financial assets, current 7 6,952 5,470 Inventories 961 2,915 Other
current assets 3,929 7,237
Total current
assets 174,707 175,709
Non-current assets Property and
equipment 5 9,029 13,675 Goodwill 15 3,400 9,337 Other intangible
assets 15 1,851 4,280 Investments in associates and joint ventures
17 12,712 22,506 Other financial assets, non-current 7 35,715
40,841 Deferred tax assets 6 18,385 16,634 Other non-current assets
290 430
Total non-current assets 81,382
107,703
Total assets 256,089 283,412
Liabilities
Current liabilities Trade and other payables 7 21,532 23,601
Other financial liabilities, current 7 24,497 27,269 Accrued
expenses 9,049 9,943 Income tax payables 5,699 2,839 Advances
received 11,286 15,097 Deferred revenue 9,739 9,190 Provisions,
current 964 581 Other current liabilities 3,670 1,537
Total current liabilities 86,436 90,057
Non-current
liabilities Other financial liabilities, non-current 7 – 174
Deferred tax liabilities 6 1,161 1,784 Provisions, non-current 5
1,120 2,920 Post-employment benefits 6,204 7,029 Other non-current
liabilities 145 207
Total non-current
liabilities 8,630 12,114
Total liabilities
95,066 102,171
Shareholders’ equity Share
capital 8 77,856 82,372 Share premium 8 91,208 93,913 Treasury
shares 8 – (4,000 ) Accumulated deficit (12,381 ) (299 )
Accumulated other comprehensive income 4,151 5,291
Equity attributable to the shareholders of the Company
160,834 177,277
Non-controlling interests 15 189
3,964
Total shareholders’ equity 161,023
181,241
Total liabilities and shareholders’ equity
256,089 283,412
(2) Interim Condensed Consolidated Statement of Profit or Loss -
Unaudited
(In millions of yen)
For the nine-month period ended
September 30,
Notes 2016 2017
Revenues and other operating income: Revenues 4 103,239
121,233 Other operating income 9 5,212 11,515
Total revenues and other operating income 108,451 132,748
Operating expenses: Payment processing and licensing
expenses (22,435 ) (22,320 ) Employee compensation expenses 13
(28,889 ) (30,064 ) Marketing expenses (7,552 ) (10,396 )
Infrastructure and communication expenses (5,657 ) (6,610 )
Authentication and other service expenses (9,720 ) (17,221 )
Depreciation and amortization expenses 5 (3,659 ) (4,887 ) Other
operating expenses 18 (12,245 ) (16,771 )
Total operating
expenses (90,157 ) (108,269 )
Profit from operating
activities 18,294 24,479 Finance income 55 136 Finance costs
(58 ) (18 ) Share of loss of associates and joint ventures 17 (326
) (4,308 ) Loss on foreign currency transactions, net (1,646 ) (295
) Other non-operating income 12 4 1,268 Other non-operating
expenses 12 (1,057 ) (64 )
Profit before tax from continuing
operations 15,266 21,198 Income tax expenses 6 (7,819 ) (9,003
)
Profit for the period from continuing operations 7,447
12,195 Loss from discontinued operations, net of tax 10 (1,763 )
(11 )
Profit for the period 5,684 12,184
Attributable to: The shareholders of the Company 11 5,315 12,074
Non-controlling interests 369 110
(In yen)
Earnings per share Basic profit for the period attributable
to the shareholders of the Company 11 28.54 55.09 Diluted profit
for the period attributable to the shareholders of the Company 11
25.68 50.90 Earnings per share from continuing operations Basic
profit from continuing operations attributable to the shareholders
of the Company 11 38.00 55.14 Diluted profit from continuing
operations attributable to the shareholders of the Company 11 34.20
50.95 Earnings per share from discontinued operations Basic loss
from discontinued operations attributable to the shareholders of
the Company 11 (9.46 ) (0.05 ) Diluted loss from discontinued
operations attributable to the shareholders of the Company 11 (8.52
) (0.05 )
(2) Interim Condensed Consolidated Statement of Profit or Loss –
Unaudited (continued)
(In millions of yen)
For the three-month period ended
September 30,
Notes 2016 2017
Revenues and other operating income: Revenues 4 35,929
42,537 Other operating income 9 170 491
Total
revenues and other operating income 36,099 43,028
Operating expenses: Payment processing and licensing
expenses (7,307 ) (7,296 ) Employee compensation expenses (9,775 )
(10,799 ) Marketing expenses (2,798 ) (2,538 ) Infrastructure and
communication expenses (1,881 ) (2,225 ) Authentication and other
service expenses (3,583 ) (6,512 ) Depreciation and amortization
expenses 5 (1,425 ) (1,870 ) Other operating expenses 18 (4,403 )
(5,938 )
Total operating expenses (31,172 ) (37,178 )
Profit from operating activities 4,927 5,850 Finance income
15 69 Finance costs (18 ) (4 ) Share of loss of associates and
joint ventures 17 (182 ) (1,865 ) (Loss)/gain on foreign currency
transactions, net (270 ) 34 Other non-operating income 12 109 183
Other non-operating expenses 12 (3 ) (30 )
Profit before tax
from continuing operations 4,578 4,237 Income tax expenses 6
(1,663 ) (2,598 )
Profit for the period from continuing
operations 2,915 1,639 Loss from discontinued operations, net
of tax 10 (97 ) (4 )
Profit for the period 2,818
1,635 Attributable to: The shareholders of the Company 11
2,756 1,801 Non-controlling interests 62 (166 )
(In yen)
Earnings per share
Basic profit for the period attributable to the shareholders of the
Company 11 13.23 8.19 Diluted profit for the period attributable to
the shareholders of the Company 11 12.06 7.59 Earnings per share
from continuing operations Basic profit from continuing operations
attributable to the shareholders of the Company 11 13.69 8.21
Diluted profit from continuing operations attributable to the
shareholders of the Company 11 12.48 7.61 Earnings per share from
discontinued operations Basic loss from discontinued operations
attributable to the shareholders of the Company 11 (0.46 ) (0.02 )
Diluted loss from discontinued operations attributable to the
shareholders of the Company 11 (0.42 ) (0.02 )
(3) Interim Condensed Consolidated Statement of Comprehensive
Income - Unaudited
(In millions of yen)
For the nine-month period ended
September 30,
Notes 2016 2017 Profit
for the period 5,684 12,184
Other comprehensive income
Items that may be reclassified to profit or loss:
Available-for-sale financial assets: Net changes in fair value 12
(729 ) 1,958 Reclassification to profit or loss 276 (664 ) Exchange
differences on translation of foreign operations: (Loss)/gain
arising during the period (929 ) 213 Reclassification to profit or
loss 50 (13 ) Proportionate share of other comprehensive income of
associates and joint ventures (16 ) 4 Income tax relating to items
that may be reclassified subsequently to profit or loss (5 ) (348 )
Total other comprehensive income for the period, net of tax
(1,353 ) 1,150
Total comprehensive income for the period,
net of tax 4,331 13,334 Attributable to: The
shareholders of the Company 3,925 13,212 Non-controlling interests
406 122
(3) Interim Condensed Consolidated Statement of
Comprehensive Income - Unaudited (continued)
(In millions of yen)
For the three-month period ended
September 30,
Notes 2016 2017 Profit
for the period 2,818 1,635
Other comprehensive income
Items that may be reclassified to profit or loss:
Available-for-sale financial assets: Net changes in fair value 12
121 (2,337 ) Reclassification to profit or loss 3 26 Exchange
differences on translation of foreign operations: Gain/(loss)
arising during the period 327 (191 ) Reclassification to profit or
loss – (13 ) Proportionate share of other comprehensive income of
associates and joint ventures (3 ) 7 Income tax relating to items
that may be reclassified subsequently to profit or loss
(46
)
581
Total other comprehensive income for the period, net
of tax 402 (1,927 )
Total comprehensive income/(loss)
for the period, net of tax 3,220 (292 ) Attributable to:
The shareholders of the Company 3,158 (135 ) Non-controlling
interests 62 (157 )
(4) Interim Condensed Consolidated Statement of Change in Equity
- Unaudited
(In millions of yen)
Equity attributable to the shareholders of the
Company
Accumulated other comprehensive income Notes
Sharecapital
Sharepremium
Accumulateddeficit
Foreigncurrencytranslationreserve
Available-for-sale
reserve
Definedbenefit
planreserve
Total
Non-controllinginterests
Totalshareholders’equity
Balance at January 1, 2016 12,596 18,983 (19,204 ) 240 6,917
(1,789 ) 17,743 (210 ) 17,533
Comprehensive income/(loss)
Profit for the period – – 5,315 – – – 5,315 369 5,684 Other
comprehensive income – – – (1,168 ) (222 ) –
(1,390 ) 37 (1,353 )
Total comprehensive income/(loss)
for the period – – 5,315 (1,168 ) (222 ) – 3,925 406 4,331
Recognition of share-based payments 8,13 – 7,315 – – – – 7,315 –
7,315 Forfeiture of stock options 8,13 – (55 ) 55 – – – – – –
Exercise of stock options 8,13 1,296 (76 ) – – – – 1,220 – 1,220
Acquisition of subsidiary 15 – – – – – – – 93 93 Initial public
offering 8 63,424 62,853 – – – – 126,277 – 126,277 Other – –
– – – – – 0 0
Balance at September 30, 2016 77,316 89,020 (13,834 )
(928 ) 6,695 (1,789 ) 156,480 289 156,769
(In millions of yen)
Equity attributable to the shareholders of the
Company
Accumulated other comprehensive income Notes
Sharecapital
Sharepremium
Treasuryshares
Accumulateddeficit
Foreigncurrencytranslationreserve
Available-for-sale
reserve
Definedbenefit
planreserve
Total
Non-controllinginterests
TotalShareholders’equity
Balance at January 1, 2017 77,856 91,208 – (12,381 ) (174 )
5,649 (1,324 ) 160,834 189 161,023
Comprehensive income
Profit for the period – – – 12,074 – – – 12,074 110 12,184 Other
comprehensive income – – – – 189 949 –
1,138 12 1,150
Total comprehensive income
for the period – – – 12,074 189 949 – 13,212 122 13,334
Recognition of share-based payments 8,13 – 1,273 – – – – – 1,273 –
1,273 Forfeiture of stock options 8,13 – (8 ) – 8 – – – – – –
Exercise of stock options 8,13 2,516 (498 ) – – – – – 2,018 – 2,018
Acquisition of non-controlling interest 8,16 – (52 ) – – 2 – – (50
) 15 (35 ) Acquisition of subsidiaries 16 – – – – – – – – 3,638
3,638 Issuance of common shares and acquisition of treasury shares
under Employee Stock Ownership Plan 8 2,000 1,990 (4,000 ) –
– – – (10 ) – (10 )
Balance at September
30, 2017 82,372 93,913 (4,000 ) (299 ) 17 6,598
(1,324 ) 177,277 3,964 181,241
(5) Interim Condensed Consolidated Statement of Cash Flows -
Unaudited
(In millions of yen)
For the nine-month period ended
September 30,
Notes 2016 2017 Cash
flows from operating activities Profit before tax from
continuing operations 15,266 21,198 Loss before tax from
discontinued operations 10 (2,699 ) (17 ) Profit before tax 12,567
21,181 Adjustments for: Depreciation and amortization expenses
3,659 4,887 Finance income (55 ) (136 ) Finance costs 58 18
Share-based compensation expenses 8,13 7,313 1,597 Gain on loss of
control of subsidiaries and business transfer 9 (1,752 ) (10,444 )
Loss/(gain) on financial assets at fair value through profit or
loss 12 676 (470 ) Gain on disposal of property and equipment and
intangible assets (2,339 ) - Impairment loss of available-for-sale
financial assets 7 276 34 Gain on available-for-sale financial
assets 7 - (703 ) Share of loss of associates and joint ventures 17
326 4,308 Loss/(gain) on foreign currency transactions, net 1,524
(273 ) Changes in: Trade and other receivables 1,847 (7,522 )
Inventories 487 (1,934 ) Trade and other payables (5,860 ) 1,872
Accrued expenses (164 ) 623 Deferred revenue 1,559 (699 ) Advances
received 742 3,686 Provisions 88 (214 ) Post-employment benefits
629 1,087 Other current assets (734 ) (1,572 ) Other current
liabilities 2,510 427 Others (123 ) (727 )
Cash provided by
operating activities 23,234 15,026 Interest received 51 149
Interest paid (54 ) (17 ) Dividends received 4 69 Income taxes paid
(6,888 ) (11,151 )
Net cash provided by operating activities
16,347 4,076
Cash flows from investing
activities Purchase of time deposits (731 ) (1,283 ) Proceeds
from maturities of time deposits 326 98 Purchase of equity
investments 12 (434 ) (2,885 ) Proceeds from sales of equity
investments - 1,512 Purchase of debt instruments - (4,433 )
Proceeds from redemption of debt instruments - 3,113 Acquisition of
property and equipment and intangible assets (3,473 ) (8,413 )
Proceeds from disposal of property and equipment and intangible
assets 5,078 343 Investments in associates and joint ventures 17
(782 ) (2,593 ) Payments of the office security deposits (2,480 )
(559 ) Refund of office securities deposits 161 1,555 Payments of
the guarantee deposits for the Japanese Payment Services Act (790 )
(240 ) Return of the guarantee deposits for the Japanese Payment
Services Act - 3,325 Return of the office security deposits
received under sublease arrangement (8 ) - Payments for loan
receivables 9, 15 - (2,160 ) Collection of loan receivables 0 49
Acquisition of subsidiaries and business, net of cash acquired 9,
15 (423 ) (3,876 ) Cash disposed on loss of control of subsidiary
and business transfer (485 ) (581 ) Others (18 ) 69
Net
cash used in investing activities (4,059 ) (16,959 )
(5) Interim Condensed Consolidated Statement of Cash Flows –
Unaudited (continued)
(In millions of yen)
For the nine-month period ended
September 30,
Notes
2016
2017
Cash flows from financing activities Repayment of short-term
borrowings, net (42,427 ) (50 ) Payments for redemption of bonds
(510 ) - Payments of common shares issuance costs 8 (702 ) (22 )
Proceeds from initial public offering 8 126,848 - Proceeds from
exercise of stock options 8 1,220 2,030 Payments for acquisition of
interest in subsidiaries from non-controlling interests 16 - (35 )
Proceed from the payment received from non-controlling interests 16
- 343 Others (2 ) -
Net cash provided by financing
activities 84,427 2,266
Net
increase/(decrease) in cash and cash equivalents 96,715 (10,617
)
Cash and cash equivalents at the beginning of the year
33,652 134,698 Effect of exchange rate fluctuations on cash and
cash equivalents (852 ) (100 )
Cash and cash equivalents at the
end of the interim reporting period 129,515 123,981
Notes to Interim Condensed Consolidated Financial Statements
– Unaudited
1. Reporting Entity
LINE Corporation (the “Company”) was incorporated in September,
2000 in Japan in accordance with the Companies Act of Japan under
the name Hangame Japan Corporation to provide online gaming
services. The Company changed its name to NHN Japan Corporation in
August 2003, and subsequently changed its name to LINE Corporation
in April 2013. The Company is a subsidiary of NAVER Corporation
(“NAVER”), formerly NHN Corporation, which is domiciled in Korea.
NAVER is the Company and its subsidiaries’ (collectively, the
“Group”) ultimate parent company. The Company’s head office is
located at 4-1-6 Shinjuku, Shinjuku-ku, Tokyo, Japan.
Shares of the Company’s common stock are traded on the New York
Stock Exchange, in the form of American depositary shares, and on
the Tokyo Stock Exchange.
The Group mainly operates a cross-platform messenger
application, LINE, and provides communication and content sales and
advertising services. Communication and content is provided via the
LINE platform, while advertising services are provided via LINE
advertising, livedoor blog and NAVER Matome.
2. Basis of Preparation
The unaudited interim condensed consolidated financial
statements have been prepared in accordance with IAS 34 Interim
Financial Reporting.
In 2017, the Group changed the rounding of its financial
statements from thousands to millions. Prior periods have been
revised to reflect this change in presentation.
The unaudited interim condensed consolidated financial
statements do not include all the information and disclosures
required in the annual consolidated financial statements and should
be read in conjunction with the Group’s annual consolidated
financial statements as of December 31, 2016.
The unaudited interim condensed consolidated financial
statements were approved by Representative Director, President and
Chief Executive Officer Takeshi Idezawa and Director and Chief
Financial Officer In Joon Hwang on November 14, 2017.
The Company meets the criteria of a “specified company” defined
under Article 1-2 of the Ordinance on QCFS.
The preparation of the unaudited interim condensed consolidated
financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent amounts at the date of the
unaudited interim condensed consolidated financial statements as
well as reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The significant estimates and assumptions are reviewed by
management on a regular basis. The effects of a change in estimates
and assumptions are recognized in the period of the change or in
the period of the change and future periods.
On February 12, 2016, the board of directors approved the
abandonment of the MixRadio service (“MixRadio”). The operation of
the MixRadio business was classified as a discontinued operation on
March 21, 2016, when the abandonment took effect.
Intercompany balances and transactions have been eliminated upon
consolidation.
3. Significant Accounting Policies
The accounting policies adopted in the preparation of the
unaudited interim condensed consolidated financial statements are
consistent with those followed in the preparation of the Group’s
annual consolidated financial statements for the year ended
December 31, 2016.
The adoption of new and revised IFRS issued by the International
Accounting Standards Board that are mandatorily effective for an
accounting period that begins on or after January 1, 2017 had no
impact on the Group’s unaudited interim condensed consolidated
financial statements as of and for the nine-month periods ended
September 30, 2016 and 2017 and annual consolidated financial
statements as of December 31, 2016.
Standards issued but not yet effective
IFRS 15 Revenue from Contracts with Customers
The IASB issued IFRS 15 Revenue from Contracts with Customers
for recognizing revenue. IFRS 15 establishes a five-step model that
will apply to revenue earned from a contract with a customer,
regardless of the type of revenue transaction or industry, with
limited exceptions. The Group recognizes revenue associated with
communication and content sales and with advertising services by
reference to the stage of completion. These transactions are
satisfied over time and measured by the progress towards complete
satisfaction of performance obligations. The Group has
preliminarily assessed that, except for the items mentioned below,
many of the methods currently used to measure the progress towards
complete satisfaction of these performance obligations will
continue to be appropriate under IFRS 15.
(1) LINE Stickers and Creator StickersThe new standard will
result in a change to the timing of revenue recognition, whereby
revenue will be recognized over an estimated usage period on a
straight-line method rather than the current method, which is over
time but on an accelerated basis.Under the current standard, the
Group determines that the measuring method which best depicts the
progress towards satisfaction of performance based on a contract is
the user usage pattern of Stickers which represents the consumption
of the user’s benefits, and recognizes revenue during the earlier
part of the estimated usage period.On the other hand, the concept
of a service of standing ready is clarified under IFRS 15. IFRS 15
clarified the service of standing ready as to provide services or
to make services available to the users for their use as and when
the users decide. The Group determines that LINE Stickers and
Creator Stickers services which the Group provides to its users are
similar to the concept of a service of standing ready. The
performance obligation of the Group to the customers which are the
users who purchased Stickers is to make the Stickers and Creator
Stickers available to the users for their use at any given time.
Accordingly, the users receive the benefit of the services and
consume such services as the Group makes LINE Stickers and Creator
Stickers available to the users for their use. Therefore, the Group
determines that its performance obligation is evenly satisfied over
time.As a result, the Group has preliminarily assessed that a
straight-line method over an estimated usage period is the best
method to measure the progress towards complete satisfaction of the
performance obligation.
(2) LINE Sponsored StickersThe new standard will result in a
change to the timing of revenue recognition, whereby revenue will
be recognized over a contract period on a straight-line method
rather than the current method, which is over time but on an
accelerated basis.Under the current standard, the Group determines
that the measuring method which best depicts the progress towards
satisfaction of performance based on a contract is the users usage
pattern of Sponsors Stickers which represent its progress of
rendering the services, and recognizes revenue based on the users
usage pattern of Sponsors Stickers which is weighted towards the
earlier part of the period.On the other hand, under IFRS 15, the
definition of a “customer” is clarified and it is defined as “a
party that has contracted with an entity to obtain goods or
services that are an output of the entity’s ordinary activities in
exchange for consideration”. Also, the contract with “customers” is
within the scope of IFRS 15, and IFRS 15 requires to measure the
progress towards complete satisfaction of a performance obligation
to “customers”.In the LINE Sponsored Stickers contract, only an
advertiser is obligated to pay consideration for Sponsored Stickers
service to the Group, and the users who use Sponsored Stickers do
not pay any consideration to the Group directly or indirectly.
Therefore, the Group determines the advertisers as “customers”. The
performance obligation of the Group to the advertisers is to make
the Sponsored Stickers available to the users for their use at any
time over a contract period. Accordingly, the Group has
preliminarily assessed that a straight-line method over a contract
period is the best method to measure the progress towards complete
satisfaction of the performance obligation.
(3) LINE Point AdThe new standard will result in a change to the
timing of revenue recognition, whereby the Group will recognize
revenue at the time when the LINE Points are issued to the users
rather than when the LINE Points are utilized by the users.Under
the current standard, the portion of the revenue of LINE Point Ad
service attributable to LINE Points is measured at the fair value
of LINE Points, and revenue related to unused LINE Points at the
end of the accounting period is deferred, while revenue related to
redeemed LINE Points is recognized in accordance with the revenue
recognition policy for the virtual item purchased.On the other
hand, the definition of a “customer” is clarified under IFRS 15 as
mentioned above. Upon the adoption of the IFRS 15, the Group
determines the advertisers as customers for LINE Point Ad services
because only the advertisers pay consideration to the Group for the
advertising services the Group provides and the users who receive
LINE Points, do not pay any consideration directly or indirectly.
The Group considers its performance obligation in the contract with
a customer who is an advertiser, is to be satisfied when the Group
issues the LINE Points to the users because the Company does not
have any obligations toward the advertisers to manage LINE Points
or to provide users other services in exchange for the LINE points,
thereafter for the advertisers.As a result, the Group has
preliminarily assessed to recognize revenue at the time when LINE
Points are issued to the users.Also, upon the adoption of IFRS 15,
the Group expects to recognize provisions for the expenses expected
to be incurred in relation to the consumption of LINE points and
such expenses are recognized at the same time as LINE Points are
issued to the users and as the Group satisfies its performance
obligations.
The Group is currently evaluating the impact of a cost of
obtaining a contract, the results of preliminary assessments
mentioned above and other items affected from the implementation of
IFRS 15, and it is not practicable to provide a reasonable
financial estimate of the potential effect of the application of
IFRS 15 until the detailed review is complete. As a result, the
above preliminary assessment is subject to change. The Group does
not intend to early adopt the standard as it plans to apply from
January 1, 2018, and intends to complete the impact assessment
during 2017. Also, even though the Group disclosed in its 2016
financial statements that the Group intended to use the full
retrospective method upon adoption, due to the costs of applying
such method, the Group is re-evaluating whether to use the full
retrospective method or the modified retrospective method which is
to record cumulative amount of the impact at the beginning balance
of the retained earnings upon adoption.
The Group has not early adopted any other standards,
interpretations or amendments that have been issued but are not yet
effective.
4. Segment Information
The Group identifies operating segments based on the internal
report regularly reviewed by the Group's Chief Operating Decision
Maker to make decisions about resources to be allocated to segments
and assess performance. An operating segment of the Group is a
component for which discrete financial information is available.
The Chief Operating Decision Maker has been identified as the
Company's board of directors. No operating segments have been
aggregated to form the reportable segments.
Description of Reportable Segment
The Group has a single reportable
segment:
LINE business and portalsegment
–
The Group mainly operates a cross-platform messenger
application, LINE, and provides communication and content and
advertising services. Communication and content are primarily
provided to end users via various communication and content.
Communication mainly includes LINE Stickers. Content includes LINE
Games and LINE PLAY. Others within communication and contents
include LINE Friends. Advertising services are provided via LINE
advertising, livedoor blog and NAVER Matome. LINE advertising
includes LINE Official Accounts, Sponsored Stickers, LINE Point Ads
and performance ads, which are provided in Timeline and LINE NEWS.
5. Property and Equipment
During the nine-month periods ended September 30, 2016 and 2017,
the Group acquired property and equipment with a cost of 3,949
million yen and 8,478 million yen, respectively. During the
nine-month period ended September 30, 2016, such purchases mainly
consisted of server infrastructure in the amount of 1,665 million
yen. During the nine-month period ended September 30, 2017, such
purchases mainly consisted of server infrastructure in the amount
of 2,816 million yen as well as furniture and fixture in the amount
of 2,736 million yen and the recognition of asset retirement
obligations in the amount of 1,493 million yen related to the
relocation of the headquarter offices.
Contractual commitments for the acquisition of property and
equipment as of December 31, 2016 and September 30, 2017 were 1,464
million yen and 854 million yen, respectively.
6. Income Taxes
The Group’s tax provision for interim periods is determined
using an estimate of the Group’s annual effective tax rate,
adjusted for discrete items arising during the period. In each
quarter the Group updates the estimate of the annual effective tax
rate, and if the estimated annual tax rate changes, the Group makes
a cumulative adjustment in that quarter.
The effective tax rate for the nine-month period ended September
30, 2016 of 51.2% differed from the Japanese statutory tax rate of
35.6% for the year ended December 31, 2015. The effective income
tax rate of 51.2% was higher than the Japanese statutory tax rate
primarily due to non-deductible share-based payment expenses,
including share-based payment expenses in connection with stock
options granted to non-Japanese employees and directors, and
partially due to pre-tax losses recorded by subsidiaries on a
standalone basis for which no deferred tax assets were recognized
as the related tax benefits could not be recognized.
The effective tax rate for the nine-month period ended September
30, 2017 of 42.5% differed from the Japanese statutory tax rate of
33.1% for the year ended December 31, 2016. The effective income
tax rate of 42.5% was higher than the Japanese statutory tax rate
primarily due to pre-tax losses recorded by subsidiaries on a
standalone basis and pre-tax losses recorded by associates and
joint ventures for which no deferred tax assets were recognized as
the related tax benefits could not be recognized.
The effective tax rate for the nine-month period ended September
30, 2017 was 42.5% compared to the effective tax rate of 51.2% for
the nine-month period ended September 30, 2016. This change
resulted mainly from an increase in the estimated annual profit
before tax and a decrease in estimated annual non-deductible
share-based payment expenses for the year ending December 31, 2017
as compared to the year ended December 31, 2016, resulting in a
decrease in the percentage of income tax expenses over the profit
before tax from continuing operations for the nine-month period
ended September 30, 2017 compared to the same period in 2016. The
decrease in estimated annual non-deductible share-based payment
expenses is mainly due to the fact that the recognition period of
share-based payment expenses, which corresponds to the vesting
period of the stock options granted in previous years to the
directors and employees, was completed in the three-month period
ended March 31, 2017.
7. Financial Assets and Financial Liabilities
The carrying amounts and fair value of financial instruments,
except for cash and cash equivalents, by line item in the Interim
Condensed Consolidated Statement of Financial Position and by
category as defined in IAS 39 Financial Instruments: Recognition
and Measurement as of December 31, 2016 and September 30, 2017, are
as follows:
The fair value is not disclosed for those financial instruments
which are not measured at fair value in the Interim Condensed
Consolidated Statement of Financial Position, and whose fair value
approximates their carrying amount due to their short-term and/or
variable-interest bearing nature. Refer to Note 12 Fair Value
Measurements for more details on the financial instruments which
are measured at fair value.
(In millions of yen)
December 31, 2016 September 30, 2017
Items Book value Fair value Book
value Fair value Financial assets Trade
and other receivables Loans and receivables 28,167 36,106
Other financial assets, current Loans and receivables Time
deposits 764 2,185 Short-term loans 2 228 Corporate bonds and other
debt instruments 4,012 1,855 Available-for-sale financial assets
1,000 1,000 1,017 1,017 Office security deposits 1,170 183 Other 4
2 Total 6,952 5,470
Other financial assets, non-current
Held-to-maturity investments(1) 280 294 280 291 Loans and
receivables Time deposits 10,000 10,000 10,000 10,000 Corporate
bonds and other debt instruments 2,632 2,632 6,072 6,062 Guarantee
deposits(1) 3,447 413 Office security deposits 4,858 4,739 5,007
4,858 Financial assets at fair value through profit or loss
Conversion right and redemption right of preferred stock 325 325
891 891 Available-for-sale financial assets(2) 14,141 14,141 18,094
18,094 Other 32 84 Total 35,715 40,841
Financial liabilities
Trade and other payables Financial liabilities measured at
amortized cost 21,532 23,601
Other financial liabilities,
current Financial liabilities measured at amortized cost
Deposits received 2,572 5,178 Short-term borrowings(3) 21,925
22,088 Other – 3 Total 24,497 27,269
Other financial liabilities
non-current Financial liabilities measured at amortized cost
Office security deposits received under sublease agreement – – 15
15 Other – 159 Total – 174
7. Financial Assets and Financial Liabilities
(continued)
(1)
The Japanese Payment Services Act requires non-banking entities
that engage in business activities involving advance payments from
end users using virtual credits to secure a certain amount of money
equal to or more than one half of the unused balance of virtual
credits purchased by the end users as of the most recent base date
set on March 31 and September 30 of each year, either by depositing
or entrusting a cash reserve or government bonds with the Legal
Affairs Bureau, or by concluding a guarantee contract with a
financial institution. If deposits are made, they are recorded as
guarantee deposits. If guarantee contracts are entered into,
guarantee fees equal to the contractual amount times a guarantee
fee rate are incurred. In accordance with the Japanese Payment
Services Act, the Group had deposited cash of 3,445 million yen as
of December 31, 2016 and 345 million yen as of September 30, 2017.
The Group also had deposited investments in Japanese government
bonds of 280 million yen as of December 31, 2016 and 280 million
yen as of September 30, 2017, respectively, which the Group intends
to hold until maturity for this purpose. In addition, the Group had
credit guarantee contracts with banks for 10,100 million yen with a
weighted average guarantee fee rate of 0.1% and for 12,500 million
yen with a weighted average guarantee fee rate of 0.1% as of
December 31, 2016 and as of September 30, 2017, to comply with the
Japanese Payment Services Act.
(2)
Impairment loss of 276 million yen was recognized for
available-for-sale financial assets for the nine-month period ended
September 30, 2016, and impairment loss of 34 million yen as well
as gain on sales of 703 million yen was recognized for
available-for-sale financial assets for the nine-month period ended
September 30, 2017.
(3)
The weighted average interest rate of the remaining outstanding
short-term borrowings was 0.1% as of December 31, 2016 and 0.1% as
of September 30, 2017.
8. Issued Capital and Reserves
(1)
Shares issued
The movements of shares issued for the
nine-month period ended September 30, 2016 are as follows:
Shares issued(Share capital with
no-par value) CommonShares Class A shares
Share capital(In millions of yen) January 1, 2016 —
174,992,000 12,596 Conversion of class A shares to common shares(1)
174,992,000
(174,992,000)
— Initial public offering(2) 40,250,000 — 63,424 Exercise of stock
options 1,905,000 — 1,296 September 30, 2016 217,147,000 —
77,316
The movements of shares issued for the
nine-month period ended September 30, 2017 are as follows:
CommonShares issued(Share
capital withno-par value)
Share capital(In millions of
yen)
January 1, 2017 217,775,500 77,856 Exercise of stock options(3)
2,875,000 2,516 Issuance of common shares(4) 1,007,810 2,000
September 30, 2017 221,658,310 82,372
(1) Through an amendment of its articles of
incorporation effective as of March 31, 2016, the Company
terminated its dual class structure of common shares and class A
shares and converted all class A shares into common shares.
(2) The Company issued 35,000,000 shares of common stock through
the initial public offering of new shares on July 14, 2016.
Additionally, on August 16, 2016, Nomura Securities Co., Ltd. and
Morgan Stanley & Co. LLC. exercised their options to purchase
5,250,000 additional shares of common stock in an allotment of new
shares. (3) Refer to Note 13 Share-Based Payments for
further details. (4) In conjunction with the introduction of
the Employee Stock Ownership Plan (J-ESOP), the Company has decided
to assign 1,007,810 of common shares to Trust & Custody
Services Bank, Ltd. (Trust E). Total amount of issued shares was
4,000 million yen, which increased share capital amount by 2,000
million yen.
(2) Share premium
The movements in share premium for the
nine-month period ended September 30, 2016 are as follows:
(In millions of yen)
Share-basedpayments
Commoncontrol
businesscombinations
Others(2)
Sharepremium total
January 1, 2016 15,023 294 3,666 18,983 Share-based payments 7,315
– – 7,315 Exercise of stock options (1,816 ) – 1,740 (76 )
Forfeiture of stock options (55 ) – – (55 ) Initial public
offering(3) – – 63,424 63,424 Cost related to initial public
offering(5) – – (571 ) (571 ) September 30, 2016 20,467
294 68,259 89,020
The movements in share premium for the
nine-month period ended September 30, 2017 are as follows:
(In millions of yen)
Share-basedpayments(1)
Commoncontrol
businesscombinations
Others(2)
Sharepremium total
January 1, 2017 21,935 294 68,979 91,208 Share-based payments 1,273
– – 1,273 Exercise of stock options (3,595 ) –
3,109
(486 ) Forfeiture of stock options (8 ) – – (8 ) Issuance of common
shares(4) – – 2,000 2,000 Cost related to issuance of common
shares(5) – – (22 ) (22 ) Acquisition of non-controlling interests
– – (52 ) (52 ) September 30, 2017 19,605 294 74,014
93,913 (1) Refer
to Note 13 Share-Based Payments for further details. (2) Resulted
mainly from capital reserve requirements under the Companies Act of
Japan. (3) The Company issued 35,000,000 of common share through
the initial public offering of new shares on July 14, 2016.
Additionally, on August 16, 2016, Nomura Securities Co., Ltd. and
Morgan Stanley & Co. LLC. exercised their options to purchase
5,250,000 additional shares of common share in an allotment of new
shares. (4) In conjunction with the introduction of the Employee
Stock Ownership Plan (J-ESOP) on July 18, 2017, the Company has
decided to assign 1,007,810 common share to Trust & Custody
Services Bank, Ltd. (Trust E). Total amount of issuing price of
shares was 4,000 million yen, which increased capital amount by
2,000 million yen. (5) Incremental costs directly attributable to
the issue of common shares are recognized as a deduction from
equity, net of any tax effects.
(3) Treasury shares
The movements in treasury shares for the
nine-month period ended September 30, 2017 are as follows:
Number of shares(Common share
withno-par value)
Amount(In millions of
yen)
January 1, 2017 – – Movements during the period (1) 1,007,810 4,000
September 30, 2017 1,007,810 4,000
(1) Resulted from the introduction of the Employee
Stock Ownership Plan (J-ESOP) on July 18, 2017, including the
issuance of 1,007,810 common shares to Trust & Custody Services
Bank, Ltd. (Trust E), whose total amount was 4,000 million yen.
9. Supplemental Cash Flow Information
Transfer of Camera Application Business to
Snow Corporation
On May 1, 2017, the Group has transferred the
camera application business, which was operated by a wholly owned
subsidiary, LINE Plus Corporation, to Snow Corporation, an
associate of the Group. The transferred camera application business
includes services such as B612, LINE Camera, Foodie and Looks.
The Group acquired 208,455 newly issued
common shares of Snow Corporation in exchange for the camera
application business. The number of common shares newly issued by
Snow Corporation was determined based on the ratio of the fair
value of the camera application business transferred as well as the
cash and cash equivalent comparing to the enterprise value of Snow
Corporation. As a result of this transaction, the Group’s ownership
of Snow Corporation increased from 25.0% to 48.6%, while NAVER’s
ownership decreased from 75.0% to 51.4%. In August 2017, the
Group’s ownership of Snow Corporation decreased to 45.0%, while
NAVER’s ownership increased to 55.0% as a result of additional
capital injections by the Company and NAVER. The Group continues to
account for its ownership in Snow Corporation using the equity
method. Refer to Note 17 Investments in Associates and Joint
Ventures for more details.
The common shares of Snow Corporation
received in exchange for the camera application business are
measured and recorded at fair value as of the transaction date. The
fair value of the common shares were measured based on the fair
value of the camera application business which was estimated using
the discounted cash flow method. The assets and liabilities of the
camera application business transferred to Snow Corporation are
presented below.
(In millions of yen)
Current assets 603 Cash and cash equivalents 581 Other
current assets 22 Non-current assets 71 Current liabilities (133 )
Non-current liabilities (334 ) Net assets transferred 207
Consideration received in exchange for the transfer of camera
application business 10,651 Gain on transfer of business(1)
10,444 (1)
This amount is included in “Other
operating income” in the Group’s Interim Condensed Consolidated
Statement of Profit or Loss.
Material non-cash transactions
(1) Acquisition of treasury shares by issuance of common
sharesIn conjunction with the introduction of the Employee Stock
Ownership Plan (J-ESOP), which has been resolved at board of
directors’ meeting held at June 26, 2017, the Company has issued
1,007,810 of common shares to Trust & Custody Services Bank,
Ltd. (Trust E), and payment process has completed on July 18, 2017.
The Company’s share held by the trust is accounted for treasury
shares in the Interim Condensed Consolidated Statement of Financial
Position.As a result, the amounts of share capital, share premium,
and treasury shares as of September 30, 2017 were increased by
2,000 million yen, 2,000 million yen and 4,000 million yen,
respectively.
(2) Acquisition of interest in subsidiaries by debt equity
swapOn June 19, 2017, the Group provided loan to NextFloor
Corporation (“NextFloor”) for the amount of 1,976 million yen.
Subsequently, on July 24, 2017, the all of the loan was converted
into common share of NextFloor through the process of acquiring
51.0% interests of NextFloor. Refer to Note 15 Business
Combinations for further details.
10. Discontinued Operations
The Group acquired MixRadio on March 16, 2015. Subsequently, the
Group made a strategic decision to focus on its core LINE business
and portal segment. On February 12, 2016, the board of directors
approved the abandonment of the MixRadio segment. The operation of
the MixRadio business was classified as a discontinued operation on
March 21, 2016, when the abandonment took effect.
The aggregated results of the discontinued
operations for the nine-month periods ended September 30, 2016 and
2017 are presented below.
(In millions of yen)
2016 2017 Revenues 444 – Other
operating income 0 – Expenses(1) (3,143 ) (17 ) Loss before tax
from discontinued operations (2,699 ) (17 ) Income tax benefits on
disposal(2) 936 6 Loss for the period from
discontinued operations (attributable to the shareholders of the
Company) (1,763 ) (11 )
(1)
In connection with the abandonment of the MixRadio business
on March 21, 2016, restructuring expenses related to employee
termination benefits of 1,165 million yen and office lease
termination fees of 126 million yen have been incurred.
(2)
The income tax benefits for the nine-month periods ended September
30, 2016 and 2017 are mainly due to the deductible temporary
difference arising from the investment in MixRadio Limited, which
incurred loss during the periods.
The aggregated cash flow information for
the discontinued operations for the nine-month periods ended
September 30, 2016 and 2017 arepresented below.
(In millions of yen)
2016 2017 Operating (4,672 ) (104 )
Investing 7 – Financing – – Net cash outflow (4,665 )
(104 )
11. Earnings per Share
The profit or loss for the period and the weighted average
number of shares used in the calculation of earnings per share are
as follows:
For the nine-month period ended September 30,
(In millions of yen, except number of
shares)
2016 2017 Profit for the period
attributable to the shareholders of the Company from continuing
operations 7,078 12,085 Loss for the period attributable to the
shareholders of the Company from discontinued operations
(1,763
)
(11
)
Total profit for the period attributable to the shareholders of
the Company for basic and diluted earnings per share 5,315
12,074
Weighted average number of total common
shares and class A shares 186,259,776 219,454,045
Weighted
average number of total treasury shares – (275,860 )
Weighted average number of total common shares and class A
shares for basic earnings per share(1) 186,259,776
219,178,185 Effect of dilution: Stock options
20,672,714 17,987,524 Employee Stock Ownership Plan (J-ESOP) –
41,135
Weighted average number of total common
shares and class A shares adjusted for the effect of
dilution(1)
206,932,490
237,206,844
For the three-month period ended September 30,
(In millions of yen, except number of
shares)
2016 2017 Profit for the period
attributable to the shareholders of the Company from continuing
operations 2,853 1,805 Loss for the period attributable to the
shareholders of the Company from discontinued operations
(97
)
(4
)
Total profit for the period attributable to the shareholders of
the Company for basic and diluted earnings per share 2,756
1,801
Weighted average number of total common
shares 208,310,694 220,708,949
Weighted average number of
total treasury shares – (812,750 )
Total profit for
the period attributable to the shareholders of the Company for
basic and diluted earnings per share 208,310,694
219,896,199 Effect of dilution: Stock options 20,109,292
17,377,802 Employee Stock Ownership Plan (J-ESOP) – 39,709
Weighted average number of total common shares
228,419,986 237,313,710
11. Earnings per Share (continued)
(1) Through the amendment of its articles of incorporation
on June 15, 2015, the Company introduced a dual class structure of
common shares and class A shares and converted all outstanding
common shares into class A shares; therefore, the weighted average
number of shares for the nine-month period ended September 30, 2016
include average number of common shares and class A shares. Through
an amendment of its article of incorporation effective as of March
31, 2016, the Company terminated its dual class structure of
commons shares and class A shares and converted all class A shares
into common shares.
In calculating diluted earnings per share, share options
outstanding and other potential shares are taken into account where
their impact is dilutive. Potential common shares used in the
calculation of diluted earnings per share for the nine-month period
ended September 30, 2016, included options representing 23,559,500
shares which were outstanding as of September 30, 2016 as they had
a dilutive impact.
Potential common shares used in the calculation of diluted
earnings per share for the nine-month period ended September 30,
2017, included options representing 22,678,569 shares which were
outstanding as of September 30, 2017 as their impact was
dilutive.
The Company has granted 23,860 of stock options (warrants) to
directors and executive officers of the Company and a director of a
subsidiary with the grant date of July 18, 2017. Upon exercise of
those stock options, common shares of 2,386,000 will be issued.
Moreover, the Company has issued 1,007,810 of new common shares
through a third-party allotment in accordance with the introduction
of the Employee Stock Ownership Plan (J-ESOP) on July 18, 2017.
Refer to Note 8 Issued Capital and Reserves for further
details.
12. Fair Value Measurements
(1) Fair value hierarchy The Group referred to the
levels of the fair value hierarchy for financial instruments
measured at fair value on the interim condensed consolidated
financial statements based on the following inputs:
–
Level 1 inputs are quoted prices in active
markets for identical assets or liabilities.
–
Level 2 inputs are quoted prices for
similar assets or liabilities in active markets, quoted prices for
identical or similar assets or liabilities in markets that are not
active, inputs other than quoted prices that are observable, and
inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
–
Level 3 inputs are derived from valuation
techniques in which one or more significant inputs or value drivers
are unobservable, which reflect the reporting entity’s own
assumptions that market participants would use in establishing a
price.
Transfers between levels of the fair value hierarchy are
recognized as if they have occurred at the beginning of the
reporting period. (2) Fair value measurements by fair value
hierarchy Assets measured at fair values on a recurring
basis in the Interim Consolidated Statement of Financial Position
as of December 31, 2016 and September 30, 2017 are as follows:
(In millions of yen)
December 31, 2016 Level 1 Level
2 Level 3 Total Financial asset at fair value through profit or
loss Conversion right and redemption right of preferred stock – –
325 325 Available-for-sale financial assets Listed equity
securities 2,346 – – 2,346 Private equity and other financial
instruments – – 12,795 12,795
Total 2,346 – 13,120 15,466
(In millions of yen)
September 30, 2017 Level 1 Level
2 Level 3 Total Financial asset at fair value through profit or
loss Conversion right and redemption right of preferred stock – –
891 891 Available-for-sale financial assets Listed equity
securities 1,638 – – 1,638 Private equity and other financial
instruments – – 17,473 17,473
Total 1,638 – 18,364 20,002
There have been no transfers among Level 1,
Level 2 and Level 3 during the nine-month period ended September
30, 2017, except for the transfer from Level 1 to Level 3 as
described in (3) below.
12. Fair Value Measurements (continued)
(3) Reconciliations from the opening balance to the closing
balance of financial instruments categorized within Level 3 are as
follows:
(In millions of yen)
2016 2017
Private equityinvestments
Conversionright andredemptionright
ofpreferred stock
Private equityand
otherfinancialinstruments
Conversionright andredemptionright
ofpreferred stock
Fair value as of January 1 13,648 871 12,795 325 Total (loss)/gain
for the period: Included in profit or loss(1) (12 ) (676 ) 258 470
Included in other comprehensive income (2) (689 ) – 1,017
– Comprehensive (loss)/income (701 ) (676 ) 1,275 470
Purchases 243 188 2,795 90 Sales – – (449 ) – Return of capital (8
) – (31 ) – Increase due to business combination – – 602 –
Transfers in(3) – – 326 – Effect of exchange rate changes (1,136 )
(97 ) 160 6 Fair value as of September 30, 12,046 286
17,473 891 (1)
This amount is included in “Other non-operating income” or
“Other non-operating expenses” in the Group’s Interim Condensed
Consolidated Statement of Profit or Loss. (2) This amount is
included in “Net change in fair value” of available-for-sale
financial assets in the Group’s Interim Condensed Consolidated
Statement of Comprehensive Income. (3) During the nine-month period
ended September 30, 2017, a company was delisted from a stock
exchange in the U.S. subsequent to our purchase of its equity
securities. Accordingly, such equity investment was transferred
from Level 1 to Level 3.
12. Fair Value Measurements (continued)
(4) Valuation techniques and inputs
Assets measured at
fair value on a recurring basis in the Interim Consolidated
Statement of Financial Position
Conversion right and redemption right of
preferred stock
The conversion right and redemption right of preferred stock
are embedded derivatives. Such conversion right and redemption
right are bifurcated from the underlying preferred stock and
measured at fair value using a binomial option pricing model. Below
is the quantitative information regarding the valuation technique
and significant unobservable inputs used in measuring the fair
value of certain conversion right and redemption right of preferred
stock:
Valuation technique
Significantunobservable
input
December 31,2016
September 30,2017
Binomial option pricing model Comparable listed companies’ average
historical volatility 13.6% - 39.6% 30.9% - 49.7% Discount rate
1.6% 2.1% - 2.6%
A significant increase (decrease) in the
comparable listed companies’ average historical volatility would
result in a higher (lower) fair value of the conversion right and
redemption right of preferred stock, while a significant increase
(decrease) in the discount rate would result in a lower (higher)
fair value of the conversion right and redemption right of
preferred stock.
Private equity and other financial
instruments
Available-for-sale financial assets
categorized within Level 3 mainly consist of unlisted equity
securities and private equity investment funds. Private equity
investment funds were measured at fair value based on net asset
value as of December 31, 2016 and September 30, 2017.
Unlisted equity securities are measured at
fair value either based on the most recent transactions, or using
other market approaches and option pricing model. Below is the
quantitative information regarding the valuation techniques and
significant unobservable inputs used in measuring the fair value of
certain unlisted equity securities:
Valuation technique
Significantunobservable
input
December 31,2016
September 30,2017
Market approach - market comparable companies EBITDA multiple 10.4
16.0 Revenue multiple 1.7 - 3.6 3.0 - 3.4 Liquidity discount 30%
30% Option pricing model Comparable listed companies’ average
historical volatility 39.6% - 78.9% 49.7% - 76.2% Discount rate
(0.1%) - 1.6% 0.1% - 2.6% Discount cash flow model Discount rate
16.8% 12.8% - 14.9%
A significant increase (decrease) in the
EBITDA and revenue multiple would result in a higher (lower) fair
value of the unlisted equity securities, while a significant
increase (decrease) in the liquidity discount, comparable listed
companies’ average historical volatility and discount rate would
result in a lower (higher) fair value of the unlisted equity
securities.
The valuation techniques and the valuation
results of the Level 3 financial assets, including those performed
by the external experts, were reviewed and approved by the
management of the Group.
13. Share-Based Payments
The Group has Share-Based Payments Plan as incentive plans for
directors and employees.
(1) Stock Option Plan
Each stock option represents the right to purchase 500 common
shares at a fixed price for a defined period of time. The price of
those stock options, which were granted during the year ended
December 31, 2012 and 2013 was 344 yen, whereas that of those
options, which were granted during the year ended December 31, 2014
and 2015 was 1,320 yen.
During the nine-months period ended September 30, 2017, the
Company has granted 23,860 of stock options equivalent to 2,386,000
of common shares. The exercise price of stock options granted
during the nine-month period ended September 30, 2017 was 4,206
yen.
The fair value of stock options is determined using the
Black-Scholes model, a commonly accepted stock option pricing
method. Stock options granted during the years ended December 31,
2012, 2013, 2014 and 2015 vest after two years from the grant date
and are exercisable for a period of eight years from the vesting
date. Stock options granted during the nine-month period ended
September 30, 2017 vest 25% of stock options per year over a period
of four years from the grant date and are exercisable from the
vesting date until July 18, 2027.
Conditions for vesting and exercise of the stock options require
that those who received the allotment of stock options continue to
be employed by the Group from the grant date to the vesting date,
and from the grant date to the exercise date, respectively, unless
otherwise permitted by the board of directors.
i. Movements during the nine-month period ended September 30, 2017
The following table illustrates the number and weighted average
exercise prices (“WAEP”) of, and movements in, outstanding stock
options on a per-common-share basis during the nine-month period
ended September 30, 2017:
Common Stock
Options
Number(shares)
WAEP(yen per share)
Outstanding at January 1, 2017 22,911,500 653 Granted during the
period 2,386,000 4,206 Forfeited during the period (6,000 ) 1,320
Exercised during the period(1) (2,875,000 ) 706 Expired during the
period – – Outstanding at September 30, 2017 22,416,500
1,024 Exercisable at September 30, 2017 20,030,500
645
(1) The weighted average share price at the
date of exercise of these options was 3,825 yen.
ii. The options outstanding as of September 30, 2017 had an
exercise price in the range of 344 yen to 4,206 yen, and the
weighted average remaining contractual life for the stock options
outstanding as of September 30, 2017 was 6.3 years. iii. The
following table lists the inputs to the model used for deriving the
fair value of the stock options granted for the nine-month period
ended September 30, 2017.
2017 Dividend yield 0.0% Expected volatility 44.9 – 45.7%
Risk-free interest rate (0.04%) – 0.00% Expected life of stock
options (years) 5.5 – 7 Expected price (yen) 4,206 Share price per
common share at the grant date (yen) 3,840 Model used Black-Scholes
The weighted average fair value of the options granted on July 18,
2017 was 1,545 yen on a per-common share basis. The expected
volatility was derived from the historical volatility over a period
similar to the expected life of the stock options for publicly
listed companies that are comparable to the Company and the Group,
and such volatility is assumed to be indicative of future trends,
which may not necessarily be the actual outcome. iv. The
Group has recognized 7,313 million yen and 1,132 million yen of
share-based compensation expenses in the Interim Condensed
Consolidated Statement of Profit or Loss for the nine-month periods
ended September 30, 2016 and 2017, respectively.
(2) Equity-settled Employee Stock Ownership Plan (J-ESOP)
The Group has a Group policy, the Regulations on Stock
Compensation, which regulates an incentive for the employees in
line with the stock price movement and for the purpose of securing
excellent human resources and their long-term success.
In accordance with the Regulations on Stock Compensation, the
Group has granted points equivalent to 262,069 shares to the
employees of the Group on July 18, 2017. The points vest once the
employees who received the points satisfy the conditions under the
Regulations on the Stock Compensation. And the trust grants the
Company’s shares equivalent to the number of points, which the
trust owns, to the employees of the Company and its domestic
subsidiary.
Under the Regulations on Stock Compensation, the employees
granted the points on July 18, 2017 are required to be employed by
the Group until the vesting dates, which are set between April 1,
2018 and April 1, 2020.
i. Movements during the nine-month period ended September 30, 2017
The following table illustrates the movements in outstanding
points during the nine-month period ended September 30, 2017:
J-ESOP
(Equity-settled)
Number
(Points(1))
Outstanding at January 1, 2017 – Granted during the period 262,069
Forfeited during the period (4,606 ) Exercised during the period –
Expired during the period – Outstanding at September 30,
2017 257,463 Exercisable at September 30, 2017 –
(1) One point is equal to one share.
ii. The Group’s J-ESOP does not have an exercise price as the
employees receive the number of shares equivalent to the points,
and the weighted average remaining contractual life as of September
30, 2017 was 1.7 years. iii. The fair value of the points
issued on July 18, 2017 was the share price of the day the points
were granted, 3,840 yen. iv. The Group has recognized nil
and 141 million yen of share-based compensation expenses associated
with Equity-settled J-ESOP in the Interim Condensed Consolidated
Statement of Profit or Loss for the nine-month periods ended
September 30, 2016 and 2017, respectively.
(3) Cash-settled Employee Stock Ownership Plan (J-ESOP)
In accordance with the Regulations on Stock Compensation, the
Group has granted points equivalent to 573,545 shares to the
employees of the Group on July 18, 2017. The points vest once the
employees who received the points satisfy the conditions under the
Regulations on the Stock Compensation. And the trust sells the
shares of the Company which are equivalent to the number of points
in the market and distributes the cash obtained from the
transaction to the employees.
Under the Regulations on Stock Compensation, the employees
granted the points on July 18, 2017 are required to be employed by
the Group until the vesting dates, which are set between April 1,
2018 and April 1, 2020.
i. Movements during the nine-month period ended September 30, 2017
The following table illustrates the movements in outstanding
points during the nine-month period ended September 30, 2017:
J-ESOP(Cash-settled)
Number(points(1))
Outstanding at January 1, 2017 – Granted during the period 573,545
Forfeited during the period (10,799) Exercised during the period –
Expired during the period – Outstanding at September 30, 2017
562,746 Exercisable at September 30, 2017 –
(1) One point is equal to one share.
ii. The Group’s J-ESOP does not have an exercise price as
the employees receive the amount of cash equivalent to the points,
and the weighted average remaining contractual life as of September
30, 2017 was 1.7 years. iii. The fair value of the points
issued on July 18, 2017 was 4,065 yen as measured as of September
30, 2017. iv. The Group has recognized nil and 324 million
yen of share-based compensation expenses associated with
Cash-settled J-ESOP in the Interim Condensed Consolidated Statement
of Profit or Loss for the nine-month periods ended September 30,
2016 and 2017, respectively. v. The Group has recognized nil
and 324 million yen of liabilities associated with Cash-settled
J-ESOP in the Interim Condensed Consolidated Statement of Financial
Position as of December 31, 2016 and September 30, 2017,
respectively. The amount of the liabilities were not fixed as of
December 31, 2016 and September 30, 2017.
14. Related Party Transactions
The following tables provides the total amount of related party
transactions entered into during the nine-month periods ended
September 30, 2016 and 2017, as well as balances with related
parties as of December 31, 2016 and September 30, 2017.
(1) Significant related party transactions during the
nine-month period ended September 30, 2016, and outstanding
balances with related parties as of December 31, 2016, are as
follows:
(In millions of yen)
Relationship Name
Transaction
Transactionamount
Outstandingreceivable/(payable)balances(3)
Parent company NAVER Advertising service(1) 264 67 Subsidiary of
parent company NAVER Business Platform Corp. (2) Operating expenses
5,412 (902 ) (1) LINE
Plus Corporation and NAVER entered into an agreement for exchange
of services in which LINE Plus Corporation provides advertising
services via the LINE platform and the right to use certain LINE
characters in exchange for NAVER’s advertising services for LINE
Plus Corporation via NAVER’s web portal. The Group generated
advertising revenues of 264 million yen in connection with the
advertising services provided to NAVER for the nine-month period
ended September 30, 2016. (2) This subsidiary of NAVER
provided IT infrastructure services and related development
services to the Group. (3) The receivables and payable
amounts outstanding are unsecured and will be settled in cash.
14. Related Party Transactions (continued)
(2) Significant related party transactions during the nine-month
period ended September 30, 2017 and outstanding balances with
related parties as of September 30, 2017, are as follows:
(In millions of yen)
Relationship Name
Transaction
Transactionamount
Outstandingreceivable/(payable)balances(3)
Parent company NAVER Advertising service(1) 412 149 Subsidiary of
parent company NAVER Business Platform Corp. (2) Operating expenses
6,291 (899 ) Associate of the Group Snow Corporation Transfer of
camera application business(4) 10,651 -
(1) LINE Plus Corporation and NAVER entered into an
agreement for exchange of services in which LINE Plus Corporation
provides advertising services via the LINE platform and the right
to use certain LINE characters in exchange for NAVER’s advertising
services for LINE Plus Corporation via NAVER’s web portal. The
Group generated advertising revenues of 412 million yen in
connection with the advertising services provided to NAVER for the
nine-month period ended September 30, 2017. (2) This subsidiary of
NAVER provided IT infrastructure services and related development
services to the Group. (3) The receivable and payable amounts
outstanding are unsecured and will be settled in cash. (4) In May
2017, LINE Plus Corporation has transferred its camera application
business to Snow Corporation. In exchange of the transfer of the
business, LINE Plus Corporation received 208,455 newly issued
common shares of Snow Corporation, and the transaction amount
represents the fair value of the newly issued common shares
received on the transaction date. Refer to Note 9 Supplemental Cash
Flow Information for further details.
(3) The total compensation of key management personnel for the
nine-month periods ended September 30, 2016 and 2017 are as
follows:
(In millions of yen)
2016 2017 Salaries (including bonuses)
328 554 Share-based payments(1) 4,285 679 Total 4,613 1,233
(1) Refer to Note 13 Share-Based Payments for
further details.
Key management personnel include directors
and corporate auditors of the Company.
15. Business Combinations
Acquisition in 2016Acquisition of M.T. Burn
On February 29, 2016, the Group acquired 50.5% of the voting
shares of M.T. Burn Inc., (“M.T. Burn”), an unlisted company based
in Japan, specializing in developing and providing a native mobile
advertising platform, “Hike”. M.T. Burn became a consolidated
subsidiary. The Group acquired M.T. Burn for the purpose of
enhancing the Group’s knowledge and technological capability for
advertising. The final purchase price allocation of M.T. Burn was
completed in the second quarter of 2016.
Assets acquired and liabilities assumed
The identifiable assets and liabilities of M.T. Burn, which are
measured at fair value as of the date of acquisition except for
limited exceptions in accordance with IFRS, were as follows:
(In millions of yen)
Fair value recognizedon acquisition
Assets Cash and cash equivalents 87 Trade receivables, net
83 Customer relationships 401 Software 26 Deferred tax assets 88
Other assets 1 686
Liabilities Trade and other
payables 78 Other financial liabilities, current 50 Other financial
liabilities, non-current 210 Deferred tax liabilities 149 Other
liabilities 13 500
Total identifiable net assets
at fair value 186 Non-controlling interest (92 )
Goodwill 416
Total consideration 510
All consideration was paid in cash. The fair value of the trade
receivables was 83 million yen. The gross contractual amounts of
the trade receivables were not materially different from the fair
value determined as part of the purchase price allocation.
15. Business Combinations (continued)
Acquisition in 2016 (continued)Acquisition of M.T. Burn
(continued)
Non-controlling interest in the acquiree that are present
ownership interests and entitle their holders to a proportionate
share of the entity’s net assets in the event of liquidation are
measured at the present ownership instruments’ proportionate share
in the recognized amounts of the acquiree’s identifiable net assets
at the acquisition date.
Goodwill of 416 million yen represented the value of expected
synergies arising from the acquisition and was allocated entirely
to the LINE business and portal segment. None of the goodwill
recognized was expected to be deductible for income tax
purposes.
From the date of acquisition, M.T. Burn had contributed 252
million yen to the revenue of the Group and had reduced profit
before tax from continuing operations of the Group by 582 million
yen. If the combination had taken place on January 1, 2016, revenue
for the Group from continuing operations would have been 103,376
million yen and the profit before tax from continuing operations
for the Group would have been 15,256 million yen for the nine-month
period ended September 30, 2016.
Transaction costs of 5 million yen have been expensed and are
included in “Other operating expenses” in the Interim Condensed
Consolidated Statement of Profit or Loss.
(In millions of yen)
Analysis of cash flows on acquisition: Total
consideration related to the acquisition (510 ) Net cash and cash
equivalents acquired at the acquisition date 87
Net cash
flows on acquisition (included in cash flows from investing
activities)
(423
)
Acquisition in 2017Acquisition of NextFloor Group
On July 24, 2017, the Group acquired 51.0% of the voting shares
of NextFloor Corporation. (“NextFloor”), an unlisted company based
in Korea, specializing in developing and publishing smartphone
games. As a result of the acquisition, the Group obtained control,
and NextFloor and its subsidiaries (“NextFloor Group”) became
consolidated subsidiaries of the Group. The Group acquired
NextFloor for the purpose of acquiring an organizational structure
to develop and operate mainly middle core game contents. The
preliminary allocation of the consideration given related to this
business combination, which is subject to change until the end of
the measurement periods was as follows:
Assets acquired and liabilities assumed
The identifiable assets and liabilities of NextFloor Group,
which are measured at fair value as of the date of acquisition
except for limited exceptions in accordance with IFRS, were as
follows:
(In millions of yen)
Fair value recognizedon acquisition
Assets Cash and cash equivalents 3,922 Trade receivables,
net 335 Other financial assets, current 307 Other financial assets,
non-current 754 Property and equipment 145 Intangible assets
Software 153 Publishing rights 1,640 Other intangible assets 277
Investments in associates 805 Other assets 320 8,658
Liabilities Trade and other payables 404 Other financial
liabilities, current 2,099 Other financial liabilities, non-current
63 Deferred tax liabilities 391 Other liabilities 264 3,221
Total identifiable net assets at fair value 5,437
Non-controlling interest (2,664 ) Goodwill 3,154
Total consideration 5,927
All consideration was paid in cash except for the loan
receivables of 1,976 million yen from the Group to NextFloor, which
was converted into the common shares of NextFloor. The fair value
of the trade receivables was 346 million yen. The gross contractual
amounts of the trade receivables were not materially different from
the fair value determined as part of the purchase price
allocation.
Non-controlling interest in the acquiree that are present
ownership interests and entitle their holders to a proportionate
share of the entity’s net assets in the event of liquidation are
measured at the present ownership instruments’ proportionate share
in the recognized amounts of the acquiree’s identifiable net assets
at the acquisition date.
Goodwill of 3,154 million yen represented the value of expected
synergies arising from the acquisition and was allocated entirely
to the LINE business and portal segment. None of the goodwill
recognized was expected to be deductible for income tax
purposes.
15. Business Combinations (continued)
Acquisition in 2017 (continued)Acquisition of NextFloor
Group (continued)
From the date of acquisition, NextFloor Group had contributed
300 million yen to the revenue of the Group and had reduced profit
before tax from continuing operations of the Group by 250 million
yen. If the combination had taken place on January 1, 2017, revenue
for the Group from continuing operations would have been 122,171
million yen and the profit before tax from continuing operations
for the Group would have been 19,770 million yen for the nine-month
period ended September 30, 2017.
Transaction costs of 18 million yen have been expensed and are
included in “Other operating expenses” in the Interim Condensed
Consolidated Statement of Profit or Loss.
(In millions of yen)
Analysis of cash flows on acquisition: Total
consideration related to the acquisition (5,927 ) Debt equity swap
1,976 Net cash and cash equivalents acquired at the acquisition
date 1,946
Net cash flows on acquisition (included in
cash flows from investing activities)
(2,005
)
16. Principal Subsidiaries
Information on subsidiaries
The table below includes subsidiaries which were newly
consolidated during the nine-month period ended September 30, 2017,
and subsidiaries in which the Group’s percentage of ownership
changed during such period:
Percentage of
ownership Name
Primary
businessactivities
Country ofincorporation
December 31,2016
September 30,2017
LINE Friends Inc. (1) Character goods business United States of
America – 100.0 % LINE Friends (Shanghai) Commercial Trade Co.,
Ltd. (2) Character goods business China – 100.0 % LINE Vietnam Co.,
Ltd. (3) Online advertisement Vietnam 95.0 % 100.0 % Gatebox Inc.
(4) Development of IoT hologram technology Japan – 51.0 % LINE
Digital Technologies India Private Limited (5) Mobile advertising
India 100.0 % – Kiwiple Inc. (6) Development of applications Korea
– – LINE Games Corporation (7) Development and operation of games
business Korea – 100.0 % BALIE Corporation(8) Sales agency for
LINE@ Japan – 60.0 % NextFloor Corporation.(9) Development and
operation of games Korea – 51.0 % STAIRS Corporation(10)
Development of games Japan – 51.0 % Rooftop Games Corp.(11)
Development and operation of games Korea – 51.0 % NextFloor
Basement Lab Corp.(12) Development of games Korea – 51.0 % MSQUARED
MANAGEMENT LIMITED(13) Development of games Hong Kong – 51.0 % MFC
Co., Ltd.(14) Development of games China – 51.0 % InnoAG. inc(15)
Development of games Korea – 34.0 % PiG Corporation(16) Development
of games Korea – 54.3 % Studio 4LEAF Corporation(17) Development of
games Korea – 30.6 % LINE Friends Japan Corporation(18) Character
goods business Japan – 100.0 % LINE TICKET Corporation(19)
Provision of digital ticket service Japan – 51.0 % (1) LINE
Friends Corporation, established LINE Friends America, LLC in
February 2017 and renamed as LINE Friends Inc. in May 2017. (2)
LINE Friends Corporation established LINE Friends (Shanghai)
Commercial Trade Co., Ltd. in March 2017. (3) LINE Plus Corporation
acquired additional shares of LINE Vietnam Co., Ltd. in March 2017
from a third party, resulting in LINE Vietnam Co., Ltd. to become a
wholly owned subsidiary of the Group.
(4)
The Company acquired Gatebox Inc. (renamed from vinclu Inc. in July
2017) in April 2017, resulting in the 51.0% ownership. (5) LINE
Digital Technologies India Private Limited was liquidated in May
2017. (6) LINE Plus Corporation acquired Kiwiple Inc. in June 2017,
which was subsequently merged into LINE Plus Corporation in
September 2017. (7) The Company established LINE Games Corporation
in June 2017. (8) LINE Business Partners acquired BALIE Corporation
in July 2017, resulting in the Group’s 60.0% ownership. (9) LINE
Games Corporation acquired NextFloor Corporation. in July 2017,
resulting in the Group’s 51.0% ownership. (10) NextFloor
Corporation. owns shares of STAIRS Corporation, resulting in the
51.0% ownership of STAIRS Corporation by the Group. (11) NextFloor
Corporation. owns shares of Rooftop Games Corp., resulting in the
51.0% ownership of Rooftop Games Corp. by the Group. (12) NextFloor
Corporation. owns shares of NextFloor Basement Lab Corp., resulting
in the 51.0% ownership of NextFloor Basement Lab Corp. by the
Group. (13) NextFloor Corporation. owns shares of MSQUARED
MANAGEMENT LIMITED, resulting in the 51.0% ownership of MSQUARED
MANAGEMENT LIMITED by the Group. (14) NextFloor Corporation. owns
shares of MFC Co., Ltd., resulting in the 51.0% ownership of MFC
Co., Ltd. by the Group. (15) NextFloor Corporation. owns 34.1%
interest in InnoAG. inc, and LINE Games Corporation acquired 16.7%
interest in InnoAG. inc, from a third-party in September 2017,
resulting in the 34.1% ownership of InnoAG. inc by the Group. (16)
NextFloor Corporation. owns 34.4% interest in PiG Corporation, and
LINE Games Corporation acquired 36.8% interest in PiG Corporation
from a third-party in September 2017, resulting in the 54.3%
ownership of PiG Corporation by the Group. (17) NextFloor
Corporation. owns shares of Studio 4LEAF Corporation, resulting in
the 30.6% ownership of Studio 4LEAF Corporation by the Group. (18)
The Company established LINE Friends Japan Corporation and
transferred its LINE Friends store business to LINE Friends Japan
Corporation in September 2017. (19) The Company established LINE
TICKET Corporation with third-parties in September 2017, resulting
in the 51.0% ownership of LINE TICKET Corporation by the Company.
Ultimate parent company of the Group
The next senior and the ultimate parent company of the Group is
NAVER, which is domiciled in Korea and listed on the Korea
Exchange.
17. Investments in Associates and Joint
Ventures
Investment in K-Fund IIn January 2017, the Group and NAVER
established K-Fund I, which invests in start-up companies in
technology and digital sectors in Europe. The Group’s and NAVER’s
interests in this associate are 49.9% and 50.0%, respectively. The
Group’s carrying amount of the investment in this associate was
1,317 million yen as of September 30, 2017.
Investment in Orfeo SoundWorks CorporationIn June 2017, LINE
Friends Corporation acquired a 20.7% interest in Orfeo SoundWorks
Corporation to develop and sell products with Orfeo SoundWorks
Corporation’s technology such as earphones and headsets. The
Group’s carrying amount of the investment in this associate was 113
million yen as of September 30, 2017.
Business transfer of camera application business to Snow
CorporationIn May 2017, the Group has transferred its camera
application business, which was a part of LINE Plus Corporation, to
Snow Corporation, an associate of the Group. In exchange for this
transfer, the Group has acquired common shares of Snow Corporation.
Refer to Note 9 Supplemental Cash Flow Information for further
details.In August 2017, the Company and NAVER have injected capital
to Snow Corporation 984 million yen and 3,938 million yen,
respectively. As a result, the share of the Group has decreased
from 48.6% to 45.0%.The Group’s carrying amount of the investment
in this associate was 13,332 million yen as of September 30,
2017.For the nine-month period ended September 30, 2017, the share
of loss of associates and joint ventures consisted of loss arising
from Snow Corporation of 3,150 million yen.
Investment in Oozoo Inc.In July 2017, the Group acquired
NextFloor Corporation., and NextFloor Corporation. owns a 44.5%
interest in Oozoo Inc., a game developing company. As the Group has
significant influence over Oozoo Inc., the Group accounts for its
ownership in Oozoo Inc. using the equity method. The Group’s
carrying amount of the investment in this associate was 415 million
yen as of September 30, 2017.
Investment in Nano Interactive Inc.In July 2017, the Group
acquired NextFloor Corporation., and NextFloor Corporation. owns
35.5% interest in Nano Interactive Inc., a game developing company.
As the Group has significant influence over Nano Interactive Inc.,
the Group accounts for its ownership in Nano Interactive Inc. using
the equity method. The Group’s carrying amount of the investment in
this associate was 65 million yen as of September 30, 2017.
18. Other Operating Expenses
Other operating expenses for the nine-month period ended
September 30, 2017, consist of various operating expenses,
including 4,386 million yen of rent, 2,881 million yen of cost of
goods, and 1,691 million yen of supply expenses compared to 2,258
million yen, 2,556 million yen and 752 million yen, respectively,
for the nine-month period ended September 30, 2016. Rent and supply
expenses increased mainly due to the relocation of headquarter
offices.
19. Subsequent Events
Not applicable.
2 Others
Not applicable.
B. Information on guarantors
Not applicable.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171114005763/en/
LINE Global PRMichiko Setsu, +81 3 4316
2104dl_gpr@linecorp.co
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