LN LINE Corporation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LINE Corporation Announces Consolidated Financial Results for the Nine Months Ended September 30, 2017

TOKYO--(BUSINESS WIRE)--November 14, 2017--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:

LINE Corporation
Index

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

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.

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

b. Number of shares issued

(2) Stock acquisition rights

Stock options (warrants) issued during the third quarter period are as follows:

a. 20th series of stock options (warrants)

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 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 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)

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:

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)

(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.

(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

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

(2) Interim Condensed Consolidated Statement of Profit or Loss - Unaudited

(2) Interim Condensed Consolidated Statement of Profit or Loss – Unaudited (continued)

(3) Interim Condensed Consolidated Statement of Comprehensive Income - Unaudited

(3) Interim Condensed Consolidated Statement of Comprehensive Income - Unaudited (continued)

(4) Interim Condensed Consolidated Statement of Change in Equity - Unaudited

(5) Interim Condensed Consolidated Statement of Cash Flows - Unaudited

(5) Interim Condensed Consolidated Statement of Cash Flows – Unaudited (continued)