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2018 ReportPeers and competitors of LINE Corporation:
JOYYAs filed with the Securities and Exchange Commission on March 29, 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
(Mark One)
‘ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
‘ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2018
OR
Date of event requiring this shell company report
For the transition period from
to
Commission file number 001-37821
LINE Kabushiki Kaisha
(Exact name of Registrant as specified in its charter)
LINE Corporation
(Translation of Registrant’s name into English)
Japan
(Jurisdiction of incorporation or organization)
JR Shinjuku Miraina Tower, 23rd Floor
4-1-6 Shinjuku
Shinjuku-ku, Tokyo, 160-0022, Japan
(Address of principal executive offices)
Satoshi Yano
Telephone: +81-3-4316-2050; E-mail: ir@linecorp.com; Facsimile: +81-3-4316-2131
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class
American Depositary Shares, each representing
one share of common stock
Name of Each Exchange on Which Registered
New York Stock Exchange, Inc.
Common Stock *
New York Stock Exchange, Inc. *
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
As of December 31, 2018, there were 240,524,642 shares of common stock outstanding
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes È No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated
filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È
Accelerated filer ‘
Non-accelerated filer ‘
Emerging growth company ‘
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ‘
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5,
2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ‘ Item 18 ‘
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
U.S. GAAP ‘
IFRS È
Other ‘
*
Not for trading, but only in connection with the registration of the American Depositary Shares.
TABLE OF CONTENTS
Item 3.A.
Item 3.B.
Item 3.C.
Item 3.D.
Item 4.A.
Item 4.B.
Item 4.C.
Item 4.D.
Item 5.A.
Item 5.B.
Item 5.C.
Item 5.D.
Item 5.E.
Item 5.F.
Item 5.G.
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGERS AND ADVISERS . . . . . . . . . . . . . . . . . . .
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3. KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization and Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reasons for the Offer and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4. INFORMATION ON THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
History and Development of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, Plants and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 4A. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Capital Resources
Research and Development, Patents and Licenses, Etc.
. . . . . . . . . . . . . . . . . . . . . . .
Trend Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Off-balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tabular Disclosure of Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Safe Harbor
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors and Senior Management
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Practices
Employees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 8. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements and Other Financial Information . . . . . . . . . . . . . . . . . . . . .
Significant Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9. THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offer and Listing Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling Shareholders
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses of the Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.A. Share Capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.B. Memorandum and Articles of Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.C. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.D. Exchange Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.E. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.F. Dividends and Paying Agents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.G. Statements by Experts
Item 9.A.
Item 9.B.
Item 9.C. Markets
Item 9.D.
Item 9.E.
Item 9.F.
Item 7.A. Major Shareholders
Item 7.B.
Item 7.C.
Related Party Transactions
Interests of Experts and Counsel
Item 6.A.
Item 6.B.
Item 6.C.
Item 6.D.
Item 6.E.
Item 8.A.
Item 8.B.
1
1
1
1
1
4
4
4
34
34
35
58
58
58
59
59
90
100
100
100
100
100
101
101
104
105
107
108
109
109
110
111
111
111
112
112
112
112
112
112
112
112
113
113
113
122
122
124
130
130
i
Item 10.H. Documents on Display . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.I.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . .
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . . . . . . . . . . . . . . . .
Item 12.A. Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.B. Warrants and Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.C. Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.D. American Depositary Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES . . . . . . . . . . . . . . . . . . . . .
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 15. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16B. CODE OF ETHICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES . . . . . . .
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16G. CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16H. MINE SAFETY DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 17. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 18. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 19. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
130
130
130
133
133
133
133
134
135
135
135
136
137
137
137
137
138
138
138
139
142
143
143
143
144
ii
CONVENTIONS USED IN THIS ANNUAL REPORT
Except where the context otherwise requires or unless otherwise specified, and for purposes of this
annual report on Form 20-F only:
•
•
•
•
•
•
•
•
•
•
•
•
“daily active users” or “DAUs” refers to the number of user accounts that (i) accessed the LINE
messaging application or any LINE Game 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 a given day;
“Japanese yen,” “yen” or “¥” refers to the legal currency of Japan;
“Korea” refers to the Republic of Korea;
“Korean won,” “Won” or “W” refers to the legal currency of Korea;
“LINE,” “we,” “us,” “our company,” “the Company” or “our” refers to LINE Corporation and its
consolidated subsidiaries taken as a whole, as well as the messaging application and other products
of LINE Corporation;
“messages” refers to text messages, voice messages, Stickers and photo, video, voice and text files
sent and received, as well as free voice and video calls made and received, in each case using the
LINE messaging application from either mobile devices or personal computers or using any LINE
Game or any other LINE application from mobile devices;
“monthly active users” or “MAUs” in a given month refers to the number of user accounts that
(i) accessed the LINE messaging application or any LINE Game 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;
“monthly paying users” or “MPUs” in a given month refers to the number of user accounts that
made (i) a payment for Stickers, Themes or LINE Out on the LINE messaging application through
mobile devices or personal computers or (ii) a payment relating to any LINE Game through mobile
devices, in each case at least once during that month;
“paid impression” refers to the display of an advertisement to a user while accessing our products
and services for which we generate revenues;
“platform partners” refers to application developers and other providers of content offered on the
LINE platform;
“stickers” refers to larger, cartoon-like emoticons that depict emotions and actions of characters,
which are exchanged as part of chat messages on mobile messaging applications; and
“U.S. dollar,” “US$” or “$” refers to the legal currency of the United States.
Any discrepancies in any table between the totals and the sums of the amounts listed are due to
rounding.
iii
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements with respect to our current plans, estimates,
strategies and beliefs. Forward-looking statements include, but are not limited to, those statements using words
such as “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project,” “aim,” “plan,” “likely to,”
“target,” “contemplate,” “predict,” “potential” 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
us, speak only as of the date hereof and are based on our current plans and expectations and are subject to a
number of known and unknown uncertainties and risks, many of which are beyond our 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 this annual report. You are cautioned not
to unduly rely on such forward-looking statements when evaluating the information presented and we do not
intend to update any of these forward-looking statements. Risks and uncertainties that might affect us include,
but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to attract and retain users and increase the level of engagement of our users;
our ability to improve user monetization;
our ability to successfully enter new markets and manage our business expansion;
our ability to compete in the global social network services market;
our ability to develop or acquire new products and services, improve our existing products and
services and increase the value of our products and services in a timely and cost-effective manner;
our ability to maintain good relationships with platform partners and attract new platform partners;
our ability to attract advertisers to the LINE platform and increase the amount that advertisers spend
with LINE;
our expectations regarding our user growth rate and the usage of our mobile applications;
our ability to increase revenues and our revenue growth rate;
our ability to timely and effectively scale and adapt our existing technology and network
infrastructure;
our ability to successfully acquire and integrate companies and assets;
our future business development, results of operations and financial condition;
the regulatory environment in which we operate;
fluctuations in currency exchange rates and changes in the proportion of our revenues and expenses
denominated in foreign currencies; and
changes in business or macroeconomic conditions.
You are urged to read the sections “Item 3.D. Risk Factors,” “Item 4. Information on the Company” and
“Item 5. Operating and Financial Review and Prospects” of this annual report for a more complete discussion of
the factors that could affect our performance and the industry in which we operate.
iv
LIMITATIONS OF USER METRICS
We review a number of metrics, including MAUs, DAUs and MPUs, to evaluate our business, measure
our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Our MAUs, DAUs and MPUs are calculated using our internal data. While these numbers are based on what we
believe to be reasonable estimates of our user base for the applicable period of measurement, there are inherent
challenges in measuring usage of our products and services across large online and mobile populations around
the world. For example, each LINE account is linked to a mobile phone number, and there may be multiple LINE
accounts held by the same person if the person carries multiple smartphones and has chosen to download the
LINE messaging application on each smartphone. In addition, our data regarding user geographic location for
purposes of reporting the geographic location of our MAUs, DAUs, and MPUs is based on the mobile phone
number associated with the account when a user initially registered the account on LINE. The phone number may
not always accurately reflect a user’s actual location at the time of user engagement on our platform. See “Item
3.D. Risk Factors — Certain of our user metrics are subject to inherent uncertainties in measurement, and real or
perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.”
We regularly review and may adjust our processes for calculating our internal metrics to improve their
accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties
or from similarly-titled metrics of our competitors due to differences in methodology.
v
PART I
Item 1.
Identity of Directors, Senior Managers and Advisers
Not applicable
Item 2.
Offer Statistics and Expected Timetable
Not applicable
Item 3.
Key Information
Item 3.A. Selected Financial Data
The consolidated statement of financial position data as of December 31, 2017 and 2018 and the
consolidated statement of profit or loss data for the years ended December 31, 2016, 2017 and 2018 have been
derived from our audited consolidated financial statements and related notes included in this annual report. The
consolidated statement of financial position data as of December 31, 2014, 2015 and 2016 and the consolidated
statement of profit or loss data for the years ended December 31, 2014 and 2015 have been derived from our
consolidated financial statements and related notes not included in this annual report. These consolidated
financial statements and the related notes have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”).
The information set forth below is not necessarily indicative of the results of future operations.
1
Consolidated Statement of Profit or Loss Data
For the year ended December 31,
2014
2015
2016
2017
2018
(in millions of yen, except share and per share data)
Revenues and other operating income:
Revenues(1) . . . . . . . . . . . . . . . . . . . . ¥
Other operating income . . . . . . . . . .
86,366 ¥
296
120,406
474
¥
140,704
5,892
¥
167,147 ¥
12,011
207,182
28,099
Total revenues and other
operating income . . . . . . . . .
86,662
120,880
146,596
179,158
235,281
Operating expenses:
Payment processing and licensing
expenses . . . . . . . . . . . . . . . . . . . .
. . . . .
Sales commission expenses(2)
Employee compensation
expenses . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . .
Infrastructure and communication
(20,598)
(179)
(18,289)
(18,069)
(28,742)
(288)
(35,572)
(16,596)
(29,781)
(615)
(39,445)
(11,833)
(29,589)
(899)
(42,469)
(15,477)
(30,823)
(15,960)
(57,493)
(20,311)
expenses . . . . . . . . . . . . . . . . . . . .
(4,492)
(7,712)
(7,770)
(9,087)
(10,483)
Outsourcing and other service
expenses(2)
. . . . . . . . . . . . . . . . . .
(7,695)
(11,846)
(13,779)
(24,007)
(31,825)
Depreciation and amortization
expenses . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . .
(2,370)
(8,555)
(3,733)
(14,432)
(5,100)
(18,376)
(7,149)
(25,403)
(11,135)
(41,141)
Total operating expenses . . . . .
(80,247)
(118,920)
(126,699)
(154,080)
(219,171)
Profit from operating activities . . . . . . . .
Finance income . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . .
Share of loss of associates and joint
ventures . . . . . . . . . . . . . . . . . . . .
Gain (loss) on foreign currency
transactions, net . . . . . . . . . . . . . .
Other non-operating income . . . . . .
Other non-operating expenses . . . . .
Profit (loss) before tax from continuing
operations . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefits (expenses) . . . .
Profit (loss) for the period from
6,415
86
(137)
1,960
71
(106)
19,897
87
(65)
25,078
257
(26)
16,110
413
(519)
(167)
(205)
(833)
(6,321)
(11,148)
66
—
—
6,263
(7,151)
(520)
157
(1,887)
(530)
146
(43)
9
(1,062)
17,990
(8,904)
(818)
1,963
(1,988)
18,145
(9,922)
(902)
869
(1,469)
3,354
(9,522)
continuing operations . . . . . . . . . . . . . .
(888)
(384)
9,086
8,223
(6,168)
Profit (loss) from discontinued
operations, net of tax . . . . . . . . . .
Profit (loss) for the period . . . . . . . . . . . .
Attributable to:
The shareholders of the
2,892
2,004
(7,588)
(7,972)
(1,982)
7,104
(13)
8,210
376
(5,792)
Company . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . .
4,207
(2,203)
(7,582)
(390)
6,763
341
8,078
132
(3,718)
(2,074)
2
Earnings per share:
Basic profit (loss) for the
period attributable to the
shareholders of the
Company . . . . . . . . . . . . . . . ¥
Diluted profit (loss) for the
period attributable to the
shareholders of the
Company . . . . . . . . . . . . . . .
Earnings per share from continuing
operations
Basic profit (loss) from
continuing operations
attributable to the
shareholders of the
Company . . . . . . . . . . . . . . .
Diluted profit (loss) from
continuing operations
attributable to the
shareholders of the
Company . . . . . . . . . . . . . . .
Earnings per share from
discontinued operations
Basic profit from discontinued
operations attributable to the
shareholders of the
Company . . . . . . . . . . . . . . .
Diluted profit from
discontinued operations
attributable to the
shareholders of the
Company . . . . . . . . . . . . . . .
For the year ended December 31,
2014
2015
2016
2017
2018
(in millions of yen, except share and per share data)
24.05 ¥
(43.33) ¥
34.84
¥
36.56 ¥
(15.62)
22.14
(39.12)
31.48
34.01
(15.62)
7.52
0.04
45.05
36.62
(17.20)
6.92
0.03
40.70
34.06
(17.20)
16.53
(43.37)
(10.21)
(0.06)
1.58
15.22
(39.15)
(9.22)
(0.05)
1.58
Basic weighted average shares
outstanding . . . . . . . . . . . . . . . . . . . . . . 174,992,000
174,992,000
194,083,995
220,945,548
238,074,806
Diluted weighted average shares
outstanding . . . . . . . . . . . . . . . . . . . . . . 190,024,846
193,797,566
214,874,008
237,552,706
238,074,806
(1) For a discussion of the impact of our adoption of IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) on revenue recognition,
see “Item 5.B. Liquidity and Capital Resources — Critical Accounting Judgments, Estimates and Assumptions — Revenue
Recognition” and Note 3(30) of the notes to our annual consolidated financial statements.
(2) Due to our adoption of IFRS 15 starting on January 1, 2018, “sales commission expenses,” which were part of “authentication and other
service expenses” prior to January 1, 2018, are now presented separately as a new line item, with the remainder of “authentication and
other service expenses” re-categorized as “outsourcing and other service expenses,” starting with the year ended December 31, 2018.
Such change has been applied to the figures for prior years. For more information on the impact of our adoption of IFRS 15, see
“Item 5.A. Operating Results — Recently Adopted Accounting Standards — The Impact of IFRS 15” and Note 3(30) of the notes to our
annual consolidated financial statements.
3
Consolidated Statement of Financial Position Data
As of December 31,
2014
2015
2016
2017
2018
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholder’s equity . . . . . . . . . . . . . . . . . . . . . . .
Equity attributable to the shareholders of the
¥20,254
24,223
9,656
85,664
1,005(1)
73,153
12,596
12,511
¥ 33,652
27,248
10,501
122,159
510(1)
104,626
12,596
17,533
(in millions of yen)
¥134,698
28,167
9,029
256,089
—
95,066
77,856
161,023
¥123,606
42,892
15,125
303,439
¥256,978
37,644
24,726
486,587
— 142,132(2)
113,462
92,369
189,977
278,073
96,064
208,514
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity attributable to non-controlling interests . . .
12,496
15
17,743
(210)
160,834
189
185,075
4,902
198,916
9,598
(1) Consists of the outstanding amounts of the unsecured corporate bonds we issued in August 2013 with an aggregate principal amount of
¥1,500 million, all of which were repaid during the year ended December 31, 2016.
(2) Consists of the outstanding amount of the Convertible Bonds (as defined below) we issued in September 2018. For further details, see
“Item 5.B. Liquidity and Capital Resources — Liquidity and Capital Resources — Cash Flows — Net Cash Provided by Financing
Activities” and Note 15 of the notes to our annual consolidated financial statements.
Item 3.B. Capitalization and Indebtedness
Not applicable
Item 3.C. Reasons for the Offer and Use of Proceeds
Not applicable
Item 3.D. Risk Factors
If we fail to retain existing users or add new users, or if our users decrease their level of engagement with
LINE, our revenue, financial results and business may be significantly harmed.
The size of our user base and our users’ level of engagement are critical to our success, and our financial
performance has been and will continue to be significantly determined by our success in adding, retaining and
engaging active users. From our inception, we experienced our largest user growth in Japan, Thailand, Taiwan
and Indonesia. For example, our aggregate MAUs in Japan, Thailand and Taiwan were 127 million in December
2016, 135 million in December 2017 and 144 million in December 2018. Despite such growth, the growth rate of
our users in such markets has declined over time as we achieved higher penetration rates in those markets. In
Indonesia, we have experienced a decrease in the number of our MAUs starting in the second quarter of 2017
primarily due to intensified competition in that market, and our MAUs in Indonesia were 40 million in December
2016, 32 million in December 2017 and 20 million in December 2018. In part due to refocusing of our marketing
efforts on these key countries in line with our increased emphasis on monetization in markets where we have
achieved leading market positions, we have experienced a significant decrease not only in total MAUs but also in
the level of user engagement outside of the four countries, and there may be further decreases in the future.
Our business performance will also become increasingly dependent on our ability to increase levels of
user engagement in current and new markets. If people do not perceive our products and services to be useful,
reliable or trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the
frequency, duration or level of their engagement. A number of other providers of mobile messaging applications
and online companies that achieved early popularity have seen the sizes of their user bases or levels of
engagement subsequently decline, in some cases precipitously.
4
Any number of factors could negatively affect user retention, growth or engagement, including if:
•
•
•
•
•
•
•
•
we are unable to continue to offer products and services that users find engaging, that work with a
variety of mobile operating systems and networks, and that achieve a high level of market
acceptance, particularly in markets that we are targeting for expansion;
users increasingly engage with competing products or services, particularly communication tools
and mobile games;
we are unable to provide a compelling and intuitive user experience and environment, particularly
relating to the quality, volume, design and layout of the content and advertisements delivered on the
LINE platform;
we fail to provide adequate customer service to users or advertisers or maintain relationships with
key platform partners such as mobile game developers;
there are increased user concerns related to privacy and information sharing, safety or security;
there are adverse changes in our products or services that are mandated by legislation, regulatory
authorities or legal proceedings;
technical or other problems prevent us from delivering our products and services in a rapid and
reliable manner or otherwise negatively affect user experience; or
we fail to maintain our brand image or our reputation is damaged.
There is no guarantee that we will not experience erosion of our active user base or decline in
engagement levels. A decrease in user retention, growth or engagement could reduce our direct sales to users and
render LINE less attractive to our platform partners and advertisers, thereby reducing our revenues from them,
which may have a material and adverse impact on our business, financial condition and results of operations.
We may not be successful in our efforts to monetize our products and services.
Our ability to monetize our user base and user engagement is critical to our business and financial
performance. We plan to continue to invest in product development and explore additional monetization
opportunities, including those related to fintech, artificial intelligence (“AI”) and blockchain, in our largest
markets such as Japan, Taiwan, Thailand and Indonesia and in other markets, but there is no guarantee that these
efforts will be successful. For example, we are currently pursuing a variety of new business initiatives related to
fintech, including mobile payment and online financial services, and whether we will be able to successfully
monetize these new services remains uncertain. In addition, users and advertisers in certain markets are not as
familiar with new forms of digital advertising, such as our Official Accounts and Sponsored Stickers, as well as
display ads posted on Timeline and LINE NEWS. In newer markets, we are investing to convince users and
advertisers of the benefits of our products and services. However, we expect that monetizing efforts in many of
these new markets may require a significant investment of time and resources, which may not result in sufficient,
or any, returns to recover such investment.
As part of our business strategy, we are seeking ways to increase our revenue by selectively introducing
commissions and other charges with respect to our existing products and services that are currently offered for
free, as well as adding new advertising services and developing other new revenue generating products and
services. However, there is no guarantee that our efforts to further monetize our products and services will be
successful in generating significant new revenues or profits. Furthermore, our monetization efforts could have a
negative effect on user engagement and user base growth if such efforts discourage users from using our products
5
and services. In addition, our competitors may introduce new revenue models in the future, and if such new
revenue models are perceived as offering a better value proposition to users than the models that we currently use
or plan to implement, our customers may switch to our competitors’ products and services. If our monetization
efforts are not as successful as we anticipate, we may not be able to maintain or grow our revenues, and our
business, financial condition and results of operations could be adversely affected.
Our business operates in an industry that is highly competitive, and competition presents an ongoing threat
to the success of our business.
We compete against various companies to attract and engage users, some of which have greater
financial resources and substantially larger user bases. We face direct competition from mobile messaging
service providers such as Facebook’s WhatsApp and Messenger and Tencent’s WeChat, as well as mobile
messaging services for specific operating platforms such as Apple’s iMessage. We also face significant
competition in almost every aspect of our business, including from companies such as Facebook, Google, Twitter
and Yahoo Japan. We face competition from mobile telecommunications companies, game companies, music
and video streaming companies, mobile payment companies, fintech companies, AI companies, e-commerce
companies and other internet-related companies that offer products and services that may compete with specific
features of the LINE messaging service or other applications that we offer. We also compete with traditional and
online media businesses for a share of advertisers’ budgets and in the development of tools and systems for
managing and optimizing advertising campaigns. As we introduce new products and our existing products
evolve, or as other companies introduce new products and services, we may become subject to additional
competition.
Scale benefits and other advantages may allow our competitors to respond more effectively than us to a
rapidly evolving environment in the mobile internet industry, including industry consolidation that may result in
increased competition. Our competitors may develop products, features or services that are similar to ours or that
achieve greater market acceptance, may undertake more far-reaching and successful product development efforts
or marketing campaigns, or may adopt more aggressive pricing policies. In addition, platform partners may use
information shared by our users through the LINE platform in order to develop products or features that compete
with us. Certain competitors, including Facebook and Google, could use strong positions in one or more markets
to gain competitive advantages against us in areas where we operate including: by integrating competing
messaging applications or features into products they control such as social networking platforms, search
engines, web browsers or mobile device operating systems; by making strategic acquisitions; or by making
access to LINE more difficult. As a result, our competitors may acquire and engage users at the expense of our
user base or our users’ engagement with our products and services, which may negatively affect our business,
financial condition and results of operations.
We may not be successful if we are not able to develop and provide new products and services in a timely
and cost-effective manner that address rapidly evolving user preferences, and any new products and
services we develop and provide, including those related to fintech, AI and blockchain, may expose us to
new risks.
We compete in a highly competitive industry characterized by rapidly changing products and services,
evolving industry standards and continual improvements in performance characteristics and product features.
Rapidly evolving user preferences may lead to certain products and services becoming less competitive, or even
obsolete. Accordingly, our success depends greatly on our ability to anticipate and respond to emerging user
preferences and demands by ensuring continuing and timely development and provision of new, as well as
enhancements to existing, products and services. In order to respond to such preferences and demands, we may
develop and introduce new products and services,
including in areas where we have little or no prior
development or operating experience. For example, in March 2017, we launched our next-generation AI platform
called “Cloud Virtual Assistant (or “Clova”),” which enables voice interfaces to process a wide range of
real-world inputs and deliver our products and services in a coherent and optimized manner. We have
6
subsequently launched a series of LINE Clova-integrated smart speakers starting in October 2017 and released
the Clova Extensions Kit in July 2018 to allow third-party developers to scale LINE Clova functionalities. We
expect to continue to expend significant time and resources in marketing our LINE Clova-integrated smart
devices in 2019 as well as develop and launch new products and services to be offered on the LINE Clova
ecosystem that are designed to further enrich our users’ daily lives.
In addition, some of our strategic initiatives that we expect will enhance our attractiveness to users and
provide us with new sources of revenue may not directly or immediately generate revenue and may even hurt our
profitability at least in the short term. Our new products and services may bring us into contact, directly or
indirectly, with entities that are not within our traditional customer base or result in competing with entities that
are our existing business partners. We may also enter into new business areas that require a number of licensing
or registration requirements, as well as subject us to additional regulations applicable to the relevant industry in a
number of jurisdictions. For example, in recent years, we have focused our strategy on exploring a variety of new
business opportunities related to fintech. Some of our recent fintech-related activities include, among others,
expansion of services available to our users through LINE Pay, pursuit of alliances with reputable players in the
financial services industry to offer new services related to insurance, online securities brokerage, consumer loans
and internet banking on the LINE platform, as well as the launch of BITBOX, our virtual currency exchange in
Singapore. We are also pursuing business opportunities related to blockchain, such as the launch of LINK, the
base digital token for our blockchain ecosystem. As most of these ventures are still in the early stages of
operation, there can be no assurance that any of them will gain market acceptance and be used widely by our
existing and potential users. We expect to continue to expend significant time and resources in developing,
launching and marketing these ventures, and there can be no assurance that such initiatives will be successful.
Any of these activities could expose us to new risks, including additional regulatory scrutiny and
credit-related and other operational risks, such as inventory risk for our unsold products. We have previously
developed and introduced new products and services or entered into new business areas that did not lead to the
results we anticipated, which may again occur in the future. There can be no assurance that we will succeed in
developing products and services that eventually become widely accepted, that we will be able to timely release
products and services that are commercially viable, or that we will establish ourselves as a successful player in a
new business area. Our inability to do so would have an adverse impact on our business, financial condition and
results of operations.
Our acquisitions and investments may not be successful in achieving their intended goals and could harm
our business, financial condition and results of operations.
Our success will depend, in part, on our ability to expand our products and services, and grow our
business in response to changing technologies, user and advertiser demands, and competitive pressures. In some
circumstances, we may decide to do so through the acquisition of complementary businesses and technologies or
the investment in attractive business opportunities through partnerships with established players in the target
industry, rather than through internal development. The identification of suitable acquisition candidates or
business partners can be difficult,
time-consuming and costly, and we may not be able to successfully
consummate the identified acquisition or investment transactions.
We have limited experience acquiring other businesses, and our ability to acquire and integrate other
companies and assets, particularly larger or more complex companies, products, or technologies, in a successful
manner remains subject to uncertainty. In addition, any completed acquisitions may not achieve their intended
goals and could be viewed negatively by users, platform partners, advertisers or investors. For example, we
acquired assets of MixRadio, a mobile music streaming service, from Microsoft in March 2015, but after careful
assessment of the overall performance of MixRadio, the financial challenges posed by the music streaming
market, changing market conditions, an increase in the cost of maintaining the business and a shift in our overall
priorities, our board of directors approved the liquidation of our MixRadio business that became effective in
March 2016. For more information, see Note 23 of the notes to our annual consolidated financial statements. We
7
also make investments by creating joint ventures with third parties, which may subject us to risks that are outside
of our control, including changes in our partners’ own businesses and strategies, fraudulent or failed transactions,
and the impact on our relationships with existing users, platform partners, employees or third parties.
The risks we face in connection with acquisitions and investments also include:
•
•
•
•
•
•
•
•
•
•
•
diversion of management time and focus from operating our business to addressing acquisition and
integration challenges;
challenges associated with the integration of product development and marketing and sales
functions of the acquired company or business;
challenges associated with the retention of key employees from the acquired company or business;
cultural and operational challenges associated with integrating employees from the acquired
company or business into our organization;
challenges associated with the integration of accounting, management
resources and other administrative systems of the acquired company or business;
information, human
the need to implement or improve controls, procedures and policies at a business that prior to the
acquisition or investment may have lacked effective controls, procedures and policies;
liability for activities of the acquired company or business before the acquisition or investment,
respectively, including intellectual property infringement claims;
unfavorable or restrictive contractual terms that govern our relationship with the acquired company
or business;
unanticipated write-offs or charges or impairment of goodwill;
recognition of our share of loss of associates and joint ventures that are accounted for under the
equity method; and
litigation or other claims in connection with the acquired company or business, including claims
from terminated employees, customers, former shareholders or other third parties.
Our failure to address these risks or other problems encountered in connection with our past or future
acquisitions or investments could cause us to fail to realize the anticipated benefits of these acquisitions or
investments, cause us to incur unanticipated liabilities, or could otherwise harm our business generally. Future
acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of
debt, contingent liabilities, amortization expenses or incremental operating expenses.
Japan is our largest market in terms of revenue, and our current business and future growth could be
materially and adversely affected if we experience a decline in users or user engagement in Japan.
We are incorporated in Japan, and Japan is our largest market in terms of revenue. We also have the
broadest product and service offerings in Japan, and we generated 71.7%, 72.6% and 71.6% of our revenues in
Japan in 2016, 2017 and 2018, respectively. We expect to continue to derive a substantial portion of our revenues
from Japan in the near future. In general, a higher proportion of LINE users in Japan are paying users than LINE
users in other countries, and our continued growth will depend, at least in part, on maintaining or increasing
revenues from users in Japan. In recent quarters, our active user growth rate in Japan has slowed, and our
8
business performance in Japan will increasingly depend on our ability to increase the level of user engagement
and our ability to further monetize users’ engagement with LINE. Our current business and future growth could
be materially and adversely affected if we experience a decline in users or user engagement in Japan.
Due to the importance of the Japanese market to our business, we are also subject to macroeconomic
risks specific to Japan. See “— A downturn in macroeconomic conditions may result in reduced demand for our
products and services.”
A substantial portion of our revenues is derived from our advertising products. The loss of our advertisers,
reduction in spending by our advertisers or failure to achieve market acceptance of new advertising
products and services could negatively affect our business.
A substantial portion of our revenues is derived from our advertising products and services. As is
common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many
of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition,
some of our advertisers may view our products, such as Official Accounts, as experimental or unproven.
Advertisers may not continue to do business with us, or they may reduce the prices or spending they are willing
to pay to advertise with us, if we do not deliver advertisements and other commercial content in an effective
manner, or if they do not believe that their investment in our advertising products and services will generate a
competitive return relative to alternative methods of advertising.
In addition, our ability to increase our revenue will depend in large part on our ability to create
successful new advertising products as well as improving features of existing products and services on our
platform that further enhance the media value for our advertising business. For example, we have recently
completed a series of enhancements to various functionalities of our display ads platform, which we believe
would lead to improved operational capabilities, upgraded targeting technology and enhanced user experience.
Although we expend a significant amount of time and resources in these efforts, such initiatives may not always
lead to the anticipated benefits. We may also introduce new and unproven advertising products and services,
using advertising technology with which we have little or no prior development or operating experience. If new
advertising products and services fail to engage advertisers, we may fail to generate sufficient revenue to justify
investment and our business may be adversely affected.
Our advertising revenue could also be adversely affected by a number of other factors, including:
•
•
•
•
•
•
•
•
decreases in the number of active users and their engagement;
our inability to improve our analytics and measurement solutions that demonstrate the value of
advertising on LINE or our portals;
our inability to create new products or services that sustain or increase the value of advertising on
LINE or our portals;
product changes we may make that reduce the frequency or relative prominence of advertisements
and other commercial content delivered through the LINE platform or our portals;
our inability to increase the relevance of targeted ads shown to users;
our inability to increase advertisers’ demand and inventory;
loss of advertising market share to our competitors;
adverse legal developments relating to advertising;
9
•
•
•
•
•
failure to maintain partnerships with third-party entities that license key advertising technology
necessary to deliver certain advertisements on the LINE platform;
adverse changes in the way online advertising on personal computers or mobile devices is priced;
the degree to which users opt out of certain types of targeted ads;
the impact of new technologies that could block or obscure the display of some types of
advertisements and other commercial content; and
the impact of macroeconomic conditions and conditions in the advertising industry in general.
The occurrence of any of these or other factors could result in a reduction in demand for advertisements,
which may reduce the prices we receive for our advertisements or cause advertisers to stop advertising with us
altogether, either of which would negatively affect our business, financial condition and results of operations.
We depend on a small number of mobile games offered on the LINE platform for a majority of our mobile
game revenues. We must continue to offer games that attract and retain a significant number of users, or
otherwise our business, financial condition and results of operations could be negatively affected.
We offer various games on our LINE platform through Apple App Store and Google Play, and they
accounted for a substantial portion of our revenues in 2016, 2017 and 2018. As of December 31, 2018, we
offered 50 games, of which 44 games were developed by third-party game developers and six games were
developed by us. Accordingly, we believe that maintaining successful partnerships with, and the ability to attract
and select from, third-party game developers are important for our success. Existing and prospective mobile
game developers may not be successful in developing games that create and maintain user engagement.
Additionally, although our general policy is to enter into new contractual arrangements with third-party game
developers to become the exclusive distributor of their games in a particular market, to the extent such
arrangements are not yet in place, developers may choose to provide their content on other platforms, including
mobile platforms controlled by our competitors, rather than offering them on the LINE platform. Our failure to
maintain good relationships with third-party game developers or attract new developers could adversely affect
our business, financial condition and results of operations.
Historically, we have depended on a small number of games for a majority of our mobile game
revenues, and we expect that this dependence will continue for the foreseeable future. Our growth in this area
depends on our ability to consistently launch new games that achieve significant popularity, as well as to upgrade
popular games with new features that our users find attractive. It is difficult to anticipate user preferences or
demand, particularly as we procure new games in new genres or new markets, and constant enhancement
requires the investment of significant resources. We plan to continue to focus on game development not only
through internal development but also through investments in associates by entering into strategic partnerships
with experienced players in the game industry. Our success in part will depend on our ability to find, and
collaborate effectively with, such partners. See “— Our acquisitions and investments may not be successful in
achieving their intended goals and could harm our business, financial condition and results of operations.”
In recent years, our revenues from LINE Games have declined, with total MAUs steadily decreasing
from 39 million in December 2014 to 18 million in December 2018. As a relatively small portion of our players
account for a large portion of our revenues from LINE Games, we must constantly seek new ways to convert
non-paying players into paying players and attract and retain paying players. However, the success and
performance of new and existing games is volatile and difficult to predict. If we fail to offer attractive in-game
items, make unpopular changes to existing in-game items or offer games that do not encourage purchases of
in-game items or upgrades of game versions, or if we fail to successfully launch new games that attract and retain
a significant number of users or if upgrades and launches of new titles are delayed, revenues from our games will
decrease and our business, financial condition and results of operations could be materially harmed.
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We generate a substantial portion of our revenues from communication services from our sale of Stickers,
the market for which continues to evolve, and if the popularity of Stickers declines, our business and future
growth could be negatively affected.
We generate a substantial portion of our revenues from communication services from the sale of
Stickers featuring characters developed by us as well as licensed from third parties, including our users who
design Stickers to be sold on LINE Creators Market. The market for the sale of Stickers continues to evolve, and
the growth of such market and the level of demand for, and market acceptance of, our Stickers are subject to a
high degree of uncertainty. In particular, a substantial majority of revenues from the sale of our Stickers has been
derived from sales in Japan, and there can be no assurance that such products will achieve a similar level of
market acceptance elsewhere. Over time, users in Japan may also lose interest in purchasing new Stickers. In
recent years, our revenues from the sale of Stickers have remained relatively stagnant. Revenue growth from our
sale of Stickers depends to a large extent on our ability to consistently launch new and different types of Stickers
that achieve significant popularity and effectively respond to changes in consumer demographics and public
tastes and preferences. We also depend on third-party character developers and licensors for content that
accounts for a substantial portion of our Sticker sales, and we expect that this dependence will continue for the
foreseeable future. A decline in the popularity of our Stickers, or the failure to further grow our Stickers business,
would negatively affect our business, financial condition and results of operations.
We plan to continue expanding our global operations into markets in which we have limited operating
experience and, as a result, may become subject to increased business and economic risks, which could
adversely affect our business, financial condition and results of operations.
We believe LINE is the leading mobile messaging application in Japan, Thailand and Taiwan in terms
of number of users, and we have obtained substantial numbers of users in other parts of the world, including
Indonesia, the United States, Korea, Vietnam, Saudi Arabia and Malaysia. We expect to continue to expand our
offerings of products and services in our key markets. However, expansion of our operations abroad may be
difficult due to the presence of established competitors in such markets. In addition, managing our business and
expanding our operations globally require considerable management attention and resources and are subject to
the particular challenges of supporting a rapidly growing business in an environment of multiple languages,
cultures, customs, legal and regulatory systems and commercial markets. Global expansion has required and will
continue to require us to invest significant funds and other resources, and there can be no assurance that we will
successfully achieve our growth objectives.
Operating globally subjects us to new risks and may increase risks that we currently face, including risks
associated with:
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providing an engaging user experience while operating in different languages and cultures, and
localizing our products, services, content and features to ensure that they are culturally attuned to
the markets where they are offered;
increased competition from mobile applications and internet services that have strong positions in
particular markets and may continue to expand their geographic footprint;
different and potentially lower levels of user growth, user engagement and demand for online
advertising in new and emerging geographies, resulting in greater difficulty in monetizing our
products and services;
recruiting and retaining talented and capable employees in foreign countries and maintaining our
corporate culture across all of our offices;
different
challenges in offering our products and services;
levels of telecommunications infrastructure in developing countries that may create
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integrating local payment processing systems;
compliance with applicable foreign laws and regulations, including laws and regulations with
respect to economic sanctions and export controls, anti-corruption, anti-bribery and anti-kickback,
privacy and consumer protection that may conflict with local customs and practices in some
jurisdictions in which we operate and sell our products, and the risk of penalties if our practices are
deemed not to be in compliance;
political, social and economic instability in some countries;
double taxation of our global earnings and potentially adverse tax consequences due to changes in
the tax laws of Japan or other jurisdictions in which we operate; and
higher costs of conducting business globally, including increased accounting, travel, infrastructure
and legal compliance costs.
If we are unable to manage the complexity of our global operations successfully, our business, financial
condition and results of operations could be adversely affected.
If we are not able to maintain and enhance our LINE brand, or if events occur that damage our reputation
and brand, our relationships with our users, platform partners and advertisers may be harmed, which may
negatively affect our business, financial condition and results of operations.
Since its introduction in June 2011, LINE has rapidly grown into a global platform for mobile
messaging services and content distribution, and we believe that the LINE brand has significantly contributed to
the success of our business. We also believe that maintaining and enhancing our brand is critical to expanding
our user base, platform partners and advertisers. Many of our new users are referred by existing users, and
therefore we strive to ensure that our users are satisfied with our products and services and otherwise remain
favorably inclined toward LINE. Maintaining and enhancing our brand will depend largely on our ability to
continue to provide simple, user-friendly, reliable and innovative products and services, which we may not do
successfully. We may introduce new products or terms of service that users do not like, which may negatively
affect our brand. It may also negatively affect our brand if users do not have a positive experience using our
platform partners’ applications offered on LINE as well as websites linked with LINE. We have in the past
experienced, and we may continue to experience, media, legislative or regulatory scrutiny of our decisions
regarding user privacy or other issues, including our measures to protect minors, which may adversely affect our
reputation and brand. We may also fail to provide adequate customer service, which could erode confidence in
our brand. Our brand may also be negatively affected by attacks from our competitors, by negative publicity
about the actions of users that are deemed to be hostile, illegal or inappropriate to other users, by third-party
content providers acting inappropriately with respect to the LINE platform, by users acting under false identities,
by any regulatory developments designed to address such risks, or due to legal proceedings. Maintaining and
enhancing our brand may require us to make substantial investments and these investments may not be
successful. If we fail to successfully promote and maintain the LINE brand or if we incur excessive expenses in
this effort, our business, financial condition and results of operations may be adversely affected.
We rely primarily on Apple App Store and Google Play as the channels for downloads of LINE and
applications offered on the LINE platform as well as processing of payments, and any deterioration in our
relationship with either of them may negatively impact our business.
We rely primarily on Apple App Store and Google Play as the channels for downloads of LINE and
applications offered on the LINE platform as well as the processing of payments for our products and services.
We expect that we will continue to rely on Apple App Store and Google Play for downloads of our applications
as well as most of the payment processing for our products and services. Accordingly, we believe that
maintaining successful partnerships with Apple and Google is critical to our success.
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The operating policies of Apple or Google have an impact on the accessibility of our products and
services. From time to time, we have had to adjust our monthly settlements with our payment processing service
providers due to discrepancies in the recognition of user payments. If such discrepancies continue to occur
frequently, it may have a material adverse impact on our results of operations and negatively affect our
reputation. In addition, our pricing strategy is impacted by changes in the payment processing fees charged by
Apple or Google. Our inability to pass along increases in the payment processing fees charged by Apple or
Google to our users on a timely basis or a decrease in paying user engagement due to a price increase may
negatively impact our net revenue or profit margin. If we fail to maintain good relationships with Apple or
Google, it may adversely impact our ability to continue to offer our products and services or effect payment
processing, which in turn could have a material adverse impact on our business.
We have incurred significant operating losses in the past, and our ability to maintain profitability in the
future is uncertain.
We have incurred significant operating losses in the past. We recorded loss for the year of
¥7,972 million in 2015 and, although we recorded profit for the year of ¥7,104 million in 2016 and
¥8,210 million in 2017, we again recorded loss for the year of ¥5,792 million in 2018. Even though our revenues
have grown over the years, from ¥140,704 million in 2016 to ¥167,147 million in 2017 and ¥207,182 million in
2018, our revenue growth rate has slowed in recent years and may do so in the future due to a variety of factors.
We believe that our future revenue growth will depend on, among other factors, our ability to attract new users
while retaining current users, increase user engagement and advertisement engagement, increase our brand
awareness, compete effectively, maximize our sales efforts, demonstrate a positive return on investment for
advertisers and successfully develop and operate new products and services. Accordingly, you should not rely on
the revenue growth of any prior quarterly or annual period as an indication of our future revenue growth.
We expect our operating expenses to increase in future periods as we continue to expend substantial
financial resources on:
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global expansion;
our technology infrastructure;
attracting and retaining talented employees;
strategic opportunities, including commercial relationships, acquisitions and capital injections;
operation of newly developed or newly acquired businesses; and
general administration, including personnel costs and legal and accounting expenses related to
being a public company.
These investments, while increasing our expenses, may not result in an increase in revenues or growth
in our business. For example, our marketing expenses have from time to time outpaced the growth of our
revenues over the same period, which have materially impacted our results of operations. If we are unable to
achieve adequate revenue growth and to manage our expenses, we may incur significant losses in the future.
We have a limited operating history in the developing and rapidly evolving market for our products and
services, which makes it difficult to evaluate our future prospects and may increase the risk that we will not
be successful.
We launched our LINE messaging application in June 2011 and other LINE products and services more
recently, and our limited operating history makes it difficult to effectively assess our future prospects or forecast
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our future results. You should consider our business and prospects in light of the risks and challenges we
encounter or may encounter in this developing and rapidly evolving market environment. These risks and
challenges include our ability to, among other things:
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increase our number of users and user engagement and monetize our products and services;
successfully compete with other companies, some of which have substantially greater resources and
market power than us, that are currently in, or may in the future enter, our markets, or duplicate the
features of our products and services;
successfully expand our business and enhance the LINE brand globally;
continue to develop a reliable, scalable, secure, high-performance technology infrastructure that can
efficiently handle increased usage globally;
convince advertisers of the benefits of our advertising products and services compared to alternative
forms of advertising;
develop and deploy new features, products and services in a timely manner and the market
acceptance of such offerings;
identify, evaluate and manage risks involved in collaborating with third parties on new business
ventures;
cost-effectively manage and grow our operations;
attract and maintain platform partners’ interest in building on the LINE platform;
attract, retain and motivate talented management and employees, particularly software engineers,
designers and product managers;
process, store, protect and use personal data in compliance with governmental regulations,
contractual obligations and other obligations related to privacy and security; and
defend ourselves against litigation and regulatory, intellectual property, privacy or other claims.
Failure to adequately address the risks and challenges associated with this market may adversely affect
our business, financial condition and results of operations.
Our user growth and engagement on mobile devices, which are required to access and use most of our
products and services, depend upon effective operation with mobile operating systems that we do not
control.
We are dependent on the interoperability of LINE with popular mobile operating systems, such as iOS
and Android, and, to a lesser extent, web browsers, such as those for Windows and Mac OS, that we do not
control. Any changes in such operating systems or web browsers that degrade the functionality of our products or
services or give preferential treatment to our competitors’ products or services could adversely affect usage of
our products and services. In addition, if the number of platforms for which we develop our products or services
expands, it will result in an increase in our operating expenses.
We may not be successful in developing or maintaining relationships with key participants in the mobile
telecommunications industry or in developing products that operate effectively with mobile operating systems,
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networks or standards. In the event that it becomes more difficult for our users to access and use LINE on their
mobile devices, or if our users choose not to access or use LINE on their mobile devices or use mobile devices
that do not offer access to LINE, our user growth and user engagement could be harmed, and our business,
financial condition and results of operations could be adversely affected.
If we or our users experience disruptions in mobile telecommunications or internet services or if mobile
telecommunications and internet service providers are able to block, degrade or charge for access to our
products and services, we could incur additional expenses and the loss of users and advertisers.
We depend on the ability of our users and advertisers to access mobile telecommunications services and
the internet. Currently, this access is provided by companies that have significant market power in the mobile,
broadband and internet access marketplaces,
including incumbent mobile telecommunications companies,
telephone companies, cable companies, government-owned service providers, device manufacturers and
operating system providers, any of whom could take actions that degrade, disrupt or increase the cost of user
access to our products or services, which would, in turn, negatively impact our business. The adoption of any
laws or regulations that adversely affect the growth, popularity or use of mobile devices or the internet or
disruption of our services in important markets for any political or other non-technical reasons could decrease the
demand for, or the usage of, our products and services, increase our cost of doing business and adversely affect
our business, financial condition and results of operations. We also rely on other companies to maintain reliable
network systems that provide adequate speed, data capacity and security to us and our users. As mobile devices
and the internet continue to experience growth in the number of users, frequency of use and amount of data
transmitted, the mobile telecommunications and internet infrastructure that we and our users rely on may be
unable to support the demands placed upon them. The failure of the operations of mobile telecommunications or
internet infrastructure services that we or our users rely on, even for a short period of time, could undermine our
operations, and our business, financial condition and results of operations could be adversely affected.
Certain of our user metrics are subject to inherent uncertainties in measurement, and real or perceived
inaccuracies in such metrics may harm our reputation and negatively affect our business.
We use our internal data to calculate our MAUs, DAUs and MPUs. See “Conventions Used in This
Annual Report” for definitions of such user metrics. While these numbers are based on what we believe to be
reasonable estimates of our active user and paying user base for the applicable period of measurement, there are
inherent challenges in measuring usage of our products and services across large online and mobile populations
around the world. For example, each LINE account is linked to a mobile phone number and there may be
multiple LINE accounts held by the same person if the person carries multiple smartphones and has chosen to
download a LINE application on each smartphone.
We regularly review and may adjust our processes for calculating our internal metrics to improve their
accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties
or from similarly-titled metrics of our competitors due to differences in methodology. If advertisers, platform
partners or prospective investors do not perceive our user metrics to be accurate representations of our user base
or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed
and platform partners and advertisers may be less willing to allocate their budgets or resources to our products
and services, which may negatively affect our business.
Our business and operating results may be harmed by a disruption in our service due to failures in or
changes to our systems, or by our failure to timely and effectively expand and adapt our technology and
infrastructure.
Our reputation and ability to attract, retain, and serve our users is dependent in large part upon the
reliable performance of LINE and our underlying technical infrastructure. Our systems may not be adequately
designed with the necessary reliability and redundancy to avoid performance delays or outages that could be
15
harmful to our business. We have experienced, and may in the future experience, service disruptions, outages and
other performance problems due to a variety of factors, including infrastructure changes, human or software
errors, hardware failure, capacity constraints due to an overwhelming number of people accessing our products
and services simultaneously, computer viruses, denial of service or fraud or security attacks. Our technical
infrastructure is also vulnerable to the risk of damage from natural disasters, such as earthquakes and typhoons,
as well as from acts of terrorism or other criminal acts. Our services and products also incorporate software that
is highly technical and complex. Our software has contained, and may now or in the future contain, undetected
errors, bugs or vulnerabilities. Some errors in our software code may only be discovered after the code has been
released. In particular, the operation of some of our new fintech businesses as well as our LINE Clova AI
platform and blockchain-related initiatives implicates complex technological and operational considerations,
including technical or systematic issues that may arise in the ordinary course of business. In order to address such
technical difficulties, we may need to make fundamental changes to the configurations or specifications of the
underlying systems we use or expend a significant amount of time and resources to obtain the technical skills or
expertise needed to adequately address such issues. Any such difficulties could have a material impact on our
ability to deliver the products and services we intend to offer, reduce our reliability and harm our reputation.
In addition, a substantial portion of our network infrastructure is provided by third parties. Any
disruption or failure in the services we receive from these providers could harm our ability to handle existing or
increased traffic and could significantly harm our business. Any financial or other difficulties these providers
face may also adversely affect our business, and we exercise little control over these providers, which increases
our vulnerability to problems with the services they provide. In the event of a significant issue with the third-
party network infrastructure supporting our network traffic, some of our products and services may become
inaccessible or users may experience difficulties accessing our products and services. Any disruption or failure in
our infrastructure could hinder our ability to handle existing or increased traffic on our platform, which could
significantly harm our business.
As the number of our users increases and as our users generate and transmit increasing volumes of
content, including photos, videos and music, we may be required to expand and adapt our technology and
infrastructure to continue to reliably store and service such content. It may become increasingly difficult to
maintain and improve the performance of our products and services, especially during peak usage times, as our
products and services become more complex and our user traffic increases. In addition, we cannot provide
assurance that we will be able to expand our data center infrastructure to meet user demand in a timely manner,
or on favorable economic terms. If our users are unable to readily access LINE or access is disrupted, users may
seek other service providers instead, and may not return to LINE or use LINE as often in the future. This would
negatively impact our ability to attract users, platform partners and advertisers and increase engagement of our
users. We expect to continue to make significant investments to maintain and improve the capacity, capability
and reliability of our infrastructure. To the extent that we do not effectively address capacity constraints, upgrade
our systems as needed or continually develop our technology and infrastructure to accommodate actual and
anticipated changes in our users’ needs, our business, financial condition and results of operations may be
harmed.
If our security measures are breached, or if our products and services are subject to attacks that disrupt or
deny the ability of users to access our products and services, our products and services may be perceived as
not being secure and users and advertisers may curtail or stop using our products and services.
Our products and services involve the storage and transmission of large amounts of users’ and
advertisers’ confidential information, and security breaches expose us to a risk of unauthorized access to this
information, which may lead to improper use or disclosure of such information, ensuing potential liability and
litigation, any of which could harm our reputation and adversely affect our business. From time to time, we
experience cyber-attacks of varying degrees, including ones that may involve hackers planting malicious codes
into our servers that remain dormant until initiated at some point in the future, making it difficult to measure the
potential damage that could result from such attack or to detect such breach altogether. In particular, some of the
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fintech businesses that we have recently begun to operate, or plan to operate, including insurance, online
securities brokerage, consumer loans, internet banking and virtual currency exchange, as well as our LINE Clova
AI platform and blockchain-related initiatives, among others, are likely to increase the amount and sensitivity of
user information that we collect, which in turn would increase the risk of cyber-attacks.
Our security measures may also be breached due to employee error, malfeasance or otherwise. Given
the rapid development and scope of the services we offer, including those developed in conjunction with third
parties, instituting appropriate access controls and safeguards across all our services is challenging. Furthermore,
to fraudulently induce employees, users or advertisers to disclose sensitive
outside parties may attempt
information in order to gain access to our data or our users’ or advertisers’ data or accounts, or may otherwise
obtain access to such data or accounts. In addition, some platform partners may store information provided by
our users through applications on the LINE platform or websites linked with LINE. If these third parties or
platform partners fail to adopt or adhere to adequate data security practices or fail to comply with our terms and
policies, or in the event of a breach of their networks, our users’ data may be improperly accessed or disclosed.
Since our users and advertisers may use their LINE accounts to establish and maintain online identities,
unauthorized communications from LINE accounts that have been compromised may damage their reputations
and brands as well as ours. Any such breach or unauthorized access could result in significant legal and financial
exposure, damage to our reputation and a loss of confidence in the security of our products and services, which
could have an adverse effect on our business, financial condition and results of operations. Because the
techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently
and there are often unknown vulnerabilities that are not recognized until exploited against a target, we may be
unable to anticipate these techniques and vulnerabilities or to implement adequate preventative measures. If an
actual or perceived breach of our security occurs or the market perception of the effectiveness of our security
measures is harmed, we could lose users and advertisers and we may incur significant legal and financial
exposure, including legal claims and regulatory fines and penalties.
Our financial results are likely to continue to fluctuate from quarter to quarter, which makes our
period-to-period results volatile and difficult to predict.
We emphasize growth and the increase in engagement of our user base over short-term financial results.
Due in part to such focus, our quarterly financial results have fluctuated in the past and are likely to fluctuate in
the future. As a result, you should not rely upon our past quarterly financial results as indicators of future
performance. You should also take into account the risks and uncertainties frequently encountered by companies
in rapidly evolving markets. Our financial results in any given quarter or fiscal period can be influenced by
numerous factors occurring in a particular period, many of which we are unable to predict or are outside of our
control, including:
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the development and introduction of new products or services by us or our competitors and their
market acceptance;
our ability to attract and retain advertisers;
the growth of revenue sources as well as adjustments in fees charged to users and advertisers;
increases in marketing, sales and other operating expenses that we may incur to grow and expand
our operations and to remain competitive;
seasonal fluctuations in spending by our advertisers, especially in Japan where a majority of
companies end their fiscal year on March 31 and advertising spending is traditionally stronger in
our fourth and first quarters due to year-end effects and companies trying to spend their advertising
budgets before the close of their fiscal year;
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introduction of new products and/or services, which may lead to higher expenses;
changes in the way online advertising is priced;
non-recurring transactions and related accounting and tax implications therefrom, as well as
changes to accounting principles applicable to our business;
unforeseen contingencies, such as adverse litigation judgments, settlements or other litigation-
related costs;
fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses
denominated in foreign currencies; and
changes in business or macroeconomic conditions.
We may not be able to effectively manage our growth, which would harm our business and profitability.
We continue to experience growth in our personnel and operations, which will continue to place
significant demands on our management and operational and financial infrastructure. We face significant
competition for qualified staff, particularly software engineers, designers and product managers, from other
internet and high-growth technology companies, and we may not be able to hire new employees quickly enough
to meet our needs. As we continue to grow, we are subject to the risks of over-hiring, overcompensating our
employees and over-expanding our operating infrastructure, and to the challenges of integrating, developing and
motivating a rapidly growing employee base in various countries around the world. As our organization
continues to grow and we are required to implement more complex organizational management structures, we
may find it increasingly difficult to maintain the strengths of our corporate culture, including our ability to
quickly develop and launch new products and services. If we fail to effectively manage our hiring needs and
successfully integrate our new hires, our employee morale, productivity and retention could suffer.
We also expect to continue to invest in our infrastructure in order to enable us to provide our products
and services rapidly and reliably to users around the world, including in countries where we do not expect
significant near-term monetization. Continued growth could strain our ability to maintain reliable service levels
for our users and advertisers, develop and improve our operational, financial, legal and management controls,
and enhance our reporting systems and procedures. As a public company, we incur significant legal, accounting
and other expenses that we did not incur as a private company. Managing our growth will continue to require
significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary
level of efficiency in our organization as it grows, our business, financial condition and results of operations
would be harmed.
The products and services we offer, including those relating to fintech, AI and blockchain, may subject us
to additional regulatory requirements and other risks that could be costly and difficult to comply with or
that could harm our business.
The products and services we offer, including those relating to fintech, AI and blockchain, subject us to
a variety of laws and regulations in Japan and elsewhere. For example, LINE Pay, our mobile payment service
application, enables our users to make payments, regardless of their mobile carrier, on LINE Store and a number
of select online and offline partner retail stores. We have also entered into, and are currently in the process of
exploring, partnership and joint venture opportunities with reputable players in the financial services industry to
offer new services related to insurance, online securities brokerage, consumer loans and internet banking, among
others, on the LINE platform. See “Item 4.B. Business Overview — Our Products and Services — Strategic
Business Segment — Others — Fintech” and “Item 4.B. Business Overview — Our Investments.”
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Depending on how our products and services as well as payment processes evolve, we may become
subject
including those governing money
to a variety of laws and regulations in Japan and elsewhere,
transmission, payment settlement, e-commerce, electronic funds transfers, anti-money laundering, identification,
counter-terrorist financing and cryptocurrencies. In some jurisdictions, the application or interpretation of these
laws and regulations is not clear. For example, we are registered as a funds transfer service provider and issuer of
prepaid payment instruments for third-party businesses in Japan and elsewhere through LINE Pay Corporation,
our subsidiary engaged in mobile payment service, which will generally require us to demonstrate compliance
with many domestic laws in these areas. In addition, we act as an intermediary in some of our new fintech
services, such as LINE Insurance and LINE Smart Invest, which subjects us to a number of registration and other
operational laws in Japan. See “Item 4.B. Business Overview — Regulation.” In the event that we are found to be
in violation of any of these or other similar legal or regulatory requirements, or there is a delay in the
implementation of internal systems and controls necessary to ensure compliance with such requirements, we may
be subject to monetary fines or other penalties or sanctions such as a cease and desist order, or we may be
required to make product changes, any of which could have an adverse effect on our business and financial
results.
In addition, we may be subject to a variety of additional risks as a result of providing products and
services relating to fintech, AI and blockchain, including:
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increased operational costs and diversion of management time and effort and other resources to deal
with fraudulent or failed transactions, customer disputes or mismanaged outsourcing relationships;
the impact on our relationships with existing service providers;
increased capital costs in building out the infrastructure;
heightened risk associated with the adoption of a variety of innovative technologies that may not
yet be widely accepted;
potential fraudulent or otherwise illegal activity by users, platform partners, employees or third
parties;
leakage of customers’ personal information and concerns over the use and security of collected
information;
restrictions on the investment of consumer funds used to transact payments; and
additional disclosure and reporting requirements.
We depend on key senior management to operate our business and execute our business strategy, and if we
are unable to attract, retain and motivate our senior management and other key personnel, our operations
may be negatively affected.
Our ability to execute our strategy efficiently is dependent upon contributions from our key senior
management. Our future success will depend on the continued service of our key executive officers and managers
who possess significant expertise and knowledge of our industry. A limited number of individuals have primary
responsibility for the management of our business, including our relationships with key platform partners. From
time to time, there may be changes in our senior management team that may be disruptive to our business, and
we may not be able to find replacement key personnel in a timely manner. In addition, acquiring and retaining
qualified personnel, such as systems engineers and designers, will be necessary to our achieving sustainable
growth. Any loss or interruption of the services of these individuals, whether from retirement, loss to competitors
or other causes, or failure to attract and retain other qualified new personnel, could prevent us from effectively
executing our business strategy, cause us to lose key platform partner relationships, or otherwise materially affect
our operations.
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A downturn in macroeconomic conditions may result in reduced demand for our products and services.
Our business is sensitive to global economic conditions and depends on demand from our user base. In
addition, demand for our advertising services is primarily driven by advertising spending levels of our
advertising customers in our four key markets, particularly Japan. There are many macroeconomic factors that
influence consumer confidence and spending behavior, including the level of inflation and unemployment,
fluctuations in energy prices and conditions in the real estate markets. Global economic conditions have
deteriorated in recent years, with global financial and capital markets experiencing substantial volatility and
disruption. Such developments have been caused by, and continue to be exacerbated by, among other things, the
slowdown of economic growth in China and other major emerging market economies, adverse economic and
political conditions in Europe and Latin America and continuing geopolitical and social instability in North
Korea and various parts of the Middle East, as well as uncertainty regarding the timing and method of the United
Kingdom’s exit from the European Union, or Brexit, and a deterioration in economic and trade relations between
the United States and its major trading partners, including China. The overall prospects for the global economy
and the industries in which we operate in 2019 and beyond remain uncertain.
In recent years, the economic indicators in Japan, our largest market in terms of revenue and user base,
have also shown mixed signs, and future growth of the Japanese economy is subject to many factors beyond our
control. The current administration of Prime Minister Shinzo Abe, formed in late December 2012 and re-elected
in October 2017, has introduced policies to combat deflation and promote economic growth. In addition, the
Bank of Japan introduced a plan for quantitative and qualitative monetary easing in April 2013 and announced a
negative interest rate policy in January 2016. However, the long-term impact of these policy initiatives on
Japan’s economy remains uncertain. The impact of Brexit on the Japanese economy and on the value of the
Japanese yen against currencies of other countries in which we generate revenue, in both the short and long term,
is also uncertain. In addition, the occurrence of large-scale natural disasters, such as the March 2011 Great East
Japan Earthquake and the related Fukushima Daiichi nuclear disaster, as well as an increase in the consumption
tax rate, which is expected to become effective in October 2019, may also adversely impact the Japanese
economy, potentially impacting consumer spending and advertising spending by businesses. Any future
deterioration of the Japanese or global economy may result in a decline in consumption that would have a
negative impact on demand for our products and services and their prices.
We may require additional capital to support our operations and the growth of our business, and we cannot
be certain that financing will be available on reasonable terms when required, or at all.
From time to time, we may need additional financing to operate or grow our business. If our cash
resources are insufficient to satisfy our cash requirements, we may seek to issue additional equity or debt
securities or obtain new or expanded credit facilities. For example, in September 2018, we issued zero coupon
convertible bonds due 2023 and 2025 in the aggregate principal amount of approximately ¥146.3 billion (the
“Convertible Bonds”) through an offering pursuant to Regulation S under the U.S. Securities Act of 1933, as
amended (the “Securities Act”), and a private placement to NAVER Corporation, our largest shareholder. Our
ability to obtain additional financing, if and when required, will depend on investor and lender demand, our
operating performance, the condition of the capital markets and other factors, and we cannot assure you that
additional financing will be available to us on favorable terms, or at all. If we are unable to obtain adequate
financing or financing on terms satisfactory to us when we require it, our ability to continue to support the
operation and growth of our business could be significantly impaired and our operating results may be adversely
affected.
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Our business is subject to complex and evolving Japanese and foreign laws and regulations. These laws,
regulations and actions are subject to change and uncertain interpretation, and could result in claims,
changes to our business practices, monetary penalties, increased cost of operations or declines in user
growth, user engagement or advertising engagement, restricted access to LINE or otherwise harm our
business.
We are subject to a variety of laws and regulations in Japan and elsewhere that involve matters central
to our business, including privacy, rights of publicity, data protection and protection of personal information,
content regulation, intellectual property, competition, protection of minors, consumer protection and taxation.
Many of these laws and regulations are still evolving and could be interpreted or applied in ways that could limit
our business or require us to make certain fundamental and potentially detrimental changes to the products and
services we offer, particularly in the new and rapidly evolving industries in which we operate, including the
fintech, AI and blockchain technology domains. The introduction of new products or services in our existing
markets and the expansion of our business to other countries may subject us to additional laws and regulations,
among others resulting from the need to obtain additional licenses and approvals to conduct our businesses as
envisioned. In addition, the application or interpretation of these laws and regulations is not clear in some
jurisdictions, which could make compliance more costly. Moreover, if third parties we work with, such as
platform and other business partners, violate applicable laws or our policies, such violations may result in joint or
secondary liability for us.
A number of proposals are pending before legislative and regulatory bodies that could significantly
affect our business. For example, there have been a number of recent legislative proposals in Japan that would
impose new obligations in areas such as privacy and liability for copyright infringement by third parties that
could affect liabilities associated with websites that publish user-generated content. An amendment to the Act on
the Protection of Personal Information of Japan, which includes establishment of a new regulatory authority and
introduction of new regulations on handling of anonymous personal data and transfer of personal information to
foreign countries, went into full effect in May 2017.
We collect personal information from our users and may expand our collection of personal information
in order to comply with new and additional regulatory demands or we may independently decide to do so,
particularly as we enter into new business areas. Having additional personal information may subject us to
additional regulation, and governmental regulators have been applying increased scrutiny to social media
companies in this respect. For example,
the EU General Data Protection Regulation, which extends the
applicability of stringent data protection laws to all foreign companies processing the data of EU residents,
became effective in May 2018. Additionally, if third parties we work with, such as advertisers or platform
partners, violate applicable laws or our policies, such violations may also put our users’ privacy at risk and could
in turn have an adverse effect on our business. Further, it is difficult to predict how existing laws and regulations
will be applied to our business and the new laws and regulations to which we may become subject, and it is
possible that they may be interpreted and applied in a manner that is inconsistent with our practices. For example,
we believe that our products and services are not subject to regulations under the Act on Regulation on Soliciting
Children by Using Opposite Sex Introducing Service on Internet of Japan, but there can be no assurance that we
will not be subject to certain processes, administrative sanctions, fines or restrictions under such regulations in
the future. Existing and proposed laws and regulations in any jurisdiction can be costly to comply with and can
delay or impede the development of new products and services, result in negative publicity, significantly increase
our operating costs, require significant time and attention of management and technical personnel and subject us
to inquiries or investigations, claims or other remedies, including fines or demands that we modify or cease
existing business practices.
The Payment Services Act of Japan (the “Payment Services Act”) requires entities that engage in
business activities involving advance payments from customers using prepaid payment instruments, such as
virtual currencies, to set aside for such customers amounts covering at least 50% of the total amount of the
unused amounts or credits represented by such instruments issued as of the end of either the first or third quarter
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of any year (if such total amount is more than ¥10 million), either by making a deposit or by entering into
guarantee or trust agreements, as well as to refund any remaining balance of virtual currencies issued, after
providing at least 60 days’ prior public notice, if those entities stop selling such virtual currencies. If any of our
in-game items for which we have not made a deposit or entered into a guarantee or trust agreement, is deemed a
prepaid payment instrument, it may become necessary to enter into additional arrangements to comply with the
Payment Services Act requirement in connection with any such in-game items. While we intend to enter into
additional guarantee agreements to meet any additional deposit requirements, entering into additional guarantee
agreements will require us to pay guarantee fees equal to the contractual amount times a guarantee fee rate, and
there is no assurance that we will be able to enter into additional guarantee agreements on favorable terms when
required, or at all. Any failure to enter into contractual arrangements on terms satisfactory to us when required
may adversely affect our business, financial condition, results of operations and/or reputation.
It is also possible that governments or relevant regulators of one or more countries may seek to censor
content offered on the LINE platform in their country, restrict access to LINE from their country entirely, or
impose other restrictions that may affect the accessibility of LINE in their country for an extended period of time
or indefinitely. For example, as of the date of this annual report, our messaging services generally remain
blocked in China. In the event that access to LINE is restricted, in whole or in part, in one or more other
countries, our ability to retain or increase our user base and user engagement may be adversely affected, we may
not be able to maintain or grow our revenue as anticipated, and our business, financial condition and results of
operations could be adversely affected.
We are regulated as a telecommunications company under Japanese law. If our business were deemed to be
a regulated telecommunications business in multiple jurisdictions, it would significantly increase our
expenses and may require us to change our products and other aspects of our business in potentially
detrimental ways.
We are regulated as a telecommunications company pursuant to Japanese law, and we have submitted
required notifications to the Ministry of Internal Affairs and Communication of Japan. We are subject to the risk
that, due to changes in telecommunications, e-commerce and other similar laws and regulations or in the
application, interpretation or enforcement of both existing and future such laws and regulations, we may be
required to comply with additional laws and regulations in Japan and in other jurisdictions. In addition, we are
continually seeking ways to improve our products and services, which may involve from time to time upgrades
or changes in the technological infrastructure on which our products and services are based and which could
result in subjecting our activities to greater regulation in multiple jurisdictions. If we are required to comply with
telecommunications, e-commerce and other similar laws and regulations in multiple jurisdictions, we would need
to meet a number of obligations, which could vary from jurisdiction to jurisdiction, including new or enhanced
compliance in the following areas:
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licensing and notification requirements;
emergency calling requirements,
telephone systems;
including enhanced emergency calling through multi-line
universal service fund contribution requirements;
lawful interception or wiretapping requirements;
privacy and data retention and disclosure requirements;
limitations on our ability to use encryption technology;
disability access requirements;
consumer protection requirements and local dispute resolution requirements;
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requirements related to customer support;
quality of service requirements;
provision of numbering directories;
numbering rules, including portability requirements;
directory and operator services; and
access and interconnection obligations.
If we are required to comply with telecommunications, e-commerce and other similar laws and
regulations in multiple jurisdictions, it could affect our business in many ways and areas, including the following:
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the cost and general
impact of compliance would be substantial, may require significant
investments and organizational changes and may erode or eliminate our pricing advantage over
competing forms of communication and, potentially, our ability to compete effectively;
compliance may require us to make certain fundamental and potentially detrimental changes to the
products and services we offer and the way we conduct business in certain countries, including
withdrawing from markets;
compliance may be technically difficult or impossible;
we may need to change our distribution, marketing and sales activities;
we may need to terminate or restructure partnerships and other commercial agreements; and
we may need to establish a local presence in any given jurisdiction, sell our products through a local
entity and be required to pay new or increased taxes in that jurisdiction.
Our intellectual property rights are valuable, and our inability to protect them could reduce the value of our
products, services and brand.
Our trade secrets, trademarks, copyrights, patents and other intellectual property rights are important
assets for us. We rely on, and expect to continue to rely on, a combination of confidentiality and license
agreements with our employees, consultants and third parties with whom we have relationships, as well as
trademark, trade dress, domain name, copyright, trade secret and patent laws, to protect our brand and other
intellectual property rights. However, various events outside of our control may pose a threat to our intellectual
property rights, as well as to our products, services and technologies. For example, we may fail to obtain
effective intellectual property protection, or effective intellectual property protection may not be available in
every country in which our products and services are available. In particular, the legal regimes relating to
intellectual property rights in many of the countries in which we operate are limited and it is often difficult to
effectively protect and enforce such rights in those countries. Also, the efforts we have taken to protect our
intellectual property rights may not be sufficient or effective, and any of our intellectual property rights may be
challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. There can
be no assurance that our intellectual property rights will be sufficient to protect against others offering products
or services that are substantially similar to ours and compete with our business.
We also rely on non-patented proprietary information and technology, such as trade secrets, confidential
information, know-how and technical information. While in certain cases we have agreements in place with
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employees and third parties that place restrictions on the use and disclosure of this intellectual property, these
agreements may be breached, or this intellectual property may otherwise be disclosed or become known to our
competitors, which could cause us to lose competitive advantages resulting from this intellectual property. We
are also pursuing registration of trademarks and domain names in Japan and in many jurisdictions outside of
Japan. Effective protection of trademarks and domain names is expensive and difficult to maintain, both in terms
of application and registration costs as well as the costs of defending and enforcing those rights. We may be
required to protect our rights in an increasing number of countries, in a process that is expensive and may not be
successful or which we may not pursue in every country in which our products and services are distributed or
made available.
We are party to numerous agreements that grant licenses to third parties to use our intellectual property,
including our trademarks. For example, some third parties distribute their content through LINE, embed LINE
content in their applications, and make use of our trademarks in connection with their services. If the licensees of
our trademarks are not using our trademarks properly, it may limit our ability to protect our trademarks and could
ultimately result in our trademarks being declared invalid or unenforceable. There can be no assurance that we
will be able to protect against the unauthorized use of our brand, trademarks or other assets. There is also a risk
that one or more of our trademarks could become generic, which could result in them being declared invalid or
unenforceable.
We also seek to obtain patent protection for some of our technology, and we have filed various
applications in Japan and abroad for protection of certain aspects of our intellectual property and currently hold a
number of issued patents in multiple jurisdictions. We may be unable to obtain patent or trademark protection for
our technologies and brands, and our existing patents and trademarks, and any patents or trademarks that may be
issued in the future, may not provide us with competitive advantages or distinguish our products and services
from those of our competitors. In addition, any patents and trademarks may be contested, circumvented, or found
unenforceable or invalid, and we may not be able to prevent third parties from infringing, diluting or otherwise
violating them. Effective protection of intellectual property rights is expensive and difficult to maintain, both in
terms of application and maintenance costs, as well as the costs of defending and enforcing those rights.
Significant impairments of our intellectual property rights, and limitations on our ability to assert our intellectual
property rights against others, could harm our business and our ability to compete.
We may become party to intellectual property rights claims in the future that are expensive and time
consuming to defend, and, if resolved adversely, could have a significant impact on our business.
Technology companies own large numbers of patents, copyrights, trademarks and trade secrets, and
frequently enter into litigation based on allegations of infringement, misappropriation or other violations of
intellectual property or other rights. Many such companies,
including many of our competitors, have
substantially larger patent and intellectual property portfolios than we do, which could make us a target for
litigation as we may not be able to assert counterclaims against parties that sue us for patent or other intellectual
property infringement. In addition, various “non-practicing entities” that own patents and other intellectual
property rights often attempt to aggressively assert claims in order to extract payments from technology
companies. From time to time we have received, and may receive in the future, claims from third parties which
allege that we have infringed upon their intellectual property rights. Furthermore, from time to time we may
introduce new products and services, including in areas where we currently do not have an offering, which could
increase our exposure to patent and other intellectual property claims from competitors and non-practicing
entities. Some of our agreements with advertisers, platform partners and data partners require us to indemnify
them for certain intellectual property claims against them, which could require us to incur considerable costs in
defending such claims, and may require us to pay significant damages in the event of an adverse ruling. Such
advertisers, platform partners and data partners may also discontinue use of our products, services and
technologies as a result of injunctions or otherwise, which could result in loss of revenue and adversely impact
our business.
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As we face increasing competition and gain an increasingly high profile, patents and other intellectual
property claims against us may grow. There may be intellectual property or other rights held by others, including
issued or pending patents, that cover significant aspects of our products and services, and we cannot be sure that
we are not infringing or violating, and have not infringed or violated, any third-party intellectual property rights
or that we will not be held to have done so or be accused of doing so in the future. Any claim or litigation
alleging that we have infringed or otherwise violated intellectual property or other rights of third parties, with or
without merit, and whether or not settled out of court or determined in our favor, could be time-consuming and
costly to address and resolve, and could divert the time and attention of our management and technical personnel.
Some of our competitors have substantially greater resources than we do and are able to sustain the costs of
complex intellectual property litigation to a greater degree and for longer periods of time than we could. The
outcome of any litigation is inherently uncertain, and there can be no assurance that favorable final outcomes will
be obtained. In addition, plaintiffs may seek, and we may become subject to, preliminary or provisional rulings in
the course of any such litigation, including potential preliminary injunctions requiring us to cease some or all of
our operations. We may decide to settle such lawsuits and disputes on terms that are unfavorable to us. Similarly,
if any litigation to which we are a party is resolved adversely, we may be subject to an unfavorable judgment that
may not be reversed upon appeal. The terms of such a settlement or judgment may require us to cease some or all
of our operations or pay substantial amounts to the other party. In addition, we may have to seek a license to
continue practices found to be in violation of a third party’s rights. If we are required or choose to enter into
royalty or licensing arrangements, such arrangements may not be available on reasonable terms, or at all, and
may significantly increase our operating costs and expenses. As a result, we may also be required to develop or
procure alternative non-infringing technology or discontinue use of the technology. The development or
procurement of alternative non-infringing technology could require significant effort and expense or may not be
feasible. An unfavorable resolution of any disputes and litigation could adversely affect our business, financial
condition and results of operations.
Fluctuation of the value of the Japanese yen against certain foreign currencies may have a material
adverse effect on the results of our operations.
Some of our foreign operations’ functional currencies are not the Japanese yen, and the financial
statements of such foreign operations prepared initially using their functional currencies are translated into
Japanese yen. Since the currency in which sales are recorded may not be the same as the currency in which
expenses are incurred, foreign exchange rate fluctuations may materially affect our results of operations. In 2016,
2017 and 2018, 28.3%, 27.4% and 28.4%, respectively, of our revenues were derived from markets outside of
Japan, and we expect that an increasing portion of our revenues and expenses in the future will be denominated
in currencies other than the Japanese yen. Accordingly, our consolidated financial results and assets and
liabilities may be materially affected by changes in the exchange rates of foreign currencies in which we conduct
our business. We strive to naturally offset our foreign exchange risk by matching foreign currency receivables
with our foreign currency payables, and our overseas subsidiaries seek to conduct business transactions in the
local currency of the respective market in which the transactions occur. When deemed appropriate, we also
selectively use derivative contracts, primarily foreign currency forward contracts. However, there can be no
assurance that our hedging activities will be successful in protecting us from adverse impacts from currency
exchange rate fluctuations, and fluctuation of the Japanese yen against certain foreign currencies may have a
material adverse effect on our results of operations. See “Item 11. Quantitative and Qualitative Disclosures
About Market Risk” for a discussion of our foreign currency exposure and sensitivity analysis.
We may have exposure to greater than anticipated tax liabilities.
Our income tax obligations are based on our corporate operating structure and intercompany
arrangements, including the manner in which we develop, value, and use our intellectual property and the
valuations of our intercompany transactions. The tax laws applicable to our business activities, including the laws
of Japan and other jurisdictions, are subject to interpretation. The taxing authorities of the jurisdictions in which
we operate may challenge our methodologies for valuing developed technology or intercompany arrangements,
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which could increase our worldwide effective tax rate and harm our financial position and results of operations.
In addition, our future income taxes could be adversely affected by earnings being lower than anticipated in
jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher
statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws,
regulations or accounting principles. We are subject to regular review and audit by tax authorities of various
jurisdictions in which we operate. Any adverse outcome of such a review or audit could have a negative effect on
our financial position and results of operations. For example, LINE Plus Corporation, our wholly-owned
subsidiary in Korea, paid approximately ¥2.2 billion in additional taxes as a result of a tax audit conducted by the
National Tax Service in Korea in September 2018. LINE Plus Corporation is currently in the process of
appealing the results of the tax audit. In addition, the determination of our worldwide provision for income taxes
and other tax liabilities requires significant judgment by management, and there are many transactions where the
ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax
outcome may differ from the amounts recorded in our financial statements and may materially affect our
financial results in the period or periods for which such determination is made.
Due to the global nature of our business, we are subject to trade, economic sanctions and export laws and
regulations in various jurisdictions that may govern or restrict our business and we, our directors and
officers, may be subject to fines or other penalties for non-compliance with applicable trade, economic
sanctions and export laws and regulations.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) administers and
enforces certain laws and regulations (“OFAC Sanctions”) that impose restrictions upon U.S. persons regarding
dealings with or related to certain countries and territories, governments, entities and individuals. Even though
non-U.S. persons generally are not always directly bound to comply with OFAC Sanctions, non-U.S. persons can
be held liable for violations of OFAC Sanctions on various legal grounds, such as with respect to dealings in U.S.
goods, services, or technology, or involving U.S. parties, causing violations by U.S. persons, or by engaging in
transactions completed in part in the United States. In addition to the OFAC Sanctions, the United States
maintains numerous secondary sanction programs that provide authority for the imposition of U.S. sanctions on
foreign parties that engage in certain dealings with Iran and other U.S. sanctions targets regardless of whether
there is a nexus to the United States. For example, non-U.S. persons can be sanctioned for engaging in dealings
with certain persons on OFAC’s Specially Designated Nationals (“SDN”) list.
impose
The European Union also enforces certain laws and regulations (“EU Sanctions”) that
restrictions upon nationals and entities of, and business conducted in, European Union member states with
respect to activities or transactions with certain countries, governments, entities and individuals that are the
subject of EU Sanctions. The United Nations Security Council and other governmental entities also impose
similar sanctions.
The global nature of our business subjects us to the laws and regulations of various jurisdictions. Our
significant international operations also expose us to economic sanctions risk and our continued expansion may
increase the risk of violation of applicable economic sanctions laws and regulations. We intend our operations to
comply with all applicable economic sanctions. Personal communications services are generally given favorable
treatment under a number of economic sanctions regimes. However, given the global nature of our business, the
fact that our business extends beyond personal communications services and the complexity and lack of certainty
regarding the scope of some countries’ laws, there can be no assurance that our efforts to comply with all
applicable economic sanctions and embargo laws and regulations will be completely effective to detect and
prevent violations. There can also be no assurance that we will be in compliance with all applicable economic
sanctions laws and regulations in the future. Such a violation could result in reputational damage, civil or
criminal penalties or the imposition of sanctions against us or our affiliates, all of which could have a material
adverse effect on our business, financial condition and reputation.
LINE can be used in some countries and regions that are the subject of trade embargos and other
economic sanctions (such as Iran), and we may have individual users who are the target of sanctions. We screen
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our counterparties, banks, agents, suppliers and other business supporters against OFAC’s SDN list prior to
engaging or dealing with them, but we do not have a system in place to screen users of our services against
OFAC’s SDN list and, accordingly, cannot guarantee that our services are not and will not be provided to SDNs.
We had approximately 0.8 million MAUs in Iran in December 2018, and our business with Iran
represented approximately 0.006% of our revenues in 2018, which consisted primarily of sales of Stickers and
in-game items in the ordinary course of business. Our website containing media content directed at users in Iran,
which we had launched in May 2016, was closed in November 2018. In February 2017, LINE PLAY
Corporation, which is owned by LINE Plus Corporation, our wholly-owned subsidiary in Korea, established a
local branch in Iran, which subsequently ceased all operations and remains closed as of December 31, 2018.
NAVER Corporation, which owns more than 70% of the outstanding shares of our common stock, has
substantial control over important corporate matters, and its interest may differ from those of our other
shareholders.
As of December 31, 2018, NAVER Corporation owned approximately 72.8% of the outstanding shares
of our common stock. As a result, NAVER Corporation exercises substantial control over matters requiring
approval by our shareholders, including the election of directors and the approval of mergers, acquisitions or
other extraordinary transactions. NAVER Corporation may also have interests that differ from yours and may
vote in a way with which you disagree and which may be adverse to your interests. This concentration of
ownership may also have the effect of delaying, preventing or deterring a change in control of our company,
could deprive our shareholders of an opportunity to receive a premium for their shares of our common stock as
part of a sale of our company and might ultimately affect the market prices of shares of our common stock and
American Depositary Shares (“ADSs”). In addition, through a private placement in September 2018, NAVER
Corporation acquired half of the Convertible Bonds, which may be converted into shares of our common stock.
See “Item 5.B. Liquidity and Capital Resources — Liquidity and Capital Resources — Cash Flows — Net Cash
Provided by Financing Activities” and Note 15 of the notes to our annual consolidated financial statements.
We also engage in a number of other related party transactions with NAVER Corporation and our
affiliates. See “Item 7.B. Related Party Transactions” for a discussion of our transactions with such entities. In
the event NAVER Corporation, a publicly traded company, undergoes a change of control or experiences
financial and other difficulties, it may materially and adversely affect our business, financial condition and
results of operations.
Our parent, NAVER Corporation, offers a variety of products and services to internet users and advertisers,
and the absence of contractually delineated spheres of operations means that competition and conflicts of
interest between us and NAVER Corporation could arise in the future.
NAVER Corporation is publicly listed in Korea and also provides a variety of products and services to
internet users, mobile application users and advertisers. NAVER Corporation operates the largest search portal
site in Korea and is actively seeking to develop products and services to enhance the experience of mobile
internet users. There is no contractual agreement between us and NAVER Corporation delineating our respective
spheres of operation, and each company’s development team is actively introducing new services independently
of one another. Current or future products and services offered by NAVER Corporation could compete with our
own. NAVER Corporation’s business operations and the lack of contractual non-competition arrangements
between NAVER Corporation and us could give rise to direct competition between us and conflicts regarding
allocation of business opportunities and management and investment resources.
Overlapping management and business relationships with NAVER Corporation, our parent, may adversely
impact our business.
From time to time, members of our senior management have overlapping duties with NAVER
Corporation. For example, Mr. Hae Jin Lee, chairman of our board of directors, also serves as an executive
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officer of NAVER Corporation. Such individuals, including Mr. Lee, have fiduciary duties to both NAVER
Corporation and us under Korean and Japanese law, respectively. As a result, conflicts of interests may arise due
to their dual roles, which may adversely impact our business.
The market prices of shares of our common stock and ADSs may continue to be volatile or may decline
regardless of our operating or financial performance.
The market prices of shares of our common stock and ADSs may continue to be volatile. Market prices
could be subject to wide fluctuations in response to various factors, many of which are beyond our control and
may not be related to our operating or financial performance. Factors that could cause fluctuations in the market
prices of shares of our common stock and ADSs include the following:
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price and volume fluctuations in the global stock markets from time to time;
changes in operating performance and stock market valuations of other technology sector
companies generally, or those in our industry in particular;
sales of shares of our common stock by us or our parent company;
failure of securities analysts and credit rating agencies to maintain coverage of us, changes in
financial estimates by securities analysts and credit rating agencies who follow our company, or our
failure to meet these estimates or the expectations of investors;
the financial projections we may provide to the public (in the event we decide to provide any such
projections), any changes in those projections or our failure to meet those projections;
announcements by us or our competitors of new products and services;
the public’s reaction to our and NAVER Corporation’s press releases, other public announcements
as well as filings with the Securities and Exchange Commission (the “SEC”) and the Kanto Local
Finance Bureau (the “KLFB”) and timely disclosure of information required by the Tokyo Stock
Exchange in our case and filings with the Korea Exchange in NAVER Corporation’s case;
rumors and market speculation involving us or other companies in our industry;
actual or anticipated changes in our results of operations or fluctuations in our results of operations;
actual or anticipated developments in our business, our competitors’ businesses or the competitive
landscape generally;
litigation involving us, our industry or both, or investigations by regulators into our operations or
those of our competitors;
developments or disputes concerning our intellectual property or other proprietary rights;
announced or completed acquisitions of businesses or technologies by us or our competitors;
new laws or regulations or new interpretations of existing laws or regulations applicable to our
business;
changes in tax laws and regulations as well as accounting standards, policies, guidelines,
interpretations or principles;
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any significant change in our management; and
general economic conditions and slow or negative growth of our markets.
In addition, in the past, following periods of volatility in the overall market and the market price of a
particular company’s securities, securities class action litigation has often been instituted against
these
companies. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our
management’s attention and resources.
We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which
could subject U.S. investors in shares of our common stock or ADSs to adverse tax consequences, which
may be significant.
We will be classified as a passive foreign investment company (a “PFIC”) in any taxable year in which,
after taking into account our income and gross assets (and the income and assets of our subsidiaries pursuant to
applicable “look-through rules”) either (i) 75% or more of our gross income consists of certain types of “passive
income” or (ii) 50% or more of the average quarterly value of our assets is attributable to “passive assets” (assets
that produce or are held for the production of passive income). We believe that we were not a PFIC for U.S.
federal income tax purposes in 2018 and do not expect to be a PFIC in subsequent taxable years. PFIC status is a
factual determination made annually after the close of each taxable year on the basis of the composition of our
income and the value of our active versus passive assets. Because our belief is based in part on the expected
market value of our equity, a decrease in the trading price of our common stock and ADSs may result in our
becoming a PFIC. Additionally, the overall level of our passive assets will be significantly affected by changes in
the amount of our cash, cash equivalents and securities held for investment, each of which may be classified as
passive assets under the PFIC rules.
If we were to be or become classified as a PFIC, a U.S. Holder, as defined in “Item 10.E. Taxation —
United States Federal Income Taxation,” that does not make a “mark to market” election may incur significantly
increased U.S. federal income tax on gain recognized on the sale or other disposition of shares of our common
stock or ADSs and on the receipt of distributions on the shares of our common stock or ADSs to the extent such
distribution is treated as an “excess distribution” under the U.S. federal income tax rules. We do not intend to
provide holders with the information necessary to make a “QEF election” (as described in “Item 10.E. Taxation
— United States Federal Income Taxation — Passive Foreign Investment Company”). Thus, a U.S. Holder
seeking to mitigate the potential adverse effects of the PFIC rules should consider making a mark to market
election. Additionally, if we were to be or become classified as a PFIC, a U.S. Holder of shares of our common
stock or ADSs will be subject to additional U.S. tax form filing requirements, and the statute of limitations for
collections may be suspended if the U.S. Holder does not file the appropriate form. See “Item 10.E. Taxation —
United States Federal Income Taxation — Passive Foreign Investment Company.”
Substantial future sales of our common stock or the conversion into common stock of the Convertible
Bonds, or the perception that these transactions could occur, could depress the market prices of the shares
of our common stock and ADSs.
The market prices of the shares of our common stock and ADSs could decline as a result of sales of a
large number of shares of our common stock or ADSs in the market or the conversion into common stock of the
Convertible Bonds, and the perception that these transactions could occur may also depress the market prices of
the shares of our common stock and ADSs. As of December 31, 2018, there were 2,701,400 shares of our
common stock issuable upon exercise of outstanding stock options, and holders of our stock options may choose
to exercise their options and sell all or a portion of their shares of our common stock on the Tokyo Stock
Exchange or otherwise in Japan or abroad. As of December 31, 2018, our equity-settled and cash-settled
employee stock ownership plans also held 1,979,775 shares of our common stock as treasury shares, which are
granted from time to time as shares or cash (after sale of the underlying shares by the trust) as part of our share-
29
based payments to our employees. Recently, our shareholders approved a plan to grant stock options to our
directors, and our board of directors approved a plan to grant stock options or other share-based compensation to
our executive officers and employees pursuant to our new share-based compensation plan to be adopted in 2019.
See “Item 6.B. Compensation,” “Item 6.D. Employees” and Note 27 and Note 32 of the notes to our annual
consolidated financial statements. In addition, we issued the Convertible Bonds in September 2018. See “— We
may require additional capital to support our operations and the growth of our business, and we cannot be certain
that financing will be available on reasonable terms when required, or at all.” The conversion of some or all of
these Convertible Bonds, or the anticipation of the possibility of such conversion, could also depress the market
price of our common stock and ADSs. Moreover, our board of directors will be able to issue and sell additional
shares of our common stock within the unissued portion of our authorized share capital, generally without any
shareholder vote. Any such sales could cause the prices of the shares of our common stock and ADSs to decline.
If securities or industry analysts do not publish or cease publishing research or other reports about us, our
business or our market, or if they adversely change their recommendations regarding an investment in us,
the prices of the shares of our common stock and ADSs or their trading volume could decline.
The trading markets for the shares of our common stock and ADSs will be influenced by the research
and other reports that securities or industry analysts may publish about us, our business, our market or our
competitors. If any of the analysts who may cover us adversely change their recommendation regarding an
investment in us, or provide more favorable relative recommendations about our competitors, the prices of the
shares of our common stock and ADSs would likely decline. If any analyst who may cover us were to cease
coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial
markets, which in turn could cause the prices of the shares of our common stock and ADSs or their trading
volume to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain any
future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay
any dividends in the foreseeable future. As a result, you may only receive a return on your investment if the
market price of the shares of our common stock or ADSs increases.
The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we are subject to the reporting requirements of the U.S. Securities Exchange Act
of 1934, as amended (the “Exchange Act”), the U.S. Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, the
listing standards of the New York Stock Exchange as applicable to a foreign private issuer, which are different in
some material respects from those required for a U.S. public company, as well as the reporting requirements
under the Financial Instruments and Exchange Act of Japan (the “FIEA”) and the rules of the Tokyo Stock
Exchange. We also continue to prepare annual financial statements of LINE Corporation on a standalone basis in
accordance with generally accepted accounting principles in Japan for Japanese reporting purposes in addition to
preparing our consolidated financial statements in accordance with IFRS as issued by the IASB. Complying with
these requirements is time-consuming and costly and places significant strain on our personnel, systems and
resources. As a result of disclosure of information in filings and submissions required of a public company, our
business and financial condition will become more visible, which may result in threatened or actual litigation,
including by competitors, shareholders or third parties. If such claims are successful, our business and operating
results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these
claims, and the time and resources necessary to resolve them, could divert the resources of our management and
harm our business and operating results.
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As a foreign private issuer, we are permitted to rely on exemptions from certain New York Stock Exchange
corporate governance standards applicable to public U.S. companies as well as from certain disclosure
requirements under the Exchange Act. This may afford less protection to holders of shares of our common
stock or ADSs.
We are exempted from certain corporate governance requirements of the New York Stock Exchange by
virtue of being a foreign private issuer. We are required to provide a brief description of the significant
differences between our corporate governance practices and the corporate governance practices required to be
followed by U.S. companies listed on the New York Stock Exchange. See “Item 16.G. Corporate Governance.”
The standards applicable to us are considerably different from the standards applied to public U.S. companies.
For instance, we are not required to:
•
•
•
•
have a majority of our board of directors be independent;
have a compensation committee or a nominating or corporate governance committee consisting
entirely of independent directors;
obtain shareholder approval of equity compensation plans, equity offerings that do not qualify as
public offerings for cash, and offerings of equity to related parties; or
have regularly scheduled executive sessions with only independent directors.
We have relied on and intend to continue to rely on all of these exemptions for so long as we maintain
our status as a foreign private issuer. In addition, we have a board of corporate auditors in lieu of an audit
committee in accordance with applicable Japanese laws, which is permitted under Rule 10A-3(c)(3) of the
Exchange Act for foreign private issuers, subject to certain requirements. As a result, you may not be provided
with the benefits of certain corporate governance standards applicable to public U.S. companies.
Our parent, NAVER Corporation, controls a majority of the voting power of the outstanding shares of
our capital stock, making us a “controlled company” within the meaning of the New York Stock Exchange
corporate governance rules. As a controlled company, we are eligible to, and, in the event we no longer qualify as
a foreign private issuer, we intend to, elect not to comply with certain of the New York Stock Exchange
corporate governance standards, including the requirement that a majority of directors on our board of directors
are independent directors and the requirement that our compensation committee and our nominating and
corporate governance committee consist entirely of independent directors.
As a foreign private issuer, we are not subject to all of the disclosure requirements applicable to
companies organized within the United States. For example, we are exempt from certain rules under the
Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of
proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our
directors and officers are exempt from the reporting and “short-swing” profit recovery provisions of Section 16
of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we
are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as
U.S. public companies. Accordingly, there may be less publicly available information concerning our company
than there is for U.S. public companies.
Rights of shareholders under Japanese law may be different from rights of shareholders in other
jurisdictions.
Our articles of incorporation and the Companies Act of Japan (the “Companies Act”) govern our
corporate affairs. Legal principles relating to matters such as the validity of corporate procedures, directors’ and
executive officers’ fiduciary duties and obligations and shareholders’ rights under Japanese law may be different
31
from, or less clearly defined than, those that would apply to a company incorporated in any other jurisdiction.
Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the law of other
countries. For example, under the Companies Act, only holders of 3% or more of our total voting rights or our
outstanding shares are entitled to examine our accounting books and records. Furthermore, there is a degree of
uncertainty as to what duties the directors of a Japanese joint stock corporation may have in response to an
unsolicited takeover bid, and such uncertainty may be more pronounced than that in other jurisdictions.
Holders of ADSs have fewer rights than shareholders under Japanese law, and their voting rights are
limited by the terms of the deposit agreement.
The rights of shareholders under Japanese law to take actions, including voting their shares, receiving
dividends and distributions, bringing derivative actions, examining our accounting books and records, and
exercising appraisal rights, are available only to shareholders of record. Because the depositary, through its
custodian agents, is the record holder of the shares of our common stock underlying the ADSs, only the
depositary can exercise those rights in connection with the deposited shares. ADS holders will not be able to
bring a derivative action, examine our accounting books and records, or exercise appraisal rights through the
depositary.
Holders of ADSs may exercise their voting rights only in accordance with the provisions of the deposit
agreement. Upon receipt of voting instructions from them in the manner set forth in the deposit agreement, the
depositary will make efforts to vote the shares underlying the ADSs in accordance with the instructions of ADS
holders. The depositary and its agents may not be able to send voting instructions to holders of ADSs or carry out
their voting instructions in a timely manner. Furthermore, the depositary and its agents will not be responsible for
any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any
such vote. As a result, holders of ADSs may not be able to exercise their right to vote.
Holders of ADSs may not receive distributions on shares of our common stock or any value for them if it is
illegal or impractical to make them available to such holders.
The depositary of our ADSs has agreed to pay holders of ADSs the cash dividends or other distributions
it or the custodian for our ADSs receives on shares of common stock or other deposited securities after deducting
its fees and expenses. Holders of ADSs will receive these distributions in proportion to the number of shares of
our common stock that such ADSs represent. However, the depositary is not responsible for making such
payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs.
For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that
require registration under the Securities Act, but that are not properly registered or distributed pursuant to an
applicable exemption from registration. The depositary is not responsible for making a distribution available to
any holders of ADSs if any government approval or registration required for such distribution cannot be obtained
after reasonable efforts made by the depositary. We have no obligation to take any other action to permit
distributions on our common stock to holders of ADSs. This means that holders of ADSs may not receive the
distributions we make on shares of our common stock if it is illegal or impractical to make them available to such
holders. These restrictions may materially reduce the value of our ADSs.
Holders of ADSs may be subject to limitations on transfer of their ADSs.
ADSs are transferable on the books of the depositary. However, the depositary may close its transfer
books at any time or from time to time when it deems expedient in connection with the performance of its duties.
In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books
or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so
because of any requirement of law or of any government or governmental body, or under any provision of the
deposit agreement, or for any other reason.
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We may amend the deposit agreement without consent from holders of ADSs and, if such holders disagree
with our amendments, their choices will be limited to selling the ADSs or withdrawing the underlying
shares of our common stock.
We may agree with the depositary to amend the deposit agreement without consent from holders of
ADSs. If an amendment increases fees to be charged to ADS holders or prejudices a material right of ADS
holders, it will not become effective until 30 days after the depositary notifies ADS holders of the amendment. At
the time an amendment becomes effective, ADS holders are considered, by continuing to hold their ADSs, to
have agreed to the amendment and to be bound by the amended deposit agreement. If holders of ADSs do not
agree with an amendment to the deposit agreement, their choices will be limited to selling the ADSs or
withdrawing the underlying shares of our common stock. No assurance can be given that a sale of ADSs could be
made at a price satisfactory to the holder in such circumstances.
We are incorporated in Japan, and it may be more difficult to enforce judgments obtained in courts outside
Japan.
We are incorporated in Japan as a joint stock corporation with limited liability. Most of our directors are
non-U.S. residents, and a substantial portion of our assets and the personal assets of our directors and corporate
executive officers are located outside the United States. As a result, when compared to a U.S. company, it may be
more difficult for investors to effect service of process in the United States upon us or to enforce against us, our
directors or executive officers, judgments obtained in U.S. courts predicated upon civil liability provisions of the
federal or state securities laws of the U.S. or similar judgments obtained in other courts outside Japan. There is
doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of
U.S. courts, of civil liabilities predicated solely upon the federal and state securities laws of the United States.
Our shareholders of record on a given record date may not receive the dividend they anticipate.
The customary dividend payout practice of publicly listed companies in Japan may significantly differ
from that widely followed or otherwise deemed necessary or fair in foreign markets. We may ultimately
determine any dividend payment amount to our shareholders of record as of a record date, including whether we
will make any dividend payment to such shareholders at all, only after such record date. For that reason, our
shareholders of record on a given record date may not receive the dividends they anticipate.
Dividend payments and the amount you may realize upon a sale of shares of our common stock or ADSs
that you hold will be affected by fluctuations in the exchange rate between the U.S. dollar and the Japanese
yen.
Cash dividends, if any, in respect of the shares of our common stock represented by our ADSs will be
paid to the depositary in Japanese yen and then converted by the depositary into U.S. dollars, subject to certain
conditions. Accordingly, fluctuations in the exchange rate between the Japanese yen and the U.S. dollar will
affect, among other things, the amounts a holder of ADSs will receive from the depositary in respect of
dividends, the U.S. dollar value of the proceeds that a holder of ADSs would receive upon sale in Japan of the
shares of our common stock obtained upon surrender of ADSs and the secondary market price of ADSs. Such
fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of shares of
our common stock.
Daily price range limitations imposed by the Tokyo Stock Exchange may prevent you from selling shares of
our common stock at a particular price on a particular trading day, or at all.
Share prices on the Tokyo Stock Exchange are determined on a real-time basis by the balance between
bids and offers. The Tokyo Stock Exchange is an order-driven market without specialists or market makers to
guide price formation. To prevent excessive volatility, the Tokyo Stock Exchange sets daily upward and
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downward price range limitations for each listed stock based on the previous day’s closing price or any “special
quote,” a price indicated by the Tokyo Stock Exchange to notify investors that there are orders beyond such price
that may result in a large price fluctuation. Although transactions may continue at the upward or downward limit
price if the limit is reached on a particular trading day, no transactions may take place outside these limits.
Consequently, an investor wishing to sell shares of our common stock at a price above or below the relevant
daily limit may not be able to effect a sale at such price on a particular trading day, or at all.
Investors holding less than a full “unit” of shares will have limited rights as shareholders.
Our articles of incorporation provide that 100 shares of our common stock constitute one “unit.” As a
result of the unit share system, ADS holders will only be permitted to surrender ADSs and withdraw underlying
shares of our common stock constituting whole units. The Companies Act imposes significant restrictions and
limitations on holders of shares of our common stock that do not constitute a whole unit. In general, holders of
shares of our common stock constituting less than one unit do not have the right to vote with respect to those
shares. For further discussion of the unit share system and its effect on the rights of our shareholders, see “Item
10.B. Memorandum and Articles of Association.”
Item 4.
Information on the Company
Item 4.A. History and Development of the Company
We were established in Japan in September 2000 as Hangame Japan Corporation, a joint-stock
corporation, and subsequently changed our name to NHN Japan Corporation in August 2003. We began as an
online game company and engaged in the development and distribution of online games under the Hangame
brand. We subsequently expanded our business to portal services and acquired livedoor Co., Ltd., a Japanese
internet portal company, in May 2010.
In June 2011, we launched the LINE messaging application to the public in Japan, followed by launches
in other Asian countries. We initially focused on building our user base in Japan, but shortly afterwards began to
actively conduct marketing efforts in other parts of Asia, where we believed there was significant market
potential based on the relatively low level of smartphone penetration in a relatively large and growing population
size. In order to more effectively pursue global expansion outside of Japan, we incorporated LINE Plus
Corporation, which provides marketing and sales services for the LINE platform outside of Japan, in Korea in
February 2013.
In February 2013, our board of directors decided to focus our business on the operation and expansion
of the LINE platform and to dispose of our Hangame business along with related entities. We disposed of all of
our interest in the Hangame business along with related entities in the form of a non-cash dividend to NAVER
Corporation in April 2013. In April 2013, we were renamed as LINE Corporation. In September 2013, our board
of directors approved a plan to dispose of our online match-making services business for the same reason. The
disposition was completed in December 2013 through a sale to an unrelated third party. In September 2014, as a
part of our continued focus on the expansion of the LINE platform, our board of directors decided to dispose of
our data management business, which consisted of DataHotel Co., Ltd., a wholly-owned subsidiary, and the data
management business was subsequently sold to a subsidiary of NHN Entertainment Corporation, a Korean online
game portal company that was spun off from NAVER Corporation in August 2013.
In July 2016, we completed our initial public offering and listed our common stock on the First Section
of the Tokyo Stock Exchange under the securities identification code 3938 and our ADSs, each representing one
share of our common stock, on the New York Stock Exchange under the ticker symbol “LN.”
Our legal and commercial name is LINE Corporation. Our principal executive offices are located at JR
Shinjuku Miraina Tower, 23rd Floor, 4-1-6 Shinjuku, Shinjuku-ku, Tokyo, 160-0022, Japan, and our telephone
number is +81-3-4316-2000. Our English website address is http://linecorp.com/en/.
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The SEC maintains a web site (http://www.sec.gov), which contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC.
Item 4.B. Business Overview
Our Mission and Vision
Our mission is “Closing the Distance” by bringing people closer to each other as well as to a wide
variety of information and services.
Our vision is to become the “smart portal” through which users can access the people, information,
services, companies and brands that they choose, from anywhere they are and anytime they need to.
Overview
We are a leading global platform for mobile messaging and communication services, content
distribution and life and financial services. Our mobile messaging application, which is the foundation of our
“messaging services” and operates on all major mobile operating systems, enables our users to communicate
through free instant messaging, Stickers and voice and video calls and serves as a smart portal to our other
applications and services. We provide users with access to a wide range of social and creative content and
services that satisfy our users’ individual needs for access to information and entertainment such as mobile
games and music through our “content services,” as well as connected solutions that aim to satisfy increasingly
sophisticated day-to-day needs of LINE users and further enhance their life and financial welfare, including
fintech services such as mobile payment and other financial services offered on the LINE platform, through our
“life and financial services.” We believe that the integration on our LINE platform of content and services offers
our users a convenient way to connect and have fun with their family and friends, explore and share their
interests and satisfy their daily needs with greater ease, which we believe enriches the user experience and
ultimately contributes to higher user loyalty, while creating value for advertisers by connecting them with their
target audience using the LINE platform.
We believe LINE is the leading mobile messaging application in Japan, Thailand and Taiwan in terms
of number of users, and we have obtained substantial numbers of users in other parts of Asia, including
Indonesia. We have achieved this growth through active marketing of LINE as well as customizing our content
offerings to suit local preferences and needs. We believe the scale and growth of our user base in many countries
provide us with powerful network effects, whereby LINE becomes more valuable with more users and creates
additional incentives for existing users to encourage new users to join and to stay connected to their circle of
friends. We benefit from such network effects where more activity on LINE leads to the creation and distribution
of more content, which in turn attracts more users, platform partners and advertisers. We will continue to invest
in new products and services and enhancements to our existing products and services, with the goal of further
expanding our user base and increasing user engagement.
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At the heart of our platform is the LINE mobile messaging application, which enables users to
communicate with family, friends and other people they care about in the following ways:
• We address people’s basic communication needs. We focus on serving users’ everyday
communication needs by supplying easy-to-use tools, including chat, voice call and video call, with
reliable and secure connectivity wherever they are. As a result, our services have already become a
meaningful part of the daily lives of many of our users.
• We enable closed and real relationship-based communication. We believe that the most rewarding
and lasting forms of expression are those involving private, two-way exchanges between people
with real relationships, which enhance intimacy and security. Our users can connect with other
users they know by directly adding them as friends on LINE or by importing their mobile contact
list into LINE. We believe that closer, intimate relationships are integral to the broader social web
of activity, representing a more meaningful and influential subset of social networks.
• We make communication more enriching and expressive. We are a pioneer in the creation and
design of Stickers, our larger and more expressive version of emoticons. Users can express their
emotions or actions by sending a single Sticker instead of a thread of plain text. We believe that
Stickers have made communication more convenient, creative and enriching.
Our user engagement is driven by such communication being coupled with activities that are an
indispensable part of users’ daily lives. LINE has evolved into an extensive platform that provides not only the
ability to communicate but also access to a wide range of localized entertainment content and services related to
daily life, such as games, video, music and news applications, offering our users richer experiences. With an
increasing amount of activity on the internet being conducted through mobile applications, we believe that LINE
provides a fast, versatile and user-friendly platform for the discovery of content and services in the mobile era.
Our broad array of mobile services, combined with our large and highly engaged user base, gives us unique
opportunities to offer greater personalization in terms of the service and content offerings by introducing a range
of application settings.
We believe that our user base provides attractive marketing opportunities for our advertisers. We allow
advertisers to post “display ads” (previously known as “performance ads”) on our various communication and
content offerings based on a bid-based advertisement distribution system with data analytics capabilities
designed to help advertisers better reach their target audience. We also offer a wide variety of “account ads”
(previously known as “messenger ads”) through the LINE messaging application, such as Official Accounts and
Sponsored Stickers, allowing advertisers to direct their efforts and communication in a more targeted manner.
In recent years, we have focused our strategy on exploring a variety of new business opportunities
related to fintech. Some of our recent fintech-related activities include, among others, expansion of services
available to our users through LINE Pay, pursuit of alliances with reputable players in the financial services
industry to offer new services related to insurance, online securities brokerage, consumer loans and internet
banking on the LINE platform, as well as the launch of BITBOX, our virtual currency exchange in Singapore.
Although most of these ventures are still in the early stages of operation, we believe that they have the potential
to contribute to our operating results over the medium- to long-term, and we plan to continue to selectively
pursue investment opportunities that we believe would further enhance our capabilities in the financial industry
domain.
We are also continuing to focus our research and development efforts on emerging technologies,
including AI and blockchain. Since the launch of our next-generation AI platform called LINE Clova in March
2017, we have continued to develop and strengthen our capabilities in AI. Through a series of LINE Clova-
integrated smart speakers launched starting in October 2017, our users carry out a natural conversation with
LINE Clova in engaging in a wide range of products and services offered by us and other third-party service
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providers. We are currently also pursuing business opportunities related to blockchain, including the launch of
LINK, the base digital token for our blockchain ecosystem.
Prior to and during our fiscal year ended December 31, 2017, we had a single reportable segment. On
January 31, 2018, our board of directors approved the establishment of two reportable segments, consisting of
our “core business” segment and our “strategic business” segment, in response to the expansion of our business
and evolution of our business strategy.
Our reportable segments currently consist of:
•
Our “core business” segment that includes:
•
•
“Advertising” consisting of (i) “display advertising” that utilizes our various communication
and content offerings, such as Timeline, LINE NEWS and LINE TODAY, (ii) “account
advertising” products and services such as Official Accounts, LINE@, Sponsored Stickers and
LINE Point Ads and (iii) “other advertising” products and services such as LINE Part-time Job,
livedoor and Matome; and
“Communication, content and others” consisting of (i) “communication” products and services
such as Stickers and Themes created by third parties and sold on LINE Creators Market as well
as Stickers and Themes created by us, (ii) “content” products and services such as LINE
Games, LINE PLAY, LINE Manga, LINE Music and LINE Fortune, and (iii) “others”
consisting of miscellaneous products and services.
•
Our “strategic business” segment that includes:
•
•
“LINE Friends” products and services mainly consisting of sales of LINE characters
merchandise; and
“Others” primarily consisting of fintech businesses (including LINE Pay and other financial
services delivered through the LINE platform), the LINE Clova AI platform, blockchain-
related initiatives and e-commerce. This segment also included LINE Mobile until April 2018,
when LINE MOBILE Corporation (“LINE MOBILE”), the provider of mobile virtual network
operator (“MVNO”) services, became accounted for as an associate under the equity method
rather than as a consolidated subsidiary.
Our Products and Services
We offer a wide range of products and services, and we generate revenues in a variety of ways and from
various participants active on the LINE platform.
Core Business Segment
In our core business segment, we plan to continue to promote user engagement on the LINE platform
for mobile messaging and communications services in our four key countries of Japan, Taiwan, Thailand and
Indonesia. Leveraging on such engagement, we have recorded revenue growth and positive operating margins in
recent years by offering a wide range of advertising products and services as well as communication and content
products and services on our LINE platform. We anticipate continued steady growth in the proportion of total
advertising spending by advertisers in our key markets that are directed to digital advertising. We will continue to
invest selectively in initiatives to enhance and broaden the range of communication and content products and
services that we offer, which we believe will contribute to our overall growth.
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Advertising
LINE offers targeted and interactive marketing products and services that provide advertisers with an
attractive advertising platform. We recently completed a series of enhancements to various functionalities of our
display ads platform, which we believe would lead to improved operational capabilities, upgraded targeting
technology and enhanced user experience. We have also implemented modified pricing models for our account
ads, which provide more attractive pricing options for both existing and new advertisers. Through such
initiatives, we intend to improve our ability to deliver targeted and creative advertising products and services that
are more tailored to our users’ evolving engagement on the LINE platform and enable advertisers to more
effectively promote their brands and amplify their visibility and reach.
Our advertising products and services consist primarily of the following:
Display Advertising
We offer “display ads” (previously known as “performance ads”), which enable advertisers to display
their advertisements to a large number of viewers on our various communication and content offerings,
leveraging our large user base and data analytics capabilities. Our display ads are sold through a bid-based cost
per mille (or cost per thousand) impressions (“CPM”) or cost per click (“CPC”) pricing model, depending on the
type of advertisement, and our advertisers pay for qualifying impressions or click-through volume. We believe
that our ability to help advertisers better target relevant users will steadily grow over time as we accumulate
greater amounts of user data about their engagement activities on the LINE platform. Our display ads include:
•
•
•
Display Ads on Timeline. Advertisements can be posted on our users’ Timeline, which appear at
select locations as users scroll through various postings on their Timeline (for a fuller description of
Timeline, see “— Communication, Content and Others — Communication — Timeline”). Such
advertisements may include links to external corporate websites, promotions of application
downloads or branding campaigns featuring video clips. Video clips play automatically when a user
scrolls through Timeline and reaches a viewport.
Display Ads on LINE NEWS and LINE TODAY. Advertisements can be posted on certain
advertisement spots on LINE NEWS in Japan and LINE TODAY in select countries outside of
Japan to reach our users (for fuller descriptions of LINE NEWS and LINE TODAY, see “—
Communication, Content and Others — Content — LINE NEWS and LINE TODAY”). Such
advertisements may include links to external corporate websites, promotions of application
downloads or branding campaigns.
Display Ads on Other Content Offerings. Starting in October 2017 and November 2017,
advertisements can be posted on certain spots on LINE Manga and LINE BLOG, respectively, to
reach our users in Japan (for fuller descriptions of LINE Manga and LINE BLOG, see “—
Communication, Content and Others — Content — LINE Manga” and “— Communication,
Content and Others — Content — Miscellaneous”).
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Account Advertising
We also offer a wide variety of “account ads” (previously known as “messenger ads”) that are offered
through the LINE messaging application, allowing advertisers to direct their efforts and communication in a
more targeted manner. Our account ads include:
• Official Accounts. Official Accounts are LINE accounts created for large-scale businesses and
celebrities with followers that enable them to send messages directly to LINE users who have added
the Official Account as a LINE friend. Once added as a LINE friend, such Official Account holder
is displayed on the users’ friends list on the LINE messaging application, and the users are instantly
alerted of incoming messages through push notifications on their smartphones, as would be the case
with any other messages they receive from their LINE friends. Official Accounts enable business
enterprises to reach LINE users around the world who are interested in their business, products or
services by notifying such users of their latest products and services as well as distributing coupons
and promotional information to such users. Celebrities can also promote themselves and their latest
works, such as movies and music albums, by connecting with their fans through their Official
Accounts. We also offer Business Connect, a set of tools that allows our business partners to build
customized applications, such as sales platforms and marketing tools, and Customer Connect, our
customer service solutions offered to business partners using the LINE platform, both of which
became integrated into Official Accounts as optional features for our customers in Japan starting in
December 2018.
Outside of Japan, we currently charge our customers a monthly fee based on a number of factors,
such as the contract period and the number of times messages are to be sent to users, among others.
In Japan, we currently charge our customers based on a pay-as-you-go system pursuant to the
implementation of a modified pricing model adopted in December 2018.
LINE@. Our business users can create their own Official Accounts using our LINE@ application
and send messages to, or post announcements on the Timeline of, other users who have added such
LINE@ accounts as LINE friends, as well as respond to inquiries from other users on the LINE@
chat screen. For a monthly fee, users with LINE@ accounts can send more messages per month as
well as image-based messages containing links to external websites.
Sponsored Stickers. Our advertisers can offer “Sponsored Stickers” to LINE users to promote their
brands, products and services. We work with advertisers to design sets of Sponsored Stickers,
which often feature the advertisers’ proprietary characters. Sponsored Stickers are available
globally and downloadable during a pre-determined period of time for free by users who add the
sponsor as their LINE friend. We charge the advertisers fees based on the number of Sponsored
Stickers offered by them as well as a Sticker design fee. Advertisers may add an advertisement on
our virtual Sticker shop for an additional fee, as well as offer “Sponsored Themes” that customize
the look of the LINE messaging application using the advertisers’ proprietary characters.
LINE Point Ads. We offer “LINE Point Ads” to our advertisers which enable our users to receive
LINE Points for free upon downloading certain applications, watching certain video commercials
created by our advertisers or adding certain Official Accounts as LINE friends. We charge
advertisers a fee per specific action taken by our users. Prior to May 2016, LINE Point Ads were
referred to as LINE Free Coins.
LINE SP Solutions. LINE SP Solutions provides our business partners with integrated tools
through the LINE platform that can be used to promote sales of their products in retail stores,
including participation in special marketing events as well as mileage programs.
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Other Advertising
Some of the other types of advertising products and services we offer include the following:
•
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LINE Part-time Job. LINE Part-time Job is a part-time job posting service provided through a
joint venture with Persol Holdings Co., Ltd. in which we hold a 60.0% interest. Through this
service, we allow potential employers to post part-time job openings on the LINE platform in the
form of advertisements.
livedoor. livedoor is a Japanese web portal that brings together information from a wide variety of
sources and provides related services such as web search, news, weather and entertainment content
and blog hosting. livedoor is one of the largest blogging service providers in Japan. We sell
advertising space on livedoor, mainly through advertising networks such as Google and Yahoo
Japan.
• Matome. We provide a personal web curation platform in Japan called Matome, which enables
individual users to create web pages that bundle images, links and videos under a specific topic.
Such pages help viewers to see information collected from various sources sorted by topic that
reflect the curating user’s perspectives and experiences on a specific topic. We also sell advertising
space on Matome, mainly through advertising networks.
Communication, Content and Others
Communication
LINE enables our users to enjoy free instant messaging and voice and video calls with each other using
their mobile devices (including smartphones and tablets) or personal computers through mobile networks and
internet service providers, as well as low-cost voice over internet protocol (“VoIP”) services for domestic and
international calls to mobile and fixed-line phone users globally.
Our messaging application and related products and services offered on the LINE platform provide our
users with a convenient and fun communication experience and include the following:
• Messaging. LINE provides messaging services for a closed network of users who can select other
users with whom they want to connect as “friends.” New friends can be added through inclusion of
new contact information in a user’s mobile phone address book, searching for another user’s LINE
identification in our database, invitation by email or text messaging, scanning QR codes or, if
physically adjacent, shaking users’ smartphones simultaneously. The LINE messaging application
can be downloaded for free onto mobile devices using major mobile operating systems as well as
personal computers. Our users can send free one-to-one text and voice messages to their friends
using data services provided by their mobile network carriers or over the internet. Users can also
send images and videos and share their location information using the messaging service. LINE
also offers group chat functions as well as livestreaming to participants during group chats.
•
Stickers. While using the LINE messaging application, users can add emotional nuance and
personalize their text messages by including Stickers, which are colorful icons depicting actions or
expressions of our proprietary characters (such as Cony the Rabbit and Brown the Bear), characters
from popular animation or manga created by third parties (such as Sanrio’s Hello Kitty and Disney
characters), and real life celebrities and athletes. Our selection of Stickers varies by country
depending on a number of factors,
timely events and licensing
arrangements for third-party copyrighted characters. We continually look for new and innovative
ways to let our users express themselves, including by releasing Stickers with enhanced features
such as sound effects as well as animated and pop-up images.
including local preferences,
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Users can also design their own Stickers to be sold on LINE Creators Market through LINE Store,
our web store accessible from mobile devices and personal computers. In June 2017, we also
launched the LINE Creators Studio application that enables our users to more easily create Stickers
using digital photos stored on their mobile devices, as well as user-generated drawings and writings.
After a review process and subject to our approval, user-designed Stickers become available for
sale on LINE Creators Market, and once purchased, become available for use on the LINE
messaging application. Users receive a portion of the balance of sales proceeds as license fees after
deducting fees charged by payment processors.
Timeline. Our Timeline service, which users access through the LINE messaging application,
enables users to share their day-to-day experiences with the public or within the closed circle of
people whom they choose as their friends. Each user has a profile screen allowing text, Stickers,
images and videos and other activity to be posted to express themselves and to share with others.
Each user’s Timeline displays that user’s posts as well as posts by their friends and other interesting
content that the user chooses. Our Timeline is designed to be simple and easy to view, and each
post displays only the user profile, limited lines of text and any image or video included in the post.
Users can choose with whom they share their posts and whose posts they receive on their Timeline.
Themes. Our users can customize the look of the LINE messaging application on their devices by
purchasing and downloading “Themes” that feature LINE and third-party licensed characters.
Themes are used to decorate their start up screen, friends list, chat rooms, menu buttons and other
displays. Users can also design their own Themes to be sold on LINE Creators Market.
Free Call and LINE Out (VoIP). Our users can make free domestic or international voice calls
and video calls to other LINE users worldwide who are registered as their friends on LINE. We also
offer the LINE Out service, which provides a low-cost VoIP service that enables users to make
domestic or international voice calls using the LINE messaging application to mobile and fixed-line
phone users globally, regardless of the telecommunications network used by the recipient of the call
and regardless of whether the recipient is a LINE user. We do not charge our users any initial setup
fee, and users pay in advance for the minutes to be spent making calls by making an in-app
purchase of minutes or purchasing minutes on LINE Store.
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Content
LINE serves as a content platform for various applications for our users, offering users a wide range of
entertainment and other useful and interactive tools. Such applications include:
•
LINE Games. We offer various games on the LINE platform. As of December 31, 2018, we
offered 50 games, of which 44 games were developed by third-party game developers. We offer
games in Japan and our other key markets. Typically, LINE Games are highly social by nature and
simple to play. Unlike standalone games not offered on a broader platform, LINE Games enable
users to invite their LINE friends to download the LINE Games that they enjoy playing. This, along
with a leaderboard that displays scores of the player’s LINE friends, encourages our users to
connect with their friends through our games and helps them build and enhance their relationships
through increased interaction with one another. All LINE Games are initially downloadable for free,
typically with options to buy in-game items, such as extra lives or “boosters” that enhance the
user’s performance level, or to upgrade game versions. Our portfolio of games includes puzzle
games, adventure games, board games and role-playing games.
We actively maintain the quality of games introduced on the LINE platform to promote an
engaging experience for our users and enhance their overall satisfaction with LINE. To grow our
inventory of high-quality games, we pursue a variety of partnerships, including in the form of
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equity investments in game developers. For example, we are currently collaborating with Nintendo
Co., Ltd., a video game company headquartered in Japan, and NHN Entertainment Corporation, a
developer, publisher and distributor of mobile and computer games in Korea, to co-develop and
jointly operate a new mobile game. In the past, we published most of the games developed by third-
party game developers in the markets we serve on a non-exclusive basis. However, our general
policy when offering new games on the LINE platform is to enter into new contractual
arrangements with third-party game developers to become the exclusive distributor of their games
in a particular market. The selection of game titles and pricing of in-game purchase items vary by
country subject to local preferences and licensing arrangements for third party-owned intellectual
property, and we adjust our portfolio of games from time to time to meet our users’ evolving
preferences.
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LINE PLAY. LINE PLAY is our virtual community that enables users to decorate their own
avatars, or graphic identities selected to represent themselves on screen, write and exchange diaries
with other users’ avatars, visit other users’ avatar rooms and chat with other users who share
common interests. Community members can also play interactive games with other users. Users
may purchase in-app items to dress up their avatars or decorate their avatar rooms. Unlike our LINE
messaging service, LINE PLAY is designed as an open social network where users can
communicate freely with other LINE users who are not their LINE friends.
LINE NEWS and LINE TODAY. LINE NEWS is our personalized news-clipping service
application that provides users with relevant real-time news stories based on the topics that users
are most interested in, such as entertainment, sports, politics, economy, gourmet and fashion. LINE
NEWS sends updates to users through push notifications, which allows seamless access to
interesting and important news throughout the day without the need to leave the LINE messaging
application. In addition, users can share interesting articles on their Timeline or with their friends
through direct messages allowing for vibrant discussions. LINE NEWS is available to our users in
Japan, and we offer similar services called LINE TODAY in our major markets outside of Japan.
We introduced a dedicated tab for LINE NEWS and LINE TODAY in the LINE messaging
application in 2017, which has contributed to an increase in popularity of such services.
LINE LIVE and LINE TV. LINE LIVE is a real-time streaming service offered in Japan as well
as markets outside of Japan that allows users to access live streaming personal videos or
commercial events, such as concerts and sporting events, provided by artists, celebrities and
corporate sponsors. In Taiwan and Thailand, we also offer an on-demand video service called LINE
TV that allows users to select and watch videos from diversified channels that offer an array of
localized content.
LINE Manga. LINE Manga is our online comic bookstore that enables users to purchase and
download from a selection of over 300,000 comic books, read them on mobile devices and organize
their purchased comic books on a virtual bookshelf. Users can also recommend comic books to
their friends and share links to such comic books on their Timeline.
In July 2018, we entered into an alliance with NAVER WEBTOON Corporation (“NAVER
WEBTOON”), Korea’s leading e-comics provider, to establish LINE Digital Frontier Corporation
(“LINE Digital Frontier”), in which we hold a 70.0% interest, with NAVER WEBTOON holding
the remainder of the interest in LINE Digital Frontier. Through the joint venture, we aim to
leverage NAVER WEBTOON’s technical expertise in the development, publishing and distribution
of e-comics on LINE Manga.
•
LINE MUSIC. LINE MUSIC is our on-demand music subscription service that enables users to
purchase and stream songs, create playlists of their favorite music, send links to music or playlists
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directly to friends on the LINE chat screen or share music with friends by streaming it on their
Timeline.
• Miscellaneous. We also offer a wide range of other applications to further enhance user experience,
including LINE Fortune (daily fortune telling service) and LINE Blog (blogging platform designed
to foster greater interaction with celebrities).
Others
Our other sources of revenue include, among others, royalty and licensing fees we receive from our
business partners for the use of the LINE brand and fees we charge our equity-method associates for the
consulting services we provide to them from time to time.
Strategic Business Segment
Our strategic business segment includes LINE Friends products and services and Others, primarily
consisting of fintech businesses, the LINE Clova AI platform, blockchain-related initiatives and e-commerce. In
this segment, we are investing in new ventures that we believe have the potential to contribute to our operating
results over the medium- to long-term, particularly through our fintech businesses. We plan to continue to make
significant investments in the promotion of our LINE Pay mobile payment services by enhancing our payment
infrastructure. We are also pursuing new business opportunities, typically through collaboration with financial
industry partners, in areas such as insurance, online securities brokerage, consumer loans, internet banking and
virtual currency exchange.
LINE Friends
We engage in character marketing using internally-designed LINE characters such as Cony the Rabbit
and Brown the Bear, primarily to promote our brand and appeal as well as further expand our user base. LINE
characters initially gained popularity through Stickers and LINE Games that feature them, and we sell official
LINE merchandise, such as plush toys, action figures, stationery goods, clothes, tableware and limited-edition
collaboration items, at LINE Friends stores located in Korea, China, Japan, Taiwan, Hong Kong, Thailand and
the United States. LINE Friends merchandise is also available through online stores. In addition, we license our
proprietary LINE characters to third parties for production and sale of various LINE character-related
merchandise.
Others
Fintech
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LINE Pay. As part of our efforts to diversify payment options available to LINE users, we
launched LINE Pay, our mobile payment service application, in December 2014. LINE Pay enables
our users to make payments, regardless of their mobile carrier, on LINE Store and a number of
select online and offline partner retail stores. Depending on location, our users can also transmit
funds to each other or withdraw cash from certain banks within their respective countries through
LINE Pay by linking their accounts at select banks in their respective countries or adding money to
their LINE Pay accounts at convenience stores or ATMs or through internet banking. We have also
expanded the LINE Pay user base and transaction volume by enhancing our payment infrastructure
that provides settlement through QR and other barcodes, NFC and physical payment cards (“LINE
Pay Cards”). We plan to continue to expand the scope of LINE Pay by selectively incorporating it
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into our applications and exploring partnership and joint venture opportunities both locally and
globally in order to enhance the convenience of our users. For example, in an effort to allow our
LINE Pay merchants to capture demands from foreign travelers visiting Japan, we have recently
entered into strategic partnerships with Tencent, the operator of WeChat Pay in China, and NAVER
Corporation, the operator of NAVER Pay in Korea, to enable users of such services to make
payments at certain LINE Pay outlets in Japan without having to download an application or
register for a new service. We also plan to allow LINE Pay users from other countries in Asia to use
their local LINE Pay applications to make payments in Japan. Most recently in January 2019, we
partnered with VISA Inc., a world-renowned financial services provider that facilitates electronic
funds most commonly through Visa-branded credit cards, to launch a co-branded credit card to be
used as a credit card on its own or be linked with a LINE Pay account.
LINE Points. To further promote the use of LINE Pay, we offer LINE Points, a reward program
that enables users to earn points that they can use to add to their LINE Pay balance, use points for
purchases at LINE Store and online LINE Friends stores or redeem points for vouchers to be used at
retail locations such as coffee shops or convenience stores in Japan. Our users can earn LINE Points
equal to a percentage of amounts spent on LINE Pay and LINE SHOPPING (for a fuller description
of LINE SHOPPING, see “— e-commerce — LINE SHOPPING), as well as receive LINE Points
from advertisers offered through LINE Point Ads.
LINE Kakeibo. In November 2018, we launched LINE Kakeibo, a free personal financial account
and asset management service available on the LINE platform. LINE Kakeibo allows users to
manage their income and expenses more efficiently by consolidating a user’s bank accounts, credit
cards, reward programs and e-commerce services into a central database and generating a personal
account book that tracks a user’s financial activities, such as money transfers, online payments and
account balance management.
LINE Insurance. In October 2018, we launched LINE Insurance, which offers a variety of non-life
insurance products such as travel insurance. We operate LINE Insurance through a business alliance
between LINE Financial and Sompo Japan Nipponkoa Insurance Inc. (“Sompo Japan”), which was
the first insurance provider in Japan to develop a smartphone-optimized insurance service that
allows users to review and purchase a wide range of non-life insurance products and receive
insurance-related consultation through the use of smartphones. We currently do not take on any
insurance underwriting risk by limiting our role to that of an insurance broker.
LINE Smart Invest. LINE Smart Invest is our investment management-related service accessible
through the LINE platform. We provide our users with themed investment opportunities that enable
our users to make diversified investments in companies selected by FOLIO Co., Ltd. (“FOLIO”), an
online investment management company in which we hold a 41.4% interest, based on specific user-
picked themes, such as fashion, travel and technology. See “— Our Investments — Investments by
LINE Corporation — FOLIO Co., Ltd.”
BITBOX. In July 2018, we launched BITBOX, a cryptocurrency exchange established in
Singapore to facilitate the exchange of cryptocurrencies. BITBOX is operated by LINE Tech Plus
Pte. LTD (“LINE Tech Plus”), a wholly-owned subsidiary of LVC Corporation, our wholly-owned
subsidiary established in January 2018 for
the purpose of operating and managing our
the exchange of approximately 32
cryptocurrency-related initiatives. BITBOX allows for
cryptocurrencies including Bitcoin and Ethereum, and supports approximately 15 different
languages. BITBOX currently only allows for the exchange of cryptocurrencies and does not accept
exchanges between fiat money and cryptocurrencies. For each trade that
is executed on its
exchange, BITBOX charges a portion of the transaction value as a commission. We have filed an
application to operate a cryptocurrency exchange in Japan, which is currently being reviewed by the
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Financial Services Agency of Japan (the “FSA”). We are also exploring opportunities to establish
cryptocurrency exchanges in other countries. In addition, we and LVC Corporation entered into a
memorandum of understanding with Nomura Holdings, Inc. (“Nomura”) in January 2019 to begin
discussions on forming a financial business alliance. As of the date of this annual report, we
consider our cryptocurrency balance and transaction volume associated with BITBOX to be
immaterial to our business.
AI
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Clova Smart Speakers. Our smart speakers operate on LINE Clova, our next-generation AI
platform designed to enrich our users’ daily lives by integrating a wide array of advanced
technologies based on human senses, such as voice recognition, artificial neural network and
interactive engine systems. Through a series of smart speakers we launched starting in October
2017, our users carry out a natural conversation with Clova in engaging in a wide range of products
and services offered by LINE and other third-party service providers, including access to weather
and news, connecting to LINE MUSIC, reading and sending LINE messages and utilizing their
smart speaker as an infrared remote controller for TVs or lighting equipment.
Clova Extensions Kit. In July 2018, we released the Clova Extensions Kit, a development kit that
allows third-party developers to scale LINE Clova functionalities. Our goal in releasing this kit was
to invite third-party developers to incorporate LINE Clova AI technology into their new products,
which would also enhance existing functionalities of our LINE Clova smart speakers through
collaboration with third-party developers. We believe that leveraging the expertise of third-party
developers in such a way not only strengthens our expertise in AI technology but also creates new
sources of revenue for our AI business.
Clova Auto. We are currently collaborating with Toyota Motor Corporation (“Toyota”) to prepare
for the launch of Clova Auto, a LINE Clova-based voice-controlled navigation service to be
integrated into Toyota’s advanced navigation system.
Blockchain
•
LINK. In August 2018, LINE Tech Plus launched LINK, the base digital token for our blockchain
ecosystem. Decentralized applications (“dApps”), offered through our blockchain ecosystem, will
reward our users with LINK for participating in our blockchain ecosystem, and users will be able to
use LINK to pay for or receive benefits from a variety of contents and services offered through
dApps. We are currently in the process of developing and launching a number of dApps to be
offered in the blockchain ecosystem, including platforms for user-generated reviews on products
and restaurants. LINK was listed on BITBOX in October 2018, so that they can be exchanged for
other cryptocurrencies traded on BITBOX. For residents in Japan, LINK Points will be used instead
of LINK. LINK Points will not be traded or exchanged until we receive relevant official regulatory
authorization in Japan, and currently can only be used for conversion into LINE Points. As of the
date of this annual report, we consider our transaction volume associated with LINK to be
immaterial to our business.
• Others. We plan to continue to devote additional resources to developing our blockchain-related
technologies and exploring blockchain-related business opportunities. For example, we established
LINE Blockchain Lab in April 2018 to foster a dedicated team of engineers and researchers to
develop blockchain-related technologies and services that implement such technologies.
e-commerce
•
LINE SHOPPING. Accessible within the LINE messaging application, LINE SHOPPING is our
comprehensive online shopping gateway that we operate in association with leading online retailers
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in Japan. Through LINE SHOPPING, users are able to search for products using various filters,
compare the products that are available on each participating retailer’s website in a consistent
format, and then click through to the applicable retailer’s website for purchases. A wide range of
products are offered on LINE SHOPPING,
including fashion, sporting goods, home decor,
electronics, cosmetics and general goods. Users receive a portion of the purchase price back in
LINE Points, which can be used to purchase Stickers and other items offered on our platform. We
receive a commission based on the purchase price for sales that originate from LINE SHOPPING.
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LINE Delima. LINE Delima is our food delivery service available in Japan that enables our users
to conveniently order from a wide range of gourmet options through the LINE messaging
application. We operate the LINE Delima service in collaboration with Yume no Machi Souzou
Iinkai Co., Ltd., a company in which we hold a 21.9% interest that operates the leading nationwide
delivery portal site Demae-Can. See “— Our Investments — Investments by LINE Corporation —
Yume no Machi Souzou Iinkai Co., Ltd.”
LINE TRAVEL jp. LINE TRAVEL jp is our one-stop travel metasearch service that allows our
users to search for, compare and book domestic and overseas hotels, flights and package tours on
the LINE platform. We operate the LINE TRAVEL jp service in collaboration with Venture
Republic Inc. (“Venture Republic”), a company in which we hold a 34.0% interest that operates a
leading online travel metasearch and media outlet
in Japan. See “— Our Investments —
Investments by LINE Corporation — Venture Republic Inc.”
LINE MAN. LINE MAN is our on-demand assistant service that provides a variety of services to
our users in Thailand, including food delivery, taxi service and postal and messenger services.
Our Investments
From time to time, we selectively invest in other companies and service providers to further develop
existing services on our LINE platform, to launch new services on our LINE platform and to explore possible
synergies, especially for services that have gained popularity in markets where we see growth potential for our
LINE platform. For further information on our investments in associates and joint ventures, see Note 31 of the
notes to our annual consolidated financial statements. We make such investments in a variety of ways, including
direct acquisitions of equity interests, creation of joint ventures and investments in third-party venture capital and
private equity funds. Notable investments in recent years made by us and LINE Financial, our wholly-owned
subsidiary focused on investing in fintech businesses, include:
Investments by LINE Corporation
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Yume no Machi Souzou Iinkai Co., Ltd. In October 2016, we acquired a 21.9% interest in Yume
no Machi Souzou Iinkai Co., Ltd., operator of a leading nationwide delivery portal site Demae-Can
that collaborates with us on our operation of LINE Delima food delivery service.
Snow Corporation. In October 2016, we acquired a 25.0% interest in Snow Corporation, a
subsidiary of NAVER Corporation and developer and operator of the selfie app SNOW. In May
2017, we transferred our camera application business, including B612 and LINE Camera, which
was operated by our wholly-owned subsidiary LINE Plus Corporation, to Snow Corporation to
pursue further synergies. In exchange for such transfer, LINE Plus Corporation received newly
issued common shares of Snow Corporation, after which our interest
in Snow Corporation
increased to 48.6%. Currently, LINE Corporation and LINE Plus Corporation together own an
aggregate 34.0% interest in Snow Corporation and the remaining interest is owned by NAVER
Corporation.
•
LINE MOBILE Corporation. In March 2018, in order to expand our MVNO business provided
by LINE MOBILE, we entered into a partnership agreement with SoftBank Corporation
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(“SoftBank”), pursuant to which our interest in LINE MOBILE decreased from 100.0% to 49.0% in
April 2018, with SoftBank holding the remaining interest. This resulted in LINE MOBILE being
accounted for as an associate under the equity method rather than as a consolidated subsidiary.
FOLIO Co., Ltd. In January 2018, we entered into a capital alliance partnership with FOLIO,
pursuant to which we acquired a 41.4% interest in FOLIO on a fully-diluted basis, assuming that all
stock options provided by FOLIO to its employees have been vested and exercised. FOLIO
provides, starting in October 2018, investment management-related services on LINE Smart Invest,
accessible through the LINE platform.
Venture Republic Inc. In August 2018, we entered into an alliance with Venture Republic, the
operator of a leading online travel metasearch and media outlet in Japan, pursuant to which we
acquired a 34.0% ownership interest in Venture Republic. We collaborate with Venture Republic to
operate LINE TRAVEL jp, our one-stop travel metasearch service.
LINE Games Corporation. In November 2018, in order to secure funds needed to invest further in
game development and platform expansion, we raised W125 billion in a capital increase through a
third-party allotment of new shares issued by LINE Games Corporation to Lungo Entertainment
Ltd. (“Lungo”), a special-purpose entity established by the global investment firm Anchor Equity
Partners (Asia) Limited, subsequent to which our interest in LINE Games Corporation decreased
from 73.5% to 49.5%. This resulted in LINE Games Corporation being accounted for as an
associate under the equity method rather than as a consolidated subsidiary.
Investments by LINE Financial
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LINE Securities. In May 2018, LINE Corporation and LINE Financial entered into a joint venture
agreement with Nomura and established LINE Securities Preparatory Corporation (“LINE
Securities”) to offer online securities brokerage and securities investment consultation services on
the LINE platform. LINE Financial holds a 51.0% interest in LINE Securities, with Nomura
holding the remainder of the interest in LINE Securities. LINE Securities will begin operations
once it has obtained the necessary regulatory approval.
LINE Credit. In order to offer an easily-accessible and reliable source of consumer finance to our
users through the LINE platform, we established LINE Credit Corporation (“LINE Credit”) in
May 2018. In November 2018, LINE Financial, Mizuho Bank (“Mizuho”) and Orient Corporation
agreed to participate in a third-party allotment of new shares issued by LINE Credit, with the
resulting shareholding ratio to be 51.0%, 34.0% and 15.0%, respectively. LINE Credit is currently
preparing for the launch of LINE Score, a personal credit scoring service, and LINE Pocket Money,
a personal unsecured loan service that would determine the terms of a user’s loan based on such
user’s credit score generated by LINE Score, within 2019.
LINE Bank. LINE Financial has entered into several alliances with reputable banks to examine
various ways to operate optimized partnership-based digital banking platforms in our major
markets, outlined below:
•
Japan. In November 2018, LINE Financial and Mizuho agreed to establish a bank preparatory
company in Japan through a joint venture. It is currently anticipated that LINE Financial will
own 51.0% of the joint venture, with Mizuho holding the remainder of the interest in the joint
venture. Through the bank preparatory company, we plan to obtain the regulatory approvals
and licenses required to engage in the online banking business in Japan.
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Taiwan. The Preparatory Office of LINE Financial Taiwan Limited (”LINE Bank Prep Office”)
applied for an internet-only banking license from Taiwan’s Financial Supervisory Commission
in February 2019. LINE Bank Prep Office consists of LINE Financial Taiwan Limited (“LINE
Financial Taiwan”), a wholly-owned subsidiary of LINE Financial Asia, and six partners, four
of which are banks (CTBC Bank Co., Ltd., Standard Chartered Bank (Taiwan) Ltd., Taipei
Fubon Commercial Bank and Union Bank of Taiwan)
and two of which are
telecommunications companies (Far EasTone Telecommunications Co., Ltd. and Taiwan
Mobile Co., Ltd.). It is currently expected that the bank, if established, will be 49.9% owned by
LINE Financial Taiwan, 40.1% owned by the four banks and the remaining 10.0% owned by
the two telecommunications companies.
Thailand. In December 2018, LINE Financial Asia established a joint venture with Kasikorn
Vision Company Limited of Thailand, in which LINE Financial Asia holds a 49.99% interest,
to launch a mobile banking application that would allow users to transfer funds and apply for
personal loans on the LINE platform.
Indonesia. We are in the process of completing the acquisition of a 20.0% ownership interest in
PT Bank KEB Hana Indonesia (“KEB Hana Indonesia”) through LINE Financial Asia
Corporation Limited (“LINE Financial Asia”), a wholly-owned subsidiary of LINE Financial.
Through this alliance, we plan to offer deposit and microcredit products and a variety of other
online banking services in Indonesia.
Payment Mechanism for Our Users
Users of LINE and other applications offered on the LINE platform purchase products such as Stickers,
in-game items or other in-app items primarily through the payment processing systems established by Apple App
Store for iOS-based smartphones and Google Play for Android-based smartphones, for which such payment
processing systems charge transaction fees based on a fixed percentage of the price paid by users. In addition,
users of iOS- and Android-based smartphones may use LINE Coins as virtual credits for purchase of products
and services on the LINE platform. Users may acquire LINE Coins, either by purchasing LINE Coins through
their respective payment systems or converting their LINE Points into LINE Coins. We supplement such
payment options with LINE Store, our web store accessible from mobile devices and personal computers, where
users in select countries have the option to pay with prepaid cards or credit cards or through direct mobile billing
that adds the purchase amount to their monthly phone bill. As part of our efforts to diversify payment options
available for LINE users, we launched LINE Pay, our mobile payment service application, in December 2014.
Building and Maintaining User Trust
We strive to create products and services that are safe, secure and easy to use. We dedicate significant
resources to the goal of building user trust through developing and implementing programs designed to protect
user privacy, promote a safe online environment and assure the security of user data.
Privacy and Sharing
People come to LINE to communicate and share their experience with friends. Protecting user privacy is
a critical consideration in our product and service development process. Our objective is to give users control
over what they share and with whom they share. Our efforts regarding user privacy are fundamental to our
business and are focused on assuring control, transparency and accountability as follows:
•
Control. We believe that by providing our users with clear and easy-to-use controls, we will
continue to promote trust in our products and services. We have introduced various personal
information control tools and techniques. For example, a user can choose whether other users can
search for his or her account and select the scope of the audience for his or her Timeline postings.
48
Transparency. Our privacy policy relates to our data use practices and privacy features. We also
offer a number of tools and features that make disclosure to users on how their information is used
on the LINE platform. Our application settings feature enables users to view each of the
applications they have chosen to use, the information generally needed by each application, and the
audience with whom users have chosen to share their experiences. We believe that our transparency
efforts enable users to make more informed decisions about their activities on the LINE platform.
Accountability. We have implemented procedural safeguards as part of our privacy program.
These include employing a dedicated team of privacy professionals who are involved in product
development from design through launch, conducting ongoing review and monitoring of the way
data is handled by existing features and applications and implementing systemic data security
practices.
•
•
Safety
We generally design our products and services to include safety tools. To communicate directly with
other LINE users, each user has the option to register a “LINE ID” to allow other users to find such user through
a LINE ID search. Each user may choose whether his or her account is visible to other users’ LINE ID searches.
We also cooperate regularly with mobile network providers and educators as well as law enforcement officers to
promote proper and legal use of the LINE platform.
Security
We invest in technology, processes and people as part of our commitment to safeguarding our users’
personal information. We use both third-party developed and proprietary technologies to protect our users,
including an intrusion detection system to protect the data entrusted to us, and we rely on multiple layers of
network segregation using firewalls to protect against attacks or unauthorized access. Our security team actively
scans for security vulnerabilities using commercial tools, penetration tests, code security reviews and internal and
external audits. Our internal policy is to implement protective measures to safeguard user information, and we
have acquired international certifications in both information security and privacy. Upon the occurrence of a
cyber-attack or unauthorized access, we take remedial measures to prevent the recurrence of such incidents in the
future by collecting and analyzing threat
intelligence related to the incident, enhancing authentication
mechanisms and access controls on our servers, and developing and deploying additional malware detection and
prevention systems.
Marketing and Sales
The LINE user community has grown with users inviting their personal contacts to connect with them,
supported by our internal efforts to stimulate user awareness and interest, such as advertising and marketing
campaigns on television and the internet. As we seek to increase our global footprint, we engage in active
advertising and promotional campaigns to build our brand and further expand our user base.
We utilize television commercials and internet and mobile advertising as well as product placements in
television shows as our primary advertising channels, and we continually assess the effectiveness of such
channels to ensure that we utilize the most suitable channel for each of the various types of products and services
we aim to promote. For example, we have focused our advertising efforts in recent years on publicizing our new
products and services or major updates to our existing products or services, with a particular focus on our LINE
Pay service. Our marketing expenses were ¥11,833 million in 2016, ¥15,477 million in 2017 and ¥20,311 million
in 2018, excluding personnel-related costs of our marketing staff. While we believe that our ability to grow
through network effects associated with the LINE platform will be fundamental to our growth in global markets,
we expect to continue to invest significantly in marketing and promotional activities to further promote such
growth.
49
We also focus on attracting and retaining advertisers. In Japan, we operate a dedicated sales force
focused on providing support to advertisers throughout the stages of the advertising campaign cycle, from
pre-purchase decision making to post-campaign analytics. Our direct sales activities are supplemented by third-
party agencies that primarily assist with attracting large businesses that may be interested in creating Official
Accounts, as well as application developers that may be interested in marketing their applications. We also invest
in customer support for our users, platform partners and advertisers, and we regularly host conferences and other
events to promote our products and services to platform partners and advertisers.
Technology
We have assembled a team of highly skilled engineers and computer scientists whose expertise spans a
broad range of technical areas. We have made significant investments in scalable infrastructure to support large-
scale, real-time messaging systems, data management and analytics technologies, advertising technology, game
development and publishing technologies and voice and video call quality solutions. In recent years, we have
invested significant time and resources in developing and strengthening our capabilities in fintech, AI and
blockchain technology.
Scalable Infrastructure to Support Large-Scale Systems
Our products and services are built on distributed computing architecture. We use a combination of
off-the-shelf and custom software running on clusters of commodity computers to amass substantial computing
capability. We intend to continue to develop server infrastructure that is operationally efficient, scalable and
reliable, which is designed to do the following:
•
•
•
adapt to meet the needs from increasing user base growth and activities on our platform through
decentralized data networks;
improve the functionality of servers through automated server management technology, thereby
reducing cost and improving operational agility;
automatically detect and respond to errors in our infrastructure components, including application
servers, storage infrastructure and system networks; and
• maintain reliable redundant systems for our infrastructure components in Japan and abroad to
reduce the possibility of service interruptions.
Our infrastructure enables the storage and processing of large datasets and deployment of our products
and services to our users on a global basis. As our user base grows and the level of engagement and activities on
our platform continues to increase in tandem with our introduction of new products and services, we will
continue to expand our computing infrastructure to sustain and further improve our operating efficiency and to
provide our products and services quickly and reliably to all users around the world. Our core messaging system
enables real-time processing of a large amount of user traffic and serves as the basis for our LINE platform
operations. Likewise, our scalable server infrastructure allows us to quickly ramp up capacity as we launch new
products and services, including those that deploy increasingly sophisticated functionalities, such as our new
fintech-related applications.
50
Data Management and Analytics Technologies
In order to provide each user with a personalized LINE experience, we process and analyze a vast and
growing amount of content shared by our users, developers and advertisers. Accordingly, we have invested in
developing technologies and analytics in areas including the following:
•
•
•
•
a storage infrastructure that enables us to securely store hundreds of petabytes of data generated by
our users;
increased storage capacity for more efficient data distribution;
a high-volume business intelligence system that enables large scale data analysis; and
a data warehouse infrastructure that provides tools to enable easy data summarization, ad hoc
querying and analysis of large datasets.
Advertising Technology
We offer advertisers a powerful medium through which they can reach our large user base in a targeted
manner using our array of advertising products and services. Our advertising technology enables millions of
relevant, targeted advertisements to be viewed simultaneously based on content a user views on our platforms.
The key elements of our advertising technology include:
•
•
•
•
a scalable online training and prediction system that provides well-calibrated click-through rate
prediction to our auction system, which allows the most relevant advertisements to be viewed by a
large number of targeted users in real time;
a large-scale data management and analytics system that extracts hidden elements of advertisement
performance from large volumes of relevant data;
contextual advertising technology that employs techniques to analyze the content of individual
pages and match advertisements to them, while taking into account factors such as optimal ad
creatives and quality of landing pages; and
an advertiser-friendly system that provides key optimization techniques that better analyze user
preferences and content consumption patterns that enable advertisers to provide more personalized
advertisements and effectively manage their advertising budgets to generate a higher return on their
investment.
Voice and Video Call Quality Solutions
We believe that audio and video quality is critical to the enjoyment of the LINE experience, and we
have made significant engineering and development efforts to improve our audio and video quality. Key areas of
our investments include the following:
•
•
proprietary audio and video communications technology that can reliably process millions of calls
on a daily basis and group calls of up to 200 people at a time; and
high performance codec and data transmission technologies and routing algorithms to improve
overall call quality and user experience.
51
Game Development and Publishing Technologies
In order to continue to develop and publish successful games, we have invested in developing
technologies designed to allow us to monetize games through in-game purchases, while providing players with
an exciting experience. Areas of investment include:
•
•
ability to conduct large-scale user data analysis during game play; and
client/server technology designed to allow simultaneous, secure, fast and stable game play by users
around the world.
AI Technology
In March 2017, we launched LINE Clova, a next-generation AI platform designed to enrich our users’
daily lives by integrating a wide array of advanced technologies based on human senses, such as voice
recognition, artificial neural network and interactive engine systems. We believe that the creation of a one-stop
LINE Clova ecosystem will provide a solid foundation for the delivery of our products and services in the
foreseeable future. Accordingly, we plan to continue to expend significant time and resources in strengthening
our capabilities in AI. Key areas of our investments include the following:
•
•
•
expansion of partnerships and alliances with third-party developers, manufacturers and content
providers to develop additional services to be offered on the LINE Clova ecosystem;
improving the functionalities of LINE Clova-integrated smart speakers and other AI-based systems
and devices to allow for a more seamless and innovative interaction between us and our users; and
research and development focused on next-generation AI capabilities, such as the development of a
personalization engine that understands our users’ tastes and preferences for various contents based
on their activity logs and automatically supplies them with services tailored to their needs.
Blockchain Technology
In August 2018, we launched LINK, the base digital token for our blockchain ecosystem, and we are
currently in the process of developing and launching a variety of dApps to be offered in our blockchain
ecosystem. The operation of our blockchain ecosystem, built upon the circulation of LINK as the main currency,
is powered by LINK Chain, our own brand of blockchain infrastructure that consists of decentralized, distributed
digital ledgers of economic transactions made in cryptocurrencies and maintained on a peer-to-peer network. We
believe that LINK Chain, given its resistance to manipulation of data and other technological benefits, provides a
solid foundation for the growth of our blockchain ecosystem, and as such, plan to continue to expend a
significant amount of resources in strengthening our capabilities in blockchain-related technologies. Key areas of
our investments include the following:
•
•
•
expansion of partnerships and alliances with other players in the blockchain industry to adopt
including core consensus
existing technologies and research new blockchain technologies,
algorithms, virtual machines and smart contracts;
improving performance and scalability of LINK Chain through the development of an inter-chain
protocol that connects multiple blockchains in order to secure enough capacity for an increasing
number of participants in our blockchain ecosystem; and
enhancements to our development framework, a one-stop development toolkit and a programming
interface with a complete set of wallets, dashboards and other administrative tools, which enables
service operators in our blockchain ecosystem to seamlessly adopt blockchain technology into their
services.
52
Competition
We compete against various companies to attract and engage users, some of which have greater
financial resources and substantially larger user bases. We face direct competition from other mobile messaging
service providers such as Facebook’s WhatsApp and Messenger and Tencent’s WeChat, as well as mobile
messaging services for specific operating platforms such as Apple’s iMessage. We also face significant
competition in almost every aspect of our business, including from companies such as Facebook, Google, Twitter
and Yahoo Japan.
We face competition from mobile telecommunications companies, game companies, music and video
streaming companies, mobile payment companies, fintech companies, AI companies, e-commerce companies
and other internet-related companies that offer products and services that may compete with specific features of
the LINE messaging service or other applications that we offer. We also compete with traditional and online
media businesses for a share of advertisers’ budgets and in the development of tools and systems for managing
and optimizing advertising campaigns. As we introduce new products and our existing products evolve, or as
other companies introduce new products and services, we may become subject to additional competition.
The key areas in which we compete include:
•
•
•
Users and User Engagement. We compete to attract and retain users. We believe that our ability to
compete effectively for users depends on many factors,
including the utility, ease of use,
performance and reliability of our products and services; price; the amount, quality and timeliness
of content generated by our users; our ability to establish and maintain relationships with platform
partners; and our reputation and the strength of our brand. We also compete to attract and retain
developers to build compelling games and other applications offered on the LINE platform,
primarily based on size and composition of our user base, and our ability to drive traffic to
developers’ applications.
Advertising. A significant portion of our revenue is generated from the sale of advertising services,
and we face significant competition for advertiser spending. We believe that our ability to compete
effectively for advertiser spending depends on many factors, including the size and composition of
our user base; the effectiveness of our advertising targeting capabilities; the timing and market
acceptance of our advertising services; our marketing and selling efforts; and the return our
advertisers expect to receive from our advertising services.
Personnel. We experience significant competition for highly skilled personnel, including senior
management, engineers, designers, product managers and professionals with expertise in the
fintech, AI and blockchain technology domains. Our growth strategy depends in part on our ability
to retain our existing personnel and recruit highly skilled employees. Competition for highly skilled
personnel is intense, particularly in Japan where our headquarters is located, and we compete for
qualified personnel with online and mobile businesses, other companies in the technology industry
and traditional media businesses. We believe that our ability to compete effectively for highly
that encourages
skilled personnel depends on many factors,
independence, creativity and innovation; opportunities to work on challenging, meaningful and
important products; and compensation.
including a work environment
Regulation
We are subject to a number of Japanese and other foreign laws and regulations that affect companies
conducting business on the internet, many of which are still evolving and being, or have not yet been, tested in
courts, and could be interpreted in ways that could harm our business. These may involve user privacy, rights of
publicity, data protection, telecommunications, liability of providers of online services for activities of their users
53
and other third parties, content, intellectual property, distribution, electronic contracts and other communications,
competition, protection of minors, consumer protection, taxation and online payment services. Because our
services are accessible worldwide in a variety of countries, certain jurisdictions may claim that we are required to
comply with their laws, including even jurisdictions where we have no local entity, employees or infrastructure.
Regulations regarding Privacy and Protection of Personal Information and User Data
We are subject to laws and regulations, as well as pending legislative and regulatory proposals,
information, which could affect us in many
regarding privacy and protection of user data and personal
jurisdictions throughout the world. The application and interpretation of these and other similar international
laws and regulations concerning data protection and personal information is often uncertain, particularly in the
new and rapidly evolving industry in which we operate, and in certain countries where the scope and
interpretation of such laws and their application to the internet is in a state of flux. There is a risk that such laws
may be interpreted and applied in conflicting ways in different states, countries, or regions, and in a manner that
is not consistent with our current data protection practices. There also may be limited precedent in certain
jurisdictions with regard to enforcement or interpretation of these laws.
In Japan, the Act on the Protection of Personal Information and its related guidelines impose various
requirements on businesses, including us, that use databases containing personal information. Under this Act, we
are required to lawfully use personal information we have obtained within the purpose of use we have specified
and take appropriate measures to maintain security of such information. We are also restricted from providing
personal information to third parties. An amendment to this Act was put into full effect on May 30, 2017. This
amendment includes establishment of a new regulatory authority and introduction of new regulation on handling
of anonymous personal data and transfer of personal information to foreign countries.
Privacy Policies
We post a privacy policy and terms of service with our applications, in which we describe our practices
concerning the use, processing and disclosure of user data. Any failure by us to comply with our posted privacy
policy or privacy related laws and regulations could result in proceedings against us by governmental authorities
or others, which could harm our business. Our compliance with our privacy policy may be subject to regulation
by governmental agencies in various jurisdictions. For example, the U.S. Federal Trade Commission may bring
enforcement actions against unfair and deceptive trade practices, including the violation of privacy policies, and
European authorities may take actions against violations of privacy policies as well.
Regulations of Telecommunications and Portal Businesses
The Telecommunications Business Act of Japan (the “Telecommunications Business Act”) generally
requires that those who plan to provide telecommunications services be registered as telecommunications
business operators. However, as long as the scale of the telecommunications circuit facilities to be installed for
the telecommunication services and the scope of service area to be covered do not exceed certain thresholds set
forth in an ordinance of the Ministry of Internal Affairs and Communications of Japan, or fall within a certain
category of radio facilities, submission of a notice to the Minister of Internal Affairs and Communications of
Japan, rather than registration, is required. We believe that our facilities and services do not exceed such
thresholds, and we are subject to notification requirements. Although it is not expressly clear, we believe that our
telecommunications service related to LINE Out is not subject to the Telecommunications Business Act since it
is provided by LINE Plus Corporation, an overseas entity.
As a telecommunications business operator, we are prohibited from acquiring, using without permission,
or leaking private communications (including, but not limited to, the contents of communications, the dates and
telephone numbers and IP addresses). The
places of
Telecommunications Business Act also requires a telecommunications business operator to, among other things,
the names and addresses,
the communications,
54
provide its service in a fair manner and, in certain emergency situations such as a natural disaster, prioritize
important public communications. If, among other things, the acquisition, use without permission or leakage of
private communications occurs or is not appropriately prevented in connection with the operation of the
telecommunications business, a telecommunications business operator does not satisfy the foregoing
requirements, or its business operation is otherwise inappropriate or unreasonable, such telecommunications
business operator may be subjected to administrative or criminal sanctions.
The Provider Liability Limitation Act of Japan regulates a provider of communications services (the
“specified communications services provider”) that circulates electronic information publicly through the
internet, and our portal services are subject to such regulations. While this act limits the scope of liability of a
specified telecommunications services provider that will be incurred when anyone’s rights are infringed upon as
a result of the circulation of electronic information in connection with its communications services, it requires a
specified communications services provider to disclose certain information related to those who engage in such
infringement.
Payment Services Regulations
The Payment Services Act regulates prepaid payment instruments such as the prepaid cards and virtual
currencies that we sell in Japan. Because we issue such prepaid instruments, we must comply with certain
requirements, including an obligation to deposit or enter into certain guarantee or trust agreements for at least
50% of the total amount of unused amounts or credits represented by the instruments issued as of the end of
either the first or third quarter of any year, if such total amount is more than ¥10 million; an obligation to refund
any remaining amount of money or virtual currencies issued, after providing at least 60 days’ prior public notice,
if we stop selling prepaid cards or virtual currencies, and general restrictions on refunds in other situations; and
an obligation to secure any private information obtained in connection with our prepaid cards and virtual
currencies. We may be subjected to administrative or criminal sanctions if we fail to fulfill such obligations.
We must also register with the director of the competent local finance bureau of the Ministry of Finance
if our prepaid payment instruments can be used to purchase goods or services that are offered not only by
ourselves or other closely related parties, including our affiliates, but also by third parties. We issue such
instruments, and we are registered with the Director of the KLFB. The Director is authorized to issue a business
improvement order or business suspension order, or cancel our registration if we fail to comply with such
regulations.
The Payment Services Act also regulates funds transfer services. As our service allows our users to
remit funds to each other or withdraw or deposit cash at convenience stores, ATMs or through internet banking,
in each case up to ¥1 million, by linking their accounts at select banks, we are required to register and have
registered with the Director of the KLFB. We must also comply with certain other requirements, including an
obligation to deposit or enter into certain credit guarantee or trust agreements for the greater of ¥10 million or the
full amount of our outstanding obligations as service provider payable to transferees in Japan plus the costs
associated with exercise of their rights as creditors of our funds transfer service. The Director of the KLFB is
authorized to issue a business improvement order, a business suspension order or cancel our registration if we fail
to comply with such regulations.
As a result of a recent amendment to the Banking Act of Japan (the “Banking Act”), providers of
Electronic Settlement Services (as defined under the Banking Act) are subject to the Banking Act starting on
June 1, 2018. Any business operator which, upon entrustment from customers (such as depositors), acquires
information from banks concerning deposit accounts and provides such information to customers through an
application programming interface (“API”) provided by such banks needs to be registered with the competent
local finance bureau of the Ministry of Finance as an Electronic Settlement Agent (as defined under the Banking
Act). We are registered as an Electronic Settlement Agent in connection with our LINE Kakeibo service. An
Electronic Settlement Agent is also required to enter into contracts with banks in connection with the use of APIs
55
by no later than May 31, 2020. Such contracts must include, among others, provisions relating to the allocation of
liability for any loss or damage that may arise in connection with Electronic Settlement Services. Furthermore, an
Electronic Settlement Agent is required to provide its customers with certain important information relating to
the applicable Electronic Settlement Service, including policies regarding compensation for loss or damage
suffered by customers. The FSA has the authority to issue a business improvement order or a business suspension
order, or cancel our registration if we fail to comply with such regulations.
Various laws and regulations in the United States, such as the Bank Secrecy Act, the Dodd-Frank Act,
the USA Patriot Act, and the Credit Card Act, impose certain anti-money laundering requirements on companies
that are financial institutions or that provide financial products and services. Under these laws and regulations,
financial institutions are broadly defined to include money services businesses such as money transmitters, check
cashers, and sellers or issuers of stored value. Requirements imposed on financial institutions under these laws
include customer identification and verification programs, record retention policies and procedures and
transaction reporting. We do not believe that we are a financial institution subject to these laws and regulations.
However, it is possible that payments and other transactions on the LINE platform could deem us a financial
institution subject to applicable U.S., state or foreign regulations.
Regulations on Advertising
The Premiums and Representations Act of Japan stipulates the restricted methods and means of various
advertisements, representations and sales promotions, in a broad sense. When we advertise our products or
services, such as games, on the internet, we must provide appropriate information under this Act, so as not to
mislead our users.
In addition, regulations promulgated under the Premiums and Representations Act of Japan prohibit the
inclusion in our games of certain mechanisms that are considered to excessively promote in-game purchases.
These mechanisms typically feature a system in which users may pay for the chance to win an in-game item by
random selection from different items, with certain combinations of items won providing users with special
premium in-game items.
Regulations to Protect Minors
The Act on Establishment of Enhanced Environment for Youths’ Safe and Secure Internet Use of Japan
(the “specified server
regulates an administrator of servers publicly accessible through the internet
administrator”), aiming to protect youths under the age of eighteen. Under this act, if the specified server
administrator learns of any situation where harmful information that materially impairs the sound growth of
youths has been provided, or it makes such information available to the public through the internet by the use of
it will be required to make efforts to take measures to prevent youths from accessing such
its servers,
information. The specified server administrator is also required to make efforts to establish a system to receive
information or inquiries from the public regarding any harmful information it sends, and to prepare and keep
records of any measures that it has taken to prevent underage access to harmful information.
The Act on Regulation on Soliciting Children by Using Opposite Sex Introducing Service on Internet of
Japan requires that those who operate an opposite sex introduction service through the internet submit a
notification to the Public Safety Commission, and strive to take certain actions to prevent sexual offenses against
children conducted through an opposite sex introduction service through the internet. Although we believe that
none of our products or services fall within the definition of an “opposite sex introduction service,” it is not
expressly clear whether our interpretation is correct. In the event that any regulatory authority or court adopts a
different interpretation, we may become subject to the regulations applicable to opposite sex introduction
services under this Act, including the administrative or criminal sanctions thereunder.
56
Regulations on Money Lending Businesses
The Money Lending Business Act of Japan (the “Money Lending Act”) governs the operation of money
lending businesses. In accordance with the Money Lending Act, and in preparation for the launch of LINE
Pocket Money, our loan service, we have registered as a Money Lender (as defined under the Money Lending
Act) with the KLFB in December 2018, and are currently subject to certain strict regulations that govern money
lending operations. We are supervised by the FSA, which has the authority to review our operations and inspect
our records in order to monitor our compliance with the relevant regulations. The FSA is authorized to issue a
business improvement order or a business suspension order, or cancel our registration if we fail to comply with
the Money Lending Act.
The Money Lending Act requires registered Money Lenders to provide borrowers (and any guarantors)
with a written notice of, or an electronic communication containing (subject to the borrowers’ prior consent), the
following: (a) the terms and conditions of the loan at the time of, or promptly after, the execution of the loan
agreement or any guarantee agreement; and (b) repayment amounts received and the application of those
amounts to the principal and interest owed, as well as the customer’s remaining balance, at the time of each
repayment. In addition, prior to issuing a loan, registered Money Lenders are required to evaluate, using
information available from designated third-party information providers, the borrowers’ ability to repay the
principal and interest amounts of the loans. Lending by registered Money Lenders is generally prohibited if an
individual borrower’s aggregate amount of outstanding loans from all registered Money Lenders after the
extension of an additional loan will exceed one-third of such borrower’s annual income.
Regulations on Financial Instruments Intermediary Businesses
The FIEA governs, and the FSA regulates, the financial instruments intermediary business, such as
LINE Smart Invest, our investment management-related service that allows our users to engage in investment
services offered by FOLIO, an online investment management company. Such business is conducted solely under
entrustment by FOLIO, which is licensed as a financial instruments business operator, and our activities are
performed on behalf of FOLIO. Our scope of business is limited to intermediary services and does not extend to
brokerage or agency services. In addition, with regard to our financial instruments intermediary service, we are
prohibited from receiving deposits of money or securities from customers. The FSA is authorized to require us to
file certain reports, and may issue a business improvement order or business suspension order, or cancel our
registration if we fail to comply with the relevant regulations.
Regulations on Solicitation Regarding Insurance Policies
Under the Insurance Business Act of Japan (the “Insurance Act”), non-life insurance solicitors,
including sales representatives, must be registered with the director of the relevant local finance bureau of the
Ministry of Finance. In order to operate LINE Insurance, our non-life insurance service based on an alliance
between LINE Financial and Sompo Japan, LINE Financial has registered with the Director of the KLFB. The
Insurance Act prohibits certain solicitation activities or omissions, such as the provision of false notice or
non-disclosure of important matters, and we are required to (i) ascertain the customer’s needs and propose
insurance products that are in line with such customer’s needs and (ii) provide customers with information on
insurance products and other necessary information during the process of insurance solicitation. The Director of
the KLFB is authorized to issue a business improvement order or a business suspension order, or cancel our
registration if we fail to comply with such regulations.
57
Item 4.C. Organizational Structure
The following table sets out the jurisdiction of incorporation and our ownership interests of our
significant subsidiaries as of December 31, 2018:
Name
Jurisdiction of
Incorporation
Percentage of
Ownership
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FIVE Inc.
Gatebox Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE Digital Frontier Corporation . . . . . . . . . . . . . . . . . . . . . . . .
LINE Financial Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE Fukuoka Corp.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE GAME Global Gateway, L.P. . . . . . . . . . . . . . . . . . . . . . . .
LINE Part-Time Job, Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE Pay Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE Ventures Global Limited Liability Partnership . . . . . . . . .
LINE Ventures Japan Limited Liability Partnership . . . . . . . . . .
LVC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M.T.Burn Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LFG HOLDINGS LIMITED . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hong Kong
LINE Financial Asia Corporation Limited . . . . . . . . . . . . . . . . . . Hong Kong
LINE Biz Plus Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea
LINE C&I Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea
LINE Friends Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea
LINE Plus Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea
NemusTech Co., Ltd.
Unblock Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Korea
LINE SOUTHEAST ASIA CORP. PTE. LTD. . . . . . . . . . . . . . . Singapore
Line Biz+ Taiwan Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taiwan
LINE Taiwan Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taiwan
LINE Company (Thailand) Limited . . . . . . . . . . . . . . . . . . . . . . . Thailand
LINE VIETNAM JOINT STOCK COMPANY . . . . . . . . . . . . . . Vietnam
100.0%
51.0%
70.0%
100.0%
100.0%
100.0%
60.0%
100.0%
100.0%
100.0%
100.0%
50.5%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
94.2%
100.0%
100.0%
70.0%
100.0%
50.0%
98.8%
For further details on our subsidiaries, see Note 30 of the notes to our annual consolidated financial
statements.
Item 4.D. Property, Plants and Equipment
As of December 31, 2018, we had ¥24,726 million of property and equipment, which primarily
consisted of our servers and networking equipment, and leased office facilities in Japan and other countries,
including approximately 19,799 square meters for our corporate headquarters in Tokyo, Japan. In April 2017, we
relocated our head offices to a new location in Shinjuku, Tokyo, pursuant to a lease agreement.
Item 4A. Unresolved Staff Comments
We do not have any unresolved comments from the SEC staff regarding our periodic reports under the
Exchange Act.
58
Item 5.
Operating and Financial Review and Prospects
Item 5.A. Operating Results
Overview
We are a leading global platform for mobile messaging and communication services, content
distribution and life and financial services. Our mobile messaging application, which is the foundation of our
“messaging services” and operates on all major mobile operating systems, enables our users to communicate
through free instant messaging, Stickers and voice and video calls and serves as a smart portal to our other
applications and services. We provide users with access to a wide range of social and creative content and
services that satisfy our users’ individual needs for access to information and entertainment such as mobile
games and music through our “content services,” as well as connected solutions that aim to satisfy increasingly
sophisticated day-to-day needs of LINE users and further enhance their life and financial welfare, including
fintech services such as mobile payment and other financial services offered on the LINE platform, through our
“life and financial services.” We believe that the integration on our LINE platform of content and services offers
our users a convenient way to connect and have fun with their family and friends, explore and share their
interests and satisfy their daily needs with greater ease, which we believe enriches the user experience and
ultimately contributes to higher user loyalty, while creating value for advertisers by connecting them with their
target audience using the LINE platform.
We believe LINE is the leading mobile messaging application in Japan, Thailand and Taiwan in terms
of number of users, and we have obtained substantial numbers of users in other parts of Asia, including
Indonesia. We have achieved this growth through active marketing of LINE as well as customizing our content
offerings to suit local preferences and needs. We believe the scale and growth of our user base in many countries
provide us with powerful network effects, whereby LINE becomes more valuable with more users and creates
additional incentives for existing users to encourage new users to join and to stay connected to their circle of
friends. We benefit from such network effects where more activity on LINE leads to the creation and distribution
of more content, which in turn attracts more users, platform partners and advertisers. We will continue to invest
in new products and services and enhancements to our existing products and services, with the goal of further
expanding our user base and increasing user engagement.
We generate revenue in a variety of ways and from various participants active on our global platform.
Our revenues are primarily generated from our advertising products and services, LINE Games and Stickers.
While our revenue growth prior to 2016 has been led primarily by LINE Games and Stickers, our revenue growth
in 2016, 2017 and 2018 was primarily driven by our advertising products and services, particularly the growth of
our “display ads.” We generated revenues of ¥140,704 million in 2016, ¥167,147 million in 2017 and
¥207,182 million in 2018, representing revenue growth of 18.8% from 2016 to 2017 and 24.0% from 2017 to
2018.
Prior to and during our fiscal year ended December 31, 2017, we had a single reportable segment. On
January 31, 2018, our board of directors approved the establishment of two reportable segments, consisting of
our “core business” segment and our “strategic business” segment, in response to the expansion of our business
and evolution of our business strategy.
Our reportable segments currently consist of:
•
Our “core business” segment that includes:
•
“Advertising” consisting of (i) “display advertising” that utilizes our various communication
and content offerings, such as Timeline, LINE NEWS and LINE TODAY, (ii) “account
advertising” products and services such as Official Accounts, LINE@, Sponsored Stickers and
LINE Point Ads and (iii) “other advertising” products and services such as LINE Part-time Job,
livedoor and Matome; and
59
•
“Communication, content and others” consisting of (i) “communication” products and services
such as Stickers and Themes created by third parties and sold on LINE Creators Market as well
as Stickers and Themes created by us, (ii) “content” products and services such as LINE
Games, LINE PLAY, LINE Manga, LINE Music and LINE Fortune, and (iii) “others”
consisting of miscellaneous products and services.
•
Our “strategic business” segment that includes:
•
•
“LINE Friends” products and services mainly consisting of sales of LINE characters
merchandise; and
“Others” primarily consisting of fintech businesses (including LINE Pay and other financial
services delivered through the LINE platform), the LINE Clova AI platform, blockchain-
related initiatives and e-commerce. This segment also included LINE Mobile until April 2018,
when LINE MOBILE, the provider of MVNO services, started to be accounted for as an
associate under the equity method rather than as a consolidated subsidiary.
Factors Affecting Our Financial Condition and Results of Operations
Our financial condition and results of operations have been and will continue to be materially affected
by a number of factors and developments, some of which are outside of our control, including the following:
•
•
user growth;
user engagement;
• monetization;
•
products and services innovation;
• marketing and brand promotion;
•
•
•
competition;
investment in talent; and
seasonal fluctuations.
User Growth
MAUs are a measure of the size of our active user base. We define MAUs in a given month as the
number of user accounts that (i) accessed the LINE messaging application or any LINE Game 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.
MAUs for the months indicated were as follows:
Mar.
2016
Jun.
2016
Sep.
2016
Dec.
2016
Mar.
2017
Jun.
2017
Sep.
2017
Dec.
2017
Mar.
2018
Jun.
2018
Sep.
2018
Dec.
2018
For the month of
Japan . . . . . . . . . . . . . .
Thailand . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . .
Indonesia . . . . . . . . . . .
61
39
19
33
62
39
19
37
64
40
19
39
66
41
20
40
68
42
20
41
60
(in millions)
71
70
42
41
20
20
35
38
73
42
20
32
75
42
21
27
76
43
21
24
78
44
21
22
79
44
21
20
Changes in MAUs affect our revenues and financial performance by influencing the volume of
transactions on LINE, the number of advertisers we are able to attract and the rates we can charge such
advertisers, as well as our expenses. From our inception, we experienced our largest user growth in Japan,
Thailand, Taiwan and Indonesia. For example, our aggregate MAUs in Japan, Thailand and Taiwan were
127 million in December 2016, 135 million in December 2017 and 144 million in December 2018. Despite such
growth, the growth rate of our users in such markets has declined over time as we achieved higher penetration
rates in those markets. In Indonesia, we have experienced a decrease in the number of our MAUs starting in the
second quarter of 2017 primarily due to intensified competition in that market, and our MAUs in Indonesia were
40 million in December 2016, 32 million in December 2017 and 20 million in December 2018. We strive to
retain active users as well as pursue MAU growth in our key markets. For example, we try to incentivize
additional users to exchange messages and add more friends through promotional events, as well as broaden the
ways users can interact with their friends on our games and other content applications.
User Engagement
Changes in user engagement also affect our revenues and financial performance. Growth in user
engagement enhances our ability to deliver relevant content to users and increase the opportunities for us to
generate revenues. Growth in user engagement also generally results in increases in our expenses and capital
expenditures required to support user activity. Our average DAUs represented approximately 77% of our MAUs
in our four largest markets of Japan, Taiwan, Thailand and Indonesia in December 2018. Our average DAUs
represented approximately 85% of our MAUs in Japan alone, our largest market, in December 2018.
We measure user engagement of communication products and services using various metrics, including
daily average number of messages sent and received and daily average number of Stickers sent. While sending
and receiving messages is free, when sending messages, our users often include in their messages purchased
Stickers, which is our primary revenue source within our communication products offerings. In addition, these
metrics affect the attractiveness of our LINE advertising products and services as a medium for advertisers,
which in turn impacts our advertising revenue. These metrics have decreased in recent years due to a general
decline in our global MAUs. Such metrics for the months indicated were as follows:
Mar.
2016
Jun.
2016
Sep.
2016
Dec.
2016
Mar.
2017
Jun.
2017
Sep.
2017
Dec.
2017
Mar.
2018
Jun.
2018
Sep.
2018
Dec.
2018
For the month of
(in millions)
Daily average number
of messages sent. . . . 4,211 4,347 4,404 4,382 4,602 4,609 4,500 4,157 4,214 4,220 4,136 4,004
Daily average number
of messages
received . . . . . . . . . . 16,186 17,866 19,998 20,682 22,894 24,597 24,588 23,464 23,163 23,899 23,414 22,624
Daily average number
of Stickers sent
. . . .
389
397
384
407
441
433
413
381
403
411
389
374
We measure user engagement of LINE Games primarily using MAUs of LINE Games. While
downloading LINE Games is free, our active users often purchase in-game items to enhance their game
experience, which is a key revenue source for us. MAUs of LINE Games may fluctuate depending on the level of
popularity of our game titles at any given time, although MAUs of LINE Games have generally declined in
recent years in line with a decline in global MAUs. The MAUs of LINE Games for the months indicated were as
follows:
Mar.
2016
Jun.
2016
Sep.
2016
Dec.
2016
Mar.
2017
Jun.
2017
Sep.
2017
Dec.
2017
Mar.
2018
Jun.
2018
Sep.
2018
Dec.
2018
For the month of
(in millions)
MAUs of LINE
Games(1) . . . . . . . . . .
31
29
27
27
26
23
22
20
19
16
19
18
61
(1) Represents the number of user accounts that accessed any LINE Game through mobile devices at least once during the month indicated.
Monetization
Our ability to monetize the increase in our user base and our users’ engagement with LINE is critical to
our financial performance. We currently generate a substantial portion of our revenues from our advertising
products and services as well as LINE Games and Stickers. Our approach in each market is to build a large user
base through our LINE messaging application, promote user engagement and introduce and enhance
entertainment and other content and services, all of which lead to greater monetization opportunities and
enhanced media value for our advertising business. We plan to continue to invest in product development,
including localization of existing products and services for new markets, and explore ways to pursue additional
monetization opportunities.
MPUs are a measure of the number of our paying users, which we review to measure our ability to
monetize our user base. We define MPUs in a given month as the number of user accounts that made (i) a
payment for Stickers, Themes or LINE Out on the LINE messaging application through mobile devices or
personal computers or (ii) a payment relating to any LINE Game through mobile devices, in each case at least
once during that month.
We review MPUs, including MPUs of LINE Games, as a measure to evaluate trends in monetization.
MPUs, including MPUs of LINE Games, may fluctuate depending on the level of success of our monetization
efforts utilizing the line-up of our products and services. The following table sets forth the number of our total
MPUs and MPUs of LINE Games for the months indicated:
Mar.
2016
Jun.
2016
Sep.
2016
Dec.
2016
Mar.
2017
Jun.
2017
Sep.
2017
Dec.
2017
Mar.
2018
Jun.
2018
Sep.
2018
Dec.
2018
For the month of
Total MPUs(1)
MPUs of LINE
. . . . . . .
8.4
8.1
7.8
9.4
8.5
(in millions)
8.1
8.4
9.5
8.6
7.9
7.8
9.6
Games(2) . . . . . . . . . .
1.6
1.4
1.4
1.3
1.4
1.3
1.2
1.1
1.1
1.0
1.2
1.1
(1) Represents the number of user accounts that made (i) a payment for Stickers, Themes or LINE Out on the LINE messaging application
through mobile devices or personal computers or (ii) a payment relating to any LINE Game through mobile devices, in each case at least
once during the month indicated.
(2) Represents the number of user accounts that made a payment relating to any LINE Game through mobile devices at least once during the
month indicated.
We also review various performance indexes, including number of Official Accounts for account ads,
impressions for display ads and page views for our portal ads, to evaluate trends in monetization through our
advertising services and products. Impressions are viewings of display ads by users while they access our
products and services for which we typically generate revenues. Because our display ads are sold through either a
bid-based CPM or CPC pricing model in which the advertiser pays for qualifying impressions or click-through
volume, the number of paid impressions displayed is an indicator of our ability to monetize our users’ viewing of
advertisements on the LINE platform. The following table sets forth the number of total impressions on the LINE
platform for the quarterly periods indicated:
Jan.-Mar.
2017
Apr.-Jun.
2017
Jul.-Sep.
2017
Oct.-Dec.
2017
Jan.-Mar.
2018
Apr.-Jun.
2018
Jul.-Sep.
2018
Oct.-Dec.
2018
For the three months of
(in millions)
Total impressions . . . . . . . . .
12,275
14,668
15,940
15,985
17,671
21,167
23,265
23,568
In recent years, an increasing portion of our revenues has been generated through such monetization. A
breakdown of our advertising revenues by major category for the years ended December 31, 2016, 2017 and
62
2018, with the figures for the years ended December 31, 2016 and 2017 restated to reflect the bifurcation of our
reportable segments (see “— Overview”), is as follows:
For the Year Ended December 31,
2016
2017
2018
Amount
%
Amount
%
Amount
%
(in millions of yen, except percentages)
Advertising:
LINE advertising
Display advertising(1) . . . . . . . . . . . . . .
Account advertising(2) . . . . . . . . . . . . .
¥10,448
33,986
19.1% ¥26,609
38,929
62.2
35.0% ¥ 36,221
56,714
51.3
Sub-total
Other advertising(3)
. . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
44,434
10,186
81.4
18.6
65,538
10,433
86.3
13.7
92,935
15,302
33.5%
52.4
85.9
14.1
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥54,620
100.0% ¥75,971
100.0% ¥108,237
100.0%
(1) Primarily consists of revenues from display ads posted on Timeline, LINE NEWS, LINE TODAY and other content offerings on the
LINE platform, including LINE Manga and LINE BLOG.
(2) Primarily consists of revenues from Official Accounts, LINE@, Sponsored Stickers and LINE Point Ads.
(3) Primarily consists of revenues from advertising services offered on LINE Part-time Job, livedoor and Matome. The operations of LINE
Part-time Job were consolidated starting in April 2018.
We intend to invest in our global operations in order to increase monetization outside of Japan,
especially in our three other key countries of Taiwan, Thailand and Indonesia. We generated 71.7%, 72.6% and
71.6% of our revenues in Japan in 2016, 2017 and 2018, respectively, and we expect to continue to derive a
significant portion of our revenues from Japan in the near future. Certain global markets are not as familiar with
new forms of digital advertising, such as our Official Accounts, Sponsored Stickers, LINE Point Ads and display
ads posted on Timeline. In such markets, we are investing in marketing efforts to help our users and advertisers
understand and take advantage of the benefits of products and services offered on the LINE platform.
For a discussion of the impact of the adoption of IFRS 15 on revenue recognition for our advertising
products and services, see “Item 5.B. Liquidity and Capital Resources — Critical Accounting Judgments,
Estimates and Assumptions — Revenue Recognition — Revenue Recognition for Stickers, Sponsored Stickers,
LINE Point Ads and Advertising Services” and Note 3(30) of the notes to our annual consolidated financial
statements.
Products and Services Innovation
Our ability to increase the size of our user base and engagement of our users, attract platform partners
and advertisers and generate revenues will depend in part on our ability to create successful new products and
services, both independently and in conjunction with third parties. We plan to continue to make significant
investments in product development and, from time to time, we may acquire companies to further enhance our
products, services and technical capabilities.
In 2018, we launched various new products and services to further enhance the LINE platform, in
particular in fintech-related businesses. In order to diversify the payment options available to our LINE Pay
users, we have made significant investments in promoting our LINE Pay mobile payment services by enhancing
our payment infrastructure that provides settlement through QR and other barcodes, NFC and LINE Pay Cards.
In July 2018, we launched BITBOX, a cryptocurrency exchange established in Singapore to facilitate the
exchange of cryptocurrencies. In November 2018, we launched LINE Kakeibo, a free personal financial account
and asset management service that allows our users to manage their income and expenses more efficiently by
consolidating a user’s bank accounts, credit cards, reward programs and e-commerce services into a central
database. We are also continuing to expend significant time and resources in enhancing our capabilities in AI.
63
For example, in June 2018, we launched Clova Friends mini, which is a miniature yet enhanced version of Clova
Friends, and in July 2018, we released the Clova Extensions Kit, a development kit that allows third-party
developers to scale LINE Clova functionalities. We also launched various initiatives utilizing blockchain
technology in 2018, including LINK, the base digital token to be used to access a number of dApps to be offered
in our blockchain ecosystem, which we launched in August 2018. See “Item 4.B. Business Overview — Our
Products and Services.” We plan to continue to pursue collaboration opportunities with third parties to develop
additional content services as well as life and financial services to be offered on the LINE platform that are
designed to further enrich our users’ daily lives.
Our operating results have been, and will continue to be, affected by our ability to stimulate customer
demand for new and upgraded products and to anticipate and respond to emerging customer preferences and
demands by ensuring continuing and timely development of new products and services, as well as enhancements
to existing products and services. New services will incur additional operating expenses with uncertainty on
timing and level of monetization.
Marketing and Brand Promotion
As we continue to increase our footprint, we engage in active marketing campaigns to promote new
products and services, build our brand and expand our user base. We utilize television commercials and internet
and mobile advertising as well as product placements in television shows as our primary advertising channels,
and we continually assess the effectiveness of such channels to ensure that we utilize the most suitable channel
for each of the various types of products and services we aim to promote. Our marketing expenses, which consist
primarily of costs related to advertising on mass media (primarily television advertising) and advertising on
mobile applications, but excluding personnel-related costs of our marketing staff, were ¥11,833 million,
¥15,477 million and ¥20,311 million in 2016, 2017 and 2018, respectively. While we believe that our ability to
grow through network effects will be fundamental to our growth, we expect to continue to invest significantly in
marketing activities, including activities to further promote the growth we have experienced to date as we enter
new markets and seek to expand our presence in existing markets. In 2019, we expect to increase our marketing
expenses, in part due to promotion of our fintech-related products and services, including LINE Pay. Our
quarterly marketing expense has fluctuated in the past and will fluctuate in the future.
Competition
We compete against many companies in different industries and markets to attract and engage users and
for advertiser spending. We must compete effectively for users and advertisers in order to grow our business and
increase our revenues. Scale benefits and other advantages may allow our competitors to respond more quickly
and effectively than us to a rapidly evolving environment in the mobile internet industry, including industry
consolidation that may result in increased competition. We will continue to invest in our products and services
for users and advertisers and to grow our active user base in order to address the competitive challenges in our
industry. As part of our strategy to improve our products and services, we may acquire other companies to add
talent or complementary products and technologies.
Investment in Talent
We intend to continue to invest in hiring and retaining talented employees to grow our business and
increase our revenues. We had 5,595 full-time employees as of December 31, 2018, compared to 4,344 as of
December 31, 2017 and 3,085 as of December 31, 2016. We expect to increase our personnel for the foreseeable
future as we continue to invest in the growth of our business, in particular fintech-related services as well as our
LINE Clova AI platform and blockchain-related initiatives. We have also made and intend to continue to make
acquisitions that increase the number of our engineers, designers, product managers and other personnel with
specific technology expertise. In addition, we must retain our high-performing personnel in order to continue to
develop, sell and market our products and services and manage our business.
64
We offer stock options as well as equity-settled and cash-settled employee stock ownership plans for our
directors and employees. For a discussion of our share-based payments, see Note 27 of the notes to our annual
consolidated financial statements and “Item 6.E. Share Ownership.” The stock options vest upon the satisfaction
of service conditions. In connection with our share-based payments, we recorded expenses of ¥9,519 million,
¥2,686 million and ¥2,528 million in 2016, 2017 and 2018, respectively.
Seasonal Fluctuations
Our quarterly operating results may fluctuate significantly from period to period based on the
seasonality of user spending for products and services offered on our LINE platform, such as Stickers for which
various promotions may be offered either by us or by our advertisers in the year-end holiday season. In Japan,
where a majority of companies end their fiscal year on March 31, advertising spending is traditionally stronger
between September and March due to the year-end effects and companies in Japan trying to spend their
advertising budgets before the close of their fiscal year. This seasonality in advertising has affected our quarterly
results, with higher sequential advertising revenue growth from the third quarter to the fourth and then first
quarter compared to slower growth or a decline in revenues and profits between the first quarter and the second
quarter. For these reasons, a sequential quarter-to-quarter or year-to-year comparison is not necessarily a good
indication of our performance or of how our business will perform in the future. As the percentage of our
advertising revenues increases, such seasonal impact may become more pronounced in the future.
Recently Adopted Accounting Standards — The Impact of IFRS 15
Starting on January 1, 2018, we have adopted IFRS 15, a new accounting standard issued by the IASB
that establishes a five-step revenue recognition model that applies to all revenue generated from contracts with
customers, regardless of the type of transaction or the industry, with limited exceptions. In addition to the five-
step model, the standard specifies how to account for the incremental costs of obtaining a contract and the costs
directly related to fulfilling a contract. If those costs are expected to be recovered, they can be capitalized and
subsequently amortized and tested for impairment. IFRS 15 also applies to the recognition and measurement of
gains and losses on the sale of some non-financial assets that are not an output of an entity’s ordinary activities,
such as sales of property, plant and equipment or intangibles.
We have adopted IFRS 15 by applying the modified retrospective method, which records the cumulative
amount of the impact at the beginning balance of retained earnings upon adoption. Accordingly, the financial
information related to periods prior to January 1, 2018 contained in our annual consolidated financial statements
have not been restated for the adoption of IFRS 15 and continue to be presented under International Accounting
Standard (“IAS”) 18 Revenue and other standards (collectively, “IAS 18 and Other Standards”).
65
The adjustments made to line items presented in our consolidated statements of comprehensive income
for the year ended December 31, 2018 due to the change from IAS 18 and Other Standards applied previously to
IFRS 15 are as follows:
For the year ended December 31, 2018
Under IAS 18 and
Other Standards Remeasurement Under IFRS 15
(in millions of yen)
Revenues and other operating income:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 197,789
28,099
Total revenues and other operating income . . . . . . . . . . .
225,888
¥ 9,393
—
9,393
¥ 207,182
28,099
235,281
Operating expenses:
Payment processing and licensing expenses . . . . . . . . . . . . . .
Sales commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . . . . . . . .
Outsourcing and other service expenses . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(30,811)
(7,068)
(57,493)
(20,311)
(10,483)
(31,825)
(11,135)
(40,846)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .
(209,972)
Profit from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit before tax from continuing operations . . . . . . . . . . . . . . . . .
Income tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss for the year from continuing operations . . . . . . . . . . . . . . . . .
15,916
3,160
(9,463)
(6,303)
(12)
(8,892)
—
—
—
—
—
(295)
(9,199)
194
194
(59)
135
(30,823)
(15,960)
(57,493)
(20,311)
(10,483)
(31,825)
(11,135)
(41,141)
(219,171)
16,110
3,354
(9,522)
(6,168)
Loss for the year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
(5,927)
¥
135
¥
(5,792)
For a discussion of the adoption of IFRS 15 and the adjustments made to line items presented in our
annual consolidated financial statements due to the change from IAS 18 and Other Standards applied previously
to IFRS 15, including the impact on the line items in the consolidated statements of financial position, see “Item
5.B. Liquidity and Capital Resources — Critical Accounting Judgments, Estimates and Assumptions — Revenue
Recognition” and Note 3(30) of the notes to our annual consolidated financial statements.
66
Major Components of Our Results of Operations
Revenues
A breakdown of our revenues by major category and changes therein for the years ended December 31,
2016, 2017 and 2018, based on the bifurcation of our reportable segments (see “— Overview”), with the figures
for the years ended December 31, 2016 and 2017 restated to reflect such bifurcation, is as follows:
For the year ended December 31,
2016
2017
2018
Amount
%
Amount
%
Amount
%
(in millions of yen, except percentages)
Core business segment:
Advertising:
Display advertising(1) . . . . . . . . . . . . . . . . . .
Account advertising(2) . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Other advertising(3)
¥ 10,448
33,986
10,186
7.4% ¥ 26,609
38,929
24.2
10,433
7.2
15.9% ¥ 36,221
56,714
23.3
15,302
6.2
17.5%
27.4
7.4
Sub-total
. . . . . . . . . . . . . . . . . . . . . . .
54,620
38.8
75,971
45.4
108,237
52.2
Communication, content and others:
Communication(4)
. . . . . . . . . . . . . . . . . . . .
Content(5) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 29,290
44,784
1,711
Sub-total
. . . . . . . . . . . . . . . . . . . . . . .
75,785
Total core business segment . . . . . . . . . . . .
130,405
Strategic business segment:
LINE Friends(6)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Others(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,383
916
Total strategic business segment . . . . . . . . .
10,299
20.8
31.8
1.2
53.9
92.7
6.7
0.7
7.3
¥ 30,225
40,144
2,816
73,185
149,156
12,299
5,692
18.1
24.0
1.7
43.8
89.2
7.4
3.4
¥ 28,527
38,237
3,397
70,161
178,398
19,579
9,205
13.8
18.5
1.6
33.9
86.1
9.5
4.4
17,991
10.8
28,784
13.9
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥140,704
100.0% ¥167,147
100.0% ¥207,182
100.0%
(1) Primarily consists of revenues from display ads posted on Timeline, LINE NEWS and LINE TODAY.
(2) Primarily consists of revenues from Official Accounts, LINE@, Sponsored Stickers and LINE Point Ads.
(3) Primarily consists of revenues from LINE Part-time Job, livedoor and Matome. The operations of LINE Part-time Job were consolidated
starting in April 2018.
(4) Primarily consists of sales of Stickers and Themes created by third parties and sold on LINE Creators Market as well as Stickers and
Themes created by us.
(5) Primarily consists of sales of virtual items of LINE Games, LINE PLAY, LINE Manga, LINE Music and LINE Fortune.
(6) Primarily consists of revenues from sales of LINE characters merchandise at our retail stores.
(7) Primarily consisting of fintech businesses (including LINE Pay and other financial services delivered through the LINE platform), the
LINE Clova AI platform, blockchain-related initiatives and e-commerce. This segment also included LINE Mobile until April 2018,
when LINE MOBILE, the provider of MVNO services, started to be accounted for as an associate under the equity method rather than
as a consolidated subsidiary.
For a discussion of how we recognize revenues for different services, see Note 3(22) of the notes to our
annual consolidated financial statements.
Operating Expenses
The following are the principal components of our operating expenses:
•
Payment processing and licensing expenses. Payment processing and licensing expenses consist
primarily of (i) processing fees paid to Apple and Google, our payment processing service
67
providers, incurred from the sale of virtual items for internally-developed games and Stickers, and
(ii) licensing fees paid to owners of third-party content used in Stickers and other products and
services on a revenue-sharing basis.
•
Sales commission expenses. Sales commission expenses are primarily fees paid to advertising
agencies that provide services related to the creation and delivery of advertising products offered on
the LINE platform. Prior to our adoption of IFRS 15 starting on January 1, 2018, such expenses
were included under “authentication and other service expenses” because such amounts were
considered immaterial. In accordance with IFRS 15, however, we now recognize revenue on a gross
basis prior to separating out the portion to be paid to advertising agencies, which increased our
advertising revenue as well as expenses to be paid to such advertising agencies (see “Item 5.B.
Liquidity and Capital Resources — Critical Accounting Judgments, Estimates and Assumptions —
Revenue Recognition — Revenue Recognition for Stickers, Sponsored Stickers, LINE Point Ads
and Advertising Services”). Given such increase, sales commission expenses are now recorded
separately, with the remaining “authentication and other services expenses” re-categorized as
“outsourcing and other service expenses” (see “— Outsourcing and other service expenses” below).
•
Employee compensation expenses. Employee compensation expenses are our personnel-related
costs, including salaries, benefits and share-based compensation.
• Marketing expenses. Our marketing expenses consist primarily of costs related to (i) advertising
on mass media, primarily television advertising, (ii) advertising on mobile applications and
(iii) brand promotional events. Our marketing expenses do not include compensation expenses of
our marketing personnel, which are included in employee compensation expenses.
•
Infrastructure and communication expenses. Infrastructure and communication expenses consist
primarily of co-location charges incurred by us that are required for operation of the LINE platform
and data centers,
infrastructure fees for
including fees for data transmission, data center
maintenance of a suitable operating environment, server rental fees and server connection fees.
• Outsourcing and other service expenses. Previously known as “authentication and other service
expenses” prior to our adoption of IFRS 15 starting on January 1, 2018, outsourcing and other
service expenses primarily relate to (i) fees paid for services outsourced to third parties related to
the development of various products and services offered by us, (ii) fees paid to various entities
related to content production and (iii) fees paid for server maintenance activities.
•
Depreciation and amortization expenses. Depreciation and amortization expenses primarily relate
to depreciation of property and equipment, which is computed using the straight-line method based
on the depreciable amount of the assets over their respective useful lives.
• Other operating expenses. Other operating expenses primarily relate to rent, cost of goods sold
relating to the sale of our products, provisions for the redemption of LINE Points, travel, supplies,
professional fees, taxes and dues, training and other miscellaneous operating expenses.
We plan to continue increasing the capacity and enhancing the capability and reliability of our
infrastructure to support user growth and increased activity on our LINE platform. We also plan to continue to
invest in marketing activities to increase brand awareness, promote launching of new services and expand our
user base and advertiser base. Some of our operating expenses, such as employee compensation expenses, are
relatively fixed, and other expenses, such as marketing expenses, may not directly correspond to revenues in the
same period. We expect that our operating expenses will increase for the foreseeable future and may vary in the
near term from period to period as a percentage of revenues.
68
Finance Income and Finance Costs
Our finance income primarily consists of interest income, and our finance costs primarily consist of
interest expense.
Share of Profit (Loss) of Associates and Joint Ventures
Our share of profit (loss) of associates and joint ventures consists of our share of the profits or losses of
our investees in which we have significant influence. We account for our investments in such entities using the
equity method, under which our share of the profits or losses is determined based on our proportionate ownership
interest.
Income Tax Expenses
Our income tax expenses mainly consist of current income taxes in Japan and Korea, and deferred
income taxes and changes in the related assessment of the recoverability of deferred tax assets reflecting the net
tax effects of temporary differences between the carrying amounts of assets and liabilities in each of these
jurisdictions for financial reporting purposes and the amounts used for income tax purposes. The statutory tax
rate applicable to corporations in Japan in 2018 was 31.7%. Under current Korean tax regulations, the statutory
tax rate applicable to us in Korea in 2018 was approximately 22.0%. Deferred tax assets and liabilities are
measured using the tax rates that are expected to apply to the period when the assets are realized or the liabilities
are settled.
Profit (Loss) from Discontinued Operations, Net of Tax
On February 12, 2016, after careful assessment of the overall performance of MixRadio, the financial
challenges posed by the music streaming market, changing market conditions, an increase in the cost of
maintaining the business and a shift in our overall priorities, our board of directors approved the liquidation of
our MixRadio operations, which liquidation became effective on March 21, 2016. As a result, we have
retrospectively classified the MixRadio business as a discontinued operation in our consolidated financial
statements as of and for the year ended December 31, 2015 and recognized impairment charges of ¥4.6 billion in
the fourth quarter of 2015. We also incurred additional restructuring costs of ¥1,165 million for employee
termination benefits and ¥126 million for the termination of office lease contracts in 2016 as a result of the
liquidation of the MixRadio operations. In 2018, we recognized a ¥566 million gain from discharge of debt in
connection with the liquidation of the MixRadio operations. For more information, see Note 23 of the notes to
our annual consolidated financial statements.
69
Results of Operations
The following table presents our selected statements of profit or loss data for the periods indicated.
For the year ended December 31,
2016
2017
2018
(in millions of yen)
Revenues and other operating income:
Revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 140,704
5,892
¥ 167,147
12,011
¥ 207,182
28,099
Total revenues and other operating income . . . . . . . . . . . . . . . . . .
146,596
179,158
235,281
Operating expenses:
Payment processing and licensing expenses . . . . . . . . . . . . . . . . . . . . .
Sales commission expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . . . . . . . . . . . . . . .
Outsourcing and other service expenses(2) . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29,781)
(615)
(39,445)
(11,833)
(7,770)
(13,779)
(5,100)
(18,376)
(29,589)
(899)
(42,469)
(15,477)
(9,087)
(24,007)
(7,149)
(25,403)
(30,823)
(15,960)
(57,493)
(20,311)
(10,483)
(31,825)
(11,135)
(41,141)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(126,699)
(154,080)
(219,171)
Profit from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of loss of associates and joint ventures . . . . . . . . . . . . . . . . . . . .
Loss on foreign currency transactions, net . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit before tax from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit (loss) for the period from continuing operations . . . . . . . . . . . . . . . . .
Profit (loss) from discontinued operations, net of tax . . . . . . . . . . . . . .
19,897
87
(65)
(833)
(43)
9
(1,062)
17,990
(8,904)
9,086
(1,982)
25,078
257
(26)
(6,321)
(818)
1,963
(1,988)
18,145
(9,922)
8,223
(13)
16,110
413
(519)
(11,148)
(902)
869
(1,469)
3,354
(9,522)
(6,168)
376
Profit (loss) for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
7,104
¥
8,210
¥
(5,792)
(1) For a discussion of the impact of our adoption of IFRS 15 on revenue recognition, see “Item 5.B. Liquidity and Capital Resources —
Critical Accounting Judgments, Estimates and Assumptions — Revenue Recognition” and Note 3(30) of the notes to our annual
consolidated financial statements.
(2) Due to our adoption of IFRS 15 starting on January 1, 2018, “sales commission expenses,” which were part of “authentication and other
service expenses” prior to January 1, 2018, are now presented separately as a new line item, with the remainder of “authentication and
other service expenses” re-categorized as “outsourcing and other service expenses,” starting with the year ended December 31, 2018.
Such change has been applied to the figures for the years ended December 31, 2016 and 2017. For more information on the impact of
our adoption of IFRS 15, see “— Recently Adopted Accounting Standards — The Impact of IFRS 15” and Note 3(30) of the notes to
our annual consolidated financial statements.
Comparison of the Years Ended December 31, 2017 and 2018
The results of operations for the year ended December 31, 2017 have been restated based on the
bifurcation of our reportable segments in 2018 (see “— Overview”).
70
Revenues
The following table presents a breakdown of our revenues by major services and changes therein for the
periods indicated.
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
Core business segment:
Advertising:
Display advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Account advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 26,609
38,929
10,433
¥ 36,221
56,714
15,302
Sub-total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75,971
108,237
¥
9,612
17,785
4,869
32,266
Communication, content and others:
Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Content
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub-total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,225
40,144
2,816
73,185
28,527
38,237
3,397
70,161
(1,698)
(1,907)
581
(3,024)
Total core business segment . . . . . . . . . . . . . . . . . . . . . . .
149,156
178,398
29,242
Strategic business segment:
LINE Friends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total strategic business segment . . . . . . . . . . . . . . . . . . . .
12,299
5,692
17,991
19,579
9,205
28,784
7,280
3,513
10,793
36.1%
45.7
46.7
42.5
(5.6)
(4.8)
20.6
(4.1)
19.6
59.2
61.7
60.0
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥167,147
¥207,182
¥ 40,035
24.0%
Our
revenues increased by 24.0%, or ¥40,035 million,
from ¥167,147 million in 2017 to
¥207,182 million in 2018 primarily due to increases in revenues of our core business segment and, to a lesser
extent, our strategic business segment. Our revenues were also positively impacted by our adoption of IFRS 15
starting on January 1, 2018. See “— Recently Adopted Accounting Standards — The Impact of IFRS 15” and
Note 3(30) of the notes to our annual consolidated financial statements. In 2018, our revenues were
¥207,182 million under IFRS 15, compared to ¥197,789 million under IAS 18 and Other Standards. Had we
continued to apply the previous method of IAS 18 and Other Standards in 2018, our revenues would have
increased only by 18.3%, or ¥30,642 million, from ¥167,147 million in 2017 to ¥197,789 million in 2018.
Our MPUs increased slightly from 9.5 million in December 2017 to 9.6 million in December 2018. Our
aggregate MAUs in our four key countries of Japan, Thailand, Taiwan and Indonesia decreased from 167 million
to 164 million during the same period, as the decrease in MAUs in Indonesia more than offset the increase in
MAUs in Japan. Revenues from Japan accounted for 72.6% and 71.6% of our total revenues in 2017 and 2018,
respectively. Revenues from Taiwan accounted for 9.9% and 9.0% of our total revenues in 2017 and 2018,
respectively. Our revenues from Korea increased from 5.3% of our total revenues in 2017 to 6.4% of our total
revenues in 2018, primarily due to an increase in sales of LINE Friends merchandise at LINE Friends stores in
Korea.
71
Core Business Segment
The following table presents a breakdown of our core business segment revenues by major services and
changes therein for the periods indicated.
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
Advertising:
Display advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Account advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 26,609
¥ 36,221
¥ 9,612
36.1%
15.9%
17.5%
¥ 38,929
¥ 56,714
¥17,785
45.7%
23.3%
27.4%
¥ 10,433
¥ 15,302
¥ 4,869
46.7%
6.2%
7.4%
Communication, content and others:
Content
Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 30,225
¥ 28,527
¥ (1,698)
(5.6)%
18.1%
13.8%
¥ 40,144
¥ 38,237
¥ (1,907)
(4.8)%
24.0%
2,816
¥
18.5%
3,397
¥
¥
1.7%
1.6%
581
20.6%
Total core business segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥149,156
¥178,398
¥29,242
19.6%
89.2%
86.1%
Revenues of our core business segment increased by 19.6%, or ¥29,242 million, from ¥149,156 million
in 2017 to ¥178,398 million in 2018, primarily due to increases in revenues from account advertising, display
advertising and other advertising, which were offset
in part by decreases in revenues from content and
communication. Revenues of our core business segment, in particular revenues from advertising, were also
positively impacted by our adoption of IFRS 15 in 2018. For example, the changes in revenue recognition
methods we adopted through the modified retrospective method starting in 2018 resulted in an increase in the
amount of revenues from our core business segment in 2018 by ¥9,393 million, with most of such amount
attributable to revenues from advertising.
Account advertising. Revenues from account advertising increased by 45.7%, or ¥17,785 million, from
¥38,929 million in 2017 to ¥56,714 million in 2018, primarily due to increases in revenues from Official
Accounts and LINE@, which were offset in part by a decrease in revenues from LINE Point Ads. Revenues from
Official Accounts increased primarily due to an increase in the number of paid contracts from 645 as of
December 31, 2017 to 774 as of December 31, 2018. Revenues from LINE@ increased primarily due to an
increase in new advertisers through sign-up incentives and marketing initiatives. On the other hand, revenues
from LINE Point Ads decreased, reflecting a decrease in utilization of LINE Points by our advertisers. Revenues
from our account advertising were also positively impacted by our adoption of IFRS 15 starting on January 1,
2018 using the modified retrospective method as described above.
Display advertising. Revenues from display advertising increased by 36.1%, or ¥9,612 million, from
¥26,609 million in 2017 to ¥36,221 million in 2018, primarily due to increases in revenues from display ads
posted on LINE NEWS (as well as LINE TODAY available in select countries outside of Japan) and Timeline.
The increase in revenues from display advertising was attributable to the growth in the user base of our LINE
NEWS and LINE TODAY services, which resulted in an increase in the number of total impressions, as well as
an increase in the level of participation in the bidding processes by advertisers resulting from enhancements to
our advertising products that made them more attractive to advertisers. For example, the introduction of LINE
72
NEWS in Japan and LINE TODAY in select countries outside of Japan as a dedicated tab in the LINE messaging
application in 2017 contributed to an increase in popularity of such services in 2018, which in turn increased the
revenues we generated from display ads posted on LINE NEWS and LINE TODAY. Revenues from display
advertising were also positively impacted by our adoption of IFRS 15 starting on January 1, 2018 using the
modified retrospective method as described above.
Other advertising. Revenues from other advertising increased by 46.7%, or ¥4,869 million, from
¥10,433 million in 2017 to ¥15,302 million in 2018, primarily due to consolidation of revenues of LINE Part-
time Job starting in April 2018 following an increase in our interest in the joint venture with Persol Holdings Co.,
Ltd. from 49.0% to 60.0%.
Content. Revenues from content decreased by 4.8%, or ¥1,907 million, from ¥40,144 million in 2017 to
¥38,237 million in 2018, primarily due to a decrease in the sales volume of in-game items for LINE Games,
which was offset in part by increases in revenues from LINE Manga, LINE Fortune and LINE Music. The
decrease in the sales volume of in-game items was primarily driven by decreases in revenues from Disney
TsumTsum and LINE Rangers. For internally-developed games, we recognize as revenues the gross amount of
consideration paid by users which amplifies the impact of purchases of in-game items on our revenues compared
to third-party developed games, for which we recognize as revenues the net proceeds after deducting amounts
paid to third-party game developers and payment processing service providers. In addition, for a discussion of
MAUs and MPUs of LINE Games, which decreased in 2018 compared to 2017, see “— Factors Affecting Our
Financial Condition and Results of Operations.”
Partially offsetting the impact of decreases in revenues from LINE Games, we recorded increases in
revenues from LINE Manga, LINE Fortune and LINE Music in 2018 compared to 2017, primarily reflecting
increases in users and their engagement of such services.
Communication. Revenues from communication decreased by 5.6%, or ¥1,698 million,
from
¥30,225 million in 2017 to ¥28,527 million in 2018, primarily due to a decrease in the volume of Stickers created
and sold by us, which was offset in part by an increase in the volume of Stickers created by third parties and sold
on LINE Creators Market.
Strategic Business Segment
The following table presents a breakdown of our strategic business segment revenues by major services
and changes therein for the periods indicated.
LINE Friends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
¥12,299
¥19,579
¥ 7,280
59.2%
7.4%
9.5%
¥ 5,692
¥ 9,205
¥ 3,513
61.7%
3.4%
4.4%
Total strategic business segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥17,991
¥28,784
¥10,793
60.0%
10.8%
13.9%
Revenues of our strategic business segment
from
¥17,991 million in 2017 to ¥28,784 million in 2018, due to increases in revenues from the LINE Friends and
Others categories.
increased by 60.0%, or ¥10,793 million,
LINE Friends. Revenues from LINE Friends increased by 59.2%, or ¥7,280 million,
from
¥12,299 million in 2017 to ¥19,579 million in 2018, primarily due to increases in sales of official LINE
73
merchandise at our retail stores. The number of LINE Friends retail stores increased from 26 stores as of
December 31, 2016 to 37 stores as of December 31, 2017 and 42 stores as of December 31, 2018.
Others. Revenues from the Others category increased by 61.7%, or ¥3,513 million, from ¥5,692 million
in 2017 to ¥9,205 million in 2018, primarily due to increases in revenues from e-commerce related services, in
particular LINE SHOPPING, and our sales of LINE Clova-integrated smart speakers, which were launched in
October 2017.
Other Operating Income
Our other operating income increased by 133.9%, or ¥16,088 million, from ¥12,011 million in 2017 to
¥28,099 million in 2018, primarily due to the recognition of gains amounting to ¥15,300 million and
¥9,494 million relating to the loss of control of LINE Games Corporation and LINE MOBILE, respectively,
resulting in both entities being accounted for as associates under the equity method rather than as consolidated
entities in 2018. In November 2018, we conducted a capital increase through a third-party allotment of new
shares issued by LINE Games Corporation to Lungo, as a result of which our interest in LINE Games
Corporation decreased from 73.5% to 49.5%. In April 2018, LINE MOBILE issued new shares to SoftBank
through a third-party allotment, pursuant to which our interest in LINE MOBILE decreased from 100.0% to
49.0%. The increase in our other operating income was, to a lesser extent, attributable to the recognition of a
dilution gain of an aggregate of ¥2,310 million from the issuance of new shares by Snow Corporation, our
associate accounted for under the equity method, to NAVER Corporation through a third-party allotment in
March and October 2018, which in turn resulted in a decrease in our ownership in Snow Corporation from 45.0%
to 34.0% as of December 31, 2018. Our other operating income recognized in 2017 primarily consisted of a
¥10,444 million gain on divestiture of business and subsidiaries relating to the transfer of our camera application
business to Snow Corporation in May 2017.
Operating Expenses
Total
The following table presents a breakdown of our operating expenses and changes therein for the periods
indicated.
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
Payment processing and licensing expenses . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales commission expenses(1)
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Outsourcing and other service expenses(1)
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . .
Other operating expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 29,589
899
42,469
15,477
9,087
24,007
7,149
25,403
¥ 30,823
15,960
57,493
20,311
10,483
31,825
11,135
41,141
¥ 1,234
15,061
15,024
4,834
1,396
7,818
3,986
15,738
4.2%
1,675.3
35.4
31.2
15.4
32.6
55.8
62.0
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥154,080
¥219,171
¥65,091
42.2%
(1) Due to our adoption of IFRS 15 starting on January 1, 2018, “sales commission expenses,” which were part of “authentication and other
service expenses” prior to January 1, 2018, are now presented separately as a new line item, with the remainder of “authentication and
other service expenses” re-categorized as “outsourcing and other service expenses,” starting with the year ended December 31, 2018.
Such change has been applied to the figures for the year ended December 31, 2017. For more information on the impact of our adoption
of IFRS 15, see “— Recently Adopted Accounting Standards — The Impact of IFRS 15” and Note 3(30) of the notes to our annual
consolidated financial statements.
74
(2) Other operating expenses include rent, cost of goods sold relating to the sale of our products, provisions for the redemption of LINE
Points, travel, supplies, professional fees, taxes and dues, training and other miscellaneous operating expenses.
The following table presents a breakdown of our operating expenses as percentages of revenues for the
periods indicated.
For the year ended
December 31,
2017
2018
(in percentages of total revenues)
Payment processing and licensing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outsourcing and other service expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.7%
0.5
25.4
9.3
5.4
14.4
4.3
15.2
92.2%
14.9%
7.7
27.7
9.8
5.1
15.4
5.4
19.9
105.8%
Our operating expenses increased by 42.2%, or ¥65,091 million, from ¥154,080 million in 2017 to
¥219,171 million in 2018, primarily due to increases in sales commission expenses, employee compensation
expenses, outsourcing and other service expenses, marketing expenses and other operating expenses. Our
operating expenses as a percentage of revenues increased from 92.2% in 2017 to 105.8% in 2018. Specifically:
Sales Commission Expenses
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
Sales commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥
899
0.5%
¥15,960
¥15,061
1,675.3%
7.7%
Our sales commission expenses increased significantly by ¥15,061 million, from ¥899 million in 2017
to ¥15,960 million in 2018, primarily due to our adoption of IFRS 15 and the recognition of expenses relating to
payments made to advertising agencies, as well as an increase in advertising fees we paid in connection with the
consolidation of the operations of LINE Part-time Job starting in April 2018. We recognized ¥8,892 million of
sales commission to advertising agencies in 2018 related to our decision to change the revenue recognition
method of certain advertising products and services pursuant to IFRS 15 based on the total consideration received
from our customers, including for services provided by our advertising agencies. See “— Recently Adopted
Accounting Standards — The Impact of IFRS 15” and Note 3(30) of the notes to our annual consolidated
financial statements. As such sales commission expenses increased by the same amount as our revenue from
related activities, there was no effect on the profit from operating activities.
Employee Compensation Expenses
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
¥42,469
¥57,493
¥15,024
35.4%
25.4%
27.7%
Our employee compensation expenses increased by 35.4%, or ¥15,024 million, from ¥42,469 million in
2017 to ¥57,493 million in 2018, primarily due to increases in salary, bonus and welfare expenses reflecting an
increase in the number of our employees, particularly in connection with our investment in talent for our new
fintech businesses, LINE Clova AI platform and blockchain-related initiatives. The number of our full-time
employees increased from 4,344 as of December 31, 2017 to 5,595 as of December 31, 2018.
Outsourcing and Other Service Expenses
Outsourcing and other service expenses . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
¥24,007
¥31,825
¥ 7,818
32.6%
14.4%
15.4%
service expenses
Our outsourcing and other
increased by 32.6%, or ¥7,818 million,
from
¥24,007 million in 2017 to ¥31,825 million in 2018, primarily due to an increase in costs relating to system
improvements and software upgrades to facilitate the operation of our servers supporting an increasingly wide
range of services we offer, in particular our fintech business, as well as consulting fees we pay to third-party
experts in the fintech industry that review and advise on our new business plans. Such effect was offset in part by
a decrease in fees for accessing wireless communications networks of a third-party mobile telecommunications
company for our LINE Mobile MVNO service until April 2018, when LINE MOBILE, the provider of such
services, started to be accounted for as an associate under the equity method rather than as a consolidated
subsidiary.
Marketing Expenses
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
¥15,477
¥20,311
¥ 4,834
31.2%
9.3%
9.8%
Marketing expenses increased by 31.2%, or ¥4,834 million, from ¥15,477 million in 2017 to
¥20,311 million in 2018, primarily due to increases in marketing of various products and services for our fintech
businesses, particularly the promotion of LINE Pay, and for LINE Manga. Such effect was partially offset by a
decrease in marketing expenses for the promotion of the LINE brand, the need for which has gradually become
diminished given widespread recognition of the LINE brand by the general public.
Other Operating Expenses
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
¥25,403
¥41,141
¥15,738
62.0%
15.2%
19.9%
Other operating expenses increased by 62.0%, or ¥15,738 million, from ¥25,403 million in 2017 to
¥41,141 million in 2018, primarily due to increases in expenses relating to provisions for the redemption of LINE
Points, cost of goods sold relating to the sale of our products and rent expenses. Our expenses relating to
provisions for the redemption of LINE Points increased by 450.0%, or ¥4,527 million, from ¥1,006 million in
2017 to ¥5,533 million in 2018, primarily due to an increase in the total number of LINE Points offered to our
76
users as an incentive for the use of LINE Pay. Our cost of goods increased by 54.1%, or ¥2,676 million, from
¥4,946 million in 2017 to ¥7,622 million in 2018, primarily reflecting increases in sales of LINE Friends
merchandise. Our rent expenses increased by 37.4%, or ¥2,297 million, from ¥6,143 million in 2017 to
¥8,440 million, primarily due to an increase in the amount of our rental fees in connection with the relocation of
our head offices to Shinjuku in April 2017.
By Segment
The following table presents a breakdown of our operating expenses and changes therein for the periods
indicated by reportable segment.
Core Business Segment
Operating expenses for our core business segment . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
¥114,906
¥151,839
¥36,933
32.1%
68.7%
73.3%
Operating expenses for our core business segment increased by 32.1%, or ¥36,933 million, from
¥114,906 million in 2017 to ¥151,839 million in 2018, primarily due to an increase in sales commission expenses
in connection with the recognition of expenses relating to payments made to advertising agencies pursuant to our
adoption of IFRS 15 and an increase in employee compensation expenses reflecting an increase in the number of
our employees in the segment, as well as an increase in marketing costs in connection with LINE Part-time Job
and LINE Manga.
Strategic Business Segment
Operating expenses for our strategic business segment
. . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
¥ 35,665
¥ 63,715
¥28,050
78.6%
21.3%
30.8%
Operating expenses for our strategic business segment increased by 78.6%, or ¥28,050 million, from
¥35,665 million in 2017 to ¥63,715 million, primarily due to an increase in employee compensation expenses
reflecting an increase in the number of our employees in connection with our investment in talent for our new
fintech businesses, LINE Clova AI platform and blockchain-related initiatives, and an increase in outsourcing
and other service expenses (including costs relating to system improvements and software upgrades to facilitate
the operation of our servers supporting an increasingly wide range of services we offer as well as consulting fees
we pay to third-party experts in the fintech industry that review and advise on our new business plans).
Profit from Operating Activities
Primarily due to the factors described above, our profit from operating activities decreased by 35.8%, or
¥8,968 million, from ¥25,078 million in 2017 to ¥16,110 million in 2018. Our profit from operating activities as
a percentage of our revenues and other operating income decreased from 14.0% in 2017 to 6.8% in 2018, as the
increase in operating expenses outpaced the increase in revenue and other operating income.
77
The following table presents a breakdown of our profit from operating activities by segments and
changes therein for the periods indicated.
For the year ended
December 31,
Changes
2017
2018
Amount
%
(in millions of yen or percentages)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core business segment
Strategic business segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses and adjustments(1) . . . . . . . . . . . . . . . . . . . .
¥ 34,250
(17,674)
8,502
¥ 26,559
(34,931)
24,482
¥ (7,691)
(17,257)
15,980
(22.5)%
97.6
188.0
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 25,078
¥ 16,110
¥ (8,968)
(35.8)%
(1) Mainly includes differences arising from other operating income (including gains on loss of control of subsidiaries) and share-based
compensation expenses.
Core Business Segment
Our profit from operating activities of the core business segment decreased by 22.5%, or ¥7,691 million,
from ¥34,250 million in 2017 to ¥26,559 million in 2018, due to the greater increase in operating expenses from the
segment, as compared to the increase in operating revenue from the segment, for the various reasons described
above. The increase in operating expenses from the segment due to our adoption of IFRS 15 had no impact on our
profit from operating activities because our revenue from the core business segment increased by the same amount.
See “— Critical Accounting Judgments, Estimates and Assumptions — Revenue Recognition — Presentation of
Advertisements.”
Strategic Business Segment
Our
loss from operating activities of
the strategic business segment decreased by 97.6%, or
¥17,257 million, from ¥17,674 million in 2017 to ¥34,931 million in 2018, due to the greater increase in
operating expenses from the segment, as compared to the increase in operating revenue from the segment, for the
various reasons described above.
Corporate Expenses and Adjustments
Our corporate expenses and adjustments increased by 188.0%, or ¥15,980 million, from ¥8,502 million
in 2017 to ¥24,482 million in 2018, primarily due to an increase in other operating income resulting from the
recognition of gains relating to the loss of control of LINE Games Corporation and LINE MOBILE, as described
above.
Finance Income and Finance Costs
Our finance income, which mainly consists of interest income, increased by 60.7%, or ¥156 million,
from ¥257 million in 2017 to ¥413 million in 2018, primarily due to an increase in the amount of investments in
interest-bearing debt instruments. Our finance costs, which mainly consist of interest expenses, increased
significantly by ¥493 million, from ¥26 million in 2017 to ¥519 million in 2018, primarily due to the staggered
recognition of underwriting commission paid in connection with the issuance of the Convertible Bonds as
interest expense until maturity and late payment interests imposed on LINE Plus Corporation, our wholly-owned
subsidiary, by the Korean tax authorities, in connection with a tax audit conducted in September 2018.
Share of Loss of Associates and Joint Ventures
We recognized net loss on our share of associates and joint ventures of ¥6,321 million in 2017 primarily
related to our interest in Snow Corporation that increased following the transfer of our camera application
78
business to Snow Corporation in May 2017 to pursue further synergies. See “Item 4.B. Business Overview —
Our Investments — Investments by LINE Corporation” and “— Comparison of the Years Ended December 31,
2016 and 2017 — Share of Loss of Associates and Joint Ventures.” We recognized net loss on our share of
associates and joint ventures of ¥11,148 million in 2018, representing an increase of 76.4% from 2017, primarily
related to our interest in LINE MOBILE, which started to be accounted for as an associate under the equity
method rather than as a consolidated subsidiary in April 2018 following our partnership agreement with
SoftBank pursuant to which our interest in LINE MOBILE decreased from 100.0% to 49.0%. The losses incurred
by LINE MOBILE in 2018 were primarily due to an increase in marketing expenses relating to the active
promotion of its MVNO service.
Loss on Foreign Currency Transactions, Net
We recognized a 10.3% increase in net loss on foreign currency transactions from ¥818 million in 2017
to ¥902 million in 2018 resulting from fluctuations in exchange rates, particularly the fluctuation of the Japanese
yen against the Korean won, U.S. dollar and the Taiwanese dollar during these periods.
During 2017, the Japanese yen weakened against the Korean won in the second half of the year. Our net
loss on foreign currency transactions in 2017 related primarily to foreign currency loss on Korean
won-denominated payables at LINE Plus Corporation and LINE Corporation, whose functional currency is the
Japanese yen.
During 2018, the Japanese yen fluctuated significantly against the U.S. dollar throughout the year. Our
net loss on foreign currency transactions in 2018 related primarily to foreign currency losses on U.S. dollar-
denominated bank deposits at LINE Financial Asia and LINE Corporation, whose functional currency is the
Japanese yen.
Other Non-operating Income
In 2017, we recognized other non-operating income of ¥1,963 million primarily resulting from a
¥1,096 million gain on financial assets at fair value through profit or loss related to fair value measurement gain
of conversion right of redeemable preferred stock in 4:33 Creative Lab, a Korean game development company
we invested in through LINE C&I Corporation, as well as a ¥751 million gain on sale of financial assets related
to our disposition of holdings in gumi Inc., a mobile games developer and publisher listed on the Tokyo Stock
Exchange, and three other listed companies. In 2018, we recognized other non-operating income of ¥869 million
primarily due to a ¥555 million gain on financial assets at fair value through profit or loss resulting primarily
from fair value measurement gain of convertible redeemable preferred stock in NPLE Games Co., Ltd., a Korean
game development company we invest in through LINE Games Corporation, as well as gains on our investments
in two other entities.
Other Non-operating Expenses
In 2017, we recognized other non-operating expenses of ¥1,988 million primarily due to a
¥1,761 million loss on impairment of available-for-sale financial assets related primarily to our investment in
4:33 Creative Lab. In 2018, we recognized other non-operating expenses of ¥1,469 million primarily due to a
¥1,231 million loss on financial assets at fair value through profit or loss primarily related to fair value
measurement loss of convertible redeemable preferred stock in 4:33 Creative Lab.
Income Tax Expenses
Our income tax expenses decreased by 4.0%, or ¥400 million, from ¥9,922 million in 2017 to
¥9,522 million in 2018. Our effective income tax rate of 54.7% for continuing operations for 2017 differed from
the Japanese statutory tax rate of 31.7% for 2017 primarily due to pre-tax losses recorded by some of our
79
subsidiaries on a stand-alone basis and the recognition of share of loss of associates and joint ventures for which
no deferred tax assets were recognized, as the related tax benefits could not be recognized. Our effective income
tax rate of 283.9% for continuing operations for 2018 differed from the Japanese statutory tax rate of 31.7% for
2018 primarily due to pre-tax losses recorded by some of our subsidiaries on a stand-alone basis, as well as
additional taxes paid by LINE Plus Corporation, our wholly-owned subsidiary in Korea, to the Korean tax
authorities as a result of a tax audit conducted in September 2018. Such effect was partially offset by the
recognition of a gain on fair value measurement relating to the deconsolidation resulting from the conversion of
LINE MOBILE and LINE Games Corporation from consolidated subsidiaries to associates accounted for under
the equity method in April 2018 and November 2018, respectively.
Profit (Loss) from Discontinued Operations, Net of Tax
We recognized loss from discontinued operations, net of tax, of ¥13 million in 2017 and profit from
discontinued operations, net of tax, of ¥376 million in 2018 related to the liquidation of our MixRadio business
effective March 21, 2016 and its retrospective presentation as a discontinued operation for both periods. See
“— Major Components of Our Results of Operations — Profit (Loss) from Discontinued Operations, Net of
Tax.”
Profit (Loss) for the Year
As a result of the factors described above, we recorded a profit for the year of ¥8,210 million in 2017
but recorded a loss for the year of ¥5,792 million in 2018. Our profit for the year as a percentage of revenues and
other operating income was 4.6% in 2017 and our loss for the year as a percentage of revenues and other
operating income was (2.5)% in 2018.
Comparison of the Years Ended December 31, 2016 and 2017
The results of operations for the years ended December 31, 2016 and 2017 have been restated based on
the bifurcation of our reportable segments in 2018 (see “— Overview”).
80
Revenues
The following table presents a breakdown of our revenues by major services and changes therein for the
periods indicated.
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
Core business segment:
Advertising:
Display advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Account advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 10,448
33,986
10,186
¥ 26,609
38,929
10,433
¥16,161
4,943
247
154.7%
14.5
2.4
Sub-total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,620
75,971
21,351
39.1
Communication, content and others:
Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Content
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub-total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,290
44,784
1,711
75,785
30,225
40,144
2,816
73,185
935
(4,640)
1,105
3.2
(10.4)
64.6
(2,600)
(3.4)
Total core business segment . . . . . . . . . . . . . . . . . . . . . . . . . .
130,405
149,156
18,751
14.4
Strategic business segment:
LINE Friends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,383
916
Total strategic business segment . . . . . . . . . . . . . . . . . . . . . . .
10,299
12,299
5,692
17,991
2,916
4,776
7,692
31.1
521.4
74.7
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥140,704
¥167,147
¥26,443
18.8%
Our
revenues increased by 18.8%, or ¥26,443 million,
from ¥140,704 million in 2016 to
¥167,147 million in 2017 primarily due to increases in revenues of our core business segment and, to a lesser
extent, our strategic business segment. Our MPUs increased slightly from 9.4 million in December 2016 to
9.5 million in December 2017, and our aggregate MAUs in our four key countries of Japan, Taiwan, Thailand
and Indonesia remained relatively stable, increasing slightly from 167 million to 168 million during the same
period, with the increase in MAUs in Japan offset by the decrease in MAUs in Indonesia.
81
Core Business Segment
The following table presents a breakdown of our core business segment revenues by major services and
changes therein for the periods indicated.
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
Advertising:
Display advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Account advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Other advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 10,448
¥ 26,609
¥16,161
154.7%
7.4%
15.9%
¥ 33,986
¥ 38,929
¥ 4,943
14.5%
24.2%
23.3%
¥ 10,186
¥ 10,433
¥
247
2.4%
7.2%
6.2%
Communication, content and others:
Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 29,290
¥ 30,225
¥
935
3.2%
20.8%
18.1%
¥ 44,784
¥ 40,144
¥ (4,640)
(10.4)%
¥
31.8%
1,711
¥
1.2%
24.0%
2,816
1.7%
¥ 1,105
64.6%
Total core business segment
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥130,405
¥149,156
¥18,751
14.4%
92.7%
89.2%
Revenues of our core business segment increased by 14.4%, or ¥18,751 million, from ¥130,405 million
in 2016 to ¥149,156 million in 2017, primarily due to increases in revenues from display advertising and account
advertising, which were offset in part by a decrease in revenues from content.
Display advertising. Revenues from display advertising increased by 154.7%, or ¥16,161 million, from
¥10,448 million in 2016 to ¥26,609 million in 2017, primarily due to increases in revenues from display ads
posted on LINE NEWS (as well as LINE TODAY available in select countries outside of Japan) and Timeline.
The increase in revenues from such display ads was attributable to a growth in demand for our advertising
products and an increase in the level of participation in bidding processes by advertisers, which resulted in an
increase in the unit price we charge our advertisers. Such growth in demand was primarily due to growth in the
user base of LINE NEWS, LINE Today and Timeline services as well as enhancements to our advertising
products that made them more attractive to advertisers. For example, the introduction of LINE NEWS in Japan
and LINE TODAY in select countries outside of Japan as a dedicated tab in the LINE messaging application in
2017 contributed to an increase in popularity of such services, which in turn increased the revenues we generated
from display ads posted on LINE NEWS and LINE TODAY.
Account advertising. Revenues from account advertising increased by 14.5%, or ¥4,943 million, from
¥33,986 million in 2016 to ¥38,929 million in 2017, resulting primarily from increases in revenues from LINE@,
Official Accounts and Business Connect, which were offset in part by a decrease in revenues from LINE Point
Ads. Revenues from LINE@ increased primarily due to an increase in new advertisers through sign-up incentives
and marketing initiatives, particularly in Thailand and Japan. For Official Accounts, the number of paid contracts
increased by approximately 17.5% from 549 as of December 31, 2016 to 645 as of December 31, 2017. Revenues
from Business Connect also increased primarily as a result of our successful retention of existing advertisers that
subscribe to such service as well as an increase in new advertisers through sign-up incentives and marketing
initiatives. On the other hand, revenues from LINE Point Ads decreased, reflecting a decrease in utilization of
LINE Points by our advertisers.
82
Content. Revenues from content decreased by 10.4%, or ¥4,640 million, from ¥44,784 million in 2016
to ¥40,144 million in 2017 primarily due to a decrease in the sales volume of in-game items for LINE Games,
which was offset in part by increases in revenues from LINE Manga, LINE Fortune and LINE Music.
The decrease in the sales volume of in-game items was primarily driven by a decrease in revenues from
LINE Rangers, one of our internally-developed games, which was offset in part by an increase in revenues from
a third party-developed game, as well as the consolidation of the operating results of NextFloor Corporation, a
leading mobile game development company in Korea in which we had acquired a 51.0% interest through our
once wholly-owned subsidiary, LINE Games Corporation, starting in July 2017. For internally-developed games,
we recognize as revenues the gross amount of consideration paid by users which amplifies the impact of
purchases of in-game items on our revenues compared to third-party developed games, for which we recognize as
revenues the net proceeds after deducting amounts paid to third-party game developers and payment processing
service providers. See “— Major Components of Our Results of Operations — Revenues.” In addition, for a
discussion of MAUs and MPUs of LINE Games, which decreased significantly in 2017 compared to 2016, see
“— Factors Affecting Our Financial Condition and Results of Operations.”
Partially offsetting decreases in revenues from LINE Games, we recorded increases in revenues from
LINE Manga, LINE Fortune and LINE Music in 2017 compared to 2016 primarily reflecting increases in users
and their engagement of such services.
Strategic Business Segment
The following table presents a breakdown of our strategic business segment revenues by major services
and changes therein for the periods indicated.
LINE Friends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total strategic business segment . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥ 9,383
¥12,299
¥2,916
31.1%
¥
6.7%
916
0.7%
7.4%
¥ 5,692
¥4,776
521.4%
3.4%
¥10,299
¥17,991
¥7,692
74.7%
7.3%
10.8%
Revenues of our
from
¥10,299 million in 2016 to ¥17,991 million in 2017, due to increases in revenues from the Others and LINE
Friends categories.
increased by 74.7%, or ¥7,692 million,
strategic business
segment
Others. Revenues from the Others category increased by 521.4%, or ¥4,776 million, from ¥916 million
in 2016 to ¥5,692 million in 2017, primarily due to an increase in the subscribers of LINE Mobile MVNO service
and an increase in engagement of LINE Pay service in Taiwan.
LINE Friends. Revenues from LINE Friends increased by 31.1%, or ¥2,916 million,
from
¥9,383 million in 2016 to ¥12,299 million in 2017, primarily due to the expansion of our LINE Friends retail
stores in Asia, particularly in Korea and China.
Geographic Information
Revenues from Japan accounted for 71.7% and 72.6% of our total revenues in 2016 and 2017,
respectively. Revenues from Taiwan accounted for 11.1% and 9.9% of our total revenues in 2016 and 2017,
respectively.
83
Other Operating Income
Our other operating income increased by 103.9%, or ¥6,119 million, from ¥5,892 million in 2016 to
¥12,011 million in 2017, primarily due to the recognition of a ¥10,444 million gain on divestiture of business and
subsidiaries relating to the transfer of our camera application business, including B612 and LINE Camera, which
was operated by our wholly-owned subsidiary LINE Plus Corporation, to Snow Corporation in May 2017, which
was offset in part by our recognition of a gain of ¥2,461 million from our sale of land in Fukuoka to Kyushu
Railway Company in June 2016, compared to no such gain in 2017.
Operating Expenses
Total
The following table presents a breakdown of our operating expenses and changes therein for the periods
indicated.
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
Payment processing and licensing expenses . . . . . . . . . . . . . . . . . .
Sales commission expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . . . . . . . . . . . .
Outsourcing and other service expenses(1)
. . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . .
Other operating expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥ 29,781
615
39,445
11,833
7,770
13,779
5,100
18,376
¥ 29,589
899
42,469
15,477
9,087
24,007
7,149
25,403
¥ (192)
284
3,024
3,644
1,317
10,228
2,049
7,027
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥126,699
¥154,080
¥27,381
(0.6)%
46.2
7.7
30.8
16.9
74.2
40.2
38.2
21.6%
(1) Due to our adoption of IFRS 15 starting on January 1, 2018, “sales commission expenses,” which were part of “authentication and other
service expenses” prior to January 1, 2018, are now presented separately as a new line item, with the remainder of “authentication and
other service expenses” re-categorized as “outsourcing and other service expenses,” starting with the year ended December 31, 2018.
Such change has been applied to the figures for the years ended December 31, 2016 and 2017. For more information on the impact of
our adoption of IFRS 15, see “— Recently Adopted Accounting Standards — The Impact of IFRS 15” and Note 3(30) of the notes to
our annual consolidated financial statements.
(2) Other operating expenses include rent, cost of goods sold relating to the sale of our products, supplies, travel, professional fees, taxes
and dues, training and other miscellaneous operating expenses.
The following table presents a breakdown of our operating expenses as percentages of revenues for the
periods indicated.
For the year ended
December 31,
2016
2017
(in percentages of total revenues)
Payment processing and licensing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outsourcing and other service expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.2%
0.4
28.0
8.4
5.5
9.8
3.6
13.1
90.0%
17.7%
0.5
25.4
9.3
5.4
14.4
4.3
15.2
92.2%
84
Our operating expenses increased by 21.6%, or ¥27,381 million, from ¥126,699 million in 2016 to
¥154,080 million in 2017, primarily due to increases in outsourcing and other service expenses, marketing
expenses, employee compensation expenses and rent expenses. Our operating expenses as a percentage of
revenues increased from 90.0% in 2016 to 92.2% in 2017.
Payment Processing and Licensing Expenses
Payment processing and licensing expenses . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥29,781
¥29,589
¥ (192)
(0.6)%
21.2%
17.7%
Payment processing and licensing expenses decreased by 0.6%, or ¥192 million, from ¥29,781 million
in 2016 to ¥29,589 million in 2017 primarily due to a decrease in processing fees paid to payment processing
service providers resulting from a decrease in sales of virtual items for internally-developed games. Such effect
was offset in part by increases in licensing fees paid to creators of Stickers sold on Creators Market, licensing
fees related to various contents offered on the LINE platform and portal sites, including on-demand videos
offered on LINE TV, and payment processing fees related to LINE Pay and LINE Mobile MVNO services. In
addition, we consolidated in our results the payment processing and licensing expenses of NextFloor
Corporation, in which we had acquired a 51.0% interest through our once wholly-owned subsidiary, LINE
Games Corporation, starting in July 2017.
Employee Compensation Expenses
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥39,445
¥42,469
¥ 3,024
7.7%
28.0%
25.4%
Our employee compensation expenses increased by 7.7%, or ¥3,024 million, from ¥39,445 million in
2016 to ¥42,469 million in 2017 primarily due to increases in salary, bonus and welfare expenses reflecting an
increase in the number of our employees, which effect was partially offset by a decrease in our share-based
compensation expenses. The number of our full-time employees increased from 3,085 as of December 31, 2016
to 4,344 as of December 31, 2017. Our share-based compensation expenses, which include expenses related to
stock options issued from time to time as well as equity-settled and cash-settled employee stock ownership plans
launched in July 2017, decreased by 71.8%, or ¥6,833 million, from ¥9,519 million in 2016 to ¥2,686 million in
2017, as we completed amortization of expenses related to stock options issued in 2015 by January 2017. Our
share-based compensation expenses in 2017 related primarily to 23,860 stock options issued in July 2017 that are
amortized from the grant date as well as our launch of equity-settled and cash-settled employee stock ownership
plans in July 2017. For further details on our stock options and employee stock ownership plans, see “Item 6.E.
Share Ownership” and Note 27 of the notes to our annual consolidated financial statements.
Marketing Expenses
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥11,833
¥15,477
¥ 3,644
30.8%
8.4%
9.3%
Marketing expenses increased by 30.8%, or ¥3,644 million, from ¥11,833 million in 2016 to
¥15,477 million in 2017 primarily due to increases in marketing of various products and services, particularly the
promotion of Clova Wave and Clova Friends smart speakers launched in Japan in the fourth quarter of 2017 and
LINE Mobile MVNO service. Such effect was partially offset by a decrease in marketing expenses for LINE
Games in 2017, reflecting performance of newly released titles, which in turn led to a reduction of our marketing
budget for such games.
Outsourcing and Other Service Expenses
Outsourcing and other service expenses . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥ 13,779
¥ 24,007
¥10,228
74.2%
9.8%
14.4%
from
Our outsourcing and other service expenses increased by 74.2%, or ¥10,228 million,
¥13,779 million in 2016 to ¥24,007 million in 2017, primarily due to additional fees for accessing wireless
communications networks of a third-party mobile telecommunications company related to an increase in the
subscribers of our LINE Mobile MVNO service, increase in fees paid to third-party mobile advertising service
providers related to delivery of advertising products offered on the LINE platform, as well as an increase in costs
relating to system improvements and software upgrades to facilitate the operation of our servers supporting an
increasingly wide range of services we offer.
Other Operating Expenses
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥ 18,376
¥ 25,403
¥ 7,027
38.2%
13.1%
15.2%
Our other operating expenses increased by 38.2%, or ¥7,027 million, from ¥18,376 million in 2016 to
¥25,403 million in 2017, primarily due to increases in rent and supplies expenses in connection with our
relocation to our new headquarters in Shinjuku in April 2017, as well as an increase in cost of goods sold. Our
rent expenses increased by 74.1%, or ¥2,614 million, from ¥3,529 million in 2016 to ¥6,143 million in 2017, and
our supplies expenses increased by 106.1%, or ¥1,224 million, from ¥1,154 million in 2016 to ¥2,378 million in
2017. Our cost of goods, which relates to the revenue generated from the others category, increased by 40.6%, or
¥1,427 million, from ¥3,519 million in 2016 to ¥4,946 million in 2017 primarily reflecting increases in sales of
LINE Friends merchandise and Clova Wave and Clova Friends smart speakers.
By Segment
The following table presents a breakdown of our operating expenses and changes therein for the periods
indicated by reportable segment.
Core Business Segment
Operating expenses for our core business segment
. . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥101,276
¥114,906
¥13,630
13.5%
72.0%
68.7%
Operating expenses for our core business segment increased by 13.5%, or ¥13,630 million, from
¥101,276 million in 2016 to ¥114,906 million in 2017, primarily due to an increase in outsourcing and other
service expenses, including fees paid to third-party mobile advertising service providers for the delivery of our
advertising products and costs relating to system improvements and software upgrades for our servers, and an
increase in employee compensation expenses reflecting an increase in the number of our employees in the
segment, as described above.
Strategic Business Segment
Operating expenses for our strategic business segment . . . . . . . .
Percentage of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
¥15,042
¥ 35,665
¥ 20,623
137.1%
10.7%
21.3%
Operating expenses for our strategic business segment increased by 137.1%, or ¥20,623 million, from
¥15,042 million in 2016 to ¥35,665 million in 2017, primarily due to an increase in outsourcing and other service
expenses, including fees paid for access to wireless communications networks in connection with the increase in
our LINE Mobile MVNO service subscribers and costs relating to system improvements and an increase in
marketing expenses from the promotion of our LINE Clova-integrated smart speakers and LINE Mobile MVNO
service, as well as an increase in employee compensation expenses reflecting an increase in the number of our
employees in the segment, as described above.
Profit from Operating Activities
Primarily due to the factors described above, our profit from operating activities increased by 26.0%, or
¥5,181 million, from ¥19,897 million in 2016 to ¥25,078 million in 2017. Our profit from operating activities as
a percentage of our revenues and other operating income increased from 13.6% in 2016 to 14.0% in 2017, as the
increase in revenues and other operating income outpaced the increase in operating expenses.
The following table presents a breakdown of our profit from operating activities by segments and
changes therein for the periods indicated.
For the year ended
December 31,
Changes
2016
2017
Amount
%
(in millions of yen or percentages)
Core business segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strategic business segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses and adjustments(1) . . . . . . . . . . . . . . . . . . . . .
¥29,129
(4,743)
(4,489)
¥ 34,250
(17,674)
8,502
¥ 5,121
(12,931)
12,991
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥19,897
¥ 25,078
¥ 5,181
17.6%
272.6
NA (2)
26.0%
(1) Mainly includes other operating income and share-based compensation expenses, except that the figure for the year ended December 31,
2016 also includes differences in exchange rate under managerial accounting.
(2) NA means “not applicable.”
Core Business Segment
Our profit from operating activities of the core business segment increased by 17.6%, or ¥5,121 million,
from ¥29,129 million in 2016 to ¥34,250 million in 2017, due to the greater increase in operating revenue from
the segment, as compared to the increase in operating expenses from the segment, for the various reasons
described above.
87
Strategic Business Segment
Our loss from operating activities of the strategic business segment
increased by 272.6%, or
¥12,931 million, from ¥4,743 million in 2016 to ¥17,674 million in 2017, due to the increase in operating
expenses from the segment, which outpaced the increase in operating revenue from the segment, for the various
reasons described above.
Corporate Expenses and Adjustments
Our corporate expenses and adjustments increased by ¥12,991 million, from ¥(4,489) million in 2016 to
¥8,502 million in 2017, primarily due to an increase in other operating income resulting from the gain on
divestiture of business and subsidiaries in connection with the transfer of our camera application business from
LINE Plus Corporation to Snow Corporation in May 2017, as described above.
Finance Income and Finance Costs
Our finance income, which mainly consists of interest income, increased by 195.4%, or ¥170 million,
from ¥87 million in 2016 to ¥257 million in 2017 due primarily to an increase in the amount of investments in
interest-bearing debt instruments. Our finance costs, which mainly consist of interest expenses, decreased by
60.0%, or ¥39 million, from ¥65 million in 2016 to ¥26 million in 2017 primarily due to a decrease in the
average monthly balance of our short-term borrowings, as well as the repayment of all of our outstanding bonds
in 2016.
Share of Loss of Associates and Joint Ventures
We recognized net loss on our share of associates and joint ventures of ¥833 million in 2016 primarily
related to our interests in LINE MUSIC Corporation and Snow Corporation, which incurred losses primarily
attributable to cost of content and advertising expenses, respectively. We recognized net loss on our share of
associates and joint ventures of ¥6,321 million in 2017 primarily related to our interest in Snow Corporation,
which continued to invest in acquiring additional users of camera applications, particularly in China, prior to
monetizing its services. Our share of loss in Snow Corporation also increased due to an increase in our ownership
interest following the transfer of our camera application business in May 2017 that was operated by our wholly-
owned subsidiary, LINE Plus Corporation, to Snow Corporation to pursue further synergies. See “Item 4.B.
Business Overview — Our Investments.”
Loss on Foreign Currency Transactions, Net
We recognized a 1,802.3% increase in net loss on foreign currency transactions from ¥43 million in
2016 to ¥818 million in 2017 resulting from fluctuations in exchange rates, particularly the fluctuation of the
Japanese yen against the Korean won, U.S. dollar and the Taiwanese dollar during these periods.
During 2016, the Japanese yen strengthened against the U.S. dollar, the Taiwanese dollar and the
Korean won, in the first half of the year and, in the second half of the year, weakened to rates similar to those at
the beginning of the year. Our net loss on foreign currency transactions in 2016 related primarily to a foreign
currency loss on Japanese-yen denominated payables at LINE BIZ.+ PTE LTD, whose functional currency is the
U.S dollar, offset in part by a foreign currency gain on Japanese yen-denominated payables at LINE Taiwan
Limited, whose functional currency is the Taiwanese dollar.
During 2017, the Japanese yen weakened against the Korean won in the second half of the year. Our net
loss on foreign currency transactions in 2017 related primarily to foreign currency loss on Korean
won-denominated payables at LINE Plus Corporation and LINE Corporation, whose functional currency is the
Japanese yen.
88
Other Non-operating Income
In 2016, we recognized other non-operating income of ¥9 million. In 2017, we recognized other
non-operating income of ¥1,963 million primarily resulting from a ¥1,096 million gain on financial assets at fair
value through profit or loss related to fair value measurement gain of conversion right of redeemable preferred
stock in 4:33 Creative Lab, a Korean game development company we invested in through LINE C&I
Corporation, as well as a ¥751 million gain on sale of financial assets related to our disposition of holdings in
gumi Inc., a mobile games developer and publisher listed on the Tokyo Stock Exchange, and three other listed
companies.
Other Non-operating Expenses
In 2016, we recognized other non-operating expenses of ¥1,062 million primarily due to a ¥656 million
loss on financial assets at fair value through profit or loss related primarily to the conversion right of redeemable
preferred stock in 4:33 Creative Lab, a Korean game development company we invested in through LINE C&I
Corporation. In 2017, we recognized other non-operating expenses of ¥1,988 million primarily due to a
¥1,761 million loss on impairment of available-for-sale financial assets related primarily to our investment in
4:33 Creative Lab.
Income Tax Expenses
Our income tax expenses increased by 11.4%, or ¥1,018 million, from ¥8,904 million in 2016 to
¥9,922 million in 2017. Our effective income tax rate of 49.5% for continuing operations for 2016 differed from
the Japanese statutory tax rate of 33.5% for 2016 primarily due to non-deductible share-based payment expenses
incurred in connection with stock options granted to employees and directors who are non-Japanese residents as
well as pre-tax losses of subsidiaries for which no deferred tax assets were recognized. Our effective income tax
rate of 54.7% for continuing operations for 2017 differed from the Japanese statutory tax rate of 31.7% for 2017
primarily due to pre-tax losses recorded by some of our subsidiaries on a stand-alone basis and the recognition of
share of loss of associates and joint ventures for which no deferred tax assets were recognized, as the related tax
benefits could not be recognized.
Loss from Discontinued Operations, Net of Tax
We recognized loss from discontinued operations, net of tax, of ¥1,982 million in 2016 and ¥13 million
in 2017 related to the liquidation of our MixRadio business effective March 21, 2016 and its retrospective
presentation as a discontinued operation for both periods. See “— Major Components of Our Results of
Operations — Profit (Loss) from Discontinued Operations, Net of Tax.”
Profit for the Year
As a result of the factors described above, our profit for the year increased by 15.6%, or ¥1,106 million,
from ¥7,104 million in 2016 to ¥8,210 million in 2017. Our profit for the year as a percentage of revenues and
other operating income decreased from 4.8% in 2016 to 4.6% in 2017.
89
Item 5.B. Liquidity and Capital Resources
Liquidity and Capital Resources
Cash Flows
The following table sets forth our cash flows for the periods indicated.
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the beginning of the year . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the end of the year . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31,
2016
2017
2018
¥ 28,753
(34,086)
106,628
33,652
134,698
(in millions of yen)
¥ 10,965
¥
(34,230)
11,439
134,698
123,606
9,122
(52,884)
178,401
123,606
256,978
institutions with respect
Our principal sources of liquidity since 2016 to date have been proceeds from the completion of our
initial public offering in July 2016, incurrences of debt, the issuance of the Convertible Bonds in September 2018
and cash generated by our operations. We manage our liquidity risk to meet our working capital and operational
requirements by continually managing projected cash flows. We also aim to mitigate liquidity risk by contracting
to bank overdrafts and banking facility agreements for efficient
with financial
management of funds. We believe that cash from our operations, current and future financing arrangements
(including short-term and long-term borrowing facilities and issuances of corporate bonds, such as convertible
bonds) and existing cash and cash equivalents are likely to be sufficient
to satisfy our operating cash
requirements, capital expenditure needs and debt service requirements for the next twelve months. However, we
may need additional cash resources in the future if we find and wish to pursue opportunities for investment,
acquisition or strategic cooperation, which may include investing in technology, technical infrastructure or
acquisition of additional equity interests in subsidiaries or associates. If we determine that our cash requirements
exceed our available cash holdings, we may seek to issue additional debt or equity securities or obtain additional
credit facilities or other sources of funding.
The Payment Services Act requires entities that engage in business activities involving advance
payments from customers using prepaid payment instruments such as virtual currencies to set aside amounts
covering at least 50% of the total amount of the unused amounts or credits represented by such instruments
issued as of the end of either the first or third quarter of any year (if such total amount is more than ¥10 million)
for the users, either by making a deposit or by entering into certain guarantee or trust agreements. In accordance
with the Payment Services Act, we had deposited ¥635 million as guarantee deposits as of December 31, 2018.
As part of our efforts to comply with the Payment Services Act, we deposited our investments in Japanese
government bonds of ¥280 million as of December 31, 2016, 2017 and 2018, which we intend to hold until
maturity. In addition, we entered into credit guarantee contracts with banks for ¥10,100 million as of
December 31, 2016, for ¥12,500 million as of December 31, 2017 and for ¥18,500 million as of December 31,
2018.
Net Cash Provided by Operating Activities
Our net cash provided by operating activities consists of net profit or loss adjusted for certain non-cash
items including depreciation and amortization and share-based compensation as well as the effect of changes in
working capital and other activities.
Our net cash provided by operating activities decreased from ¥10,965 million in 2017 to ¥9,122 million
in 2018, despite an increase in our gross cash flow from sales activities as described above. Our net cash
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provided by operating activities was negatively impacted by a decrease in the growth rate of deposits made by
LINE Pay users in Taiwan in 2018 compared to 2017, which amount is re-classified from advances received to
others starting in 2018, as well as the payment of issuance costs relating to our issuance of the Convertible Bonds
in September 2018, primarily consisting of underwriting commission. These factors were largely offset by a
decrease in trade and other receivables from 2017 to 2018, mainly due to the accelerated collection of fees from
payment processing service providers, which had a positive impact on our net cash provided by operating
activities during the same period.
Our net cash provided by operating activities decreased from ¥28,753 million in 2016 to
¥10,965 million in 2017, despite an increase in our gross cash flow from sales activities as described above. Our
net cash provided by operating activities was negatively impacted by an increase in trade and other receivables
from ¥756 million in 2016 to ¥13,539 million in 2017 primarily due to the expansion of certain of our businesses,
in particular LINE Pay service in Taiwan, as well as a lag in the timing of collection of fees from payment
processing service providers and advertising agencies. Cash used in payment of income taxes also increased from
¥7,522 million in 2016 to ¥12,421 million in 2017, and an increase in the buildup of our inventories, primarily
consisting of our Clova Wave and Clova Friends smart speakers as well as LINE Friends merchandise,
negatively impacted our cash flows by ¥2,366 million in 2017 compared to a positive impact on our cash flows
amounting to ¥407 million in 2016. On the other hand, better management of our trade and other payables
resulted in a positive impact on our cash flows by ¥6,215 million in 2017 compared to a negative impact on our
cash flows by ¥1,620 million in 2016, which helped offset these effects.
Net Cash Used in Investing Activities
Our net cash used in investing activities increased from ¥34,230 million in 2017 to ¥52,884 million in
2018 primarily due to an increase in our purchases of time deposits from ¥1,282 million in 2017 to
¥13,443 million in 2018, an increase in investments in debt instruments from ¥6,433 million in 2017 to
¥15,661 million in 2018, an increase in investments in associates and joint ventures from ¥5,566 million in 2017
to ¥14,214 million in 2018 mainly related to our investments in FOLIO, as well as an increase in payments for
acquisition of property and equipment and intangible assets from ¥12,622 million in 2017 to ¥20,939 million in
2018 mainly related to our acquisition of additional servers. These factors were partially offset by an increase in
proceeds from maturities of time deposits from ¥401 million in 2017 to ¥13,843 million in 2018 and a decrease
in payment for acquisition of subsidiaries and businesses from ¥11,887 million in 2017 to ¥188 million in 2018.
Our net cash used in investing activities increased slightly from ¥34,086 million in 2016 to
¥34,230 million in 2017 primarily due to an increase in acquisition of subsidiaries and businesses, net of cash
acquired, from ¥423 million in 2016 to ¥11,887 million in 2017 as well as an increase in acquisition of property
and equipment and intangible assets from ¥6,352 million in 2016 to ¥12,622 million in 2017. In 2017, we
recorded net cash outflow of ¥5,215 million related to our acquisition of a 100.0% interest in FIVE Inc., which
specializes in operating a video advertising platform for mobile phones, as well as net cash outflow of
¥2,005 million related to our acquisition of a 51.0% interest in NextFloor Corporation, a game company in
Korea. The increase in acquisition of property and equipment and intangible assets was primarily due to
expansion and relocation of our headquarters to Shinjuku in April 2017. These factors were substantially offset
by a decrease in cash outflow from purchases of time deposits from ¥10,790 million in 2016 to ¥1,282 million in
2017 as well as proceeds from redemption of debt instruments of ¥5,209 million in 2017 compared to no such
proceeds in 2016.
Net Cash Provided by Financing Activities
Our net cash provided by financing activities increased significantly from ¥11,439 million in 2017 to
¥178,401 million in 2018 primarily due to a cash inflow of ¥149,978 million from our issuance of the
Convertible Bonds in 2018 compared to no such proceeds in 2017. In September 2018, we raised a total of
approximately ¥146.3 billion from the issuance of the Convertible Bonds through an offering pursuant to
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Regulation S under the Securities Act and a private placement to NAVER Corporation, our largest shareholder.
The Convertible Bonds are convertible into shares of our common stock at an initial conversion price per share of
¥7,467 for the Convertible Bonds due 2023 and ¥7,518 for the Convertible Bonds due 2025. We are using the
proceeds from this issuance to fund investments in our fintech businesses, LINE Clova AI platform and
blockchain-related initiatives. Our net cash provided by financing activities was also positively impacted by an
increase in capital contribution from non-controlling interests from ¥345 million in 2017 to ¥26,439 million in
2018 primarily related to proceeds from the issuance of new shares by LINE Biz+ Taiwan Limited and LINE
Digital Frontier to non-controlling interests. Such factors were offset in part by a decrease in proceeds from
exercise of stock options from ¥11,489 million in 2017 to ¥1,002 million in 2018.
Our net cash provided by financing activities decreased from ¥106,628 million in 2016 to
¥11,439 million in 2017. This decrease was primarily attributable to proceeds from our initial public offering of
¥126,848 million in 2016 compared to no such proceeds in 2017, which was offset in part by a decrease in net
repayment of short-term borrowings from ¥20,752 million in 2016 to ¥107 million in 2017 as well as an increase
in proceeds from exercise of stock options from ¥1,750 million in 2016 to ¥11,489 million in 2017.
Contractual Obligations and Commitments
The following table sets forth the amount of contractual obligations as of December 31, 2018, and the
effect such obligations are expected to have on our liquidity and cash flow in future periods.
Corporate bond obligations(1)
. . . . . . . . . . . . . . . . . . .
Short-term borrowing obligations(2)
. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Operating lease obligations(3)
Purchase obligations(4) . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits received(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits received under sublease
agreement(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future estimated defined benefit plan payments(7)
. . .
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . .
Payments Due by Period
Total
Less than
1 Year
1 to 3 Years
4 to 5 Years
¥146,320
23,019
58,688
1,820
13,653
(in millions of yen)
¥ — ¥ — ¥73,160
—
23,019
8,099
9,662
—
1,820
—
13,653
—
18,127
—
—
More than
5 Years
¥ 73,160
—
22,800
—
—
16
6,734
35,210
—
276
34,985
16
795
225
—
1,115
—
—
4,548
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥285,460
¥83,415
¥19,163
¥82,374
¥100,508
(1) Represents the aggregate principal amount of the Convertible Bonds to be redeemed at maturity in 2023 and 2025, as applicable, unless
previously redeemed or purchased and cancelled, or the stock acquisition rights incorporated therein have already been exercised.
(2) As of December 31, 2018, the book value of our short-term borrowings was ¥23,000 million.
(3) We enter into operating lease agreements for certain office space and stores.
(4) Our purchase obligations include contracts for property and equipment and intangible assets. See Note 9(3) and 10(3) of the notes to our
annual consolidated financial statements.
(5) The deposits received primarily relate to deposits made by LINE Pay users as of December 31, 2018. The obligations arising from such
deposits are extinguished when such deposits are redeemed through LINE Pay transactions and continue to change as LINE Pay users
make or redeem deposits. Accordingly, for purposes of this table, all such obligations are presented as due in less than one year.
(6) The deposits received primarily relate to the sublease of our store spaces.
(7) Represents, as of December 31, 2018, the expected amount of retirement benefits that we will be required to pay within ten years under
applicable law to employees of our Korean subsidiaries, including LINE Plus Corporation, LINE PLAY Corporation, LINE Biz Plus
Corporation and LINE Friends Corporation, when they reach their normal retirement age. The amounts were determined based on the
employees’ current salary rates and the number of service years that will have been accumulated upon their retirement. These amounts
do not include amounts that may be paid to employees who cease to work at the relevant company before their normal retirement age.
Critical Accounting Judgments, Estimates and Assumptions
The preparation of our consolidated financial statements requires us to make difficult, complex and
subjective judgments in making the appropriate estimates and assumptions that affect the amounts reported in our
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consolidated financial statements. By their nature, these judgments are subject to inherent uncertainty. These
judgments are based on our historical experience, terms of existing contracts, our observation of trends in the
relevant industries, information provided by our customers and information available from other outside sources,
as appropriate. While we believe our estimates and judgments are reasonable under the circumstances in which
they were made, there can be no assurance that our judgments will prove to be correct or that actual results
reported in future periods will not differ from our expectations reflected in our accounting treatment of certain
items. For a discussion of our significant accounting judgments, estimates and assumptions, see Note 4 of the
notes to our annual consolidated financial statements.
Revenue Recognition
We believe that revenue recognition is a critical accounting estimate because significant management
judgment is involved in determining the stages of completion of various transactions involving the services or
products offered by us at which time revenue is recognized.
Revenue Recognition for Stickers, Sponsored Stickers, LINE Point Ads and Advertising Services
We recognize revenue associated with certain communication and content sales and with advertising
services by reference to the stage of completion. Starting on January 1, 2018, we have adopted IFRS 15, a new
accounting standard issued by the IASB that establishes a five-step revenue recognition model that applies to all
revenue generated from contracts with customers, regardless of the type of transaction or the industry, with
limited exceptions. We concluded that the current methods of revenue recognition and measurement are in
accordance with IFRS 15, with the exceptions outlined below:
LINE Stickers, Creator Stickers and emoji (collectively, “Stickers”). The adoption of IFRS 15 resulted
in a change to the timing of recognition of revenues from our sales of Stickers, where revenue is now recognized
over an estimated usage period on a straight-line basis instead of the previous method, which was over time but
on an accelerated basis. Under the previous method, we deemed the user’s usage pattern of Stickers, which
represented a user’s consumption of benefits, to be the measuring method that best depicted the progress toward
satisfaction of performance based on a contract, and recognized revenue during the earlier part of the estimated
usage period.
IFRS 15 clarifies the concept of providing a service of standing ready to mean providing a service to
users or making a service available to users for their use as and when they decide to use such service. We have
determined that the Sticker services that we provide to our users employ a concept similar to that of a service of
standing ready. Our performance obligation to our customers, who are users that have purchased our Stickers, is
to make 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 we make Stickers available to them for their use. Because our
performance obligation is evenly fulfilled throughout a certain period of time and the users receive the benefit of
our services evenly throughout the estimated usage period of Stickers, we have determined that the straight-line
method over an estimated usage period would be the best way to measure the progress toward complete
satisfaction of our performance obligation. As a result of our adoption of IFRS 15, our revenue and profit from
operating activities for the year ended December 2018 increased by ¥168 million and ¥162 million, respectively,
compared to the previous method.
LINE Sponsored Stickers. The adoption of IFRS 15 resulted in a change to the timing of recognition of
revenues from our sales of Sponsored Stickers, where revenue is now recognized over an estimated usage period
on a straight-line basis instead of the previous method, which was over time but on an accelerated basis. Under
the previous method, we deemed the user’s usage pattern of Sponsored Stickers, which represented its progress
of rendering the services to the users, to be the measuring method that best depicted the progress toward
satisfaction of performance based on a contract, and recognized revenue based on the user’s usage pattern of
Sponsored Stickers, which was weighted toward the earlier part of the period.
93
IFRS 15 clarifies the definition of a “customer” to mean “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.” In
addition, a contract with “customers” is within the scope of IFRS 15, which requires the measurement of progress
based on the method that reflects the satisfaction of performance obligations to the “customer” of each contract.
In the LINE Sponsored Stickers contract, only advertisers are obligated to pay us consideration for Sponsored
Sticker services, and users that use Sponsored Stickers do not pay us any consideration, directly or indirectly. As
such, we have determined that only advertisers would be considered our “customers” under IFRS 15. Our
performance obligation to advertisers is to make Sponsored Stickers available to the users for their use at any
given time over a contract period. Accordingly, we have determined that a straight-line method over a contract
period would be the best way to measure the progress toward complete satisfaction of our performance
obligation. As a result of our adoption of IFRS 15, our revenue and profit from operating activities for the year
ended December 2018 increased by ¥304 million and ¥250 million, respectively, compared to the previous
method.
LINE Point Ads. Under the previous standard, we recognized revenue associated with LINE Points
granted to users through LINE Point Ads at fair value as advances received, even though such LINE Points were
granted to the end users rather than our customers (i.e., the advertisers) from whom we received the relevant
consideration.
IFRS 15 clarifies the definition of a “customer” to mean “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.” As
the consideration is provided by advertisers only and there is no other consideration provided directly or
indirectly by the end users to whom LINE Points are granted through LINE Point Ads, we have determined that
only advertisers would be considered our “customers” under IFRS 15. Accordingly, we have determined that our
performance obligation in the contract with such advertisers is satisfied when we provide advertising services,
including the issuance of LINE Points to the end users who have taken specific actions that we agreed upon with
the advertisers, since we are not obligated toward advertisers to manage LINE Points or to provide the end users
with any other services in exchange for such LINE Points. As our performance obligation toward the advertisers
is satisfied when LINE Points are granted to the end users, we have decided to recognize revenues from our sales
of LINE Point Ads at the time LINE Points are issued to the end users, rather than at the time such LINE Points
are utilized by the end users. In addition, under IFRS 15, we recognize the expenses for the LINE Points granted
without charge to the end users as provisions at the same time as when such LINE Points are issued to the end
users.
As a result of our adoption of IFRS 15, our revenue for the year ended December 31, 2018 increased by
¥84 million, and our profit from operating activities for the year ended December 31, 2018 decreased by
¥218 million, compared to the previous method.
Presentation of Advertisements. Revenues from display advertising and other advertising are
recognized upon the fulfillment of certain actions under contracts with the advertisers, such as impressions,
views and clicks. For advertising services such as Official Accounts, an advertising agency may be involved in
providing to customers on our behalf certain services, such as formatting of advertisement publications to comply
the share attributable to
with our specifications or standards for advertisement publications. Previously,
advertising agencies was considered an individually identifiable element, and we recognized revenue excluding
such share from the total consideration received from customers as we earned a certain portion of the
consideration received, and did not provide the service directly or bear any credit risk relating to the share of the
advertising agency.
IFRS 15 reconfigures the evaluation criteria for whether an entity is considered a principal or an agent
based on the identification of performance obligations and transfer of control for services. In particular, the
guidance states that “an entity is a principal if it controls the specified good or service before that good or service
is transferred to a customer” and further enhances the guidance and interpretations related to whether an entity
94
controls the rights to goods or services provided by other parties. This includes situations where an entity has the
ability to direct other parties to perform services to customers on the entity’s behalf. Since advertising agencies’
services, such as formatting of advertisement publications, are provided to customers based on our specifications
or standards for advertisement publications, we have determined that we control the services provided by
advertising agencies and that we are deemed to be the principal. Due to the factors above, we changed our
method of revenue recognition to recognize the total consideration received from a customer, including the
services provided by advertising agencies.
As a result of our adoption of IFRS 15, our revenue for the year ended December 31, 2018 increased by
¥8,837 million compared to the previous method. However, there was no effect on our profit from operating
activities for the year ended December 31, 2018 because our sales commission expenses increased by the same
amount. Such increase in sales commission expenses is in accordance with IFRS 15, pursuant to which we now
recognize the costs of contracts consisting of consideration payable to an advertising agency as an asset and such
costs are expensed as the related revenues are recognized, which process recurs every time an advertising
contract is renewed at the end of the original term of the contract.
For a discussion of the adoption of IFRS 15 and the adjustments made to line items presented in our
annual consolidated financial statements due to the change from IAS 18 and Other Standards applied previously
to IFRS 15, including the impact on the line items in the consolidated statements of financial position, see
Note 3(30) of the notes to our annual consolidated financial statements.
Revenue Recognition for Internally-developed Virtual Items
We offer both consumable and durable virtual items in our internally-developed games and applications.
Consumable virtual items are virtual items that are consumed by following an end users’ specific action and do
not provide end users with continuing benefits, whereas durable virtual items are virtual items that provide the
end user with continuing benefits over a specific period. Our performance obligation with respect to both
consumable virtual items and durable virtual items is to make such items available to the users for their use at
any given time, employing a concept similar to that of a service of standing ready, which is clarified by IFRS 15
to mean providing a service to users or making a service available to users for their use as and when they decide
to use such service. The period of benefit of a durable virtual item generally ends at the earliest of (1) an item
ceasing to provide further benefits to an end user (i.e., the period of benefit is represented by the usage period of
such item), (2) an item being removed from the game board or application by specific in-app or in-game actions
taken by an end user or (3) an end user abandoning the game or application. Because consumable virtual items
offered by us are generally consumed upon purchase by end users, we recognize revenues attributable to
consumable virtual items upon sale. For revenues attributable to durable virtual items, revenues are recognized
either (1) on a straight-line basis over the estimated usage period or (2) when we cannot estimate the estimated
usage period upfront, on a straight-line basis over the estimated average playing period of paying users adjusted
for any virtual items removed from the game board or application. We recognize revenue attributable to the
removed virtual items by developing estimated removal rates and applying such rates to total sales generated. We
develop an estimated usage period for durable virtual items considering historical data on purchase patterns and
user usage behavior.
We define the playing period as the period from when a paying user first purchased virtual credits to
when a paying user is deemed to have become inactive, i.e. when a paying user has not logged onto the game/app
for two consecutive months. To estimate the average playing period for a paying user, we analyze monthly
cohorts composed of paying users who made their first purchase of virtual credits during such month. We track
these monthly cohorts and analyze the dates on which paying users within each cohort become inactive. Based on
the actual data observed, we extrapolate the future declines in paying users to determine the ending point of a
paying user’s life beyond the date for which observable data is available. We then use the actual and extrapolated
data to calculate the average playing period. We recognize revenues arising from internally-developed games and
applications by using the estimated average playing period.
95
Upon launching a new game or application, we evaluate the nature of the virtual items, the behavior of
end users with respect to such items and the availability of supporting data in determining the related revenue
recognition policy. We may also consider the data from other existing internally-developed games or applications
as well as industry data in determining the related revenue recognition policy if there is insufficient history for
such new game or application. If we do not have sufficient historical data to analyze user behavior and cannot
identify any similar games or applications to serve as references for us to reasonably estimate the life of the game
or application, we defer all sales until such history is developed. Once we have sufficient historical data, we
assess the estimations (such as the estimated usage period and the estimated average playing period for paying
users) for durable virtual items for each game or application on a quarterly basis. If user behavior changes over
time or deviates from our estimates, we may be required to change the timing of our revenue recognition, which
could materially and adversely affect our results of operations.
Income Taxes and Recovery of Deferred Tax Assets
Our income tax expenses are comprised of current tax and deferred tax. Current tax is the expected tax
payable or receivable on our taxable profit or loss for the year, using tax rates enacted or substantively enacted at
the end of the reporting period and any adjustments to tax payable in respect of previous years.
We recognize deferred tax on temporary differences between the carrying value of an asset or liability
for financial reporting purposes and the amounts used for taxation purposes. The deferred tax assets and deferred
tax liabilities are calculated using the tax rates based on tax laws that have been enacted or substantively enacted
by the end of the reporting period and the tax rates that are expected to apply to the period when the deferred tax
asset is realized or the deferred tax liability is settled. Deferred tax assets are recognized for all deductible
temporary differences, unused tax losses carried forward and unused tax credits carried forward to the extent that
it is probable that taxable income will be available. The estimation of future taxable income is calculated based
on business plans approved by our management, and it is based on our management’s subjective judgments and
assumptions.
We believe that recognition of deferred tax assets is a significant accounting policy that requires our
management’s estimates and assumptions regarding, among other things, the level of future taxable income,
interpretation of the tax laws and tax planning. Changes in tax laws, projected levels of taxable income and tax
planning could affect the effective tax rate and tax balances recorded by us in the future. As of December 31,
2018, we recorded deferred tax assets of ¥17,107 million and deferred tax liabilities of ¥503 million.
Impairment
Non-financial Assets
Non-current assets other than goodwill. Non-current assets other than goodwill, such as property and
equipment and intangible assets with definite useful lives, are assessed for indicators of impairment at the end of
each reporting period. Intangible assets with indefinite useful lives, including goodwill (described further below),
are tested for impairment annually. We evaluate both internal and external sources of information to assess
whether impairment indicators exist. Some of the impairment indicators are evidence of obsolescence, significant
adverse changes in the technological, market, economic or legal environment of the market in which we operate.
If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if
any, of the impairment loss. Likewise, the determination of the assets’ recoverable amounts involves the use of
estimates by our management that can have a material impact on the respective values and ultimately the amount
of any impairment. As a result of the liquidation of MixRadio in March 2016, our MixRadio business was
retrospectively classified as part of discontinued operations. In 2016, 2017 and 2018, no impairment loss was
recognized for tangible and intangible assets with definite useful lives in connection with our MixRadio business.
See “— Major Components of Our Results of Operations — Profit (Loss) from Discontinued Operations, Net of
Tax” and Note 9, Note 10 and Note 11 of the notes to our annual consolidated financial statements.
96
Goodwill. As of December 31, 2018, we had ¥17,095 million of goodwill. The goodwill impairment test
requires us to test at least annually and more frequently as indicators of impairment are identified. The goodwill
impairment test requires us to exercise judgment and assess whether the carrying value of the cash-generating
units to which goodwill has been allocated can be supported by the recoverable amount of such cash-generating
units. The recoverable amount of a cash-generating unit is determined based on a value-in-use calculation that
involves the use of estimates. The main assumptions used in the value-in-use calculation include the discount
rate, terminal growth rate and expected future cash flow projections for a period of up to five years from financial
budgets approved by our management. Cash flow projections after the planning period are extrapolated using
terminal growth rates. Cash flow projections take into account past experience and represent our management’s
best estimates. These assumptions are subject to significant adjustments from various factors including user
trends, spending on marketing, technology infrastructure and competition.
In order to estimate the discount rate that reflects the time value of money and the risks specific to the
cash-generating units, we have assumed a risk-free rate equal to one-month average market yields on 10-year
Japanese government bonds at the date of performing the annual impairment test. We also incorporated a risk
premium, such as a company specific premium and equity premium, in the discount rate. The terminal value
growth rates, which are the long-term average inflation rates in Japan,
take into consideration external
macroeconomic data.
The key assumptions used in our value-in-use calculations are as follows:
For the year ended December 31,
2016
2017
2018
Pre-tax
discount
rate
Terminal
growth rate
Pre-tax
discount
rate
Terminal
growth rate
Pre-tax
discount
rate
Terminal
growth rate
LINE business and portal
Core business
. . . . . . . . . . . . . . .
11.7%
1.1%
10.3%
1.6%
—
—
Core business . . . . . . . . . . . . . . . . . . . . .
Strategic business
LINE Friends . . . . . . . . . . . . . . . . . . . . .
Fintech . . . . . . . . . . . . . . . . . . . . . . . . . . .
e-commerce . . . . . . . . . . . . . . . . . . . . . . .
AI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11.6%
1.3%
11.2%
11.8%
11.0%
11.5%
2.3%
1.6%
1.7%
1.7%
In validating the value-in-use determined for the cash-generating units,
the sensitivity of key
assumptions used in the discounted cash-flow model such as discount rates and the terminal growth rate was
evaluated. See Note 11 of the notes to our annual consolidated financial statements. We believe that determining
the existence and impairment of goodwill is a critical accounting estimate because significant management
judgment is involved in the evaluation of the value of goodwill, and any reasonably possible changes in the key
assumptions on which the recoverable amount is based would cause a change in the recoverable amounts of
goodwill.
Financial assets
We assess the expected credit losses associated with our assets measured at amortized cost and at fair
value through other comprehensive income. The impairment methodology used to estimate the expected credit
losses depends on whether there has been a significant increase in credit risk in the individual financial asset or
the asset group that includes such financial asset since initial recognition. We measure the expected credit losses
for financial assets measured at amortized cost and at fair value through other comprehensive income for which
there has been no significant increase in credit risk at an amount equal to expected credit losses over a 12-month
period. On the other hand, if there has been a significant increase in credit risk, we measure the expected credit
loss at an amount equal to the lifetime expected credit losses considering all reasonable and supportable
97
information, including forward-looking information. We use the probability that a default may occur calculated
based on historical default data of corporate bond ratings in Japan to measure the 12-month expected credit
losses and the lifetime expected credit losses. For trade receivables, we apply the simplified approach permitted
by IFRS 9 (as defined below), which requires lifetime expected losses to be recognized from the initial
recognition of such trade receivables. The expected credit risk of trade receivables is measured using the
probability that a default may occur calculated based on our historical experiences relating to cash collection
from our trade receivables. In calculating expected credit losses, we consider a variety of forward-looking
information,
including external credit ratings, actual or expected significant adverse changes in business,
financial or economic conditions that may cause a significant change to a borrower’s ability to perform its
obligations and actual or expected significant changes in the operating results of the customer or the
counterparty.
IFRS 9 Financial Instruments (“IFRS 9”), issued by the IASB in July 2014, is a new IFRS accounting
standard aimed at improving and simplifying the accounting treatment of financial instruments and is effective
for annual periods beginning on or after January 1, 2018. IFRS 9, which replaces IAS 39, Financial Instruments:
Recognition and Measurement, requires all financial assets to be classified and measured on the basis of an
entity’s business model for managing financial assets and the contractual cash flow characteristics of the
financial assets. A new impairment model is introduced which requires recording of allowance for credit losses
based on expected losses instead of incurred losses, and recognition of any subsequent changes in expected credit
losses in profit or loss. The impact on our financial statements due to the application of IFRS 9 depends on
judgments made by us in applying the new standard, the nature of financial instruments held by us and
macroeconomic variables. We have applied IFRS 9 retrospectively and have determined not to restate the
comparative information for periods prior to 2018. For additional information regarding IFRS 9, see Note 3(30)
of the notes to our annual consolidated financial statements.
Fair Value for Financial Instruments
We hold various financial instruments. Depending on the accounting treatment specific to each type of
financial instrument, an estimate of fair value is required to record the instrument on our consolidated financial
statements. Financial assets and financial liabilities held by us are measured at the following fair values:
•
•
•
quoted prices in active markets for identical assets or liabilities;
fair value calculated using observable inputs other than quoted prices for the assets or liabilities,
either directly or indirectly; and
fair value calculated using valuation techniques incorporating unobservable inputs.
In particular, the fair value estimates using valuation techniques that incorporate unobservable inputs are
based on the judgment and assumptions of our management, such as experience assumptions, and the use of
specific numerical calculation models, such as discounted cash flow models. We base our fair value estimates on
assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. The use of
alternative estimates and assumptions could increase or decrease the estimated fair values of our investments and
potentially impact our results of operations.
Provisions
We recognize asset retirement obligations related to assets leased under operating leases in our
consolidated statement of financial position. These provisions are recognized based on our management’s best
estimates of the expenses expected to be incurred for the restoration of the operating lease properties to the state
as specified in the rental agreements upon termination of the operating leases. The estimation takes risks and
uncertainty related to the obligations into account as of the fiscal year end date, and the estimates are evaluated
on an annual basis.
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We also record provision for the licensing royalty fees payable to third-party platform partners related to
future redemption of virtual credits to purchase virtual items by our users. The provision is estimated using user
trends, past experiences, and our management’s assumptions related to our business. Historically, our expenses
have been within expectations and in line with the provision established. However, unforeseen circumstances
such as adverse market conditions that deviate significantly from our estimates may require us to change the
timing of our provisions or make additional provisions. In this case, our results of operations and financial
condition could be materially and adversely affected.
Defined Benefit Plans
We offer employees in Korea, Taiwan and Thailand defined benefit plans and defined contribution
plans. The specific features of these plans vary depending on the applicable laws and regulations in each country
where the employees work. The majority of our defined benefit obligation consists of the unfunded defined
benefits plans for employees of our subsidiaries located in Korea. Such plans include lump sum payments and
other post-employment benefits for the board of directors and employees with a service period of over one year.
Expenses related to defined benefit plans were ¥1,747 million, ¥2,141 million and ¥2,180 million in 2016, 2017
and 2018,
respectively, and we recorded liabilities for defined benefit obligations of ¥6,204 million,
¥6,189 million and ¥7,210 million as of December 31, 2016, 2017 and 2018, respectively. The cost of the defined
benefit plans and the present value of the obligations are determined using actuarial valuations. An actuarial
valuation involves making various assumptions that are reviewed at each reporting date,
including the
determination of the discount rate and future salary increases.
We used the following assumptions to calculate our expenses related to defined benefit plans for the
years indicated.
December 31,
2016
2017
2018
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average of future salary increases . . . . . . . . . . . . . . . . . . . . . .
3.4% 3.2%-3.7% 2.5%-3.5%
8.6%-11.3% 4.5%-7.7% 5.3%-7.1%
We determine the discount rate based on market returns of high-quality corporate bonds consistent with
currencies and estimated payment terms applicable to the defined benefit obligations as of the reporting date in
order to calculate present value of the defined benefit obligations. Estimated future salary increases are based on
historical salary increases and expected future inflation rates. The plans expose us to actuarial risks, including
interest rate risk, salary increase risk and longevity risk. Due to the complexities involved in the valuation and its
long-term nature, defined benefit obligations are highly sensitive to changes in these assumptions. If the discount
rate or rate of future salary increases had been 100 basis points higher or lower with all other variables held
constant, the impact on our defined benefit obligations for 2018 would have been as follows:
For the year ended December 31, 2018
Discount rate
Salary increase rate
100 basis points
increase
100 basis points
decrease
100 basis points
increase
100 basis points
decrease
(in millions of yen)
Impact on defined benefit obligations . . . . . . . . . .
¥(833)
¥1,020
¥970
¥(812)
Recently Issued Accounting Standards
IFRS 16 Leases (“IFRS 16”), issued by the IASB, governs the accounting for leases and related
contractual rights and obligations. We will adopt IFRS 16 for annual reporting periods beginning on January 1,
2019, the mandatory effective date. We intend to use a simplified approach in adopting IFRS 16 and do not plan
to restate the amounts for the annual periods prior to such adoption. For our assessment of the financial impact of
IFRS 16 on our consolidated financial statements, see Note 3(29) of the notes to our annual consolidated
financial statements.
99
For a discussion of additional new standards, interpretations and amendments to IFRS, see Note 3(29)
and Note 3(30) of the notes to our annual consolidated financial statements.
Item 5.C. Research and Development, Patents and Licenses, Etc.
We maintain a research and development program to carry out basic research and technology
development activities. See “Item 4.B. Business Overview — Technology.”
Our success depends in part on our ability to protect our core technology and intellectual property. To
establish and protect our proprietary rights, we rely on a combination of patents, trademarks, copyrights, trade
secrets (including know-how), license agreements, confidentiality procedures, non-disclosure agreements with
third parties, employee disclosure and invention assignment agreements, and other contractual and implicit rights
worldwide. We also enter into confidentiality and invention assignment agreements with our employees,
contractors and platform partners, and we control access to our proprietary technology and information. Our
patents are mainly related to social networking, user interface, telecommunications, image processing and web
technologies but not limited to these technologies. Despite our efforts to protect our proprietary technology and
information through these efforts, unauthorized parties may still copy or otherwise obtain and misuse our
intellectual property.
Companies in the internet, technology, telecommunications and media industries own large numbers of
patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of
infringement, misappropriation or other violations of intellectual property or other rights. From time to time, we
face, and we expect to face in the future, allegations that we have infringed the patents, trademarks, copyrights,
trade secrets and other intellectual property rights of third parties, including our competitors and non-practicing
entities. These infringement, data misappropriation, tort and other intellectual property issues apply to myriad
third-party rights and contents material to our business, and we seek, but cannot guarantee, extensive licenses to
such requisite third-party rights. As we face increasing competition and as our business grows, we will likely
face more claims of infringement.
Item 5.D. Trend Information
These matters are discussed under Item 5.A. and Item 5.B. above where relevant.
Item 5.E. Off-Balance Sheet Arrangements
As of December 31, 2017 and 2018, we did not have any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance or special purpose entities, which
have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow
or limited purposes.
Item 5.F. Tabular Disclosure of Contractual Obligations
See “Item 5.B. Liquidity and Capital Resources — Contractual Obligations and Commitments.”
Item 5.G. Safe Harbor
See “Forward-Looking Statements.”
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Item 6.
Directors, Senior Management and Employees
Item 6.A. Directors and Senior Management
Directors and Corporate Auditors
The following table sets forth information regarding members of our board of directors and board of
corporate auditors as of the date of this annual report. The business address of all of such members is JR
Shinjuku Miraina Tower, 23rd Floor, 4-1-6 Shinjuku, Shinjuku-ku, Tokyo, 160-0022, Japan.
Name
Age
Position/Title
Takeshi Idezawa . . . . . . . . . . . . . . . .
Jun Masuda . . . . . . . . . . . . . . . . . . . .
Jungho Shin . . . . . . . . . . . . . . . . . . . .
In Joon Hwang . . . . . . . . . . . . . . . . .
Hae Jin Lee . . . . . . . . . . . . . . . . . . . .
Tadashi Kunihiro . . . . . . . . . . . . . . .
Koji Kotaka . . . . . . . . . . . . . . . . . . . .
Rehito Hatoyama . . . . . . . . . . . . . . .
Hitoshi Kurasawa . . . . . . . . . . . . . . .
Yoichi Namekata . . . . . . . . . . . . . . .
Noriyuki Uematsu . . . . . . . . . . . . . . .
45 Representative Director, President and Chief Executive Officer
41 Director and Chief Strategy & Marketing Officer
47 Director and Chief WOW Officer
53 Director and Chief Financial Officer
51 Chairman of the Board of Directors
63 Outside Director
60 Outside Director
45 Outside Director
68 Corporate Auditor
50 Corporate Auditor
58 Corporate Auditor
Takeshi Idezawa. Mr. Idezawa has served as our representative director since April 2014 and as
president and chief executive officer since April 2015. He currently serves as a representative director of LINE
Book Distribution Corporation and LINE Digital Frontier. Previously, he served as our chief operating officer
and as a representative director and president of livedoor Co., Ltd., our subsidiary, where he served in various
roles after joining the company in June 2002. Mr. Idezawa received a B.A. in political science and economics
from Waseda University.
Jun Masuda. Mr. Masuda has served as a director since March 2015 and chief strategy and marketing
officer since April 2014. Mr. Masuda currently serves as a representative director of LINE Ventures Corporation,
LINE MUSIC Corporation, LINE TICKET Corporation and LINE CONOMI Corporation. Mr. Masuda also
serves as a director of Yume no Machi Souzou Iinkai Co., Ltd. Previously, he served as a senior officer and chief
strategy and marketing officer of NHN Japan Corporation. Prior to joining our company in October 2008, he
served as a director and vice president of product at Baidu Japan Inc.
Jungho Shin. Mr. Shin has served as a director since January 2012 and as our chief WOW officer since
February 2019. On March 28, 2019, our board of directors resolved to appoint Mr. Shin as a co-representative
director effective April 1, 2019. He served as our chief global officer from April 2014 to March 2018 and chief
service officer and from April 2018 to January 2019. He has served as a representative director of LINE Plus
Corporation since March 2013. Previously, he served as an outside director at livedoor Co., Ltd., our subsidiary.
From June 2005 to April 2013, Mr. Shin served in several roles at NAVER Corporation, including as head of
Japan services. Mr. Shin received a B.S. and an M.S. in computer science from Korea Advanced Institute of
Science and Technology.
In Joon Hwang. Mr. Hwang has served as a director since December 2008 and as our chief financial
officer since April 2015. He currently serves as a representative director of LINE Ventures Corporation.
Previously, Mr. Hwang served in several roles at NAVER Corporation, including as chief financial officer from
November 2008 to January 2016. Prior to joining NAVER Corporation, Mr. Hwang served in several roles at
Woori Investment & Securities Co., Ltd., Woori Finance Holdings Co., Ltd., Samsung Securities Co., Ltd.,
101
Credit Suisse and Samsung Electronics Co., Ltd. Mr. Hwang received a B.S. in economics from Seoul National
University and an M.B.A. from New York University.
Hae Jin Lee. Mr. Lee has served as a director since November 2005 and as the chairman of our board of
directors since January 2012. Mr. Lee also serves as the global investment officer of NAVER Corporation.
Mr. Lee co-founded NAVER Corporation in June 1999 and served as chairman of the board of NAVER
Corporation until March 2017. Prior to co-founding NAVER Corporation, from February 1992 to June 1999,
Mr. Lee served in several roles at Samsung SDS Co., Ltd., an information technology services provider. Mr. Lee
received a B.S. in computer science from Seoul National University and an M.S. in computer science from Korea
Advanced Institute of Science and Technology.
Tadashi Kunihiro. Mr. Kunihiro has served as an outside director since October 2015. Mr. Kunihiro is
an attorney in Japan and currently serves as an outside director of Tokio Marine & Nichido Fire Insurance Co.,
Ltd., an outside auditor of Mitsubishi Corporation and an outside auditor of OMRON Corporation. From June
2006 to June 2014, he also served as an outside auditor of Sekisui Chemical Co., Ltd. Mr. Kunihiro received an
L.L.B. from the University of Tokyo.
Koji Kotaka. Mr. Kotaka has served as an outside director since February 2016. Mr. Kotaka is an
attorney in Japan and currently serves as an outside director of Kenedix, Inc. and Musca Inc. and the
representative of Apollo Management Japan Limited. Previously, he held positions at Nishimura & Asahi,
Goldman Sachs Japan Co., Ltd., Sato and Tsuda Law Office and Legal Research and Training Institute of the
Supreme Court of Japan. Mr. Kotaka received an LL.B. from Keio University and an LL.M. from University of
Chicago Law School.
Rehito Hatoyama. Mr. Hatoyama has served as an outside director since March 2016. Mr. Hatoyama is
currently the representative director of Hatoyama Research Institute, Ltd. and also serves as an outside director of
Pigeon Corporation, transcosmos inc. and Mythical Games Inc. Previously, he held positions at Sanrio Company,
Ltd. and Mitsubishi Corporation. Mr. Hatoyama received a B.A. from Aoyama Gakuin University and an M.B.A.
from Harvard Business School.
Hitoshi Kurasawa. Mr. Kurasawa has served as our full-time corporate auditor since April 2013.
Previously, Mr. Kurasawa served as a director at Hanno Golf Club Co., Ltd. From February 2000 to June 2011,
Mr. Kurasawa served in several roles at Gurunavi, Inc., an online restaurants information provider, including as a
corporate auditor, director and executive vice president. From July 1987 to January 2005, Mr. Kurasawa served
in several roles at NKB System Kaihatsu Co., Ltd., a computer system developer, including as a director.
Mr. Kurasawa received a B.S. in industrial engineering and management from Tokyo Institute of Technology.
Yoichi Namekata. Mr. Namekata has served as our corporate auditor since March 2019. Mr. Namekata
is the representative attorney of NAMEKATA International Law Office. He currently serves as an outside
auditor of Suruga Bank Ltd. Mr. Namekata has previously held positions at Blakemore & Mitsuki, Baker &
McKenzie, NIIMURA SOGO LAW OFFICE and the Inspection Bureau of the FSA. Mr. Namekata received a
bachelor’s degree in international relations law from Sophia University.
Noriyuki Uematsu. Mr. Uematsu has served as our corporate auditor since March 2019. Mr. Uematsu is
a certified public accountant in Japan and currently serves as a director of Uematsu Certified Public Accountants
Office and as the representative director of SU Consultant Co. Ltd. He also serves as an outside director and
auditor of Kamakura Shinsho, Ltd. and Astellas Pharma Inc. Mr. Uematsu has previously held positions at
DENTSU INC. and Deloitte Tohmatsu Consulting Co., Ltd. Mr. Uematsu received a B.A. in economics from
Keio University.
Some of our directors concurrently serve in senior positions at certain of our affiliates or other
companies with which we have ordinary course business agreements and engage in ordinary course business
transactions.
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Executive Officers
The following table sets forth information regarding our senior management, consisting of the officers
identified below (“executive officers”), as of the date of this annual report. The business address of all of our
executive officers is JR Shinjuku Miraina Tower, 23rd Floor, 4-1-6 Shinjuku, Shinjuku-ku, Tokyo, 160-0022,
Japan.
Executive Officers
Age
Position/Title
Takeshi Idezawa . . . . . . . . . . . . . . . .
Jun Masuda . . . . . . . . . . . . . . . . . . . .
Jungho Shin . . . . . . . . . . . . . . . . . . . .
In Joon Hwang . . . . . . . . . . . . . . . . .
Euibin Park . . . . . . . . . . . . . . . . . . . .
Tomohiro Ikebe . . . . . . . . . . . . . . . . .
Seokho Yang . . . . . . . . . . . . . . . . . . .
45 Representative Director, President and Chief Executive Officer
41 Director and Chief Strategy & Marketing Officer
47 Director and Chief WOW Officer
53 Director and Chief Financial Officer
44 Chief Technology Officer
42 Head of Services Development
41 Head of LINE Development Department 1 and Director of
Youngsu Ko . . . . . . . . . . . . . . . . . . .
Takeshi Shimamura . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Ayumi Inagaki
42 Head of Fintech Business
42 Head of Portal and Media Business
36 Head of LINE Planning
Blockchain Lab
Euibin Park. Ms. Park has served as chief technology officer since April 2014. She has served as head
of our Web Services Development Group since June 2013. From June 2005 to April 2013, Ms. Park served in
several roles at NAVER Corporation and its affiliated companies, primarily in Japan-related businesses. Prior to
joining NAVER Corporation in June 2005, Ms. Park served in several roles at Neowiz Games Corporation,
NOWCOM Co., Ltd. and Soteck Inc. Ms. Park received a B.S. in information and communications from
Chonbuk National University.
Tomohiro Ikebe. Mr. Ikebe has served as head of Services Development since April 2014. He currently
serves as a representative director of LINE Growth Technology. Previously, he served in several roles at
DataHotel Co., Ltd., our subsidiary, after joining the company in October 2001, including as executive officer in
charge of business development.
Seokho Yang. Mr. Yang has served as head of LINE Development Department 1 since June 2013. He
currently serves as the director of Blockchain Lab. Previously, he served in several development-related roles at
NHN Japan Corporation, NAVER Japan Corporation and NHN Corporation. Mr. Yang received a B.S. in
computer science from Korea Advanced Institute of Science and Technology.
Youngsu Ko. Mr. Ko has served as head of Fintech Business since February 2019. He has served in
several other leadership roles, including as project manager of LINE Messenger Service, since joining our
company in March 2013. Previously, he served in several roles at NAVER Corporation, primarily in its Japan-
related businesses.
Takeshi Shimamura. Mr. Shimamura has served as head of Portal and Media Business since
April 2014. He currently serves as a representative director of Next Library Corporation. Since joining our
company from Rakuten, Inc. in July 2004, Mr. Shimamura has served in several roles at our company, including
as head of service planning. Mr. Shimamura received a B.A. in history from Komazawa University.
Ayumi Inagaki. Ms. Inagaki has served as head of LINE Planning since June 2015. She currently serves
as head of service planning of LINE Financial. Previously, she served in several roles at NeoWiz Japan
Corporation, NEOLAB Co., Ltd. and Baidu, Inc. Ms. Inagaki received a B.A. in social science from Hitotsubashi
University.
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Item 6.B. Compensation
In accordance with the Companies Act, compensation for our directors and corporate auditors, including
bonuses, retirement allowances and incentive stock options, must be approved at our general meeting of
shareholders, unless otherwise specified in our articles of incorporation. The shareholders’ approval may specify
the upper limit of the aggregate amount of compensation or calculation methods, but if compensation includes
benefits in kind, the shareholders’ approval must include the description of such benefits. Compensation for a
director or corporate auditor is fixed by our board of directors or by consultation among our corporate auditors in
accordance with our internal regulations and practice and, in the case of retirement allowances, generally reflects
the position of the director or corporate auditor at the time of retirement, length of service as a director or
corporate auditor and contribution to our performance. Our board of directors is also supported by a
compensation committee. See “Item 6.C. Board Practices — Committees of the Board of Directors.”
The following table summarizes the total compensation paid, including in-kind benefits granted, to our
directors and corporate auditors in 2018:
Total
amount
(in millions of
yen)
By type (in millions of yen)
Base
salary
Stock
options
Bonuses
Retirement
allowances
Number
of
persons
Directors(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside directors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate auditors(2) . . . . . . . . . . . . . . . . . . . . . . . .
Outside corporate auditors . . . . . . . . . . . . . . . . . . .
1,467
45
2
13
373
45
2
13
780
—
—
—
271
—
—
—
43
—
—
—
5
3
1
3
(1) Excludes outside directors.
(2) Excludes outside corporate auditors.
The following table summarizes the compensation paid, including in-kind benefits granted, by LINE
Corporation and its consolidated subsidiaries to our directors or corporate auditors, on an individual basis, in an
amount equal to or exceeding ¥100 million for 2018:
Name
Position/Title
Company
Base salary
options(1) Bonuses
Stock
Retirement
allowances(2)
Type and amount (in millions of yen)
Jungho Shin
In Joon Hwang
Takeshi Idezawa
Jun Masuda
Director LINE Corporation
Director LINE Plus Corporation
Director LINE Corporation
Director LINE Plus Corporation
Director LINE Corporation
Director LINE Corporation
8
97
47
23
80
66
371
—
74
—
186
149
—
79
10
55
49
42
—
34
—
9
—
—
Total
(in millions
of yen)
589(3)
218(4)
315
257
(1) Amounts account for expenses applicable to stock options granted in 2015, 2017 and 2018.
(2) Amounts include retirement allowances set aside for Mr. Jungho Shin and Mr. In Joon Hwang by LINE Plus Corporation pursuant to its
internal policy.
(3) Amount includes compensation paid to Mr. Jungho Shin by LINE Corporation and LINE Plus Corporation.
(4) Amount includes compensation paid to Mr. In Joon Hwang by LINE Corporation and LINE Plus Corporation.
Pursuant to a resolution of our board of directors on February 26, 2019, we will be adopting a new
share-based compensation plan, which envisions the grant of approximately 3.6% of our outstanding common
shares per year over a three-year period (for a total of approximately 10.8% of our outstanding common shares),
with the exact timing of the grant to be determined at a later date, to our directors, executive officers and
employees in the form of stock options or other share-based compensation, as applicable. At the ordinary general
meeting of shareholders held on March 28, 2019, our shareholders approved the grant of stock options as
compensation to our directors (including outside directors). The exercise price of the stock options shall be
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105.0% of the average market price of our common stock on the Tokyo Stock Exchange for the month preceding
the date of the grant of the stock options, unless such exercise price is lower than the market price on the date of
the grant, in which case the exercise price shall be the market price on such date. An increasing percentage of
stock options granted shall be exercisable from the third, fourth or fifth anniversary of the date of the grant, as
applicable, to the tenth anniversary thereof. The stock options granted to our directors who are not outside
directors shall only be exercisable upon the satisfaction of certain conditions related to the price of our shares of
common stock at the time specified under our new share-based compensation plan. See Note 32 of the notes to
our annual consolidated financial statements.
We do not separately set aside any amounts for pension, retirement or other benefits for our directors,
corporate auditors or executive officers other than for our subsidiaries in Korea where we are legally required to
do so.
We do not have any loans or credits outstanding to any of our directors, corporate auditors or executive
officers, and we do not have any guarantees outstanding for borrowings by any of our directors, corporate
auditors or executive officers.
We have obtained directors’ and officers’ liability insurance which insures against certain liabilities that
our directors and officers may, in such capacities, incur.
For further details on our stock options, see “Item 6.E. Share Ownership.”
Item 6.C. Board Practices
Board of Directors
Our board of directors has the ultimate responsibility for the administration of our affairs. Our articles of
incorporation provide for not fewer than three but not more than eight directors. Directors are typically
nominated at the board level and are elected at general meetings of shareholders. The normal term of office of
any director expires at the close of the ordinary general meeting of shareholders held with respect to the last
fiscal year ended within two years after such director’s election to office. Our directors may, however, serve any
number of consecutive terms.
The board of directors appoints from among its members one or more representative directors, who have
the authority individually to represent us in the conduct of our affairs. The board of directors may appoint from
among its members a chairman, a president or one or more deputy presidents, senior managing directors and
managing directors. We have three outside directors who satisfy the requirements for an outside director under
the Companies Act.
None of the members of our board of directors is party to a service contract with us or any of our
subsidiaries that provides for benefits upon termination of service.
Board of Corporate Auditors
Our corporate auditors constitute a board of corporate auditors. As permitted under the Companies Act,
we have elected to structure our corporate governance system as a company with a separate board of corporate
auditors instead of board committees. Our articles of incorporation provide for not more than five corporate
auditors. Corporate auditors are typically nominated at the board level and are elected at general meetings of
shareholders. The normal term of office of any corporate auditor expires at the close of the ordinary general
meeting of shareholders held with respect to the last fiscal year ended within four years after such corporate
auditor’s election to office. Our corporate auditors may, however, serve any number of consecutive terms.
Corporate auditors may be removed by a special resolution of a general meeting of shareholders.
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Our corporate auditors are not required to be certified public accountants. Our corporate auditors may
not at the same time be directors, employees or accounting advisors (kaikei sanyo) of us or any of our
subsidiaries or corporate officers of our subsidiaries. Under the Companies Act, at least one-half of them must be
persons who satisfy the requirements for an outside corporate auditor under the Companies Act, and at least one
of the corporate auditors must be a full-time corporate auditor.
The function of our board of corporate auditors and each corporate auditor is similar to that of
independent directors, including those who are members of the audit committee, of a U.S. company. Each
corporate auditor has a statutory duty to supervise the administration by the directors of our affairs, to examine
the financial statements and business reports to be submitted by a representative director at the general meetings
of shareholders and to prepare an audit report. They are obligated to participate in meetings of the board of
directors and, if necessary, to express their opinion at such meetings, but are not entitled to vote. The board of
corporate auditors has a statutory duty to prepare an audit report based on the audit reports issued by the
individual corporate auditors and submit such audit reports to a relevant director and, in the case of audit reports
related to financial statements, independent certified public accountants each year. Each corporate auditor may
note an opinion in an audit report issued by the board of corporate auditors, if the opinion expressed in such
corporate auditor’s individual audit report is different from the opinion expressed in the audit report issued by the
board of corporate auditors. The board of corporate auditors is empowered to establish the audit principles, the
method of examination by the corporate auditors of our affairs and financial position and any other matters
relating to the performance of the corporate auditors’ duties.
In addition to our corporate auditors, we must appoint independent certified public accountants. Such
independent certified public accountants have the statutory duties of examining the financial statements to be
submitted by a representative director at the general meetings of shareholders and reporting their opinion thereon
to the relevant corporate auditors and directors. The independent certified public accountants also audit the
financial statements to be included in the securities reports that are required to be filed with the director of the
relevant local finance bureau of the Ministry of Finance. PricewaterhouseCoopers Aarata LLC acts as our
independent certified public accountant beginning January 1, 2015.
In addition, under the Securities Listing Regulations of the Tokyo Stock Exchange, listed companies in
Japan are required to have at least one independent officer (an “Independent Officer”). For details on the
requirements for an Independent Officer, see “Item 16G. Corporate Governance.” Such Independent Officer is
required to be an outside director or an outside corporate auditor (as defined under the Companies Act) who is
unlikely to have any conflicts of interest with shareholders. The Securities Listing Regulations also require listed
companies to make efforts to have at least one director who meets the requirements for an Independent Officer
(such director, an “Independent Director”). Further, a listed company that does not have two or more Independent
Directors is required to publicly explain the reason. As of December 31, 2018, we six Independent Officers,
including three Independent Directors.
Committees of the Board of Directors
Under the Companies Act, we have elected to structure our corporate governance system as a company
with a separate board of corporate auditors and therefore do not have an audit committee. For foreign private
issuers, use of a board of corporate auditors in compliance with home country rules is permitted under
Rule 10A-3(c)(3) of the Exchange Act, and as such we are not required to and do not intend to form an audit
committee. Our board of corporate auditors is a legally separate and independent body from our board of
directors. We do not have certain committees that are required of U.S. listed companies subject to the New York
Stock Exchange corporate governance standards, including those that are responsible for director nomination and
corporate governance and executive compensation.
Our board of directors is supported by a management committee to facilitate timely decision-making
with respect to important administration and management issues. The management committee is composed of
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members appointed by the President. Currently, the management committee consists of the Chief Executive
Officer, Chief WOW Officer, Chief Strategy & Marketing Officer, Chief Privacy Officer/Chief Information
Security Officer, certain senior officers in charge of finance and accounting, human resources and internal audit
and a full-time corporate auditor. The management committee engages in discussion of various items to be
resolved by, or reported to, the board of directors, and considers important administration and management issues
in accordance with the basic strategies and policies set by the board of directors.
Our board of directors is also supported by a compensation committee to facilitate independent,
objective and transparent decision-making with respect to compensation of our directors. The compensation
committee is composed of a majority of outside directors, one of whom must serve as the chair of the committee,
and currently consists of Mr. Takeshi Idezawa, Mr. Hae Jin Lee, Mr. Tadashi Kunihiro, Mr. Koji Kotaka and
Mr. Rehito Hatoyama. The compensation committee is responsible for deliberating the overall compensation
scheme for our directors, assessing the criteria for evaluating their performance and implementing such criteria to
decide the compensation for each director, as well as advising or making recommendations to the board of
directors on such matters.
Limitation of Liability of Directors and Corporate Auditors
Under the Companies Act and our articles of incorporation we may exempt, by resolution of the board
of directors, our directors and corporate auditors from liabilities to us arising in connection with their failure to
execute their duties in good faith and without gross negligence, within the limits stipulated by applicable laws
and regulations. In addition, our articles of incorporation provide that we may enter into agreements with our
directors (excluding executive directors) and corporate auditors to limit their respective liabilities to us arising in
connection with a failure to execute their duties in good faith and without gross negligence to the higher of either
a predetermined amount which shall be no less than ¥10 million or an amount stipulated in laws and regulations.
We have entered into a liability limitation agreement with each outside director and outside corporate auditor
which limits the maximum amount of their liability to the higher of either ¥10 million or an amount stipulated in
laws and regulations.
Item 6.D. Employees
Our employees are critical to our success. We seek employees who are motivated to develop new
products and services for our rapidly growing user base around the world as well as for our platform partners and
advertisers. A vast majority of our new hires have prior experience in the internet or mobile services or related
industries, and we strive to hire and retain employees with diverse backgrounds in addition to relevant work
experience in order to achieve our objective to continue to grow globally.
On a consolidated basis, we had 3,085, 4,344 and 5,595 full-time employees as of December 31, 2016,
2017 and 2018, respectively. From time to time, we also employ contract-based or part-time employees to
enhance operational efficiency. As of December 31, 2018, we had 1,922 temporary employees. The following
table sets forth a breakdown of our full-time employees by location as of December 31, 2018:
Location
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outside Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of full-time
employees
2,404
3,191
5,595
Compensation for our full-time employees consists of a combination of annual base salary, bonuses and
share-based compensation. Pursuant to the approval of our board of directors on June 26, 2017, we introduced
equity-settled and cash-settled employee stock ownership plans in recognition of our employees’ contribution to
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our growth and to further encourage improvement in medium- to long-term business performance and to grant
beneficiary rights to certain of our employees and those of our subsidiaries in 2017. As of December 31, 2018,
our equity-settled and cash-settled employee stock ownership plans held 1,979,775 shares of our common stock
as treasury shares, which are granted from time to time as shares or cash (after sale of the underlying shares by
the trust) as part of our share-based payments to our employees. See Note 27 of the notes to our annual
consolidated financial statements. We also operate employee share incentive plans to encourage wider equity
participation among our employees. Pursuant to our new share-based compensation plan to be adopted in 2019,
we plan to grant stock options or other share-based compensation to all of our employees, which we believe
would create a strong incentive for them to further promote medium- to long-term growth of our corporate and
shareholder values. See “Item 6.B. Compensation.”
We also provide a wide range of benefits to our employees. We believe our compensation and benefit
plans are competitive within our industry. Our employees in Japan are not unionized, and we consider our current
relations with our employees to be good.
Item 6.E. Share Ownership
Common Stock
As of December 31, 2018, none of the shares of our common stock entitles the holder to any preferential
voting rights. The persons who are currently our directors, corporate auditors and executive officers held, as a
group, 9,393,014 common shares as of December 31, 2018, the most recent practicable date for which this
information is available. The table below shows the ownership of our common shares by our directors, corporate
auditors and executive officers.
Name
Number of Common Shares
Percentage of Outstanding
Common Shares
Jungho Shin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hae Jin Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Takeshi Idezawa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jun Masuda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Koji Kotaka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tadashi Kunihiro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rehito Hatoyama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,760,500
4,594,000
30,000
5,000
2,500
676
338
9,393,014
2.0%
1.9%
*
*
*
*
*
3.9%
*
Less than 1%.
Stock Options
We have granted stock options to purchase shares of our common stock in the form of stock acquisition
rights pursuant to the Companies Act. The purpose of these grants is to enable our directors and employees,
including our executive officers, to share in our successes and to reinforce a corporate culture that aligns
employee interests with those of our shareholders. References in this annual report to “stock options” are
references to stock acquisition rights to purchase shares of our common stock, unless otherwise indicated. For
more information regarding stock options granted by us, see Note 27 of the notes to our annual consolidated
financial statements.
Our stock options granted during 2015 may be exercised during an eight-year period that begins two
years from the date of grant, whereas our stock options granted during 2017 may be exercised for a period of six
years that begins four years from the date of grant. Our stock option grants generally do not allow for the transfer
or assignment of options. An option holder who retires while one’s options are still exercisable loses such
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options, unless otherwise approved by our board of directors. In the event of a stock split, reverse stock split or
issuance of new shares or disposal of treasury shares at below market price, the exercise price of and, in certain
cases, the number of shares subject to outstanding options, will be proportionately adjusted.
The following table summarizes the stock options with respect to our common stock owned by our
directors, corporate auditors and executive officers as of December 31, 2018:
Name
Grant Date
From
To
Exercise period
Exercise price
(per share)
Number of
options
granted
Number of
options
exercised
Number of
exercisable
options
Jungho Shin
December 17, 2012 December 18, 2014 December 17, 2022
February 4, 2017
February 4, 2015
July 18, 2017
July 18, 2021
Hae Jin Lee
December 17, 2012 December 18, 2014 December 17, 2022
Takeshi Idezawa December 16, 2013 December 17, 2015 December 16, 2023
February 3, 2025
July 18, 2027
Jun Masuda
In Joon Hwang
February 4, 2017
July 18, 2021
February 4, 2015
July 18, 2017
December 16, 2013 December 17, 2015 December 16, 2023
February 4, 2017
February 4, 2015
July 18, 2021
July 18, 2017
July 18, 2021
July 18, 2017
February 3, 2025
July 18, 2027
July 18, 2027
February 3, 2025
July 18, 2027
¥ 344
1,320
4,206
344
344
1,320
4,206
344
1,320
4,206
4,206
6,790,000 6,790,000
3,474,500 3,474,500
5,572,000 5,572,000
52,500
20,000
601,000
52,500
44,000
300,500
63,000
31,500
240,400
120,200
—
—
— 601,000
—
—
24,000
— 300,500
58,000
— 31,500
— 240,400
— 120,200
5,000
For a description of additional stock options to be granted to our directors, and stock options or other
share-based compensation to be awarded to our executive officers and employees, see “Item 6.B. Compensation”
and “Item 6.D. Employees,” respectively.
Item 7.
Major Shareholders and Related Party Transactions
Item 7.A. Major Shareholders
The table below sets forth certain information relating to the shareholders of our common stock
outstanding as of December 31, 2018, based on information known to us or can be ascertained from public
filings:
Name of shareholder
Number of shares owned
Percentage of
outstanding shares
NAVER Corporation(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
174,992,000
72.8%
(1) Prior to our IPO in July 2016, in which we issued 40,250,000 shares of common stock (including over-allotments), NAVER Corporation
owned 100.0% of the outstanding shares of our common stock.
Under the FIEA, any person who solely or jointly owns more than 5% of the total issued voting shares
of a company listed on a Japanese stock exchange must file a report concerning the shareholding with the
director of the relevant local finance bureau. Major shareholders have the same voting rights per share as all
other holders of common stock.
As of December 31, 2018, there were 240,524,642 shares of common stock outstanding. Of the total
outstanding shares, 6,904,120 shares were held in the form of American Depositary Receipts (“ADRs”) and the
number of registered ADR holders was nine. As of December 31, 2018, 9,743,386 shares were held of record in
the form of common stock by residents in the United States and the number of registered holders of our common
stock in the United States was 97.
NAVER Corporation, which has 174,992,000 shares or 72.8% of the voting power of our outstanding
capital stock as of December 31, 2018, has the ability to control the outcome of matters submitted to our
shareholders for approval. To our knowledge, there are no arrangements the operation of which may, at a
subsequent date, result in a change in control of us.
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Item 7.B. Related Party Transactions
NAVER Corporation
Issuance of Shares
On May 25, 2012, we issued 87,369 shares of our common stock to NAVER Corporation for
¥15,000 million. As of December 31, 2018, NAVER Corporation held a 72.8% voting interest in us.
Allotment of Convertible Bonds
On September 20, 2018, we issued zero coupon convertible bonds due 2023 and 2025 in the aggregate
principal amount of approximately ¥73.2 billion, half of the total aggregate principal amount of the Convertible
Bonds we issued, to NAVER Corporation. See “Item 5.B. Liquidity and Capital Resources — Liquidity and
Capital Resources — Cash Flows — Net Cash Provided by Financing Activities.” The zero coupon convertible
bonds are convertible into shares of our common stock at an initial conversion price per share of ¥7,467 for the
convertible bonds due 2023 and ¥7,518 for the convertible bonds due 2025.
Directors and Senior Management
Mr. Hae Jin Lee, who currently serves as a director and chairman of our board of directors, also serves
as an executive officer of NAVER Corporation.
Personnel
From time to time we have transfers or secondments of employees from NAVER Corporation and our
affiliates, the related personnel expenses of which are borne by us. Some of our directors, corporate auditors and
executive officers concurrently serve in senior positions at certain of our affiliates with which we have ordinary
course business agreements and engage in ordinary course business transactions.
Advertising Service
On January 1, 2014, LINE Plus Corporation, our wholly-owned subsidiary, entered into a service
partnership agreement with NAVER Corporation to provide NAVER Corporation with advertising services via
the LINE platform and the right to use certain LINE characters in NAVER Corporation’s advertising activities in
exchange for advertising services to be provided to LINE Plus Corporation via NAVER Corporation’s portal
website, NAVER. We recognized net revenue receivable from NAVER Corporation of ¥663 million in 2018 and
recorded ¥184 million of outstanding receivables balance from NAVER Corporation as of December 31, 2018.
Joint Development of LINE Clova
On July 6, 2017, we entered into a business cooperation agreement with NAVER Corporation to
establish the terms and conditions of the joint development and operation of the LINE Clova AI platform as well
as the distribution, marketing and promotion of related products. Pursuant to this agreement, we and NAVER
Corporation hold joint and equal ownership over all intellectual property jointly developed relating to the LINE
Clova AI platform and bear an equal amount of costs incurred during such development. In the event that
revenues and expenses arise from the distribution and sale of the products and services jointly developed by us
and NAVER Corporation, each party recognizes its own revenues and expenses arising from such activities.
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NAVER Business Platform Corporation
Data Hosting Services
On December 20, 2010, we entered into a data hosting agreement with NAVER Business Platform
Corporation, pursuant to which NAVER Business Platform Corporation provides data hosting services to us. The
agreement was superseded by an information technology service agreement with NAVER Business Platform
Corporation dated April 1, 2013. For such services, we recognized expenses payable to NAVER Business
Platform Corporation of ¥8,566 million in 2018 and recorded ¥883 million of outstanding expenses payable
balance to NAVER Business Platform Corporation as of December 31, 2018.
Snow Corporation
In May 2017, we transferred our camera application business, including B612 and LINE Camera, which
was operated by our wholly-owned subsidiary LINE Plus Corporation, to Snow Corporation, a subsidiary of
NAVER Corporation and developer and operator of the selfie app SNOW. In exchange for the transfer of
business, LINE Plus Corporation received 208,455 newly issued common shares of Snow Corporation, which
amounted to ¥10,651 million representing the fair value of such newly issued common shares on the date of the
transaction. Currently, our interest in Snow Corporation is 34.0% and the remaining interest is owned by
NAVER Corporation.
For further details on related party transactions, see Note 28 of the notes to our annual consolidated
financial statements.
As of December 31, 2018, we had no loans outstanding to our directors, corporate auditors or executive
officers.
Item 7.C.
Interests of Experts and Counsel
Not applicable
Item 8.
Financial Information
Item 8.A. Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements” and pages F-1 through F-136 for our annual consolidated financial
statements.
Legal Proceedings
We are involved in, and may in the future be involved in, legal proceedings, claims and government
investigations in the ordinary course of business, including intellectual property infringement claims. In addition,
the nature of our business exposes us to claims related to defamation, rights of publicity and privacy and personal
injury torts resulting from information that is published or made available on the LINE platform. This risk is
enhanced in certain jurisdictions outside Japan where our protection from liability for content published on our
platform by third parties may be unclear and where we may be less protected under local laws than we are in
Japan. Our licenses and best practices may not reduce or eliminate such risks.
Dividend Distribution Policy
Since our inception, we have not declared or paid cash dividends on shares of our common stock. Any
decision to pay dividends in the future will be subject to a number of factors, including our financial condition,
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results of operations, the level of our retained earnings, capital demands, general business conditions and other
factors our board of directors may deem relevant. We currently intend to retain any future earnings and do not
expect to pay any dividends in the foreseeable future. Consequently, we cannot give any assurance that any
dividends may be declared and paid in the future.
If declared, holders of outstanding shares of our capital stock on a dividend record date will be entitled
to the full dividend declared without regard to the date of issuance of the shares or any subsequent transfer of the
shares. Payment of declared annual dividends in respect of a particular year, if any, will be made in the following
year after approval by our shareholders at the ordinary general meeting of shareholders, subject to certain
provisions of our articles of incorporation and the Companies Act.
Subject to the terms of the deposit agreement for the ADSs, holders of ADSs will be entitled to receive
dividends on shares of our common stock represented by ADSs to the same extent as the holders of shares of our
common stock, less the fees and expenses payable under the deposit agreement in respect of, and any Japanese
tax applicable to, such dividends. The depositary will generally convert the Japanese yen it receives into U.S.
dollars and distribute the U.S. dollar amounts to holders of ADSs. Cash dividends on shares of our common
stock, if any, will be paid in Japanese yen.
Item 8.B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes
since the date of our annual consolidated financial statements included in this annual report.
Item 9.
The Offer and Listing
Item 9.A. Offer and Listing Details
Our common stock, with no par value per share, has been listed on the First Section of the Tokyo Stock
Exchange since July 15, 2016 under the securities identification code 3938. Our ADSs, each representing one
share of our common stock and evidenced by ADRs, are listed on the New York Stock Exchange under the ticker
symbol “LN.”
Item 9.B. Plan of Distribution
Not applicable
Item 9.C. Markets
Please refer to “Item 9.A. Offer and Listing Details.”
Item 9.D. Selling Shareholders
Not applicable
Item 9.E. Dilution
Not applicable
Item 9.F. Expenses of the Issue
Not applicable
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Item 10.
Additional Information
Item 10.A. Share Capital
Not applicable
Item 10.B. Memorandum and Articles of Association
We are a joint-stock corporation incorporated in Japan under the Companies Act. Under Article 2 of our
articles of incorporation, filed as Exhibit 1.1 to this annual report, the purpose of the Company, among others, is
to engage in the electronic communication business, as well as the planning, design, development, operation,
provision and rental of software that utilizes telecommunication networks and electronic technologies. The rights
of our shareholders are represented by shares of our common stock as described below, and shareholders’
liability is limited to the amount of subscription for such shares. As of December 31, 2018, our authorized share
capital consisted of 690,000,000 shares of common stock of which 240,524,642 shares were issued and
outstanding.
Board of Directors
Under the Companies Act, a resolution of a meeting of the board of directors requires the majority vote
of the directors present at the meeting, and a majority of the board of directors constitutes a quorum. As part of
the application of general conflict of interest provisions, a director who has a special interest in the proposal
presented at the meeting may not exercise his or her vote and such director is excluded for purposes of
determining a quorum and adopting a resolution.
Book-Entry Transfer System
The Japanese book-entry transfer system for listed shares of Japanese companies under the Book-Entry
Act apply to the shares of our common stock. Under this system, shares of all Japanese companies listed on any
Japanese stock exchange are dematerialized. Under the book-entry transfer system, in order for any person to
hold, sell or otherwise dispose of listed shares of Japanese companies, they must have an account at an account
management institution unless such person has an account at JASDEC. “Account management institutions” are
financial instruments business operators (i.e., securities firms), banks, trust companies and certain other financial
institutions that meet the requirements prescribed by the Book-Entry Act, and only those financial institutions
that meet the further stringent requirements of the Book-Entry Act can open accounts directly at JASDEC.
The following description of the book-entry transfer system assumes that the relevant person has no
account at JASDEC.
Under the Book-Entry Act, any transfer of shares is effected through book-entry, and the title to the
shares passes to the transferee at the time when the transferred number of shares is recorded in the transferee’s
account at an account management institution. The holder of an account at an account management institution is
presumed to be the legal owner of the shares held in such account.
Under the Companies Act, in order to assert shareholders’ rights against us, the transferee must have its
name and address registered in the register of our shareholders, except in limited circumstances. Under the
book-entry transfer system, such registration is generally made upon receipt of an all shareholders notice (as
described in “— Register of Shareholders”) from JASDEC. For this purpose, shareholders are required to file
their names and addresses with our transfer agent through the account management institution and JASDEC. See
“— Register of Shareholders” for more information.
Non-resident shareholders are required to appoint a standing proxy in Japan or provide a mailing
address in Japan. Each such shareholder must give notice of their standing proxy or a mailing address to the
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relevant account management institution. Such notice will be forwarded to our transfer agent through JASDEC.
Japanese securities firms and commercial banks customarily act as standing proxies and provide related services
for standard fees. Notices from us to non-resident shareholders are delivered to the standing proxies or mailing
addresses.
Register of Shareholders
Under the book-entry transfer system, the registration of names, addresses and other information of
shareholders in the register of our shareholders will be made by us upon the receipt of an all shareholders notice
(soukabunushi tsuchi) (with the exception that in the event of the issuance of new shares, we will register the
names, addresses and other information of our shareholders in the register of our shareholders without an all
shareholders notice from JASDEC) given to us by JASDEC, which will give us such all shareholders notice
based on information provided by the account management institutions. Such all shareholders notice will be
made only in cases prescribed under the Book-Entry Act such as when we fix the record date and when we make
a request to JASDEC with any justifiable reason. Therefore, a shareholder may not assert shareholders’ rights
against us immediately after such shareholder acquires our shares, unless such shareholder’s name and address
are registered in the register of our shareholders upon our receipt of an all shareholders notice; provided,
however, that, in respect of the exercise of rights of minority shareholders as defined in the Book-Entry Act, a
shareholder may exercise such rights upon giving us an individual shareholder notice (kobetsukabunushi tsuchi)
through JASDEC only during a certain period prescribed under the Book-Entry Act.
Distribution of Surplus
Under the Companies Act, the distribution of dividends takes the form of distribution of Surplus, and a
distribution of Surplus may be made in cash and/or in kind, with no restrictions on the timing and frequency of
such distributions. The Companies Act generally requires a joint-stock corporation to make distributions of
Surplus authorized by a resolution of a general meeting of shareholders. Distributions of Surplus are, however,
permitted pursuant to a resolution of the board of directors if:
(a)
the Company’s articles of incorporation so provide (our articles of incorporation do not have
provisions to this effect);
(b) the normal term of office of directors is no longer than one year (our articles of incorporation do not
have provisions to this effect); and
(c)
the Company’s non-consolidated annual financial statements and certain documents for the latest
fiscal year fairly present its assets and profit or loss, as required by the ordinances of the Ministry of
Justice.
In an exception to the above rule, even if the requirements described in (a) through (c) are not met, the
Company may be permitted to make distributions of Surplus in cash to its shareholders by resolution of the board
of directors once per fiscal year if its articles of incorporation so provide. Our articles of incorporation provide
for distributions of Surplus in cash by resolution of the board of directors as interim dividends, the record date for
which is June 30 of each year.
A resolution of a general meeting of shareholders authorizing a distribution of Surplus must specify the
kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to
shareholders and the effective date of the distribution. If a distribution of Surplus is to be made in kind, we may,
pursuant to a resolution of a general meeting of shareholders, grant a right to the shareholders to require us to
make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant
distribution of Surplus must be approved by a special resolution of a general meeting of shareholders. See
“— Voting Rights” for more details regarding a special resolution. Our articles of incorporation provide that we
are relieved of our obligation to pay any distributions in cash that go unclaimed for three years after the date they
first become payable.
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Restriction on Distribution of Surplus
Under the Companies Act, we may distribute Surplus up to the excess of the aggregate of (a) and
(b) below, less the aggregate of (c) through (f) below, as of the effective date of such distribution, if our net
assets are not less than ¥3,000,000:
(a)
the amount of Surplus, as described below;
(b) in the event that extraordinary financial statements as of, or for a period from the beginning of the
fiscal year to, the specified date are approved, the aggregate amount of (i) the aggregate amount as
provided for by an ordinance of the Ministry of Justice as the net income for such period described
in the statement of income constituting the extraordinary financial statements, and (ii) the amount
of consideration that we received for the treasury stock that we disposed of during such period;
(c)
the book value of our treasury stock;
(d) in the event that we disposed of treasury stock after the end of the previous fiscal year, the amount
of consideration that we received for such treasury stock;
(e)
in the event described in (b) in this paragraph, the aggregate amount as provided for by an
ordinance of the Ministry of Justice as the net loss for such period described in the statement of
income constituting the extraordinary financial statements; and
(f) certain other amounts set forth in the ordinances of the Ministry of Justice, including (if the sum of
one-half of goodwill and the deferred assets exceeds the total of share capital, additional paid-in
capital and legal earnings reserve, each such amount as it appears on the balance sheet as of the end
of the previous fiscal year) all or a certain part of such excess amount as calculated in accordance
with the ordinances of the Ministry of Justice.
For the purposes of this section, the amount of “Surplus” is the excess of the aggregate of (I) through
(IV) below, less the aggregate of (V) through (VII) below:
(I)
the aggregate of other capital surplus and other retained earnings at the end of the previous fiscal
year;
(II) in the event that we disposed of treasury stock after the end of the previous fiscal year, the
difference between the book value of such treasury stock and the consideration that we received for
such treasury stock;
(III) in the event that we reduced our share capital after the end of the previous fiscal year, the amount of
such reduction less the portion thereof that has been transferred to additional paid-in capital and/or
legal earnings reserve (if any);
(IV)in the event that we reduced additional paid-in capital and/or legal earnings reserve after the end of
the previous fiscal year, the amount of such reduction less the portion thereof that has been
transferred to share capital (if any);
(V) in the event that we cancelled treasury stock after the end of the previous fiscal year, the book value
of such treasury stock;
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(VI)in the event that we distributed Surplus after the end of the previous fiscal year, the aggregate of the
following amounts:
(1) the aggregate amount of the book value of the distributed assets, excluding the book value of
such assets that would be distributed to shareholders but for their exercise of the right to
receive dividends in cash instead of dividends in kind;
(2) the aggregate amount of cash distributed to shareholders who exercised the right to receive
dividends in cash instead of dividends in kind; and
(3) the aggregate amount of cash paid to shareholders holding fewer shares than the shares that
were required in order to receive dividends in kind;
(VII) the aggregate amounts of (1) through (4) below, less (5) and (6) below:
(1) in the event that the amount of Surplus was reduced and transferred to additional paid-in
capital, legal earnings reserve and/or share capital after the end of the previous fiscal year, the
amount so transferred;
(2) in the event that we distributed Surplus after the end of the previous fiscal year, the amount set
aside in additional paid-in capital and/or legal earnings reserve;
(3) in the event that we disposed of treasury stock in the process of (x) a merger in which we
acquired all rights and obligations of a company, (y) a corporate split in which we acquired all
or a part of the rights and obligations of a split company or (z) a share exchange (kabushiki
kokan) in which we acquired all shares of a company after the end of the previous fiscal year,
the difference between the book value of such treasury stock and the consideration that we
received for such treasury stock;
(4) in the event that the amount of Surplus was reduced in the process of a corporate split in which
we transferred all or a part of our rights and obligations after the end of the previous fiscal year,
the amount so reduced;
(5) in the event of (x) a merger in which we acquired all rights and obligations of a company, (y) a
corporate split in which we acquired all or a part of the rights and obligations of a split
company or (z) a share exchange in which we acquired all shares of a company after the end of
the previous fiscal year, the aggregate amount of (i) the amount of the other capital surplus
after such merger, corporate split or share exchange, less the amount of other capital surplus
before such merger, corporate split or share exchange, and (ii) the amount of the other retained
earnings after such merger, corporate split or share exchange, less the amount of other retained
earnings before such merger, corporate split or share exchange; and
(6) in the event that an obligation to cover a deficiency, such as the obligation of a person who
subscribed newly issued shares with an unfair amount to be paid in, was fulfilled after the end
of the previous fiscal year, the amount of other capital surplus increased by such payment.
In Japan, the “ex-dividend” date and the record date for any distribution of Surplus come before the date
a company determines the amount of distribution of Surplus to be paid.
For information as to Japanese taxes on dividends, please refer to “Item 10.E. Taxation — Japanese
Taxation.”
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Capital and Reserves
Under the Companies Act, the paid-in amount of any newly-issued shares of stock is required to be
accounted for as share capital, although we may account for an amount not exceeding one-half of such paid-in
amount as additional paid-in capital. We may generally reduce additional paid-in capital and/or legal earnings
reserve by resolution of a general meeting of shareholders, subject to completion of protection procedures for
creditors in accordance with the Companies Act, and, if so decided by the same resolution, we may account for
the whole or any part of the amount of such reduction as share capital. We may generally reduce share capital by
a special resolution of a general meeting of shareholders and, if so decided by the same resolution, we may
account for the whole or any part of the amount of such reduction as additional paid-in capital.
Stock Splits
Under the Companies Act, we may at any time split shares in issue into a greater number of the same
class of shares by a resolution of the board of directors. When a stock split is to be made, we must give public
notice of the stock split, specifying the record date therefor, at least two weeks prior to such record date.
Under the book-entry transfer system, on the effective date of the stock split, the numbers of shares
recorded in all accounts held by our shareholders at account management institutions will be increased in
accordance with the applicable ratio.
Gratuitous Allocations
Under the Companies Act, we may allot any class of shares to our existing shareholders without any
additional contribution by resolution of the board of directors; provided that although our treasury stock may be
allotted to our shareholders, any allotment of shares will not accrue to shares of our treasury stock.
When a gratuitous allocation is to be made and we set a record date therefor, we must give public notice
of the gratuitous allocation, specifying the record date therefor, at least two weeks prior to the record date.
Under the book-entry transfer system, on the effective date of the gratuitous allocation, the number of
shares of our common stock recorded in accounts held by our shareholders at account management institutions
will be increased in accordance with a notice from us to JASDEC.
Reverse Stock Split
Under the Companies Act, we may at any time consolidate our shares into a smaller number of shares
by a special resolution of the general meeting of shareholders. We must disclose the reason for the reverse stock
split at the general meeting of shareholders. When a reverse stock split is to be made, we must give public notice
of the reverse stock split, at least two weeks (or, in certain cases where any fractions of shares are left as a result
of a reverse stock split, 20 days) prior to the effective date of the reverse stock split.
Under the book-entry transfer system, on the effective date of the reverse stock split, the numbers of
shares recorded in all accounts held by our shareholders at account management institutions will be decreased in
accordance with the applicable ratio.
Unit Share System
General
Our articles of incorporation provide that 100 shares constitute one “unit” of common stock. Our board
of directors is permitted to reduce the number of shares that will constitute one unit or to abolish the unit share
system entirely by amending our articles of incorporation, without shareholders’ approval, with public notice
without delay after the effective date of such amendment.
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Transferability of Shares Constituting Less Than One Unit
Under the book-entry transfer system, shares constituting less than one unit are transferable. Under the
rules of the Japanese stock exchanges, however, shares constituting less than one unit do not comprise a trading
unit, except in limited circumstances, and accordingly may not be sold on the Japanese stock exchanges.
Voting Rights of a Holder of Shares Constituting Less Than One Unit
A holder of shares constituting less than one unit cannot exercise any voting rights pertaining to those
shares. In calculating the quorum for various voting purposes, the aggregate number of shares constituting less
than one unit will be excluded from the number of outstanding shares. A holder of shares representing one or
more whole units will have one vote for each whole unit represented.
A holder of shares constituting less than one unit does not have any rights related to voting, such as the
right to participate in a demand for the resignation of a director, the right to participate in a request for the
convocation of a general meeting of shareholders and the right to join with other shareholders to propose a matter
to be included in the agenda of a general meeting of shareholders.
In accordance with the Companies Act, our articles of incorporation provide that a holder of shares
constituting less than one unit does not have any other rights of a shareholder in respect of those shares, other
than those provided by our articles of incorporation, including the following rights:
•
•
•
•
to receive dividends;
to receive cash or other assets in case of a reverse stock split or stock split, share exchange, share
transfer or merger;
to be allotted rights to subscribe for free for new shares and stock acquisition rights when such
rights are granted to shareholders; or
to participate in any distribution of surplus assets upon liquidation.
Rights of a Holder of Shares Constituting Less Than One Unit to Require Us to Purchase Shares and to
Sell Shares
Under the Companies Act, a holder of shares constituting less than one full unit may at any time request
that we purchase such shares. In addition, our articles of incorporation provide that, pursuant to our share
handling regulations, a holder of shares constituting less than one full unit has the right to request that we sell to
such holder such number of shares constituting less than one full unit which, when added to the shares
constituting less than one full unit currently owned by such holder, will constitute one full unit.
Under the book-entry system, such a request must be made to us through the relevant account managing
institution. The price at which shares of common stock constituting less than one unit will be purchased or sold
by us pursuant to such a request will be equal to (a) the closing price of shares of our common stock reported by
the Tokyo Stock Exchange on the day when the request is received by our transfer agent or (b) if no sale takes
place on the Tokyo Stock Exchange on that day, the price at which the sale of shares of our common stock is
executed on such stock exchange immediately thereafter.
General Meeting of Shareholders
Our ordinary general meeting of shareholders is usually held every March in Tokyo, Japan. The record
date for an ordinary general meeting of shareholders is December 31 of each year. In addition, we may hold an
extraordinary general meeting of shareholders whenever necessary by giving at least two weeks’ advance notice
to shareholders.
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Notice of convocation of a general meeting of shareholders setting forth the time, place, purpose thereof
and certain other matters set forth in the Companies Act and relevant ordinances must be mailed to each
shareholder having voting rights (or, in the case of a non-resident shareholder, to his or her standing proxy or
mailing address in Japan) at least two weeks prior to the date set for such meeting. Such notice may be given to
shareholders by electronic means, subject to the consent of the relevant shareholders.
Any shareholder or group of shareholders holding at least 3% of the total number of voting rights for a
period of six months or more may require, with an individual shareholder notice (as described in “— Register of
Shareholders”), the convocation of a general meeting of shareholders for a particular purpose. Unless such
general meeting of shareholders is convened without delay or a convocation notice of a meeting which is to be
held not later than eight weeks from the day of such demand is dispatched, the requiring shareholder may, upon
obtaining a court approval, convene such general meeting of shareholders.
Any shareholder or group of shareholders holding at least 300 voting rights or 1% of the total number of
voting rights for a period of six months or more may propose a matter to be included in the agenda of a general
meeting of shareholders, and may propose to describe such matter together with a summary of the proposal to be
submitted by such shareholder in a notice to our shareholders, by submitting a request to a director at least eight
weeks prior to the date set for such meeting, with an individual shareholder notice.
The Companies Act enables a company to amend its articles of incorporation in order to loosen the
requirements for the number of shares held and shareholding period, as well as the period required for
dispatching a convocation notice or submission of requests, all of which are required for any shareholder or
group of shareholders to request the convocation of a general meeting of shareholders or to propose a matter to
be included in the agenda of a general meeting of shareholders. Our articles of incorporation do not provide for
loosening such requirements.
Voting Rights
A shareholder of record is entitled to one vote per unit (100 shares) of common stock, except that
neither we nor any corporation, partnership or other similar entity in which we hold, directly or indirectly, 25%
or more of the voting rights shall exercise any voting rights in respect of shares held by us or such entity, as the
case may be. Except as otherwise provided by law or by our articles of incorporation, a resolution can be adopted
at a general meeting of shareholders by a majority of the voting rights represented at the meeting. Shareholders
may also exercise their voting rights through proxies, provided that the proxy is granted to one of our
shareholders having voting rights. The Companies Act and our articles of incorporation provide that the quorum
for the election of directors and corporate auditors is one-third of the total number of voting rights. Our articles of
incorporation provide that the shares may not be voted cumulatively for the election of directors.
The Companies Act provides that a special resolution of the general meeting of shareholders is required
for certain significant corporate transactions, including:
•
•
•
•
any amendment to our articles of incorporation (except for amendments that may be authorized
solely by the board of directors under the Companies Act);
a reduction of share capital, subject to certain exceptions under which a shareholders’ resolution is
not required, such as a reduction of share capital for the purpose of replenishing capital
deficiencies;
transfer of the whole or a part of our equity interests in any of our subsidiaries, subject to certain
exceptions under which a shareholders’ resolution is not required;
a dissolution, merger or consolidation, subject to certain exceptions under which a shareholders’
resolution is not required;
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•
•
•
•
•
•
•
•
the transfer of the whole or a substantial part of our business, subject to certain exceptions under
which a shareholders’ resolution is not required;
the taking over of the whole of the business of any other corporation, subject to certain exceptions
under which a shareholders’ resolution is not required;
a corporate split, subject to certain exceptions under which a shareholders’ resolution is not
required;
share exchange (kabushiki kokan) or share transfer (kabushiki iten) for the purpose of establishing
100% parent-subsidiary relationships, subject to certain exceptions under which a shareholders’
resolution is not required;
any issuance of new shares or transfer of existing shares held by us as treasury stock at a “specially
favorable” price and any issuance of stock acquisition rights or bonds with stock acquisition rights
at a “specially favorable” price or in a “specially favorable” condition to any persons other than
shareholders;
any acquisition by us of our own shares from specific persons other than our subsidiaries (if any);
reverse stock split; or
the removal of a corporate auditor.
Except as otherwise provided by law or in our articles of incorporation, a special resolution of the
general meeting of shareholders requires the approval of the holders of at least two-thirds of the voting rights of
all shareholders present or represented at a meeting where a quorum is present. Our articles of incorporation
provide that a quorum exists when a majority of the total number of voting rights is present or represented.
Liquidation Rights
If we are liquidated, the assets remaining after payment of all taxes, liquidation expenses and debts will
be distributed among shareholders in proportion to the number of shares they hold.
Rights to Allotment of Shares
Holders of shares of our common stock have no pre-emptive rights. Authorized but unissued shares may
be issued at the times and on the terms as the board of directors determines, so long as the limitations with
respect to the issuance of new shares at “specially favorable” prices (as described in “— Voting Rights”) are
observed. Our board of directors may, however, determine that shareholders shall be given rights to allotment
regarding a particular issue of new shares, in which case such rights must be given on uniform terms to all
holders of the shares as of a record date for which not less than two weeks’ prior public notice must be given.
Each shareholder to whom such rights are given must also be given notice of the expiration date thereof at least
two weeks prior to the date on which such rights expire. The rights to allotment of new shares may not be
transferred. However, the Companies Act enables us to allot stock acquisition rights to shareholders without
consideration therefor, and such stock acquisition rights are transferable. See “— Stock Acquisition Rights”
below.
In cases where a particular issuance of new shares (i) violates laws and regulations or our articles of
incorporation, or (ii) will be performed in a manner materially unfair, and shareholders may suffer disadvantages
therefrom, such shareholders may file an injunction with a court of law to enjoin such issuance.
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Stock Acquisition Rights
Subject to certain conditions and to the limitations on issuances at a “specially favorable” price or on
“specially favorable” conditions described in “— Voting Rights,” we may issue stock acquisition rights
(shinkabu yoyakuken) and bonds with stock acquisition rights (shinkabu yoyakuken-tsuki shasai) by a resolution
of the board of directors. Holders of stock acquisition rights may exercise their rights to acquire a certain number
of shares within the exercise period as set forth in the terms of their stock acquisition rights. Upon exercise of
stock acquisition rights, we will be obligated either to issue the relevant number of new shares or, alternatively,
to transfer the necessary number of shares of treasury stock held by us.
Record Date
The record date for annual dividends and the determination of shareholders entitled to vote at the
ordinary general meeting of our shareholders is December 31.
In addition, by a resolution of the board of directors, we may set a record date for determining the
shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice.
Under the rules of JASDEC, we are required to give notice of each record date to JASDEC promptly
after the resolution of the board of directors determining such record date. JASDEC is required to promptly give
us notice of the names and addresses of the holders of shares of our common stock, the number of shares of our
common stock held by them and other relevant information as at each record date.
Purchase of Our Own Shares
Under the Companies Act, we may acquire our own shares:
•
•
•
by purchase on any stock exchange on which our shares are listed or by way of tender offer,
pursuant to a resolution of our board of directors subject to certain requirements;
by purchase from a specific party other than any of our subsidiaries, pursuant to a special resolution
of a general meeting of shareholders; and
by purchase from any of our subsidiaries, pursuant to a resolution of the board of directors.
If we acquire our own shares from a specific party other than any of our subsidiaries as specified above
at a price higher than the greater of (i) (a) the closing price of the shares at the market trading such shares on the
day immediately preceding the day on which the relevant special resolution of a general meeting of shareholders
is made or (b) if no sale takes place at such market on that day, the price at which the sale of the shares is
effected on such market immediately thereafter and (ii) in the event that such shares are subject to a tender offer,
the price set in the contract regarding such tender offer on that day, shareholders may request that we include him
or her as the seller of his or her shares in the proposed purchase. Any such acquisition of shares must satisfy
certain requirements, such as that we may only acquire our own shares in an aggregate amount up to the amount
that we may distribute as Surplus. See “— Distribution of Surplus” above for more details regarding this amount.
Our own shares acquired by us may be held by us as treasury stock for any period or may be cancelled
by resolution of the board of directors. We may also transfer the shares held by us to any person, subject to a
resolution of the board of directors, and subject also to other requirements similar to those applicable to the
issuance of new shares, as described in “— Rights to Allotment of Shares” above. We may also utilize our
treasury stock (x) for the purpose of transfer to any person upon exercise of stock acquisition rights or (y) for the
purpose of acquiring another company by way of merger, share exchange, or corporate split through exchange of
treasury stock for shares or assets of the acquired company.
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Request by Controlling Shareholder to Sell All Shares
Under the Companies Act and our articles of incorporation, in general, a shareholder holding 98% or
more of our voting rights, directly or through wholly-owned subsidiaries, shall have the right to request that all
other shareholders (and all other holders of stock acquisition rights, as the case may be) sell all shares (and all
stock acquisition rights, as the case may be) held by them with our approval, which must be made by a resolution
of the board of directors (kabushiki tou uriwatashi seikyu, or a “Share Sales Request”). In order to make a Share
Sales Request, such controlling shareholder will be required to issue a prior notice to us. If we approve such
Share Sales Request, we will be required to make a public notice to all holders and registered pledgees of shares
(and stock acquisition rights, as the case may be) not later than 20 days before the effective date of such sales.
Sale by Us of Shares Held by Shareholders Whose Addresses Are Unknown
Under the Companies Act, we are not required to send a notice to a shareholder if notices to such
shareholder fail to arrive for a continuous period of five or more years at the registered address of such
shareholder in the register of our shareholders or at the address otherwise notified to us.
In addition, we may sell or otherwise dispose of the shares held by a shareholder whose location is
unknown. Generally, if
•
•
notices to a shareholder fail to arrive for a continuous period of five or more years at the
shareholder’s registered address in the register of our shareholders or at the address otherwise
notified to us, and
the shareholder fails to receive distribution of Surplus on the shares for a continuous period of five
or more years at the address registered in the register of our shareholders or at the address otherwise
notified to us,
we may sell or otherwise dispose of the shareholder’s shares at the market price after giving at least three
months’ prior public and individual notices, and hold or deposit the proceeds of such sale or disposal for the
shareholder.
Reporting of Substantial Shareholdings
The FIEA and its related regulations require any person who has become beneficially, solely or jointly,
a holder of more than 5% of total issued shares of our common stock, to file with the director of a relevant local
finance bureau of the Ministry of Finance within five business days a report concerning such shareholdings. With
certain exceptions, a similar report must also be filed in respect of any subsequent change of 1% or more in any
such holdings or any change in material matters set out in reports previously filed. For this purpose, shares of our
common stock issuable to such person upon exchange of exchangeable securities, conversion of convertible
securities or exercise of warrants or stock acquisition rights (including those incorporated in bonds with stock
acquisition rights) are taken into account in determining both the number of our shares held by the holder and our
total issued share capital.
Item 10.C. Material Contracts
For the two years immediately preceding the date of this annual report, we have not been a party to any
material agreements other than in the ordinary course of business.
Item 10.D. Exchange Controls
The Foreign Exchange and Foreign Trade Act of Japan (Gaikoku Kawase oyobi Gaikoku Boueki Hou)
and related cabinet orders and ministerial ordinances, which we refer to collectively as the Foreign Exchange
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Regulations, govern certain aspects relating to the acquisition and holding of shares by “exchange non-residents”
and by “foreign investors” (as these terms are defined below). It also applies in some cases to the acquisition and
holding of ADSs representing shares of our common stock acquired and held by non-residents of Japan and by
foreign investors. In general, the Foreign Exchange Regulations currently in effect do not affect transactions
between exchange non-residents to purchase or sell shares or ADSs outside Japan using currencies other than
Japanese yen.
Exchange residents are defined in the Foreign Exchange Regulations as:
(i)
individuals who reside within Japan; or
(ii) corporations whose principal offices are located within Japan.
Exchange non-residents are defined in the Foreign Exchange Regulations as:
(i)
individuals who do not reside in Japan; or
(ii) corporations whose principal offices are located outside Japan.
Generally, branches and other offices of non-resident corporations located within Japan are regarded as
exchange residents. Conversely, branches and other offices of Japanese corporations located outside Japan are
regarded as exchange non-residents.
Foreign investors are defined in the Foreign Exchange Regulations as:
(i)
individuals who do not reside in Japan;
(ii) corporations or other entities organized under the laws of foreign countries or whose principal
offices are located outside Japan;
(iii) corporations of which 50% or more of the total voting rights are held, directly or indirectly, by
individuals and/or corporations falling within (i) and/or (ii) above; or
(iv) corporations or other entities having a majority of either (A) directors or other persons equivalent
thereto or (B) directors or other persons equivalent thereto having the power of representation who
are non-resident individuals.
Acquisition of Shares
Acquisition by an exchange non-resident of shares of a Japanese corporation from an exchange resident
requires post facto reporting by the exchange resident to the Minister of Finance of Japan through the Bank of
Japan. No such reporting requirement is imposed, however, if:
(i)
the aggregate purchase price of the relevant shares is ¥100 million or less;
(ii) the acquisition is effected through any bank, financial instruments business operator or other entity
prescribed by the Foreign Exchange Regulations acting as an agent or intermediary; or
(iii) the acquisition constitutes an “inward direct investment” described below.
Inward Direct Investment in Shares of Listed Corporations
If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock exchange,
such as the shares of our common stock, or that is traded on an over-the-counter market in Japan and, as a result
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of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds
10% or more of the issued shares of the relevant company, such acquisition constitutes an “inward direct
investment” and the foreign investor in general must file a report of the acquisition with the Minister of Finance
and any other competent Ministers having jurisdiction over that Japanese company by the 15th day of the month
immediately following the month to which the date of such acquisition belongs. In limited circumstances, such as
where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange
Regulations, or where that Japanese company is engaged in certain businesses designated by the Foreign
Exchange Regulations, a prior notification of the acquisition must be filed with the Minister of Finance and any
other competent Ministers, who may then modify or prohibit the proposed acquisition.
Acquisition of shares by foreign investors by way of stock split is not subject to any of the foregoing
notification or reporting requirements.
Dividends and Proceeds of Sale
Under the Foreign Exchange Regulations, dividends paid on, and the proceeds from sales in Japan of,
shares held by exchange non-residents of Japan may generally be converted into any foreign currency and
repatriated abroad.
Item 10.E. Taxation
Japanese Taxation
The following is a general summary of the principal Japanese tax consequences (limited to national tax)
to owners of shares of our common stock, in the form of shares or ADSs, who are non-resident individuals of
Japan or who are non-Japanese corporations without a permanent establishment in Japan, collectively referred to
in this section as non-resident holders. The statements below regarding Japanese tax laws are based on the laws
and treaties in force and as interpreted by the Japanese tax authorities as of the date of this annual report, and are
subject to changes in applicable Japanese laws, tax treaties, conventions or agreements, or in the interpretation of
them, occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply
to a particular investor, and potential
tax
consequences of the acquisition, ownership and disposition of shares of our common stock,
including,
specifically, the tax consequences under Japanese law, under the laws of the jurisdiction of which they are
resident and under any tax treaty, convention or agreement between Japan and their country of residence, by
consulting their own tax advisors.
investors are advised to satisfy themselves as to the overall
For the purpose of Japanese tax law and the tax treaty between the United States and Japan, a U.S.
holder of ADSs will generally be treated as the owner of the shares underlying the ADSs evidenced by the ADRs.
Generally, a non-resident holder of shares or ADSs will be subject to Japanese income tax collected by
way of withholding on dividends (meaning in this section distributions made from our retained earnings for the
Companies Act purposes) we pay with respect to shares of our common stock and such tax will be withheld prior
to payment of dividends. Stock splits generally are not subject to Japanese income or corporation taxes.
In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of
Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of the Japanese
withholding tax applicable to dividends paid by Japanese corporations on their shares of stock to non-resident
holders is generally 20.42% (or 20% for dividends due and payable on or after January 1, 2038) under Japanese
tax law. However, with respect to dividends paid on listed shares issued by a Japanese corporation (such as
shares or ADSs) to non-resident holders, other than any individual shareholder who holds 3% or more of the total
number of shares issued by the relevant Japanese corporation (to whom the aforementioned withholding tax rate
will still apply), the aforementioned withholding tax rate is reduced to (i) 15.315% for dividends due and payable
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up to and including December 31, 2037 and (ii) 15% for dividends due and payable on or after January 1, 2038.
The withholding tax rates described above include the special reconstruction surtax (2.1% multiplied by the
original applicable withholding tax rate, i.e., 15% or 20%, as the case may be), which is imposed during the
period from and including January 1, 2013 to and including December 31, 2037, to fund the reconstruction from
the Great East Japan Earthquake.
If distributions were made from our capital surplus, rather than retained earnings, for the Companies Act
purposes, the portion of such distributions in excess of the amount corresponding to a pro rata portion of return of
capital as determined under Japanese tax laws would be deemed dividends for Japanese tax purposes, while the
rest would be treated as return of capital for Japanese tax purposes. The deemed dividend portion, if any, would
generally be subject to the same tax treatment as dividends as described above, and the return of capital portion
would generally be treated as proceeds derived from the sale of shares and subject to the same tax treatment as
sale of shares of our common stock as described below. Distributions made in consideration of repurchase by us
of our own shares or in connection with certain reorganization transactions will be treated substantially in the
same manner.
the United Arab Emirates,
Japan has income tax treaties whereby the withholding tax rate (including the special reconstruction
surtax) may be reduced, generally to 15%, for portfolio investors, with, among others, Canada, Denmark,
Finland, Germany, Ireland, Italy, Luxembourg, New Zealand, Norway, Singapore and Spain, while the income
tax treaties with, among others, Australia, Belgium, France, Hong Kong, the Netherlands, Portugal, Sweden,
Switzerland,
the United Kingdom and the United States generally reduce the
withholding tax rate to 10% for portfolio investors. In addition, under the income tax treaty between Japan and
the United States, dividends paid to pension funds which are qualified U.S. residents eligible to enjoy treaty
benefits are exempt from Japanese income taxation by way of withholding or otherwise unless the dividends are
derived from the carrying on of a business, directly or indirectly, by the pension funds. Similar treatment is
applicable to dividends paid to pension funds under the income tax treaties between Japan and the Netherlands,
Switzerland and the United Kingdom. Under Japanese tax law, any reduced maximum rate applicable under a tax
treaty shall be available when such maximum rate is below the rate otherwise applicable under the Japanese tax
law referred to in the second preceding paragraph with respect to the dividends to be paid by us on our shares or
ADSs.
Non-resident holders of our shares who are entitled under an applicable tax treaty to a reduced rate of, or
exemption from, Japanese withholding tax on any dividends on our shares, in general, are required to submit,
through the withholding agent to the relevant tax authority prior to the payment of dividends, an Application
Form for Income Tax Convention regarding Relief from Japanese Income Tax and Special Income Tax for
Reconstruction on Dividends together with any required forms and documents. A standing proxy for a
non-resident holder of shares of our common stock or ADSs may be used in order to submit the application on a
non-resident holder’s behalf. In this regard, a certain simplified special filing procedure is available for
non-resident holders to claim treaty benefits of reduction of or exemption from Japanese withholding tax, by
submitting a Special Application Form for Income Tax Convention regarding Relief from Japanese Income Tax
and Special Income Tax for Reconstruction on Dividends of Listed Stock, together with any required forms or
documents. If the depositary needs investigation to identify whether any non-resident holders of ADSs are
entitled to claim treaty benefits of exemption from or reduction of Japanese withholding tax the depositary or its
agent submits an application form before payment of dividends so that the withholding cannot be made in
connection with such holders for eight months after the record date concerning such payment of dividends. If it is
proved that such holders are entitled to claim treaty benefits of exemption from or reduction of Japanese
withholding tax within the foregoing eight-month period, the depositary or its agent submits another application
form together with certain other documents so that such holder can be subject to exemption from or reduction of
Japanese withholding tax. To claim this reduced rate or exemption, such non-resident holder of ADSs will be
required to file a proof of taxpayer status, residence and beneficial ownership, as applicable, and to provide other
information or documents as may be required by the depositary. Non-resident holders who are entitled, under any
applicable tax treaty, to a reduced rate of Japanese withholding tax below the rate otherwise applicable under
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Japanese tax law, or exemption therefrom, as the case may be, but fail to submit the required application in
advance may nevertheless be entitled to claim a refund from the relevant Japanese tax authority of withholding
taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident holders are entitled to a
reduced treaty rate under the applicable tax treaty) or the full amount of tax withheld (if such non-resident
holders are entitled to an exemption under the applicable tax treaty), as the case may be, by complying with a
certain subsequent filing procedure. We do not assume any responsibility to ensure withholding at the reduced
treaty rate, or exemption therefrom, for shareholders who would be eligible under an applicable tax treaty but
who do not follow the required procedures as stated above.
Gains derived from the sale of our shares or ADSs outside Japan by a non-resident holder that is a
portfolio investor will generally not be subject to Japanese income or corporation taxes. Japanese inheritance and
gift taxes, at progressive rates, may be payable by an individual who has acquired from another individual our
shares or ADSs as a legatee, heir or donee, even if none of the acquiring individual, the decedent or the donor is a
Japanese resident.
United States Federal Income Taxation
The following discussion is a summary of the material U.S. federal income tax consequences of the
acquisition, ownership and disposition of shares of our common stock or ADSs, based on the Internal Revenue
Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated thereunder, published
administrative interpretations of the U.S. Internal Revenue Service (“IRS”), judicial decisions and the income tax
treaty between the United States and Japan (the “Tax Convention”), all of which are subject to differing
interpretations and to change, possibly with retroactive effect. This summary does not purport
to be a
comprehensive description of all of the tax consequences that may be relevant to the holding or disposition of
shares of our common stock or ADSs. This summary applies only to U.S. Holders (as defined below) that hold
shares of our common stock or ADSs as “capital assets” for U.S. federal income tax purposes. It does not address
the tax treatment of investors subject to special tax rules, such as banks or other financial institutions, tax-exempt
entities, partnerships (or entities or arrangements treated as partnerships for U.S. federal income tax purposes) or
partners therein, insurance companies, dealers in securities, traders in securities that elect mark to market
treatment for their securities, a person whose functional currency for tax purposes is not the U.S. dollar, investors
that own or are treated as owning 10% or more of our stock (by vote or value, and taking into account common
shares held directly or through depositary arrangements), or investors that hold common shares or ADSs as part
of a straddle, hedging, conversion or other integrated transaction. In addition, this summary does not address the
tax consequences to U.S. Holders of acquiring, owning, or disposing of the common shares or ADSs under any
U.S. federal estate or gift tax, U.S. alternative minimum tax, or U.S. state or local, foreign or other tax laws (such
as the Medicare contribution tax on net investment income).
For purposes of this discussion, “U.S. Holder” means a beneficial owner of common shares or ADSs
that is for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the United States,
(ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or
organized under the law of, the United States, any State thereof or the District of Columbia, or (iii) otherwise
subject to U.S. federal income tax on a net income basis with respect to the common shares or ADSs.
This summary is based, in part, upon the representations made by the depositary to us and assumes that
the deposit agreement for the ADSs, and all other related agreements, will be performed in accordance with their
terms.
U.S. Holders should consult their own tax advisors concerning the U.S. federal, state, local, foreign and
other tax consequences of acquiring, owning, and disposing of shares of our common stock or ADSs in light of
their particular circumstances.
126
Treatment of the ADSs
U.S. Holders of ADSs generally will be treated for U.S. federal income tax purposes as holding shares
of our common stock represented by the ADSs. No gain or loss will be recognized on an exchange of shares of
our common stock for ADSs or an exchange of ADSs for shares of our common stock if the depositary has not
taken any action inconsistent with the material terms of the deposit agreement for the ADSs or the U.S. Holder’s
ownership of the underlying shares of our common stock. A U.S. Holder’s tax basis in the shares of our common
stock received in exchange for ADSs will be the same as its tax basis in the ADSs, and the holding period in the
shares will include the holding period in the ADSs.
Dividends
Subject to the application of the PFIC rules discussed below, a U.S. Holder generally will recognize
ordinary dividend income in an amount equal to the amount of any cash and the value of any property we
distribute as a distribution with respect to the U.S. Holder’s common stock (or ADSs), to the extent that the
distribution is paid out of our current or accumulated earnings and profits, as determined under U.S. federal
income tax principles, when the distribution is received (or when received by the depositary in the case of
ADSs). We do not intend to maintain calculations of earnings and profits under U.S. federal income tax
principles. Therefore, a U.S. Holder should expect that distributions paid with respect to the shares of our
common stock or ADSs generally will be treated as dividends. Dividends will not be eligible for the dividends
received deduction generally allowable to U.S. corporations under the Code. Dividends paid on the shares of our
common stock or ADSs will be treated as “qualified dividends” taxable at preferential rates, if (i) we are eligible
for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the
purposes of the qualified dividend rules, (ii) we were not, in the year prior to the year in which the dividend was
paid, and are not, in the year in which the dividend is paid, a PFIC, and (iii) the U.S. Holder satisfies certain
holding period and other requirements. The Tax Convention has been approved for the purposes of the qualified
dividend rules and we believe we will be eligible for the benefits of the Tax Convention.
Dividend income will include any amounts withheld in respect of Japanese taxes, and will be treated as
foreign-source income for foreign tax credit purposes. Subject to applicable limitations, some of which vary
depending upon the U.S. Holder’s circumstances, Japanese taxes withheld from dividends on shares of our
common stock or ADSs generally will be creditable against the U.S. Holder’s U.S. federal income tax liability to
the extent such taxes do not exceed any reduced withholding rate available under the Tax Convention. The rules
governing foreign tax credits are complex, and U.S. Holders should consult their tax advisors regarding the
creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, a U.S.
Holder may, at its election, deduct creditable foreign taxes, including Japanese taxes, in computing its taxable
income, subject to applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax
credits applies to all foreign taxes paid or accrued by the U.S. Holder in the taxable year.
Dividends paid in a currency other than U.S. dollars will be includable in income in a U.S. dollar
amount based on the exchange rate in effect on the date of receipt (or the date of the depositary’s receipt in the
case of ADSs), whether or not the payment is converted into U.S. dollars at that time. A U.S. Holder should not
recognize any foreign currency gain or loss in respect of the distribution if the foreign currency is converted into
U.S. dollars on the date the distribution is received. If the foreign currency is not converted into U.S. dollars on
the date of receipt, however, gain or loss may be recognized upon a subsequent sale or other disposition of the
foreign currency. The foreign currency gain or loss (if any) generally will be treated as ordinary income or loss to
the U.S. Holder and generally will be treated as U.S.-source income or loss, which may be relevant in calculating
the U.S. Holder’s foreign tax credit limitation.
Disposition
Subject to the application of the PFIC rules discussed below, a U.S. Holder generally will recognize
capital gain or loss upon the sale, exchange (other than an exchange of ADSs for shares of our common stock or
127
shares for ADSs) or other taxable disposition of the shares of our common stock or ADSs in an amount equal to
the difference between the U.S. dollar value of the amount realized on the disposition and the U.S. Holder’s
adjusted tax basis in the shares of our common stock or ADSs as determined in U.S. dollars. A U.S. Holder’s
adjusted tax basis in the shares of our common stock or ADSs generally will be its U.S. dollar cost. The gain or
long-term capital gain recognized by a
loss generally will be treated as U.S.-source gain or loss. Net
non-corporate U.S. Holder generally will be taxed at a preferential rate. Deductions for capital losses are subject
to limitations.
The amount realized by a U.S. Holder on a sale, exchange (other than an exchange of ADSs for shares
of our common stock or shares for ADSs) or other taxable disposition of shares of our common stock or ADSs
for an amount in a currency other than U.S. dollars will be the U.S. dollar value of that amount on the date of
sale, exchange or disposition. On the settlement date, the U.S. Holder will recognize U.S.-source foreign
currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between that U.S. dollar
value and the U.S. dollar value as of the settlement date of the amount received, in each case based on the
exchange rates in effect on the relevant date. However, in the case of shares of our common stock or ADSs that
are traded on an established securities market that are sold by a cash basis U.S. Holder (or an accrual basis U.S.
Holder that so elects), the amount realized will be based on the exchange rate in effect on the settlement date for
the sale, and no exchange gain or loss will be recognized at that time. A U.S. Holder will have a tax basis in the
currency received equal to the U.S. dollar value of the currency received on the settlement date. Any gain or loss
on a subsequent conversion or other disposition of the currency for a different U.S. dollar amount generally will
be U.S.-source ordinary income or loss, which may be relevant in calculating the U.S. Holder’s foreign tax credit
limitation.
Passive Foreign Investment Company
We will be classified as a PFIC in any taxable year in which, after taking into account our income and
gross assets (and the income and assets of our subsidiaries pursuant to applicable “look-through rules”) either
(i) 75% or more of our gross income consists of certain types of “passive income” or (ii) 50% or more of the
average quarterly value of our assets is attributable to “passive assets” (i.e., assets that produce or are held for the
production of passive income). We believe that we were not a PFIC for U.S. federal income tax purposes in 2018
and do not expect to be a PFIC in 2019. However, PFIC status is a factual determination made annually after the
close of each taxable year on the basis of the composition of our income and the value of our active versus
passive assets. Because our belief is based in part on the expected market value of our equity, a decrease in the
trading price of our common stock and/or ADSs may result in our becoming a PFIC. Additionally, the overall
level of our passive assets will be significantly affected by changes in the amount of our cash, cash equivalents
and securities held for investment, each of which may be classified as passive assets under the PFIC rules.
If we were to be or become a PFIC in any year during which a U.S. Holder owns shares of our common
stock or ADSs, and the U.S. Holder has not made a mark to market election (as described below), the
U.S. Holder generally will be subject to special rules (regardless of whether we continue to be a PFIC) with
respect to its receipt of (i) any “excess distribution” (generally, any distribution on shares of common stock or
ADSs that is greater than 125 percent of the average annual distributions paid to the U.S. Holder in the three
preceding taxable years or, if shorter, the U.S. Holder’s holding period for the shares or ADSs) and (ii) any gain
realized on the sale or other disposition of shares of common stock or ADSs.
Under these rules (a) the excess distribution or gain will be allocated ratably over the U.S. Holder’s
holding period, (b) the amount allocated to the current taxable year and any taxable year prior to the first taxable
year in which we are a PFIC will be taxed as ordinary income, (c) the amount allocated to each of the other
taxable years will be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that
year, and (d) an interest charge for the deemed deferral benefit will be imposed with respect to the resulting tax
attributable to each such other taxable year. If we are a PFIC, a U.S. Holder of shares of our common stock or
ADSs generally will be subject to similar rules with respect to distributions to us by, and dispositions by us of the
stock of, any of our direct or indirect subsidiaries that are also PFICs.
128
A U.S. Holder can avoid the interest charge described above by making a mark to market election with
respect to its shares or ADSs, provided that the shares or ADSs are considered “marketable.” The shares or ADSs
will be considered marketable if they are regularly traded on certain qualifying U.S. stock exchanges, such as the
New York Stock Exchange, or on a foreign stock exchange if it is properly regulated and meets certain trading,
listing, financial disclosure and other requirements. For this purpose, shares and ADSs will be considered
regularly traded during any calendar year if they are traded, other than in de minimis quantities, on at least
15 days during each calendar quarter.
A U.S. Holder that makes a mark to market election must include in ordinary income for each year that
we are a PFIC an amount equal to the excess, if any, of the fair market value of its shares or ADSs at the close of
its taxable year over its adjusted basis therein. An electing holder may also claim an ordinary loss deduction for
the excess, if any, of the U.S. Holder’s adjusted basis in shares or ADSs over their fair market value at the close
of its taxable year, but this deduction is allowable only to the extent of any net mark to market gains for prior
years. Any income or deductions taken into account under these mark to market rules will also increase or
decrease a U.S. Holder’s adjusted tax basis in its shares or ADSs. Gains from an actual sale or other taxable
disposition of shares or ADSs will be treated as ordinary income, and any losses incurred on a sale or other
taxable disposition of shares or ADSs will be treated as an ordinary loss to the extent of any net mark to market
gains for prior years. Once made, the election cannot be revoked without the consent of the IRS unless the shares
or ADSs cease to be marketable. If we are a PFIC for any year in which the U.S. Holder owns shares of our
common stock or ADSs but before a mark to market election is made, the interest charge rules described above
will apply to any mark to market gain recognized in the year the election is made.
The Code provides an alternative election (a “QEF election”) to U.S. Holders that may mitigate the
adverse U.S. federal income tax consequences to an electing U.S. Holder should we be classified as a PFIC.
However, we do not intend to provide holders with the information necessary to make a QEF election. Thus, a
U.S. Holder seeking to mitigate the potential adverse effects of the PFIC rules should consider making the mark
to market election described above. A U.S. Holder should consult its tax advisor regarding the potential U.S.
federal income tax consequences should we be classified as a PFIC in any taxable year.
As discussed in more detail below under “PFIC Reporting,” a U.S. Holder of shares of common stock or
ADSs during any year in which we are treated as a PFIC generally will be required to file an annual report
containing information with respect to its interest in a PFIC.
Reporting and Backup Withholding
Dividends on and proceeds from the sale or other disposition of shares of our common stock or ADSs
that are made within the United States or through certain U.S.-related financial intermediaries may be reported to
the IRS. Certain exempt recipients, such as corporations, are not subject to the information reporting or backup
withholding requirements if they establish an exemption. Backup withholding may apply to amounts subject to
reporting if the U.S. Holder fails to provide an accurate U.S. taxpayer identification number or otherwise to
establish a basis for exemption. Backup withholding is not an additional tax. A U.S. Holder can claim a credit
against its U.S. federal income tax liability for amounts withheld under the backup withholding rules, and a U.S.
Holder can claim a refund for amounts in excess of its tax liability if it provides the required information to the
IRS.
Each U.S. Holders should consult its own tax advisor regarding the application of the information
reporting and backup withholding rules.
PFIC Reporting
Subject to certain exceptions, a U.S. Holder is required to file an annual information return, currently on
Form 8621, with respect to each PFIC in which it owns an interest directly or, in some cases, indirectly
129
(including through certain pass-through entities), and the statute of limitations for collections may be suspended
if it does not file such form. If we are a PFIC and own an interest in another PFIC, holders of shares of our
common stock or ADSs would be treated as owning a proportionate amount (by value) of the stock of such other
PFIC. However, we may be unable to provide investors in shares of our common stock or ADSs with the
information necessary to comply with reporting obligations with respect to such other PFIC. U.S. Holders should
consult their own tax advisors regarding the PFIC reporting requirements.
Foreign Financial Asset Reporting
Certain U.S. Holders that own “specified foreign financial assets” with an aggregate value in excess of
US$50,000 are generally required to file an information statement along with their tax returns, currently on Form
8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a
non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts
maintained by financial institutions. The understatement of income attributable to “specified foreign financial
assets” in excess of US$5,000 extends the statute of limitations with respect to the tax return to six years after the
return was filed. U.S. Holders who fail to report the required information could be subject to substantial
penalties. U.S. Holders are encouraged to consult with their own tax advisors regarding the possible application
of these rules, including the application of the rules to their particular circumstances.
Item 10.F. Dividends and Paying Agents
Not applicable
Item 10.G. Statements by Experts
Not applicable
Item 10.H. Documents on Display
We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to
the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials
filed with the SEC at the Public Reference Room in Washington, D.C. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make
electronically will be available to the public over the internet at the SEC’s web site at http://www.sec.gov.
Item 10.I. Subsidiary Information
Not applicable
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss related to adverse changes in market prices. We are exposed to foreign
exchange rate and interest rate risk primarily associated with underlying assets and liabilities. Our financial assets
and liabilities that are under financial risk management are comprised of the following:
•
•
financial
cash and cash equivalents,
available-for-sale financial assets, trade and other receivables and other financial assets; and
short-term financial
include
assets
instruments,
financial liabilities include trade and other payables, borrowings and other financial liabilities.
130
The following table summarizes the carrying amounts, fair values, principal cash flows by maturity date
and weighted average interest rates of our short-term and long-term liabilities as of December 31, 2018 which are
sensitive to exchange rates and/or interest rates.
By maturities (as of
December 31, 2018)
2019
2020 and
Beyond
Total as of December 31,
2018
2017
2016
Total
Fair value
Total
Fair value
Total
Fair value
(in millions of yen, won and dong, except rates)
Local currency (Japanese yen):
Average weighted rate(1)
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Variable rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Average weighted rate(1)
¥ —
—
23,000
0.10%
Sub-total . . . . . . . . . . . . . . . . . . . . . . .
¥23,000
Foreign currency (Korean won):
Average weighted rate(1)
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Variable rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Average weighted rate(1)
Sub-total . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate (Japanese yen) . . . . . . . . . . . . . .
Sub-total . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency (Vietnamese dong):
Average weighted rate(1)
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Variable rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Average weighted rate(1)
Sub-total . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate (Japanese yen) . . . . . . . . . . . . . .
Sub-total . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥23,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
¥ —
—
23,000
0.10%
¥ —
—
23,000
—
¥
¥
—
—
22,042
0.08%
— ¥
—
22,042
—
258
1.00%
21,667
0.07%
¥
258
—
21,667
—
¥23,000
¥23,000
¥ 22,042
¥ 22,042
¥21,925
¥21,925
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
W 404
2.97%
—
—
W 404
0.11
43
¥
d 28,166
—
—
—
W 404
—
—
—
W 404
0.11
43
¥
d 28,166
—
—
—
d 28,166
d 28,166
0.005
139
¥
0.005
139
¥
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
¥23,000
¥23,000
¥ 22,224
¥ 22,224
¥21,925
¥21,925
(1) Weighted average rates of the portfolio at the period end. The amounts do not include estimated interest from borrowings and corporate
bonds scheduled to be paid.
Exchange Rate Risk
Japan is our largest market and, therefore, a substantial majority of our cash flow is denominated in
Japanese yen. However, 28.3%, 27.4% and 28.4% of our revenues in 2016, 2017 and 2018, respectively, were
derived from markets outside of Japan, and we expect that an increasing portion of our consolidated financial
results in the future will be accounted for in currencies other than Japanese yen. In addition, some of our foreign
operations’ functional currencies are not the Japanese yen, and the financial statements of our foreign operations
prepared initially using their functional currencies are translated into Japanese yen. Since the currency in which
sales are recorded may not be the same as the currency in which expenses are incurred, foreign exchange rate
fluctuations may materially affect our results of operations.
We selectively enter into derivative financial instruments with major financial institutions to manage the
related risk exposures, primarily with respect to foreign exchange rate risks. Our management determines the
market risk tolerance level, measuring period, controlling responsibilities and management procedures. We also
prohibit all speculative transactions and evaluate and manage foreign exchange exposures.
131
The following table presents our foreign currency exposure and changes in shareholder’s equity and
profit or loss before tax from a 5% increase or decrease in the value of Japanese yen against the currencies set
forth below, for the periods indicated, assuming all other variables are constant:
For the year ended December 31,
2017
2018
Shareholder’s equity
Profit (loss) before tax
Shareholder’s equity
Profit (loss) before tax
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
Korean won . .
U.S. dollar . . . .
Euro . . . . . . . .
Thai baht . . . . .
Taiwanese
dollar . . . . . .
Japanese
yen . . . . . . .
¥ (18)
861
11
16
—
13
¥ 18
(820)
(10)
(15)
—
(12)
¥ (13)
603
8
11
—
10
(in millions of yen)
¥ 12
(574)
(8)
(10)
¥ (14)
584
—
8
—
(10)
(6)
3
¥ 13
(556)
—
(8)
5
(3)
¥ (27)
794
—
12
(7)
4
¥ 26
(756)
—
(12)
6
(4)
See Note 25 of the notes to our annual consolidated financial statements.
Interest Rate Risk
Interest rate risk is defined as the risk that the fair value of future cash flows from a financial instrument
will fluctuate because of changes in market interest rates. We are exposed to interest rate risk arising mainly
through financial liabilities and assets that bear floating interest rates. Such financial liabilities and assets consist
mainly of our outstanding borrowings and corporate bonds, as well as interest-bearing deposits and additional
debt financings that we may periodically undertake for various reasons, including refinancing of our existing
borrowings. The objective of interest rate risk management is to minimize financial costs and uncertainties
associated with interest rate changes, and we strive to effectively manage our interest rate risk by periodic
monitoring and responding to risk factors on a timely basis. In order to manage our interest rate risk in advance,
we seek to minimize external borrowings by using internal funds, reduce borrowings with high interest rates,
improve the structure of long-term and short-term borrowings, maintain the appropriate balance between
borrowings with floating interest rates and fixed interest rates, and regularly monitor domestic and international
interest rate changes.
Our cash equivalents and long-term and short-term financial instruments are also exposed to financial
market risk arising from fluctuations in interest rates, which may affect the fair market value of our assets and
investments. For example, an increase in interest rates would reduce the fair value of the fixed interest
component of our interest-bearing securities. We manage our exposure to financial market risk by performing
ongoing evaluations of our investment portfolio and investing some of our cash equivalents in fixed interest rate
deposit instruments.
132
If interest rates had been 50 basis points higher or lower, the impact on our interest expenses of the
applicable period would be as follows:
For the year ended December 31,
2017
2018
Shareholder’s equity
Profit (loss) before tax
Shareholder’s equity
Profit (loss) before tax
Increase of
50 basis
points
Decrease of
50 basis
points
Increase of
50 basis
points
Decrease of
50 basis
points
Increase of
50 basis
points
Decrease of
50 basis
points
Increase of
50 basis
points
Decrease of
50 basis
points
(in millions of yen)
Interest
expenses . . . .
¥(75)
¥13
¥(110)
¥19
¥(79)
¥16
¥(115)
¥23
If interest rates had been 50 basis points higher or lower, the impact on our debt instruments for the year
ended December 31, 2018 would be as follows:
For the year ended December 31, 2018
Shareholder’s equity
Other comprehensive
income (loss)
Increase of
50 basis
points
Decrease of
50 basis
points
Increase of
50 basis
points
Decrease of
50 basis
points
Debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥(145)
(in millions of yen)
¥86
¥(212)
¥125
The above analysis was performed using balances of the outstanding financial
liabilities as of
December 31, 2017 and 2018, as well as the balance of debt instruments as of December 31, 2018, assuming
such liabilities and assets were outstanding for the full fiscal year immediately before the respective dates, while
holding all other variables constant. As of December 31, 2017 and 2018, we did not have any significant amount
of financial assets earning interest at variable rates.
Inflation
Inflation generally affects us by necessitating increases in the salaries and wages of our employees as
well as increasing the cost of goods and services that we purchase. The general rate of inflation in Japan was
(0.1)% in 2016, 0.5% in 2017 and 1.0% in 2018 according to the Organization for Economic Co-operation and
Development. We do not believe that inflation has had a material impact on our results of operations in recent
years.
Item 12.
Description of Securities Other than Equity Securities
Item 12.A. Debt Securities
Not applicable
Item 12.B. Warrants and Rights
Not applicable
Item 12.C. Other Securities
Not applicable
133
Item 12.D. American Depositary Shares
Fees Payable by ADR Holders
JPMorgan Chase Bank, N.A. is the depositary for our ADSs. As an ADS holder, you will be required to
pay the following service fees to the depositary:
Persons depositing or withdrawing shares must pay:
For:
US$5.00 (or less) per each 100 ADSs
Issuance of ADSs, including issuances resulting from
a distribution of shares or rights or other property
Cancellation of ADSs for the purpose of withdrawal,
including if the deposit agreement terminates
US$0.05 (or less) per ADS
Any distribution of cash proceeds to you
A fee equivalent to the fee that would be payable if
securities distributed to you had been shares of our
common stock and the shares had been deposited for
issuance of ADSs
Distribution of securities distributed to holders of
deposited securities which are distributed by the
depositary to ADS holders
US$0.05 per ADS per calendar year
Depositary services
Registration or transfer fees
Expenses of the depositary
Transfer and registration of shares of our common
stock on our share register to or from the name of the
depositary or its agent when you deposit or withdraw
shares
telex and facsimile transmissions
Cable,
expressly provided in the deposit
converting foreign currency to U.S. dollars
(when
agreement)
Taxes and other governmental charges the depositary or
the custodian has to pay on any ADS or share
underlying an ADS, including any applicable interest
and penalties thereon and any share transfer or other
taxes or governmental charges;
for example, stock
transfer taxes, stamp duty or withholding taxes
As necessary
Any charges incurred by the depositary or its agents for
servicing the deposited securities
As necessary
The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing
shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The
depositary collects fees for making distributions to investors by deducting those fees from the amounts
distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual
fee for depositary services by deduction from cash distributions, by directly billing investors, or by charging the
book-entry system accounts of participants acting for them. The depositary may generally refuse to provide
fee-attracting services until its fees for those services are paid.
134
Fees and Payments from the Depositary to Us
JPMorgan Chase Bank, N.A., with its principal executive office located at 383 Madison Avenue,
Floor 11, New York, New York 10179, U.S.A., as depositary, has agreed to reimburse us for a portion of certain
expenses we incur in connection with our ADR program, including investor relations expenses. There are limits
on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement
available to us is not related to the amounts of fees the depositary collects from investors. In addition, the
depositary waives fees in connection with its ADR program, subject to a ceiling. These waived expenses include,
but are not limited to, standard costs associated with the administration of the ADR program, associated
operating expenses and investor relations advice. In October 2017, we received an initial upfront fixed
contribution of US$500,000 from the depositary for reimbursement of various fees and expenses incurred in
connection with the ADR program during the one-year period commencing on the closing date of our initial
public offering in July 2016.
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Not applicable
PART II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
See “Item 10.B. Memorandum and Articles of Association” for a description of the rights of security
holders, which remain unchanged.
The following “Use of Proceeds” information relates to the Registration Statement on Form F-1, as
amended (File Number: 333-211954), or the Form F-1, in relation to our initial public offering, which was
declared effective by the SEC on July 8, 2016. Our initial public offering included an international offering in the
United States and countries outside of Japan of 22,000,000 shares of common stock in the form of shares and
ADSs, at a price of ¥3,300 per share and $32.84 per ADS, and a concurrent offering in Japan of 13,000,000
shares at a price of ¥3,300 yen per share, and the underwriters exercised in full their options to purchase up to
5,250,000 shares of common stock. Morgan Stanley & Co. LLC, Nomura Securities Co., Ltd., Goldman Sachs
Japan Co., Ltd. and JPMorgan Securities Japan Co., Ltd. were the joint global coordinators for the global
offering, which closed in July 2016.
Costs related to our initial public offering were approximately ¥2,441 million. In addition, underwriting
discounts and commissions were approximately ¥5,977 million. None of the fees and expenses were directly or
indirectly paid to the directors, officers, general partners of our company or their associates, persons owning 10%
or more of shares of our common stock, or our affiliates.
We received proceeds of approximately ¥126,848 million from our initial public offering. For the period
from July 8, 2016 to December 31, 2018, we used the proceeds from our initial public offering as follows:
•
•
•
•
approximately ¥42,833 million for the repayment of short-term borrowings;
approximately ¥28,331 million for our investments in associates and joint ventures;
approximately ¥12,075 million for the acquisition of businesses and subsidiaries; and
approximately ¥16,511 million for the acquisition of additional servers.
None of the net proceeds from our initial public offering were directly or indirectly paid to the directors,
officers, general partners of our company or their associates, persons owning 10% or more of shares of our
common stock, or our affiliates.
135
There has been no material change in the planned use of proceeds from our initial public offering as
described in the Form F-1.
Item 15.
Controls and Procedures
a.
Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our chief executive
officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of December 31,
2018. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon the evaluation of our management, our chief executive officer and
chief financial officer have concluded that our disclosure controls and procedures as of December 31, 2018 were
effective to provide reasonable assurance that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the applicable rules and forms, and that it is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate to allow timely decisions
regarding required disclosure.
b.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the
supervision and with the participation of our management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with IFRS as issued by the IASB. Our internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with IFRS as issued by the IASB, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting is not intended to provide
absolute assurance that a misstatement of our financial statements would be prevented or detected. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate. Based on our evaluation, our management concluded that our internal control over financial
reporting was effective as of December 31, 2018.
c.
Attestation Report of the Registered Public Accounting Firm
The attestation report of our independent registered public accounting firm, PricewaterhouseCoopers
Aarata LLC, on the effectiveness of our internal control over financial reporting as of December 31, 2018 is
included in Item 18 of this Form 20-F.
136
d.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during 2018 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16.
[Reserved]
Item 16A. Audit Committee Financial Expert
Under the Companies Act, we have elected to structure our corporate governance system as a company
with a separate board of corporate auditors and therefore do not have an audit committee. Our board of corporate
auditors is comprised of three corporate auditors.
Our board of corporate auditors has determined that it does not have an “audit committee financial
expert” serving on the board of corporate auditors. The qualifications for, and powers of, the corporate auditor
delineated in the Companies Act are different from those anticipated for any audit committee financial expert.
Corporate auditors have the authority to be given reports from a certified public accountant or an accounting firm
concerning audits, including technical accounting matters. Each corporate auditor must fulfill the requirements
under Japanese laws and regulations and otherwise follow Japanese corporate governance practices and,
accordingly, our board of corporate auditors has confirmed that it is not necessarily in our best interest to
nominate as corporate auditor a person who meets the definition of audit committee financial experts. Although
we do not have an audit committee financial expert on our board of corporate auditors, we believe that our
current corporate governance system, taken as a whole, is fully equivalent to a system having an audit committee
financial expert on our board of corporate auditors.
Item 16B. Code of Ethics
We have adopted a code of ethics that applies to our chief executive officer, chief financial officer and
principal accounting officer, as well as to our directors, other officers and employees. Our code of ethics is
available on our website at www.linecorp.com. If we amend the provisions of our code of ethics that apply to our
chief executive officer, chief financial officer and principal accounting officer and persons performing similar
functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our
website at the same address.
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our independent certified public accountant,
PricewaterhouseCoopers Aarata and member firms of PricewaterhouseCoopers International Limited, in 2017
and 2018:
For the year ended December 31,
2017
2018
(In millions of yen)
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
¥560
—
42
8
¥610
¥727
16
60
16
¥819
Audit fees were related to the audit of our consolidated financial statements and other audit or interim
review services provided in connection with statutory and regulatory filings or engagements.
137
Audit-related fees were related to the issuance of comfort letters in connection with the issuance of the
Convertible Bonds in September 2018.
Tax fees were related to tax compliance services.
All other fees were related to other non-audit services, such as consulting services.
Pre-Approval Policies and Procedures of the Board of Corporate Auditors
Our board of corporate auditors has adopted a policy for the pre-approval of audit and permissible
non-audit services performed by our independent public accountants to ensure that the provision of these services
do not impair the independence of our independent public accountants. Under this policy, pre-approvals for the
following services to us and our subsidiaries have been granted by our board of corporate auditors: (i) audit
services; (ii) audit-related services, such as due diligence and internal control reviews; (iii) general tax advisory
services; and (iv) certain non-audit services that would not impair the independence of our independent public
accountants. Any other service must be specifically pre-approved by our board of corporate auditors.
Our board of corporate auditors did not pre-approve any non-audit services under the de minimis
exception of Rule 2.01(c)(7)(i)(C) of Regulation S-X as promulgated by the SEC.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Under the Companies Act, we have elected to structure our corporate governance system as a company
with a separate board of corporate auditors and therefore do not have an audit committee. For foreign private
issuers, use of a board of corporate auditors in compliance with home country rules is permitted under
Rule 10A-3(c)(3) of the Exchange Act. Our reliance on Rule 10A-3(c)(3) does not, in our opinion, materially
adversely affect the ability of our board of corporate auditors to act independently and to satisfy the other
requirements of Rule 10A-3.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth information regarding purchases by us of our common shares during the
period covered by this annual report.
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be
Purchased Under the Plans
or Programs (as of end of
period)
Period
May 1, 2018 – May 31, 2018 . . . . . . . . . . . . . .
June 1, 2018 – June 30, 2018 . . . . . . . . . . . . . .
July 1, 2018 – July 31, 2018 . . . . . . . . . . . . . .
August 1, 2018 – August 31, 2018 . . . . . . . . .
September 1, 2018 – September 30, 2018 . . . .
December 1, 2018 – December 31, 2018 . . . . .
382
191
110
152
49
69
3,989
4,236
5,084
4,853
5,080
3,644
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
953(1)
¥4,334
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Under the Companies Act, if a shareholder owns shares of common stock constituting less than one “unit” (100 shares), we are required
to purchase those shares upon the shareholder’s request. See “Item 10.B. Memorandum and Articles of Association — Unit Share
System.” During the year ended December 31, 2018, we purchased a total of 953 shares of common stock pursuant to this requirement.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable
138
Item 16G. Corporate Governance
Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers like us that
are listed on the New York Stock Exchange, we are required to disclose significant differences between the
New York Stock Exchange’s corporate governance standards and those that we follow under Japanese law and in
accordance with our own internal procedures. The following is a summary of such significant differences.
NYSE Corporate Governance Standards
Our Corporate Governance Practice
Director Independence
Listed companies must have a majority of independent
directors.
committee
Nomination/Corporate Governance Committee
Listed companies must have a nomination/corporate
governance
of
independent directors. The committee must have a
responsibilities
charter
governance
of
(including
guidelines) and annual performance evaluation of the
committee.
that addresses
the purpose,
development
composed
corporate
entirely
Compensation Committee
Listed companies must have a compensation committee
independent directors. The
composed entirely of
committee must have a charter
that addresses the
performance
responsibilities
purpose,
evaluation of the committee. The charter must be made
in
available on the company’s website. In addition,
accordance with the SEC rules adopted pursuant
to
the New York
Section 952 of the Dodd-Frank Act,
Stock Exchange listing standards were amended to
annual
and
for
Officer.
Requirements
In accordance with the listing rules of the Tokyo
Stock Exchange, we are required to have at least one
Independent
an
Independent Officer are stringent. An Independent
Officer may not be (a) a person who is, or has been
until recently, a major business counterparty or an
executive director, executive officer, manager or
employee of the major business counterparties, (b) a
recently, a
person who is, or has been until
professional
significant
advisor
compensation from the Company, (c) a person who
has been until recently a director, executive officer,
corporate auditor, manager or employee of the parent
company or an executive director, executive officer,
manager or employee of
the parent company’s
subsidiaries, or (d) a relative of persons mentioned in
(a), (b) or (c) or a relative of certain scope of persons
such as directors of the parent company or any of its
subsidiaries.
receiving
Three of the eight members of our board of directors
are deemed to be Independent Directors.
Although we are not required to have a nomination/
corporate governance committee under Japanese law,
we have voluntarily established a
committee,
composed of our existing outside directors and
to advise our board of directors in the
president,
selection of candidates for our outside directors. Our
directors are elected at a general meeting of
shareholders.
Although we are not required to have a compensation
committee under Japanese law, we have voluntarily
established a committee, composed of a majority of
outside directors, to advise our board of directors in
matters relating to the overall compensation scheme
and the amount of compensation for each of our
directors for the purpose of ensuring the validity of
the compensation and improving the decision-making
process.
139
NYSE Corporate Governance Standards
Our Corporate Governance Practice
expand the factors relevant in determining whether a
committee member has a relationship with the company
that will materially affect that member’s duties to the
compensation committee.
Executive Session
Non-management directors of listed companies must
meet in regularly scheduled executive sessions without
management.
Audit Committee
Listed companies must have an audit committee that
satisfies the requirements of Rule 10A-3 under the
Exchange Act. All members must be independent. The
committee must
the
a
committee’s purpose, an annual performance evaluation
of the committee, and the duties and responsibilities of
the committee. The charter must be made available on
the company’s website.
addressing
charter
have
Audit Committee Additional Requirements
Listed companies must have an audit committee that is
composed of at least three directors. Listed companies
must maintain an internal audit function to provide
management and the audit committee with ongoing
assessments of the listed company’s risk management
processes and system of internal control.
Shareholder Approval of Equity Compensation Plan
Listed companies must allow its shareholders to exercise
their voting rights with respect to any material revision
to the company’s equity compensation plan.
140
The aggregate amount of compensation to be paid to
all directors and corporate auditors are determined by
a resolution of the general meeting of shareholders,
unless their compensation is provided for in the
articles of incorporation. Based on such resolution,
the distribution of compensation among directors is
broadly delegated to our board of directors, whose
supported by our
decision-making
compensation committee as described above, and the
distribution
corporate
auditors is determined by consultation among our
corporate auditors.
compensation
process
among
of
is
We do not normally hold executive sessions solely
attended by non-management directors as that is not
required under Japanese law, but we may elect to do
so at the discretion of the directors.
Like a majority of Japanese companies, we maintain
a board of corporate auditors that is legally separate
and independent from the board of directors. The
board of corporate auditors is required to prepare an
audit report based on the audit reports issued by the
individual corporate auditors and submit such audit
reports to a relevant director and, in the case of audit
reports related to financial statements, independent
certified public accountants are required to examine
the financial statements and business reports to be
submitted by a representative director at the general
meetings of shareholders and to prepare an audit
report. The board of corporate auditors is also
empowered to establish the audit principles,
the
method of examination by the corporate auditors of
our affairs and financial position and any other
matters relating to the performance of the corporate
auditors’ duties.
Currently, we have three corporate auditors. Each
corporate auditor has a four-year term.
The adoption of an equity compensation plan
including stock option-based plans for directors and
corporate auditors requires shareholder approval.
NYSE Corporate Governance Standards
Our Corporate Governance Practice
resolution” of
terms to the recipient,
Stock options may only be issued with the approval
of the board of directors, unless stock options are
granted on preferential
in
which case we must obtain shareholder approval by a
“special
a general meeting of
shareholders. Under our articles of incorporation,
two-thirds or more of the votes of the shareholders in
attendance, who must hold in the aggregate a
majority of the voting rights of shareholders entitled
to exercise voting rights,
is required for such a
special resolution of our shareholders.
Shareholder Approval of Equity Offerings
Listed companies must allow its shareholders to exercise
their voting rights with respect to equity offerings that
do not qualify as public offerings for cash, and offerings
of equity to related parties.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate
governance guidelines.
Code of Business Conduct and Ethics
Listed companies must adopt and disclose a code of
business conduct and ethics for directors, officers and
employees, and promptly disclose any waivers of the
code for directors or executive officers.
141
Under Japanese law, we are not required to obtain
shareholder approval unless (i) new shares or existing
shares held by us as treasury stock as well as stock
acquisition rights or bonds with stock acquisition
rights are issued or
transferred at a “specially
favorable” price or (ii) any third party allotment of
new shares, treasury shares, stock acquisition rights
or bonds with stock acquisition rights satisfies certain
requirements under the provisions related to change
of controlling shareholder. In the case of (i) above,
we must obtain shareholder approval by a “special
resolution” of a general meeting of shareholders.
In addition, under the Securities Listing Regulations
of the Tokyo Stock Exchange, we may be required to
obtain shareholder approval if we conduct a third
that results in a dilution ratio of
party allotment
voting rights of 25% or more, or if there is an
expectation of a change of controlling shareholder
due to such allotment.
Although we do not maintain separate corporate
governance guidelines and are not required to adopt
such guidelines under Japanese law, we are in
the Tokyo Stock
compliance with the rules of
Exchange, which require listed companies, including
us, to comply with the principles of the Corporate
Governance Code established by the Tokyo Stock
Exchange, and in cases of noncompliance with some
or all of the principles, to disclose the reasons for
such noncompliance.
We have adopted a Group Code of Conduct which
sets forth legal and ethical standards of conduct for
employees, officers, directors, contract staff and
external representatives and agents of our group. A
copy of our Group Code of Conduct is available on
our website at www.linecorp.com.
Item 16H. Mine Safety Disclosure
Not applicable
142
PART III
Item 17.
Financial Statements
Not applicable
Item 18.
Financial Statements
The following financial statements are filed as part of this annual report, together with the report of the
independent auditors:
Index to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Financial Position as of December 31, 2017 and 2018 . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Profit or Loss for the Years Ended December 31, 2016, 2017 and 2018 . . . . . .
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2017 and
Page
F-1
F-2
F-4
F-5
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2017 and
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2017 and 2018 . . . . . . . F-10
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
143
Item 19.
Exhibits
1.1
1.2*
1.3
1.4*
2.1*
8.1#
12.1
12.2
13.1
13.2
— Articles of Incorporation of LINE Corporation (English translation)
— Share Handling Regulations (English translation)
— Regulations of the Board of Directors (English translation)
— Regulations of the Board of Corporate Auditors (English translation)
— Form of Deposit Agreement (including Form of American Depositary Receipt)
— List of Subsidiaries of the Registrant
— Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
— Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
— Certification by the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
— Certification by the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101.INS — XBRL Instance Document
101.SCH — XBRL Taxonomy Extension Schema
101.CAL — XBRL Taxonomy Extension Calculation Linkbase
101.DEF — XBRL Taxonomy Extension Definition Linkbase
101.LAB — XBRL Taxonomy Extension Label Linkbase
101.PRE — XBRL Taxonomy Extension Presentation Linkbase
*
#
Previously filed with the Registration Statement on Form F-1 (File No. 333-211954), initially filed on June 10, 2016, and incorporated
herein by reference.
Incorporated by reference to Item 4.C. Organizational Structure.
144
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it
has duly caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
LINE Corporation
(Registrant)
/s/ In Joon Hwang
Name: In Joon Hwang
Title: Chief Financial Officer
Date: March 29, 2019
145
INDEX TO FINANCIAL STATEMENTS
Audited consolidated financial statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Financial Position as of December 31, 2017 and 2018 . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Profit or Loss for the Years Ended December 31, 2016, 2017 and 2018 . . . . . .
Page
F-2
F-4
F-5
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2017 and
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2017 and
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2017 and 2018 . . . . . . . F-10
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of LINE Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of LINE Corporation and its
subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of
profit or loss, comprehensive income, changes in equity and cash flows for each of the three years in the period
ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial
statements”). We also have audited the Company’s
reporting as of
December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
internal control over
financial
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2018 in conformity with International
Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by
the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting
appearing under Item 15(b). Our responsibility is to express opinions on the Company’s consolidated financial
statements and on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
F-2
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
limitations,
/s/ PricewaterhouseCoopers Aarata LLC
Tokyo, Japan
March 29, 2019
We have served as the Company’s auditor since 2015.
F-3
LINE Corporation
Consolidated Statements of Financial Position
(In millions of yen)
Notes
December 31,
2017
December 31,
2018
Assets
Current assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6, 25
7, 15, 25
15, 25
21
8
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
10, 11, 29
10, 11, 29
31
15, 25
13
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Current liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15, 25
15, 25
21
12
14
123,606
42,892
13,258
—
3,455
7,438
190,649
15,125
16,767
6,486
24,844
32,084
16,492
992
112,790
303,439
28,810
28,003
12,087
2,365
—
17,975
9,246
991
1,940
256,978
37,644
15,915
339
4,887
9,751
325,514
24,726
17,095
5,298
53,921
42,287
17,107
639
161,073
486,587
34,985
36,726
18,405
4,855
24,637
—
—
2,581
1,037
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101,417
123,226
Non-current liabilities
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities, non-current
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15, 25
15, 25
13
12
16
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Share capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
19
19
Equity attributable to the shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
602
1,573
3,060
6,162
648
12,045
113,462
92,369
93,560
(4,000)
(4,294)
7,440
185,075
4,902
189,977
303,439
142,132
527
503
3,309
6,943
1,433
154,847
278,073
96,064
118,626
(8,205)
(5,556)
(2,013)
198,916
9,598
208,514
486,587
See Notes to Consolidated Financial Statements
F-4
LINE Corporation
Consolidated Statements of Profit or Loss
(In millions of yen)
Notes
2016
2017
2018
Revenues and other operating income:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 21, 22
5, 21
140,704 167,147 207,182
28,099
12,011
5,892
Total revenues and other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . .
146,596 179,158 235,281
Operating expenses:
Payment processing and licensing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outsourcing and other service expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16, 27
9, 10
22
(29,781)
(615)
(39,445)
(11,833)
(7,770)
(13,779)
(5,100)
(18,376)
(29,589)
(899)
(42,469)
(15,477)
(9,087)
(24,007)
(7,149)
(25,403)
(30,823)
(15,960)
(57,493)
(20,311)
(10,483)
(31,825)
(11,135)
(41,141)
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(126,699) (154,080) (219,171)
Profit from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of loss of associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on foreign currency transactions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
22
22, 26
Profit before tax from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Profit/(Loss) for the year from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/profit from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . .
23, 24
19,897
87
(65)
(833)
(43)
9
(1,062)
17,990
(8,904)
9,086
(1,982)
25,078
257
(26)
(6,321)
(818)
1,963
(1,988)
18,145
(9,922)
8,223
(13)
16,110
413
(519)
(11,148)
(902)
869
(1,469)
3,354
(9,522)
(6,168)
376
Profit/(Loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,104
8,210
(5,792)
Attributable to:
The shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share
Basic profit/(loss) for the year attributable to the shareholders of the Company . . . . .
Diluted profit/(loss) for the year attributable to the shareholders of the Company . . .
Earnings per share from continuing operations
Basic profit/(loss) from continuing operations attributable to the shareholders of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted profit/(loss) from continuing operations attributable to the shareholders of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share from discontinued operations
Basic (loss)/profit from discontinued operations attributable to the shareholders of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted (loss)/profit from discontinued operations attributable to the shareholders of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30
24
24
24
24
24
24
6,763
341
8,078
132
(3,718)
(2,074)
(In yen)
34.84
31.48
36.56
34.01
(15.62)
(15.62)
45.05
36.62
(17.20)
40.70
34.06
(17.20)
(10.21)
(0.06)
1.58
(9.22)
(0.05)
1.58
See Notes to Consolidated Financial Statements
F-5
LINE Corporation
Consolidated Statements of Comprehensive Income
Profit/(Loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income
Items that will not be reclassified to profit or loss
Net changes in fair value of equity instruments at FVOCI . . . . . . . . . . .
Remeasurement of defined benefit plans . . . . . . . . . . . . . . . . . . . . . . . .
Income tax relating to items that will not be reclassified to profit or
(In millions of yen)
Notes
2016
2017
2018
7,104
8,210
(5,792)
13
13, 16
—
674
—
2,093
(2,681)
(169)
loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
(209)
(488)
706
Items that may be reclassified to profit or loss
Debt Instruments at FVOCI:
Net changes in fair value of debt instruments at FVOCI
. . . . . . . .
Reclassification to profit or loss of debt instruments at FVOCI . . .
13
26
—
—
—
—
Available-for-sale financial assets:
Net changes in fair value of available-for-sale financial assets . . .
Reclassification to profit or loss of available-for-sale financial
13, 26
(2,019)
(3,339)
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
293
1,090
88
10
—
—
Exchange differences on translation of foreign operations:
(Loss)/gain arising during the year . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proportionate share of other comprehensive income of associates and
(299)
50
3,751
(13)
(4,047)
(345)
joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
106
Reclassification to profit or loss on the proportionate share of other
comprehensive income or loss of associates and joint ventures . . . . .
—
—
Income tax relating to items that may be reclassified subsequently to
(27)
(12)
profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
255
333
340
Total other comprehensive (loss)/income for the year, net of tax . . . . . . .
(1,252)
3,533
(6,137)
Total comprehensive income/(loss) for the year, net of tax . . . . . . . . . . . .
5,852
11,743
(11,929)
Attributable to:
The shareholders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,546
306
11,365
378
(9,648)
(2,281)
See Notes to Consolidated Financial Statements
F-6
LINE Corporation
Consolidated Statements of Changes in Equity
Equity attributable to the shareholders of the Company
(In millions of yen)
Notes
Share
capital
Share
premium
Accumulated
deficit
Accumulated other
comprehensive income
Foreign
currency
translation
reserve
Available-
for-sale
reserve
Defined
benefit
plan
reserve
Non-
controlling
interests
Total
shareholders’
equity
Total
Balance at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income/(loss)
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income/ (loss) for the year . . . . . . . . . . . . . . . .
Recognition of share-based payments . . . . . . . . . . . . . . . . . . . . . . 19, 27
Forfeiture of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Initial public offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
19
29
19
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F
-
7
12,596
18,983
(19,204)
240
6,917
(1,789)
17,743
(210)
17,533
—
—
—
—
—
1,836
—
63,424
—
77,856
—
—
—
9,520
(60)
(88)
—
62,853
—
6,763
—
6,763
—
60
—
—
—
—
91,208
(12,381)
—
(414)
(414)
—
—
—
—
—
—
(174)
—
(1,268)
(1,268)
—
—
—
—
—
—
—
465
465
—
—
—
—
—
—
6,763
(1,217)
5,546
9,520
—
1,748
—
126,277
—
5,649
(1,324)
160,834
341
(35)
306
—
—
—
93
—
0
189
7,104
(1,252)
5,852
9,520
—
1,748
93
126,277
0
161,023
See Notes to Consolidated Financial Statements
LINE Corporation
Consolidated Statements of Changes in Equity (continued)
Equity attributable to the shareholders of the Company
(In millions of yen)
Notes
Share
capital
Share
premium
Treasury
Shares
Accumulated
deficit
Accumulated other
comprehensive income
Foreign
currency
translation
reserve
Available-
for-sale
reserve
Defined
benefit
plan
reserve
Non-
controlling
interests
Total
shareholders’
equity
Total
Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income/(loss)
Profit for the year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income/(loss) for the year . . . . . . . . . . . . . . .
Recognition of share-based payments . . . . . . . . . . . . . . . . . . . . . 19, 27
Forfeiture of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of non-controlling interest . . . . . . . . . . . . . . . . . . . .
Issuance of common shares and acquisition of treasury shares
19
19
29
77,856
91,208
—
—
—
—
—
12,513
—
—
—
—
—
1,882
(9)
(1,088)
—
(423)
—
—
—
—
—
—
—
—
—
(12,381)
(174)
5,649
(1,324) 160,834
8,078
—
8,078
—
9
—
—
—
—
3,328
3,328
—
—
—
—
4
—
(1,721)
(1,721)
—
—
—
—
—
—
1,680
1,680
—
—
—
—
(2)
8,078
3,287
11,365
1,882
—
11,425
—
(421)
189
132
246
378
—
—
—
4,168
167
161,023
8,210
3,533
11,743
1,882
—
11,425
4,168
(254)
under Employee Stock Ownership Plan . . . . . . . . . . . . . . . . .
19
2,000
1,990
(4,000)
—
—
—
—
(10)
—
(10)
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92,369
93,560
(4,000)
(4,294)
3,158
3,928
354
185,075
4,902
189,977
F
-
8
See Notes to Consolidated Financial Statements
LINE Corporation
Consolidated Statements of Changes in Equity (continued)
Equity attributable to the shareholders of the Company
(In millions of yen)
Notes
Share
capital
Share
premium
Treasury
Shares
Accumulated
deficit
Accumulated other
comprehensive income
Foreign
currency
translation
reserve
Financial
assets at
FVOCI
Defined
benefit
plan
reserve
Non-
controlling
interests
Total
shareholders’
equity
Total
Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . .
92,369
93,560
(4,000)
(4,294)
3,158
3,928
354
185,075
4,902
189,977
Adjustment on adoption of new accounting
standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
177
—
(1,258)
F
-
9
Balance at January 1, 2018 (adjusted) . . . . . . . . . . . . . . . .
Comprehensive loss
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss for the year
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss for the year . . . . . . . . . . . . . . . .
Recognition of share-based payments . . . . . . . . . . . . . .
Forfeiture of stock options . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . .
Changes in interests in subsidiaries . . . . . . . . . . . . . . . .
Derecognition of non-controlling interests due to loss
of control of subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Acquisition of subsidiaries . . . . . . . . . . . . . . . . . . . . . .
Issuance of common shares and acquisition of treasury
shares under Employee Stock Ownership Plan . . . . .
Issuance of convertible bonds with stock acquisition
rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposal of treasury shares . . . . . . . . . . . . . . . . . . . . . .
Acquisition of treasury shares . . . . . . . . . . . . . . . . . . . .
Transfer of accumulated other comprehensive income
to accumulated deficit
. . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19, 27
19
19
19, 30
30, 31
29
19
19
19
19
92,369
93,560
(4,000)
(4,117)
3,158
2,670
—
—
—
—
—
1,195
—
—
—
—
—
—
1,336
(37)
(199)
17,440
—
—
—
—
—
—
—
—
—
—
—
2,500
2,488
(5,000)
—
—
—
—
—
4,175
(137)
—
—
—
—
799
(4)
—
—
(3,718)
—
(3,718)
—
37
—
—
—
—
—
—
—
—
2,224
18
—
(3,802)
(3,802)
—
—
—
(15)
—
(1,830)
(1,830)
—
—
—
(27)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
354
—
(298)
(298)
—
—
—
1
—
—
—
—
—
—
(1,081)
(85)
(1,166)
183,994
4,817
188,811
(3,718)
(5,930)
(9,648)
1,336
—
996
17,399
—
—
(12)
4,175
662
(4)
—
18
(2,074)
(207)
(2,281)
—
—
—
8,241
(1,974)
795
—
—
—
—
—
—
(5,792)
(6,137)
(11,929)
1,336
—
996
25,640
(1,974)
795
(12)
4,175
662
(4)
—
18
(2,230)
—
6
—
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . .
96,064
118,626
(8,205)
(5,556)
(659)
(1,417)
63
198,916
9,598
208,514
See Notes to Consolidated Financial Statements
LINE Corporation
Consolidated Statements of Cash Flows
(In millions of yen)
Notes
2016
2017
2018
Cash flows from operating activities
Profit before tax from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/profit before tax from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
23
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments for:
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on loss of control of subsidiaries and business transfer . . . . . . . . . . . . .
Loss/(gain) on financial assets at fair value through profit or loss . . . . . . . . .
Gain on disposal of property and equipment and intangible assets . . . . . . . .
Impairment loss of other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment loss of available-for-sale financial assets . . . . . . . . . . . . . . . . . .
Gain on sale of available-for-sale financial assets . . . . . . . . . . . . . . . . . . . . .
Share of loss of associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . .
Dilution gains from changes in equity interest in associates and joint
ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss/(gain) on foreign currency transactions, net . . . . . . . . . . . . . . . . . . . . . .
Changes in:
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,10
27
20
15
11
15
15
31
3
8
3
12
16
17,990
(2,726)
18,145
(19)
15,264
18,126
3,354
550
3,904
7,149
5,100
(257)
(87)
26
65
(69)
—
9,519
2,686
(1,731) (10,444)
(1,026)
—
214
1,761
(751)
6,321
656
(2,345)
—
293
—
833
11,135
(413)
519
(50)
2,528
(24,794)
646
—
212
—
—
11,148
—
514
—
(182)
(2,620)
28
(756) (13,539)
—
407
(1,620)
2,229
—
1,762
1,931
297
1,339
(1,780)
4,148
205
—
(2,366)
6,215
2,642
—
6,338
(700)
187
2,054
(2,860)
1,311
232
2,344
97
(1,672)
6,653
7,082
641
—
—
1,079
940
(2,428)
2,917
504
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,243
23,068
20,400
Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of issuance costs for corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86
(58)
4
—
252
(32)
98
—
(7,522) (12,421)
409
(313)
82
(1,954)
(9,502)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,753
10,965
9,122
F-10
LINE Corporation
Consolidated Statements of Cash Flows (continued)
(In millions of yen)
Notes
2016
2017
2018
Cash flows from investing activities
26
Purchases of time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from redemption of debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of property and equipment and intangible assets . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment and intangible assets . . . . . . . . . . .
Investments in associates and joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on capital from investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refund of office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of guarantee deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return of the office security deposits received under sublease agreement . . . . . . .
Guarantee deposits for the Japanese Payment Services Act . . . . . . . . . . . . . . . . . . 15, 25
Return of the guarantee deposits for the Japanese Payment Services Act
. . . . . . . 15, 25
Payment for acquisition of subsidiaries and businesses . . . . . . . . . . . . . . . . . . . . . 20, 29
Proceeds from acquisition of subsidiaries and businesses, net of cash acquired . .
Cash disposed on loss of control of subsidiary and business transfer
. . . . . . . . . .
Payments for loan receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 29
Collection of loan receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
20
31
15
(10,790)
377
(1,245)
—
(7,642)
—
(1,282)
401
(4,880)
1,672
(6,433)
5,209
(6,352) (12,622)
472
5,124
(5,566)
(9,333)
—
—
(1,112)
(2,533)
1,581
168
—
—
(19)
(8)
(530)
(1,815)
900
3,340
(423) (11,887)
—
(485)
(2)
—
(581)
(2,165)
124
48
—
(27)
(13,443)
13,843
(5,022)
4,031
(15,661)
1,841
(20,939)
181
(14,214)
499
(4,130)
447
(800)
—
(130)
765
(188)
736
(2,043)
(754)
2,271
(174)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(34,086) (34,230)
(52,884)
Cash flows from financing activities
Repayment of short-term borrowings, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from of short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for redemption of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of borrowing arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of common shares issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from initial public offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment for acquisition of interest in subsidiaries from non-controlling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital contribution from third party non-controlling interests . . . . . . . . . . . . . . .
Proceeds from disposal of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
15
15
15
15
15
19
19
19
30
30
19
(20,752)
—
—
(510)
—
—
(706)
126,848
1,750
—
(107)
1,050
—
(72)
—
—
—
—
(11)
— 149,978
(33)
(30)
—
—
1,002
11,489
—
0
—
(2)
(255)
343
—
(1)
(630)
26,439
662
16
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106,628
11,439 178,401
Net increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at the beginning of the year . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate fluctuations on cash and cash equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
6
See Notes to Consolidated Financial Statements.
F-11
101,295 (11,826) 134,639
33,652 134,698 123,606
(1,267)
(249)
734
134,698 123,606 256,978
LINE Corporation
Notes to Consolidated Financial Statements
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 ultimate parent entity of the Company and its
subsidiaries (collectively “the Group”). The Company’s head office is located at 4-1-6 Shinjuku, Shinjuku-ku,
Tokyo, Japan.
The Company listed shares of its common shares in the form of American depositary shares on the New York
Stock Exchange and shares of its common shares on the Tokyo Stock Exchange.
The Group mainly operate a cross-platform messenger application, LINE, and provides communication and
content sales and advertising services. Communication and content are provided via the LINE platform, while
advertising services are provided via LINE advertising, and web portals, livedoor and NAVER Matome.
2. Basis of Preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The Group’s consolidated financial statements are presented in millions of Japanese yen, which is also the
Company’s functional currency.
The 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 March 29, 2019.
3.
Significant Accounting Policies
The significant accounting policies applied by the Group in preparing its consolidated financial statements are set
out below. The accounting policies have been applied consistently, except for effect of new and amended
standards and interpretations of IFRS, to all periods presented in these consolidated financial statements. Refer to
(30) New and Amended Standards and Interpretations for the impacts of the adoption of new and revised IFRSs
issued by the IASB that are mandatorily effective for the accounting period that begins on or after January 1,
2018 on the Group’s annual consolidated financial statements as of December 31, 2017 and 2018, and for the
years ended December 31, 2016, 2017 and 2018.
(1) Basis of Consolidation
The consolidated financial statements include the accounts of the Group, which are directly or indirectly
controlled. Control is generally conveyed by ownership of the majority of voting rights. The Group controls
an entity when the Group has power over the entity, is exposed, or has rights, to variable returns from the
involvement with the entity and has the ability to affect those returns through its power over the entity.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies in line with the Group’s accounting policies. If the end of the reporting period of a subsidiary
differs from that of the Company, the subsidiary prepares, for the purpose of preparing consolidated
financial statements, additional financial statements as of the same date as the consolidated financial
statements of the Group.
Non-controlling interest in a subsidiary is accounted for separately from the parent’s ownership interests in
a subsidiary. Profit or loss and each component of other comprehensive income are attributed to the
F-12
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(1) Basis of Consolidation (continued)
shareholders of the parent and non-controlling interest, even if this results in the non-controlling interest
having a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is
accounted for as an equity transaction. Any difference between the adjustment to the non-controlling
interest and the fair value of the consideration paid or received is recognized directly in shareholders’ equity
as “equity attributable to the shareholders of the Company”.
On February 12, 2016,
the board of directors approved the abandonment of the MixRadio service
(“MixRadio”) segment. 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.
(2) Basis of Measurement
The consolidated financial statements have been prepared on a historical cost basis, except for financial
instruments measured at fair value, which is the price that would be received to sell such financial
instruments or paid to transfer the related liability in an orderly transaction between market participants at
the measurement date.
(3) Business Combinations
(a) Business combinations
In accordance with IFRS 3 Business Combinations, each identifiable asset and liability is measured at
its acquisition date fair value except for the following:
– Deferred tax assets or liabilities which are recognized and measured in accordance with IAS 12
Income Taxes; and
– Employee benefit arrangements which are recognized and measured in accordance with IAS 19
Employee Benefits
Leases and insurance contracts are classified on the basis of the contractual terms and other factors at
the inception of the contract or at the date of modification, which could be the acquisition date if the
terms of the contract have been modified in a manner that would change its classification.
Contingent liabilities assumed in a business combination are recognized when such liabilities are
present obligations and their fair value can be measured reliably.
The consideration transferred in a business combination is measured at fair value, which is calculated
as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities
incurred by the acquirer to former owners of the acquiree and the equity interests issued by the
acquirer. Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those
costs include finder’s fees; advisory, legal, accounting, valuation and other professional or consulting
fees; general administrative costs,
including the costs of maintaining an internal acquisitions
department; and costs of registering and issuing debt and equity securities. Acquisition-related costs,
other than those associated with the issue of debt or equity securities, are expensed in the periods in
which the costs are incurred and the services are received.
The Group measures goodwill at the acquisition date as:
–
the fair value of the consideration transferred; plus
F-13
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(3) Business Combinations (continued)
(a) Business combinations (continued)
–
–
–
the recognized amount of any non-controlling interest in the acquiree; plus
if the business combination is achieved in stages, the fair value of the pre-existing equity interest
in the acquiree; less
the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities
assumed.
Subsequent to initial recognition, goodwill is measured at cost less any accumulated impairment losses.
(b) Business combinations under common control
A business combination involving entities or businesses under common control
is a business
combination in which all of the combining entities or businesses are ultimately controlled by the same
party or parties both before and after the business combination, and in which control is not transitory.
The Group has accounted for the acquisition of business combination under common control based on
the carrying amounts recorded in the consolidated financial statements of the acquired companies. The
financial statements of acquired companies have been retrospectively consolidated as part of the
Group’s consolidated financial statements as if the acquisition of acquired companies had occurred on
the date of its original acquisition by the common control group, regardless of the actual date of
acquisition by the Group.
(4) Associates and Joint Arrangements
(a) Associates
An associate is an entity in which the Group has significant influence, but not control, over the entity’s
financial and operating policies. Significant influence is presumed to exist when the Group holds
between 20% and 50% of the voting power of another entity, unless it can be clearly demonstrated that
it is not the case.
The Group’s investments in associates are accounted for using the equity method. Under the equity
method, the investment in an associate is initially recognized at cost and the carrying amount is
adjusted to recognize the Group’s share of the profit or loss and changes in equity of the associate after
the date of acquisition. Gains and losses from transactions between the Group and its associates are
eliminated to the extent of the Group’s interest in the associates. Intra-group losses are recognized as
an expense if intra-group losses indicate an impairment that requires recognition in the consolidated
financial statements.
If an associate uses accounting policies different from those of the Group for like transactions and
events in similar circumstances, appropriate adjustments are made to its financial statements in
applying the equity method.
When the Group’s share of losses exceeds its interest in associates, the carrying amount of that interest,
including any long-term investments,
is reduced to nil and the recognition of further losses is
discontinued.
F-14
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(4) Associates and Joint Arrangements (continued)
(b)
Joint arrangements
in which two or more parties have joint control. The
A joint arrangement
classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and
obligations of the parties to the arrangement.
is an arrangement
Joint operations are joint arrangements whereby the parties that have joint control of the arrangement
have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group
accounts for the assets, liabilities, revenues and expenses relating to its interest in joint operations in
accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
Joint ventures are joint arrangements whereby the parties that have joint control of the arrangement
have rights to the net assets of the arrangement. Joint ventures are accounted for using the equity
method.
(5) Foreign Currencies
(a) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group
entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical
cost are translated using the exchange rate at the date of the initial transactions. Non-monetary assets
and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the
functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognized in profit or loss, except for
differences arising on the retranslation of equity instruments at FVOCI which are recognized in other
comprehensive income.
(b) Foreign operations
If the presentation currency of the Group is different from a foreign operation’s functional currency,
the financial statements of the foreign operation are translated into the presentation currency using the
following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a
hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting
date. The income and expenses of foreign operations are translated to the presentation currency at the
average foreign exchange rates for the reporting period. Foreign currency differences are recognized in
other comprehensive income.
When a foreign operation is disposed of, the relevant amount after the translation is reclassified to
profit or loss as part of profit or loss on disposal. In the event that a partial disposal does not lead to a
loss of control in a subsidiary that includes a foreign operation, the relevant proportion of such
cumulative amount is reattributed to non-controlling interest. For partial disposals that involve the loss
of control in a foreign operation, the relevant proportion is reclassified to profit or loss.
F-15
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(6) Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and short-term investments with
maturity dates that are within three months from the purchase dates. Such investments are highly liquid and
readily convertible to known amounts of cash. Cash and cash equivalents are subject to an insignificant risk
of changes in value, and are used by the Group in managing its short-term commitments.
(7) Financial Assets
(a) Classification of financial assets
Based on the Group’s business model for managing the financial assets and the characteristics of
contractual cash flow of the financial assets, the Group classifies the financial assets by following
categories. Financial assets with embedded derivatives are considered in their entirety when
determining whether their cash flows are solely payment of principal and interest.
i.
Financial assets at amortized cost
Financial assets measured at amortized cost are debt instruments whose contractual cash flows
represent solely payments of principal and interest on the principal amount outstanding, and which
are held within a business model whose objective is achieved solely by collecting contractual cash
flows.
ii.
Financial assets at fair value through other comprehensive income
Financial assets measured at fair value through other comprehensive income are debt instruments
whose contractual cash flows represent solely payments of principal and interest on the principal
amount outstanding, and which are held within a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets, and equity instruments which
the Group has made an irrevocable election at the time of initial recognition to account for the
fair value through other comprehensive income. The Group made
equity instruments at
irrevocable election to classify all equity investments (other than those which are accounted for as
affiliates under equity method or consolidated) as financial assets measured at FVOCI.
iii. Financial assets at fair value through profit or loss
Financial assets measured at fair value through profit or loss are the financial assets that are not
classified as financial asset at amortized cost or financial assets at fair value through other
comprehensive income.
(b) Measurement of financial assets
i.
Initial measurement
At initial recognition, the Group measures financial assets at the fair value. Financial assets not
classified as financial assets at fair value through profit or loss are measure at fair value, including
any transaction costs that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets measured at fair value through profit or loss are expensed in
profit or loss.
F-16
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(7) Financial Assets (continued)
(b) Measurement of financial assets (continued)
ii.
Subsequent measurement
Debt instruments:
(i) Financial assets at amortized cost
The financial assets at amortized cost are measured at amortized cost using the effective interest
method, and related interest income are included in finance income. When the financial asset is
derecognized, the difference between amortized cost and consideration received is recognized in
profit or loss. When there are changes in the amount of expected credit loss of the financial asset,
an impairment gain or loss is recognized in profit or loss.
(ii) Fair value through other comprehensive income (“FVOCI”)
Subsequent to initial recognition, financial assets are measured at fair value and gains or losses
arising from changes in the fair value are recorded in other comprehensive income whereas related
interest income and foreign exchange gains or losses are recognized in profit or loss. The Group
recognizes impairment gain or loss due to expected credit loss in profit or loss. When debt
investments are derecognized, the cumulative gains or losses previously recognized in other
comprehensive income are reclassified to profit or loss.
(iii) Fair value through profit or loss
Subsequent to initial recognition, financial assets are measured at fair value. Gains or losses on
debt instruments are recognized in profit or loss.
Equity instruments:
reclassification of cumulative gains or
Where the Group has irrevocably elected to designate equity instruments as financial assets
measured at fair value through other comprehensive income, any changes in the book value
resulting from fair value measurement are recognized as other comprehensive income. There is no
losses previously recognized in other
subsequent
comprehensive income to profit or loss. The accumulated other comprehensive income of the
equity instruments measured at FVOCI on which the Group made an irrevocable election are
transferred to retained earnings, when such equity instruments are sold. Where the Group has not
elected to designate equity instruments as financial assets measured at fair value through other
comprehensive income, any changes in the book value resulting from fair value measurement are
recognized in profit or loss.
Dividends from equity instruments are recognized in profit or loss as “Other operating income”
when the Group’s right to receive payments is established.
(c) Derivative financial instruments
The Group may use derivative financial instruments, such as exchange forward contracts to hedge its
foreign exchange risk. Such derivative financial instruments are initially recognized at fair value on the
F-17
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(7) Financial Assets (continued)
(c) Derivative financial instruments (continued)
date on which a derivative contract is entered into and are subsequently re-measured at fair value. Any
gains or losses arising from changes in the fair value of derivatives are recognized in profit or loss.
Derivatives are carried as financial assets when the fair value is positive and as financial liabilities
when the fair value is negative.
(d) Derecognition of a financial asset
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a
transaction in which substantially all the risks and rewards of ownership of the financial asset are
transferred. Any interest in transferred financial assets that is created or retained by the Group is
recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of
ownership of the transferred financial assets, the Group continues to recognize the transferred financial
assets and recognizes financial liabilities for the consideration received.
(8) Financial Liabilities
The Group recognizes financial liabilities in the Consolidated Statements of Financial Position when the
Group becomes a party to the contractual provisions of the financial liability. At the date of initial
recognition, financial liabilities are measured at fair value, net of transaction costs. Subsequent to initial
recognition, financial liabilities are measured at amortized cost using the effective interest method.
The Group derecognizes financial liabilities from the Consolidated Statements of Financial Position when it
is extinguished (i.e. when the obligation specified in the contract is discharged, canceled or expires).
For convertible bonds, at initial recognition, the book value of the liability component of the bond is the fair
value of discounted future cash flows of the bond at a rate of similar debt instruments taking into account
the Company’s credit risk excluding the transaction costs from issuing the bond. After the initial
recognition, the liability component is measured at amortized cost using the effective interest method. The
difference between the fair value of the entire convertible bond and the fair value of the liability component
is allocated to the conversion option. The difference is recognized as the equity component at the amount
excluding the transaction costs as well as income taxes and is not remeasured subsequently.
(9)
Inventories
Inventories, consisting of merchandise for resale, are stated at the lower of cost and net realizable value.
Cost is determined on a first-in, first-out (”FIFO”) basis. Net realizable value is determined based on the
estimated selling price, less costs to sell.
(10) Share Capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of common
shares and stock options are recognized as a deduction from equity, net of any tax effects.
F-18
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(11) Treasury Shares
Treasury shares are measured at costs and deducted from equity. No gain or loss is recognized on the
purchase, sales, or cancellation of the Company’s treasury shares. The difference between the book value
and consideration received at the times of sales is recognized in equity.
(12) Property and Equipment
Property and equipment are measured and recognized at cost, net of accumulated depreciation and/or
accumulated impairment losses, if any. Cost includes any other costs directly attributable to bring the assets
to a working condition for their intended use and the costs of dismantling and removing the assets and
restoring the site on which they are located.
The cost of replacing a part of property and equipment is included in the carrying amount of the asset or
recognized as a separate asset, as necessary, if it is probable that the future economic benefits embodied
within the part will flow into the Group and if the cost can be reliably measured. Accordingly, the carrying
amount of the replaced part is derecognized. The costs of day to day servicing of property and equipment
are recognized in profit or loss as incurred.
Land and assets held within construction-in-progress are not depreciated. Depreciation of property and
equipment is computed using the straight-line method based on the depreciable amount of the assets over
their respective useful lives as provided below. A component that is significant compared with the total cost
of an item of property and equipment is depreciated separately over its useful life.
Gains or losses arising from the derecognition of an item of property and equipment are determined as the
difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in
other operating income or expenses.
The estimated useful lives for the years ended December 31, 2016, 2017 and 2018 are as follows:
Equipment (mainly consist of servers) . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3–5
3–5
3–5
Estimated useful lives (years)
Depreciation methods, useful lives and residual values are reviewed at each fiscal year-end and adjusted, as
appropriate, if expectations differ from previous estimates. The change is accounted for as a change in an
accounting estimate.
(13) Borrowing Costs
The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of
a qualifying asset as part of the cost of that asset. Other borrowing costs are expensed as incurred. A
qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale.
To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the
Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs
incurred on that borrowing during the period less any investment income on the temporary investment of
those borrowings.
To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a
qualifying asset, the Group shall determine the amount of borrowing costs eligible for capitalization by
F-19
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(13) Borrowing Costs (continued)
applying a capitalization rate to the expenditures on that asset, which is the effective interest rate of the
general borrowing. The capitalization rate shall be the weighted average of the borrowing costs applicable to
the borrowings of the Group that are outstanding during the period, other than borrowings made specifically
for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes
during a period shall not exceed the amount of borrowing costs incurred during that period. No borrowing
costs were capitalized during the years ended December 31, 2016, 2017 and 2018.
(14) Intangible Assets
Intangible assets are initially measured at cost, and carried at cost less accumulated amortization and
accumulated impairment losses after initial recognition.
Within intangible assets with finite lives, customer relationships are amortized by the declining balance
method and other intangible assets with finite lives are amortized using the straight-line method over the
useful lives of the respective assets as provided below. Intangible assets with finite lives are assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The residual value of
intangible assets is assumed to be zero.
The estimated useful lives for the intangible assets with finite lives for the years ended December 31, 2016,
2017 and 2018 are as follows:
Estimated useful lives (years)
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . .
Domain name . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2–10
7
20
1–10
The amortization periods and methods for intangible assets with finite useful lives are reviewed at each
fiscal year-end. If expectations differ from previous estimates, the changes will be accounted for as a change
in an accounting estimate.
Research and development
Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical
knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are
capitalized only if development costs can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient
resources to complete development and to use or sell the asset. Other development expenditures are
recognized in profit or loss as incurred.
No significant development expenditure was capitalized for the years ended December 31, 2016, 2017 and
2018.
(15) Leases
Lease Transactions
The determination of whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at the inception date. In the event that fulfillment of the arrangement is dependent on the use of
F-20
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(15) Leases (continued)
Lease Transactions (continued)
specific assets or the arrangement transfers a right to use the asset, such assets are defined as a lease
transaction.
(a) Finance Leases
Leases that transfer substantially all risks and benefits of ownership of the leased item to the lessee are
classified as finance leases.
Group as lessee
Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased
property and the present value of the minimum lease payments. The discount rate to be used in
calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if
this is practicable to determine; if not, the lessee’s incremental borrowing rate shall be used. The
minimum lease payments are apportioned between finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining balance of the liability. A leased asset is
depreciated over the shorter of the estimated useful life of the asset or the lease term.
(b) Operating Leases
All lease arrangements, except finance leases that have been capitalized in the Consolidated Statements
of Financial Position, are classified as operating leases.
Group as lessee
For operating lease transactions, lease payments are recognized as an expense using the straight-line
method over the lease term in the Consolidated Statements of Profit or Loss.
Group as lessor
The Group had cancelable lease contracts related to servers, data storage, network equipment, personal
computers and software with third parties for the years ended December 31, 2016, 2017 and 2018. The
leased assets are included in ”Property and equipment” in the Consolidated Statements of Financial
Position and are depreciated over their expected useful lives on a basis consistent with similar assets
included in property and equipment. Income from operating leases (net of any incentives given to the
lessee) is recognized on a straight-line basis over the lease term.
(16) Impairment of Financial Assets
The Group assesses the expected credit losses associated with its debt instruments measured at amortized
cost and FVOCI. The impairment methodology used for estimating expected credit losses depends on
whether there has been a significant increase in credit risk after the initial recognition. The Group measures
the expected credit losses for the debt instruments measured at amortized cost and FVOCI for which there
have been no significant increase in credit risk at the amount equal to twelve-month expected credit losses at
the reporting date. For the financial assets measured at amortized cost and FVOCI for which there have been
F-21
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(16) Impairment of Financial Assets (continued)
significant increase in credit risk, the Group measures the expected credit losses at the amount equal to the
lifetime expected credit losses. The Group uses default ratio calculated based on historical default data of
corporate bond ratings in Japan to measure the twelve-month expected credit loss and the lifetime expected
credit losses.
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires
expected lifetime losses to be recognized from the initial recognition of the trade receivables. The expected
credit risk of trade receivables are measured using the default ratio calculated based on the Group’s
historical experiences on cash collection from trade receivables.
In calculating the expected credit
information:
losses,
the Group may consider
the following forward-looking
–
–
–
–
external credit rating (as far as available)
actual or expected significant adverse changes in business, financial or economic conditions that are
expected to cause a significant change to the borrower’s ability to perform its obligations
actual or expected significant changes in the operating results of the customer or the counterparty
significant increase in credit risk of the customer or the counterparty
(17) Impairment of Non-Financial Assets
The Group’s non-financial assets, which include tangible assets and intangible assets with definite useful
lives, but exclude deferred tax assets and non-current assets held for sale, are reviewed for impairment at the
end of the reporting period to determine whether there is any indication of impairment. If any such
indication exists, the asset’s recoverable amount is estimated. In addition, annual impairment tests are
performed for goodwill and intangible assets with indefinite useful lives.
If it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the
recoverable amount of the cash-generating unit (”CGU”). A CGU is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the cash inflows from other assets or groups of
assets. The recoverable amount of an asset or CGU is the greater of its value in use or its fair value less
costs to sell. The value in use is estimated by applying a pre-tax discount rate to the estimated future cash
flows expected to be generated by the asset or CGU. Such pre-tax discount rate reflects current market
assessments of the time value of money and the risks specific to the asset or the CGU for which estimated
future cash flows have not been adjusted.
An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable
amount. Impairment losses are recognized in profit or loss. An impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to
the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment loss had been recognized.
Goodwill
Goodwill acquired in a business combination is, from the acquisition date, allocated to each CGU that is
expected to benefit from the synergies arising from the combination, irrespective of whether other assets or
liabilities of the acquiree are assigned to those units. A CGU to which goodwill has been allocated is tested
for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the
F-22
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(17) Impairment of Non-Financial Assets (continued)
Goodwill (continued)
recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro
rata based on the carrying amount of each asset in the unit. Impairment losses are recognized in profit or
loss, and impairment losses recognized for goodwill are not reversed in subsequent periods. On disposal of
the relevant CGU, the attributable amount of goodwill is included in the determination of the gain or loss on
disposal.
(18) Employee Compensation
(a) Short-term employee compensation
Short-term employee compensations are employee compensations that are expected to be settled
wholly before 12 months after the end of the annual reporting period in which the employees render the
related service. The undiscounted short-term employee compensations are accounted for on an accrual
basis over the period in which employees have provided the services.
(b) Defined benefit plans
The Group has defined benefit plans for employees of subsidiaries located in Korea, Taiwan and
Thailand. A defined benefit plan is a post-employment benefit plan other than a defined contribution
plan. The Group’s obligation represents the estimated amount of future benefits that employees have
earned in return for their services in the current and prior periods. The calculation is performed
annually by an independent actuary using the projected unit credit method. The calculation is reviewed
and approved by the management of the Group.
The assets or the liabilities relating to the defined benefit plans were recognized in the Consolidated
Statement of Financial Position as the present value of obligations as of the reporting date, excluding
the fair value of plan assets.
Current service cost is the increase in the present value of the defined benefit obligation resulting from
employee service in the current period. Past service cost, which is the change in the present value of the
defined benefits obligation for employee services in prior periods, resulting in the current period from
the introduction of, or change to post-employment benefits, is recognized in full in profit or loss in the
period in which the plan amendment occurs.
Remeasurement of the net defined benefit liability is mainly comprised of actuarial gains and losses
resulting from experience adjustments and the effects of changes in actuarial assumptions. Experience
adjustments are the effects of differences between the previous actuarial assumptions and what has
actually occurred. The Group recognizes all remeasurements of the net defined benefit liability in other
comprehensive income when incurred.
The discount rate used in the present valuation calculation is the yield at the reporting date on high-
quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations
and that are denominated in the same currency in which the benefits are expected to be paid.
Net interest on the net defined benefit liability is determined by multiplying the net defined benefit
liability by the discount rate noted above, taking account of any changes in the net defined benefit
liability during the reporting period, as a result of contribution and benefit payments. Interest on the net
defined benefit liability is recognized in profit or loss.
F-23
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(18) Employee Compensation (continued)
(c) Defined contribution plans
The Group has defined contribution plans for employees of subsidiaries located in Korea. The
contribution relating to the plans is recognized as expense when incurred.
(19) Share-based Payments
The Group has granted stock options to directors and employees. The fair values of the stock options are
measured at the grant dates. Compensation expenses related to stock options are recognized over the vesting
period. Refer to Note 4 Significant Accounting Judgments, Estimates and Assumptions and Note 27 Share-
based Payments for more details on the valuation methodology of stock options and the assumptions used in
such valuation.
The Group has introduced equity-settled Employee Stock Ownership Plan (J-ESOP) and granted points to
its employees based on the Group’s Regulations on Stock Compensation. The fair values of the points are
measured at the grant date. Employee compensation expenses related to this plan are recognized over the
vesting period. Refer to Note 27 Share-based Payments for more details on the valuation methodology of
points and the assumptions used in such valuation.
The Group has introduced cash-settled Employee Stock Ownership Plan (J-ESOP) and granted points to its
employees based on the Group’s Regulations on Stock Compensation. The fair values of the liabilities
related to the points are measured at each reporting date. Employee compensation expenses related to this
plan are recognized over the vesting period and changes to the fair value of the liabilities are recognized
through profit or loss. Refer to Note 27 Share-based Payments for more details on the valuation
methodology of points and the assumptions used in such valuation.
(20) Marketing Expenses
The Group incurs marketing expenses to increase brand awareness and to promote the launch of new
services. The Group’s marketing expenses are primarily related to advertising in mass media, namely
television advertising and advertising on mobile applications, and expenses incurred for brand promotional
events. Marketing personnel compensation expenses are not included in marketing expenses, and are
recorded as part of the employee compensation expenses. Expenditures related to marketing activities are
recognized as expenses when incurred.
(21) Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation.
There are uncertainties about the amount and timing of the cash outflows related to provisions. The risks
and uncertainties that inevitably surround events and circumstances are taken into account in reaching the
best estimate of a provision. Where the effect of the time value of money is material, provisions are
determined at the present value of the expected future cash flows.
The Group’s provisions mainly consist of provisions for restoration obligations for leased property, and
provisions for the licensing expense payable to the third-party partners upon redemption of virtual credits
and LINE points granted without charge upon exchange of virtual items by customers in the future.
F-24
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(21) Provisions (continued)
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates.
If it is no longer probable that an outflow of resources embodying economic benefits will be required to
settle the obligation, the provision is reversed.
A provision may only apply to expenditures for which the provision was originally recognized.
(22) Revenue
The Group mainly operates a cross-platform messenger application, “LINE”, and provides other services
including advertising services, sales of communication and content, and LINE character related merchandise
sales. Advertising services are provided on the LINE platform through advertising products such as LINE
Official Accounts and Sponsored Stickers, as well as the Group’s web portals, livedoor and NAVER Matome.
Sales of communication and contents are primarily made to end users in the form of communication products
such as LINE Stickers, and contents such as LINE Games. Refer to Note 5 Segment Information for more
details on product lines and services provided.
The Group recognizes revenues associated with the transactions by reference to the stage of completion of
the transactions at the end of the reporting period. Determination of the stage of completion for the different
revenue streams is described below. Revenue is measured at the fair value of the consideration of services
provided in the ordinary course of business, less applicable sales and other taxes, where appropriate.
Contract Liability
The Group’s contract liabilities consist of unsatisfied performance obligations and virtual credits arising
from advertising services, communication and content sales.
Virtual Credits
Virtual credits, which are the prepaid payment instruments may be purchased with credit cards or cash.
Depending on the type of service, end users may make payments using cash, credit cards or the virtual
credits issued by the Group. Most of the end-user purchases are processed through payment processing
service providers such as Apple App Store and Google Play. A processing fee is charged by the payment
processing service providers for each transaction processed which are recognized as “payment processing
and licensing expenses” on the Group’s Consolidated Statements of Profit or Loss. Upon the initial sales of
the Group’s virtual credits, the Group records proceeds received as contract liabilities on the Consolidated
Statements of Financial Position. As prescribed in the terms and conditions between the Group and end
users, the Group’s virtual credits are not refundable. However, in the event that the Group discontinues its
operations, the Japanese Payment Services Act (Act No. 59 of 2009, the “Payment Services Act”) may
require the Group to refund the advances received to the end users. When virtual credits are redeemed for
the purchase of the virtual items within each services in the Group by users, balances of the end users’
virtual credits may be reduced by the price of the purchase, and the related contract liabilities are
reclassified to revenues over the applicable revenue recognition periods, as described in the following
paragraphs. The total amount of revenues recognized is ultimately equivalent to the gross amount of
consideration paid by the end users.
F-25
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(22) Revenue (continued)
Core Business
(i) Advertising
The Group’s advertising services mainly consist of accounts advertising, display advertising and other
advertising such as web portals.
Accounts advertising
Accounts advertising mainly includes LINE Official Accounts, LINE Sponsored Stickers and LINE Point
Ads services.
LINE Official Accounts enable commercial and other advertisers to send messages directly to LINE users
who have added the business as a friend. The performance obligation of the Group to advertisers is to
maintain the LINE Official Account through the contract period and enable end users to send messages to
the LINE Official Accounts at any time during the contract period. Accordingly, the Group recognizes the
LINE Official Accounts subscription revenues on a straight-line method over the advertising contract
period. In addition, advertisers with LINE Official Accounts may offer Sponsored Stickers to LINE users,
who may download them for free. In the LINE Sponsored Stickers contract, only the advertisers are
obligated to pay the Group consideration for Sponsored Stickers services, and end users that use Sponsored
Stickers do not pay any consideration to the Group, directly or indirectly. Therefore, the Group has
determined that only the advertisers are considered “customers”. The performance obligation of the Group
to advertisers is to make Sponsored Stickers available to the users for their use at any time over the contract
period. Accordingly, the Group recognizes revenues on a straight-line method over the contract period.
The LINE Point Ads service is a pay-per-action advertising service offered by the Group. Advertisers pay
the Group a predetermined fixed fee per specific action taken by end users, such as the successful
downloading of an application or viewing of a commercial. In exchange,
the Group publishes the
applications or commercials produced by the advertisers on the LINE platform, and issues LINE Points to
the end users without charge. The Group has determined that only the advertisers are customers for LINE
Point Ads services because only the advertisers pay the transaction consideration to the Group for the
advertising services the Group provides and the users who receive LINE Points, do not pay any transaction
prices directly or indirectly. For this situation, the Group considers its performance obligation in its contract
with its customers (i.e. the advertiser), as its advertisement services which includes issuing LINE Points to
users who have taken specific actions agreed with advertisers since the Group does not have any obligations
toward the advertisers to manage LINE Points or to provide users other services in exchange for the LINE
Points. As a result, the Group recognizes revenue at the time LINE Points are issued to users as the Group’s
performance obligation toward the advertisers is satisfied upon issuance of LINE points. For the LINE
points granted without charge to the users, the Group recognizes the expenses as provisions at the same time
as LINE points are issued.
Until the year ended December 31, 2017 and prior to the adoption of IFRS 15, the Group recognized
revenue from LINE Point Ads service in the period in which an end user takes the action the advertisers
contracted for, excluding the portion of revenue attributable to the LINE Points issued by the Group. The
portion of the revenue attributable to LINE Points was measured at the fair value of LINE Points. Revenue
related to unused LINE Points at the end of the reporting period was deferred, while revenue related to the
redeemed LINE Points was recognized in accordance with the revenue recognition policy for the virtual
item purchased. The fair value of LINE points is estimated based on the amount required for a user to settle
a transaction.
F-26
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(22) Revenue (continued)
Accounts advertising (continued)
Display Advertising
Display advertising mainly consists of Timeline and LINE NEWS. The Group has contractual relationships
with advertisers for which it provides the Group with rights to receive compensation based on specific
actions by users such as impressions, views, and clicks. The Group’s performance obligation is to present
the advertisement to users at any given time. The display advertising revenues are recognized when such
actions specified the contract are fulfilled.
Other Advertising
Other advertising services mainly consist of job listing and web portal advertising. The Group’s
performance obligation is to publish advertisements and/or presenting the advertisements to users. Revenues
from such advertising services are recognized over the advertising contract periods on a straight-line method
if the contract is for a certain period of time. If the advertising contract includes the rights to receive
payments based on specific actions such as impressions, views and clicks, the Group recognizes revenue
under such specific actions under the contract are fulfilled.
For advertising services such as LINE Official Accounts, an advertising agency may be involved to obtain
contracts from customers and provide, on behalf of the Group, services to customers such as formatting
advertisement publications to comply with the Group’s specification or standards of advertisement
publications. Since the service provided by an advertising agency is provided to customers based on the
Group’s specification or standards of advertisement publication, the Group determined that the Group controls
the service provided by the advertising agency and thus the Group is the principal in the transaction. The
including the
Group recognizes revenue based on the total consideration received from a customer,
consideration payable for the service provided by the advertising agency.
Moreover, in considering that the consideration payable for the aforementioned services provided by the
advertising agency is the cost arising in relation to the contract with the advertiser as a customer, the Group
recognizes costs of contract which consist of consideration payable to the advertising agency as an asset and
such costs are expensed as related revenues are recognized. If the advertising contract is renewed at the end of
the original term, another consideration payable to the advertising agency will be recognized, and such cost
will be expensed during the period that related revenue of the advertising contract is recognized.
(ii) Communication
Communication includes primarily LINE Stickers, LINE Creator Stickers and emoji (collectively, “the
Stickers”). The Stickers are emoticons that end users may purchase and use in instant messaging.
Payments may be made with cash, virtual credits, LINE Points or credit cards.
When virtual credits are redeemed for the purchase of the Stickers, the end users’ virtual credits
balances are reduced by the price of the purchase, and the virtual credits redeemed are recognized as
revenues over the estimated usage period for the Stickers. The Group acts as a principal in providing
the Stickers to end users. The Group determines that Stickers are a 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 the Stickers is to make the 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 the Stickers available to the users for their use. Therefore, the Group determines that its
performance obligation is satisfied over a certain period of time. The Group estimated such usage
F-27
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(22) Revenue (continued)
Other Advertising (continued)
(ii) Communication (continued)
period to be 90 days based on the historical usage pattern. The Group also determined that the users
receive the benefits of the services evenly, thus the Group recognizes revenue on a straight-line method
over the estimated usage period.
(iii) Content—LINE Games and Applications
Content mainly consists of LINE Games developed by the third party or the Group and applications
developed by the Group.
–
Games developed by third-party game developers
All games developed by third-party game developers are free to download from the LINE
platform. End users may purchase in-game virtual items with cash or credit cards.
The Group enters into revenue sharing arrangements with the third-party game developers. The
terms of such arrangements provide that when end users purchase in-game virtual items sold by
the game developer via the LINE platform, the Group receives a fixed percentage of the net
proceeds received from payment processing service providers.
With respect to the sale of in-game virtual items to end users, the Group has determined that the
third-party game developer is the primary obligor for the game-related services, as the third-party
game developers have the primary responsibility for creating the in-game virtual items which end
users may purchase and use in the mobile games, and developing, maintaining and updating the
mobile games.
The Group views the third-party game developers to be its customers, and the Group’s
deliverables to its customers over the term of the game are: 1) channeling users to the mobile
games, 2) providing payment processing services, and 3) providing server hosting services.
The Group determined that each deliverable was a separate unit of account and measured each
selling price of channeling services, payment processing services and server hosting services
based on the ratio of stand-alone selling price. The stand-alone selling price for the channeling
services and server hosting services are estimated based on the cost-plus-margin pricing, taking
into consideration other stand-alone terms and conditions, historical costs, and the industry profit
margin range of our competitors. The Group also estimates the stand-alone selling price for the
payment processing services based on the cost-plus-margin pricing, taking into consideration
historical costs and the industry profit margin range of our competitors.
The Group’s performance obligations with respect to channeling services are fulfilled at the time
that
the revenues
attributable to the channeling services are recognized at the time of purchase.
item is purchased by an end user and accordingly,
the in-game virtual
Game termination announcements are made by sending notifications to end users two months
prior to game termination. Once the game termination announcement is made, in-game virtual
items are no longer available for purchase, but the game is still available to end users for the
remaining two-month period and the payment will be made three months after the purchase of the
in-game virtual items. Accordingly, subsequent to the announcement of game termination, the
F-28
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(22) Revenue (continued)
Other Advertising (continued)
(iii) Content—LINE Games and Applications (continued)
–
Games developed by third-party game developers (continued)
Group is required to provide services for a total of three additional months; two additional months
of hosting services, i.e. up until game termination, and three additional months of payment
processing services, i.e. up until one month after game termination, as payment processing
services are provided on a three-month time lag.
The Group’s performance obligations with respect to the hosting services and payment processing
services are fulfilled each month as such services are provided, i.e. from game inception through
game termination, and from game inception through one month subsequent to game termination,
respectively. Accordingly,
the revenues attributable to the hosting services and payment
processing services are recognized on a straight-line basis over the service periods as described
above. However, as the Group does not generate revenues subsequent to the announcement of
game termination, the Group defers the revenue attributable to the post-termination-announcement
performance obligations for hosting services and payment processing services from the amounts
received in the first month of the arrangement, and recognizes such revenues over the two and
three months, respectively, following the announcement of game termination.
The Group began providing third party games on its platform in 2012. As of December 31, 2018,
the average life of third party games, which included both active and terminated third party games,
was approximately 21 months.
–
Internally developed games and applications
Principal vs Agent
The Group also provides games and applications (“apps”) developed internally for end users, and
considers itself the principal in providing the games or apps to end users. The Group’s primary
responsibility is to develop, maintain and provide the games and apps, and in-game/in-app virtual
items to end users.
Consumable and durable virtual items
All games and apps are free to download; however, in-game/in-app virtual items developed by the
Group may be purchased with cash, credit cards or the Group’s virtual credits within the games/
apps. The Group offers both consumable and durable virtual items in its internally developed
games and apps.
Revenue recognition for consumable virtual items
The characteristics of consumable virtual items include virtual items that are consumed by end
users’ specific actions and do not provide end users with any continuing benefits. The consumable
virtual
items offered by the Group is comparable to a service of standing ready and the
performance obligation of the Group with respect to the consumable virtual items purchased by
end users is to make the consumable virtual items available to the users for their use at any given
time. The period from the time the end user first purchased the consumable virtual item until the
F-29
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(22) Revenue (continued)
Other Advertising (continued)
(iii) Content—LINE Games and Applications (continued)
–
Internally developed games and applications (continued)
Revenue recognition for consumable virtual items (continued)
user consumed the item is the performance obligation period; however, consumable virtual items
offered by the Group are generally consumed upon purchase by end users. Accordingly, the Group
recognizes revenues attributable to consumable virtual items upon sale.
Revenue recognition for durable virtual items
A durable virtual item represents an item that provides the end user with continuing benefits. The
durable virtual items offered by the Group is comparable to a service of standing ready and the
performance obligation of the Group with respect to the durable virtual items purchased by end
users is to make the durable virtual items available to the users for their use at any given time. The
period of benefit of a durable virtual item generally ends at the earliest of 1) an item ceasing to
provide further benefits to an end user (i.e., the period of benefit is represented by the usage
period of such item), 2) an item being removed from the game board or app, by specific in-app/
in-game actions taken by an end user, or 3) an end user abandoning the game or app. Accordingly,
the Group determines that revenue attributable to durable virtual items is recognized either a) on a
straight-line basis over the estimated usage period, or b) when the Group cannot estimate the
estimated usage period upfront, on a straight-line basis over the estimated average playing period
of paying users adjusted for any virtual items removed from the game board or app.
(a) Revenue recognition for the estimated usage period of the durable virtual items
items is developed by taking into consideration
The estimated usage period for durable virtual
historical data on purchase patterns and user usage behavior. For the years ended December 31, 2016,
2017 and 2018, the Group recognizes revenues through the estimated usage period for durable virtual
items in one of the internally developed games. For the years ended December 31, 2016, 2017 and
2018, the usage periods were estimated to be a several days and the sales generated by such durable
items were immaterial.
(b) Revenue recognition for the durable virtual items which the estimated usage period cannot be estimated
(1) Revenue recognition by estimating average playing period
The Group defines the playing period as the period from when a paying user first purchased
virtual credits to when a paying user is deemed to have become inactive, i.e. when a paying user
has not logged onto the game/app for two consecutive months. To estimate the average playing
period for a paying user, the Group analyzes monthly cohorts composed of paying users who
made their first purchase of virtual credits during such month. The Group tracks these monthly
cohorts and analyzes the dates on which paying users within each cohort become inactive. Based
on the actual data observed, the Group extrapolates the future declines in paying users to
determine the ending point of a paying user’s life beyond the date for which observable data is
F-30
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(22) Revenue (continued)
(b) Revenue recognition for the durable virtual
items which the estimated usage period cannot be
estimated (continued)
(1) Revenue recognition by estimating average playing period (continued)
available. The Group then uses the actual and extrapolated data to calculate the average playing
period. The Group recognizes revenues arising from internally developed apps by using the
estimated average playing periods. For the years ended December 31, 2016, 2017 and 2018, the
estimated average playing periods ranged from approximately 8 months to 28 months, 2 months to
30 months and 15 months to 30 months, respectively.
(2) Adjustment of the items removed from the game board or app
Revenue attributable to the durable virtual items removed from the game board or app is
recognized by developing estimated removal rates, i.e. the rates at which durable virtual items are
being removed from the game board or app by end users, and applying such rates to total sales
generated from durable virtual items.
Recognition of revenue upon launching a new game or app
Upon launching a new game/app, the Group evaluates the nature of the virtual items, the behavior
of end users with respect to such items and the availability of supporting data in determining the
related revenue recognition policy. The Group may also consider other existing internally
developed games/apps data and industry data in determining the related revenue recognition
policy if insufficient history has been developed for such new game/app. In the situation where the
Group does not have sufficient data to analyze user behavior, and cannot identify any similar
games/apps to serve as references for the Group to reasonably estimate the life of the game/app,
the Group defers all sales until such history is developed. Once sufficient history is developed, the
Group assesses the estimations (such as the estimated usage period and the estimated average
playing period for paying users), for durable virtual items quarterly on a game/app by game/app
basis.
Estimated revenue for the year ended December 31, 2016
For the year ended December 31, 2016, the Group had one internally developed game for which it
had insufficient data to reasonably estimate the average playing period until the beginning of Q2’
2016. Accordingly, for the purpose of recognizing revenue for this game, the Group deferred all
the revenue arising from sale of durable virtual items and only recognized revenue attributable to
the consumable virtual items for the quarters ended March 31, 2016. Beginning of Q2’ 2016, the
Group determine that it had sufficient history to reasonably estimate the average playing period
for such game. Accordingly, the Group began recognizing revenues for durable virtual items
which continued to be available to end users over the average playing period for this game.
Also, in Q3’ 2016, the Group launched an internally developed game for which it has insufficient
data to reasonably estimate the average playing period until the end of Q4’ 2016. Accordingly, for
the purpose of recognizing revenue for this game, the Group only recognized revenue attributable
to the sale of consumable virtual items and deferred all the revenues from sale of durable virtual
items.
F-31
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(22) Revenue (continued)
(b) Revenue recognition for the durable virtual
items which the estimated usage period cannot be
estimated (continued)
(2) Adjustment of the items removed from the game board or app (continued)
Estimated revenue for the years ended December 31, 2017 and 2018
For the period ended December 31, 2017 and 2018, the Group recognized revenues for virtual
items which continued to be available to end used over the average playing period for this game,
as it has sufficient history to reasonably estimate the average playing period for all internally
developed games.
Strategic business
LINE Friends
Revenues from LINE Friends primarily consist of the sales of LINE character merchandise.
Revenue from the sale of goods is mainly recognized when customers obtain control over the
goods, usually on delivery of the goods. Revenue from the sale of goods is measured at
transaction price, adjusted for any discounts.
Significant financing components
There are no significant financing components (i.e. payment terms exceeding one year) within the
services provided to customers by the Group.
(23) Finance Income and Finance Costs
Finance income mainly comprises interest income from time deposits and held-to-maturity investments.
Interest income is recognized as it accrues in profit or loss, using the effective interest method.
Finance costs comprise interest expense on corporate bonds and borrowings and unwinding of the discount
on provisions. Borrowing costs that are not directly attributable to the acquisition, construction or
production of a qualifying asset are recognized in profit or loss using the effective interest method.
(24) Other Non-Operating Income and Expenses
For the year ended December 31, 2016 and 2017
Other non-operating income comprises dividend income, gains on the disposal of available-for-sale
financial assets, and changes in the fair value of financial assets at fair value through profit or loss. Dividend
income is recognized in profit or loss on the date that the Group’s right to receive payment is established.
Other non-operating expenses comprise changes in the fair value of financial assets at fair value through
profit or loss, and impairment losses recognized on available-for-sale financial assets.
F-32
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(24) Other Non-Operating Income and Expenses (continued)
For the year ended December 31, 2018
Other non-operating income comprises dividend income, changes in the fair value of financial assets at fair
value through profit or loss. Dividend income is recognized in profit or loss on the date that the Group’s
right to receive payment is established.
Other non-operating expenses comprise changes in the fair value of financial assets at fair value through
profit or loss.
(25) Income Taxes
Income tax expenses comprise current and deferred tax. Current tax and deferred tax are recognized in profit
or loss, except to the extent that they relate to a business combination, or items recognized directly in equity
or in other comprehensive income.
(a) Current tax
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax
rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax
payable in respect of previous years. The taxable profit is different from the accounting profit for the
period since the taxable profit is calculated excluding temporary differences, which will be taxable or
deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible
items from the accounting profit.
(b) Deferred tax
Deferred tax is recognized using the asset-liability method in respect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A
deferred tax asset is recognized for all deductible temporary differences, unused tax losses and unused
tax credits to the extent that it is probable that taxable profit will be available against which they can be
utilized. However, deferred tax is not recognized for the following temporary differences: taxable
temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets
or liabilities in a transaction that is not a business combination and that affects neither accounting profit
or loss nor taxable income.
The Group recognizes a deferred tax liability for all taxable temporary differences associated with
investments in subsidiaries, associates and joint ventures, except to the extent that the Group is able to
control the timing of the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all
deductible temporary differences arising from investments in subsidiaries, associates and joint
ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable
future and taxable profit will be available against which the temporary difference can be utilized.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow
the benefit of part or all of that deferred tax asset to be utilized.
F-33
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(25) Income Taxes (continued)
(b) Deferred tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period
when the asset is realized or the liability is settled, based on tax rates and tax laws that have been
enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax
liabilities and deferred tax assets reflects the tax consequences that would follow, in a manner that the
Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets
and liabilities.
Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the
related current tax liabilities and assets, and they relate to income taxes levied on the same taxable
entity by the same tax authority.
(26) Earnings per Share
The Group presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is
calculated by dividing the profit or loss attributable to the holders of common shares of the Company by the
weighted average number of common shares outstanding during the year, adjusted for own shares held.
Diluted EPS is determined by adjusting the profit or loss attributable to the holders of common shares and
the weighted average number of common shares outstanding, adjusted for own shares held, for the effects of
all dilutive potential common shares, such as stock options granted to directors and employees of the Group.
Potential common shares are antidilutive when their conversion to common shares would increase earnings
per share or decrease loss per share from continuing operations. The calculation of diluted earnings per
share does not assume conversion, exercise, or other issue of potential common shares that would have an
antidilutive effect on earnings per share.
(27) Operating Segments
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.
(28) Discontinued Operations and Non-current Assets Held for Sale
Discontinued operations are reported when a component of an entity comprising operations and cash flows
that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the
entity is classified as held for sale or has been disposed of, if the component either (1) represents a separate
major line of business or geographical area of operations and (2) is part of a single coordinated plan to
dispose of a separate major line of business or geographical area of operations or (3) is a subsidiary acquired
exclusively with a view to resale.
The Group determined to dispose its MixRadio business in February 2016. In the Consolidated Statements
of Profit or Loss, (loss)/profit from the discontinued operations is reported separately from profit/(loss) from
continuing operations; prior periods are presented on a comparable basis. The cash flows from discontinued
operations are presented in Note 23 Discontinued Operations. References made to the Consolidated
F-34
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(28) Discontinued Operations and Non-current Assets Held for Sale (continued)
Statements of Profit or Loss, except for those noted in Note 23 Discontinued Operations, are related to
continuing operations.
In the event that certain non-current assets and disposal groups whose carrying values will be recovered
principally through a sale rather than through continuing use, such non-current assets and disposal groups
are classified as held for sale. Non-current assets or disposal groups classified as held for sale or held for
disposal are measured at the lower of their carrying amount or fair value less costs to sell, unless these items
presented in the disposal group are not part of the measurement scope as defined in IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations.
(29) Standards Issued but not yet Effective
The standards and interpretations that are issued but not yet effective as of December 31, 2018 are disclosed
below. The standards and interpretations issued but not yet effective has not been adopted early by the
Group.
–
IFRS 16 Leases
The IASB issued IFRS 16 Leases. IFRS 16 governs the accounting for leases and the related
contractual rights and obligations. Lessees will no longer make a distinction between finance and
operating leases as they have been required to do thus far under IAS17. At the commencement date of a
lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset).
Lessees will be required to separately recognize the interest expense on the lease liability and the
depreciation expense on the right-of-use asset. Lessor accounting under IFRS 16 is substantially
unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the
same classification principle as in IAS 17 and distinguish between two types of leases: operating and
finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under
IAS 17. The Group will adopt IFRS 16 for the annual reporting period beginning on January 1, 2019,
which is the mandatory effective date. The Group intends to use simplified approach and does not plan
to restate the amounts in the comparable reporting periods prior to adoption of IFRS 16. So far, the
most significant impact identified is that the Group will recognize new right-of-use assets and lease
liabilities for its operating leases of certain office space and stores. In addition, the nature of expenses
related to those leases will change as a lease expenses shall be recognized with depreciation charge for
the right-of-use asset and interest paid on the lease liability under IFRS 16, replaced from the straight-
line operating expense with IAS 17.
On the reporting date, the Group expected to recognize the right-of-use assets and lease liabilities
approximately 52 billion yen as of January 1, 2019 due to the adoption of IFRS 16. The operating lease
expenses are expected to decrease by approximately 10 billion yen, and total in depreciation expenses
of the right-of-use assets and interest expenses on lease liabilities are expected to increase by
approximately 10 billion yen. As of the reporting date, the Group bears commitments of 58,688 million
yen for non-cancellable operating leases (refer to Note 17 Lease-Group as Lessee). Due to the adoption
od IFRS 16, cash flows from operating activities are expected to increase by approximately 10 billion
yen and cash flows from financing activities are expected to decrease by approximately 10 billion,
compared to those under IAS 17, due to the principal payment of lease liabilities being classified to the
cash flows from financing activities.
F-35
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations
The impacts of the adoption of new and revised IFRSs issued by the IASB that are mandatorily effective for
an annual period beginning on or after January 1, 2018 on the Group’s annual consolidated financial
statements as of December 31, 2016 and 2017, and for the years ended December 31, 2016, 2017 and 2018.
are as follows.
Standards that are effective for annual period beginning on or after January 1, 2018:
1.
IFRS15 Revenue from Contracts with Customers
The IASB issued IFRS 15 Revenue from Contracts with Customers. IFRS 15 establishes a five-step
model that will apply to all revenue arising from contracts with customers, regardless of the type of
transaction or industry, with limited exceptions.
The Group recognizes revenue associated with communication and content sale as well as advertising
services by reference to the stage of completion. The Group has concluded that the previous methods of
revenue recognition and measurement are in accordance with IFRS 15, with the exception of the
following services.
The Group has adopted IFRS 15 from the fiscal year 2018. The Group has used the modified
retrospective method which is to record cumulative amount of the impact at the beginning balance of
the retained earnings upon adoption.
(1) LINE Stickers, Creator Stickers and Emoji (collectively, “The Stickers”)
Under the new standard, the timing of revenue recognition changed whereby revenue is recognized
over an estimated usage period on a straight-line basis. Under the previous method, the Group
recognized revenue on an accelerated basis which weighted revenue recognition towards the earlier
part of the period to reflect the usage pattern of Stickers by users.
Under the previous standard, the Group determined that the measuring method which best depicts the
progress towards satisfaction of performance based on a contract was the users’ usage pattern of
Stickers which represented the consumption of the user’s benefits, and recognized 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 Stickers 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 the Stickers is to make
them 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 the Stickers available to the users for their
use. Therefore, the Group determines that its performance obligation is evenly fulfilled throughout a
certain period of time.
As the Group determines that the end users receive the benefit of the services evenly throughout the
estimated usage period of the Stickers, the Group assessed that the straight-line method over an
estimated usage period is the best method to measure the progress towards complete satisfaction of the
performance obligation. As a result, compared to the previous method,
the amount of revenue
recognized by the Group increased by 168 million yen, and the profit from operating activities
increased by 162 million yen for the year ended December 31, 2018.
F-36
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(2) LINE Sponsored Stickers
Under the new standard, the timing of revenue recognition changed whereby revenue is recognized
over an estimated usage period on a straight-line basis. Under the previous method, the Group
recognized revenue on an accelerated basis which weighted revenue recognition towards the earlier
part of the period to reflect the usage pattern of Stickers by users.
Under the previous standard, the Group determined that the measuring method which best depicts the
progress towards satisfaction of performance based on a contract was the users’ usage pattern of
Sponsored Stickers which represent its progress of rendering the services to the users, and recognized
revenue based on the users’ usage pattern of Sponsored Stickers which was 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 progress based on the method which reflects the
satisfaction of performance obligations to customers for all contracts with 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 given time over a contract period. Accordingly, the
Group has assessed that a straight-line method over a contract period is the best method for measuring
its progress towards complete satisfaction of the performance obligation. As a result, compared to the
previous method, the amount of revenue recognized by the Group increased by 304 million yen, and
the profit from operating activities increased by 250 million yen for the year ended December 31, 2018.
(3) LINE Point Ads
Previously, the Group recognized the LINE points granted to users through the LINE Point Ads at fair
value as advances received. Under the new standard, in addition to the revenue recognized, the Group
accrues the cost incurred when the LINE Points granted are consumed by users.
Under the previous standard, revenue attributable to LINE Points granted were measured at fair value
of the LINE Point in accordance with IFRIC 13 even if such points granted through LINE Point Ads
were granted to users rather than the Group’s customers as the Group received the consideration. The
unused LINE Points are recognized as advances received.
On the other hand, IFRS 15 clearly defines a “customer” as mentioned above. Upon the adoption of
IFRS 15, the Group identifies its advertisers as customers for its LINE Point Ads service as the
considerations are only provided by the advertisers and there is no other consideration provided
directly or indirectly by the users which LINE Point Ads are granted to. For this situation, the Group
considers its performance obligation in its contract with its customers (i.e. the advertiser), as its
advertisement services which includes issuing LINE Points to users who have taken specific actions
agreed with advertisers since the Group does not have any obligations toward the advertisers to manage
LINE Points or to provide users other services in exchange for the LINE Points. As a result, the Group
F-37
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(3) LINE Point Ads (continued)
recognizes revenue at the time LINE Points are issued to users as the Group’s performance obligation
towards the advertisers is satisfied upon issuance of LINE points. For the LINE points granted without
charge to the users, the Group recognizes the expenses as provisions at the same time as LINE points
are issued. As a result, compared to the previous method, the amount of revenue recognized by the
Group increased by 84 million yen, and the profit from operating activities decreased by 218 million
yen for the year ended December 31, 2018.
(4) Presentation of advertisements
For advertising services such as LINE Official Account, an advertising agency may be involved to
provide, on behalf of the Group, services to customers such as formatting advertisement publication to
comply with the Group’s specification or standards of advertisement publication. In such transaction,
the Group earns the consideration received from customers excluding the share of advertising agencies.
Under the previous standard, the share attributable to the advertising agency was identified as an
individually identifiable element and the Group recognized revenue excluding such shares from the
total consideration received from customers as the Group earned a certain portion of the consideration
received, and did not directly provide the service nor they bare credit risk of the shares of the
advertising agency.
On the other hand, IFRS 15 reconfigure the evaluation of whether an entity is a principal or an agent
based on the identification of performance obligations and transfer of control for services. Specifically,
the guidance states that “an entity is a principal if it controls the specified goods or service before that
good or service is transferred to a customer” and further enhances the guidance and related
interpretations related to whether the entity controls the rights to goods or services provided by other
parties. This includes situations where the entity has the ability to direct other parties to perform
services to the customer on the entity’s behalf. Since the services provided by the advertising agencies
such as formatting advertisement publications are provided to customers based on the Group’s
specifications or standards for advertisement publications, the Group determined that the Group
controls the services provided by the advertising agencies and thus the Group is deemed as the
principal. Due to the factors above, the Group changed the method of revenue recognition to recognize
the total consideration received from the customer, including the services provided by the advertising
agencies. As a result, compared to the previous method, the amount of revenue recognized by the
Group increased by 8,837 million yen for the year ended December 31, 2018.
Moreover, in accordance with IFRS 15, the Group recognizes costs of contract which consist of
consideration payable to the advertising agency as an asset and such costs are expensed as the related
revenues are recognized. If the advertising contract is renewed at the end of the original term,
consideration payable to the advertising agency will be incurred again, and such costs will be expensed
during the period that related revenue of the advertising contract is recognized. Therefore, compared to
the previous method, the sales commission expenses increased by 8,837 million yen for the year ended
December 31, 2018. However, as sales commission expenses increased by the same amount as the
revenues, there is no impact on the profit from operating activities.
F-38
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
As a result, the opening balance of accumulated deficit is adjusted as follows.
(In millions of yen)
January 1,
2018
Stickers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE Sponsored Stickers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE Point Ads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(967)
(760)
667
(63)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,123)
The adjustments made to line items presented on the financial statements due to the change from IAS 18
Revenue and other standards applied previously (collectively, the IAS 18 and other) to IFRS 15 are as follows.
Reclassifications are made to reflect the terms used under IFRS 15. Certain amounts previously presented in
trade and other receivables related to advertising services are reclassified into contract assets, while certain
amounts previously presented in advances received arising from such as LINE Points and in deferred revenue
associated with the Stickers or advertising services are reclassified into other financial liabilities, current and
contract liabilities.
January 1, 2018
(under IAS 18
and other)
Reclassification Remeasurement
(In millions of yen)
January 1, 2018
(under IFRS 15)
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current
. . . . . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . .
42,892
—
7,438
16,492
28,003
—
17,975
9,246
991
(4,294)
7,440
4,902
(437)
437
—
—
4,633
22,588
(17,975)
(9,246)
—
—
—
—
(792)
—
1,052
384
—
1,391
—
—
472
(1,123)
(8)
(89)
41,663
437
8,490
16,876
32,636
23,979
—
—
1,463
(5,417)
7,432
4,813
F-39
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
December 31, 2018
(under IAS 18
and other)
Reclassification Remeasurement
(In millions of yen)
December 31, 2018
(under IFRS 15)
Trade and other receivables . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current
. . . . . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . .
38,772
—
8,464
16,746
30,364
—
20,575
9,326
1,814
(4,543)
(2,018)
9,596
(339)
339
—
—
6,362
23,539
(20,575)
(9,326)
—
—
—
—
(789)
—
1,287
361
—
1,098
—
—
767
(1,013)
5
2
37,644
339
9,751
17,107
36,726
24,637
—
—
2,581
(5,556)
(2,013)
9,598
F-40
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
(In millions of yen)
2018
(under IAS 18
and other)
Reclassification Remeasurement
Revenue and other operating income
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . . .
197,789
28,099
Revenue and other operating income total . . . . . .
225,888
Operating expenses
Payment processing and licensing expenses . . . . . . . .
Sales commission expenses . . . . . . . . . . . . . . . . . . . . .
Employee compensation expenses . . . . . . . . . . . . . . . .
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure and communication expenses . . . . . . . .
Outsourcing and other service expenses . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . .
(30,811)
(7,068)
(57,493)
(20,311)
(10,483)
(31,825)
(11,135)
(40,846)
Operating expenses total
. . . . . . . . . . . . . . . . . . .
(209,972)
Profit from operating activities . . . . . . . . . . . . . . . . . . . . . . .
15,916
Profit before tax from continuing operations . . . . . . . . . . . .
Income tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss for the year from continuing operations . . . . . . . . . . .
3,160
(9,463)
(6,303)
Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,927)
Attributable to:
The shareholders of the Company . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . .
(3,852)
(2,075)
Earnings per share
Basic (loss)/profit for the year attributable to the
shareholders of the Company . . . . . . . . . . . . . . . . . . . . . .
(16.19)
Diluted (loss)/ profit for the year attributable to the
shareholders of the Company . . . . . . . . . . . . . . . . . . . . . .
(16.19)
Earnings per share from continuing operations
Basic (loss)/ profit from continuing operations attributable
to the shareholders of the Company . . . . . . . . . . . . . . . . .
Diluted (loss)/profit from continuing operations
(17.77)
attributable to the shareholders of the Company . . . . . . .
(17.77)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-41
2018
(under
IFRS 15)
207,182
28,099
235,281
(30,823)
(15,960)
(57,493)
(20,311)
(10,483)
(31,825)
(11,135)
(41,141)
9,393
—
9,393
(12)
(8,892)
—
—
—
—
—
(295)
(9,199)
(219,171)
194
194
(59)
135
135
134
1
0.57
0.57
0.57
0.57
16,110
3,354
(9,522)
(6,168)
(5,792)
(3,718)
(2,074)
(In yen)
(15.62)
(15.62)
(17.20)
(17.20)
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
Under the previous standard, the Group recognized considerations received from advertisers as advertising
revenue after subtracting the share of advertising agencies. However, under IFRS 15, the Group recognizes
such revenue by the gross recognition where the Group recognizes considerations received from advertisers
including the portion for the services provided by the advertising agencies. As a result, the amount of
expenses which were to be paid to the advertising agencies increased and became material. Therefore, the
“sales commission expenses” which were included in the “authentication and other service expenses” in
prior years are presented as a separate line item in the Consolidated Financial Statement of Profit or Loss.
As the materiality of authentication expenses decreased, remaining “authentication and other service
expenses” is now presented as “outsourcing and other service expenses”. The change was also applied to the
Consolidated Financial Statement of Profit or Loss for the year ended December 31, 2016 and 2017.
2.
IFRS 9 Financial Instruments
The IASB issued the final version of IFRS 9 Financial Instruments which sets out the requirements for
recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell
non-financial items to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 is
the new standard for the financial reporting of financial instruments that is principles-based and brings
together the classification and measurement, impairment and hedge accounting phases of the IASB’s
project. IFRS 9 is built on a single classification and measurement approach for financial instruments
that reflects the business model in which they are managed and their cash flow characteristics including
new impairment requirements that are based on a more forward-looking expected credit loss model that
will result in more timely recognition of credit losses and is a single model that is applicable to all
financial
to impairment accounting. The Group has applied the following
accounting policies in accordance with IFRS 9 commencing on January 1, 2018.
instruments subject
F-42
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
The Group has applied IFRS 9 retrospectively and has determined not to restate the comparative
information for the periods prior to 2018. As a result, the comparative information is prepared based on
the Group’s pervious accounting policies. The previous accounting policy is provided in the end
Note 3. On January 1, 2018, the Group has assessed which business models to apply to its financial
assets and liabilities and classified such financial assets and liabilities in to appropriate classification
under IFRS 9. The impacts of these classifications are as follows.
Balance as of January 1, 2018 under IFRS 9
Balance at
January 1,
2018
under
IAS 39
Financial
assets/liabilities
at fair value
through
profit or loss
Notes
Financial
assets/liabilities
at FVOCI
Financial
assets/liabilities
at amortized
cost
Total
financial
assets/liabilities
(In millions of yen)
Financial assets
Trade and other receivables
Loans and receivables . . . . . . . . . . . . .
3
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, current
Loans and receivables
Time deposits . . . . . . . . . . . . . . .
Short-term loans . . . . . . . . . . . . .
Corporate bonds and other debt
instruments . . . . . . . . . . . . . . .
Available-for-sale financial assets . . .
Office security deposits . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, non-current
Held-to-maturity investments . . . . . . .
Loans and receivables
3
3
4
6
42,892
42,892
12,002
206
849
6
195
13,258
280
Corporate bonds and other debt
instruments . . . . . . . . . . . . . . .
Guarantee deposits . . . . . . . . . . .
Office security deposits . . . . . . . .
4, 5
3
3
7,986
726
5,709
Financial assets at fair value through
profit or loss
Conversion right and redemption
right of preferred stock . . . . . .
Available-for-sale financial assets . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
1, 2
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,862
15,388
133
32,084
—
—
—
—
—
—
—
—
—
28
—
—
1,862
5,262
—
7,152
—
—
—
—
852
6
—
858
—
7,997
—
—
—
10,126
44
18,167
42,892
42,892
42,892
42,892
12,002
206
12,002
206
—
—
195
852
6
195
12,403
13,261
280
280
—
726
5,709
—
—
89
6,804
8,025
726
5,709
1,862
15,388
133
32,123
F-43
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
Impacts by adoption of IFRS 9
Fair value
measurement
at January 1,
2018
Notes
Provision at
January 1,
2018
Total
impacts
Financial assets
Trade and other receivables
Loans and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, current
Loans and receivables
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds and other debt instruments . . . . . .
Available-for-sale financial assets . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, non-current
Held-to-maturity investments . . . . . . . . . . . . . . . . . . . . .
Loans and receivables
Corporate bonds and other debt instruments . . . . . .
Guarantee deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through profit or loss
Conversion right and redemption right of preferred
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale financial assets . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
4
6
4, 5
3
3
1, 2
—
—
—
—
—
—
6
6
—
52
—
—
—
—
—
52
—
—
—
—
(3)
—
—
(3)
—
(13)
—
—
—
—
—
(13)
—
—
—
—
—
—
3
3
—
39
—
—
—
—
—
39
F-44
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
Balance as of January 1, 2018 under IFRS 9
Balance at
January 1,
2018
under
IAS 39
Financial
assets/liabilities
at fair value
through
profit or loss
Notes
Financial
assets/liabilities
at FVOCI
Financial
assets/liabilities
at amortized
cost
Total
financial
assets/liabilities
(In millions of yen)
Financial liabilities
Trade and other payables
Financial liabilities measured at
amortized cost . . . . . . . . . . . . . . .
3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current
Financial liabilities measured at
amortized cost
Deposits received . . . . . . . . . . .
Short-term borrowings . . . . . . .
Others . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities non-current
Financial liabilities measured at
amortized cost
Office security deposits
received under sublease
agreement
. . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . .
Financial liabilities at fair value
through profit or loss
Put option liabilities . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,810
28,810
5,730
22,224
49
28,003
23
93
486
602
—
—
—
—
—
—
—
—
486
486
—
—
—
—
—
—
—
—
—
—
28,810
28,810
28,810
28,810
5,730
22,224
49
28,003
5,730
22,224
49
28,003
23
93
—
116
23
93
486
602
F-45
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
Impacts by adoption of IFRS 9
Fair value
measurement
at January 1,
2018
Notes
Provision at
January 1,
2018
Total
impacts
Financial liabilities
Trade and other payables
Financial liabilities measured at amortized cost
. . . . . . .
3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current
Financial liabilities measured at amortized cost
Deposits received . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities non-current
Financial liabilities measured at amortized cost
Office security deposits received under sublease
agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial liabilities at fair value through profit or loss
Put option liabilities . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-46
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
Following are the impacts on accumulated deficit and accumulated other comprehensive income by
classification and measurement of financial assets at January 1, 2018.
(In millions of yen)
Accumulated
other
comprehensive
income-Financial
assets at FVOCI
Notes
Accumulated
deficit
Balance of accumulated deficit and accumulated OCI as of
January 1, 2018 under IAS 39 . . . . . . . . . . . . . . . . . . . . . . .
Reclassification from available-for-sale financial assets to
financial assets at fair value through profit or loss . . . . . . .
Transfer of impairment losses arising from reclassification
of available-for-sale financial assets to financial assets at
FVOCI and recognized previously in profit or loss . . . . . .
Fair value measurement of financial assets classified from
loans and receivables to financial assets at FVOCI as of
January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in provision for debt instruments at FVOCI . . . . . . .
Adjustment to shareholders’ equity from adoption of
1
2
4
4
(4,294)
316
3,928
(316)
1,000
(1,000)
—
(16)
42
16
IFRS 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,300
(1,258)
Balance of accumulated deficit and accumulated OCI as of
January 1, 2018 under IFRS 9 . . . . . . . . . . . . . . . . . . . . . . .
(2,994)
2,670
(1) Reclassification from available-for-sale financial assets to financial assets at fair value through profit or loss
The investments in private equity investment funds of 2,966 million yen and redeemable preferred stocks of
unlisted companies of 2,296 million yen as of January 1, 2018, were reclassified from available-for-sale
financial assets to financial assets at fair value through profit or loss as the cash flows from these
investments did not represent solely payments of principal and interest on the principal amount outstanding.
Also, cumulative loss and its tax effects through fair value measurements of 259 million yen were
reclassified from accumulated other comprehensive income to accumulated deficit.
(2) Reclassification from available-for-sale financial assets to equity instruments at FVOCI
The investments in listed equity securities and private equity and other
instruments of
9,728 million yen, as of January 1, 2018, were reclassified from available-for-sale financial assets to equity
instruments at FVOCI as the Group has made an irrevocable election to measure such investments at
FVOCI. Also, related cumulative impairment loss and its tax effects of 1,000 million yen were reclassified
from accumulated deficit to accumulated other comprehensive income.
financial
The investments in corporate bonds of 402 million yen, and investments in partnerships of 2 million yen as
of January 1, 2018 were reclassified as the cash flows from these investments solely represents payments of
principal and interest on the principal amount outstanding. As based on the Group’s business model, such
F-47
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(4) Presentation of advertisements (continued)
financial assets are held for the purpose of collecting contractual cash flows as well as selling the financial
assets for profit, such financial assets were reclassified from available-for-sale financial assets to equity
instruments at FVOCI.
(3) Reclassification from loans and receivables to financial assets at measured at amortized cost
Time deposits of 12,002 million yen, loans of 206 million yen, guarantee deposits of 726 million yen and
office security deposits of 5,709 million yen as of January 1, 2018 were reclassified from loans and
receivables to financial assets at amortized cost as the cash flows from these assets represent solely
payments of principal and interest on the principal amount outstanding and as the Group’s business model is
achieved by collecting contractual cash flows. There was no impact from this reclassification on retained
earnings and other comprehensive income as of January 1, 2018. Also, the amount of expected credit losses
arising from those financial assets as of January 1, 2018, were deemed immaterial.
(4) Reclassification from loans and receivables to debt instruments at FVOCI
Corporate bonds of 8,807 million yen as of January 1, 2018 were reclassified from loans and receivables to
debt instruments at FVOCI as the cash flows from these assets represent solely payments of principal and
interest on the principal amount outstanding and as the Group’s business model is achieved by both
collecting contractual cash flows and selling of these financial assets for profit. Fair value gains and related
tax effects of 42 million yen measured at January 1, 2018, were adjusted to the accumulated other
comprehensive income. Also, expected credit losses of 16 million yen measured at January 1, 2018 were
recognized as a loss allowance provision and adjusted to accumulated other comprehensive income. The
Group estimates a loss allowance based on 12 months expected credit losses on debt instruments which are
measured at FVOCI as the Group has judged that the risks for such investments are low.
(5) Reclassification from loans and receivables to financial assets at fair value through profit or loss
A convertible bond of 28 million yen as of January 1, 2018, was reclassified from loans and receivables to
financial assets at fair value through profit or loss as the cash flow did not represent solely payments of
principal and interest on the principal amount outstanding. There was no effect to accumulated deficit and
accumulated other comprehensive income at January 1, 2018, due to the reclassification.
(6) Reclassification from held-to-maturity financial assets to financial assets at measured at amortized cost
Japanese government bonds of 280 million yen as of January 1, 2018, were reclassified from loans and
receivables to financial assets at amortized cost as the cash flows from these financial assets represent solely
payments of principal and interest on the principal amount outstanding and as the Group’s business model is
achieved by collecting contractual cash flows. There was no impact from this reclassification on retained
earnings and accumulated other comprehensive income as of January 1, 2018.The amount of expected credit
losses arising from those financial assets as of January 1, 2018, were deemed immaterial.
F-48
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
Significant accounting policies prior to adopt IFRS 9 was as follows:
(1) Financial assets
The Group classifies and measures financial assets based on the following four categories: financial assets at
fair value through profit or loss; held-to-maturity investments; loans and receivables; and available-for-sale
financial assets. The Group recognizes financial assets in the Consolidated Statements of Financial Position
when the Group becomes a party to the contractual provisions of the instrument.
Upon initial recognition, financial assets are measured at their fair value plus, in the case of a financial asset
not measured at fair value through profit or loss, transaction costs that are directly attributable to the asset’s
acquisition. Regular way purchases or sales of financial assets, i.e. purchases or sales under a contract
whose terms require delivery of the asset within the time frame established generally by regulation or
convention in the marketplace concerned, are accounted for at the trade date.
(a) Financial assets at fair value through profit or loss
Financial assets are classified as financial assets at fair value through profit or loss if they are held for
trading. Upon initial recognition, transaction costs are recognized in profit or loss when incurred.
Financial assets at fair value through profit or loss are measured at fair value, and changes therein are
recognized in profit or loss.
(b) Held-to-maturity investments
Financial assets with fixed or determinable payments and fixed maturities, for which the Group has the
positive intention and ability to hold to maturity, are classified as held-to-maturity investments.
Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using
the effective interest method.
(c) Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments. Subsequent to initial
recognition, loans and receivables are measured at amortized cost using the effective interest method,
except for loans and receivables for which the effect of discounting is immaterial.
(d) Available-for-sale financial assets
Available-for-sale financial assets are those financial assets that are not classified as financial assets at
fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to
initial recognition, they are measured at fair value, and any changes in fair value, net of any tax effect,
are recorded in other comprehensive income in equity. When a financial asset is derecognized or
impairment
the cumulative gain or loss previously recognized in other
comprehensive income is reclassified from equity to profit or loss.
losses are recognized,
Dividends on an available-for-sale equity instrument are recognized in profit or loss when the Group’s
right to receive payment is established.
(e) Derivative financial instruments
The Group may use derivative financial instruments, such as exchange forward contracts, to hedge its
foreign exchange risk. Such derivative financial instruments are initially recognized at fair value on the
date on which a derivative contract is entered into and are subsequently re-measured at fair value. Any
F-49
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(1) Financial assets (continued)
(e) Derivative financial instruments (continued)
gains or losses arising from changes in the fair value of derivatives are recognized in profit or loss.
Derivatives are carried as financial assets when the fair value is positive and as financial liabilities
when the fair value is negative.
instruments embedded in non-derivative host contracts are bifurcated and
Derivative financial
accounted for as separate derivatives when they meet the definition of a derivative, the economic
characteristics and risks of the embedded derivatives are not closely related to those of the host
contracts, and the contracts are not measured at fair value through profit or loss.
(f) Derecognition of a financial asset
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a
transaction in which substantially all the risks and rewards of ownership of the financial asset are
transferred. Any interest in transferred financial assets that is created or retained by the Group is
recognized as a separate asset or liability.
If the Group retains substantially all the risks and rewards of ownership of the transferred financial
assets, the Group continues to recognize the transferred financial assets and recognizes financial
liabilities for the consideration received.
(2) Financial Liabilities
The Group recognizes financial liabilities in the Consolidated Statements of Financial Position when the
Group becomes a party to the contractual provisions of the financial liability. At the date of initial
recognition, financial liabilities are measured at fair value, net of transaction costs. Subsequent to initial
recognition, financial liabilities are measured at amortized cost using the effective interest method.
(3)
Impairment of Financial Assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to
determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective
evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss
event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
However, losses expected as a result of future events, regardless of likelihood, are not recognized.
Objective evidence that financial assets, including equity securities, are impaired can include significant
financial distress of issuers of financial assets or debtors, default or delinquency by a debtor, restructuring of
an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor
or issuer will enter bankruptcy, the disappearance of an active market for a security, or the existence of
observable data that shows the negative effect on expected future cash flows of the group of financial assets
after the initial recognition can be reliably estimated, though the decrease in expected future cash flows of
individual financial assets cannot be reliably estimated.
In addition, for an investment in an equity security classified as an available-for-sale financial asset, a
significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
If financial assets have objective evidence that they are impaired, impairment losses should be measured and
recognized.
F-50
LINE Corporation
Notes to Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(30) New and Amended Standards and Interpretations (continued)
(3)
Impairment of Financial Assets (continued)
(a) Financial assets measured at amortized cost
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the
difference between its carrying amount and the present value of its estimated future cash flows
discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s
estimated future cash flows, impairment losses are measured by using prices from any observable
current market
losses directly or establish a
provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was
recognized, the previously recognized impairment loss is reversed by adjusting an allowance account.
Financial assets are directly written off when there is no realistic prospect of future recovery.
transactions. The Group can recognize impairment
(b) Available-for-sale financial assets
While other evidence and indicators are taken into consideration, generally, when the fair value of an
available-for-sale financial asset is below the acquisition cost consistently for a period of six months or
more, or, if the fair value of the available-for-sale financial assets is 20% below its acquisition cost,
impairment losses are assessed for such financial asset. When a decline in the fair value of an
available-for-sale financial asset has been recognized in other comprehensive income and there is
objective evidence that the asset is impaired, the cumulative loss that had been recognized in other
comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even
though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for
an investment in an equity instrument classified as available-for-sale are not reversed through profit or
loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale
increases and the increase can be objectively related to an event occurring after the impairment loss
was recognized in gain or loss, the impairment loss is reversed, with the amount of the reversal
recognized in profit or loss.
4.
Significant Accounting Judgments, Estimates and Assumptions
The preparation of the Group’s consolidated financial statements requires the management to make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying
disclosures. These estimates and assumptions are based on the best judgment of the management in light of
historical experience and various factors deemed to be reasonable as of the fiscal year end date. Given their
nature, uncertainty about these assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities affected in future periods.
F-51
LINE Corporation
Notes to Consolidated Financial Statements (continued)
4.
Significant Accounting Judgments, Estimates and Assumptions (continued)
The estimates and assumptions are continuously reviewed by the management. 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. Among estimates and assumptions made by the management, the following are ones that may have a
material effect on the amounts recognized in the consolidated financial statements of the Group:
(a)
Impairment
–
Non-financial assets
Non-current assets other than goodwill
Non-current assets other than goodwill, such as property and equipment, and intangible assets with
definite useful lives are assessed for indications of impairment at the end of the reporting period. The
Group evaluates both internal and external sources of information to assess whether impairment
indicators exist. Some of the impairment indicators are evidence of obsolescence or significant adverse
changes in the technological, market, economic or legal environment of the market in which the Group
operates, or the asset is dedicated. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent, if any, of the impairment loss. Likewise, the determination
of the assets’ recoverable amounts involves the use of estimates by the management that can have a
material impact on the respective values and ultimately the amount of any impairment. In addition,
annual impairment tests are performed for goodwill and intangible assets with indefinite useful lives.
Goodwill
The goodwill impairment test requires the Group to exercise judgment and assess whether the carrying
value of the CGU to which goodwill has been allocated can be supported by the recoverable amount of
such CGU to which goodwill has been allocated.
The recoverable amount of a CGU is determined based on a value in use calculation which involves the
use of estimates. The main assumptions used in the value in use calculation include the discount rate,
terminal growth rate and expected future cash flow projections for a period of up to five years from
financial budgets approved by the management. Cash flow projections beyond the planning period are
extrapolated using terminal growth rates. Cash flow projections take into account past experience and
represent management’s best estimates. These assumptions can be subject to significant adjustments
from such factors as user trend, spending on marketing, IT spending of corporations, and competition
from competitors. The key assumptions used to determine the recoverable amounts of the different
CGU to which goodwill has been allocated are disclosed and further explained in Note 11 Impairment.
–
Financial assets measured at amortized cost and fair value through other comprehensive income
The Group assesses the expected credit losses associated with its assets carried at amortized cost and
FVOCI. The impairment methodology depends on whether there has been a significant increase in
credit risk in the individual financial asset or the asset group including the financial asset. If there has
been a significant increase in credit risk, the Group measures the loss allowance for the individual
financial asset or group of financial assets at an amount equal to the lifetime expected credit losses
considering all reasonable and supportable information including that which is forward looking. If
there has been no significant increase in credit risk, the Group measures the loss allowance for the
financial asset or group of financial assets at an amount equal to the 12-month expected credit losses.
F-52
LINE Corporation
Notes to Consolidated Financial Statements (continued)
4.
Significant Accounting Judgments, Estimates and Assumptions (continued)
(a)
Impairment (continued)
–
Financial assets measured at amortized cost and fair value through other comprehensive
income (continued)
For trade receivables, the Group measures the loss allowance at an amount equal to lifetime expected
credit losses from initial recognition, hence applies the simplified approach in accordance to IFRS 9.
(b) Recoverability of deferred tax assets
Regarding temporary differences, which are differences between carrying value of an asset or liability in the
Consolidated Statements of Financial Position and its tax base, the Group recognizes deferred tax assets and
deferred tax liabilities. The deferred tax assets and deferred tax liabilities are calculated using the tax rates
based on tax laws that have been enacted or substantively enacted by the end of the reporting period and the
tax rates that are expected to apply to the period when the deferred tax asset is realized or the deferred tax
liability is settled. Deferred tax assets are recognized for all deductible temporary differences, unused tax
losses carryforward and unused tax credits carryforward to the extent that it is probable that taxable income
will be available. The estimation of future taxable income is calculated based on financial budgets approved
by management of the Group, and it is based on management’s subjective judgments and assumptions. The
Group considers these estimates to be significant because any adjustments in the assumed conditions and
amendments of tax laws in the future may significantly affect the amounts of deferred tax assets and
deferred tax liabilities.
(c) Methods of determining fair value for financial instruments measured at fair value
Financial assets and financial liabilities held by the Group are measured at the following fair values:
–
–
–
quoted prices in active markets for identical assets or liabilities;
fair value calculated using observable inputs other than quoted prices for the assets or liabilities, either
directly or indirectly; and
fair value calculated using valuation techniques incorporating unobservable inputs.
In particular, the fair value estimates using valuation techniques that incorporate unobservable inputs are
based on the judgment and assumptions of Group management, such as experience assumptions, and the use
of specific numerical calculation models, such as discounted cash flow models.
(d) Provisions
The Group recognizes asset retirement obligations related to assets leased under operating leases in the
Consolidated Statements of Financial Position. These provisions are recognized based on the best estimates
of the costs expected to incur for the restoration of the operating lease properties to the state as specified in
the rental agreements upon termination of the operating leases. The estimation takes risks and uncertainty
related to the obligations into account as of the fiscal year end date.
The Group records a provision for the licensing expense payable to the third-party platform partners upon
redemption of promotional virtual credits for virtual items by end users in the future. For promotional and
marketing purposes, virtual credits are given to end users free of charge.
F-53
LINE Corporation
Notes to Consolidated Financial Statements (continued)
4.
Significant Accounting Judgments, Estimates and Assumptions (continued)
(e) Defined benefit plans
The cost of the defined benefit plan and the present value of the obligation are determined using actuarial
valuations. An actuarial valuation involves making various assumptions, including the determination of the
discount rate and future salary increases.
The Group determines the discount rate based on market returns of high-quality corporate bonds consistent
with currencies and estimated payment terms applicable to the defined benefit obligations as of the reporting
date in order to calculate present value of the defined benefit obligations. Estimated future salary increases
are based on historical salary increases and expected future inflation rates.
Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is
highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
Further details about the Group’s defined benefit obligations are presented in Note 16 Employment Benefits.
(f) Share-based payments
Share-based payment expenses related to stock options granted to directors and employees are estimated
based on the option’s fair value determined under the Black-Scholes-Merton (“Black-Scholes”) option
pricing model. The Black-Scholes model requires various highly judgmental assumptions,
including
expected volatility, expected life of stock options and fair value of share capital at the time of option grants,
which will be discussed further below.
Expected volatility is estimated based on the historical volatility of reference companies which are
comparable with the Company and the Group. The expected life of stock options is estimated based on the
expectation of future stock price movements and expected exercise patterns of the option holders.
(g) Valuation of common shares
Until the Company’s initial public offering in July 2016, the Group exercised significant judgment in
determining fair value of common shares at the time of option grants. Valuation is based on all relevant
facts and circumstances known at the time of valuation, including but not limited to factors such as
historical financial results and projections of the Group’s future operating and financial performance;
market performance of comparable publicly traded companies; overall economic and industry outlook; and
third-party valuations of the Group’s common shares as of the date of stock option grants.
(h) Revenues
For revenues attributable to the sales of in-game/app virtual items developed by the Group, revenues are
recognized over periods over which the benefits are expected to be consumed by end users, taking into
consideration historical data on purchase patterns, log-on information, and the removal rates of virtual
items.
For revenues attributable to the sales of LINE Stickers, Creator Stickers and emojis, revenues are recognized
over the estimated periods over which LINE Stickers, Creator Stickers and emojis are expected to be used
by users, taking into consideration historical data on usage and user behavior.
5.
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
F-54
LINE Corporation
Notes to Consolidated Financial Statements (continued)
5.
Segment Information (continued)
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.
In 2018, the Group changed its operating segment from one component to two components as its budget has been
prepared based on the Core business and Strategic business and as the Company’s board of directors changed the
unit of components to assess the performance of the Group from a single segment to two segments, Core business
segment and Strategic business segment.
Under the corporate strategy to allocate the resources generated from the Core business to the Strategic business,
the Company’s board of directors individually assesses the business performance of the Core business based on
the growth of revenue and profitability and of the Strategic business based on profitability as well as important
non-financial KPIs such as the expansion of user base.
(1) Description of Reportable Segments
The Group’s reportable segments are as follows:
Core business segment
Core business segment mainly consists of advertising service, communication
and content. Advertising services mainly include display advertising, account
advertising, and other advertising. Display advertising provides advertisements
on services such as LINE NEWS. Account advertising mainly includes LINE
Official Accounts and Sponsored Stickers. Other advertising mainly includes
advertisements on services such as livedoor blog, NAVER Matome and
advertisements appearing on LINE Part Time Job. Communication mainly
includes LINE Stickers. Content mainly includes LINE Games.
Strategic business
segment
Strategic business segment consists of Fintech services, such as LINE Pay
service, and other services such as AI, LINE Friends, and E-commerce.
(2) Profit or Loss for the Group’s operating segments
The Group’s operating profit for each segment is prepared in the same method as the consolidated financial
statements, except that certain items such as other operating income and share-based compensation expenses
are included in corporate expenses. Also, IT development expenses and indirect expenses such as
department management fees are allocated based on the information such as the hours of service provided,
the number of server infrastructures used to provide the service, or the percentage of revenues. As the
Company’s board of directors uses the information after eliminating intercompany transactions for their
performance assessment, there is no adjustment between segments.
From the fiscal year of 2018, the Group divided its operating segment into Core business segment and
Strategic business segment, as the Company’s board of directors assesses performance based on these
components. From the annual reporting period ended December 31, 2018, the Group monitors its profit and
loss by segment. The profit and loss of each segment for the annual reporting period ended December 31,
2016, 2017 was prepared mainly based on the same method as in fiscal year 2018 where practicable and
adjusted accordingly.
F-55
LINE Corporation
Notes to Consolidated Financial Statements (continued)
5.
Segment Information (continued)
(2) Profit or Loss for the Group’s operating segments (continued)
For the year ended December 31, 2016
Reportable segments
Core business
Strategic
business
Total
Corporate
adjustments(1)
Consolidated
(In millions of yen)
130,405
29,129
10,299
(4,743)
140,704
24,386
—
(4,489)
140,704
19,897
Revenue from external
customers(2)
. . . . . . . . . . . . . . .
Segment profit/(loss)(3) . . . . . . . . .
Depreciation and amortization
expenses . . . . . . . . . . . . . . . . . .
4,431
669
5,100
—
5,100
(1) Corporate adjustments mainly include difference in exchange rate under managerial accounting, other
(2)
(3)
operating income and share-based compensation expenses.
The segment information for the year ended December 31, 2016 is presented based on IAS 18, while it
is presented under IFRS 15 for the year ended December 31, 2018.
The amount of “Segment profit/(loss)” is equivalent to profit from operating activities on Consolidated
Statement of Profit or Loss.
For the year ended December 31, 2017
Reportable segments
Core business
Strategic
business
Total
Corporate
adjustments(1)
Consolidated
(In millions of yen)
149,156
34,250
17,991
(17,674)
167,147
16,576
—
8,502
167,147
25,078
Revenue from external
customers(2)
. . . . . . . . . . . . . . .
. . . . . . . .
Segment profit/(loss)(3)
Depreciation and amortization
expenses . . . . . . . . . . . . . . . . . .
6,252
897
7,149
—
7,149
(1) Corporate adjustments mainly include other operating income and share-based compensation expenses.
The segment information for the year ended December 31, 2017 is presented based on IAS 18, while it
(2)
is presented under IFRS 15 for the year ended December 31, 2018.
The amount of “Segment profit/(loss)” is equivalent to profit from operating activities on Consolidated
Statement of Profit or Loss.
(3)
For the year ended December 31, 2018
Reportable segments
Core business
Strategic
business
Total
Corporate
adjustments(1)
Consolidated
(In millions of yen)
178,398
26,559
28,784
(34,931)
207,182
(8,372)
—
24,482
207,182
16,110
Revenue from external
customers . . . . . . . . . . . . . . . . .
. . . . . . . .
Segment profit/(loss)(2)
Depreciation and amortization
expenses . . . . . . . . . . . . . . . . . .
8,832
2,303
11,135
—
11,135
(1) Corporate adjustments mainly include other operating income and share-based compensation expenses.
F-56
LINE Corporation
Notes to Consolidated Financial Statements (continued)
5.
Segment Information (continued)
(2) Profit or Loss for the Group’s operating segments (continued)
(2)
The amount of “Segment profit/(loss)” is equivalent to profit from operating activities on Consolidated
Statement of Profit or Loss.
The reconciliation of segment profit to the profit before tax from continuing operations is as follows:
Segment profit
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial income . . . . . . . . . . . . . . . . . . . . . . . . .
Financial costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of loss of associates and joint ventures . . .
Loss on foreign currency transactions, net . . . . . .
Other non-operating income . . . . . . . . . . . . . . . .
Other non-operating expenses . . . . . . . . . . . . . . .
(In millions of yen)
2016
2017
2018
19,897
87
(65)
(833)
(43)
9
(1,062)
25,078
257
(26)
(6,321)
(818)
1,963
(1,988)
16,110
413
(519)
(11,148)
(902)
869
(1,469)
Profit before tax from continuing operations . . . .
17,990
18,145
3,354
The above items are not allocated to individual segments as these are managed on an overall group basis.
(3) Revenues from Major Services
The Group’s revenues from continuing operations from its major services for the years ended December 31,
2016, 2017 and 2018 are as follows. Revenues for the years ended December 31, 2016 and 2017 are
presented using IAS 18 as the Group uses the modified retrospective method in the adoption of IFRS 15.
F-57
LINE Corporation
Notes to Consolidated Financial Statements (continued)
5.
Segment Information (continued)
(3) Revenues from Major Services (continued)
Revenues recognized at a point in time mainly consist of revenues from LINE Friends.
(In millions of yen)
2016
2017
2018
Core business
Advertising
Display advertising(1)
Account advertising(2)
Other advertising(3)
. . . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . . . .
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communication, content, and others
. . . . . . . . . . . . . . .
Communication(4)
Content(5)
. . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,448
33,986
10,186
54,620
29,290
44,784
1,711
75,785
26,609
38,929
10,433
36,221
56,714
15,302
75,971
108,237
30,225
40,144
2,816
73,185
28,527
38,237
3,397
70,161
Core business total . . . . . . . . . . . . . . . . . . . . . . .
130,405
149,156
178,398
Strategic business
Friends(6)
Others(7)
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
9,383
916
Strategic business total . . . . . . . . . . . . . . . . . . . .
10,299
12,299
5,692
17,991
19,579
9,205
28,784
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140,704
167,147
207,182
(1) Revenues from display advertising primarily consisted of fees from advertisement on services such as
Timeline and LINE NEWS.
(2) Revenues from account advertising primarily consisted of fees from LINE Official Accounts,
Sponsored Stickers and LINE Points.
(3) Revenues from other advertising were mainly attributable to advertising revenue from livedoor,
NAVER Matome and LINE Part-Time Job.
(4) Revenues from communication were mainly attributable to sales of LINE Stickers and Creator
Stickers.
(5) Revenues from content primarily consisted of sales of LINE GAMES’s virtual items.
(6)
Friends primarily consisted of revenues from sales of character goods.
(7) Others primarily consisted of revenues from LINE Mobile service and E-commerce.
F-58
LINE Corporation
Notes to Consolidated Financial Statements (continued)
5.
Segment Information (continued)
(4) Geographic Information
Revenues from external customers
Revenues from external customers classified by country or region were based on the locations of customers.
Revenues attributable to communication and content have been classified based on the geographical location
of the end users. Revenues attributable to advertising have been classified based on the geographical
locations where the services were provided.
Japan (country of domicile) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,939
15,614
24,151
121,283
16,630
29,234
148,260
18,593
40,329
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140,704
167,147
207,182
(In millions of yen)
2016
2017
2018
Non-current operating assets
Non-current operating assets mainly consist of property and equipment and intangible assets.
(In millions of yen)
December 31,
2017
December 31,
2018
Japan (country of domicile) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,089
10,605
5,676
39,370
34,502
5,310
7,946
47,758
(5) Major Customers
No single customer accounted for 10 percent or more of the Group’s total revenues for the years ended
December 31, 2016, 2017 and 2018.
6. Cash and Cash Equivalents
The breakdown of cash and cash equivalents as of December 31, 2017 and 2018 is as follows:
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
December 31,
2017
December 31,
2018
13
123,593
123,606
13
256,965
256,978
F-59
LINE Corporation
Notes to Consolidated Financial Statements (continued)
7. Trade and Other Receivables
Trade and other receivables as of December 31, 2017 and 2018 are as follows:
Trade and other receivables, current
Allowance for doubtful account/Loss allowance,
. . . . . . . . . . . . .
current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables, non-current(1) . . . . . . . . . . . . . . . .
Allowance for doubtful account/Loss allowance,
non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
December 31,
2017
December 31,
2018
43,375
38,097
(483)
14
(14)
(453)
14
(14)
Total trade and other receivables . . . . . . . . . . . . . . . .
42,892
37,644
(1)
The non-current trade receivables as of December 31, 2017 were tested for impairment on an individual
basis as of the reporting dates based on how long such trade receivables were past due. As a result,
allowance for doubtful account for the receivables were recorded.
For movement in the loss allowance for trade and other receivables, refer to Note 25 Financial Risk Management.
8.
Inventories
Inventories as of December 31, 2017 and 2018 are as follows:
Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,455
3,455
4,887
4,887
(In millions of yen)
December 31,
2017
December 31,
2018
Cost of goods recognized from continuing operations for the years ended December 31, 2016, 2017 and 2018,
were 3,333 million yen, 4,436 million yen and 7,346 million yen, respectively. Inventory valuation losses
recognized from continuing operations for the years ended December 31, 2016, 2017 and 2018, were
186 million yen, 510 million yen and 276 million yen, respectively.
F-60
LINE Corporation
Notes to Consolidated Financial Statements (continued)
9.
Property and Equipment
(1) Changes in property and equipment for the year ended December 31, 2017 are as follows:
Furniture
and fixtures Equipment
Construction-
in-progress
Others
Total
(In millions of yen)
Acquisition cost
Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition through business combinations . . . . . .
Exchange differences . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,817
4,156
(1,305)
12
1
(180)
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . .
6,501
Accumulated depreciation and impairment
Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition through business combinations . . . . . .
Exchange differences . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,082
(1,291)
1,146
4
1
(63)
15,529
7,038
(911)
184
152
204
22,196
8,955
(810)
4,111
125
53
(32)
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . .
1,879
12,402
184
42
—
—
—
(184)
42
—
—
—
—
—
—
—
755
361
(174)
297
43
61
20,285
11,597
(2,390)
493
196
(99)
1,343
30,082
219
(3)
266
171
15
8
11,256
(2,104)
5,523
300
69
(87)
676
14,957
Carrying amounts
Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . .
1,735
4,622
6,574
9,794
184
42
536
9,029
667
15,125
F-61
LINE Corporation
Notes to Consolidated Financial Statements (continued)
9.
Property and Equipment (continued)
(2) Changes in property and equipment for the year ended December 31, 2018 are as follows:
Furniture
and fixtures Equipment
Construction-
in-progress
Others
Total
(In millions of yen)
Acquisition cost
Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition through business combinations . . . . . .
Loss of control of subsidiaries . . . . . . . . . . . . . . . . .
Exchange differences . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,501
1,105
(8)
—
—
(1)
(27)
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . .
7,570
Accumulated depreciation and impairment
Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition through business combinations . . . . . .
Loss of control of subsidiaries . . . . . . . . . . . . . . . . .
Exchange differences . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,879
(1)
1,352
—
—
(1)
(1)
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . .
3,228
22,196
16,095
(2,134)
18
(141)
(187)
16
35,863
12,402
(1,751)
6,745
11
(73)
(78)
(111)
17,145
Carrying amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . .
4,622
4,342
9,794
18,718
(3) Contractual commitments for the acquisition of property and equipment:
(In millions of yen)
December 31, 2017
December 31, 2018
527
1,820
42
970
—
—
—
(7)
(42)
963
—
—
—
—
—
—
—
—
—
42
963
1,343
635
(24)
14
(412)
(55)
(41)
30,082
18,805
(2,166)
32
(553)
(250)
(94)
1,460
45,856
676
(16)
321
1
(289)
(27)
91
14,957
(1,768)
8,418
12
(362)
(106)
(21)
757
21,130
667
15,125
703
24,726
The carrying amounts of property and equipment held under finance leases contracts were nil as of
December 31, 2017 and 2018. Additions during the year were nil in 2017 and 2018 of property and
equipment under finance leases and installment payment contracts.
Construction-in-progress as of December 31, 2017 was mainly related to capital expenditures for the molds
to be used for mass production for Gatebox Inc.’s products. Construction-in-progress as of December 31,
2018 was mainly related to capital expenditures for purchasing equipment related to the QR code to be used
for enhancing the LINE Pay service.
F-62
LINE Corporation
Notes to Consolidated Financial Statements (continued)
10. Goodwill and Other Intangible Assets
(1) Changes in goodwill and other intangible assets for the year ended December 31, 2017 are as follows:
Item
Goodwill
Software(1) Music rights
Acquisition cost
Balance at January 1, 2017 . . . . . .
Acquisitions . . . . . . . . . . . . .
Acquisition through business
combinations(3) . . . . . . . . .
Disposals or sales . . . . . . . . .
Exchange differences . . . . . .
Other . . . . . . . . . . . . . . . . . . .
5,592
—
1,487
247
13,114
—
387
—
588
(57)
84
1
Balance at December 31, 2017 . . .
19,093
2,350
Accumulated amortization and
impairment
Balance at January 1, 2017 . . . . . .
Disposals or sales . . . . . . . . .
Amortization . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . .
Exchange differences . . . . . .
Other . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2017 . . .
Carrying amounts
Balance at January 1, 2017 . . . . . .
2,192
—
—
—
134
—
2,326
3,400
Balance at December 31, 2017 . . .
16,767
1,129
(35)
210
—
67
(9)
1,362
358
988
433
—
—
—
27
—
460
433
—
—
—
27
—
460
—
—
(In millions of yen)
Customer
relationships
Game
publishing
rights
Others(2)
Total
487
—
249
—
5
—
741
212
—
108
—
5
—
325
275
416
—
—
1,640
—
109
—
1,749
—
—
270
—
14
—
284
2,009
2,243
10,008
2,490
2,290
(1,191)
83
11
17,881
(1,248)
695
12
5,445
29,838
791
(242)
1,039
214
26
0
4,757
(277)
1,627
214
273
(9)
1,828
6,585
—
1,218
5,251
1,465
3,617
23,253
(1)
Software was mainly comprised of externally acquired software. The remaining useful life of software as of
December 31, 2017 was three years.
(2) Others mainly was mainly comprised of 1,114 million yen for acquisition of licenses for LINE TV,
651 million yen for acquisition of domain name, and 437 million yen for acquisition of Gatebox Inc.’s
trademark and patented technology. The carrying amounts as of December 31, 2017 of these intangible
assets were 329 million yen, 646 million yen and 375 million yen, respectively.
The balances were related to the Group’s acquisitions of NextFloor Corporation. and its subsidiary as well
as FIVE Inc. Refer to Note 29 Business Combinations for further details.
(3)
F-63
LINE Corporation
Notes to Consolidated Financial Statements (continued)
10. Goodwill and Other Intangible Assets (continued)
(2) Changes in goodwill and other intangible assets for the year ended December 31, 2018 are as follows:
Item
Goodwill
Software(4) Music rights
Acquisition cost
Balance at January 1, 2018 . . . . . .
Acquisitions . . . . . . . . . . . . .
Acquisition through business
combinations . . . . . . . . . .
Loss of control of
subsidiaries(6)
. . . . . . . . . .
Disposals or sales . . . . . . . . .
Exchange differences . . . . . .
Other . . . . . . . . . . . . . . . . . . .
19,093
—
2,350
225
1,224
—
(560)
—
(464)
(45)
(191)
(8)
(61)
—
Balance at December 31, 2018 . . .
19,248
2,315
Accumulated amortization and
impairment
Balance at January 1, 2018 . . . . . .
2,326
1,362
Loss of control of
subsidiaries(6)
. . . . . . . . . .
Disposals or sales . . . . . . . . .
Amortization . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . .
Exchange differences . . . . . .
Other . . . . . . . . . . . . . . . . . . .
—
—
—
—
(173)
—
(50)
(6)
262
52
(39)
—
Balance at December 31, 2018 . . .
2,153
1,581
Carrying amounts
Balance at January 1, 2018 . . . . . .
16,767
Balance at December 31, 2018 . . .
17,095
988
734
460
—
—
—
—
(35)
—
425
460
—
—
—
—
(35)
—
425
—
—
(In millions of yen)
Customer
relationships
Game
publishing
rights
Others(5)
Total
741
—
—
—
—
(18)
—
723
325
—
—
168
—
(8)
—
485
416
238
1,749
—
5,445
2,998
29,838
3,223
—
—
1,224
(1,790)
—
41
—
(436)
—
(169)
(146)
(2,977)
(8)
(706)
(191)
—
7,692
30,403
284
1,828
6,585
(912)
—
636
—
(8)
—
—
(124)
—
1,650
160
(34)
(114)
(1,086)
(6)
2,716
212
(297)
(114)
3,366
8,010
1,465
3,617
23,253
—
4,326
22,393
(4)
Software was mainly comprised of externally acquired software. The remaining useful life of software as of
December 31, 2018 was three years.
(5) Others mainly consist of 1,471 million yen for acquisition of licenses for LINE TV, 651 million yen for
acquisition of domain name, and 437 million yen for Gatebox Inc.’s acquisition of trademark and patented
technology. The carrying amounts as of December 31, 2018 of
these intangible assets were
1,064 million yen, 587 million yen and 306 million yen, respectively.
The balances were mainly comprised with the changes in the Group’s ownership ratio of LINE Games
Corporation (renamed from NextFloor Corporation) resulting in the investment to be accounted for as an
associate under the equity method rather than as a consolidated subsidiary. Refer to Note 30 Principal
Subsidiaries for further details.
(6)
F-64
LINE Corporation
Notes to Consolidated Financial Statements (continued)
10. Goodwill and Other Intangible Assets (continued)
The Group has been conducting research and development such as Fintech and AI. The research and
development expenditure for the years ended December 31, 2016, 2017 and 2018 are 8,584 million yen,
10,357 million yen and 19,096 million yen, respectively.
(3) Contractual commitments for the acquisition of intangible assets:
(In millions of yen)
December 31, 2017
December 31, 2018
215
—
11. Impairment
(1)
Impairment of Goodwill
The annual impairment testing for goodwill was performed on October 1 for the years ended December 31,
2016, 2017 and 2018. For the purpose of the impairment test, goodwill has been allocated to one CGU for
the years ended December 31, 2016 and 2017. For the year ended December 31, 2016 and 2017, the Group’s
CGU was the Group’s operating segment as well as the reporting segment. Since the Group changed its
operating segment from one segment to two segments in 2018, Core business and Strategic business, as
noted in Note 5 Segment Information, in 2018, the Group allocated goodwill to five CGUs and tested
goodwill for impairment for the year ended December 31, 2018. The Group’s Core business and Strategic
business are the Group’s operating segments as well as the reporting segments.
The carrying amount of goodwill allocated to each of the CGUs for impairment testing is as follows:
CGU
(In millions of yen)
For the year ended
December 31, 2016
For the year ended
December 31, 2017
LINE business and portal
. . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,400
3,400
16,767
16,767
CGU
Core business
(In millions of yen)
For the year ended
December 31, 2018
Core business . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,838
Strategic business
Friends business . . . . . . . . . . . . . . . . . . . . . . . . .
Fintech business . . . . . . . . . . . . . . . . . . . . . . . . .
E-commerce business . . . . . . . . . . . . . . . . . . . . .
AI business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
740
1,075
307
135
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,095
The recoverable amounts of the CGUs have been determined based on a value in use calculation using cash
flow projections for a period of up to five years from financial budgets approved by the Group’s
management. Cash flow projections take into account past experience and represent management’s best
estimates. The main assumptions used in the value in use calculation include the discount rate, terminal
F-65
LINE Corporation
Notes to Consolidated Financial Statements (continued)
11. Impairment (continued)
(1)
Impairment of Goodwill (continued)
growth rate and expected future cash flows. These assumptions can be subject to significant adjustments due
to factors such as marketing budgets, IT spending of corporations, and competition from competitors. Cash
flows beyond the planning periods were extrapolated using terminal growth rates.
To estimate the discount rate that reflects the time value of money and the risks specific to the CGUs, the
Group has assumed a risk-free rate equal to one-month average market yields on 10-year Japanese
government bonds at the date of performing the annual impairment test. The Group also incorporated risk
premiums, such as a size premium and market risk premium, in the discount rate. The terminal growth rates
are based on the long-term average inflation rates of the Group’s main countries of operation, including
Japan, Taiwan and Thailand, which takes into consideration external macroeconomic sources of data.
(a) CGU
The significant assumptions used in the value in use calculations are as follows:
CGU
LINE business and portal CGU . . .
Core business
Core business . . . . . . . . . . . . .
Strategic business
Friends business . . . . . . . . . . .
Fintech business . . . . . . . . . . .
E-commerce business . . . . . . .
AI business . . . . . . . . . . . . . . .
2016
2017
2018
Pre-tax
discount
rate
Terminal
growth
rate
Pre-tax
discount
rate
Terminal
growth
rate
Pre-tax
discount
rate
Terminal
growth
rate
11.7%
1.1%
10.3%
1.6%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11.6%
1.3%
11.2%
11.8%
11.0%
11.5%
2.3%
1.6%
1.7%
1.7%
No significant impairment losses were recognized for goodwill for the year ended December 31, 2016, 2017
and 2018, as a result of the annual impairment testing.
(2) Sensitivity to Changes in Assumptions
In the opinion of the Group’s management, the recoverable amount considerably exceeded the carrying
amount of the CGUs, and the outcomes of the impairment test are not sensitive to reasonably likely changes
in any of the assumptions underlying the cash flow projections used for the impairment test or the discount
rates in the periods presented for the CGUs.
(3)
Impairment of property and equipment and intangible assets with definite useful lives
For the years ended December 31, 2016, no impairment loss was recognized for intangible assets with
definite useful lives. For the year ended December 31, 2017, in connection with Kiwiple and LINE Games
Global Gateway L.P.,
life in the amounts of
impairments of intangible assets with definite useful
134 million yen and 80 million yen, respectively were recognized. For the year ended December 31, 2018,
in the Core business and Strategic business, impairments of intangible assets with defined useful life in the
amount of 60 million yen and 152 million yen, respectively were recognized. No impairment loss was
recognized for property and equipment for the years ended December 31, 2016, 2017 and 2018.
F-66
LINE Corporation
Notes to Consolidated Financial Statements (continued)
12. Provisions
Changes in provisions for the years ended December 31, 2017 and 2018 are as follows:
Restoration
obligations
for
operating
lease
properties
Promotional
virtual
credits
reserve
Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arising during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reversal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unwinding of discount and changes in the discount rate . . . . . . . .
Increase due to business combinations . . . . . . . . . . . . . . . . . . . . . .
Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,234
1,708
(25)
(16)
0
85
44
0
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,030
Arising during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reversal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unwinding of discount and changes in the discount rate . . . . . . . .
Increase due to business combinations . . . . . . . . . . . . . . . . . . . . . .
Decrease due to loss of control of subsidiaries . . . . . . . . . . . . . . . .
Exchange differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
517
(82)
(3)
0
10
(149)
(37)
17
509
2,945
(2,686)
(162)
—
—
1
—
607
4,188
(2,700)
(17)
—
—
—
(2)
459
(In millions of yen)
Other
Total
341
337
(211)
(55)
—
2
0
—
414
95
(414)
(29)
—
—
—
0
(14)
2,084
4,990
(2,922)
(233)
0
87
45
0
4,051
4,800
(3,196)
(49)
0
10
(149)
(39)
462
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,303
2,535
52
5,890
Restoration obligation for operating lease properties
The Group records provisions for restoration obligations related to its operating lease properties as the Group is
required to restore these properties upon termination of the operating leases to the state specified in the rental
agreements.
Promotional virtual credits reserve
For promotional and marketing purposes, LINE Points and virtual credits are given to end users free of charge.
The Group records a provision for the licensing expense payable to the third-party platform partners upon
redemption of free promotional virtual credits for virtual items by end users in the future. The reversal is mainly
related to the expiration of certain LINE Points and virtual credits that were given to end users free of charge.
Other
Other mainly consisted of a provision for the losses expected to be incurred in relation to the outsourcing
contracts for “Clova” and the rental agreement as a result of the foreclosure of LINE FRIENDS STORE.
F-67
LINE Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes
(1) Current and deferred taxes related to each component of other comprehensive income for the years ended
December 31, 2016, 2017 and 2018 are as follows:
2016
2017
Pretax
Tax
Post tax
Pretax
Tax
Post tax
Pretax
(In millions of yen)
2018
Tax
Post tax
674
(299)
(209)
(199)
465
(498)
2,093
3,751
(488)
(146)
1,605
3,605
(169)
(4,047)
(29)
372
(198)
(3,675)
50 —
3
(0)
50
3
(13) —
(13)
(345) —
(345)
106
(14)
92
(27)
(4)
(31)
Remeasurement of defined benefit plans . . . .
Foreign currency translation adjustments . . . .
Reclassification adjustments for foreign
currency translation adjustments
Proportionate share of other comprehensive
income of associates . . . . . . . . . . . . . . . . . .
Reclassification adjustments for net changes
in proportionate share of other
comprehensive income of associates . . . . . .
Net changes in fair value of equity
instruments at FVOCI . . . . . . . . . . . . . . . . .
— —
Net changes in fair value of debt instruments
at FVOCI . . . . . . . . . . . . . . . . . . . . . . . . . . .
— —
Reclassification adjustments for net changes
in fair value of debt instruments at
FVOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in fair value of available-for-sale
financial assets . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments for net change in
fair value of available-for-sale financial
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— —
— —
—
—
—
—
— —
—
(12) —
(12)
— —
— (2,681)
735
(1,946)
— —
— —
—
—
88
(28)
10 —
(2,019)
546
(1,473)
(3,339)
836
(2,503)
—
293
(92)
201
1,090
(343)
747
—
—
—
60
10
—
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,298)
46
(1,252)
3,688
(155)
3,533
(7,183) 1,046
(6,137)
Current and deferred taxes related to items directly charged or credited to equity are as follows:
(In millions of yen)
2017
2018
Current tax:
Share issuance costs related to exercise of stock options . . . . . . . . . . . .
Share issuance costs related to Employee Stock Ownership Plan . . . . .
(9)
(5)
(3)
(5)
Deferred tax:
Share issuance costs related to exercise of stock options . . . . . . . . . . . .
Issuance of convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
(20)
(20)
1,917
Total tax directly (credited)/charged to equity . . . . . . . . . . . . . . . . . . . . . . . .
(34)
1,889
F-68
LINE Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
(2) Deferred Tax Assets and Deferred Tax Liabilities
The movements in deferred tax assets and deferred tax liabilities for the years ended December 31, 2017 and
2018 are as follows:
Beginning
balance as of
January 1,
2017
Amounts
recorded
under profit
or loss
Amounts
recognized
under other
comprehensive
income
Ending
balance as of
December 31,
2017
Other(1)
(In millions of yen)
Deferred tax assets:
Tax losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . .
Advances received . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . .
Restoration obligations for operating lease
properties . . . . . . . . . . . . . . . . . . . . . . . .
Accrued bonuses . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . .
Accrued enterprise taxes . . . . . . . . . . . . . .
Available-for-sale financial assets . . . . . . .
Share-based compensation . . . . . . . . . . . . .
Post-employment benefits . . . . . . . . . . . . .
Tax effect on investments in subsidiaries
and associates . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
910
1,769
3,299
2,731
57
750
580
685
466
644
1,097
1,285
4,122
949
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,344
Deferred tax liabilities:
Available-for-sale financial assets . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,627)
(345)
(103)
(44)
(2,119)
(712)
601
549
(263)
159
121
(209)
(82)
(223)
(116)
77
361
(1,881)
74
(1,544)
266
(11)
125
65
445
—
—
—
—
—
—
—
—
—
27
—
(488)
(160)
—
(621)
466
—
—
—
466
61
(110)
—
3
(1)
(117)
6
134
(2)
(68)
(5)
26
24
(3)
259
2,260
3,848
2,471
215
754
377
737
241
487
1,169
1,184
2,105
1,020
(52)
17,127
(132)
—
(846)
(22)
(1,000)
(1,027)
(356)
(824)
(1)
(2,208)
(1) Movements in others are attributable mainly to the acquisition of NextFloor Corporation.
F-69
LINE Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
(2) Deferred Tax Assets and Deferred Tax Liabilities (continued)
Adjustment
on
adoption of
new
accounting
standards(1)
Beginning
balance as of
January 1,
2018
Beginning
balance as of
January 1,
2018
(adjusted)
Amounts
recorded
under
profit
or loss
Amounts
recognized
under other
comprehensive
income
Ending
balance as of
December 31,
2018
Other(2)
(In millions of yen)
Deferred tax assets:
Tax losses . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . .
Advances received . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . .
Restoration obligations for
operating lease properties . . . . .
Accrued bonuses . . . . . . . . . . . . . .
Allowance for doubtful
accounts . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . .
Accrued enterprise taxes . . . . . . . .
Available-for-sale financial
assets . . . . . . . . . . . . . . . . . . . . .
Financial assets at fair value
through profit or loss . . . . . . . . .
Financial assets at FVOCI . . . . . . .
Share-based compensation . . . . . .
Post-employment benefits . . . . . . .
Tax effect on investments in
subsidiaries and associates . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
259
2,260
3,848
2,471
215
754
377
737
241
487
—
—
1,169
1,184
2,105
1,020
—
—
(423)
783
—
—
—
—
—
(487)
196
(541)
—
—
—
267
259
2,260
3,425
3,254
215
754
377
737
241
—
196
(541)
1,169
1,184
2,105
1,287
172
1,991
55
(117)
151
58
33
659
56
—
233
—
119
222
120
597
—
—
—
—
—
—
—
—
—
—
—
1,358
—
(32)
194
—
(94)
20
—
(2)
(2)
—
(6)
(13)
(1)
—
(6)
(2)
(1)
(14)
32
(16)
337
4,271
3,480
3,135
364
812
404
1,383
296
—
423
815
1,287
1,360
2,451
1,868
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,127
(205)
16,922
4,349
1,520
(105)
22,686
Deferred tax liabilities:
Available-for-sale financial
assets . . . . . . . . . . . . . . . . . . . . .
(1,027)
1,027
—
—
Financial assets at fair value
through profit or loss . . . . . . . . .
Financial assets at FVOCI . . . . . . .
Tax effect on investments in
subsidiaries and associates . . . .
Convertible bonds . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
(356)
(824)
(1)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,208)
(207)
15
—
—
(140)
—
—
695
(207)
15
—
—
(496)
(824)
(1)
(137)
—
(2,796)
52
(247)
432
(58)
(1,513)
(2,754)
—
—
1
146
—
—
24
(1)
170
—
—
1
(45)
(343)
(29)
(1)
(1,918)
(5)
8
(25)
(2,651)
(1,866)
(748)
(360)
(85)
(1,985)
(6,082)
(1) Refer to Note 3 Significant Accounting Policies for more details.
(2) Movements in others are mainly attributable to the issuance of convertible bonds with stock acquisition
rights and changes in exchange rate for foreign currencies.
F-70
LINE Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
(2) Deferred Tax Assets and Deferred Tax Liabilities (continued)
The deferred tax assets and liabilities reconcile to the amounts presented in the Consolidated Statements of
Financial Position as follows:
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to offset deferred tax assets and liabilities . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17,127
(635)
16,492
22,686
(5,579)
17,107
(In millions of yen)
December 31,
2017
December 31,
2018
(In millions of yen)
December 31,
2017
December 31,
2018
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to offset deferred tax assets and liabilities . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
(2,208)
635
(1,573)
(6,082)
5,579
(503)
The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current
tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income
taxes levied by the same tax authority.
Below is a breakdown of the deductible temporary differences, unused tax losses and unused tax credits for
which no deferred tax assets were recognized:
(In millions of yen)
December 31,
2017
December 31,
2018
Deductible temporary differences . . . . . . . . . . . . . . . . . . . .
Unused tax losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unused tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,997
32,985
157
69,139
40,242
57,990
48
98,280
Below is a breakdown of the unused tax losses by expiry date for which no deferred tax assets were
recognized:
(In millions of yen)
December 31,
2017
December 31,
2018
Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Between one year and five years . . . . . . . . . . . . . . . . . . . . .
Five years and more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No expiration date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
792
1,741
12,965
17,487
32,985
1,112
3,725
34,812
18,341
57,990
F-71
LINE Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
(2) Deferred Tax Assets and Deferred Tax Liabilities (continued)
Below is a breakdown of unused tax credits by expiry date for which no deferred tax assets were
recognized:
(In millions of yen)
December 31,
2017
December 31,
2018
Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Between one year and five years . . . . . . . . . . . . . . . .
Five years and more . . . . . . . . . . . . . . . . . . . . . . . . . .
No expiration date . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
121
—
—
157
48
—
—
—
48
As of December 31, 2017 and 2018, the total amounts of taxable temporary differences relating to
investments in subsidiaries and joint ventures for which deferred tax liabilities are not recognized were
8,472 million yen and 24,066 million yen, respectively.
(3) The components of income tax expenses for the years ended December 31, 2016, 2017 and 2018 are as
follows:
Current income tax:
(In millions of yen)
2016
2017
2018
Current income tax expenses(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,162)
(8,818)
(11,291)
Deferred tax:
Changes related to origination and reversal of temporary
differences(2)
Changes in the tax rate(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,949
(691)
(1,107)
3
1,775
(6)
Income tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,904)
(9,922)
(9,522)
(2)
(1) Current income tax expenses include previously unrecognized tax benefits from tax loss carryforwards
and deductible temporary differences. These benefits were 489 million yen, 105 million yen and
55 million yen for the years ended December 31, 2016, 2017 and 2018, respectively. In addition,
current income tax expenses for the year ended December 31, 2018 include additional taxes charged of
2,215 million yen claimed to the Group’s Korean subsidiary.
These balances represent the deferred tax benefit or expense from the increase and decrease of
temporary differences, the reversal of previously written-down deferred tax assets and write-downs of
deferred tax assets. The Group had deferred tax benefits of 541 million yen, 105 million yen and
68 million yen for the years ended December 31, 2016, 2017 and 2018, respectively, due to the reversal
of previously written-down deferred tax assets. The reason for having negative amount of deferred tax
for the year ended December 31, 2017 is mainly because of the recognition of deferred tax liabilities
due to the transfer of camera application business.
(3) Amendments to the Japanese tax regulations were enacted into law on March 31, 2014, March 31, 2015
and March 29, 2016. As a result of these amendments, the statutory income tax rate has been
approximately 33.5% effective from the year ended December 31, 2016 and it has been reduced to
approximately 31.7% effective from the year ending December 31, 2017, 2018 and 31.5% effective
F-72
LINE Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
(3) The components of income tax expenses for the years ended December 31, 2016, 2017 and 2018 are as
follows (continued):
from the year ending December 31, 2019. The Group measured deferred tax assets and deferred tax
liabilities at the tax rates that are expected to apply to the period when the assets are realized or the
liabilities are settled.
(4) The income tax expenses calculated by applying the statutory tax rates to the Group’s profit or loss before
tax differ from the actual tax expenses in the Consolidated Statements of Profit or Loss for the years ended
December 31, 2016, 2017 and 2018 for the following reasons:
(In millions of yen)
2016
2017
Profit before tax from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/Profit before tax from discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
17,990
(2,726)
18,145
(19)
Accounting profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,264
18,126
Income tax expenses at a statutory rate of 31.7%
(2016: 33.5% and 2017: 31.7%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent non-deductible items(1)
Assessment of the recoverability of deferred tax assets(2)
. . . . . . . . . . . . . . . . . . . .
Effects of changes in tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Differences in applicable tax rate of subsidiaries(3)
. . . . . . . . . . . . . . . . . . . .
Tax effect on investment in subsidiaries and associates(4)
Gain on fair value measurement relating to the deconsolidation(5)
. . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of loss of associates and joint ventures(6)
Corporate taxes in prior years(7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,119)
(2,703)
(752)
(691)
(81)
591
581
(279)
(3)
296
(5,744)
(353)
(2,932)
3
776
377
—
(1,836)
(182)
(25)
2018
3,354
550
3,904
(1,237)
(260)
(6,202)
(6)
(1,194)
(174)
4,123
(1,741)
(2,754)
(251)
Income tax expenses at an effective tax rate of 248.4 %
(2016: 53.5% and 2017: 54.7%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,160)
(9,916)
(9,696)
Income tax expenses reported in the statements of profit or loss . . . . . . . . . . . . . . .
Income tax benefits/(expenses) attributable to discontinued operations . . . . . . . . .
(8,904)
744
(9,922)
6
(9,522)
(174)
(8,160)
(9,916)
(9,696)
(1)
(2)
Permanent non-deductible items were mainly related to non-deductible share-based payment expenses,
including share-based payment expenses incurred in connection with stock options granted to employees
and directors defined as non-resident of Japan.
For the year ended December 31, 2016, the amount was due to unrecognized deferred tax assets of
966 million yen, 361 million yen and 189 million yen in connection with the pre-tax losses recorded by the
Group’s Japanese subsidiaries, MixRadio Limited and the Group’s other subsidiaries, respectively, on a
stand-alone basis. Such impact was partially offset by recognizing previously unrecognized deferred tax
assets of 222 million yen for tax loss carryforwards and 256 million yen for deductible temporary
differences, primarily for the Group’s Korean subsidiaries on a stand-alone basis.
For the year ended December 31, 2017, the amount was due to unrecognized deferred tax assets of
2,407 million yen, 4 million yen and 953 million yen in connection with the pre-tax losses recorded by the
Group’s Japanese subsidiaries, MixRadio Limited and the Group’s other subsidiaries, respectively, on a
F-73
LINE Corporation
Notes to Consolidated Financial Statements (continued)
13. Income Taxes (continued)
(4) The income tax expenses calculated by applying the statutory tax rates to the Group’s profit or loss before
tax differ from the actual tax expenses in the Consolidated Statements of Profit or Loss for the years ended
December 31, 2016, 2017 and 2018 for the following reasons (continued):
stand-alone basis. Such impact was partially offset by recognizing previously unrecognized deferred tax
assets of 107 million yen for tax loss carryforward and 0 million yen for deductible temporary differences,
primarily for the Group’s Taiwan subsidiaries on a stand-alone basis.
For the year ended December 31, 2018, the amount was due to unrecognized deferred tax assets of
4,134 million yen and 1,789 million yen in connection with the pre-tax losses recorded by the Group’s
subsidiaries in Japan and other countries, respectively on the stand-alone basis. Such impact was partially
offset by recognizing previously unrecognized deferred tax assets of 40 million yen for tax loss
carryforwards and 14 million yen for deductible temporary differences, primarily for the Group’s Korean
subsidiaries on a stand-alone basis.
For the year ended December 31, 2016, the amount mainly due to pre-tax profits recorded by the Group’s
Korean subsidiaries, which was partially offset by the pre-tax loss recorded by MixRadio Limited.
For the year ended December 31, 2017, the amount mainly due to pre-tax profits recorded by the Group’s
Korean subsidiaries. For the year ended December 2018, the amount mainly due to pre-tax loss recorded by
the Group’s Korean subsidiaries.
This tax effect is mainly due to the deductible temporary difference arising from the investment in
MixRadio Limited, which incurred losses during the year. This tax effect offsets MixRadio Limited’s stand-
alone tax impacts described in (2) and (3) above.
For the year ended December 31, 2016, the amount was related to the re-measurement to fair value of the
investment in LINE BIZ Plus Ltd at the date the Group lost the control over the subsidiary.
For the year ended December 31, 2018, the amount was related to the re-measurement of the investment in
LINE Mobile Corporation and LINE Games Corporation, based on the fair value as of the day when the
Group lost the control over its subsidiary.
The amount was mainly related to pre-tax losses recorded by the Group’s associates on a stand-alone basis
for which no deferred tax assets were recognized as the related tax benefits could not be recognized.
This amount for the year ended December 31, 2018 was mainly related to the additional taxes charged of
2,215 million yen claimed to the Group’s Korean subsidiary and this subsidiary is currently in the process of
appealing the results of the tax audit.
(3)
(4)
(5)
(6)
(7)
14. Other Current Liabilities
Other current liabilities as of December 31, 2017 and 2018 mainly consist of consumption tax payables.
15. 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 Consolidated Statements of Financial Position and by category as defined in IAS39 Financial Instruments:
Recognition and Measurement and IFRS 9 Financial Instruments, as of December 31, 2017 and 2018
respectively are as follows: The Group’s trade receivables do not contain significant financing component.
F-74
LINE Corporation
Notes to Consolidated Financial Statements (continued)
15. Financial Assets and Financial Liabilities (continued)
The fair value is not disclosed for those financial instruments whose fair value approximates their carrying
amount due to their short-term and/or variable-interest bearing nature among those not measured at fair value in
the Consolidated Statements of Financial Position. Refer to Note 26 Fair Value Measurements for more details
on the fair value information of the financial instruments whose fair value is disclosed in this footnote.
Items
Financial assets
Trade and other receivables
Financial assets at amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, current
Financial assets at amortized cost
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial assets at FVOCI(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and receivables
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds and other debt instruments . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, non-current
Financial assets at amortized cost
Corporate bonds and other debt instruments . . . . . . . . . . . . . . . . .
Guarantee deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial assets at FVOCI(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through profit or loss(3) . . . . . . . . . . . . . .
Held-to-maturity investments(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans and receivables
Corporate bonds and other debt instruments . . . . . . . . . . . . . . . . .
Guarantee deposits(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through profit or loss(3)
Conversion right and redemption right of preferred stock . . . . . .
Available-for-sale financial assets(4) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
December 31, 2017
December 31, 2018
Book value
Fair value Book value
Fair value
—
42,892
42,892
—
—
—
—
—
—
12,002
206
849
195
6
13,258
—
—
—
—
—
280
7,986
726
5,709
1,862
15,388
133
32,084
6
—
—
—
—
291
8,036
726
5,546
1,862
15,388
133
37,644
—
37,644
11,507
593
853
—
4
2,958
—
—
—
—
—
15,915
280
123
9,162
118
22,343
10,261
—
—
—
—
—
—
—
42,287
2,958
—
288
123
9,050
118
22,343
10,261
—
—
—
—
—
F-75
LINE Corporation
Notes to Consolidated Financial Statements (continued)
15. Financial Assets and Financial Liabilities (continued)
Items
Financial liabilities
Trade and other payables
(In millions of yen)
December 31, 2017
December 31, 2018
Book value
Fair value Book value
Fair value
Financial liabilities at amortized cost . . . . . . . . . . . . . . . . . . . . . . . . . .
28,810
34,985
Other financial liabilities, current
Financial liabilities at amortized cost
Deposits received(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,730
22,224
46
Financial liabilities at fair value through profit or loss
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,003
13,653
23,000
57
16
36,726
16
Corporate bonds(7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
142,132
143,743
Other financial liabilities non-current
Financial liabilities at amortized cost
Office security deposits received under sublease agreement
. . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial liabilities at fair value through profit or loss
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
486
23
93
486
602
16
231
280
527
16
280
(1)
(2)
Impairment losses of 10 million yen were recognized for debt instruments at FVOCI for the year ended
December 31, 2018.
The Group is in the compliance with requirements of the Japanese Payment Services Act, where a certain
amount of money defined in the act has to be secured, 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 is incurred. In accordance
with the Japanese Payment Services Act,
the Group had deposited cash of 635 million yen as of
December 31, 2017. The Group also had deposited investments in Japanese government bonds of
280 million yen as of December 31, 2017 and 2018, which the Group intends to hold until maturity for this
purpose. In addition, the Group had credit guarantee contracts with banks for 12,500 million yen with a
guarantee fee rate of 0.1% and for 18,500 million yen with a weighted average guarantee fee rate of 0.1% as
of December 31, 2017 and 2018, respectively, to comply with the Japanese Payment Services Act.
(3) A valuation loss of 676 million yen was recognized for financial assets at fair value through profit or loss
(4)
(5)
(6)
losses of 1,761 million yen and gain on sale of 751million yen were recognized for
for the year ended December 31, 2018.
Impairment
available-for-sale financial assets for the year ended December 31, 2017.
The amounts were calculated based on IAS 18 and IFRS 15 for the years ended December 31, 2017 and
2018, respectively. (Refer to Note 3 Significant Accounting Policies).
The weighted average interest rate of the remaining outstanding short-term borrowings as of December 31,
2017 and 2018 was 0.1% and 0.1%, respectively.
(7) During the year ended December 31, 2018, I. Euro-yen convertible bonds with stock acquisition rights due
to overseas public offering of 37,494.5 million yen (Zero coupon convertible bonds due 2023) and II.
F-76
LINE Corporation
Notes to Consolidated Financial Statements (continued)
15. Financial Assets and Financial Liabilities (continued)
37,494.5 million yen (Zero coupon convertible bonds due 2025) were issued. The Group also issued
Euro-yen convertible bonds with stock acquisition rights through two of the separate third-party allotments
to NAVER Corporation, amounted to III. 37,494.5 million yen (Zero coupon convertible bonds due 2023)
and IV. 37,494.5 million yen (Zero coupon convertible bonds due 2025). At initial recognition, the book
value of the liability component of the convertible bonds with stock acquisition rights is the fair value of
discounted future cash flows of the bonds at a rate of similar debt instruments taking into account the
Company’s credit risk excluding the transaction costs from issuing the bonds. The difference between the
fair value of the entire convertible bonds with stock acquisition rights and the fair value of the liability
component is allocated to the conversion option as the equity component at the amount excluding the
transaction costs as well as income taxes. The Group recognized a liability of 141,932 million yen and an
equity component of 4,175 million yen at the initial recognition. After the initial recognition, the liability
component is measured at amortized cost using the effective interest method, whilst the equity component is
not remeasured subsequently. The book value of the liability of the convertible bonds with stock acquisition
rights as of December 31, 2018 amounted to 142,132 million yen, which was the summation of the book
value of the liability as at the initial recognition and the interest expense of 200 million yen. The Group may
redeem all, but not some only, of the outstanding bonds at 100% of the principal amount provided, however,
that no such redemption may be made unless the closing price of the share for each of the 20 consecutive
trading days is at least 130 percent of the conversion price for the relevant series of bonds in effect on or
after September 21, 2021 for the Euro-yen convertible bonds with stock acquisition rights I. and III., and
after September 20, 2023 for II. and IV. There is no financial covenants on the corporate bonds that cause a
material disadvantage.
16. Employment Benefits
The Group offers its employees in Korea, Taiwan and Thailand defined benefit plans (unfunded and funded) and
defined contribution plans. The specific features of these plans vary depending on the applicable laws and
regulations in each country where the employees work. The majority of the Group’s defined benefit obligations
represents the defined benefit plans for employees of LINE Plus Corporation, LINE PLAY Corporation, LINE
Biz Plus Corporation, LINE Friends Corporation, LINE STUDIO Corporation, LINE UP Corporation,
NemusTech Co.,Ltd., Unblock Corporation and Markt Co., Ltd and LINE Financial Plus Corporation
(collectively, the “subsidiaries with defined benefit plans”) which are located in Korea, while LINE GAMES
Corporation, NextFloor Corporation., Next Floor Basement Lab Corporation InnoAG. Inc. and Oozoo Inc. offer
their employees defined contribution plans. The expenses recognized in the Consolidated Statements of Profit or
Loss in relation to the defined contribution plans amounted to nil for the year ended December 31, 2016, and
47 million yen and 97 million yen for the years ended December 31, 2017and 2018 respectively. The feature of
the defined benefit plans in Korea is described below.
The legal and regulatory framework for the plans is based on the applicable Korean Employee Retirement
Benefit Security Act (“ERBSA”). Post-employment defined benefit plan provides lump sum payments to the
eligible employees. Directors and current employees of the subsidiaries offer defined benefit plans with a service
period of over one year are eligible for such post-employment defined benefits, which are calculated based on a
final average pay formula.
Furthermore, the plans expose the Group to actuarial risks, such as interest rate risk, salary increase risk, and
longevity risk. Interest rate risk refers to the risk of fluctuation of bond yields. A decrease in the bond yields will
increase the defined benefit obligations liability. The salary increase risk refers to the risk that an increase in
future salary will increase the defined benefit obligations liability. Longevity risk refers to the risk that an
increase in life expectancy of the plan participants will increase the defined benefit obligations liability. The plan
F-77
LINE Corporation
Notes to Consolidated Financial Statements (continued)
16. Employment Benefits (continued)
assets of the defined benefit plans expose the Group to the risk of underperformance in comparison with the
Group’s expectation.
(1) Liabilities for defined benefit obligations as of December 31, 2017 and 2018 are as follows:
December 31, 2017
December 31, 2018
Unfunded
Funded
Total
Unfunded
Funded
Total
(In millions of yen)
Present value of defined benefit
obligations . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Plan assets(1)
6,089
—
100
(27)
6,189
(27)
6,628
—
582
(267)
7,210
(267)
Liabilities for post-employment
benefits . . . . . . . . . . . . . . . . . . . . . . .
6,089
73
6,162
6,628
315
6,943
(1) All of the plan assets are held by NemusTech, Co., Ltd. and Markt Co., Ltd.
(2) Expenses related to defined benefit plans are recognized in the Consolidated Statements of Profit or Loss as
operating expenses for the years ended December 31, 2016, 2017 and 2018 are comprised of the following:
Current service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
2016
2017
2018
1,620
127
1,747
1,933
208
2,141
1,973
207
2,180
(3) Movements in the present value of the defined benefit obligations for the years ended December 31, 2017
and 2018 are as follows:
Defined benefit obligations at the beginning of year . . . . . . . . . . . . . . . .
Current service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remeasurement (gains)/losses:
Actuarial losses arising from changes in demographic
(In millions of yen)
2017
6,204
1,933
208
2018
6,189
1,973
207
assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28)
(33)
Actuarial (gains)/losses arising from changes in financial
assumptions(1)
Experience adjustments(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments from the plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net transfer(3)
Increase due to business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease due to deconsolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange differences on translation of foreign operations . . . . . . . . . . . .
(1,513)
(552)
(453)
(57)
261
—
186
166
33
(943)
(105)
—
(42)
(235)
Defined benefit obligations at the end of year . . . . . . . . . . . . . . . . . . . . .
6,189
7,210
F-78
LINE Corporation
Notes to Consolidated Financial Statements (continued)
16. Employment Benefits (continued)
(3) Movements in the present value of the defined benefit obligations for the years ended December 31, 2017
and 2018 are as follows (continued):
(1)
(2)
In 2017, actuarial gains arising from changes in financial assumptions resulted mainly from an increase
in the discount rate and a decrease in the period end weighted average salary increase rate at year end
2017, as compared to corresponding rates at year end in 2016. The increase in the discount rate
primarily related to the fact that the estimated duration, which is used to calculate the retirement benefit
obligation, increased due to the decrease in estimated termination rates described above. The decrease
in the weighted average salary increase rate is primarily related to the fact that the salary increase rates
for the current year and the estimated future inflation rate decreased. In 2018, there are no material
changes of the discount rate and weighted average salary increase rate compared with those in 2017.
Experience adjustments represent the impact from differences between actual experiences during the
year compared with the previous actuarial assumptions on defined benefit obligations.
(3) Net transfer primarily represents the transfer of defined benefit obligations associated with employees
of NAVER or other NAVER group companies joining LINE Plus Corporation, LINE PLAY
Corporation, LINE Biz Plus Corporation, LINE Friends Corporation and LINE Financial Plus
Corporation and vice versa.
(4) Movements in the plan assets for the years ended December 31, 2017 and 2018 are as follows:
(In millions of yen)
2017
2018
Plan assets at the beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains due to remeasurement Plan assets revenue (excluding interest income) . . . . . . . . . . . —
Exchange differences on translation of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . —
2
31
(6)
Plan assets at the end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
27
5
316
(72)
(3)
(6)
267
The plan assets contain only cash and cash equivalents. Employer contributions expected to be paid to the plan
for the year ending December 31, 2019 are 126 million yen. The amount of employer contributions is determined
so that balance of plan assets can be more than 90% of the balance of NemusTech Co., Ltd. and Markt Co., Ltd.’s
defined benefit obligations at each year end in the long term.
(5) Significant judgment is required when selecting key assumptions for measuring defined benefit expenses for
a period and the defined benefit obligations at the period end for each defined benefit plan. The principal
actuarial assumptions used include discount rates and salary increase rates.
The Group determined the discount rate based on market returns of high-quality corporate bonds consistent
with the currencies and estimated payment terms corresponding to the defined benefit obligations as of the
reporting date in order to calculate the present value of the defined benefit obligations.
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average of salary increase . . . . . . . .
3.4%
3.2%-3.7%
8.6%-11.3% 4.5%-7.7%
2.5%-3.5%
5.3%-7.1%
December 31,
2016
December 31,
2017
December 31,
2018
F-79
LINE Corporation
Notes to Consolidated Financial Statements (continued)
16. Employment Benefits (continued)
(6) Economic factors and conditions often affect multiple assumptions simultaneously; as such, the effects of
changes in key assumptions are not necessarily linear. The following sensitivity analysis illustrates the
impact of changes in certain significant actuarial assumptions, leaving all other assumptions constant, as of
December 31, 2017 and 2018:
Assumptions and
sensitivity level
Discount rate
(In millions of yen)
Impact on the defined benefit
obligations
December 31,
2017
December 31,
2018
100 basis point increase . . . . . . . . . . . . . . . . . . .
100 basis point decrease . . . . . . . . . . . . . . . . . . .
Salary increase rate
100 basis point increase . . . . . . . . . . . . . . . . . . .
100 basis point decrease . . . . . . . . . . . . . . . . . . .
(5,019)
6,561
7,057
(5,620)
(833)
1,020
970
(812)
(7) The average duration of the defined benefit plan obligations as of December 31, 2017 and 2018 were 13.3
and 12.9 years, respectively.
The following table shows estimated future benefit payments within ten years from December 31, 2018.
Actual payments may differ from those shown because of uncertain future events.
Years
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024–2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
Estimated future
benefit payments
276
359
436
516
599
4,548
17. Leases—Group as Lessee
Operating lease commitments—Group as lessee
The Group has entered into commercial lease agreements for certain office space and stores. The significant
leases have a lease term of five years without renewal option included in the contracts. There are no restrictions
placed upon the Group by entering into these leases.
F-80
LINE Corporation
Notes to Consolidated Financial Statements (continued)
17. Leases—Group as Lessee (continued)
Operating lease commitments—Group as lessee (continued)
Future minimum lease payment under non-cancelable operating leases are as follows:
Less than one year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Between one year and five years . . . . . . . . . . . . . . . .
Five years and more . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
December 31,
2017
December 31,
2018
4,139
10,223
—
14,362
9,662
26,226
22,800
58,688
Of the operating lease expenses of 4,580 million yen for the year ended December 31, 2016, 3,309 million yen
was attributable to minimum lease payment expenses, and the remaining 1,271 million yen was related to the
variable lease payment expenses.
Of the operating lease expenses of 5,468 million yen for the year ended December 31, 2017, 3,759 million yen
was attributable to minimum lease payment expenses, and the remaining 1,709 million yen was related to the
variable lease payment expenses.
Of the operating lease expenses of 10,252 million yen for the year ended December 31, 2018, 6,960 million yen
was attributable to minimum lease payment expenses, and the remaining 3,292 million yen was related to the
variable lease payment expenses.
18. Leases—Group as Lessor
Operating leases—Group as lessor
In 2016, 2017 and 2018, the Group subleased a part of its head office to a third party. Sublease income on
sublease arrangement was based on the actual square footage occupied by the third party.
Future minimum rentals receivable under non-cancelable operating leases are as follows:
Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After one year but not more than five years . . . . . . .
(In millions of yen)
December 31,
2017
December 31,
2018
23
25
48
48
8
56
The Group recognized sublease income of 54 million yen, 49 million yen and 67 million yen for the years ended
December 31, 2016, 2017 and 2018, respectively.
F-81
LINE Corporation
Notes to Consolidated Financial Statements (continued)
19. Issued Capital and Reserves
The movements in issued capital and reserves for the years ended December 31, 2016, 2017 and 2018 are as
follows:
(1) Authorized shares and shares issued
The movements of authorized shares and shares issued for the years ended December 31, 2016, 2017 and
2018 are as follows:
Number of
authorized
shares
(Share capital
with no-par
value)
690,000,000
Number of shares issued
(Share capital with no-par value)
Common
shares
Class A
shares
Share capital
(In millions
of yen)
—
174,992,000
12,596
January 1, 2016 . . . . . . . . . . . . . . . . . .
Conversion of class A shares to
common shares(1) . . . . . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . .
Initial public offering(2)
Exercise of stock options(3)
—
—
—
174,992,000
40,250,000
2,533,500
December 31, 2016 . . . . . . . . . . . . . . .
690,000,000
217,775,500
Exercise of stock options(3)
Issuance of common shares(4)
. . . . . . . . .
. . . . . . .
—
—
19,713,500
1,007,810
December 31, 2017 . . . . . . . . . . . . . . .
. . . . . . . . .
Exercise of stock options(3)
690,000,000
—
238,496,810
855,500
Issuance of common shares(5)
. . . . . . .
—
1,172,332
December 31, 2018 . . . . . . . . . . . . . . .
690,000,000
240,524,642
(174,992,000)
—
—
—
—
—
—
—
—
—
—
63,424
1,836
77,856
12,513
2,000
92,369
1,195
2,500
96,064
(1)
(2)
Through an amendment of its article of incorporation effective as of March 31, 2016, the Company
terminated its dual class structure of shares and converted all outstanding class A shares to common
shares.
The Company issued 35,000,000 shares of common shares 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 common shares in an
allotment of new shares. As of December 31, 2016, there were no outstanding over-allotment options
granted to underwriters.
(3) Refer to Note 27 Share-Based Payments for further details.
(4)
In conjunction with the introduction of the Employee Stock Ownership Plans Trust (J-ESOP) on
July 18, 2017, the Company issued 1,007,810 common shares to Trust & Custody Services Bank, Ltd.
(Trust E account). The total amount of issued shares was 4,000 million yen, which increased share
capital by 2,000 million yen.
The Group implements the Employee Stock Ownership Plans Trust ((J-ESOP) and issued 1,172,332
common shares to Trust & Custody Services Bank, Ltd. (Trust E account) on April 25, 2018. The total
amount of issued shares was 5,000 million yen, which increased share capital by 2,500 million yen.
(5)
F-82
LINE Corporation
Notes to Consolidated Financial Statements (continued)
19. Issued Capital and Reserves (continued)
(2) Share premium and retained earnings
Share premium
The movements in share premium for the years ended December 31, 2016, 2017 and 2018 are as follows:
January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based payments(2) . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options(2) . . . . . . . . . . . . . . . . . . . . .
Forfeiture of stock options(2) . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Initial public offering(3)
. . . . . . . . . . .
Cost related to initial public offering(4)
Stock
option
15,023
9,520
(2,548)
(60)
—
—
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,935
Share-based payments(2) . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options(2) . . . . . . . . . . . . . . . . . . . . .
Forfeiture of stock options(2) . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Issuance of common shares(5)
. . . . . .
Cost related to issuance of common shares(4)
. . . . . . . . . . .
Acquisition of non-controlling interest
1,882
(16,746)
(9)
—
—
—
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,062
Share-based payments(2) . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options(2) . . . . . . . . . . . . . . . . . . . . .
Forfeiture of stock options(2) . . . . . . . . . . . . . . . . . . . .
Issuance of common shares(6)
. . . . . . . . . . . . . . . . . .
Issuance of convertible bonds with stock acquisition
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .
Cost related to issuance of common shares(4)
Changes in interests in subsidiaries(8)
. . . . . . . . . . . .
Disposal of treasury shares . . . . . . . . . . . . . . . . . . . . .
rights(7)
1,336
(1,652)
(37)
—
4,175
—
—
(167)
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,717
Common
control
business
combinations
294
—
—
—
—
—
294
—
—
—
—
—
—
294
—
—
—
—
—
—
(488)
—
(194)
(In millions of yen)
Share
premium
total
18,983
9,520
(88)
(60)
63,424
(571)
Others(1)
3,666
—
2,460
—
63,424
(571)
68,979
91,208
—
15,721
—
2,000
(73)
(423)
1,882
(1,025)
(9)
2,000
(73)
(423)
86,204
93,560
—
1,459
—
2,500
—
(18)
17,928
30
1,336
(193)
(37)
2,500
4,175
(18)
17,440
(137)
108,103
118,626
(1) Others mainly consists of capital reserve required under the Companies Act of Japan.
(2) Refer to Note 27 Share-Based Payments for further detail.
(3)
The Company issued 35,000,000 common shares 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. As of December 31, 2016, there were no outstanding allotment options
granted to underwriters.
Incremental costs directly attributable to the issuance of common shares are recognized as a deduction
from equity, net of any tax effects.
(4)
F-83
LINE Corporation
Notes to Consolidated Financial Statements (continued)
19. Issued Capital and Reserves (continued)
(2) Share premium and retained earnings (continued)
Share premium (continued)
(6)
(5)
In conjunction with the introduction of the Employee Stock Ownership Plans Trust (J-ESOP) on
July 18, 2017, the Company issued 1,007,810 common shares to Trust & Custody Services Bank, Ltd.
(Trust E account). The total amount of issuance price of shares was 4,000 million yen, which increased
share premium by 2,000 million yen.
The Group implements the Employee Stock Ownership Plan ((J-ESOP) and issued 1,172,332 common
shares to Trust & Custody Services Bank Ltd. on April 25, 2018. The total amount of issued shares was
5,000 million yen, which increased share premium by 2,500 million yen.
(7) Refer to Note 15 Financial Assets and Financial Liabilities for further details.
(8) Changes in interests in subsidiaries include increase in share premium of 17,892 million yen due to the
changes in percentage of ownership in connection with third-party allotments by our subsidiaries as
well as the decrease in share premium of 488 million yen due to the changes in the percentage of
ownership resulting from absorption type mergers within subsidiaries of the Group.
Under the Companies Act of Japan, at least 50% of the proceeds of certain issuances of share capital shall
be credited to share capital. The remaining proceeds shall be credited to share premium. The Companies Act
permits, upon approval at the general meeting of shareholders, the transfer of amounts from share premium
to share capital.
Retained earnings
The Companies Act of Japan requires that an amount equal to at least 10% of dividends from surplus, as
defined under the Companies Act, shall be appropriated as capital reserve (part of share premium) or
appropriated for legal earnings reserve (part of retained earnings) until the aggregate amount of capital
reserve and legal earnings reserve is equal to 25% of share capital. The legal earnings reserve may be used
to eliminate or reduce a deficit or be transferred to other retained earnings upon approval at the general
meeting of shareholders. The Company has not declared or paid cash dividends to date, and therefore no
legal earnings reserves have been recorded as of December 31, 2017 and 2018.
(3) Treasury shares
The movements in treasury shares for the year ended December 31, 2017 and 2018 are as follows:
Number of shares
(Common share with
no-par value)
Amount
(In millions of yen)
January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase during the year(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease during the year(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase during the year(3)
Decrease during the year(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,007,810
(100)
1,007,710
1,173,285
(201,220)
1,979,775
—
4,000
(0)
4,000
5,004
(799)
8,205
F-84
LINE Corporation
Notes to Consolidated Financial Statements (continued)
19. Issued Capital and Reserves (continued)
(3) Treasury shares (continued)
(1)
In conjunction with the introduction of the Employee Stock Ownership Plan (J-ESOP) on July 18,
2017, the Company issued 1,007,810 common shares to Trust & Custody Services Bank, Ltd. (Trust E
account), of which total amount was 4,000 million yen.
(2) Decrease is due to the sales of shares by Trust & Custody Services Bank, Ltd. (Trust E account).
(3)
The Group implements the Employee Stock Ownership Plan (JESOP) and issued 1,172,332 common
shares to Trust & Custody Services Bank, Ltd. (Trust E account) on April 25, 2018. The total amount
of issued shares was 5,000 million yen.
20. Supplemental Cash Flow Information
For the year ended December 31, 2016
Deconsolidation of LINE BIZ Plus Ltd.
On April 25, 2016, an issuance of new shares to BSS Holdings group, a provider of smart cards for mass transit
systems and offline e-payment at retail stores in Thailand, resulted in a decrease of the Group’s ownership of
LINE BIZ Plus Ltd. (subsequently renamed to RABBIT LINE PAY COMPANY LIMITED) from 100.0% to
50.0%. LINE BIZ Plus Ltd. was accounted for as a joint venture under the equity method because the Group had
joint control of the entity under the shareholders’ agreement. The assets, liabilities and other items of LINE BIZ
Plus Ltd. transferred in connection with the deconsolidation are as follows:
(In millions of yen)
Cash and cash equivalents(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange differences on translation of foreign operations . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
482
19
28
(71)
(4)
150
0
49
653
(1)
This amount is included in “Cash disposed on loss of control of subsidiary and business transfer” in the
Group’s Consolidated Statements of Cash Flows.
As of the transaction date, the re-measurement to fair value of the investment retained by the Group in LINE BIZ
Plus Ltd. amounted to 2,384 million yen and was based on the issuance of new shares for 750 million Baht. As a
result, the Group recognized a gain of 1,731 million yen, which was recognized in the Consolidated Statements
of Profit or Loss as “Other operating income”.
F-85
LINE Corporation
Notes to Consolidated Financial Statements (continued)
20. Supplemental Cash Flow Information (continued)
For the year ended December 31, 2016 (continued)
Divestiture of Bonsai Garage Corporation
On February 29, 2016, the Company sold all of its shares of Bonsai Garage Corporation to a third party. The
assets and liabilities of the Bonsai Garage Corporation, gain on divesture of the subsidiary, and cash
consideration received in connection with such sales are presented below:
(In millions of yen)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divestiture of business and subsidiary . . . . . . . . . . . . . . .
Total consideration received in cash . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in cash and cash equivalents due to the divestiture
of Bonsai Garage Corporation(1)
. . . . . . . . . . . . . . . . . . . . . . .
3
10
(34)
21
0
(3)
(1)
This amount is included in “Cash disposed on loss of control of subsidiary and business transfer” in the
Group’s Consolidated Statements of Cash Flows.
Repayments of short-term borrowings
“Repayments of short-term borrowings, net” in the Group’s Consolidated Statements of Cash Flows consists of
22,080 million yen of proceeds and 42,833 million yen of repayments for the year ended December 31, 2016.
For the year ended December 31, 2017
Transfer of Camera Application Business to Snow Corporation
On May 1, 2017, the Group transferred the camera application business, which was operated by LINE Plus
Corporation,
to Snow Corporation, an associate of the Group and a subsidiary of NAVER. The 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 in Snow Corporation increased from 25.0% to 48.6%, followed by an additional capital injection to
Snow Corporation by the Company and NAVER in August 2017, resulting in a decrease of the Group’s
ownership from 48.6% to 45.0%. The Group continues to account for its ownership in Snow Corporation using
the equity method. Also, the ownership of NAVER in Snow Corporation decreased from 75.0% to 55.0% as a
result of this transaction. Refer to Note 31 Investments in Associates and Joint Ventures for further 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 was measured based on
the fair value of the camera application business which was estimated using the discounted cash flow method. All
F-86
LINE Corporation
Notes to Consolidated Financial Statements (continued)
20. Supplemental Cash Flow Information (continued)
For the year ended December 31, 2017 (continued)
Transfer of Camera Application Business to Snow Corporation (continued)
the variances between the assets and liabilities of the camera application business transferred to Snow
Corporation and the consideration of transfer were recognized as gain on transfer as presented below.
(In millions of yen)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration received in exchange for the transfer of camera
application business(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on transfer(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
603
581
22
71
(133)
(334)
207
10,651
10,444
(1)
(2)
This amount is solely for the newly issued common shares of Snow Corporation. This transaction is
considered as a non-cash transaction.
This amount is included in “Other operating income” in the Group’s Consolidated Statements of Profit or
Loss.
Material non-cash transactions
(1) Acquisition of treasury shares by issuance of common shares
In conjunction with the introduction of the Employee Stock Ownership Plan (J-ESOP), which has been
resolved at board of director’s’ 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 included in “treasury shares” in the Group’s
Consolidated Statement of Financial Position.
As a result,
the amounts of share capital, share premium, and treasury shares in the year ended
December 31, 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 swap
On 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 29. Business
Combinations for further details.
F-87
LINE Corporation
Notes to Consolidated Financial Statements (continued)
20. Supplemental Cash Flow Information (continued)
For the year ended December 31, 2017 (continued)
Movements on liabilities from financing activities
Net liabilities as of January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Items such as foreign currency translation adjustments . . . . . . . . . . . . . . . .
Borrowings
which are
due less
than one
year
21,925
(107)
405
1
Net liabilities as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,224
(In millions of yen)
Borrowings
which are
due after
one year
—
(1)
91
3
93
Total
21,925
(108)
496
4
22,317
For the ended December 31, 2018
Loss of control of LINE Mobile Corporation
In April 2018, LINE Mobile Corporation issued its new shares to SoftBank Corporation through a third-party
allotment. As a result, the Group’s ownership of LINE Mobile Corporation has decreased from 100.0% to 49.0%,
resulting LINE Mobile Corporation to be accounted for as an associate under the equity method rather than as a
consolidated subsidiary.
The assets, liabilities and gain on loss of control of LINE Mobile Corporation after deconsolidation are presented
below;
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents(1)
. . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of investment owned by the Group . .
Gain on loss of control of subsidiaries(2)
. . . . . .
(In millions of yen)
2,646
1,113
1,277
48
208
270
(4,083)
(1)
(1,168)
8,326
9,494
(1)
(2)
This amount is included in “Cash disposed on loss of control of subsidiary and business transfer” in the
Group’s Consolidated Statements of Cash Flows.
This amount is included in “Other operating income” in the Group’s Consolidated Statements of Profit or
Loss for the year ended December 31, 2018.
F-88
LINE Corporation
Notes to Consolidated Financial Statements (continued)
20. Supplemental Cash Flow Information (continued)
For the ended December 31, 2018 (continued)
Loss of control of LINE Games Corporation and its subsidiaries
In November 2018, LINE Games Corporation issued its new shares to Lungo Entertainment Ltd. through the
third-party allotment. As a result, the Group’s ownership of LINE Games Corporation has decreased from
100.0% to 49.5%, resulting LINE Games Corporation to be accounted for as an associate under the equity
method rather than as a consolidated subsidiary.
The assets, liabilities and gain on loss of control of LINE Games Corporation after deconsolidation are presented
as below;
(In millions of yen)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents(1) . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of investment owned by the Group . . . . . . .
Gain on loss of control of subsidiaries(2)
. . . . . . . . . . .
2,969
930
758
1,281
4,570
(1,276)
(265)
(180)
(1,974)
3,844
19,144
15,300
(1)
(2)
This amount is included in “Cash disposed on loss of control of subsidiary and business transfer” in the
Group’s Consolidated Statements of Cash Flows.
This amount is included in “Other operating income” in the Group’s Consolidated Statements of Profit or
Loss.
Material non-cash transactions
(1) Acquisition of treasury shares by issuance of common shares
In conjunction with the introduction of the Employee Stock Ownership Plan (J-ESOP), which has been
resolved at board of directors’ meeting held at April 9, 2018, the Company has issued 1,172,332 of common
shares to Trust & Custody Services Bank, Ltd. (Trust E), and payment process has completed on April 25,
2018. The Company’s share held by the trust is included in “treasury shares” in the Group’s Consolidated
Statement of Financial Position.
F-89
LINE Corporation
Notes to Consolidated Financial Statements (continued)
20. Supplemental Cash Flow Information (continued)
For the ended December 31, 2018 (continued)
As a result, the amounts of share capital, share premium, and treasury shares in the fiscal year 2018 were
increased by 2,500 million yen, 2,500 million yen and 5,000 million yen, respectively.
Movements on liabilities from financing activities
Net liabilities as of January 1, 2018 . . . . . . . . . . . . .
Cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of liquidity . . . . . . . . . . . . . . . . . . . . .
Increase due to business combinations . . . . . .
Decrease due to loss of control of
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase due to recognition of interest expense
of corporate bond at amortized cost . . . . . . .
Recognition of stock acquisition rights
through issuance of corporate bonds and
deferred tax liabilities . . . . . . . . . . . . . . . . .
Foreign currency translation adjustments . . . .
Borrowings
which are
due less
than one
year
22,224
966
78
—
(79)
—
—
(189)
Net liabilities as of December 31, 2018 . . . . . . . . . .
23,000
(In millions of yen)
Corporate
bond
which are
due after
one year
—
148,024
—
—
Total
22,317
148,990
—
9
—
200
(79)
200
(6,092)
—
(6,092)
(207)
142,132
165,138
Borrowings
which are
due after
one year
93
—
(78)
9
—
—
—
(18)
6
21. Revenue from Contracts with Customers
The Group has recognized the following amounts relating to revenue in the Consolidated Statement of Profit or
Loss for the year ended December 31, 2018:
(In millions of yen)
2018
Revenue from contracts with customers
Revenue(1)
Other operating income: Virtual credits breakage
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenue from other sources
Other operating income(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
207,182
387
207,569
27,712
(1) Refer to Note 5 Segment Information for further details of revenue by segment.
(2) Refer to Note 20 Supplemental Cash Flow Information and Note. 30. Principal Subsidiaries for details of
other operating income.
F-90
LINE Corporation
Notes to Consolidated Financial Statements (continued)
21. Revenue from Contracts with Customers (continued)
Trade and other receivables, contract assets and contract liabilities
(In millions of yen)
January 1, 2018
December 31, 2018
Trade and other receivables . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Contract assets(1)
Contract liabilities
Unsatisfied performance obligations(2)
Virtual credits(3)
. . .
. . . . . . . . . . . . . . . . . . . . .
Total contract liabilities . . . . . . . . . . . . . . .
41,663
437
12,778
11,201
23,979
37,644
339
12,927
11,710
24,637
(1) Contract assets mainly consist of transactions related to the advertising contracts in which the revenues from
these transactions are recognized over time by measuring the progress towards completion of satisfaction of
the performance obligation.
(2) Unsatisfied performance obligations will be fulfilled mainly within a year. Therefore, the transaction price
allocated to unsatisfied contract is not disclosed, based on the practical expedient as permitted under
IFRS 15.
The timing of transfer of goods or services related to virtual credits is determined at the customer’s
discretion.
(3)
Revenue recognized during the year ended December 31, 2018, that was included in the contract liability balance
as of January 1, 2018 are as follow:
Unsatisfied performance obligations . . . . . . . . . . . . . . . . . . . . .
Virtual credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
11,182
9,349
(In millions of yen)
The Group recorded 4,367 million yen of contract costs as of December 31, 2018 in the Consolidated Statement
of Financial Position and 2,172 million yen of amortization expenses of such assets for the year ended
December 31, 2018.
22. Other Income and Expenses
(1) Other operating income for the years ended December 31, 2016, 2017 and 2018 are as follows:
(In millions of yen)
2016
2017
2018
Virtual credits breakage income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on loss of control of subsidiaries and business transfer(1) . . . .
Dilution gain(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of land(3)
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,491
1,731
2,461
209
815
10,444
434
—
318
386
24,794
2,635
—
284
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,892
12,011
28,099
(1) Refer to Note 20 Supplemental Cash Flow Information for further details.
F-91
LINE Corporation
Notes to Consolidated Financial Statements (continued)
22. Other Income and Expenses (continued)
(2) Dilution gain included gain of 2,310 million yen for the year ended December 31, 2018 in connection
with third-party allotments by Snow Corporation, an associate of the Group.
(3) On June 29, 2016,
the Company sold land in Fukuoka prefecture with a carrying amount of
2,584 million yen to Kyushu Railway Company. The sale price was 5,050 million yen and the Group
recognized a gain on the sale of 2,461 million yen.
(2) Other operating expenses for the years ended December 31, 2016, 2017 and 2018 are as follows:
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes and dues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others(1)
2016
3,529
1,737
1,154
801
2,030
3,519
1,006
463
4,137
(In millions of yen)
2017
6,143
2,259
2,378
1,516
2,182
4,946
1,344
1,006
3,629
2018
8,440
3,348
3,327
2,347
3,266
7,622
1,972
5,533
5,286
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,376
25,403
41,141
(1)
The amount consists of office management fees, utilities and other miscellaneous expenses.
(3) Other non-operating income for the years ended December 31, 2016, 2017 and 2018 are as follows:
. . . .
Gain on financial assets at fair value through profit or loss(1)
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
2016
2017
2018
—
—
—
4
5
9
1,096
69
751
47
—
1,963
555
50
136
128
—
869
(1)
For the years ended December 31, 2016, 2017 and 2018, gains and losses on valuation of financial
assets are recognized under IAS 39 Financial Instruments: Recognition and Measurement and IFRS 9
Financial Instruments, respectively.
F-92
LINE Corporation
Notes to Consolidated Financial Statements (continued)
22. Other Income and Expenses (continued)
(4) Other non-operating expenses for the years ended December 31, 2016, 2017 and 2018 are as follows:
(In millions of yen)
2016
2017
2018
Loss on financial assets at fair value through profit or loss(1)
. . .
Loss on impairment of available-for-sale financial assets . . . . . .
Loss from derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
656
293
60
53
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,062
118
1,761
—
109
1,988
1,231
—
—
238
1,469
(1)
For the years ended December 31, 2016, 2017 and 2018, gains and losses on financial assets at fair
value through profit or loss are recognized under IAS 39 Financial Instruments: Recognition and
Measurement and IFRS 9 Financial Instruments, respectively.
23. 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 years ended December 31, 2016, 2017 and 2018 are
presented below.
(In millions of yen)
2016
2017
2018
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses(2)
444 — —
9 — 566
(16)
(19)
(3,179)
(Loss)/profit before tax from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefits/(expenses) on liquidation(3)
(2,726)
744
(19)
6
550
(174)
(Loss)/profit for the year from discontinued operations (attributable to the shareholders of
the Company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,982)
(13)
376
(1)
(2)
(3)
For the year ended December 31, 2018, the Group recognized a gain from discharge of debt amounting to
566 million yen in connection with the liquidation of the MixRadio business on March 21, 2016.
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.
The income tax benefits/(expenses) for the year ended December 31, 2016, 2017 and 2018 are mainly due to
the deductible temporary difference arising from the investment in MixRadio Limited, which incurred loss
or profit during the periods.
F-93
LINE Corporation
Notes to Consolidated Financial Statements (continued)
23. Discontinued Operations (continued)
The aggregated cash flow information of the discontinued operations for the years ended December 31, 2016,
2017 and 2018, are presented below.
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,654)
(136)
22 —
—
—
18
—
(353)
Net cash outflow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,632)
(136)
(335)
(In millions of yen)
2016
2017
2018
24. Earnings per Share
The profit or loss for the year and the weighted average number of shares used in the calculation of earnings per
share are as follows:
(In millions of yen, except number of shares)
2016
2017
2018
Profit/(loss) for the year attributable to the shareholders of the
Company from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
8,745
8,091
(4,094)
(Loss)/profit for the year attributable to the shareholders of the
Company from discontinued operations . . . . . . . . . . . . . . . . . . . . .
(1,982)
(13)
376
Total profit/(loss) for the year attributable to the shareholders
of the Company for basic earnings and diluted earnings per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of total common shares and class A
6,763
8,078
(3,718)
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of total treasury shares . . . . . . . . . . . .
194,083,995
—
221,405,391
(459,843)
239,761,603
(1,686,797)
Weighted average number of common and class A shares for
basic earnings per share(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
194,083,995
220,945,548
238,074,806
Effect of dilution:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock Ownership Plan (J-ESOP) . . . . . . . . . . . . . . . .
Convertible bonds with stock acquisition rights . . . . . . . . . . . . .
20,790,013
—
—
16,559,789
47,369
—
—
—
—
Weighted average number of total common and class A shares
adjusted for the effect of dilution . . . . . . . . . . . . . . . . . . . . . . . . .
214,874,008
237,552,706
238,074,806
(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 year ended December 31, 2016 includes
the average number of common shares and class A shares for the year ended December 31, 2016.
Additionally, 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.
F-94
LINE Corporation
Notes to Consolidated Financial Statements (continued)
24. Earnings per Share (continued)
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 year ended December 31,
2016, included options representing 22,911,500 shares which were outstanding as of December 31, 2016 as they
had a dilutive impact.
Potential common shares used in the calculation of diluted earnings per share for the year ended December 31,
2017, included options and Employee Stock Ownership Plan (J-ESOP), representing 5,828,302 shares which
were outstanding as of December 31, 2017 as they had dilutive impact on profit per share from continuing
operations.
Potential common shares that were excluded from the calculation of diluted earnings per share for the year ended
December 31, 2018, included options, Employee Stock Ownership Plan (J-ESOP) and convertible bonds with
stock acquisition rights, representing 23,902,127 shares which were outstanding as of December 31, 2018 as they
had anti-dilutive impact on earnings per share from continuing operations.
Moreover, the Company has issued 1,007,810 and 1,172,332 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
and April 25, 2018.
25. Financial Risk Management
The Group has exposure to the following risks from its use of financial instruments:
–
–
Credit risk
Liquidity risk
– Market risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives,
policies and processes for measuring and managing risk, and the Group’s management of capital. Further
quantitative disclosures are included throughout the Group’s consolidated financial statements.
(1) Risk Management Framework
The Group limits its fund management to highly liquid and low risk investments, such as time deposits and
other debt instruments. The Group raises funds mainly through the issuance of corporate bonds, and
borrowings from financial institutions, including banks, with high credit ratings. The Group may enter into
foreign exchange forward contracts to hedge foreign exchange risk. The Group does not enter into any
financial transactions for speculative purposes.
F-95
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(2) Credit Risk
Credit risk is the risk of financial losses to the Group if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers
and investments.
(a) Maximum amounts of possible financial loss to the Group due to credit risk as of December 31, 2017
and 2018 are as follows:
(In millions of yen)
December 31,
2017
December 31,
2018
Book value
Book value
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Demand deposits(1)(2)
Time deposits(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan receivables(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee deposits(1)(2)(3)
. . . . . . . . . . . . . . . . . . . .
Trade and other receivables(2)(4)
Japanese government bonds(1)(2)(3)
. . . . . . . . . . . . . . . . . . .
Corporate bonds and other debt instruments(1)(2) . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Office security deposits(1)(2)(5)
123,593
12,002
206
726
42,892
280
8,835
5,904
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
194,438
256,965
11,507
593
976
37,644
280
18,005
9,162
335,132
(1) None of these assets were past due or impaired as of December 31, 2017.
(2)
receivables,
the Group’s exposure to credit
For
risk is influenced mainly by the individual
characteristics of each customer. The Group regularly performs credit assessments on customers and
counterparties considering their financial position and historical data in order to manage the credit risk.
The Group established an allowance for impairment that represents its estimate of incurred losses in
respect of the financial assets set out in the above table as of December 31, 2017. The main
components of this allowance are a specific loss component that relates to individually significant
exposures, and a collective loss component established for groups of similar assets in respect of losses
that have been incurred but not yet identified. The collective loss allowance is determined based on
historical experience for similar assets.
The Group recorded provisions for estimated credit risk in respect of the financial assets set out in the
above table as of December 31, 2018. The methodology used for estimating the expected credit loss
differs depending on whether there have been significant increase in credit risk since initial recognition
per financial assets or per assets group. The Group measures the financial assets measured at amortized
cost without any significant increase in credit risk at the amount equal to twelve-month expected credit
losses. For the financial assets measured at amortized cost with a significant increase in credit risk, the
Group measures at the amount equal to the lifetime expected credit losses considering all reasonable
and supportable information, including that which is forward-looking. The Group uses the probability
that a default occurs calculated based on the historical default data of the corporate bond ratings in
Japan to measure twelve-month expected credit losses and the lifetime expected credit losses.
For the trade receivables, the Group applied the simplified approach permitted by IFRS 9 that estimates
the lifetime expected credit losses since the initial recognition. The expected credit risk of trade
receivables are measured using the probability that a default occurs calculated based on the Group’s
historical experiences on cash collection from trade receivables. When there have been significant
F-96
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(2) Credit Risk (continued)
(a) Maximum amounts of possible financial loss to the Group due to credit risk as of December 31, 2017
and 2018 are as follows (continued):
increases in credit risk, the Group measures the expected credit risk considering all reasonable and
supportable information.
(3) Refer to Note 15 Financial Assets and Financial Liabilities for details of the financial instruments being
(4)
(5)
deposited under the Japanese Payment Services Act.
The Group identifies concentrations of credit risk when a limited number of the Group’s counterparties that
have similar characteristics or business activities, and thus are affected similarly by changes in economic or
other conditions, account for a large portion of the entire trade and other receivables. The Group had
significant concentrations of credit risk with two payment processing service providers, representing 30.5%
and 23.6% of trade and other receivables as of December 31, 2017 and 2018, respectively.
The amount mainly consists of the office security deposits paid for the Group’s office lease
agreements.
(b) Trade and other receivables
As of December 31, 2017, in case of impairment of financial assets, the Group did not directly write off
such assets by reducing the carrying amount, but instead recorded an allowance for doubtful accounts.
However, in the event that there was no realistic prospect of future recovery, financial assets were directly
written off.
As of December 31, 2018, the Group considers the probability of default upon initial recognition of asset
and whether there has been a significant increase in credit risk on an ongoing basis throughout each
reporting period. To assess whether there is a significant increase in credit risk the Group compares the risk
of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial
recognition. It considers available reasonable and supportive forwarding-looking information. Especially,
the following indicators are incorporated:
–
–
–
–
external credit rating (as far as available)
actual or expected significant adverse changes in business, financial or economic conditions that are
expected to cause a significant change to the borrower’s ability to meet its obligations
actual or expected significant changes in the operating results of the customer or the counterparty
significant increase in credit risk of the customer or the counterparty
Regardless of the analysis above, a significant increase in credit risk is presumed if a debtor is past due in
making a contractual payment. The Group defines a default on a financial asset when the customer or the
counterparty fails to make contractual payments within six months from the due date. Financial assets are
written off when there is no reasonable expectation of recovery.
F-97
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(2) Credit Risk (continued)
(b) Trade and other receivables (continued)
Loss allowance for trade and other receivables as of December 31, 2018 are calculated as follows:
December 31, 2018
(In millions of yen)
Within six
months past
due
Current
Over six months
past due
Over twelve
months past due
Total
Expected credit loss rate(1) . . . . . . . . . . . . . . . . . .
Trade and other receivables . . . . . . . . . . . . . . . . .
Loss allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.0%
1.7%
35,182
16
2,386
39
30.4%
176
54
97.5%
367
358
1.2%
38,111
467
(1)
The expected credit loss rate is calculated based on the historical loss rate for trade receivables and other
receivables of one year.
Below is the movement in the allowance for doubtful accounts and the loss allowance attributable to trade
and other receivables. The balances for the trade and other receivables over six months past due are
aggregated as the balance of these assets are not significant.
(In millions of yen)
Provisions
Allowance for doubtful accounts balance at January 1,
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for the year . . . . . . . . . . . . . . . . . . . . . .
Reversal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of subsidiary . . . . . . . . . . . . . . . . . . .
Translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,077
83
(515)
(204)
44
7
Allowance for doubtful accounts balance at
December 31, 2017 (IAS 39) . . . . . . . . . . . . . . . . . .
492
Loss allowance balance at January 1, 2018
(IFRS 9)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for the year . . . . . . . . . . . . . . . . . . . . . .
Reversal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deconsolidation . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss allowance balance at December 31, 2018 . . . . . .
492
304
(60)
(171)
(102)
4
467
(1)
Loss allowance and retained earnings as of January 1, 2018 were not affected by adopting IFRS 9.
Refer to Note 7 Trade and Other Receivables for more details on non-current trade and other receivables as
of December 31, 2017 and 2018.
F-98
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(2) Credit Risk (continued)
(c) Financial assets measured at amortized cost and debt instruments measured at FVOCI
The loss allowance recognized during the current period is limited to twelve-month expected credit risk as
debt instruments that are measured at amortized cost and those that are measured at FVOCI have low credit
risk. The management determines whether the debt instruments have low credit risk when at least one major
rating organization rates them as “investment grade”. For any other investments, the management deems the
investments to have low credit risk if the investments have low risk of default, and the issuers has a strong
capacity to meet its contractual cash flow obligations in the near future.
Financial assets measured at amortized cost consist of financial assets with low credit risk such as time
deposits and Japanese government bonds. The Group has not recognized the expected loss amount through
such financial assets as the expected amount is not significant.
The Group recognized the loss allowance for debt instruments that are measured at FVOCI in the mount of
27 million yen as of December 31, 2018. A disclosure of the movement of loss allowance for debt
instruments measured at FVOCI is omitted, as the loss allowance is not significant.
(3) Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with
its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to
managing liquidity is to ensure, as much as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Group’s reputation.
The Group monitors its cash flow through long-term and short-term management strategies and ensures it
has sufficient cash on hand to meet expected operational expenses.
F-99
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(3) Liquidity Risk (continued)
(a) Financial liabilities
The book values of financial liabilities based on the remaining maturities as of December 31, 2017 and 2018
are as follows. The amounts below include estimated interest from financial liabilities scheduled to be paid.
(In millions of yen)
December 31, 2017
Book value
Contractual
cash outflows
Less than
one year
One to
five years
After
five years
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings(1)
. . . . . . . . . . . . . . . . . . . . . . . .
Deposits received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits received under sublease
agreement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,810
22,224
5,730
23
486
28,810
22,341
5,730
23
486
28,810
22,341
5,730
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,273
57,390
56,881
—
—
—
23
486
509
—
—
—
—
—
—
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings(1)
. . . . . . . . . . . . . . . . . . . . . . . .
Deposits received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits received under sublease
agreement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
December 31, 2018
Book value
Contractual
cash outflows
Less than
one year
One to
five years
After
five years
35,210
23,000
13,653
142,132
35,210
23,019
13,653
146,320
34,985
23,019
13,653
225
—
—
— 73,160
—
—
—
73,160
16
296
16
296
—
16
16
280
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
214,307
218,514
71,673
73,681
73,160
(1)
The Group had lines of credit with four banks for the years ended December 31, 2017 and 2018. The lines of
credit available and the lines of credit used are as follows:
(In millions of yen)
December 31,
2017
December 31,
2018
Lines of credit available . . . . . . . . . . . . . . . . . . . .
Lines of credit used . . . . . . . . . . . . . . . . . . . . . . .
Remaining lines of credit available . . . . . . . . . . .
22,712
22,000
712
23,680
23,000
680
(b) Financial assets
Private equity investment fund
As a limited partner of the private equity investment funds, the Group may be required at any time to
contribute to the partnership its pro rata share of the aggregate amount to be contributed by all limited
F-100
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
partners for such portfolio investment, up to the amount of its unfunded capital commitment (810 million
yen, 26 million U.S. dollars, equivalent of 2,942 million yen, and 45 million Taiwan dollars, equivalent of
170 million yen, as of December 31, 2017, and 1,215 million yen, 30 million US dollars, equivalent of
3,349 million yen, as of December 31, 2018) as of the day of the capital contribution call.
(4) Market Risk
Market risk is the risk that changes in market prices which will affect the future cash flow or the value of the
Group’s holdings of financial instruments. The objective of market risk management is to manage and
control market risk exposures within acceptable parameters, while optimizing the return.
(a) Exchange rate risk
The Group has exposure to currency risk on sales and purchase transactions denominated in currencies
other than the functional currencies. The main currencies used for transactions of the Group are the
Japanese yen (“JPY”), the Korean won (“KRW”), the euro (“EUR”), the U.S. dollar (“USD”), the Thai
baht (“THB”) and the New Taiwan dollar (“TWD”).
The book values of major assets and liabilities denominated in currencies other than the functional
currency as of December 31, 2017 and 2018 are as follows:
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . .
Available-for-sale financial assets . . . . . . . . . . . . .
(In millions)
December 31, 2017
Currency
Amount
Exchange
rate
Yen
equivalent
KRW
USD
EUR
JPY
USD
THB
USD
KRW
USD
KRW
USD
7,312
101
2
258
12
188
5
6,100
10
5,655
35
0.11
112.88
134.78
1.00
112.88
3.45
112.88
0.11
112.88
0.11
112.88
770
11,364
213
258
1,336
649
611
643
1,131
596
3,949
F-101
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(4) Market Risk (continued)
(a) Exchange rate risk (continued)
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial instruments at amortized cost
Time deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee deposit . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . .
Financial assets at fair value through profit or loss . . . .
Liabilities:
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . .
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . .
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions)
December 31, 2018
Currency Amount
Exchange
rate
Yen
equivalent
KRW 15,539
109
USD
337
JPY
2,362
KRW
12
USD
72
THB
KRW
USD
KRW
KRW
USD
TWD
7,100
11
8,628
7,250
23
88
0.10
110.36
1.00
0.10
110.36
3.39
0.10
110.36
0.10
0.10
110.36
3.61
1,534
11,985
337
233
1,378
245
701
1,260
852
716
2,491
319
(In millions)
December 31, 2017
Currency Amount
Exchange
rate
Yen
equivalent
KRW (20,456)
USD
THB
KRW
0.11
(10) 112.88
3.45
(97)
0.11
(2,114)
(2,155)
(1,166)
(334)
(223)
(In millions)
December 31, 2018
Currency Amount
Exchange
rate
Yen
equivalent
KRW (44,026)
USD
TWD
JPY
KRW
0.10
(11) 110.36
3.61
(125)
1.00
(256)
0.10
(2,296)
(4,345)
(1,229)
(451)
(256)
(227)
F-102
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(4) Market Risk (continued)
(a) Exchange rate risk (continued)
The effects on profit or loss before tax from continuing operations and shareholders’ equity as a result
of exchange rate fluctuations as of December 31, 2017 and 2018, are as follows:
Currency
(In millions of yen)
December 31, 2017
Shareholders’ equity
Profit or (loss) before tax
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
EUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
KRW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
JPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
(18)
861
16
13
(10)
18
(820)
(15)
(12)
8
(13)
603
11
10
(8)
12
(574)
(10)
(10)
(In millions of yen)
Currency
December 31, 2018
Shareholders’ equity
Profit or (loss) before tax
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
Appreciation
of functional
currency by
5%
Depreciation
of functional
currency by
5%
KRW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TWD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
JPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14)
584
8
(6)
3
13
(556)
(8)
5
(3)
(27)
794
12
(7)
4
26
(756)
(12)
6
(4)
The tables above demonstrate the sensitivity to a change in EUR, KRW, USD, THB, TWD and JPY
assuming all other variables are constant.
F-103
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(4) Market Risk (continued)
(b)
Interest rate risk
Interest bearing financial assets and liabilities as of December 31, 2017 and 2018 are as follows:
December 31, 2017
December 31, 2018
Fixed rate
Variable rate
Fixed rate Variable rate
(In millions of yen)
Financial assets
Japanese government bonds . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . .
Loan receivables . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds and other debt
280
12,002
116
instruments . . . . . . . . . . . . . . . . . . . . . . . . .
8,835
Total financial assets . . . . . . . . . . . . . . . . . . . . . .
21,233
Financial liabilities
—
—
—
280
11,507
110
— 18,005
—
29,902
—
—
—
—
—
Short-term borrowings . . . . . . . . . . . . . . . . . .
Total financial liabilities . . . . . . . . . . . . . . . . . . .
43
43
22,042
22,042
—
—
23,000
23,000
The Group has exposure to interest rate risk as it possesses financial assets and liabilities set out in the
above. The analysis below was performed using outstanding balance of the financial liabilities set out
in the above as of December 31, 2017 and 2018, as well as using balance of debt instrument as of
December 31, 2018, assuming such liabilities and assets were outstanding for the full fiscal year
immediately before the respective dates, while holding all other variables constant. Potential effects on
shareholders’ equity and profit or loss for one year from the reporting date as a result of a change in the
interest rate are as follows.
December 31, 2017
Shareholders’ equity
Profit or (loss) before tax
Increase of 50
basis points
Decrease of 50
basis points
Increase of 50
basis points
Decrease of 50
basis points
(In millions of yen)
Interest expenses . . . . . . . . . . . . . . . .
(75)
13
(110)
19
December 31, 2018
Shareholders’ equity
Profit or (loss) before tax
Increase of 50
basis points
Decrease of 50
basis points
Increase of 50
basis points
Decrease of 50
basis points
(In millions of yen)
Interest expenses . . . . . . . . . . . . . . . .
(79)
16
(115)
23
December 31, 2018
(In millions of yen)
Shareholders’ equity
Other comprehensive income/(loss)
Increase of 50
basis points
Decrease of 50
basis points
Increase of 50
basis points
Decrease of 50
basis points
Debt instruments . . . . . . . . . . . . . . . .
(145)
86
(212)
125
F-104
LINE Corporation
Notes to Consolidated Financial Statements (continued)
25. Financial Risk Management (continued)
(5) Capital management
The Group maintains a strong capital base to ensure the Group will be able to continue as a going concern.
In addition, through management of the debt and equity balances, the Group aims to maintain investor,
creditor and market confidence, and to sustain future development of the business. For the year ended
December 31, 2018, the Group issued corporate bonds to meet the cash demand for the investment for
further growth of business to improve the Group’s corporate value in medium term. In order to achieve
sustainable growth, the Group understands that financing capacities sufficient to make business investments
when there are opportunities, such as the acquisition of external resources for business growth, are required.
The equity and major liabilities are as follows:
(In millions of yen)
December 31,
2017
December 31,
2018
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,224
—
22,224
23,000
142,132
165,132
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . .
189,977
208,514
The Group is not subject to any externally imposed capital requirements.
26. 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
in the 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.
F-105
LINE Corporation
Notes to Consolidated Financial Statements (continued)
26. Fair Value Measurements (continued)
(2) Fair value measurements by fair value hierarchy
Assets and liabilities measured at fair value on a recurring basis in the Consolidated Statements of Financial
Position as of December 31, 2017 and 2018 are as follows:
December 31, 2017
Financial asset at fair value through profit or loss
(In millions of yen)
Level 1
Level 2
Level 3
Total
Conversion right and redemption right of preferred stock . . . . —
—
1,862
1,862
Available-for-sale financial assets
Listed equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,574
Private equity and other financial instruments . . . . . . . . . . . . . —
—
—
— 13,820
1,574
13,820
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,574
— 15,682
17,256
Financial liability at fair value through profit or loss
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
—
—
486
486
486
486
December 31, 2018
(In millions of yen)
Level 1
Level 2
Level 3
Total
Financial asset at fair value through profit or loss . . . . . . . . . . . . . . —
Financial assets at FVOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Debt instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 18,005
791
— 10,261
10,261
6,505
7,296
— 18,005
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
791
18,005
16,766
35,562
Financial liability at fair value through profit or loss . . . . . . . . . . . .
Put option liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
—
—
296
296
296
296
Financial assets at FVOCI as of December 31, 2018 are as follows:
(In millions of yen)
December 31, 2018
Marketable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-marketable(1)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
791
6,505
7,296
(1)
The fair value of non-marketable equity instruments measured at FVOCI are mainly consist of finance
related business of 3,000 million yen, AI of 1,192 million yen, and other business of 2,313 million yen.
The Group made irrevocable election to designate a financial asset measured at FVOCI at initial recognition
for the investment that are aimed to mid to long-term strategy instead of held for trading.
The dividend income for the equity instruments measured at FVOCI is immaterial for the year ended
December 31, 2018.
F-106
LINE Corporation
Notes to Consolidated Financial Statements (continued)
26. Fair Value Measurements (continued)
(2) Fair value measurements by fair value hierarchy (continued)
The accumulated other comprehensive income for the equity instruments measured at FVOCI which
derecognized are transferred to retained earnings. For the year ended December 31, 2018, 2,230 million yen
(profit) were transferred.
Assets and liabilities not measured at fair values in the Consolidated Statements of Financial Position, but
for which fair values are disclosed as of December 31, 2017 and 2018 are as follows:
December 31, 2017
Held-to-maturity investments
Level 1
Level 2
Level 3
Total
(In millions of yen)
Japanese government bonds . . . . . . . . . . . . . . . . . . . . . . . .
Loans and receivables
Corporate bonds and other debt instruments . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
291
8,036
5,546
—
—
—
291
8,036
5,546
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— 13,873
— 13,873
Financial liability at amortized cost
Office securities deposits received under sublease
agreement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018
Financial assets at amortized cost
—
—
23
23
—
—
23
23
Level 1
Level 2
Level 3
Total
(In millions of yen)
Corporate bonds and other debt instruments . . . . . . . . . . . .
Guarantee deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
288
123
9,050
9,461
—
—
—
—
288
123
9,050
9,461
Financial liability at amortized cost
Office securities deposits received under sublease
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
agreement
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
—
— 143,743
16
—
— 143,743
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— 143,759
— 143,759
There have been no transfers among Level 1, Level 2 and Level 3 during the years ended December 31,
2017 and 2018, except for the transfer from Level 1 to Level 3 as described in (3) below.
F-107
LINE Corporation
Notes to Consolidated Financial Statements (continued)
26. Fair Value Measurements (continued)
(3) Reconciliations from the opening balance to the closing balance of financial instruments categorized within
Level 3 are as follows:
2017
Conversion
right and
redemption
right of
preferred
stock
Private
equity
and other
financial
instruments
(In millions of yen)
2018
Financial
assets at
fair value
through
profit or loss
Financial
assets at
FVOCI
Equity
instruments
Put option
liabilities
Put option
liabilities
12,795
325
—
7,143
8,539
(486)
(1,535)
1,062
7
(553)
—
(74)
(2,456)
—
—
—
(1,916)
—
(3,991)
4,949
(1,619)
—
(121)
610
326
—
—
871
1,062
363
—
—
—
—
—
—
—
112
7
(457)
—
—
—
(33)
—
—
—
(3)
(553)
4,763
—
—
—
—
—
(963)
138
(267)
(1,916)
5,029
(4,176)
—
—
—
—
(595)
(110)
(266)
(74)
(16)
—
250
—
—
—
26
(3)
7
Fair value at the
beginning of the
year(4)
. . . . . . . . . .
Total (loss)/gain for
the year:
Included in
profit or loss(1)
. . . . . . . . . . .
Included in other
comprehensive
income(2)
. . . .
Comprehensive
(loss)/income .
Purchases . . . . . . . . .
Sales and
settlements(5) . . . . .
Exercise of options . .
Return of capital . . . .
Increase due to
business
combination . . . . .
. . . . . .
Transfers in(3)
Decrease due to loss
of control . . . . . . . .
Other . . . . . . . . . . . . .
Effect of exchange
rate changes . . . . . .
Fair value at the end
of the year . . . . . . .
13,820
1,862
(486)
10,261
6,505
(296)
(1)
(2)
This amount is included in “Other non-operating income” or “Other non-operating expenses” in the
Group’s Consolidated Statements of Profit or Loss.
This amount is included in “Net changes in fair value of available-for-sale financial assets” and “Net
changes in fair value of equity instruments at FVOCI” in the Group’s Consolidated Statements of
Comprehensive Income.
(3) During the year ended December 31, 2017, the issuing company of the equity 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.
F-108
LINE Corporation
Notes to Consolidated Financial Statements (continued)
26. Fair Value Measurements (continued)
(3) Reconciliations from the opening balance to the closing balance of financial instruments categorized within
Level 3 are as follows (continued):
(4) Classification of financial instruments changed due to the adoption of IFRS 9 for the year ended
December 31, 2018. This amount includes the fair value of conversion right and redemption right of
preferred stock 1,862 million yen at the year ended December 31, 2017. Refer to Note 3 Significant
Accounting Policies for more details.
(5) During the year ended December 31, 2018, the Group sold financial assets at FVOCI. The cumulative
gain on disposal (profit) amounted to 2,267 million yen.
(4) Valuation techniques and inputs
Assets and liabilities measured at fair value on a recurring basis in the Group’s Consolidated Statements of
Financial Position
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss within Level 3 mainly consist of private equity
investment funds, conversion right and redemption right of preferred stock. As of December 31, 2017 and
2018, conversion right and redemption right of preferred stock was measured at fair value using mainly a
binominal option pricing model. In addition, the private equity investment funds are measured at fair value
based on the most recent available net asset value, and preferred stocks are measured at fair value either
based on the most recent transactions or the discount cash flow model as of December 31, 2018. Below is
the quantitative information regarding the valuation technique and significant unobservable inputs used in
measuring the fair value of financial assets at fair value through profit or loss categorized within Level 3:
Valuation technique
Significant
unobservable input
Discount cash flow model
. . . . . . . . . . Discount rate
Growth rate
Binomial option pricing model
. . . . . . Comparable listed companies’
2017
—
—
2018
16.0%
2.0%
average historical volatility
Discount rate
46.0%-49.2% 53.3%-54.0%
2.5%
2.0%-2.2%
A significant increase (decrease) in the growth rate, the fair value of the preferred stock would result in a
higher (lower) fair value of the preferred stock. On the other hand, a significant increase (decrease) in
discount rate would result in a lower (higher) fair value of the preferred stock.
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.
F-109
LINE Corporation
Notes to Consolidated Financial Statements (continued)
26. Fair Value Measurements (continued)
(4) Valuation techniques and inputs (continued)
Put option liabilities
The put option liabilities are options written on shares of subsidiaries, associates, and investments. Such put
option liabilities are measured at fair value using mainly option pricing model or the Monte Carlo
simulation. Below is the quantitative information regarding the valuation techniques and significant
unobservable inputs used in measuring the fair value of certain put option liabilities:
Valuation technique
Significant
unobservable input
2017
2018
Option pricing model . . . . . . . . . . . . . . Comparable listed companies’
Monte Carlo simulation . . . . . . . . . . . . Comparable listed companies’
average historical volatility
Discount rate
45.0%
4.3%
average historical volatility
Discount rate
41.4%-49.2%
2.5%
51.9%
1.8%
43.1%
2.0%
A significant increase (decrease) in the comparable listed companies’ average historical volatility would
result in a higher (lower) fair value of the put option liabilities, while a significant increase (decrease) in the
discount rate would result in a lower (higher) fair value of the put option liabilities.
Financial assets at fair value through other comprehensive income
Financial assets at FVOCI categorized within Level 2 consist of bonds. Such bonds are measured at fair
value using discount cash flow model and using the observable input such as estimated yield rate when
acquiring a similar debt instruments.
Financial assets at FVOCI within Level 3 is mainly consist of unlisted equity securities. Such unlisted
equity securities are measured at fair value based on the valuation techniques such as market approach for
the year ended December 31, 2018. 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
Market approach-market comparable
Significant
unobservable input
companies . . . . . . . . . . . . . . . . . . . . . Revenue multiple
Liquidity discount
2017
—
—
2018
1.3-9.1
30.0%
A significant increase (decrease) in the revenue multiple would result in a higher (lower) fair value of the
unlisted equity securities, while a significant increase (decrease) in the liquidity discount and discount rate,
would result in a lower (higher) fair value of the unlisted equity securities.
Available-for-sale financial assets
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, 2017.
Unlisted equity securities are measured at fair value either based on the most recent transactions, the market
approach and option pricing model, or the discount cash flow model. Below is the quantitative information
F-110
LINE Corporation
Notes to Consolidated Financial Statements (continued)
26. Fair Value Measurements (continued)
(4) Valuation techniques and inputs (continued)
Available-for-sale financial assets (continued)
regarding the valuation techniques and significant unobservable inputs used in measuring the fair value of
certain unlisted equity securities:
Valuation technique
Significant
unobservable input
2017
2018
Market approach-market comparable
companies . . . . . . . . . . . . . . . . . . . . . EBITDA multiple
EBIT multiple
Revenue multiple
Liquidity discount
Option pricing model . . . . . . . . . . . . . . Comparable listed companies’
Discount cash flow model
average historical volatility
Discount rate
. . . . . . . . . . Discount rate
Growth rate
11.6-12.8
11.4-19.3
1.4-6.2
30.0%
49.7%-76.2%
(0.1%)-2.6%
12.8%-13.0%
1.0%-2.0%
—
—
—
—
—
—
—
—
A significant increase (decrease) in the EBITDA, EBIT, revenue multiple and growth rate 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.
Assets and liabilities not measured at fair value in the Consolidated Statements of Financial Position, but for
which fair values are disclosed
Corporate bonds (asset) and other debt instruments, guarantee deposits, office security deposits, office
security deposits received under sublease agreements, and corporate bonds (liability)
The fair values of the corporate bonds (asset) and other debt instruments, guarantee deposits, office security
deposits, office security deposits received under sublease agreements, and corporate bonds (liability) are
calculated by using the discounted cash flow model which utilizes observable inputs such as risk-free
interest rates and credit risk spreads of the Group as of the reporting dates.
27. Share-Based Payments
The Group has stock option incentive plans for directors and employees.
(1) Stock Option Plan
For the stock options granted during the years ended December 31, 2012, 2013, 2014, and 2015, each stock
option represents the right to purchase 500 common shares at a fixed price for a defined period of time. The
exercise price of stock options, which were granted during the years ended December 31, 2012 and 2013
was 344 yen, whereas that of those options, which were granted during the years ended December 31, 2014
and 2015 was 1,320 yen.
F-111
LINE Corporation
Notes to Consolidated Financial Statements (continued)
27. Share-Based Payments (continued)
(1) Stock Option Plan (continued)
In the year ended December 31, 2017, the Company has granted 23,860 of stock options equivalent to
2,386,000 of common shares with the exercise price of 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 year ended December 31, 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. Refer to
Note 4 Significant Accounting Judgments, Estimates and Assumptions (f) for more details on the valuation
methodology of stock options, and the assumptions used in such valuation.
There were no cancellations or modifications to the awards in 2016, 2017 or 2018.
On June 15, 2015, through the amendment of its articles of incorporation, the Company introduced a dual
class structure of common shares and class A shares. Under the dual class structure, each common share has
one vote per unit of 100 shares, and each class A share has one vote per unit of 10 shares, while both classes
of shares have the same rights to share in profit, distribution of retained earnings and residual assets.
Additionally, the Company amended the terms applicable to a portion of two tranches of stock options. As a
result of the amendment, 24,724 Common Stock Options originally granted on December 17, 2012 and
6,949 Common Stock Options originally granted on February 4, 2015 were converted to Class A Stock
Options. While all other contract terms remain unchanged, the holders of Class A Stock Options are entitled
to acquire 500 class A shares upon exercise of each stock option. The Class A Stock Options are
mandatorily converted to Common Stock Options on a one-to-one basis upon passage of time or occurrence
of certain events as specified in the terms and conditions of Class A Stock Options.
Through an amendment of its article of incorporation effective as of March 31, 2016, the Company
amended the terms applicable to stock options from class A shares to common shares.
F-112
LINE Corporation
Notes to Consolidated Financial Statements (continued)
27. Share-Based Payments (continued)
(1) Stock Option Plan (continued)
i. Movements during the years ended December 31, 2016, 2017 and 2018
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 year:
2016
Common Stock Options
Class A Stock Options
Number
(shares)
WAEP
(yen per share)
Number
(shares)
WAEP
(yen per share)
Outstanding at January 1 . . . . . . . . . . .
. . . . . . . . . . . .
Granted during the year
. . . . . . . . . . .
Forfeited during the year
. . . . . . . . .
Exercised during the year(1)
Expired during the year
. . . . . . . . . . . .
Conversion of Class A Stock Options
9,848,000
—
(239,500)
(2,533,500)
—
to Common Stock Options . . . . . . . .
15,836,500
Outstanding at December 31 . . . . . . . .
22,911,500
Exercisable at December 31 . . . . . . . . .
17,321,500
558
—
—
—
—
558
—
—
827
—
1,137
691
—
558
653
438
15,836,500
—
—
—
—
(15,836,500)
—
—
2017
Common Stock Options
Number
(shares)
WAEP
(yen per share)
Outstanding at January 1 . . . . . . . . . . . . . . . . . . . . .
Granted during the year . . . . . . . . . . . . . . . . . . . . . .
Forfeited during the year . . . . . . . . . . . . . . . . . . . . .
Exercised during the year (1)
. . . . . . . . . . . . . . . . . .
Expired during the year . . . . . . . . . . . . . . . . . . . . . .
22,911,500
2,386,000
(7,000)
(19,713,500)
—
Outstanding at December 31 . . . . . . . . . . . . . . . . . .
5,577,000
Exercisable at December 31 . . . . . . . . . . . . . . . . . .
3,191,000
653
4,206
1,320
583
—
2,421
1,086
2018
Common Stock Options
Number
(shares)
WAEP
(yen per share)
Outstanding at January 1 . . . . . . . . . . . . . . . . . . . . .
Granted during the year . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Forfeited during the year(1)
. . . . . . . . . . . . . . . . . .
Exercised during the year(2)
Expired during the year . . . . . . . . . . . . . . . . . . . . . .
5,577,000
—
(983,200)
(855,500)
—
Outstanding at December 31 . . . . . . . . . . . . . . . . . .
3,738,300
Exercisable at December 31 . . . . . . . . . . . . . . . . . .
2,701,400
2,421
—
4,178
1,171
—
2,245
1,492
(1)
For the year ended December 31, 2018, the number of forfeited stock options include 763,300
shares of revocation due to waiver of rights.
F-113
LINE Corporation
Notes to Consolidated Financial Statements (continued)
27. Share-Based Payments (continued)
(1) Stock Option Plan (continued)
(2)
The weighted average share price at the date of exercise of these options during the years ended
December 31, 2017 and 2018 were 4,580 yen and 4,245 yen, respectively.
ii. The exercise price and the number of shares for options outstanding as of December 31, 2016, 2017
and 2018 are as follows:
Grant dates
December 18, 2012 . . . . . . . . . . .
December 17, 2013 . . . . . . . . . . .
February 8, 2014 . . . . . . . . . . . . .
August 9, 2014 . . . . . . . . . . . . . . .
November 1, 2014 . . . . . . . . . . . .
February 4, 2015 . . . . . . . . . . . . .
July 18, 2017 . . . . . . . . . . . . . . . .
Exercise price
(yen)
December 31,
2016
344
344
1,320
1,320
1,320
1,320
4,206
14,000,000
1,654,000
1,135,000
311,000
221,500
5,590,000
—
Number (Shares)
December 31,
2017
—
763,500
818,000
218,000
145,000
1,246,500
2,386,000
December 31,
2018
—
544,500
649,000
148,500
122,500
891,500
1,382,300
iii. The weighted average remaining contractual life for the stock options outstanding as of December 31,
2016, 2017 and 2018 was 6.7 years, 7.8 years and 6.6 years, respectively.
iv. The following tables list the inputs to the models used for deriving the fair value of the stock options
granted for the years ended December 31, 2016, 2017 and 2018.
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life of stock options (years) . . . . . . . . . . . . . . . . . . . . . .
Exercise price (yen) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value per common share at the grant date (yen) . . . . . . . . . . .
Model used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant dates
July 18, 2017
0.0%
44.9-45.7%
(0.04)-0.00%
5.5-7
4,206
3,840
Black-Scholes
During the years ended December 31, 2016 and 2018, no stock options were granted. 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. As the expected volatility is derived from an estimate of future trends, the actual result may
differ.
v.
The expenses recognized in connection with share-based payments during the years ended
December 31, 2016, 2017 and 2018 are shown in the following table:
Total expenses arising from equity-settled share-based payment
transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,519
1,602
559
(In millions of yen)
2016
2017
2018
F-114
LINE Corporation
Notes to Consolidated Financial Statements (continued)
27. Share-Based Payments (continued)
(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, 26,946 shares and 260,133 shares to the employees of the Group on July 18, 2017,
January 1, 2018 and July 20, 2018 respectively. The points vest once the employees who received the points
satisfy the conditions under the Regulations on the Stock Compensation. As the points vest, 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. The employees granted the points on January 1, 2018 are required to be employed by the
Group until the vesting date, which are between October 1, 2018 and October 1, 2020. The employees
granted the points on July 20, 2018 are required to be employed by the Group until the vesting date, which
are between April 1, 2019 and April 1, 2021.
i. Movements during the year ended December 31, 2017 and 2018
The following table illustrates the movements in outstanding points during the years ended
December 31, 2017 and 2018:
J-ESOP
(Equity-settled)
Number of points(1)
2017
2018
Outstanding at January 1 . . . . . . . . . . . . . . . . . . . .
Granted during the year . . . . . . . . . . . . . . . . . . . . .
Forfeited during the year . . . . . . . . . . . . . . . . . . . .
Exercised during the year . . . . . . . . . . . . . . . . . . .
Expired during the year . . . . . . . . . . . . . . . . . . . . .
—
262,069
(10,767)
—
—
251,302
287,079
(35,091)
(57,889)
—
Outstanding at December 31 . . . . . . . . . . . . . . . . .
251,302
445,401
Exercisable at December 31 . . . . . . . . . . . . . . . . .
—
5,275
(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. The weighted average remaining contractual life as of December 31, 2017 and
2018 was 1.5 years and 1.2 years respectively.
iii. The fair value of the points issued on July 18, 2017 was 3,840 yen, which was equivalent to the share
price of the grant day. The fair value of the points issued on January 1, 2018 and July 20, 2018 were
equivalent to the grant day of 4,865 yen and 5,130 yen, respectively.
F-115
LINE Corporation
Notes to Consolidated Financial Statements (continued)
27. Share-Based Payments (continued)
(2) Equity-settled Employee Stock Ownership Plan (J-ESOP) (continued)
iv. The expenses recognized in connection with share-based payments during the years ended December
31, 2016, 2017 and 2018 are shown in the following table:
(In millions of yen)
2016
2017
2018
Total expenses arising from equity-settled share-based payment
transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
279
827
(3) Cash-settled Employee Stock Ownership Plan (J-ESOP)
In accordance with the Regulations on Stock Compensation, the Group has granted points equivalent to
567,056 shares, 58,660 shares and 543,733 shares to the employees of the Group on July 18, 2017,
January 1, 2018 and July 20, 2018 respectively. The points vest once the employees who received the points
satisfy the conditions under the Regulations on the Stock Compensation. As the points vest, 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, the employees granted the points on January 1, 2018 are required to be employed by the
Group until the vesting dates, which are set between October 1, 2018 and October 1, 2020, employees
granted the points on July 20, 2018 are required to be employed by the Group until the vesting dates, which
are set between April 1, 2019 and April 1, 2021.
i. Movements during the year ended December 31, 2017 and 2018
The following table illustrates the movements in outstanding points during the years ended
December 31, 2017 and 2018:
J-ESOP
(Cash-settled)
Number of points(1)
2017
2018
Outstanding at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited during the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised during the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
567,056
(33,554)
—
—
533,502
602,393
(101,430)
(143,841)
—
Outstanding at December 31 . . . . . . . . . . . . . . . . . . . . . . . .
533,502
890,624
Exercisable at December 31, . . . . . . . . . . . . . . . . . . . . . . . .
—
2,373
(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. The weighted average remaining contractual life as of December 31, 2017 and
2018 was 1.5 years and 1.2 years, respectively.
F-116
LINE Corporation
Notes to Consolidated Financial Statements (continued)
27. Share-Based Payments (continued)
(3) Cash-settled Employee Stock Ownership Plan (J-ESOP) (continued)
iii. The fair value of the points granted on July 18, 2017 as of the grant date and the measurement date
were the share price as of the grant date of 3,840 yen and the share price of December 31, 2017 of
4,595 yen, respectively. The fair value of the points granted on January 1, 2018 and July 20, 2018 as of
the grant date were the share price of the grand date of 4,865 yen and 5,130 yen, respectively. The fair
value as of the measurement date was the share price as of December 31, 2018 of 3,775 yen for all of
the points granted on the aforementioned dates.
iv. The expenses recognized in connection with share-based payments during the years ended
December 31, 2016, 2017 and 2018 are shown in the following table:
(In millions of yen)
2016
2017
2018
Total expenses arising from cash-settled share-based payment
transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
805
1,142
v.
The Group has recognized nil of liabilities associated with Cash-settled J-ESOP in the Consolidated
Statement of Financial Position as of December 31, 2016. The Group has recognized current liabilities
of 400 million and 758 million yen as of December 31, 2017 and 2018, respectively and non-current
liabilities of 434 million yen and 669 million yen as of December 31, 2017 and 2018, respectively.
vi. The amount of the liabilities fixed as of December 31, 2018 amounted to 12 million yen and the no
liabilities were fixed as of December 31, 2017.
28. Related Party Transactions
Note 30 Principal Subsidiaries provides information about the Group’s structure, including details of the
subsidiaries and the parent company. The following table provides the total amount of outstanding balances and
related party transactions entered into during 2016, 2017 and 2018.
(1) Significant related party transactions and outstanding balances with related parties during the year ended
December 31, 2016 are as follows:
Relationship
Name
Transaction
(In millions of yen)
Transaction
amount
Outstanding
receivable/
(payable)
balances(3)
Parent company . . . . . . . NAVER
Subsidiary of parent
Advertising service(1)
332
67
company . . . . . . . . . . . NAVER Business Platform Corp.(2) Operating expenses
7,458
(902)
(1)
LINE Plus and NAVER entered into an agreement for exchange of services in which LINE Plus 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 via NAVER’s web portal. The Group generated advertising
revenues of 332 million yen in connection with the advertising services provided to NAVER for the year
ended December 31, 2016.
F-117
LINE Corporation
Notes to Consolidated Financial Statements (continued)
28. Related Party Transactions (continued)
(1) Significant related party transactions and outstanding balances with related parties during the year ended
December 31, 2016 are as follows (continued):
(2)
(3)
This subsidiary of NAVER provided IT infrastructure services and related development services to the
Group.
The receivable and payable amounts outstanding are unsecured and will be settled in cash.
(2) Significant related party transactions and outstanding balances with related parties during the year ended
December 31, 2017 are as follows:
Relationship
Name
Transaction
(In millions of yen)
Transaction
amount
Outstanding
receivable/
(payable)
balances(3)
Parent company . . . . . NAVER
Subsidiary of parent
Advertising service(1)
518
108
company . . . . . . . . . NAVER Business Platform Corp.(2) Operating expenses
8,475
(976)
Associate of the
Group . . . . . . . . . . . Snow Corporation
Director of the
Company . . . . . . . .
Joongho Shin
Director of the
Company . . . . . . . . Hae Jin Lee
Transfer of camera
application business(4)
10,651
—
Exercise of stock
options(5)
Exercise of stock
options(5)
6,922
1,917
—
—
(1)
(2)
(3)
(4)
(5)
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 via NAVER’s web portal. The
Group generated advertising revenues of 518 million yen in connection with the advertising services
provided to NAVER for the year ended December 31, 2017.
This subsidiary of NAVER provided IT infrastructure services and related development services to the
Group.
The receivable and payable amounts outstanding are unsecured and will be settled in cash.
In May, 2017, LINE Plus Corporation transferred its camera application business to Snow Corporation. In
exchange for 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 20 Supplemental Cash Flow Information for
further details.
Stock options which had been issued with resolution at the meeting of board of director on December 17,
2012 and January 30, 2015, have been exercised. The transaction amount includes the amount paid in by
exercising stock options during the year ended December 31, 2017.
F-118
LINE Corporation
Notes to Consolidated Financial Statements (continued)
28. Related Party Transactions (continued)
(3) Significant related party transactions and outstanding balances with related parties during the year ended
December 31, 2018 are as follows:
Relationship
Name
Transaction
(In millions of yen)
Transaction
amount
Outstanding
receivable/
(payable)
balances(4)
Parent company . . . . . . NAVER
Parent company . . . . . . NAVER
Subsidiary of parent
Underwrite of
convertible Bonds(1)
Advertising service(2)
74,989
663
(71,901)
184
company . . . . . . . . . NAVER Business Platform Corp.(3) Operating expenses
8,566
(883)
(2)
(1) During the year ended December 31, 2018, the Group issued Euro-yen convertible bonds with stock
acquisition rights through two of the separate third-party allotments to NAVER Corporation, amounted to
37,494.5 million yen (Zero coupon convertible bonds due 2023) and 37,494.5 million yen (Zero coupon
convertible bonds due 2025). The amount shown for the outstanding payable balance is the liability
measured at amortized cost as of December 31, 2018 excluding the equity components. Refer to Note 15
Financial assets and financial liabilities for further detail.
LINE Plus Corporation and NAVER entered into an agreement for exchange of services in which LINE Plus
to use certain LINE
Corporation provides advertising services via the LINE platform and the right
characters in exchange for NAVER’s advertising services for LINE Plus via NAVER’s web portal. The
Group generated advertising revenues of 663 million yen in connection with the advertising services
provided to NAVER for the year ended December 31, 2018.
This subsidiary of NAVER provided IT infrastructure services and related development services to the
Group.
The receivable and payable amounts outstanding are unsecured and will be settled in cash.
(4)
(3)
(4) The total compensation of key management personnel for the years ended December 31, 2016, 2017 and
2018 is as follows:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries (including bonuses)
Share-based payments(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In millions of yen)
2016
2017
2018
459
5,714
—
6,173
739
928
—
704
780
43
1,667
1,527
(1) Refer to Note 27 Share-Based Payments for further details.
Key management personnel includes directors and corporate auditors of the Company.
F-119
LINE Corporation
Notes to Consolidated Financial Statements (continued)
29. Business Combinations
Acquisition in 2016
Acquisition 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, specialized 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 advertisement. 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
recognized
on acquisition
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current
. . . . . . . . . . . . . . . .
Other financial liabilities, non-current . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets at fair value . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
87
83
401
26
88
1
686
78
50
210
149
13
500
186
(92)
416
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.
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
F-120
LINE Corporation
Notes to Consolidated Financial Statements (continued)
29. Business Combinations (continued)
Acquisition in 2016 (continued)
Acquisition of M.T. Burn (continued)
interests’ 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. Subsequently, in line with the change in the CGU for
the year ended December 31, 2018, the goodwill was mainly allocated to the Core Business 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 revenue and had reduced profit from
continuing operations of the Group by 1,305 million yen for the year ended December 31, 2016. If the
combination had taken place on January 1, 2016, revenue for the Group would have been 140,841 million yen
(unaudited) and profit from continuing operations for the Group would have been 9,076 million yen (unaudited)
for the year ended December 31, 2016.
Acquisition related transaction costs of 5 million yen have been expensed and are included in “Other operating
expenses” in the Group’s Consolidated Statements of Profit or Loss.
Analysis of cash flows on acquisition:
Total consideration related to the acquisition . . . . . . . . . . . . . . . . . . . .
Net cash and cash equivalents acquired at the acquisition date . . . . . .
(510)
87
Net cash flows on acquisition (included in cash flows from investing
activities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(423)
(In millions of yen)
Acquisition in 2017
Acquisition 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 valuation of the fair
values of the assets acquired and the liabilities assumed was completed in the fourth quarter of 2017 and
unchanged as compared the preliminary assessment at the time of acquisition.
F-121
LINE Corporation
Notes to Consolidated Financial Statements (continued)
29. Business Combinations (continued)
Acquisition in 2017 (continued)
Acquisition of NextFloor Group (continued)
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
recognized
on acquisition
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . .
Other financial assets, current . . . . . . . . . . . . . . . .
Other financial assets, non-current . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Property and equipment
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Publishing rights . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . .
Investments in associates . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current . . . . . . . . . . . . .
. . . . . . . . .
Other financial liabilities, non-current
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets at fair value . . . . . . . . .
Non-controlling interest
. . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,946
335
307
754
145
153
1,640
277
805
320
6,682
404
123
63
391
264
1,245
5,437
(2,664)
3,154
5,927
All consideration was paid in cash except for the loan receivables of 1,976 million yen from NextFloor to the
Group, which was converted into the common shares of NextFloor. The fair value of the trade receivables was
335 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
F-122
LINE Corporation
Notes to Consolidated Financial Statements (continued)
29. Business Combinations (continued)
Acquisition in 2017 (continued)
Acquisition of NextFloor Group (continued)
interests’ 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. Subsequently, in line with the change in the CGU for
the year ended December 31, 2018, the goodwill was mainly allocated to the Core Business segment. None of the
goodwill recognized is expected to be deductible for income tax purposes.
From the date of acquisition, NextFloor Group had contributed 1,058 million yen to the revenue of the Group and
had reduced profit from continuing operations of the Group by 947 million yen.
Transaction costs of 18 million yen have been expensed and are included in “Other operating expenses” in the
Group’s Condensed Consolidated Statement of Profit or Loss.
Analysis of cash flows on acquisition:
Total consideration related to the acquisition . . . . . . . . . . . . . . . . . . . .
Debt equity swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash and cash equivalents acquired at the acquisition date . . . . . .
(5,927)
1,976
1,946
Net cash flows on acquisition (included in cash flows from investing
activities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,005)
(In millions of yen)
Acquisition of FIVE Inc.
On December 15, 2017, the Group acquired 100.0% of the voting shares of FIVE Inc. (“FIVE”), an unlisted
company based in Japan, and FIVE became a consolidated subsidiary of the Group. FIVE is specialized in
developing, selling and operating a video advertising platform for smartphones. The Group acquired FIVE for the
purpose of utilizing FIVE’s technological capability and resources for video advertisement and enhancing the
Group’s video advertising for LINE services such as “LINE Ads Platform”. The valuation of the fair values of
the assets acquired and the liabilities assumed was completed in the fourth quarter of 2017.
F-123
LINE Corporation
Notes to Consolidated Financial Statements (continued)
29. Business Combinations (continued)
Acquisition in 2017 (continued)
Acquisition of FIVE Inc. (continued)
Assets acquired and liabilities assumed
The identifiable assets and liabilities of FIVE, 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
recognized
on acquisition
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . .
Trade and other receivables, current . . . . . . . . . . .
Other financial assets, non-current . . . . . . . . . . . .
Property and equipment
. . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Trade and other payables . . . . . . . . . . . . . . . . . . .
Other financial liabilities, current . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable net assets at fair value . . . . . . . . .
231
307
10
9
391
7
955
288
50
123
44
505
450
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,996
5,446
All consideration was paid in cash. The fair value of the trade receivables was 306 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.
Goodwill of 4,996 million yen represented the value of expected synergies arising from the acquisition and was
allocated entirely to the LINE business and portal segment. Subsequently, in line with the change in the CGU for
the year ended December 31, 2018, the goodwill was mainly allocated to the Core Business segment. None of the
goodwill recognized is expected to be deductible for income tax purposes.
From the date of acquisition, FIVE had contributed 68 million yen to the revenue of the Group and had reduced
profit from continuing operations of the Group by 4 million yen.
F-124
LINE Corporation
Notes to Consolidated Financial Statements (continued)
29. Business Combinations (continued)
Acquisition in 2017 (continued)
Acquisition of FIVE Inc. (continued)
Transaction costs of 11 million yen have been expensed and are included in “Other operating expenses” in the
Group’s Consolidated Statements of Profit or Loss.
(In millions of yen)
Analysis of cash flows on acquisition:
Total consideration related to the acquisition . . . .
Net cash and cash equivalents acquired at the
(5,446)
acquisition date . . . . . . . . . . . . . . . . . . . . . . . . .
231
Net cash flows on acquisition (included in cash
flows from investing activities)
. . . . . . . . . . . . . . .
(5,215)
If the business combinations of NextFloor Group and FIVE had taken place on January 1, 2017, revenue for the
Group would have been 168,915 million yen (unaudited) and the profit from continuing operations for the Group
would have been 6,701 million yen (unaudited) for the year ended December 31, 2017.
Other business combinations
There were no other significant business combinations for the year ended December 31, 2017.
Acquisition in 2018
There were no other significant business combinations individually or in aggregate during the year ended
December 31, 2018.
30. Principal Subsidiaries
Information on subsidiaries
(1) The Group has 62 consolidated subsidiaries. The significant subsidiaries of the Group include the following
subsidiaries:
Name
Primary business
activities
Country of
incorporation
December 31,
2017
December 31,
2018
Percentage of ownership
LINE Fukuoka Corp. . . . . . . . . . . . . Management support
LINE Pay Corporation . . . . . . . . . . . Software Development
and mobile payment
service
LINE GAME Global Gateway,
L.P.(1)
. . . . . . . . . . . . . . . . . . . . . .
Investment
LINE Mobile Corporation(2)
. . . . . . Mobile virtual network
M.T.Burn Inc.
. . . . . . . . . . . . . . . . . Advertising platform
operator
Gatebox Inc. . . . . . . . . . . . . . . . . . . .
service
IoT hologram technology
development
F-125
Japan
Japan
Japan
Japan
Japan
Japan
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
49.0%
50.5%
50.5%
51.0%
51.0%
LINE Corporation
Notes to Consolidated Financial Statements (continued)
30. Principal Subsidiaries (continued)
Information on subsidiaries (continued)
Name
Primary business
activities
Country of
incorporation
December 31,
2017
December 31,
2018
Percentage of ownership
. . . . . . . . . . Game Development
. . . . . . . . . . . . . . . . . . . . . Game Development
STAIRS Corporation(6)
FIVE Inc.
LINE Financial Corporation(3) . . . . . Financial related service
LVC Corporation . . . . . . . . . . . . . . . Financial related service
LINE Part-Time Job, Ltd.(4)
LINE Ventures Global Limited
. . . . . . Job posting service
Liability Partnership . . . . . . . . . . .
Investment
LINE Ventures Japan Limited
Liability Partnership . . . . . . . . . . .
Investment
LINE Digital Frontier
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Corporation(5) . . . . . . . . . . . . . . . . Software development
Japan
Korea
LINE Plus Corporation . . . . . . . . . . Global marketing
Korea
LINE C&I Corporation . . . . . . . . . .
LINE Biz Plus Corporation . . . . . . . Mobile payment service
Korea
LINE Friends Corporation . . . . . . . . Character goods business Korea
LINE Games Corporation(6)
Investment
. . . . . . Game Development and
Publishing
. . . . . . . . . . Software development
. . . . . . . . . . Software development
NemusTech Co., Ltd.(7)
Unblock Corporation(8)
LINE Taiwan Limited . . . . . . . . . . . Mobile Service
Line Biz+ Taiwan Limited . . . . . . . . Payment Service
LFG HOLDINGS LIMITED . . . . . . Character goods business Hong Kong (China)
LINE Financial Asia Corporation
Korea
Korea
Korea
Taiwan
Taiwan
100.0%
100.0%
—
—
49.0%
—
—
—
100.0%
100.0%
100.0%
100.0%
51.0%
88.5%
53.6%
100.0%
100.0%
100.0%
49.5%
100.0%
100.0%
100.0%
60.0%
100.0%
100.0%
70.0%
100.0%
100.0%
100.0%
100.0%
49.5%
94.2%
100.0%
100.0%
70.0%
100.0%
Limited(9)
. . . . . . . . . . . . . . . . . . . Financial related service
Hong Kong (China)
—
100.0%
LINE Company (Thailand)
Limited(10)
. . . . . . . . . . . . . . . . . . e-commerce
Thailand
50.0%
50.0%
LINE SOUTHEAST ASIA
CORP.PTE.LTD.(11)
. . . . . . . . . . Software development and
LINE VIETNAM JOINT STOCK
COMPANY(12) . . . . . . . . . . . . . . . Portal site operation
Vietnam
72.6%
98.8%
mobile payment service Singapore
100.0%
100.0%
(1)
(2)
LINE GAME Global Gateway L.P. is in the process of liquidation and it is scheduled to be completed as of
March 31, 2019.
The third-party allotment to SoftBank Corp. by LINE Mobile Corporation was executed in April, 2018. As a
result, the share of the Group decreased from 100.0% to 49.0%, resulting in LINE Mobile Corporation to be
accounted for as an associate under the equity method. The Group recorded gain on loss of control of
subsidiaries in the amount of 9,494 million yen in Other operating income for the year ended December 31,
2018, as a result of re-measurement of the Group’s investment in the LINE Mobile Corporation, based on
the fair value as of the day when the Group lost the control over this subsidiary.
(3) As a result of capital injection executed in April 2018, LINE Financial Corporation became a specified
subsidiary as its amount of share capital was equivalent to 10% of the Group’s capital amount.
F-126
LINE Corporation
Notes to Consolidated Financial Statements (continued)
30. Principal Subsidiaries (continued)
Information on subsidiaries (continued)
(4)
(5)
The Group acquired additional shares of LINE Part-Time Job, Ltd. (renamed from AUBE in June 2018) in
April 2018 and obtained 60.0% of ownership interest in this subsidiary.
The Company established LINE Digital Frontier Corporation and transferred its LINE Manga business and
LINE Comics business to LINE Digital Frontier Corporation in July 2018. Subsequently, the third-party
allotment to NAVER WEBTOON Corporation by LINE Digital Frontier Corporation was executed in
August 2018. As a result, the share of the Group decreased from 100.0% to 70.0%.
(6) NextFloor Corporation conducted an absorption-type merger with LINE Games Corporation and NextFloor
Basement Labo Corporation on August 2018, and was renamed as LINE Games Corporation. As a result of
this merger, the Group’s ownership interest net of treasury shares in LINE Games Corporation is 73.5%. In
November 2018, LINE Games Corporation issued its new shares through a third-party allotment to Lungo
Entertainment Ltd. resulting in a decrease in ownership interest net of treasury shares from 73.5% to 49.5%
and due to this event, LINE Games Corporation Group including STAIRS Corporation to be accounted for
as an associate under the equity method. For the year ended December 31, 2018, the Group recorded a gain
on loss of control of subsidiaries in the amount of 15,300 million yen in Other operating income as a result
of re-measurement of the fair value of the Group’s investment in LINE Games Corporation Group,
measured based on the date the Group lost the control over this subsidiary.
LINE Plus Corporation exercised its right to purchase shares of NemusTech, Co., Ltd. in November 2018,
resulting in an increase of the Group’s ownership in NemusTech, Co., Ltd. from 88.5% to 94.2%.
(7)
(8) As a result of capital injection executed in May 2018, the Group’s ownership in Unblock Corporation
increased from 53.6% to 100.0%.
(9) As a result of the capital injection executed in October, 2010, LINE Asia Corporation Limited became a
specified subsidiary as its amount of share capital is equivalent to 10% of the Group’s capital amount.
(10) The Group’s ownership in LINE Company (Thailand) Limited is 50.0%, but it holds 90.9% of the voting
rights. Accordingly, LINE Company (Thailand) Limited is included in the scope of consolidation for the
Group’s consolidated financial statements
(11) LINE BIZ+ PTE.LTD was renamed as LINE SOUTHEAST ASIA CORP.PTE.LTD. on January 1, 2018.
(12) LINE SOUTHEAST ASIA CORP.PTE.LTD acquired additional shares of LINE VIETNAM JOINT
STOCK COMPANY (renamed from Tre Tho Information Service Joint Stock Company in August 2018)
from a third party, resulting in an increase of the Group’s ownership in LINE VIETNAM JOINT STOCK
COMPANY from 72.6% to 98.8% in June 2018.
(2) The summarized financial information for the subsidiaries which the Group recognize non-controlling
interest are as follows: The amount disclosed for each subsidiary are before inter-company eliminations.
(In millions of yen)
M.T.Burn Inc.
December 31,
2017
December 31,
2018
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . .
2,217
231
336
64
2,048
1,012
3,866
174
538
42
3,460
1,715
Proportionate share of non-controlling interest . . . . . . . . . . . . . . . . . .
49.5%
49.5%
F-127
LINE Corporation
Notes to Consolidated Financial Statements (continued)
30. Principal Subsidiaries (continued)
Information on subsidiaries (continued)
(2) The summarized financial information for the subsidiaries which the Group recognize non-controlling
follows: The amount disclosed for each subsidiary are before inter-company
interest are as
eliminations. (continued)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net profit for the year . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . .
Total comprehensive income for the year . . . . . . . .
Profit attributable to non-controlling interest . . . . .
Dividend paid to non-controlling interest . . . . . . . .
Cash flows from operating activities . . . . . . . . . . . .
Cash flows from investing activities . . . . . . . . . . . .
Cash flows from financing activities . . . . . . . . . . . .
Net increase in cash and cash equivalent
. . . . . . . .
2016
2,236
513
—
513
259
—
2016
666
1
10
677
(In millions of yen)
M.T.Burn Inc.
2017
3,921
1,338
—
1,338
661
—
2018
3,186
1,416
—
1,416
703
—
(In millions of yen)
M.T.Burn Inc.
2017
1,224
—
(258)
966
2018
1,989
—
—
1,989
(In millions of yen)
Gatebox Inc.
December 31,
2017
December 31,
2018
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated no-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . .
184
473
139
134
384
188
1,259
353
100
2,046
(534)
(261)
Proportionate share of non-controlling interest . . . . . . . . . . . . . . . . . .
49.0%
49.0%
F-128
LINE Corporation
Notes to Consolidated Financial Statements (continued)
30. Principal Subsidiaries (continued)
Information on subsidiaries (continued)
(2) The summarized financial information for the subsidiaries which the Group recognize non-controlling
follows: The amount disclosed for each subsidiary are before inter-company
interest are as
eliminations. (continued)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss for the year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income for the year . . . . . . . . . . . . . . . . . . . . . .
Loss attributable to non-controlling interest . . . . . . . . . . . . . . . . . . . .
Dividend paid to non-controlling interest . . . . . . . . . . . . . . . . . . . . . .
Cash flows from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease)/increase in cash and cash equivalent . . . . . . . . . . . . . .
(In millions of yen)
Gatebox Inc.
2018
95
(917)
—
(917)
(449)
—
(In millions of yen)
Gatebox Inc.
2018
(963)
(10)
1,934
961
2017
0
(541)
—
(541)
(192)
—
2017
(397)
(79)
(1)
(477)
(In millions of yen)
LINE Company (Thailand) Limited
December 31,
2017
December 31,
2018
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated no-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . .
4,465
2,178
6,055
602
(14)
47
5,221
2,583
7,313
2,049
(1,558)
1,023
Proportionate share of non-controlling interest(1) . . . . . . . . . . . . . . . .
50.0%
50.0%
F-129
LINE Corporation
Notes to Consolidated Financial Statements (continued)
30. Principal Subsidiaries (continued)
Information on subsidiaries (continued)
(2) The summarized financial information for the subsidiaries which the Group recognize non-controlling
follows: The amount disclosed for each subsidiary are before inter-company
interest are as
eliminations. (continued)
(1)
The non-controlling interest in LINE Company (Thailand) Limited is 50.0%, but it holds 9.1% of the
voting rights.
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net profit/(loss) for the year . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . .
Total comprehensive income for the year . . . . . . . .
Profit/(loss) attributable to non-controlling
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend paid to non-controlling interest . . . . . . . .
Cash flows from operating activities . . . . . . . . . . . .
Cash flows from investing activities . . . . . . . . . . . .
Cash flows from financing activities . . . . . . . . . . . .
Net increase in cash and cash equivalent
. . . . . . . .
LINE Company (Thailand) Limited
(In millions of yen)
2016
432
164
(20)
144
62
—
2017
2,760
357
(60)
297
198
—
2018
8,200
(1,396)
22
(1,374)
(816)
—
LINE Company (Thailand) Limited
(In millions of yen)
2016
(586)
(53)
355
(284)
2017
1,842
(430)
—
1,412
2018
1,712
(1,709)
—
3
(3) 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 Korean Stock Exchange.
F-130
LINE Corporation
Notes to Consolidated Financial Statements (continued)
31. Investments in Associates and Joint Ventures
(1) Details of investments in the Group’s significant associates and joint ventures are as follows:
Primary business
activities
Country of
incorporation
Percentage
of ownership
Carrying
amount
Percentage
of ownership
Carrying
amount
December 31, 2017
December 31, 2018
(In millions of yen)
Associates
LINE Games Corporation(1)
. . . . . Game development
and publishing
Snow Corporation(2)
LINE Mobile Corporation(3)
. . . . . . . . . . . Mobile app
. . . . . Mobile virtual
network operator
Korea
—
—
49.5% 18,438
Korea
Japan
45.0% 12,998
—
—
34.0%
49.0%
9,346
5,637
FOLIO Co., Ltd.(4) . . . . . . . . . . . . . Online trading
Japan
—
—
41.4%
5,126
Yume no Machi Souzou Iinkai
Co., Ltd. . . . . . . . . . . . . . . . . . . . Delivery portal site
service
K-Fund I . . . . . . . . . . . . . . . . . . . . . Investment
Venture Republic Inc.(5)
LINE MUSIC Corporation(6) . . . . . Music distribution
Joint ventures
Drama & Company Co., Ltd.(7)
. . . . . . . . Travel service
. . . Software
RABBIT-LINE PAY COMPANY
LIMITED(8)
. . . . . . . . . . . . . . . . Payment service
Lantu Games Limited . . . . . . . . . . Mobile games
Development
Japan
France
Japan
Japan
22.0%
25.0%
—
33.4%
3,865
1,388
—
47
21.9%
25.0%
34.0%
36.7%
3,838
2,670
1,620
505
Korea
37.2%
2,216
40.7%
2,574
Thailand
Hong Kong
(China)
50.0%
50.0%
2,121
394
33.3%
50.0%
1,856
199
(1)
(2)
(3)
(4)
In August 2018, NextFloor Corporation, a subsidiary of the Group, conducted an absorption-type merger
with LINE Games Corporation and NextFloor Basement Labo Corporation and was renamed as LINE
Games Corporation. As a result of this merger, the Group’s ownership interest net of treasury shares in
LINE Games Corporation is 73.5%. In November 2018, LINE Games Corporation, a subsidiary of the
Group, issued its new shares through a third party allotment. As a result, the Group’s ownership interest in
LINE Games Corporation decreased from 73.5% to 49.5%. As the Group has significant influence, but not
control over LINE Games Corporation, the investment is accounted for under the equity method.
In March and October 2018, Snow Corporation, an associate of the Group, issued new shares through a
third-party allotment. As a result, the Group’s ownership interest in SNOW Corporation decreased from
45.0% to 34.0%. As the Group has significant influence, but not control over Snow Corporation, the
investment is accounted for under the equity method.
In April 2018, LINE Mobile Corporation, a subsidiary of the Group, issued its new shares through a third-
party allotment. As a result, the Group’s ownership interest in LINE Mobile Corporation decreased from
100.0% to 49.0%. As the Group has significant influence, but not control over LINE Mobile Corporation,
the investment is accounted for under the equity method.
In January 2018, the Group acquired 41.4% interest in FOLIO Co., Ltd. for the purpose of jointly
conducting online trading service that FOLIO Co., Ltd., operates and R&D. Whilst the Group had 41.4%
interest, the Group holds 26.1% of voting rights. As the Group has significant influence, but not control over
FOLIO Co., Ltd., the investment is accounted for under the equity method.
F-131
LINE Corporation
Notes to Consolidated Financial Statements (continued)
31. Investments in Associates and Joint Ventures (continued)
(1) Details of investments in the Group’s significant associates and joint ventures are as follows (continued):
(5)
(6)
(7)
(8)
In August 2018, the Group acquired 34.0% interest in Venture Republic Inc. to form a business alliance in
travel service sector. As the Group has significant influence, but not control over Venture Republic Inc., the
investment is accounted for under equity method.
In May 2018, the Group acquired additional interest in LINE Music Corporation, an associate of the Group.
As a result, the Group’s ownership interest in LINE Music Corporation increased from 33.4% to 36.7%. As
the Group has significant influence, but not control over LINE MUSIC Corporation, the investment is
accounted for under the equity method.
In October 2018, the Group acquired additional interest in Drama & Company Co., Ltd. Moreover, as
determined in the shareholders’ agreement, the Group, jointly with NAVER, acquired additional shares of
Drama & Company Co., Ltd. which were issued through exercise of stock options. As a result, the Group’s
in Drama & Company Co., Ltd. increased from 37.2% to 40.7%. As the Group
ownership interest
determined that Drama & Company Co., Ltd. is still a joint venture, the investment is accounted for under
equity method.
In March 2018, RABBIT-LINE PAY COMPANY LIMITED, a joint venture of the Group, issued its new
shares through a third party allotment. As a result, the Group’s ownership interest in RABBIT-LINE PAY
COMPANY LIMITED decreased from 50.0% to 33.3%. Based on the shareholders’ agreement, the Group
determined that RABBIT-LINE PAY COMPANY LIMITED is still a joint venture, and the investment is
accounted for under the equity method.
(2) Financial information on the Group’s investment in the associates is summarized as follows:
(In millions of yen)
Snow Corporation
December 31,
2017
December 31,
2018
2,469
17,213
1,180
2,678
15,824
11,168
15,119
9,080
2,482
14,725
45.0%
34.0%
7,121
5,877
5,007
4,339
9,346
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proportion of the Group’s ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group’s share of equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying amount of the interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,998
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss for the year from continuing operations . . . . . . . . . .
Other comprehensive income/(loss) for the year, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss for the year, net of tax . . . . . . .
Group’s share of loss for the year . . . . . . . . . . . . . . . . . . .
F-132
2016
—
(952)
—
(952)
(238)
Snow Corporation
2017
2018
271
(10,348)
131
(10,217)
(4,531)
1,320
(10,627)
(358)
(10,985)
(4,971)
LINE Corporation
Notes to Consolidated Financial Statements (continued)
31. Investments in Associates and Joint Ventures (continued)
(2) Financial information on the Group’s investment in the associates is summarized as follows (continued):
(In millions of yen)
LINE Mobile Corporation
December 31, 2018
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proportion of the Group’s ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group’s share of equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying amount of the interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,451
818
4,951
232
4,086
49.0%
2,002
3,635
5,637
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss for the year from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income for the year, net of tax . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss for the year, net of tax . . . . . . . . . . . . . . . . . . . . . . .
Group’s share of loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LINE Mobile Corporation
2018
6,545
(5,490)
—
(5,490)
(2,690)
(3) The aggregate amount of individually immaterial associates accounted for by the equity-method accounted
investee is summarized as follows:
(In millions of yen)
December 31,
2017
December 31,
2018
Carrying amount of the interests . . . . . . . . . . . . . . . .
7,115
33,788
Loss for the year from continuing operations . . . . . . . . . . . . . .
Other comprehensive income for the year, net of tax . . . . . . . .
(1,642)
2
(3,050)
84
(5,416)
191
Total comprehensive loss for the year, net of tax . . . . . . . . . . .
(1,640)
(2,966)
(5,225)
2016
2017
2018
The Group had no contingent liabilities relating to its associates as of December 31, 2016, 2017 and 2018.
F-133
LINE Corporation
Notes to Consolidated Financial Statements (continued)
31. Investments in Associates and Joint Ventures (continued)
(4) The aggregate amount of individually immaterial
accounted investee is summarized as follows:
joint ventures accounted for by the equity-method
(In millions of yen)
December 31,
2017
December 31,
2018
Carrying amount of the interests . . . . . . . . . . . . . . . .
4,731
5,150
Loss for the year from continuing operations . . . . . . . . . . . . . . . .
Other comprehensive income for the year, net of tax . . . . . . . . . . —
(417)
(2,211)
81
(3,708)
(35)
Total comprehensive loss for the year, net of tax . . . . . . . . . . . . .
(417)
(2,130)
(3,743)
2016
2017
2018
The joint ventures had no contingent liabilities as at December 31, 2017 and 2018, respectively. The Group
had outstanding payment for capital commitments of nil relating to the joint ventures as at December 31,
2017. The Group had outstanding payment for capital commitments of 4,786 million yen relating to the joint
ventures as at December 31, 2018. The Group’s joint ventures cannot distribute its profits without the
unanimous consent from the parties of the joint arrangement.
32. Subsequent Events
Issuance of stock warrant (Stock option) to directors (excluding the outside directors) of the Company
At the annual general meeting of shareholders held on March 28, 2019, and in compliance with Article 236, 238
and 239 of the Companies Act of Japan, the Company resolved to issue stock options (warrants) to directors of
the Company (excluding the outside directors) and to delegate the board of directors to determine the
subscription requirements. The details of the stock options are as follows:
Candidates and numbers of
candidates
Class of share to be issued upon
exercise of stock options
Total number of shares
Amount of payments upon exercise
of stock options
Four of the Company’s directors, excluding outside directors.
Common shares
A maximum of 3,024,000 shares will be issued. If it is appropriate to
adjust the number of allotted shares subject to stock acquisition rights
because of a transaction such as a share split or share consolidation, the
Company will adjust
the number of allotted shares as necessary to
reasonable extent.
The exercise price will be obtained by multiplying 1.05 by the average
closing price in ordinary trading of the Company’s common shares on the
Tokyo Stock Exchange for each day (excluding any day on which no
trade is executed) of the month preceding the month in which the day that
the stock options were allotted, and any fraction less than one yen arising
from such calculation will be rounded up. However, when the exercise
price calculated using this method is lower than the closing price (or
closing price immediately preceding trading day when there is no closing
price) of the shares of the Company’s common share on the allotment
F-134
LINE Corporation
Notes to Consolidated Financial Statements (continued)
31. Investments in Associates and Joint Ventures (continued)
32. Subsequent Events (continued)
Issuance of stock warrant (Stock option) to directors of the Company (continued)
Exercise period for stock options
Conditions for exercise of stock
options
date, the exercise price will be the closing price on the allotment date of
the stock option. If it is appropriate to adjust the exercise price because of
a transaction such as a merger, an issuance of shares for subscription, a
share split or share consolidation, the Company will adjust the exercise
price as necessary to reasonable extent.
The exercise period for stock options will be from the day exactly three
years following the vested date until the day exactly ten years after the
vested date.
The recipients of warrants must be in a position of director of the
Company or its subsidiaries or associates at the time of exercising the
stock options. However,
this condition does not apply in cases of
retirement of a director of the Company or its subsidiaries or associates
due to the expiration of his or her term of office, or other cases
acknowledged to have a valid reason by the Company’s board of
directors. If the recipient meets a certain condition prescribed in the
Company’s compensation policy, stock options may be exercised with a
limitation on the number of stock options witch can be exercised.
Matters relating to transfer on
acquisition of stock options
Transfer of stock options will be subject to approval by resolution of the
Company’s board of directors.
Matters relating to substitute
payment
Matters relating to granting of stock
options in association with
organizational restructuring
—
—
Other matters concerning stock options shall be determined at the meeting of the Company’s board of directors,
which will be held after the general meeting of shareholders at March 28, 2019.
Issuance of stock warrant (Stock option) to outside directors of the Company
At the annual general meeting of shareholders held on March 28, 2019, and in compliance with Article 236, 238
and 239 of the Companies Act of Japan, the Company resolved to issue stock options (warrants) to outside
directors of the Company to determine the subscription requirements. The details of the stock options are as
follows:
Candidates and numbers of
candidates
Class of share to be issued upon
exercise of stock options
Three of the Company’s outside directors.
Common shares
F-135
LINE Corporation
Notes to Consolidated Financial Statements (continued)
31. Investments in Associates and Joint Ventures (continued)
32. Subsequent Events (continued)
Issuance of stock warrant (Stock option) to directors of the Company (continued)
Total number of shares
Amount of payments upon exercise
of stock options
Exercise period for stock options
Conditions for exercise of stock
options
A maximum of 24,000 shares will be issued. If it is appropriate to adjust
the number of allotted shares subject to stock acquisition rights because
of a transaction such as a share split or share consolidation, the Company
will adjust the number of allotted shares as necessary to reasonable
extent.
The exercise price will be obtained by multiplying 1.05 by the average
closing price in ordinary trading of the Company’s common shares on the
Tokyo Stock Exchange for each day (excluding any day on which no
trade is executed) of the month preceding the month in which the day that
the stock options were allotted, and any fraction less than one yen arising
from such calculation will be rounded up. However, when the exercise
price calculated using this method is lower than the closing price (or
closing price immediately preceding trading day when there is no closing
price) of the shares of the Company’s common share on the allotment
date, the exercise price will be the closing price on the allotment date of
the stock option. If it is appropriate to adjust the exercise price because of
a transaction such as a merger, an issuance of shares for subscription, a
share split or share consolidation, the Company will adjust the exercise
price as necessary to reasonable extent.
The exercise period for stock options will be from the day exactly three
years following the vested date until the day exactly ten years after the
vested date.
The recipients of warrants must be in a position of director of the
Company or its subsidiaries or associates at the time of exercising the
stock options. However,
this condition does not apply in cases of
retirement of a director of the Company or its subsidiaries or associates
due to the expiration of his or her term of office, or other cases
acknowledged to have a valid reason by the Company’s board of
directors.
Matters relating to transfer on
acquisition of stock options
Transfer of stock options will be subject to approval by resolution of the
Company’s board of directors.
Matters relating to substitute
payment
Matters relating to granting of stock
options in association with
organizational restructuring
—
—
Other matters concerning stock options shall be determined at the meeting of the Company’s board of directors,
which will be held after the general meeting of shareholders at March 28, 2019.
F-136
Exhibit 1.1
Revised March 28, 2019
Articles of
Incorporation
LINE Corporation
LINE Corporation Articles of Incorporation
Chapter 1. General Rules
(Trade Name)
Article 1. The name of the Company shall be LINE KABUSHIKI KAISHA, and it shall be written in English as
LINE Corporation.
(Purpose)
Article 2. The purpose of the company shall be to engage in the following business activities.
(1)
Planning, design, development, operation, provision, and rental of software that utilizes telecommunication
networks and electronic technologies
(2) All types of information collection, processing and provision services that utilize telecommunication
networks and electronic technologies
(3)
Electronic communication business, Internet phone-calling and other telecommunication-related services
(4)
Establishment of an Internet-based shopping mall
(5) Online shopping operations
(6)
Planning, development, design, sales, rental, operation and the subcontracting thereof for e-commerce and
e-payment services
(7)
Planning, drafting, production and management of homepage or internet-based content
(8)
Installation, retention, management, rental and leasing of communication devices, computers and other
related equipment
(9)
Planning, development and sales of computer systems and software
(10) Export, import, planning, development, and sales of game devices and software
(11) Design, retention, operation and management operations related to all types of information distribution
systems that utilize electronic technologies
(12) Planning, development, production, sales, rental, retention, management operations and installation support
for hardware and software related to telecommunication systems
(13) Design, manufacturing, sales, retention, management and intermediary of sales of telecommunication
devices, information communication devices and other mobile devices, peripheral devices and computer
network systems
(14) Design, development, and sales of computer hardware
(15) Provision of internet connection services
(16) Production, promotion and distribution of movies
2
(17) Planning, production, sales and rental of products with recorded music and film
(18) Planning, development, manufacturing, production, sales, rental, retention, management, operation and
brokering thereof for character-licensed products, game devices, toys, other play-related products, mobile
content and software
(19) Sales of snack foods and drinks, alcoholic beverages, clothing, electronic appliances, toys, stationery,
cosmetics, watches, jewelry and daily sundries
(20) Event planning and operation
(21) Operation of restaurants, cafes and internet cafes
(22) Publishing business
(23) Planning, production, and selling of advertising and ad agency services, and agency services for receiving
applications and customer management in relation to sales promoting activities
(24) Various marketing and research business
(25) Call center operations (outsourced landline calling and reception)
(26) Sales of used products
(27) Operation of cram schools
(28) Worker dispatch services, employment placement services, and research, counseling and training for
vocational aptitude and capacity development
(29) Money lending, brokering and underwriting of loans, credit card handling, financial instruments business,
bank agency services, electronic payment agency services, financial instruments intermediary services, and
other financial services
(30)
Issuance, sales, management, operation of e-payment systems for e-money, other e-currencies, and other
means of pre-payment and fund transfer operations
(31)
Investment in relation to various businesses, including the following (a) and (b), and the businesses related
to company mergers, business alliances, and acquisition, transfer, mediation and conciliation of businesses,
securities, and monetary claims
(a)
Investment and management of assets of investment limited partnership or any other investment
partnership, or investment to investment limited partnership or any other investment partnership
(b) Mediation, intermediation, and agency of concluding investment limited partnership contract, ,silent
partnership contract, and other investment partnership contract.
(32) Operations related to damage insurance agency and life insurance solicitation
(33) Advertisement of small sum short-period insurance, and agency and mediation of contract conclusion in
relation to small sum short-period insurance
(34) Virtual currency exchange business
3
(35) Travel agency based on Travel Agency Act, travel agent’s representation, and arrangement of travel
services
(36) Management and rental operations for real estate
(37) Following operations commissioned by other companies or organizations
(a) Planning, collection, creation, publishing and management of documents related to management
analysis, business planning, statistics management and public relations
(b) Administer affairs related to bookkeeping, recording of revenues and expenditures, and settling of
accounts
(c) Human resource, labor, benefit programs, education and training services for employees
(d) Information system utilizing networks of internet and entrustment of planning, designing, and
operating of telecommunication network
(38) Management consulting for company management and subcontracting of management
(39) Acquisition, sales, usage licenses and other management operations for copyrights, design rights,
trademark rights and industrial property rights
(40) Consulting, export and import operations, and resale operations related to any of the foregoing
(41) All businesses incidental to any of the foregoing
(Location of Head Office)
Article 3. The Company shall have its head office in Shinjuku-ku, Tokyo.
(Organs)
Article 4. In addition to a general meeting of shareholders and a Board of Directors, the Company shall have the
following organs.
(1)
Board of Directors
(2) Auditors
(3)
Board of Auditors
(4) Accounting Auditors
(Method for Public Notices)
Article 5. The method of public notices of the Company shall be electronic public notices. However, if the
Company is unable to issue an electronic public notice due to an accident or for any other unavoidable reason,
public notices of the Company shall be issued in Nihon Keizai Shimbun.
Chapter 2. Shares
(Total Number of Issuable Shares)
Article 6. The total number of shares issuable by the Company shall be 690,000,000.
4
(Acquisition of Own Shares)
Article 7. Upon resolution by the Board of Directors, the Company shall be able to acquire its own shares via
Market Transactions, in accordance with Article 165 Paragraph 2 of the Companies Act.
(Number of Shares Constituting One Unit of Share)
Article 8. The Number of shares constituting one unit of share shall be one hundred (100) shares.
(Rights with Respect to Shares Constituting Less Than One Unit)
Article 9. A shareholder may not exercise rights with respect to shares constituting less than one unit other than:
(1)
Rights specified in each item of Article 189 Paragraph 2 of the Companies Act;
(2)
Rights to demand acquisition per Article 166 Paragraph 1 of the Companies Act;
(3) A right to receive an allotment of subscription shares or subscription stock acquisition rights in accordance
with the number of shares held by the shareholder; and
(4) A right to make the demand stipulated in the following article.
(Additional Purchase of Shares Constituting Less Than One Unit)
Article 10. In accordance with the provisions of the Share Handling Regulations, a shareholder holding Company
shares constituting less than one unit shall be able to demand that the Company sell the necessary amount of
shares which will, when added together with that shareholder’s existing shares, constitute one unit of share.
(Share Registrar)
Article 11. The Company shall appoint a share registrar.
2. The share registrar and its business office shall be determined by resolution of the Board of Directors.
3. Any business related to the shareholders register and the ledger of stock acquisition rights of the Company,
shall be entrusted to the transfer agent and shall not be handled by the Company.
(Share Handling Regulations)
Article 12. Handling and fees related to shares of the Company shall be according to the Share Handling
Regulations established by the Board of Directors.
Chapter 3. General Meeting of Shareholders
(Convocation)
Article 13. Regular general meetings of shareholders shall be convened within three months of the conclusion of
each fiscal year, and extraordinary meetings of shareholders shall be convened when necessary.
(Record Date for Regular General Meeting of Shareholders)
Article 14. The record date for voting rights at a regular general meeting of shareholders shall be December 31 of
every year.
5
(Convocator and Chairperson)
Article 15. Upon resolution by the Board of Directors, the President and CEO shall convene a general meeting of
shareholders and act as the chairperson thereof, unless otherwise provided by laws and regulations. If that the
President and CEO is unable to serve in this position, another Director, determined in accordance with an order
of succession previously determined by resolution of the Board of Directors, shall act in place of the President
and CEO.
(Disclosure via the Internet of Reference Documents for the General Meeting of Shareholders and the Deemed
Provision of Information)
Article 16. In accordance with the ordinances of the Ministry of Justice, the Company shall be deemed to have
provided shareholders with all necessary information stated or indicated in reference documents for the general
meeting of shareholders, business reports, non-consolidated financial statements and consolidated financial
statements, by disclosing such information via the Internet.
(Method for Adopting Resolutions)
Article 17. Except as otherwise provided by laws and regulations or by these Articles of Incorporation, all
resolutions at general meetings of shareholders shall be passed by a majority of the votes of the shareholders in
attendance entitled to exercise voting rights.
2. Special Resolutions provided for in Article 309 Paragraph 2 of the Companies Act may only be passed by
two-thirds or more of the votes of the shareholders in attendance, who must hold in the aggregate a majority
of the voting rights of shareholders entitled to exercise voting rights.
(Exercise of Voting Rights by Proxy)
Article 18. A shareholder may exercise his/her voting rights by authorizing one other shareholder with voting
rights of the Company as his/her proxy.
2. The shareholder or his/her proxy in the preceding paragraph shall submit to the Company a document
evidencing that authority of representation at each general meeting of shareholders.
(Number of Directors)
Chapter 4. Directors and Board of Directors
Article 19. The number of Directors of the Company shall be no less than three and no more than eight.
(Election Method)
Article 20. Resolutions for the election of Directors shall be passed by a majority of the votes of shareholders in
attendance, who must hold in the aggregate one-third or more of the total number of voting rights of shareholders
entitled to exercise voting rights.
2. Resolutions for the election of Directors shall not be made by cumulative voting.
(Term of Office)
Article 21. The term of office of a Director shall expire upon conclusion of the last regular general meeting of
shareholders of the final fiscal year ending within two years after his or her election.
2. The term of office of a Director elected to fill a vacancy or to increase the number of Directors shall be the
same as the remaining term of office of the other Directors in office at that time.
6
(Convocator and Chairperson of Board of Directors)
Article 22. The President and CEO shall convene the meeting of the Board of Directors and act as the
chairperson thereof, unless otherwise provided by laws and regulations. If the President and CEO is unable to
serve in this position, another Director, determined in accordance with an order of succession previously
determined by resolution of the Board of Directors, shall act in place of the President and CEO.
2. Notice of convocation of a meeting of the Board of Directors shall be sent to each Director and Auditor at
least three days prior to the meeting. However, in the event of urgency, such period may be shortened.
3. When the consent of all Directors and Auditors is obtained, a meeting of the Board of Directors may be held
without following the above procedures for convening a meeting.
(Representative Director)
Article 23. The Board of Directors shall appoint a Representative Director via resolution.
(Executive Directors)
Article 24. The Board of Directors shall appoint by resolution one Chairperson, one President, and may appoint
one or more Vice Presidents, Senior Managing Directors, or Executive Directors from among its
members.
(Resolutions of the Board of Directors)
Article 25. Resolutions of the Board of Directors shall be adopted by a majority vote of the Directors in
attendance, who must constitute in number more than half the total number of Directors.
2. When requirements stipulated in Article 370 of the Companies Act are satisfied, resolutions of the Board of
Directors shall be deemed to have been adopted.
(Regulations of the Board of Directors)
Article 26. In addition to laws, regulations and these Articles of Incorporation, matters related to the Board of
Directors shall be governed by the Regulations of the Board of Directors established by the Board of Directors.
(Remuneration, Etc.)
Article 27. Remuneration, bonuses and other financial benefits to be received by Directors as consideration for
the performance of their duties for the Company (“Remuneration, Etc.”) shall be decided by a resolution of the
general meeting of shareholders.
(Exemption of Director Liability)
Article 28. In accordance with the provisions of Article 426 Paragraph 1 of the Companies Act, the Company
may, upon resolution by the Board of Directors, exempt Directors (including former Directors) from liabilities
for damage compensation stipulated in Article 423 Paragraph 1 of the Companies Act.
2.
In accordance with the provisions of Article 427 Paragraph 1 of the Companies Act, the Company may enter
into agreements with Directors (excluding Executive Directors, etc.) which limit their liabilities specified by
Article 423 Paragraph 1 of the Companies Act. However, the liability limit amount under such agreements
shall be the higher of either a predetermined amount of at least 10 million yen or the minimum liability
amount provided for by laws and regulations.
7
Chapter 5. Auditors and Board of Auditors
(Number of Auditors)
Article 29. The number of Auditors of the Company shall be no more than five.
(Election Method)
Article 30. Resolutions for the election of Auditors shall be passed by a majority of the votes of shareholders in
attendance, who must hold in the aggregate one-third or more of the total number of voting rights of shareholders
entitled to exercise voting rights.
2.
In accordance with the provisions of Article 329, Paragraph 3 of the Companies Act, the Company may elect
Substitute Auditors at a general meeting of shareholders in order to prepare for any case in which the number
of Auditors falls short of the number provided for by laws and regulations.
3. A resolution for the election of a Substitute Auditor described in the previous paragraph shall be effective
until the commencement of the regular general meeting of shareholders to be held for the last fiscal year
ending within four years after the resolution for the election, unless that term is shortened by a resolution of
a general meeting of shareholders.
(Term of Office)
Article 31. The term of office of an Auditor shall expire upon conclusion of the last regular general meeting of
shareholders of the final fiscal year ending within four years after his or her election.
2. The term of office of an Auditor elected to fill a vacancy of an Auditor who retires before the expiration of
his or her term shall be the same as the remaining term of office of the retired Auditor whose vacancy he/she
has filled. However, in the event that a Substitute Auditor described in the paragraph 2 of the previous
Article assumes the office as an Auditor, the term of office of such Auditor shall not exceed the conclusion
of the last regular general meeting of shareholders of the final fiscal year ending within four years after his
or her election as substitute Auditor.
(Convocation of the Board of Auditors)
Article 32. Notice of convocation of a meeting of the Board of Auditors shall be sent to each Auditor at least
three days prior to the meeting. However, in the event of urgency, such period may be shortened.
2. When the consent of all Auditors is obtained, a meeting of the Board of Directors may be held without
following the above procedures for convening a meeting.
(Full-Time Auditors)
Article 33. The Board of Auditors shall appoint by its resolution one or more Full-time Auditors.
(Regulations of the Board of Auditors)
Article 34. In addition to laws, regulations and these Articles of Incorporation, matters related to the Board of
Auditors shall be governed by the Regulations of the Board of Auditors established by the Board of Auditors.
(Remuneration, Etc.)
Article 35. Remuneration, Etc. for Auditors shall be decided by a resolution of the general meeting of
shareholders.
8
(Exemption of Auditor Liability)
Article 36. In accordance with the provisions of Article 426 Paragraph 1 of the Companies Act, the Company
may, upon resolution by the Board of Directors, exempt Auditors (including former Auditors) from liabilities for
damage compensation stipulated in Article 423 Paragraph 1 of the Companies Act.
2.
In accordance with the provisions of Article 427 Paragraph 1 of the Companies Act, the Company may enter
into agreements with Auditors which limit their liabilities specified by Article 423 Paragraph 1 of the
Companies Act. However, the liability limit amount under such agreements shall be the higher of either a
predetermined amount of at least 10 million yen or the minimum liability amount provided for by laws and
regulations.
Chapter 6. Accounting Auditors
(Election Method)
Article 37. Accounting Auditors shall be appointed at a general meeting of shareholders.
(Term of Office)
Article 38. The term of office of an Accounting Auditor shall expire upon conclusion of the last regular general
meeting of shareholders held for the business year ending within 1 year after their election.
2. Unless a resolution to the contrary is adopted by the regular general meeting of shareholders described in the
previous paragraph, the Accounting Auditor shall be deemed to have been reappointed.
(Business Year)
Chapter 7. Accounts
Article 39. The business year of the Company shall be one year commencing on January 1 of every year and
ending on December 31 of the same year.
(Record Date for Distribution of Dividends from Surplus)
Article 40. The record date for distribution of dividends from surplus shall be December 31 of every year.
(Interim Dividends)
Article 41. The Company shall be able to, by resolution of the Board of Directors, pay interim dividends with
June 30 of every year serving as the record date.
(Statute of Limitations on Dividends)
Article 42. In cases where dividends are paid in cash, the Company shall be relieved from the obligation of
paying dividends if such dividends remain unreceived for three years after the date payment thereof commenced.
2. No interest shall accrue on unpaid dividends.
9
Chapter 8. Special Controlling Shareholders
(Special Controlling Shareholders)
Article 43. Special controlling shareholders stipulated in Article 179 Paragraph 1 of the Companies Act refers to
those who hold 98 percent or more of all voting rights granted by shares of the Company, in accordance with the
stipulations of the same paragraph.
Revised September 04, 2000
Revised July 19, 2005
Revised May 30, 2006
Revised September 14, 2006
Revised March 30, 2007
Revised September 16, 2008
Revised January 01, 2012
Revised October 01, 2012
Revised April 01, 2013
Revised April 01, 2014
Revised May 08, 2014
Revised July 28, 2014
Revised June 15, 2015
Revised March 31, 2016
Revised May 20, 2016
Revised March 30, 2017
Revised April 1, 2017
Revised March 28, 2019
10
Regulations of the Board of Directors
General Rules
Exhibit 1.3
LINE Corporation
Article 1 (Purpose)
1. The purpose of these Regulations shall be, with respect to the Board of Directors of the Company, to ensure
proper and smooth operations in accordance with laws and regulations, and the Articles of Incorporation.
2. Except as otherwise provided in laws and regulations or the Articles of Incorporation, matters concerning the
Board of Directors of the Company shall be governed by these Regulations.
Article 2 (Composition)
1. The Board of Directors shall be composed of all of the Company’s Directors, and a meeting of the Board of
Directors shall be effective when a majority of the members are present.
2. Corporate Auditors may be present at a meeting of the Board of Directors and express their opinions.
Article 3 (Types of Meeting of the Board of Directors)
A meeting of the Board of Directors shall, in principle, be held once a month. However, a meeting of the
Board of Directors may be held at any time if necessary.
Article 4 (Convener and Chairman)
1. The Representative Director and President shall convene the meetings of the Board of Directors and act as
the chairman thereof, unless otherwise provided by laws and regulations. If the Representative Director and
President is unable to serve in this position, another Director, determined in accordance with an order of
succession previously determined by resolution of the Board of Directors, shall act
in place of the
Representative Director and President.
2. Each of the Directors and Corporate Auditors may demand convocation of a meeting of the Board of
Directors by submitting a document indicating the purpose of the meeting of the Board of Directors to the
convener.
Article 5 (Process for Convocation)
1. Notice of a meeting of the Board of Directors (indicating the purpose of the meeting) shall be sent to each
Director and Corporate Auditor at least three days prior to the meeting. However, in the event of urgency,
such period may be shortened.
2. When the consent of all Directors and Corporate Auditors is obtained, a meeting of the Board of Directors
may be held without following the above procedures for convening a meeting.
Article 6 (Matters to be Resolved)
1. The Board of Directors shall resolve matters provided for in Exhibit 1.
1
Regulations of the Board of Directors
LINE Corporation
2. Types of resolutions in a meeting of the Board of Directors shall be as set forth under one of the following
items.
(1) Approval
To approve the contents of a draft without amendment
(2) Approval with amendment
To approve the contents of a draft after partially amending immaterial matters thereof
(3) Supplement
To direct to supplement material matters contained in a draft, and ensure that the draft is brought back
before the Board of Directors to resolve at the following meeting of the Board of Directors
(4) Rejection
To reject the contents of a draft entirely, which prohibits the discussion of the draft again at a meeting of
the Board of Directors in the same business year
3. When emergency measures are necessary, the Representative Director and President may execute them
without a resolution of a meeting of the Board of Directors, unless to do so would violate laws and
regulations or the Articles of Incorporation. In this case, such execution shall be subject to an approval of the
Board of Directors at the following meeting of the Board of Directors.
Article 7 (Matters to be Reported)
1. The Representative Director and President shall report the profit and loss, status of properties and status of
execution of other material business at a meeting of the Board of Directors.
2. The chairman and the Representative Director and President may appoint another Director to give the report
provided for in the preceding paragraph.
3. Directors who have been engaged in competitive transactions and transactions with the Company shall report
to the Board of Directors on the material facts of such transaction.
4.
In cases where Directors have notified all of the Directors and Corporate Auditors of the matters to be
reported at a meeting of the Board of Directors, the report provided for in Paragraphs 1 and 3 shall be
unnecessary.
Article 8 (Matters to be Discussed)
If matters scheduled to be discussed in the following meeting or the meeting thereafter are required to be
discussed in advance, the matters may be brought before the Board of Directors to discuss without a resolution.
Article 9 (Omission of a Resolution of the Board of Directors)
When requirements stipulated in Article 370 of the Companies Act (Law No. 45 of 2017) are satisfied,
resolutions of the Board of Directors shall be deemed to have been adopted.
2
Regulations of the Board of Directors
LINE Corporation
Article 10 (Manifestation of Intention in Writing)
1. A Director or Corporate Auditor who cannot be present at a meeting of the Board of Directors due to
unavoidable reasons may manifest his/her intention concerning an agenda and a matter to the person who
will be the chairman in writing in advance.
2. When the manifestation of intention described in the preceding paragraph occurs, the chairman shall report
such fact and its contents in discussion at a meeting of the Board of Directors.
Article 11 (Opinion of the Corporate Auditors)
Corporate Auditors may, if necessary, state their opinions concerning matters outside of the matters that
are on an agenda of a meeting of the Board of Directors.
Article 12 (Attendance of Persons other than Directors and Corporate Auditors)
If the Board of Directors finds it necessary, it may order persons other than Directors and Corporate
Auditors to attend a meeting of the Board of Directors and may ask for their report or opinion.
Article 13 (Resolution of a Meeting of the Board of Directors)
1. A resolution of a meeting of the Board of Directors shall be made by a majority of the Directors present at
the meeting where a majority of the Directors are present.
2.
If votes are split equally and there is no majority when a resolution is intended to be made under the
preceding paragraph, the chairman may defer the resolution and propose the matter to be resolved again at
the following meeting of the Board of Directors.
3. Although Directors each have one voting right, Directors who have a special interest in the business of a
meeting of the Board of Directors may not exercise their voting rights. In this case, the number of voting
rights held by such Director shall not be included in the number of voting rights held by Directors present,
for the purpose of determining whether the resolution is adopted or not.
4. The Board of Directors shall respect, to the extent possible, the contents and outcome of discussions of the
advisory body, which was established based on Article 18 in a resolution provided for in Paragraph 1.
Article 14 (Minutes)
1. Minutes shall be prepared with respect to the business of a meeting of the Board of Directors, and the
minutes shall be retained at the head office for a period of ten years.
2. The minutes shall state (i) the date and time on which and the place where a meeting of the Board of
Directors was held, (ii) the substance of the proceedings of a meeting of the Board of Directors and the
results thereof, (iii) the names of Directors if any who have a special interest in matters required to be
resolved, (iv) the name of the chairman of the meeting, (v) if the meeting was convened by request of
persons other than the convener or convened by persons other than the convener, such fact, (vi) the name of
Directors if any who do not agree with the resolution, and other matters provided for in laws and regulations,
and the Directors and the Corporate Auditors present shall affix their names and seals to the minutes.
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Regulations of the Board of Directors
LINE Corporation
3.
4.
If it is unnecessary to report to the Board of Directors pursuant to Article 7, Paragraph 4, (i) the contents of
matters that were not required to be reported, (ii) the date on which the matters to be reported at a meeting of
the Board of Directors were notified to all of the Directors and Corporate Auditors, and (iii) the name of the
Director who performed the duties concerning the preparation of the minutes shall be stated in the minutes.
If a resolution of a meeting of the Board of Directors is deemed to have been adopted pursuant to Article 9,
(i) the contents of matters which are deemed to have been resolved at a meeting of the Board of Directors,
(ii) the name of the Director who proposed the matter set forth in (i), (iii) the day on which the resolution of
the meeting of the Board of Directors is deemed to have been adopted, and (iv) the name of the Director who
performed the duties concerning the preparation of the minutes shall be stated in the minutes.
Article 15 (Notice to Absentees)
The substance of the proceedings of a meeting of the Board of Directors and the results thereof shall be
notified to the Directors and the Corporate Auditors who were absent from such meeting.
Article 16 (Administrative Office of the Board of Directors)
1. The BOD support team shall act as the administrative office of the Board of Directors.
2. The administrative office shall conduct the holding of meetings of the Board of Directors, the preparation
and retention of minutes and other operations concerning the Board of Directors under the entrustment of the
chairman.
Article 17 (Transfer of Authority)
1. The Board of Directors may establish subsidiary conference bodies of the Board of Directors and transfer the
authority of the Board of Directors, as provided for in Exhibit 2.
2. Management of conferences and others of subsidiary conference bodies shall be governed by rules separately
established.
Article 18 (Advisory Bodies)
The Board of Directors may establish advisory bodies of the Board of Directors and make the advisory
bodies conduct necessary discussions, as provided for in Exhibit 3.
Article 19 (Others)
Any matters regarding the management of the Board of Directors which are not provided in laws and
regulations, the Articles of Incorporation or these Regulations, shall be subject to the discussions of a meeting of
the Board of Directors and decisions of the chairman.
Article 20 (Modification and Abolition)
The modification or abolition of these Regulations shall be subject to a resolution of a meeting of the
Board of Directors. However, any amendment to a responsible department of the administrative office of the
Board of Directors provided for in Article 16, the section in charge and the like provided for in this Article shall
be subject to the approval of the Representative Director and President.
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Regulations of the Board of Directors
LINE Corporation
Supplementary Provisions
These Regulations shall come into effect as of January 19, 2019.
Supplementary Provisions
These Regulations shall come into effect as of October 01, 2018.
Supplementary Provisions
These Regulations shall come into effect as of September 01, 2017.
Supplementary Provisions
These Regulations shall come into effect as of August 01, 2016.
Supplementary Provisions
These Regulations shall come into effect as of April 01, 2016.
Supplementary Provisions
These Regulations shall come into effect as of February 01, 2016.
Supplementary Provisions
These Regulations shall come into effect as of December 01, 2014.
Supplementary Provisions
These Regulations shall come into effect as of March 01, 2014.
Supplementary Provisions
These Regulations shall come into effect as of January 15, 2014.
Supplementary Provisions
These Regulations shall come into effect as of July 01, 2013.
Supplementary Provisions
These Regulations shall come into effect as of April 01, 2013.
Supplementary Provisions
These Regulations shall come into effect as of June 01, 2010.
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Regulations of the Board of Directors
LINE Corporation
Supplementary Provisions
These Regulations shall come into effect as of June 01, 2008.
Supplementary Provisions
These Regulations shall come into effect as of April 25, 2007.
Supplementary Provisions
These Regulations shall come into effect as of May 30, 2006.
Supplementary Provisions
These Regulations shall come into effect as of August 17, 2005.
Supplementary Provisions
These Regulations shall come into effect as of June 02, 2005.
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Regulations of the Board of Directors
LINE Corporation
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