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MarketScreener Homepage  >  Equities  >  Tokyo Stock Exchange  >  Z Holdings Corporation    4689   JP3933800009

Z HOLDINGS CORPORATION

(4689)
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Z : Consolidated Financial Statements for the Year Ended March 31, 2020, and Independent Auditor's Report(3 MB)

08/07/2020 | 05:49am EST

Z Holdings Corporation and Subsidiaries

Consolidated Financial Statements for the Year Ended March 31, 2020, and Independent Auditor's Report

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Financial Position

Thousands of

U.S. Dollars

Millions of Yen

(Note 2(3))

As of

As of

March 31

March 31,

2020

2019

2020

ASSETS:

Cash and cash equivalents (Note 7)

¥

880,100

¥

546,784

$

8,086,924

Call loans in banking business (Note 29)

-

20,000

-

Trade and other receivables (Notes 8 and 29)

386,799

328,281

3,554,157

Inventories

20,889

18,306

191,941

Loans in credit card business (Note 29)

342,245

253,340

3,144,767

Investment securities in banking business

(Notes 9 and 29)

415,809

419,551

3,820,720

Loans in banking business (Note 29)

98,752

80,942

907,396

Other financial assets (Notes 10 and 29)

264,213

191,260

2,427,758

Property and equipment (Note 11)

131,215

133,867

1,205,687

Right-of-use assets (Note 12)

106,304

-

976,789

Goodwill (Note 13)

400,034

175,301

3,675,769

Intangible assets (Note 13)

679,375

165,293

6,242,534

Investments accounted for using the equity

method (Note 14)

8,567

24,510

78,719

Deferred tax assets (Note 15)

43,739

34,551

401,902

Other assets (Note 16)

155,863

37,609

1,432,169

TOTAL ASSETS

¥

3,933,910

¥

2,429,601

$

36,147,293

- 4 -

(Continued)

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Financial Position

Thousands of

U.S. Dollars

Millions of Yen

(Note 2(3))

As of

As of

March 31

March 31,

2020

2019

2020

LIABILITIES AND EQUITY:

Liabilities:

Trade and other payables (Notes 17 and 29)

¥

487,242

¥

394,545

$

4,477,092

Customer deposits in banking business

(Notes 18 and 29)

903,118

768,613

8,298,428

Interest-bearing liabilities (Notes 19 and 29)

1,086,436

215,212

9,982,872

Other financial liabilities (Note 29)

10,157

8,683

93,329

Income taxes payable

32,887

24,138

302,186

Provisions (Note 20)

28,161

30,360

258,761

Deferred tax liabilities (Note 15)

160,976

20,403

1,479,150

Other liabilities (Note 22)

177,106

57,118

1,627,363

Total liabilities

2,886,086

1,519,077

26,519,213

Equity:

Equity attributable to owners of the parent:

Common stock (Note 26)

237,422

8,939

2,181,585

Capital surplus (Notes 26 and 28)

212,539

(12,545)

1,952,944

Retained earnings (Note 26)

330,752

832,147

3,039,161

Treasury stock (Note 26)

(17,382)

(24,440)

(159,716)

Accumulated other comprehensive income

8,216

14,190

75,493

Total equity attributable to owners

of the parent

771,548

818,291

7,089,479

Non-controlling interests

276,274

92,231

2,538,583

Total equity

1,047,823

910,523

9,628,071

TOTAL LIABILITIES AND EQUITY

¥

3,933,910

¥

2,429,601

$

36,147,293

See notes to consolidated financial statements.

- 5 -

(Concluded)

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Profit or Loss

Thousands of

U.S. Dollars

Millions of Yen

(Note 2(3))

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

REVENUE (Note 32)

¥ 1,052,943

¥ 954,714

$ 9,675,117

COST OF SALES (Note 33)

424,463

408,912

3,900,238

SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES (Note 33)

476,204

413,249

4,375,668

GAIN ON SALE OF INVESTMENTS IN A SUBSIDIARY

(Note 34)

-

7,977

-

Operating income

152,276

140,528

1,399,209

OTHER NON-OPERATING INCOME (Note 35)

12,954

1,320

119,029

OTHER NON-OPERATING EXPENSES

3,691

1,238

33,915

(LOSS) GAIN ON SALE OF INVESTMENTS IN

ASSOCIATES AND JOINT VENTURES

(1,319)

301

(12,119)

EQUITY IN LOSSES OF ASSOCIATES AND

JOINT VENTURES (Note 14)

(24,542)

(17,541)

(225,507)

PROFIT BEFORE TAX

135,676

123,370

1,246,678

INCOME TAX EXPENSE (Note 15)

47,655

45,542

437,884

PROFIT FOR THE YEAR

¥

88,020

¥

77,828

$

808,784

ATTRIBUTABLE TO:

Owners of the parent

¥

81,675

¥

78,677

$

750,482

Non-controlling interests

6,345

(848)

58,301

PROFIT FOR THE YEAR

¥

88,020

¥

77,828

$

808,784

EARNINGS PER SHARE ATTRIBUTABLE TO

OWNERS OF THE PARENT:

Basic (yen and U.S. dollars) (Note 37)

¥16.88

¥14.74

$0.16

Diluted (yen and U.S. dollars) (Note 37)

16.88

14.74

0.16

See notes to consolidated financial statements.

- 6 -

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Comprehensive Income

Thousands of

U.S. Dollars

Millions of Yen

(Note 2(3))

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

PROFIT FOR THE YEAR

¥ 88,020

¥ 77,828

$ 808,784

OTHER COMPREHENSIVE INCOME:

Items that may not be reclassified subsequently to

profit or loss-equity instruments measured at fair value

through other comprehensive income (Notes 30 and 36)

(6,677)

3,746

(61,352)

Items that may be reclassified subsequently to

profit or loss:

Debt instruments measured at fair value through other

comprehensive income (Notes 30 and 36)

(1,415)

1,080

(13,001)

Exchange differences on translating foreign

operations (Notes 30 and 36)

(535)

911

(4,915)

Share of other comprehensive income of associates

(Notes 14 and 36)

0

(13)

0

Subtotal

(1,949)

1,979

(17,908)

Other comprehensive (loss) income, net of tax

(8,627)

5,725

(79,270)

TOTAL COMPREHENSIVE INCOME

¥ 79,393

¥ 83,554

$ 729,513

ATTRIBUTABLE TO:

Owners of the parent

¥ 73,822

¥ 83,855

$ 678,323

Non-controlling interests

5,570

(301)

51,180

TOTAL COMPREHENSIVE INCOME

¥ 79,393

¥ 83,554

$ 729,513

See notes to consolidated financial statements.

- 7 -

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Changes in Equity

Millions of Yen

Equity Attributable to Owners of the Parent

Accumulated

Other

Common

Capital

Retained

Treasury

Comprehensive

Non-controlling

Stock

Surplus

Earnings

Stock

Income

Total

Interests

Total

BALANCE AT APRIL 1, 2018

¥

8,737

¥ (4,602)

¥ 993,894

¥ (1,316)

¥

16,655

¥

1,013,368

¥ 108,518

¥ 1,121,887

Cumulative effect of adopting a new accounting standard*

-

-

(205)

-

167

(38)

(20)

(59)

BALANCE AT APRIL 1, 2018―As restated

8,737

(4,602)

993,688

(1,316)

16,822

1,013,330

108,497

1,121,827

Profit for the year

-

-

78,677

-

-

78,677

(848)

77,828

Other comprehensive income, net of tax

-

-

-

-

5,178

5,178

546

5,725

Total comprehensive income for the year

-

-

78,677

-

5,178

83,855

(301)

83,554

Issue of common stock (Note 26)

201

201

-

-

-

403

-

403

Payment of dividends (Note 27)

-

-

(50,449)

-

-

(50,449)

(1,815)

(52,264)

Transfer of accumulated other comprehensive income to retained earnings

-

-

7,810

-

(7,810)

-

-

-

Purchase of treasury stock

-

-

-

(220,704)

-

(220,704)

-

(220,704)

Disposal of treasury stock

-

-

(197,579)

197,579

-

-

-

-

Changes attributable to obtaining or losing control of subsidiaries

-

-

-

-

-

-

1,693

1,693

Changes in ownership interests in subsidiaries without losing control

-

(8,050)

-

-

-

(8,050)

(15,872)

(23,923)

Others

-

(93)

-

-

-

(93)

29

(63)

Total

201

(7,942)

(240,218)

(23,124)

(7,810)

(278,894)

(15,964)

(294,858)

BALANCE AT MARCH 31, 2019

8,939

(12,545)

832,147

(24,440)

14,190

818,291

92,231

910,523

Cumulative effect of adopting a new accounting standard (Note 3)**

-

-

(2,466)

-

-

(2,466)

(2,997)

(5,463)

BALANCE AT APRIL 1, 2019―As restated

8,939

(12,545)

829,681

(24,440)

14,190

815,825

89,234

905,060

Profit for the year

-

-

81,675

-

-

81,675

6,345

88,020

Other comprehensive loss, net of tax

-

-

-

-

(7,852)

(7,852)

(774)

(8,627)

Total comprehensive income (loss) for the year

-

-

81,675

-

(7,852)

73,822

5,570

79,393

Issue of common stock (Note 26)

228,483

226,393

-

-

-

454,877

-

454,877

Payment of dividends (Note 27)

-

-

(45,042)

-

-

(45,042)

(5,608)

(50,650)

Transfer of accumulated other comprehensive income to retained earnings

-

-

(1,877)

-

1,877

-

-

-

Purchase of treasury stock

-

-

-

(526,625)

-

(526,625)

-

(526,625)

Disposal of treasury stock

-

-

(533,684)

533,684

-

-

-

-

Changes attributable to obtaining or losing control of subsidiaries

-

-

-

-

-

-

186,309

186,309

Changes in ownership interests in subsidiaries without losing control

-

(1,138)

-

-

-

(1,138)

777

(361)

Others

-

(170)

(0)

-

-

(170)

(9)

(180)

Total

228,483

225,084

(580,603)

7,058

1,877

(118,099)

181,469

63,369

BALANCE AT MARCH 31, 2020

¥

237,422

¥212,539

¥ 330,752

¥ (17,382)

¥

8,216

¥

771,548

¥ 276,274

¥ 1,047,823

- 8 -

(Continued)

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Changes in Equity

Thousands of U.S. Dollars (Note 2(3))

Equity Attributable to Owners of the Parent

Accumulated

Other

Common

Capital

Retained

Treasury

Comprehensive

Non-controlling

Stock

Surplus

Earnings

Stock

Income

Total

Interests

Total

BALANCE AT MARCH 31, 2019

$

82,137

$ (115,271)

$ 7,646,301

$

(224,570)

$ 130,386

$ 7,518,983

$ 847,477

$ 8,366,470

Cumulative effect of adopting a new accounting standard**

-

-

(22,659)

-

-

(22,659)

(27,538)

(50,197)

BALANCE AT APRIL 1, 2019―As restated

82,137

(115,271)

7,623,642

(224,570)

130,386

7,496,324

819,939

8,316,273

Profit for the year

-

-

750,482

-

-

750,482

58,301

808,784

Other comprehensive loss, net of tax

-

-

-

-

(72,149)

(72,149)

(7,112)

(79,270)

Total comprehensive income (loss) for the year

-

-

750,482

-

(72,149)

678,323

51,180

729,513

Issue of common stock (Note 26)

2,099,448

2,080,244

-

-

-

4,179,702

-

4,179,702

Payment of dividends (Note 27)

-

-

(413,874)

-

-

(413,874)

(51,529)

(465,404)

Transfer of accumulated other comprehensive income to retained earnings

-

-

(17,247)

-

17,247

-

-

-

Purchase of treasury stock

-

-

-

(4,838,969)

-

(4,838,969)

-

(4,838,969)

Disposal of treasury stock

-

-

(4,903,831)

4,903,831

-

-

-

-

Changes attributable to obtaining or losing control of subsidiaries

-

-

-

-

-

-

1,711,926

1,711,926

Changes in ownership interests in subsidiaries without losing control

-

(10,456)

-

-

-

(10,456)

7,139

(3,317)

Others

-

(1,562)

(0)

-

-

(1,562)

(82)

(1,653)

Total

2,099,448

2,068,216

(5,334,953)

64,853

17,247

(1,085,169)

1,667,453

582,275

BALANCE AT MARCH 31, 2020

$

2,181,585

$ 1,952,944

$ 3,039,161

$

(159,716)

$ 75,493

$ 7,089,479

$ 2,538,583

$ 9,628,071

  • In adopting IFRS 9 "Financial Instruments," the cumulative effect of retrospective adjustments was recognized as adjustments to the beginning balance of retained earnings and accumulated other comprehensive income.
  • In adopting IFRS 16 "Leases," the cumulative effect of retrospective adjustments was recognized as adjustments to the beginning balance of retained earnings.

See notes to consolidated financial statements.

- 9 -

(Concluded)

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Cash Flows

Thousands of

U.S. Dollars

Millions of Yen

(Note 2(3))

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Profit before tax

¥ 135,676

¥

123,370

$ 1,246,678

Depreciation and amortization

83,419

52,498

766,507

Equity in losses of associates and joint ventures

24,542

17,541

225,507

Decrease in call loans in banking business

20,000

58,000

183,772

Increase in trade and other receivables

(31,237)

(40,744)

(287,025)

Increase in trade and other payables

73,784

50,274

677,974

Increase in loans in credit card business

(88,904)

(66,719)

(816,907)

Increase in loans in banking business

(17,980)

(5,057)

(165,211)

Increase in customer deposits in banking business

134,504

60,559

1,235,909

Others

(31,467)

(40,408)

(289,139)

Subtotal

302,337

209,314

2,778,066

Income taxes-paid

(59,058)

(59,356)

(542,662)

Net cash generated by operating activities

243,278

149,957

2,235,394

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of investment securities in banking business

(278,180)

(312,802)

(2,556,096)

Proceeds from sales and redemption of investment

securities in banking business

279,696

200,393

2,570,026

Purchase of other investments

(41,089)

(49,633)

(377,552)

Purchase of property and equipment

(34,361)

(41,771)

(315,730)

Purchase of intangible assets

(50,765)

(43,278)

(466,461)

Net cash outflows arising from obtaining control of

subsidiaries

(378,575)

(6,709)

(3,478,590)

Others

242

41,608

2,223

Net cash used in investing activities

(503,034)

(212,193)

(4,622,199)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase of short-term bank loans

503,440

2,044

4,625,930

Proceeds from long-term bank loans

21,000

1,200

192,961

Proceeds from issue of new shares

454,498

394

4,176,219

Purchase of treasury stock

(526,695)

(221,014)

(4,839,612)

Proceeds from issuance of bonds

229,217

25,000

2,106,193

Dividends paid

(45,036)

(50,463)

(413,819)

Repayments of lease liabilities

(23,630)

-

(217,127)

Others

(19,382)

(20,467)

(178,094)

Net cash generated by (used in) financing

activities

593,410

(263,305)

5,452,632

FORWARD

¥ 333,654

¥

(325,541)

$ 3,065,827

- 10 -

(Continued)

Z Holdings Corporation and Subsidiaries

Consolidated Statement of Cash Flows

Thousands of

U.S. Dollars

Millions of Yen

(Note 2(3))

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

FORWARD

¥ 333,654

¥

(325,541)

$ 3,065,827

EFFECTS OF EXCHANGE RATE CHANGES ON CASH

AND CASH EQUIVALENTS

(338)

515

(3,105)

INCREASE IN CASH AND CASH EQUIVALENTS DUE TO

CLASSIFICATION OF ASSETS AS HELD FOR SALE

-

3,484

-

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS

333,316

(321,540)

3,062,721

CASH AND CASH EQUIVALENTS AT THE BEGINNING

OF THE YEAR (Note 7)

546,784

868,325

5,024,202

CASH AND CASH EQUIVALENTS AT THE END OF

THE YEAR (Note 7)

¥ 880,100

¥

546,784

$ 8,086,924

See notes to consolidated financial statements.

- 11 -

(Concluded)

Z Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

  1. REPORTING ENTITY
    Z Holdings Corporation (formerly known as Yahoo Japan Corporation, the "Company") was incorporated and is domiciled in Japan. Shiodome Z Holdings GK is the parent company of the Company and its subsidiaries (collectively, the "Group"). The ultimate parent company of the Group is SoftBank Group Corp. ("SBG"). The registered address of the Company's head office is 1-3, Kioicho, Chiyoda-ku, Tokyo, Japan. The nature of the Group's principal businesses is described in "Note 6. Segment information." The Company was renamed Z Holdings Corporation on October 1, 2019.
  2. BASIS OF PREPARATION
    (1) Compliance with International Financial Reporting Standards

The accompanying consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRSs").

(2) Basis of Measurement

These consolidated financial statements have been prepared on the historical cost basis, except for certain items, such as financial instruments, that are measured at fair value at the end of each reporting period, as explained in the accounting policies provided in "Note 3. Significant accounting policies."

(3) Presentation Currency and Unit of Currency

These consolidated financial statements have been presented in Japanese yen, which is the currency of the primary economic environment of the Company ("functional currency").

The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers and have been made at the rate of ¥108.83 to U.S.$1, the approximate rate of exchange at March 31, 2020. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

The Japanese yen amounts in millions are rounded down to the nearest million, from which the translations into U.S. dollar amounts are computed. U.S. dollar amounts in thousands are also rounded down to the nearest thousand.

(4) Changes in Presentation

Consolidated statement of profit or loss

Gain on sale of investments in associates and joint ventures, which was included in "other non-operating income" in the prior-year consolidated statement of profit or loss, has been reclassified and presented separately in the current-year consolidated statement of profit or loss due to increased materiality. Impairment losses, which were presented separately in the prior-year consolidated statement of profit or loss, have been reclassified and aggregated into "selling, general and administrative expenses" in the current-year consolidated statement of profit or loss due to decreased materiality.

- 12 -

Consolidated statement of cash flows

Impairment losses amounting to ¥6,668 million and gain on sale of investments in a subsidiary amounting to ¥(7,977) million, which were presented separately in cash flows from operating activities in the prior-year consolidated statement of cash flows, have been reclassified and aggregated into "others" in the current-year consolidated statement of cash flows due to decreased materiality.

Net cash outflows arising from obtaining control of subsidiaries amounting to ¥(6,709) million, which was included in "others" in cash flows from investing activities in the prior-year consolidated statement of cash flows, has been reclassified and presented separately in the current-year consolidated statement of cash flows due to increased materiality. Proceeds from sales and redemption of other investments amounting to ¥25,701 million and net cash inflows arising from losing control of subsidiaries amounting to ¥16,353 million, which were presented separately in cash flows from investing activities in the prior-year consolidated statement of cash flows, have been reclassified and aggregated into "others" in the current-year consolidated statement of cash flows due to decreased materiality.

Net increase of short-term bank loans amounting to ¥2,044 million, proceeds from long-term bank loans amounting to ¥1,200 million, and proceeds from issue of new shares amounting to ¥394 million, which were included in "others" in cash flows from financing activities in the prior-year consolidated statement of cash flows, have been reclassified and presented separately in the current-year consolidated statement of cash flows due to increased materiality. Payments for acquisition of interests in subsidiaries from non-controlling interests amounting to ¥(19,458) million and proceeds from sale and leaseback transactions amounting to

¥11,098 million, which were presented separately in cash flows from financing activities in the prior-year consolidated statement of cash flows, have been reclassified and aggregated into "others" in the current-year consolidated statement of cash flows due to decreased materiality.

(5) New or Revised Standards and Interpretations Issued but Not Yet Effective

Not applicable.

3. SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise specified.

(1) Basis of Consolidation

  1. Basic policy of consolidation
    The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company ("subsidiaries"). Control is achieved when the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee, and has the ability to use its power to affect its returns. The Company considers all relevant facts and circumstances in assessing whether the Company controls the investee, including the size of its holding of voting rights or similar rights or contractual arrangements with the investee.
    Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Comprehensive income of subsidiaries is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intragroup balances and transactions and unrealized gain or loss relating to transactions between members of the Group are eliminated in full upon consolidation.
    • 13 -
  1. Changes in the Company's ownership interests in existing subsidiaries
    Changes in the Company's ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the parent. When the Company loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (a) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (b) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Any amounts previously recognized in accumulated other comprehensive income in relation to that subsidiary are reclassified to profit or loss.
  2. Business combinations
    Acquisitions of businesses are accounted for using the acquisition method. 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 Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred.
    At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:
    1. deferred tax assets and liabilities, and assets and liabilities related to employee benefit arrangements are recognized and measured in accordance with International Accounting Standard ("IAS") 12 "Income Taxes" and IAS 19 "Employee Benefits," respectively;
    2. liabilities or equity instruments related to "share-based payment arrangements of the acquiree" or "share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree" are measured in accordance with IFRS 2 "Share-based Payment" at the acquisition date; and
    3. assets or disposal groups that are classified as held for sale in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" are measured in accordance with that standard.

Goodwill arising upon a business acquisition is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. The excess, if negative, is recognized immediately in profit or loss.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the acquiree's identifiable net assets. Other types of non-controlling interests are measured at fair value, or, when applicable, on the basis specified in another standard.

When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.

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  1. Goodwill
    Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.
    Each cash-generating unit to which goodwill is allocated is determined based on the unit at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment before aggregation.
    Goodwill is not amortized and is allocated to a cash-generating unit or group of cash-generating units. A cash-generating unit to which goodwill is allocated is tested for impairment at the same time every annual period, or more frequently when there is an indication that the cash-generating unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit pro rata based on the carrying amount of each asset in the cash-generating unit. Any impairment loss for goodwill is recognized directly in profit or loss and is not reversed in subsequent periods.
    The Group's policy for goodwill arising on acquisition of an associate is described below in "5) Investments in associates and joint ventures."
  2. Investments in associates and joint ventures
    An associate is an entity (a) over which the Group holds 20% or more of the voting power and has significant influence in the financial and operating policy decisions, unless it can be clearly demonstrated that this is not the case; or (b) over which the Group can exercise significant influence even if it holds less than 20% of the voting power.
    A joint venture is an investee jointly controlled by the parties, including the Group, that have rights to the net assets of the investee. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when significant decisions about the relevant business activities require the unanimous consent of the parties sharing control.
    An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognized immediately in profit or loss in the period in which the investment is acquired.
    Under the equity method, an investment in an associate or a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the associate or the joint venture. When the Group's share of losses of an associate or a joint venture exceeds the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or the joint venture), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or the joint venture.

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The Group discontinues the use of the equity method from the date when the investee ceases to be an associate or a joint venture, or when the investment is classified as held for sale. When the Group retains an interest in the former associate or joint venture and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with IFRS 9 "Financial Instruments." The difference between the carrying amount of the associate or the joint venture at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate or the joint venture is included in the determination of the gain or loss on disposal of the associate or the joint venture.

The requirements of IFRS 9 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group's investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 "Impairment of Assets."

(2) Foreign Currency Translation

  1. Transactions denominated in foreign currencies
    The financial statements of each company in the Group are prepared in the respective company's functional currency. Transactions in currencies other than each company's functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.
    At the end of each quarter, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from translation are recognized in profit or loss in the period in which they arise, except those arising from
    "2) Foreign operations."
  2. Foreign operations
    For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group's foreign operations (including adjustments for goodwill and fair value arising from acquisitions) are translated into Japanese yen using exchange rates prevailing at the end of each quarter. Income and expense items are translated at the average exchange rates for each quarter period. Exchange differences arising from translating the financial statements of foreign operations are recognized in other comprehensive income and cumulative differences are included in exchange differences on translating foreign operations in accumulated other comprehensive income.

These cumulative differences are reclassified from equity to profit or loss when the Company fully or partially disposes of its interest in the foreign operation.

(3) Financial Instruments

  1. Recognition
    Financial assets and financial liabilities are recognized when a Group entity becomes a party to the contractual provisions of the instruments.
    Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities other than financial assets at fair value through profit or loss ("financial assets at FVTPL") and financial liabilities at fair value through profit or loss ("financial liabilities at FVTPL") are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets at FVTPL and financial liabilities at FVTPL are recognized immediately in profit or loss.
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  1. Non-derivativefinancial assets
    Non-derivative financial assets are classified as financial assets at amortized cost, debt instruments measured at fair value through other comprehensive income ("debt instruments at FVTOCI"), equity instruments measured at fair value through other comprehensive income ("equity instruments at FVTOCI"), and financial assets at FVTPL. The classification depends on the nature and purpose of the financial assets and is determined at initial recognition.
    All purchases and sales of financial assets made in a regular way are recognized and derecognized on a trade date basis. Purchases and sales made in a regular way refer to acquiring or disposing of financial assets under a contract that requires the delivery of assets within a time frame established by regulation or convention in the marketplace.
    1. Financial assets at amortized cost
      Financial assets are classified as financial assets at amortized cost if both of the following conditions are met:
      • the financial asset is held within a business model whose objective is achieved by collecting contractual cash flows; and
      • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost are measured at amortized cost using the effective interest method less any impairment. Interest income based on the effective interest method is recognized in profit or loss.

  1. Debt instruments at FVTOCI
    Financial assets are classified as debt instruments at FVTOCI if both of the following conditions are met:
    • the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
    • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, debt instruments at FVTOCI are measured at fair value and gains or losses arising from changes in fair value are recognized in other comprehensive income. Upon derecognition, previously recognized accumulated other comprehensive income is transferred to profit or loss. Exchange differences arising on monetary financial assets classified as debt instruments at FVTOCI and interest income calculated using the effective interest method relating to debt instruments at FVTOCI are recognized in profit or loss.

  1. Equity instruments at FVTOCI
    The Group makes an irrevocable election at initial recognition to present in other comprehensive income, rather than in profit or loss, changes in the fair value of investments in equity instruments that are classified as investments in equity instruments at FVTOCI. Subsequent to initial recognition, investments in equity instruments at FVTOCI are measured at fair value and gains or losses arising from the changes in fair value are recognized in other comprehensive income. Fair value of equity instruments at FVTOCI is measured by using the method as discussed in "Note 30. Fair value of financial instruments (1)."
    • 17 -

The Group transfers directly accumulated gains or losses from other comprehensive income to retained earnings in the case of derecognition or significant or prolonged decline in the fair value below cost. Dividends received related to equity instruments at FVTOCI are recognized in profit or loss.

  1. Financial assets at FVTPL
    Financial assets at FVTPL are classified if either of the following conditions is met:
    • Financial assets held for trading; or
    • Non-derivativefinancial assets other than those classified as "financial assets at amortized cost," "debt instruments at FVTOCI," or "equity instruments at FVTOCI" are classified as "financial assets at FVTPL."

Non-derivative financial assets acquired principally for the purpose of selling them in the near term are classified as financial assets held for trading. No financial assets have been designated as those measured at fair value through profit or loss to eliminate or significantly reduce accounting mismatches. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value and gains or losses arising from changes in fair value, dividend income, and interest income are recognized in profit or loss.

Fair value of financial assets at FVTPL is measured by using the method as discussed in "Note 30. Fair value of financial instruments (1)."

  1. Impairment of financial assets
    Allowance for doubtful accounts is recognized for expected credit losses on financial assets at amortized cost and debt instruments at FVTOCI. The Group assesses whether credit risk on financial assets has increased significantly since initial recognition at the end of each fiscal year. If the credit risk on financial assets has not increased significantly since the initial recognition, the Group measures the allowance for doubtful accounts at an amount equal to the 12-month expected credit losses. If the credit risk on financial assets has increased significantly since the initial recognition or for credit-impaired financial assets, the Group measures the allowance for doubtful accounts at an amount equal to the lifetime expected credit losses.
    Allowances for doubtful accounts for trade receivables are always measured at an amount equal to the lifetime expected credit losses. The Group measures expected credit losses in a way that reflects:
    • an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
    • the time value of money; and
    • reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions, and forecasts of future economic conditions.

The Group shall recognize in profit or loss the amount of provision for the allowance of doubtful accounts and the amount of reversal if any event occurs that decreases the allowance for doubtful accounts. Financial assets are written off against the allowance for doubtful accounts when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof.

  1. Derecognition of financial assets
    The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or the Group transfers substantially all the risks and rewards of ownership of the financial asset.
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  1. Non-derivativefinancial liabilities
    Non-derivative financial liabilities are classified as "financial liabilities at FVTPL" or "financial liabilities at amortized cost," and the classification is determined upon initial recognition. Subsequent to initial recognition, financial liabilities at FVTPL are measured at fair value, and gains or losses arising from changes in fair value and interest expense are recognized in profit or loss. Financial liabilities at amortized cost are measured using the effective interest method subsequent to initial recognition. The Group derecognizes financial liabilities when the Group satisfies its obligations or when the Group's obligations are discharged, canceled, or expired.
  2. Derivative financial assets and financial liabilities
    Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently measured at fair value at the end of the fiscal year and at the end of each quarter. Changes in the fair value of derivatives are recognized in profit or loss immediately. Derivative financial assets are classified into "financial assets at FVTPL," and derivative financial liabilities are classified into "financial liabilities at FVTPL."
  3. Offsetting financial assets and financial liabilities
    Financial assets and financial liabilities are offset and the net amounts are presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the recognized amounts, and intends either to settle on a net basis or to realize the assets and settle the liabilities simultaneously.

(4) Cash and Cash Equivalents

Cash and cash equivalents consist of cash, demand deposits and short-term investments with maturities of three months or less from the date of acquisition that are readily convertible to cash and subject to insignificant risk of change in value.

(5) Inventories

Inventories are measured at the lower of cost and net realizable value. Costs of inventories are determined primarily by using the moving-average method. Net realizable value represents the estimated selling price for inventories in the ordinary course of business less all estimated costs of completion and costs necessary to make the sale. Inventories of the Group mainly comprise merchandise.

(6) Property and Equipment

Property and equipment are measured on a historical cost basis under the cost model, less accumulated depreciation and accumulated impairment losses. Historical cost includes costs directly attributable to the acquisition of the asset and the initial estimated costs related to dismantling, removing and site restoration.

Property and equipment, other than land and construction in progress, are depreciated using the straight-line method over the estimated useful life of each asset.

The estimated useful lives of major property and equipment are as follows:

Buildings and structures: 8-50 years

Furniture and fixtures: 4-15 years

Machinery and equipment: 4-15 years

The depreciation methods, useful lives, and residual values of assets are reviewed at the end of each year, and any changes are applied prospectively as a change in an accounting estimate.

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(7) Intangible Assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses under the cost model. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date. Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Expenditures for research activities are recognized as an expense in the period in which it is incurred. The amount initially recognized for internally-generated intangible assets during the development phase is the sum of the expenditures incurred from the date when the intangible asset first meets all of the capitalization criteria to the date the development is completed.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Intangible assets with finite lives are amortized using the straight-line method over the estimated useful lives. The estimated useful lives of major components of intangible assets are as follows:

Software:

Principally 5 years

Customer relationships:

7-25 years

Amortization methods, useful lives, and residual values of assets are reviewed at the end of each fiscal year and any changes are applied prospectively as a change in an accounting estimate. Certain trademarks that have been assessed as having indefinite useful lives are not amortized because the Group expects to continue to benefit from the trademarks as long as the related businesses continue to operate.

(8) Leases

For the year ended March 31, 2020

At the inception of a contract, the Group assesses whether the contract is, or contains, a lease.

The Group accounts for each lease component within the contract as a lease separately from non-lease components of the contract by allocating the consideration in the contract as of the date of inception or remeasurement to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. The Group determines the lease term as the non-cancellable period of a lease, together with both:

  1. periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option; and
  2. periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise that option.

(As a Lessee)

  1. The Group does not apply IFRS 16 "Leases" to lease transactions of intangible assets.
    • 20 -
  1. Right-of-useassets
    At the commencement date, the Group recognize a right-of-use asset measured at cost. The cost of the right-of-use asset comprises:
    1. the amount of the initial measurement of the lease liability;
    2. any lease payments made at or before the commencement date, less any lease incentives received;
    3. any initial direct costs incurred; and
    4. an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions.

After the commencement date, the Group applies a cost model and measures the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses. The Group depreciates the right-of-use asset from the commencement date to the end of the useful life of the underlying asset, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term. The useful life of the right-of-use asset is determined based on the same method as applied to property and equipment.

  1. Lease liabilities
    At the commencement date, the Group recognize a lease liability measured at the present value of the lease payments that are not paid at that date. The lease payments are calculated by discounting the present value using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group's incremental borrowing rate is applied instead. The lease payments included in the measurement of the lease liability mainly comprise:
    1. fixed payments;
    2. lease payments for the periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option, and;
    3. payments of penalties for terminating the lease, if the lease term reflects the Group exercising an option to terminate the lease.

After the commencement date, the Group measures the lease liability at amortized cost using the effective interest method. The Group remeasures the lease liability if:

  1. there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments;
  2. there is a change in the amounts expected to be payable under a residual value guarantee, or;
  3. there is a change in the assessment of the probability of exercising options to extend or terminate the lease.

The Group recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognizes any remaining amount of the remeasurement in profit or loss.

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For the year ended March 31, 2019

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of assets to the lessee. All other leases are classified as operating leases. The assessment of whether an arrangement is a lease or contains a lease is made on a basis of all of the facts and circumstances at the inception of the arrangement.

  1. Finance leases (the Group as lessee)
    At the inception of a lease, the Group initially recognizes finance leases as assets and the lease obligation at the amount equal to the fair value of the leased property or, if lower, at the present value of the minimum lease payments.
    Subsequent to initial recognition, the accounting policy for assets held under finance leases is consistent with that of assets that are owned. Lease payments are apportioned between finance cost (other non-operating expenses) and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
    Assets held under finance leases are depreciated over their estimated useful lives when there is reasonable certainty that ownership will be obtained by the end of the lease term. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term or their estimated useful lives.
  2. Operating leases (the Group as lessee)

Gross operating lease payments are recognized as an expense on a straight-line basis over the lease term.

(9) Impairment of Property and Equipment, Right-of-Use Assets and Intangible Assets Other Than Goodwill

At the end of each quarter, the Group reviews the carrying amounts of its property and equipment, right-of-use assets and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss.

If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested annually for impairment or whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount.

When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.

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(10) Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

When the effect of the time value of money is material, provisions are measured using the estimated future cash flows and discounted using a pre-tax rate reflecting the time value of money and the specific risks of the liability. Reversal of discount due to passage of time is recognized in profit or loss.

Major provisions of the Group are as follows:

  1. Provision for interest repayment claims
    To cover interest repayment claims for the interest rates charged in excess of the maximum rate imposed by the Interest Rate Restriction Act, the Group provides for the estimated future repayment. The amount of future interest repayment is subject to changes in business environment.
  2. Asset retirement obligations
    The Group recognizes asset retirement obligations for obligations to restore leased offices to their original conditions upon termination of the lease contract. The amount and timing of future cash flows are based on the present business plans and assumptions and subject to changes depending on revised future business plans and assumptions.
  3. Provision for customer point reward programs
    In anticipation of the future redemption of points granted to customers under its point reward programs, the Group recognizes a provision at the amount estimated to be redeemed by customers in the future based on historical activity. There is uncertainty regarding the extent to which such points will be redeemed.

(11) Assets or Disposal Groups Classified as Held for Sale

An asset (or disposal group) of which the carrying amount will be recovered principally through a sale transaction rather than through continuing use is classified as held for sale, if all the following conditions are satisfied: (a) the sale of the asset (or disposal group) within one year is probable; (b) the asset (or disposal group) is available for immediate sale; and (c) management is committed to a plan to sell the asset (or disposal group).

If the Group is committed to a sale plan involving loss of control of a subsidiary and all the criteria above are met, the Group classifies all the assets and liabilities of that subsidiary as held for sale, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale.

The Group measures an asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell.

The Group does not depreciate property and equipment classified as held for sale and does not amortize intangible assets classified as held for sale once the classification has been made.

(12) Share-Based Payments

The Company has an equity-settled share option plan as an incentive plan for directors and employees. Share options are measured at the fair value of the equity instruments at the grant date. The fair value of share options is computed by using the Black-Scholes model, Monte Carlo simulation and other methods considering the terms and conditions of each share option. The fair value of share options determined at the grant date is expensed over the vesting period with a corresponding increase in equity.

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At the end of each reporting period, the Company reviews estimates of the number of share options that are expected to vest, and revises them when necessary.

(13) Revenue

In accordance with IFRS 15, revenue is recognized upon transfer of the promised goods or services to customers in an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services based on the following five-step approach:

Step 1: Identify the contract(s) with a customer;

Step 2: Identify the performance obligations in the contract;

Step 3: Determine the transaction price;

Step 4: Allocate the transaction price to the performance obligations in the contract; and

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Consideration payable to a customer is accounted for as a reduction of the transaction price unless the payment to the customer is in exchange for a distinct good or service that the customer transfers to the Group. In addition, costs to obtain or fulfill a contract with a customer ("contract costs") that are expected to be recovered are recognized as assets. An asset that is recognized from the contract costs is amortized on a straight-line basis over the estimated period of the contract with the customer.

The Group's major accounting policies for revenue recognition by business category are as follows:

  1. Commerce business
    The commerce business mainly comprises (a) sales of products, (b) planning and sales of services, and (c) settlement- and finance-related services, all of which are provided via the internet, for small to medium-sized businesses and individual customers. Major components of revenue are sale of goods by ASKUL Corporation ("ASKUL") and its group companies (collectively, "ASKUL Group"), e-commerce-related services such as ZOZOTOWN and YAHUOKU!, and membership services such as Yahoo! Premium. Revenue recognition is summarized as follows:
    1. Sales of Goods by ASKUL Group
      ASKUL Group engages in the business of selling office-related products and other goods. ASKUL Group's major customers are small- and medium-sized companies, as well as individual users. Revenue from sales of goods is recognized when a customer obtains control of goods, that is, at the time the customer has the ability to direct the use of the goods and to obtain almost all remaining benefits from the goods.
    2. ZOZOTOWN
      As a consignment agent for fashion brands who open up an online shop on ZOZOTOWN as a tenant, the Group sells their goods to individual users. Consignment fees charged to the tenants, which are determined by multiplying transaction volume by consignment percentage, are recognized as revenue when a customer obtains control of goods.
    3. YAHUOKU!
      The Group provides online auction services named YAHUOKU! to individual users and corporations. System usage fees charged to sellers according to auction proceeds are recognized as revenue when auction transactions are completed.
      • 24 -
    1. Yahoo! Premium
      The Group offers Yahoo! Premium membership to individual users, through which they can enjoy a variety of membership privileges. Revenue is recognized over the period during which the membership is valid.
  1. Media business
    The media business comprises (a) planning and sale of internet-basedadvertising-related services, (b) information listing services, and (c) other corporate services. Major components of revenue are paid search advertising and display advertising. Revenue recognition is summarized as follows:
    1. Paid Search Advertising
      Paid search advertising is an advertising product sold to advertisers and advertising agencies as Sponsored Search. In Sponsored Search, fees are charged when users click the advertisements displayed on search results pages which are displayed according to search keywords used when users perform a search in Yahoo! JAPAN. The Group's performance obligations for paid search advertising are to provide ad management tools to the advertisers and the advertising agencies and to list advertisements according to their setting requests. Revenue from paid search advertising is recognized based on the per-click rate set by a customer when a website user clicks on paid search advertising.
    2. Display Advertising
      Display advertising consists of Premium Advertising, Yahoo! Display Ad Network ("YDN"), and others. Premium Advertising is an advertising product which can offer many different kinds of ad expressions using images and videos, and is displayed in a variety of properties of Yahoo! JAPAN, such as Brand Panel and Prime Display. The main clients of Premium Advertising are media reps, and Premium Advertising is also sold to some advertising agencies. Premium Advertising is impression guaranteed advertisement and sold for a listing over a certain period. The Group's performance obligation for Premium Advertising is to list advertisements based on contracts. Revenue from Premium Advertising is recognized over the period during which advertisements are listed on websites.
      YDN is an advertising product sold to advertisers and advertising agencies, for which conditions for target users are set and advertisements are distributed to Yahoo! JAPAN sites and partner sites that are browsed by users satisfying the conditions. The Group's performance obligations for YDN are to provide ad management tools to the advertisers and the advertising agencies and to list advertisements according to their setting requests. Revenue from YDN is recognized based on the per-click rate set by a customer when a website browser clicks on advertisements on contents pages.

(14) Retirement Benefits

The Group primarily participates in defined contribution pension plans.

Defined contribution plans are post-employment benefit plans under which an employer pays fixed contributions into a separate fund and will have no legal or constructive obligation to pay further contributions. Contributions to the defined contribution plans are recognized as expenses when the related services are rendered by employees, and contributions payable are recognized as liabilities.

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(15) Income Tax

Income tax expense comprises current and deferred taxes, and is recognized in profit or loss, except for taxes related to business combinations and taxes related to items that are recognized in other comprehensive income or directly in equity.

  1. Current tax
    Current tax is measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
  2. Deferred tax
    Deferred tax assets are recognized for deductible temporary differences, unused tax losses, and unused tax credits to the extent that it is probable that taxable profits will be available. Recoverability of deferred tax assets is reviewed at the end of each quarter. Deferred tax liabilities are generally recognized for taxable temporary differences.
    Deferred tax assets and liabilities are not recognized for:
    1. temporary differences arising from the initial recognition, other than in a business combination, of assets and liabilities in a transaction that affects neither the accounting profit nor the taxable profit;
    2. taxable temporary differences arising from initial recognition of goodwill;
    3. deductible temporary differences associated with investments in subsidiaries and associates, where it is not probable that the temporary difference will reverse in the foreseeable future or where it is not probable that there will be sufficient taxable profits against which the temporary differences can be utilized; and
    4. taxable temporary differences associated with investments in subsidiaries and associates, where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities are offset if the Company has a legally enforceable right to set off current tax assets against current tax liabilities, and income taxes are levied by the same taxation authority on the same taxable entity.

(16) Treasury Stock

When the Company acquires its own equity share capital ("treasury stock"), the consideration paid, including any directly attributable increment costs (net of tax), is deducted from equity. No gain or loss is recognized on the purchase, sale, or cancellation of treasury stock. The difference between the carrying amount and the consideration on sale is recognized as capital surplus.

(17) Earnings per Share

Basic earnings per share are calculated by dividing profit for the year attributable to owners of the parent by the weighted-average number of common stock (after adjusting for treasury stocks) outstanding for the period.

- 26 -

Diluted earnings per share assume full conversion of the issued potential shares having a dilutive effect, with an adjustment for profit for the year attributable to owners of the parent and the weighted-average number of common stock (after adjusting for treasury stocks) outstanding for the period.

(18) Government Grants

The Group recognizes government grants when there is reasonable assurance that the Group will comply with the conditions attaching to it, and that the grant will be received. Government grants related to income are recognized in profit or loss over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Government grants recognized in profit or loss are deducted from the related expense. Government grants related to assets are deducted from the carrying amount of the asset.

(19) Changes in Accounting Policies

Effective April 1, 2019, the Group applied IFRS 16, which revises accounting treatments of lease transactions and related disclosure requirements.

  1. Application of IFRS 16, Leases
    In accordance with the transitional measures of IFRS 16, the Group has applied IFRS 16 to its leases retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application (April 1, 2019). Therefore, the consolidated financial statements as of and for the year ended March 31, 2019 as comparative information are not restated.
    IFRS 16 introduces a single accounting model, and for all leases in principle, requires recognition of a right-of-use asset that represents a lessee's right to use an underlying asset and lease liability that represents a lessee's obligation to make lease payments. Under IAS 17 "Leases," lease payments under an operating lease contract are accounted for as rent expense; however, they are accounted for as depreciation expense of the right-of-use asset and interest expense of the lease liability under IFRS 16.
    In applying IFRS 16, the Group adopted a practical expedient in which it is not required to reassess whether the contract is, or contains, a lease. Accordingly, IFRS 16 is applied to contracts that were previously identified as leases, and is not applied to contracts that were not previously identified as leases under IAS 17 and International Finacial Reporting Interpretations Committee ("IFRIC") 4, "Determining Whether an Arrangement Contains a Lease." Therefore, the identification of a lease based on IFRS 16 is only applied to contracts entered into or revised on or after the date of initial application. The Group does not reassess sale and leaseback transactions entered into before the date of initial application to determine whether the transfer of the underlying asset satisfies the requirements in IFRS 15 to be accounted for as a sale.
    In addition, the Group has adopted the following practical expedients, and the decision on whether to apply these practical expedients was made on a lease-by-lease basis:
    • Allowing a lessee to rely on its assessment of whether leases are onerous under IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" immediately before the date of initial application as an alternative to performing an impairment review on the right-of-use assets
    • Allowing a lessee to exclude initial direct costs from the measurement of the right-of-use assets at the date of initial application
    • Allowing a lessee to use hindsight, such as in determining the lease term if the contract contains options to extend or terminate the lease
      • 27 -

The effects of applying IFRS 16 on the Group's assets and liabilities as of the date of initial application mainly were: to increase right-of-use assets and lease liabilities included in interest-bearing liabilities by ¥85,654 million ($787,044 thousand) and ¥89,588 million ($823,192 thousand), respectively, and to decrease accrued expenses included in other liabilities by ¥3,205 million ($29,449 thousand). In addition, accumulated impairment loss of right-of-use assets and deferred tax assets increased by ¥7,735 million ($71,074 thousand) and ¥2,368 million ($21,758 thousand), respectively. This was attributable to impairment of right-of-use assets of certain lease contracts recognized at the date of application which were immediately written down because the recoverable amount of the cash-generating unit to which the right-of-use assets belong was less than the carrying amount.

As a result, retained earnings and non-controlling interests decreased by ¥2,466 million ($22,659 thousand) and ¥2,997 million ($27,538 thousand), respectively.

Right-of-use assets are measured at either:

  • amount of lease liabilities adjusted with prepaid and accrued lease expenses; or
  • carrying amount calculated assuming IFRS 16 had been adopted since the inception of the lease.

Lease liabilities are measured as the present value of the lease payments that are not paid at the date of initial application, discounted using the Group's incremental borrowing rate on that date. The weighted-average incremental borrowing rate of the Group applied to the lease liabilities was 0.1%.

The following table presents a reconciliation between the present value of future minimum lease payments under operating leases disclosed applying IAS 17 at the end of the previous year, which was discounted using the Group's incremental borrowing rate as of the date of initial application, and the lease liabilities recognized as of the date of initial application in the consolidated statement of financial position:

Thousands of

Millions of Yen

U.S. Dollars

(a) Undiscounted future minimum lease payments

under operating leases as of March 31, 2019

¥

105,694

$ 971,184

Discounted present value of (a) above

(3,056)

(28,080)

Discounted future minimum lease payments under

operating leases as of April 1, 2019

102,637

943,094

Leases previously classified as finance leases

14,595

134,108

Adjustments due to revision of lease term

5,580

51,272

Adjustments due to contracts before

the commencement date of the lease

(27,875)

(256,133)

Other adjustments

(5,350)

(49,159)

Lease liabilities as of April 1, 2019

¥

89,588

$ 823,192

  1. Significant accounting policies changed by applying new accounting standards and interpretations
    For the significant accounting policies changed by applying IFRS 16, please refer to "(8) Leases" in "Note 3. Significant accounting policies."

4. USE OF ESTIMATES AND JUDGMENTS

In preparing consolidated financial statements under IFRSs, management makes judgments, estimates, and assumptions that affect the application of accounting policies and carrying amounts of assets, liabilities, revenue, and expenses. Actual results in the future may differ from those estimates or assumptions. Estimates and underlying assumptions are continuously reviewed. Revisions to accounting estimates are recognized in the period in which the estimate is revised as well as in the future periods.

  • 28 -

The following is the critical judgment that has been made in the process of applying the Group's accounting policies and that has the most significant effect on the amounts recognized in the consolidated financial statements:

• Determination of scope of subsidiaries and associates ("Note 3. Significant accounting policies (1)")

The following are the key assumptions concerning the future, and other key sources of estimating uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the current and next financial year:

  • Fair value measurement of assets acquired and liabilities assumed through business combinations ("Note 3. Significant accounting policies (1)" and "Note 5. Business combinations")
  • Estimates regarding impairment of property and equipment, right-of-use assets, goodwill and intangible assets ("Note 3. Significant accounting policies (1) and (9)" and "Note 13. Goodwill and intangible assets")
  • Estimates regarding impairment of investments in associates ("Note 3. Significant accounting policies (1)")
  • Fair value measurement of financial assets and liabilities ("Note 3. Significant accounting policies (3)" and "Note 30. Fair value of financial instruments")
  • Estimates regarding impairment of financial assets measured at amortized cost, debt instruments measured at FVTOCI, and committed lines of cash advances ("Note 3. Significant accounting policies (3)")
  • Estimates of useful life and residual value of property and equipment, right-of-use assets, and intangible assets ("Note 3. Significant accounting policies (6), (7) and (8)")
  • Judgments and estimates regarding recognition and measurement of provisions ("Note 3. Significant accounting policies (10)" and "Note 20. Provisions")
  • Fair value of share options ("Note 3. Significant accounting policies (12)" and "Note 28. Share-based payments")
  • Judgments and estimates regarding recognition and measurement of revenue ("Note 3. Significant accounting policies (13)" and "Note 32. Revenue")
  • Recoverability of deferred tax assets ("Note 3. Significant accounting policies (15)" and "Note 15. Income taxes")

The novel coronavirus (COVID-19) epidemic has caused the sharp shrinkage in economic activities and the deterioration in the economic environment; however, the impact on the Group's operating results for the year ended March 31, 2020 was not significant. The extent and length of the COVID-19 epidemic cannot be reasonably estimable at this moment. If the epidemic takes more time to converge than expected, it will affect the Group's future profitability and cash flows and bring uncertainties in the estimates. In such situations, impairment of goodwill, property and equipment, right-of-use assets, and intangible assets, fair values of investments, and estimated credit losses of receivables are measured at amounts reasonably estimated based on information and fact available at the time of preparing the consolidated financial statements considering the effects, risks, and uncertainties that are attributable to the length of the COVID-19 epidemic. Actual results may differ from the estimated amounts that reflect the best available estimates due to future uncertainties.

- 29 -

5. BUSINESS COMBINATIONS

For the Year Ended March 31, 2020 ZOZO, Inc.

  1. Outline of business combination
    With the aim of strengthening its fashion e-commerce category in order to further expand its e-commerce business, the Company conducted a tender offer for the common shares of ZOZO, Inc. ("ZOZO"), as resolved at its Board of Directors meeting held on September 12, 2019. This tender offer was completed on November 13, 2019, and the Company acquired ZOZO's 152,952,900 common shares for ¥400,736 million ($3,682,219 thousand) in cash. As a result, the Company's voting rights of ZOZO became 50.1% and ZOZO became a subsidiary of the Company. The Company made a borrowing of ¥400,000 million ($3,675,457 thousand) in order to procure part of the fund necessary for this business combination. For details, please refer to "Note 19. Interest-bearing liabilities."
  2. Outline of acquiree

Company name: ZOZO, Inc.

Businesses: Planning and operation of fashion e-commerce website "ZOZOTOWN" Planning and development of the private brand "ZOZO"

Customer support and operation of a logistics center "ZOZOBASE"

  1. Acquisition date November 13, 2019
  2. Fair value of consideration, acquired assets and assumed liabilities, and non-controlling interests and goodwill, as of the acquisition date

Thousands of

Millions of Yen

U.S. Dollars

Fair value of consideration-Cash

¥ 400,736

$ 3,682,219

Total

¥ 400,736

$ 3,682,219

Fair value of acquired assets and assumed liabilities:

Assets:

Cash and cash equivalents

¥ 22,875

$ 210,190

Trade and other receivables

30,442

279,720

Property and equipment

8,609

79,105

Intangible assets (Note 2)

503,017

4,622,043

Others

42,533

390,820

Total assets

607,479

5,581,907

Liabilities:

Trade and other payables

(28,362)

(260,608)

Interest-bearing liabilities

(42,589)

(391,335)

Others

(162,951)

(1,497,298)

Total liabilities

(233,902)

(2,149,241)

Net assets

373,576

3,432,656

Non-controlling interests (Note 3)

(185,750)

(1,706,790)

Goodwill (Note 4)

212,910

1,956,353

Total

¥ 400,736

$ 3,682,219

- 30 -

Notes: 1. Adjustments of provisional amounts

The consideration was allocated to acquired assets and assumed liabilities based on their fair values as of the acquisition date. During the fourth quarter of the year ended March 31, 2020, the allocation was completed and no adjustments were made to the provisional amounts.

2. Intangible assets

Intangible assets include ¥502,199 million ($4,614,527 thousand) of identifiable assets. The estimated useful lives of customer base are from 18 to 25 years. Trademarks are classified as intangible assets with indefinite useful lives. Intangible assets acquired in a business combination are measured based on assumptions including expected future cash flows, discount rates, diminishing rate of the number of existing customers, future revenue to be generated from the trademarks, and royalty rates. The details are as follows:

Thousands of

Millions of Yen

U.S. Dollars

Customer base

¥ 322,070

$ 2,959,386

Trademarks

178,720

1,642,194

Others

1,409

12,946

Total

¥ 502,199

$ 4,614,527

    1. Non-controllinginterests
      Non-controlling interests were measured at the proportionate interests in the identifiable net assets of the acquiree.
    2. Goodwill
      Goodwill reflects excess earning power expected from the future business development and the synergy of the Group and the acquiree.
  1. Revenue and profit of the acquiree on and after the acquisition date
    The amounts of ZOZO's revenue and profit on and after the acquisition date, which were recorded in the consolidated statement of profit or loss for the year ended March 31, 2020, were ¥57,462 million ($527,997 thousand) and ¥5,773 million ($53,046 thousand), respectively. In addition, the above profit includes amortization expenses, which were related to intangible assets recognized at the acquisition date, and others.

Pro forma Information (Unaudited)

Pro forma consolidated revenue and pro forma profit for the year ended March 31, 2020, assuming that the business combinations were completed as of April 1, 2019, would have been ¥1,120,023 million ($10,291,491 thousand) and ¥90,350 million ($830,193 thousand), respectively. Amortization expenses of intangible assets newly recognized on the date of acquiring control and others had been reflected in the pro forma information above.

For the Year Ended March 31, 2019

No significant business combinations occurred in the year ended March 31, 2019.

- 31 -

6. SEGMENT INFORMATION (1) Reportable Segments

The Group's reportable segments are components of the Group for which discrete financial information is available, and whose operating results are regularly reviewed by the Company's Board of Directors to make decisions about resources to be allocated to the segment and assess its performance.

The Group has two reportable segments, namely, the (1) commerce business and (2) media business.

The commerce business segment mainly comprises (1) sales of products, (2) planning and sales of services, and (3) settlement- and finance-related services, all of which are provided via the internet, for small to medium-sized businesses and individual customers. The media business segment comprises (1) planning and sale of internet-basedadvertising-related services, (2) information listing services, and (3) other corporate services.

Other business consists of operating segments that are not included in the reportable segments and includes cloud-related services.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in "Note 3. Significant accounting policies." Segment income is computed based on operating income with certain adjustments for corporate expenses not allocable to a reportable segment. Corporate expenses consist primarily of general and administrative expenses that are not attributable to reportable segments. Intersegment sales are based on prevailing market prices.

Segment information of the Group as of and for the year ended March 31, 2020, is as follows:

Millions of Yen

Reportable Segments

Commerce

Media

Other

Business

Business

Total

Business

Reconciliation

Consolidated

Revenue:

Sales to customers

¥

740,466

¥

307,672

¥

1,048,139

¥ 4,804

-

¥

1,052,943

Intersegment sales

2,266

1,000

3,266

3,199

¥

(6,466)

-

Total sales

¥

742,732

¥

308,673

¥

1,051,405

¥ 8,004

¥

(6,466)

¥

1,052,943

Segment income (loss)

¥

80,739

¥

154,388

¥

235,128

¥ (4,668)

¥

(78,184)

¥

152,276

Other non-operating income

12,954

Other non-operating expenses

(3,691)

Loss on sale of investments in associates and

joint ventures

(1,319)

Equity in losses of associates and

joint ventures

(24,542)

Profit before tax

¥

135,676

Others-Depreciation and amortization (Note)

¥

45,584

¥

4,213

¥

49,798

¥ 2,233

¥

31,387

¥

83,419

- 32 -

Thousands of U.S. Dollars

Reportable Segments

Commerce

Media

Other

Business

Business

Total

Business

Reconciliation

Consolidated

Revenue:

Sales to customers

$

6,803,877

$

2,827,088

$

9,630,974

$

44,142

-

$

9,675,117

Intersegment sales

20,821

9,188

30,010

29,394

$

(59,413)

-

Total sales

$

6,824,699

$

2,836,285

$

9,660,985

$

73,545

$

(59,413)

$

9,675,117

Segment income (loss)

$

741,881

$

1,418,616

$

2,160,507

$

(42,892)

$

(718,404)

$

1,399,209

Other non-operating income

119,029

Other non-operating expenses

(33,915)

Loss on sale of investments in associates and

joint ventures

(12,119)

Equity in losses of associates and

joint ventures

(225,507)

Profit before tax

$

1,246,678

Others-Depreciation and amortization (Note)

$

418,855

$

38,711

$

457,576

$

20,518

$

288,403

$

766,507

Note: Amounts herein include depreciation of right-of-use assets from the application of IFRS 16.

Segment information of the Group as of and for the year ended March 31, 2019, is as follows:

Millions of Yen

Reportable Segments

Commerce

Media

Other

Business

Business

Total

Business

Reconciliation

Consolidated

Revenue:

Sales to customers

¥

646,443

¥

301,880

¥

948,323

¥

6,390

-

¥

954,714

Intersegment sales

3,189

1,591

4,781

3,518

¥

(8,299)

-

Total sales

¥

649,632

¥

303,472

¥

953,104

¥

9,908

¥

(8,299)

¥

954,714

Segment income (Note)

¥

55,795

¥

141,018

¥

196,814

¥

10,225

¥

(66,511)

¥

140,528

Other non-operating income

1,320

Other non-operating expenses

(1,238)

Gain on sale of investments in associates and

joint ventures

301

Equity in losses of associates and

joint ventures

(17,541)

Profit before tax

¥

123,370

Others-Depreciation and amortization

¥

26,570

¥

4,328

¥

30,898

¥

1,790

¥

19,809

¥

52,498

Note: Other business includes ¥7,977 million of gain on sale of investments in a subsidiary. (Please refer to "Note 34. Gain on sale of investments in a subsidiary.")

- 33 -

(2) Sales to Customers, by Services and Major Goods

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Advertising

¥

341,045

¥ 323,850

$ 3,133,740

Business

481,713

414,272

4,426,288

Personal

228,195

215,088

2,096,802

Others

1,988

1,503

18,267

Total

¥

1,052,943

¥ 954,714

$ 9,675,117

The natures of major services are as follows:

Advertising

Paid search, display and other advertising-related services

Business

YAHUOKU!, Yahoo! Shopping, ZOZOTOWN, and other e-commerce related

services

Sale of goods such as ASKUL

Personal

YAHUOKU! and other e-commerce related services

  • Yahoo! Premium and other membership services
  • Sale of goods such as LOHACO
  • Credit card and other settlement- and finance-related services

7. CASH AND CASH EQUIVALENTS

The components of cash and cash equivalents are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Cash and demand deposits

¥ 839,597

¥ 508,280

$ 7,714,756

Time deposits (maturities of three months or less)

30,504

31,504

280,290

Others

9,999

6,999

91,877

Total

¥ 880,100

¥ 546,784

$ 8,086,924

Note: The banking subsidiary is required to deposit certain amounts, which are determined by a fixed ratio against the deposits it receives ("the legal reserve requirement"), in the Bank of Japan in accordance with the Act on Reserve Requirement System in Japan. As of March 31, 2020 and 2019, cash and cash equivalents include deposits at the Bank of Japan of ¥311,897 million ($2,865,910 thousand) and ¥237,018 million, respectively, which are more than the legal reserve requirement.

- 34 -

8. TRADE AND OTHER RECEIVABLES

The components of trade and other receivables are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Trade receivables

¥ 155,626

¥ 128,083

$ 1,429,991

Foreign exchange dealings cash-

deposits with trust banks

97,188

101,394

893,025

Other receivables

78,990

40,850

725,810

Others

54,993

57,951

505,311

Total

¥ 386,799

¥ 328,281

$ 3,554,157

9. INVESTMENT SECURITIES IN BANKING BUSINESS

The components of investment securities in banking business are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Debt securities

¥ 269,543

¥ 279,622

$ 2,476,734

Trust beneficiary rights

140,731

130,115

1,293,126

Others

5,534

9,813

50,849

Total

¥ 415,809

¥ 419,551

$ 3,820,720

Note: Certain investment securities are pledged as collateral for financing and exchange settlement by the banking subsidiary. The carrying amount of such investment securities in banking business as of March 31, 2020 and 2019 were ¥47,830 million ($439,492 thousand) and ¥61,595 million, respectively.

10. OTHER FINANCIAL ASSETS

The components of other financial assets are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Deposits in the central clearing house (Note)

¥ 115,273

¥

77,654

$ 1,059,202

Equity securities

77,342

50,609

710,668

Derivative financial assets

28,270

19,449

259,762

Deposits paid

21,837

18,129

200,652

Others

21,488

25,416

197,445

Total

¥ 264,213

¥

191,260

$ 2,427,758

Note: This item represents cash pledged to the central clearing house as collateral for financing and exchange settlement by the banking subsidiary.

- 35 -

11. PROPERTY AND EQUIPMENT

Changes in carrying amounts of property and equipment, acquisition costs, and accumulated depreciation and impairment losses are as follows:

Carrying Amounts

Millions of Yen

Buildings and

Furniture and

Machinery and

Construction

Structures

Fixtures

Equipment

Land

in Progress

Others

Total

As of April 1, 2018

¥ 31,912

¥ 53,940

¥ 30,167

¥

3,260

¥

2,796

¥1,865

¥ 123,943

Purchase

2,748

24,074

1,415

10,626

1,586

40,451

Business combinations

13

1

15

Disposals

(23)

(822)

(502)

(0)

(139)

(1,488)

Depreciation

(3,813)

(17,441)

(4,666)

(678)

(26,601)

Impairment losses

(538)

(392)

(1,841)

(2,772)

Transfer of accounts

3,151

636

1,253

(5,066)

(24)

Others

46

172

(0)

18

36

69

344

As of March 31, 2019

33,497

60,169

25,824

3,279

8,392

2,703

133,867

Effect of adopting a new accounting

standard (Note 1)

(111)

(13,780)

(13,892)

Purchase

2,282

23,006

2,209

3,734

1,677

32,911

Business combinations (Note 2)

2,764

4,022

5

1,870

8,663

Disposals

(171)

(1,185)

(26)

(7)

(176)

(174)

(1,742)

Depreciation

(4,706)

(19,805)

(2,444)

(1,025)

(27,982)

Impairment losses

(116)

(27)

(156)

(22)

(322)

Transfer of accounts

6,498

1,248

768

(8,555)

18

(21)

Others

(37)

(71)

(0)

(8)

(146)

(2)

(265)

As of March 31, 2020

¥ 40,012

¥ 67,246

¥ 12,400

¥

3,263

¥

5,118

¥3,174

¥ 131,215

Thousands of U.S. Dollars

Buildings and

Furniture and

Machinery and

Construction

Structures

Fixtures

Equipment

Land

in Progress

Others

Total

As of March 31, 2019

$ 307,791

$ 552,871

$ 237,287

$

30,129

$ 77,111

$ 24,836

$ 1,230,056

Effect of adopting a new accounting

standard (Note 1)

(1,019)

(126,619)

(127,648)

Purchase

20,968

211,393

20,297

34,310

15,409

302,407

Business combinations (Note 2)

25,397

36,956

45

17,182

79,601

Disposals

(1,571)

(10,888)

(238)

(64)

(1,617)

(1,598)

(16,006)

Depreciation

(43,241)

(181,981)

(22,457)

(9,418)

(257,116)

Impairment losses

(1,065)

(248)

(1,433)

(202)

(2,958)

Transfer of accounts

59,707

11,467

7,056

(78,608)

165

(192)

Others

(339)

(652)

(0)

(73)

(1,341)

(18)

(2,434)

As of March 31, 2020

$ 367,655

$ 617,899

$ 113,939

$

29,982

$ 47,027

$ 29,164

$ 1,205,687

Notes: 1. In applying IFRS 16, assets related to finance leases as a lessee, which were included in property and equipment, were reclassified to right-of-use assets. For details of right-of-use assets, please refer to "Note 12. Right-of-use assets."

2. Please refer to "Note 5. Business combinations."

- 36 -

Acquisition Costs

Millions of Yen

Buildings and

Furniture and

Machinery and

Construction

Structures

Fixtures

Equipment

Land

in Progress

Others

Total

As of April 1, 2018

¥ 44,038

¥ 101,529

¥ 42,624

¥3,260

¥2,796

¥2,720

¥ 196,970

As of March 31, 2019

49,807

115,679

43,769

3,279

8,392

3,356

224,284

As of March 31, 2020

62,400

137,464

29,522

3,263

5,118

4,204

241,973

Thousands of U.S. Dollars

Buildings and

Furniture and

Machinery and

Construction

Structures

Fixtures

Equipment

Land

in Progress

Others

Total

As of March 31, 2020

$ 573,371

$ 1,263,107

$ 271,267

$ 29,982

$ 47,027

$ 38,629

$ 2,223,403

Accumulated Depreciation and Impairment Losses

Millions of Yen

Buildings and

Furniture and

Machinery and

Construction

Structures

Fixtures

Equipment

Land

in Progress

Others

Total

As of April 1, 2018

¥ (12,126)

¥ (47,589)

¥ (12,456)

-

-

¥ (855)

¥ (73,027)

As of March 31, 2019

(16,309)

(55,510)

(17,944)

-

-

(652)

(90,416)

As of March 31, 2020

(22,387)

(70,218)

(17,122)

-

-

(1,029)

(110,758)

Thousands of U.S. Dollars

Buildings and

Furniture and

Machinery and

Construction

Structures

Fixtures

Equipment

Land

in Progress

Others

Total

As of March 31, 2020

$ (205,706)

$ (645,208)

$ (157,327)

-

-

$ (9,455)

$ (1,017,715)

12. RIGHT-OF-USE ASSETS

Changes in carrying amounts of right-of-use assets, acquisition costs, and accumulated depreciation and impairment losses are as follows: Carrying Amounts

Millions of Yen

Data

Office

Logistics

Centers

Spaces

Warehouses

Others

Total

As of April 1, 2019

¥2,148

¥ 27,932

¥ 47,746

¥91

¥ 77,919

Purchase

1,192

3,440

25,620

-

30,254

Business combinations

-

510

20,453

-

20,964

Depreciation

(673)

(9,605)

(10,894)

(31)

(21,205)

Impairment losses

-

-

(1,561)

-

(1,561)

Others

(197)

130

-

-

(66)

As of March 31, 2020

¥2,471

¥ 22,409

¥ 81,364

¥59

¥ 106,304

Thousands of U.S. Dollars

Data

Office

Logistics

Centers

Spaces

Warehouses

Others

Total

As of April 1, 2019

$ 19,737

$ 256,657

$ 438,720

$ 836

$ 715,969

Purchase

10,952

31,608

235,413

-

277,993

Business combinations

-

4,686

187,935

-

192,630

Depreciation

(6,183)

(88,256)

(100,101)

(284)

(194,845)

Impairment losses

-

-

(14,343)

-

(14,343)

Others

(1,810)

1,194

-

-

(606)

As of March 31, 2020

$ 22,705

$ 205,908

$ 747,624

$ 542

$ 976,789

- 37 -

Acquisition Costs

Millions of Yen

Data

Office

Logistics

Centers

Spaces

Warehouses

Others

Total

As of April 1, 2019

¥2,148

¥ 27,972

¥ 58,542

¥91

¥

88,754

As of March 31, 2020

2,941

32,031

104,075

91

139,140

Thousands of U.S. Dollars

Data

Office

Logistics

Centers

Spaces

Warehouses

Others

Total

As of April 1, 2019

$ 19,737

$ 257,024

$ 537,921

$ 836

$

815,528

As of March 31, 2020

27,023

294,321

956,308

836

1,278,507

Accumulated Depreciation and Impairment Losses

Millions of Yen

Data

Office

Logistics

Centers

Spaces

Warehouses

Others

Total

As of April 1, 2019

-

¥

(39)

¥ (10,796)

-

¥ (10,835)

As of March 31, 2020

¥ (470)

(9,622)

(22,711)

¥ (31)

(32,835)

Thousands of U.S. Dollars

Data

Office

Logistics

Centers

Spaces

Warehouses

Others

Total

As of April 1, 2019

-

$

(358)

$ (99,200)

-

$ (99,558)

As of March 31, 2020

$ (4,318)

(88,413)

(208,683)

$ (284)

(301,709)

13. GOODWILL AND INTANGIBLE ASSETS

Changes in carrying amounts of goodwill and intangible assets, acquisition costs, and accumulated amortization and impairment losses are as follows: Carrying Amounts

Millions of Yen

Intangible Assets

with Indefinite

Intangible Assets with Definite Useful Lives

Total

Useful Lives

Customer

Intangible

Goodwill

Trademarks

Software

Relationships

Others

Assets

As of April 1, 2018

¥ 162,015

¥

30,250

¥ 68,725

¥

53,087

¥ 15,049

¥ 167,112

Cumulative effect of accounting change (Note 1)

-

-

-

-

(13,271)

(13,271)

Purchase

-

-

14,870

-

30

14,900

Internal development

-

-

28,523

-

-

28,523

Business combinations

13,286

-

-

-

2

2

Disposals

-

-

(2,832)

-

(89)

(2,921)

Amortization

-

-

(18,963)

(6,152)

(277)

(25,394)

Impairment losses

-

-

(1,379)

(2,379)

-

(3,758)

Others

-

-

114

-

(12)

101

As of March 31, 2019

175,301

30,250

89,057

44,555

1,431

165,293

Purchase

-

-

15,716

-

4

15,720

Internal development

-

-

34,891

-

-

34,891

Business combinations (Note 2)

224,994

178,720

1,897

322,864

367

503,848

Disposals

(261)

-

(3,941)

-

(1)

(3,943)

Amortization

-

-

(22,837)

(10,959)

(224)

(34,021)

Impairment losses

-

-

(1,635)

(680)

(14)

(2,330)

Others

-

-

(73)

-

(11)

(84)

As of March 31, 2020

¥ 400,034

¥

208,970

¥ 113,076

¥

355,779

¥ 1,550

¥ 679,375

- 38 -

Thousands of U.S. Dollars

Intangible Assets

with Indefinite

Intangible Assets with Definite Useful Lives

Total

Useful Lives

Customer

Intangible

Goodwill

Trademarks

Software

Relationships

Others

Assets

As of March 31, 2019

$ 1,610,778

$

277,956

$

818,312

$

409,399

$ 13,148

$ 1,518,818

Purchase

-

-

144,408

-

36

144,445

Internal development

-

-

320,600

-

-

320,600

Business combinations (Note 2)

2,067,389

1,642,194

17,430

2,966,681

3,372

4,629,679

Disposals

(2,398)

-

(36,212)

-

(9)

(36,230)

Amortization

-

-

(209,841)

(100,698)

(2,058)

(312,606)

Impairment losses

-

-

(15,023)

(6,248)

(128)

(21,409)

Others

-

-

(670)

-

(101)

(771)

As of March 31, 2020

$ 3,675,769

$

1,920,150

$

1,039,014

$

3,269,126

$ 14,242

$ 6,242,534

Notes: 1. In applying IFRS 15, certain costs to obtain a contract with a customer that were expected to be recovered, which were recognized as intangible assets, were reclassified to "contract costs" as assets.

2. Please refer to "Note 5. Business combinations."

Acquisition Costs

Millions of Yen

Intangible Assets

with Indefinite

Intangible Assets with Definite Useful Lives

Total

Useful Lives

Customer

Intangible

Goodwill

Trademarks

Software

Relationships

Others

Assets

As of April 1, 2018

¥ 162,015

¥ 30,250

¥ 144,097

¥ 70,567

¥ 18,395

¥ 263,310

As of March 31, 2019

175,301

30,250

178,892

70,567

3,324

283,034

As of March 31, 2020

400,034

208,970

219,591

390,431

3,714

822,706

Thousands of U.S. Dollars

Intangible Assets

with Indefinite

Intangible Assets with Definite Useful Lives

Total

Useful Lives

Customer

Intangible

Goodwill

Trademarks

Software

Relationships

Others

Assets

As of March 31, 2020

$ 3,675,769

$ 1,920,150

$ 2,017,743

$ 3,587,531

$ 34,126

$ 7,559,551

Accumulated Amortization and Impairment Losses

Millions of Yen

Intangible Assets

with Indefinite

Intangible Assets with Definite Useful Lives

Total

Useful Lives

Customer

Intangible

Goodwill

Trademarks

Software

Relationships

Others

Assets

As of April 1, 2018

-

-

¥ (75,372)

¥ (17,479)

¥ (3,345)

¥ (96,198)

As of March 31, 2019

-

-

(89,835)

(26,011)

(1,893)

(117,740)

As of March 31, 2020

-

-

(106,515)

(34,652)

(2,163)

(143,330)

Thousands of U.S. Dollars

Intangible Assets

with Indefinite

Intangible Assets with Definite Useful Lives

Total

Useful Lives

Customer

Intangible

Goodwill

Trademarks

Software

Relationships

Others

Assets

As of March 31, 2020

-

-

$ (978,728)

$ (318,404)

$ (19,875)

$ (1,317,008)

- 39 -

Certain trademarks that have been assessed as having indefinite useful lives are not amortized because the Group expects to continue to benefit from the trademarks as long as the related businesses continue to operate.

Customer relationships represent probable expected future economic benefits attributable to the existing customers of the acquiree at the time of the business combination.

Amortization expenses are included in "Cost of sales" and "Selling, general and administrative expenses" in the consolidated statement of profit or loss.

Research and development costs charged to income for the years ended March 31, 2020 and 2019 were ¥922 million ($8,471 thousand) and ¥1,015 million, respectively.

The carrying amounts of internally-generated intangible assets related to software as of March 31, 2020 and 2019 were ¥60,365 million ($554,672 thousand) and ¥45,712 million, respectively.

Significant goodwill and intangible assets with indefinite useful lives of the Group are allocated to the following groups of cash-generating units:

Goodwill

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

Cash-Generating Unit

2020

2019

2020

Reportable segment:

Commerce business

Shopping (Note 1)

¥ 272,828

¥

60,180

$ 2,506,919

Ikyu

72,044

72,044

661,986

Finance-related

(Note 2)

19,004

16,437

174,620

Others

2,447

2,447

22,484

Media business

Marketing solutions

33,708

24,191

309,730

Total

¥ 400,034

¥

175,301

$ 3,675,769

Notes: 1. Please refer to "Note 5. Business combinations."

2. This cash-generating unit was named "Settlement- and finance-related" in the previous year; however, the name of the cash generating unit was changed to "Finance-related" in the current year as the settlement-related part of the cash generating unit has been allocated to "Shopping" and "Others."

Intangible Assets with Indefinite Useful Lives

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

Cash-Generating Unit

2020

2019

2020

Reportable segment:

Commerce business

Shopping

¥ 198,850

¥ 20,130

$ 1,827,161

Ikyu

10,120

10,120

92,989

Total

¥ 208,970

¥ 30,250

$ 1,920,150

Note: Please refer to "Note 5. Business combinations."

- 40 -

In testing goodwill and intangible assets with indefinite useful lives for impairment, the recoverable amount is determined based on its value in use.

Value in use is determined by discounting the estimated future cash flows to their present value based on the business plan and growth rate approved by management.

Business plans are prepared based on external and internal information, which reflect management's assessment of future trends in the industry and past data, and generally do not exceed five years. The perpetual growth rate is determined considering the long-term average growth rate of the market or country to which the cash-generating unit belongs. The perpetual growth rates used for the years ended March 31, 2020 and 2019 were 0.6% and 0.7%, respectively. The pretax discount rates used in measurement of value in use for the years ended March 31, 2020 and 2019 were 7.8%-10.2% and 9.1%-12.0%, respectively.

In shopping business, based on the assumption that the pretax discount rates increased by 2% or the perpetual growth rate decreased by 3%, the recoverable amount may be equal to the carrying amount.

For the cash-generating units other than those described above, as value in use sufficiently exceeds the carrying values of cash generating units, the Company determined that the recoverable amount is unlikely to decrease below the carrying value, even if major assumptions such as the discount rate and the perpetual growth rate used in the impairment test change to a reasonably foreseeable extent.

In measuring value in use, uncertainties in the estimates of future cash flows are reflected in the business plans.

As to Ikyu business, in response to the declaration of a state of emergency to deal with the COVID-19 epidemic announced by the Japanese government on April 7, 2020, some hotel facilities, restaurants, and other eating and drinking places that have contractual relationships with the Group have shut down or shut early. If the degree of future uncertainties increases due to delay of convergence of the epidemic or other factors, actual results may differ from the estimates.

14. DISCLOSURE OF INTERESTS IN OTHER ENTITIES (1) Subsidiaries

The Company's major subsidiaries as of March 31, 2020 and 2019 are as follows:

Ownership

Percentage of

Voting Rights (%)

As of March 31

Name of Subsidiary

Location

2020

2019

Yahoo Japan Corporation

Tokyo

100.0

-

Z Financial Corporation

Tokyo

100.0

-

ValueCommerce Co., Ltd.

Tokyo

52.0

52.0

YJFX, Inc.

Tokyo

100.0

100.0

(100.0)

YJ Card Corporation

Fukuoka

100.0

100.0

(100.0)

ASKUL Corporation (Note 2)

Tokyo

45.1

45.1

Ikyu Corporation

Tokyo

100.0

100.0

eBOOK Initiative Japan Co., Ltd. (Note 3)

Tokyo

43.5

43.6

(43.5)

The Japan Net Bank, Limited (Note 4)

Tokyo

46.6

46.6

(46.6)

ZOZO, Inc.

Chiba

50.1

-

- 41 -

Notes: 1. Figures in parentheses in ownership percentage of voting rights indicate indirect ownership percentage included in the total.

  1. The Company does not have a majority of the voting rights; however, the Company determined that it has the practical ability to direct the relevant activities unilaterally and therefore has control over ASKUL and accounts for ASKUL as a subsidiary after considering all facts and circumstances, including the widely-dispersed holdings of voting rights among shareholders and the voting patterns at previous ASKUL shareholders meetings.
  2. The Company does not have a majority of the voting rights of eBOOK Initiative Japan Co., Ltd. ("eBOOK"); however, the Company determined that it has the practical ability to direct the relevant activities unilaterally and therefore has control over eBOOK and accounts for eBOOK as a subsidiary because the Company's officers and employees comprise the majority of the Board of Directors of eBOOK.
  3. The Company does not have a majority of the voting rights of The Japan Net Bank, Limited ("JNB"); however, the Company determined that it has the practical ability to direct the relevant activities unilaterally and therefore has control over JNB and accounts for JNB as a subsidiary because the Company's officers and employees comprise the majority of the Board of Directors of JNB.

(2) Summarized Consolidated Financial Information and Other Information on Subsidiaries with Significant Non-controlling Interests

ASKUL Group (ASKUL and its subsidiaries)

(a) General information

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Proportion of ownership interests held

by the non-controlling interests (%)

54.9

54.9

Accumulated non-controlling interests

of ASKUL Group

¥ 46,657

¥ 48,887

$ 428,714

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Profit (loss) allocated to the

non-controlling interests of ASKUL Group

¥1,578

¥ (1,708)

$ 14,499

- 42 -

(b) Summarized consolidated financial information

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Assets

¥ 277,406

¥ 229,602

$ 2,548,984

Liabilities

199,183

142,742

1,830,221

Equity

78,222

86,859

718,754

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Revenue

¥ 399,203

¥ 385,566

$ 3,668,133

Profit (loss) for the year

2,355

(3,632)

21,639

Comprehensive income (loss)

2,356

(3,631)

21,648

Note: Dividends paid by ASKUL to the non-controlling interests for the years ended March 31, 2020 and 2019 were ¥1,035 million ($9,510 thousand) and ¥1,007 million, respectively.

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Cash flows from operating activities-net

¥ 23,153

¥ 12,734

$ 212,744

Cash flows from investing activities-net

(4,999)

(5,527)

(45,934)

Cash flows from financing activities-net

(13,247)

1,701

(121,721)

Effects of exchange rate changes on

cash and cash equivalents

(3)

(4)

(27)

Net increase in cash and cash equivalents

¥ 4,903

¥ 8,904

$ 45,051

JNB

(a) General information

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Proportion of ownership interests held

by the non-controlling interests (%)

53.4

53.4

Accumulated non-controlling interests of JNB

¥ 30,509

¥ 31,139

$ 280,336

- 43 -

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Profit allocated to the non-controlling

interests of JNB

¥ 350

¥ 475

$3,216

(b) Summarized consolidated financial information

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Assets

¥ 999,524

¥ 883,244

$ 9,184,269

Liabilities

942,412

824,951

8,659,487

Equity

57,112

58,292

524,781

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Revenue

¥ 25,922

¥ 22,884

$ 238,187

Profit for the year

656

774

6,027

Comprehensive (loss) income

(1,079)

1,849

(9,914)

Note: Dividends paid by JNB to non-controlling interests for the years ended March 31, 2020 and 2019, were ¥178 million ($1,635 thousand) and ¥364 million, respectively.

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Cash flows from operating activities-net

¥ 85,591

¥ 73,361

$ 786,465

Cash flows from investing activities-net

(11,421)

(114,873)

(104,943)

Cash flows from financing activities-net

(334)

(7,613)

(3,069)

Effects of exchange rate changes on

cash and cash equivalents

15

(19)

137

Net increase (decrease) in cash and cash

equivalents

¥ 73,850

¥ (49,144)

$ 678,581

- 44 -

ZOZO Group (ZOZO and its subsidiaries)

(a) General information

As of March 31, 2020

Thousands of

Millions of Yen

U.S. Dollars

Proportion of ownership interests held

by the non-controlling interests (%)

49.9

Accumulated non-controlling interests of

ZOZO Group

¥ 188,603

$ 1,733,005

Year Ended March 31, 2020

Thousands of

Millions of Yen

U.S. Dollars

Profit allocated to the non-controlling interests of

ZOZO Group

¥2,880

$ 26,463

(b) Summarized consolidated financial information

As of March 31, 2020

Thousands of

Millions of Yen

U.S. Dollars

Assets

¥ 608,808

$ 5,594,119

Liabilities

225,721

2,074,069

Equity

383,086

3,520,040

Year Ended March 31, 2020

Thousands of

Millions of Yen

U.S. Dollars

Revenue

¥ 57,462

$ 527,997

Profit for the year

5,773

53,046

Comprehensive income

5,773

53,046

Note: The figures for the year ended March 31, 2020 in the above table are revenue, profit for the year, and total comprehensive income earned on and after the acquisition date. Dividends paid by ZOZO to non-controlling interests for the year ended March 31, 2020 were ¥3,660 million ($33,630 thousand).

Year Ended March 31, 2020

Thousands of

Millions of Yen

U.S. Dollars

Cash flows from operating activities-net

¥

16,849

$

154,819

Cash flows from investing activities-net

(2,246)

(20,637)

Cash flows from financing activities-net

(5,708)

(52,448)

Effects of exchange rate changes on

cash and cash equivalents

0

0

Net increase in cash and cash equivalents

¥

8,894

$

81,723

Note: The figures for the year ended March 31, 2020 in the above table are cash flows of ZOZO on and after the acquisition date.

- 45 -

(3) Investments Accounted for Using the Equity Method

Summarized Consolidated Financial Information and Other Information on Significant Investments Accounted for Using the Equity Method

PayPay Corporation ("PayPay")

  1. General information
    PayPay (Chiyoda-ku, Tokyo) operates an electronic settlement business offering mobile payment services and other services.
  2. Summarized consolidated financial information

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Assets

¥ 292,019

¥ 40,775

$ 2,683,258

Cash and cash equivalents

180,680

33,572

1,660,203

Liabilities

249,307

31,563

2,290,792

Equity

42,711

9,212

392,456

Ownership interests (%)

25.0

50.0

Carrying amount of the investments

-

4,606

-

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Revenue

¥ 9,160

¥ 595

$ 84,167

Selling, general and administrative expenses

89,516

37,157

822,530

Loss for the year (Note 2)

(82,501)

(36,787)

(758,072)

Comprehensive loss

(82,501)

(36,787)

(758,072)

Comprehensive loss attributable to the Group

(22,317)

(18,393)

(205,062)

Loss for the year

(22,317)

(18,393)

(205,062)

Comprehensive loss

(22,317)

(18,393)

(205,062)

Notes: 1. No dividends were received from PayPay for the years ended March 31, 2020 and 2019.

2. Other than the investments accounted for using the equity method, the Group also holds preferred shares of PayPay classified as equity instruments at FVTOCI. As the losses incurred in PayPay exceeded the Group's equity interests in PayPay, equity in losses of PayPay of ¥6,822 million ($62,684 thousand) has been allocated in the carrying amount of the preferred shares.

- 46 -

Aggregated amount of investments accounted for using the equity method that are not individually material is as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Carrying amount

¥8,567

¥ 19,904

$ 78,719

Other financial information of investments accounted for using the equity method that are not individually material is as follows:

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

(Loss) profit for the year attributable to the Group

¥ (2,224)

¥ 851

$ (20,435)

Other comprehensive income (loss), net of tax,

attributable to the Group

0

(13)

0

Comprehensive (loss) income attributable to

the Group

(2,223)

838

(20,426)

(4) Structured Entities

The Group invests inside and outside Japan by utilizing investment partnerships. Such partnerships provide their investees with cash raised from members of the partnerships mainly in the form of investments, and have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity.

The Group invests in unconsolidated structured entities such as investment funds and trusts over which the Group does not have control with regard to operating policies such as those related to selecting investees.

The Company does not have any contractual obligations to provide any financial support to the unconsolidated structured entities. The potential maximum loss exposure incurred from the involvement with such structured entities is as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Other financial assets

¥ 15,699

¥ 15,107

$ 144,252

The Company's maximum loss exposure represents the potential maximum loss amount, and does not indicate the probability of occurrence.

- 47 -

15. INCOME TAXES

(1) Deferred Taxes

The components of deferred tax assets and deferred tax liabilities are as follows: As of March 31, 2020

Millions of Yen

Recognized

As of

Recognized

in Other

As of

April 1,

in Profit

Comprehensive

March 31,

2019

for the Year

Income

Others

2020

Deferred tax assets:

Enterprise tax payable

¥ 1,331

¥

802

-

¥

247

¥

2,381

Property and equipment and intangible assets

12,385

2,375

-

2,170

16,931

Net operating loss carryforwards

8,471

(1,342)

-

17

7,146

Liabilities related to employee benefits (Note 1)

5,825

405

-

263

6,495

Allowance for doubtful receivables

4,464

891

-

(0)

5,355

Provision for interest repayment claims

4,117

(665)

-

-

3,451

Others

11,915

(833)

-

8,284

19,366

Total deferred tax assets before offset

48,511

1,633

-

10,983

61,128

Offset of deferred tax assets and liabilities

(13,960)

(17,389)

Total deferred tax assets, net

¥ 34,551

¥

43,739

Deferred tax liabilities:

Property and equipment and intangible assets (Note 2)

¥ 23,933

¥

(4,223)

-

¥

150,532

¥

170,242

Available-for-sale financial assets

6,394

-

¥ (1,464)

(188)

4,742

Others

4,034

(654)

-

-

3,380

Total deferred tax liabilities before offset

34,363

(4,878)

(1,464)

150,344

178,365

Offset of deferred tax assets and liabilities

(13,960)

(17,389)

Total deferred tax liabilities, net

¥ 20,403

¥

160,976

- 48 -

Thousands of U.S. Dollars

Recognized

As of

Recognized

in Other

As of

April 1,

in Profit

Comprehensive

March 31,

2019

for the Year

Income

Others

2020

Deferred tax assets:

Enterprise tax payable

$ 12,230

$

7,369

-

$

2,269

$

21,878

Property and equipment and intangible assets

113,801

21,823

-

19,939

155,572

Net operating loss carryforwards

77,836

(12,331)

-

156

65,662

Liabilities related to employee benefits (Note 1)

53,523

3,721

-

2,416

59,680

Allowance for doubtful receivables

41,018

8,187

-

(0)

49,205

Provision for interest repayment claims

37,829

(6,110)

-

-

31,710

Others

109,482

(7,654)

-

76,118

177,947

Total deferred tax assets before offset

445,750

15,005

-

100,918

561,683

Offset of deferred tax assets and liabilities

(128,273)

(159,781)

Total deferred tax assets, net

$ 317,476

$

401,902

Deferred tax liabilities:

Property and equipment and intangible assets (Note 2)

$ 219,911

$

(38,803)

-

$

1,383,184

$

1,564,292

Available-for-sale financial assets

58,752

-

$ (13,452)

(1,727)

43,572

Others

37,066

(6,009)

-

-

31,057

Total deferred tax liabilities before offset

315,749

(44,822)

(13,452)

1,381,457

1,638,932

Offset of deferred tax assets and liabilities

(128,273)

(159,781)

Total deferred tax liabilities, net

$ 187,475

$

1,479,150

Notes: 1. Liabilities related to employee benefits include liabilities attributable to accrued bonuses and paid absences.

2. Increase in "Others" represents the deferred tax liabilities arising from the temporary differences related to intangible assets identified at the time of acquisition of ZOZO shares. (Please refer to "Note 5. Business combinations.")

As of March 31, 2019

Millions of Yen

Recognized

As of

Recognized

in Other

As of

April 1,

in Profit

Comprehensive

March 31,

2018

for the Year

Income

Others

2019

Deferred tax assets:

Enterprise tax payable

¥ 1,490

¥

(158)

-

-

¥ 1,331

Property and equipment and intangible assets

9,542

2,843

-

-

12,385

Net operating loss carryforwards

10,697

(2,239)

-

¥

13

8,471

Liabilities related to employee benefits (Note 1)

5,755

59

-

11

5,825

Allowance for doubtful receivables (Note 2)

2,773

1,660

-

30

4,464

Provision for interest repayment claims

4,822

(705)

-

-

4,117

Others

10,048

673

-

1,193

11,915

Total deferred tax assets before offset

45,129

2,133

-

1,249

48,511

Offset of deferred tax assets and liabilities

(17,442)

(13,960)

Total deferred tax assets, net

¥ 27,686

¥ 34,551

Deferred tax liabilities:

Property and equipment and intangible assets

¥ 27,145

¥

(3,211)

-

-

¥ 23,933

Available-for-sale financial assets

7,919

-

¥ 608

¥

(2,133)

6,394

Others

5,335

(1,300)

-

-

4,034

Total deferred tax liabilities before offset

40,399

(4,511)

608

(2,133)

34,363

Offset of deferred tax assets and liabilities

(17,442)

(13,960)

Total deferred tax liabilities, net

¥ 22,956

¥ 20,403

- 49 -

Notes: 1. Liabilities related to employee benefits include liabilities attributable to accrued bonuses and paid absences.

2. The effect of application of IFRS 9 "Financial Instruments" has been reflected. (Please refer to "Note 3. Significant accounting policies (3).")

Deferred tax assets which belong to individual entities that recorded losses as of March 31, 2020 and 2019 are ¥43 million ($395 thousand) and ¥12,632 million, respectively. The Group recognizes deferred tax assets to the extent that it is probable that future taxable profit will be available.

Deductible temporary differences and net operating tax loss carryforwards (after multiplying by the tax rate) for which no deferred tax assets have been recognized are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Deductible temporary differences

¥

13,365

¥

2,352

$

122,806

Net operating tax loss carryforwards which expire:

Within one year

-

-

-

In one year to five years

¥

1,117

¥

716

$

10,263

After five years

6,601

5,308

60,654

Total

¥

7,718

¥

6,025

$

70,917

Total taxable temporary differences (before multiplying by the tax rate) for which no deferred tax liabilities related to the investments in subsidiaries have been recognized as of March 31, 2020 and 2019 are ¥150,885 million ($1,386,428 thousand) and ¥39,945 million, respectively.

(2) Tax Expenses

The components of income tax expense are as follows:

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Current tax expense

¥ 54,167

¥ 52,186

$ 497,721

Deferred tax expense

(6,511)

(6,644)

(59,827)

Total

¥ 47,655

¥ 45,542

$ 437,884

Reconciliations between the statutory effective tax rate and the actual tax rates for the years ended March 31, 2020 and 2019 were as follows. The actual tax rate represents the ratio of income tax expense to profit before tax.

Year Ended

March 31

2020

2019

Statutory effective tax rate

31.46%

31.46%

Equity in earnings or losses of associates and joint ventures

2.98

4.47

Other

0.69

0.98

Actual tax rate

35.12%

36.91%

- 50 -

16. OTHER ASSETS

The components of other assets are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Income taxes refundable (Note 1)

¥ 111,724

¥

157

$ 1,026,591

Consideration paid to customers (Note 2)

22,857

19,735

210,024

Prepaid expenses

13,202

12,045

121,308

Others

8,079

5,671

74,235

Total

¥ 155,863

¥

37,609

$ 1,432,169

Notes: 1. Income taxes refundable as of March 31, 2020 represents income taxes withheld arising from inter-Group dividends.

2. This item represents consideration paid to customers that is required to be accounted for as a reduction of the revenue at the time of transfer of the related goods or services to the customer.

17. TRADE AND OTHER PAYABLES

The components of trade and other payables are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Other payables

¥ 153,158

¥ 123,691

$ 1,407,314

Foreign exchange dealings deposits

from customers

118,978

115,372

1,093,246

Trade payables

94,595

88,234

869,199

Deposits received

69,114

32,547

635,063

Others

51,395

34,699

472,250

Total

¥ 487,242

¥ 394,545

$ 4,477,092

18. CUSTOMER DEPOSITS IN BANKING BUSINESS

The components of customer deposits in banking business are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Savings deposits

¥ 779,566

¥ 643,894

$ 7,163,153

Time deposits

123,552

124,718

1,135,275

Total

¥ 903,118

¥ 768,613

$ 8,298,428

- 51 -

19. INTEREST-BEARING LIABILITIES

The components of interest-bearing liabilities are as follows:

Weighted

Thousands

Average

of U.S.

Interest

Repayment

Millions of Yen

Dollars

Rate (%)

Date

As of

As of

As of

As of

March 31

March 31,

March 31,

March 31,

2020

2019

2020

2020

2020

Bank loans

¥

614,612

¥

69,997

$ 5,647,450

0.59

From April 2020

(Note 1)

to March 2027

Bonds

354,327

130,000

3,255,784

0.32

From December 2020

(Note 2)

to July 2029

Lease liabilities

116,593

-

1,071,331

0.36

From April 2020

to June 2031

Others

903

15,215

8,297

-

-

Total

¥

1,086,436

¥

215,212

$ 9,982,872

Notes: 1. On November 14, 2019, the Company entered into loan agreements with five financial institutions, the administrative agent of which was MIZUHO BANK, LTD., to procure funds to be used for the tender offer to acquire ZOZO shares. The loan agreements were executed on November 19, 2019. The details are as follows:

  1. Amount of loans
    ¥400,000 million ($3,675,457 thousand)
  2. Interest rate
    Japanese Yen TIBOR released by Japanese Bankers Association plus credit spread (The credit spread specified in the agreement will be applied.)
  3. Repayment date November 14, 2020
  4. Collateral Unsecured
  5. Joint guarantor
    Yahoo Japan Corporation
  6. Significant contractual obligations of borrower
    1. Without consent of majority lenders, the Company shall not provide a third party guarantee, loan money to a third party other than the Group companies, or loan money to the Group companies for the purpose of loan to or investment in a third party. The Company also shall not guarantee, loan money to and provide other credit activities to, or invest in SoftBank Group Japan Corporation or SoftBank Corp.
      • 52 -
  1. Covenants
    1. Equity of the Company at March 31, 2020 and each year-end balance sheet date thereafter should maintain 75% of the amount of equity as of September 30, 2019.
    2. Equity of the Group at March 31, 2020 and each year-end consolidated balance sheet date thereafter as well as at September 30, 2020 and each six-month interim consolidated balance sheet date thereafter should maintain 75% of the amount of equity as of September 30, 2019.
    3. Total liabilities of the Company at March 31, 2020 and each year-end balance sheet date thereafter should not exceed its total assets.
    4. Total liabilities of the Group at March 31, 2020 and each year-end consolidated balance sheet date thereafter as well as at September 30, 2020 and each six-month interim consolidated balance sheet date thereafter should not exceed its total assets.
    5. The Company should not record operating loss and/or net loss for the year ended March 31, 2020 and thereafter.
    6. The Group should not record operating loss or net loss on a consolidated basis for the year ended March 31, 2020 and thereafter.
    7. Net leverage ratio (see below (i)) on a consolidated basis for the year ended March 31, 2020 and thereafter as well as six-month period ended September 30, 2020 and thereafter should not exceed the ratio specified in the agreement.
      1. Net leverage ratio is defined as net debt (see below (ii)) divided by adjusted EBITDA (see below (iii)).
      2. Net debt is defined as interest-bearing liabilities less cash and cash equivalents on the consolidated statement of financial position of the Group. This interest-bearing liabilities herein defined do not include those arising from fund procurement transactions through securitization of assets. In determining net debt ratio, certain adjustments specified in the agreement are made. Such adjustments include JNB's interest-bearing debts and cash and cash equivalents, which are excluded from the determination of net debt ratio.
      3. Adjusted EBITDA is determined by adjusting operating income with depreciation/amortization, losses on disposal included in operating expenses, and other items that are specified in the agreement.

- 53 -

2. Outline of terms and conditions of the bonds are as follows:

Thousands

Millions

of U.S.

Interest

Redemption

of Yen

Dollars

Rate (%)

Date

As of

As of

As of

As of

March 31,

March 31,

March 31,

March 31,

Date of Issue

2020

2020

2020

2020

The Company:

2nd Series

February 28,

¥

15,000

$

137,829

0.17

February 28,

Unsecured

2017

2022

Bonds

3rd Series

February 28,

15,000

137,829

0.37

February 28,

Unsecured

2017

2024

Bonds

4th Series

December 7,

10,000

91,886

0.07

December 7,

Unsecured

2017

2020

Bonds*

5th Series

December 7,

25,000

229,716

0.2

December 7,

Unsecured

2017

2022

Bonds

6th Series

December 7,

25,000

229,716

0.35

December 6,

Unsecured

2017

2024

Bonds

7th Series

December 7,

10,000

91,886

0.4

December 7,

Unsecured

2017

2027

Bonds

8th Series

December 6,

15,000

137,829

0.2

December 6,

Unsecured

2018

2023

Bonds

9th Series

December 6,

10,000

91,886

0.5

December 6,

Unsecured

2018

2028

Bonds

10th Series

July 31, 2019

60,000

551,318

0.04

July 19, 2022

Unsecured

Bonds

11th Series

July 31, 2019

50,000

459,432

0.18

July 31, 2024

Unsecured

Bonds

12th Series

July 31, 2019

70,000

643,204

0.37

July 31, 2026

Unsecured

Bonds

13th Series

July 31, 2019

50,000

459,432

0.46

July 31, 2029

Unsecured

Bonds

Total

¥

355,000

$

3,261,968

  • The 4th series unsecured bonds of ¥10,000 million ($91,886 thousand) were redeemable within a year as of March 31, 2020.

- 54 -

20. PROVISIONS

The components of provisions are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Provision for interest repayment claims

(Notes 1 and 2)

¥ 10,075

¥ 12,017

$

92,575

Asset retirement obligations (Note 1)

10,326

7,965

94,881

Others (Notes 1 and 3)

7,758

10,378

71,285

Total

¥ 28,161

¥ 30,360

$

258,761

Notes: 1. Additional information on the nature of the provisions included in the table above is provided in "Note 3. Significant accounting policies."

  1. Provision for interest repayment claims is calculated by estimating the future repayment amount based on the historical experience of repayments and expirations due to the statute of limitations.
  2. This item mainly consists of provision for customer point reward programs.

Changes in provisions are as follows:

Millions of Yen

Provision

for Interest

Asset

Repayment

Retirement

Claims

Obligations

Others

Total

As of April 1, 2019

¥ 12,017

¥ 7,965

¥ 10,378

¥ 30,360

Recognition of provisions

-

1,180

13,578

14,758

Business combinations

-

1,245

1,836

3,081

Used

(1,941)

(16)

(700)

(2,657)

Others

-

(47)

(17,333)

(17,381)

As of March 31, 2020

¥ 10,075

¥ 10,326

¥ 7,758

¥ 28,161

Thousands of U.S. Dollars

Provision

for Interest

Asset

Repayment

Retirement

Claims

Obligations

Others

Total

As of April 1, 2019

$ 110,419

$ 73,187

$

95,359

$ 278,967

Recognition of provisions

-

10,842

124,763

135,605

Business combinations

-

11,439

16,870

28,310

Used

(17,835)

(147)

(6,432)

(24,414)

Others

-

(431)

(159,266)

(159,707)

As of March 31, 2020

$ 92,575

$ 94,881

$

71,285

$ 258,761

- 55 -

  1. PURCHASE COMMITMENTS
    Commitments to purchase property and equipment and intangible assets as of March 31, 2020 and 2019 are ¥10,592 million ($97,326 thousand) and ¥2,308 million, respectively. The commitments are mainly attributable to executory contracts of purchase of assets to be used in data centers.
  2. OTHER LIABILITIES
    The components of other liabilities are as follows:

Thousands of

Millions of Yen

U.S. Dollars

As of

As of

March 31

March 31,

2020

2019

2020

Taxes withheld (Note)

¥ 102,100

-

$

938,160

Consumption taxes payable

18,073

¥

4,174

166,066

Contract liabilities

12,868

12,403

118,239

Accrued bonuses

11,874

9,386

109,105

Accrued paid absences

8,413

8,513

77,304

Others

23,776

22,640

218,469

Total

¥ 177,106

¥

57,118

$

1,627,363

Note: Taxes withheld as of March 31, 2020 represents taxes withheld arising from inter-Group dividends.

23. RETIREMENT BENEFITS

The Company and certain subsidiaries participate primarily in defined contribution pension plans. Retirement benefit costs of defined contribution pension plans are as follows:

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Contributions to defined contribution

pension plans

¥1,309

¥1,178

$ 12,027

24. LEASES

For the Year Ended March 31, 2020

As lessee

(1) Right-of-Use Assets

For details of carrying amounts, depreciation and amortization, and increase during the year of right-of-use assets by class of underlying assets, please refer to "Note 12. Right-of-use assets."

(2) Cash Outflow for Leases

For details of total cash outflow for leases, please refer to "Note 38. Supplemental information to the consolidated statement of cash flows."

- 56 -

(3) Lease Liabilities

For details of total minimum lease payments, please refer to "3) Liquidity risk: Maturities of financial liabilities" in "(2) Financial risk" in "Note 29. Financial instruments."

For details of interest expense on lease liabilities, please refer to "Note 38. Supplemental information to the consolidated statement of cash flows."

(4) Nature of Leasing Activities

The Group leases data centers, office spaces and logistics warehouses for the purpose of efficient capital management.

Certain lease contracts contain extension options and termination options to improve the flexibility in business. Most of such options are exercisable only by the Group after a specified notice period. In determining the lease term, the Group considers all relevant facts and circumstances that create an economic incentive for the Group to exercise the option to extend the lease, or not to exercise the option to terminate the lease. This assessment is revised upon the occurrence of either a significant event or a significant change in circumstances that affects the assessment.

Lease terms for major right-of-use assets by class of underlying assets are principally as follows:

Data centers:

10-17 years

Office spaces:

3-15 years

Logistics warehouses:

3-15 years

Data centers, office spaces and logistics warehouses are mainly applicable to buildings and structures.

(5) Leases Not Yet Commenced to Which the Group Is Committed

Certain fixed-term building lease agreements and fixed-term building lease reservation agreements that the Group has already entered into were not reflected in the measurement of lease liabilities as of March 31, 2020 because the lease had not yet commenced. The underlying assets of such lease agreements are logistics warehouses. The lease term is planned to commence in the following fiscal year or thereafter for a period from 10 years to 15 years. The total amount of the expected future payment for such leases as of March 31, 2020 was ¥29,535 million ($271,386 thousand).

For the Year Ended March 31, 2019

(1) Finance Leases

As lessee

The Group leases machinery and equipment, software and system-related equipment, and other items through financing lease contracts. There are no contingent rents payable, purchase options, escalation clauses, or restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing.

- 57 -

The carrying amounts of leased assets, net of accumulated depreciation and accumulated impairment losses, as of March 31, 2019 are as follows:

Millions of Yen

As of March 31,

2019

Software

¥

51

Machinery and equipment

13,938

Furniture and fixtures

450

Total

¥

14,440

The components of the total of future minimum lease payments and their present value under finance leases as of March 31, 2019 are as follows:

Millions of Yen

As of March 31, 2019

Present Value of

Total of

the Total of

Future Minimum

Future Minimum

Lease Payments

Lease Payments

Not later than one year

¥

2,016

¥

1,803

Later than one year and not later than five years

7,791

7,202

Later than five years

6,392

6,206

Total

16,200

¥

15,211

Less: Future finance costs

(988)

Present value of the total of future minimum

lease payments

¥

15,211

(2) Operating Leases

As lessee

The Group leases buildings to utilize as offices and data centers through operating lease contracts. Certain operating lease contracts have an automatic renewal option. There are no contingent rents payable, purchase options, escalation clauses, or restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing. Total rental expenses under operating lease contracts for the fiscal year ended March 31, 2019 were ¥24,046 million.

Non-cancelable Operating Leases

The components of the future minimum lease payments under non-cancelable operating leases are as follows:

Millions of Yen

As of March 31,

2019

Not later than one year

¥

19,294

Later than one year and not later than five years

50,902

Later than five years

35,497

Total

¥

105,694

- 58 -

Total future minimum lease payments as of March 31, 2019 include sale and leaseback transactions entered into at ASKUL Logi PARK Tokyo Metropolitan and ASKUL Logi PARK Fukuoka on November 9, 2017.

25. CURRENT/NON-CURRENT DISTINCTION

As of March 31, 2020

Millions of Yen

Expected Period to

Recover or Settle

No More than

More than

12 Months

12 Months

Total

Assets:

Cash and cash equivalents

¥

880,100

-

¥

880,100

Trade and other receivables

386,799

-

386,799

Inventories

20,889

-

20,889

Loans in credit card business

249,327

¥

92,918

342,245

Investment securities in banking business

80,473

335,335

415,809

Loans in banking business

12,881

85,870

98,752

Other financial assets

29,010

235,202

264,213

Property and equipment

-

131,215

131,215

Right-of-use assets

-

106,304

106,304

Goodwill

-

400,034

400,034

Intangible assets

-

679,375

679,375

Investments accounted for using the equity

method

-

8,567

8,567

Deferred tax assets

-

43,739

43,739

Other assets

124,913

30,950

155,863

Total assets

¥

1,784,394

¥

2,149,515

¥

3,933,910

Liabilities:

Trade and other payables

¥

487,242

-

¥

487,242

Customer deposits in banking business

882,082

¥

21,036

903,118

Interest-bearing liabilities

608,458

477,978

1,086,436

Other financial liabilities

4,421

5,735

10,157

Income taxes payable

32,887

32,887

Provisions

9,517

18,643

28,161

Deferred tax liabilities

-

160,976

160,976

Other liabilities

167,137

9,968

177,106

Total liabilities

¥

2,191,747

¥

694,339

¥

2,886,086

- 59 -

Thousands of U.S. Dollars

Expected Period to

Recover or Settle

No More than

More than

12 Months

12 Months

Total

Assets:

Cash and cash equivalents

$

8,086,924

-

$

8,086,924

Trade and other receivables

3,554,157

-

3,554,157

Inventories

191,941

-

191,941

Loans in credit card business

2,290,976

$

853,790

3,144,767

Investment securities in banking business

739,437

3,081,273

3,820,720

Loans in banking business

118,358

789,028

907,396

Other financial assets

266,562

2,161,187

2,427,758

Property and equipment

-

1,205,687

1,205,687

Right-of-use assets

-

976,789

976,789

Goodwill

-

3,675,769

3,675,769

Intangible assets

-

6,242,534

6,242,534

Investments accounted for using the equity

method

-

78,719

78,719

Deferred tax assets

-

401,902

401,902

Other assets

1,147,780

284,388

1,432,169

Total assets

$

16,396,159

$

19,751,125

$

36,147,293

Liabilities:

Trade and other payables

$

4,477,092

-

$

4,477,092

Customer deposits in banking business

8,105,136

$

193,292

8,298,428

Interest-bearing liabilities

5,590,903

4,391,969

9,982,872

Other financial liabilities

40,622

52,696

93,329

Income taxes payable

302,186

-

302,186

Provisions

87,448

171,303

258,761

Deferred tax liabilities

-

1,479,150

1,479,150

Other liabilities

1,535,762

91,592

1,627,363

Total liabilities

$

20,139,180

$

6,380,033

$

26,519,213

- 60 -

As of March 31, 2019

Millions of Yen

Expected Period to

Recover or Settle

No More than

More than

12 Months

12 Months

Total

Assets:

Cash and cash equivalents

¥

546,784

-

¥

546,784

Call loans in banking business

20,000

-

20,000

Trade and other receivables

328,281

-

328,281

Inventories

18,306

-

18,306

Loans in credit card business

179,162

¥

74,178

253,340

Investment securities in banking business

75,793

343,757

419,551

Loans in banking business

11,265

69,677

80,942

Other financial assets

20,502

170,757

191,260

Property and equipment

-

133,867

133,867

Goodwill

-

175,301

175,301

Intangible assets

-

165,293

165,293

Investments accounted for using the equity

method

-

24,510

24,510

Deferred tax assets

-

34,551

34,551

Other assets

10,149

27,460

37,609

Total assets

¥

1,210,244

¥

1,219,356

¥

2,429,601

Liabilities:

Trade and other payables

¥

394,545

-

¥

394,545

Customer deposits in banking business

746,509

¥

22,104

768,613

Interest-bearing liabilities

50,480

164,731

215,212

Other financial liabilities

3,734

4,949

8,683

Income taxes payable

24,138

24,138

Provisions

12,435

17,925

30,360

Deferred tax liabilities

-

20,403

20,403

Other liabilities

48,564

8,553

57,118

Total liabilities

¥

1,280,409

¥

238,667

¥

1,519,077

- 61 -

26. EQUITY

(1) Common Stock and Treasury Stock

The number of authorized shares is as follows:

As of March 31

20202019

Authorized shares-Common stock

24,160,000,000

24,160,000,000

The number of issued shares is as follows:

Number of

Issued Shares

Balance as of April 1, 2018

5,696,866,300

Increase (Note 1)

910,100

Decrease (Note 2)

(546,146,785)

Balance as of March 31, 2019

5,151,629,615

Increase (Note 1)

1,513,150,950

Decrease (Note 2)

( 1,842,273,100)

Balance as of March 31, 2020

4,822,507,465

Notes: 1. This item represents the exercise of share subscription rights, issue of shares through a third-party allotment, and issue of shares with restriction on transfer.

2. This item represents disposal of treasury stock.

The number of treasury stock included in issued shares as of March 31, 2020 and 2019 was 60,061,000 shares and 67,879,000 shares, respectively. At the meeting of the Board of Directors held on May 8, 2019, the Company decided to issue new shares and purchase its treasury stock. The number of issued shares and treasury stock increased by 1,511,478,050 shares and 1,834,377,600 shares, respectively, for the year ended March 31, 2020 mainly as a result of the new share issuance and the purchase of treasury stock. At the meeting of the Board of Directors held on September 4, 2019, the Company decided to dispose of its treasury stock. The number of issued shares and treasury stock decreased by 1,842,273,100 shares each for the year ended March 31, 2020 as a result of the transaction to dispose of treasury stock.

(2) Surplus

  1. Capital surplus
    Capital surplus of the Company includes additional paid-in capital. Under the Companies Act of Japan (the "Companies Act"), at least 50% of the proceeds upon issuance of equity instruments shall be credited to common stock. The remainder of the proceeds shall be credited to additional paid-in capital. The Companies Act permits, upon approval at the general meeting of shareholders, the transfer of amounts from additional paid-in capital to common stock.
  2. Retained earnings
    Retained earnings of the Company include the reserve legally required as legal retained earnings. The Companies Act provides that 10% of the dividends from retained earnings shall be appropriated as legal capital surplus or as legal retained earnings until their aggregate amount equals 25% of common stock. The legal retained earnings may be used to eliminate or reduce a deficit or be transferred to retained earnings upon approval at the general meeting of shareholders.
    • 62 -

27. DIVIDENDS

The total amount of dividends was as follows:

Millions

Thousands of

of Yen

U.S. Dollars

Yen

U.S. Dollars

Total

Total

Dividends

Dividends

Resolution

Dividends

Dividends

per Share

per Share

Record Date

Effective Date

Year Ended March 31, 2020

Board of Directors meeting held on May 16, 2019

¥ 45,042

$ 413,874

¥8.86

$0.08

March 31, 2019

June 4, 2019

Year Ended March 31, 2019

Board of Directors meeting held on April 27, 2018

¥ 50,449

¥8.86

March 31, 2018

June 26, 2018

(Note)

Note: On May 31, 2018, the Board of Directors resolved to change the effective date of dividends from June 5, 2018 to June 26, 2018.

Dividends to become effective during the year ending March 31, 2021 are as follows:

Millions

Thousands of

of Yen

U.S. Dollars

Yen

U.S. Dollars

Total

Total

Dividends

Dividends

Resolution

Dividends

Dividends

per Share

per Share

Record Date

Effective Date

Board of Directors meeting held on May 18, 2020

¥ 42,195

$ 387,714

¥8.86

$0.08

March 31, 2020

June 5, 2020

28. SHARE-BASED PAYMENTS

The Company and certain subsidiaries have share option plans as share-based payment awards. Share options are granted to the Company's directors and employees based on the terms approved by the Company's shareholders and the Board of Directors.

Share-based payments are accounted for as equity-settled share based payments. Expenses related to equity-settledshare-based payments for the years ended March 31, 2020 and 2019 are not presented because they are not significant.

(1) Share Option Plans

Details of share option plans

The details of the Company's share option plans for the year ended March 31, 2020 are as follows. The details of the subsidiaries' share option plans are not presented because they are not significant.

- 63 -

The Company grants share options to its directors and employees. The Company shares will be issued upon exercise of such share options.

Options Series

Grant Date

Exercise Period

2009

From May 12, 2009

From April 28, 2019

to February 10, 2010

to January 27, 2020

2010

From May 11, 2010

From April 27, 2020

to February 8, 2011

to January 25, 2021

2011

From June 3, 2011

From May 20, 2021

to February 17, 2012

to February 3, 2022

2012-1st

May 16, 2012

May 2, 2022

Note: Vesting conditions

Each stock options in the table above vests in three phases. One-half of the options vests mainly after two years have passed from the grant date; and in the following two years, one-fourth of the options vests each year. The right holders shall be employed for a period from the grant date to the vesting date. The options are forfeited upon termination of employment even if they are vested.

(2) Fair Value of Share Options Granted during the Period

Not applicable.

(3) Changes in Share Options during the Period and the Condition of Share Options at the Period End

Changes in share options (expressed in the number of shares issued upon exercise) during the period and the condition of share options at the period end are as follows:

Weighted Average

Number

Exercise Price

of Shares

(Yen) (U.S. Dollars)

Balance at April 1, 2018

Unexercised

55,987,100

¥430

Granted

-

-

Forfeited

(8,171,800)

¥420

Exercised

(86,100)

¥306

Matured

(483,000)

¥424

Balance at April 1, 2019

Unexercised

47,246,200

¥431 ($3.96)

Granted

-

-

Forfeited

( 45,951,600)

¥435 ($4.00)

Exercised

(131,900)

¥305 ($2.80)

Matured

(345,300)

¥305 ($2.80)

Balance at March 31, 2020

Unexercised

817,400

¥303 ($2.78)

Weighted Average

Number

Exercise Price

of Shares

(Yen) (U.S. Dollars)

Balance at March 31, 2019

Exercisable

1,393,200

¥305

Balance at March 31, 2020

Exercisable

817,400

¥303 ($2.78)

- 64 -

The unexercised share options as of March 31, 2020, are as follows:

Weighted Average

Range of

Weighted Average

Remaining

Exercise Price

Number

Exercise Price

Contract Period

(Yen)

of Shares

(Yen) (U.S. Dollars)

(Years)

201-300

469,500

¥271 ($2.49)

1.4

301-400

347,900

¥345 ($3.17)

0.3

Total

817,400

¥303 ($2.78)

1.0

(4) Share Options Exercised during the Period

Weighted-average stock prices at exercise for share options exercised during the period are as follows:

Year Ended March 31

2020

2019

Weighted

Weighted Average

Average

Number

Stock Price

Number

Stock Price

Options

of Shares

at Exercise

Options

of Shares

at Exercise

Series

Issued

(Yen) (U.S. Dollars)

Series

Issued

(Yen)

2008

-

-

2008

17,700

¥ 444

2009

14,100

¥352 ($3.23)

2009

18,100

¥ 429

2010

52,100

¥415

($3.81)

2010

5,300

¥ 481

2011

63,100

¥358

($3.29)

2011

30,000

¥ 364

2012

2,600

¥401

($3.68)

2012

15,000

¥ 387

29. FINANCIAL INSTRUMENTS (1) Capital Management

The Company's capital management policy is to realize and maintain optimum capital composition to continue mid- and long-term sustainable growth and maximize corporate value. The Group is subject to regulatory capital requirements under the applicable laws and regulations, and required to maintain capital adequacy ratios, net assets and other indicators at certain levels.

Significant capital requirements attributable to the Group are as follows:

  1. YJFX, Inc.
    YJFX, Inc. is subject to the Financial Instruments and Exchange Act and related laws and regulations and is required to maintain a ratio, which is calculated by dividing its unappropriated capital by the total amount of the following three risk equivalent amounts, of at least 120%. The three risk equivalent amounts are:
    1. market risk (risk arising from fluctuations in stock price, interest rate and exchange rate that affect holding assets) equivalent amount,
    2. counterparty risk (risk assumed to be attributable to counterparties of financial instrument transactions) equivalent amount, and
    3. fundamental risk (risk attributable to processing daily operations such as errors in paperwork) equivalent amount.
      • 65 -
  1. YJ Card Corporation
    YJ Card Corporation is subject to the Payment Services Act, the Installment Sales Act and related laws and regulations and is required to maintain its equity (net assets) at a certain level. The minimum amount of net assets required to be maintained is the greater of the following two items:
    1. ¥100 million
    2. 90% of share capital or capital contribution
  2. JNB
    In accordance with the requirements of capital adequacy ratio as prescribed in the Banking Act and the Notification issued by Financial Services Agency in Japan, JNB is required to maintain its capital adequacy ratio of at least 4.0% as a bank that does not have overseas locations.

No revision was made to applicable laws that have a significant impact on the capital requirements for the years ended March 31, 2020 and 2019.

(2) Financial Risk Management

The Group is exposed to a variety of financial risks (currency risk, price risk, interest rate risk, credit risk, and liquidity risk) in its operations. The Company manages risks based on its established policies to prevent and reduce these financial risks.

As an online only bank, the banking subsidiary raises funds mainly from customer deposits and manages the funds by financing through loans, securities, and others. Because the banking subsidiary holds financial assets and financial liabilities that are subject to the risk of interest rate fluctuations, the subsidiary conducts asset-liability management ("ALM") to protect itself from the negative effects of the interest rate fluctuations. As a part of such activities, the Group utilizes derivative transactions.

Derivative transactions entered into by the Group are limited to the extent of actual demands. The Group does not enter into derivative contracts for speculative or trading purposes.

  1. Market risk
    1. Currency Risk
      The Group conducts foreign currency exchange transactions and is subject to currency risk from changes in currency exchange rates, mainly of U.S. dollars to Japanese yen. To avoid this risk, the Company utilizes forward foreign exchange contracts. In addition, to avoid currency risk arising from foreign exchange dealings, the Company utilizes covering transactions with counterparties to cover its positions arising from transactions with customers.

- 66 -

Foreign exchange sensitivity analysis

The following table presents the effect of a 1% appreciation of the Japanese yen against the U.S. dollar on profit before tax and other comprehensive income (before net of tax effect) for the financial instruments with the above foreign currency risk exposure, assuming that all other factors are constant. The analysis does not include the effect of translating assets and liabilities of foreign operations into the presentation currency.

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Decrease in profit before tax

¥ (221)

¥ (183)

$ (2,030)

Decrease in other comprehensive

income before tax effect

(8)

(63)

(73)

  1. Price Risk
    As a part of its business strategy, the Company holds equity securities traded in active markets and is exposed to market price fluctuation risk. To manage this risk, the Company continuously monitors the financial condition of the security issuers and stock market fluctuations.
    Price sensitivity analysis
    The table below presents the effect of a 10% decrease in market price in the securities traded in active markets on other comprehensive income before tax effect in the consolidated statement of comprehensive income, assuming that all other factors are constant.

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Decrease in other comprehensive

income before tax effect

¥ (1,197)

¥ (2,235)

$ (10,998)

  1. Interest Rate Risk (except the Banking Subsidiary)
    The Group's use of funds for financing activities is exposed to interest rate risk. To prevent or reduce interest rate risk, the Company maintains an appropriate mix between fixed and floating interest rate debts and constantly monitors the interest rate fluctuations of the floating interest rate debts.

- 67 -

Interest rate sensitivity analysis

The table below presents the effect of a 1% increase in interest rates in the Group's financial instruments that are exposed to changes in interest rates on profit before tax in the consolidated statement of profit or loss, assuming that all other factors are constant.

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Decrease in profit before tax

¥ (5,416)

¥ (410)

$ (49,765)

  1. Interest Rate Risk Management by the Banking Subsidiary
    The banking subsidiary identifies assets and liabilities from the portfolio that are subject to interest rate risk management and sets the allowable risk limits of present value fluctuations, monitoring the limits daily. The banking subsidiary also periodically analyzes present value fluctuations arising from shifts of the yield curve (parallel shift, steepening and others) and monitors the effects of such changes on assets and liabilities. In monitoring such risks, the business units are separated into a front-office department, middle-office department, and back-office department, and monitored by the Risk Management Department, which is independent of the business units. The results of monitoring are reported internally on a daily basis, and periodically at ALM Committee meetings and Board of Directors meetings to ensure the appropriate independent checks have taken place.
    The principal financial assets, financial liabilities, and derivative transactions in the banking business that are subject to the major risk parameters of interest rate risks are loans and investment securities, customer deposits, and bond futures transactions and interest rate futures transactions.
    The banking subsidiary calculates BPV (basis point value: denotes the change in value of a financial instrument resulting from a 0.01 percentage-point change in the yield) as the change in the present value of the portfolio due to interest rate fluctuations to perform a quantitative analysis to manage interest rate risk. In calculating BPV, the corresponding financial instruments are categorized by type of the instrument, and then each instrument is allocated to an appropriate cash flow, based on its maturity, with a fluctuation range of the interest rate for the period set forth by the banking subsidiary.
    Based on the assumption that all risk variables except interest rate risks are consistent, and that all interest rate indices increased by 1 basis point (0.01%), net fair value of the financial instruments as of March 31, 2020 would decrease by ¥100 million
    ($918 thousand) on a pre-tax basis. If the interest rate decreased by 1 basis point (0.01%), based on the same assumptions, net fair value would increase by ¥100 million ($918 thousand) on a pre-tax basis. The change in net fair value presumes that risk variables except interest rate risks are consistent and disregards the correlation between interest rates and other risk variables.

- 68 -

  1. Credit risk
    In the course of the Company's business, trade and other receivables and other financial assets (including equity securities and derivatives) are exposed to the credit risk of counterparties. Loans in the credit card business include individual loans that are exposed to the credit risk of individual customers. Investment securities in banking business include domestic bonds, foreign bonds, and trust beneficiary rights. Such bonds are exposed to the credit risk of issuers, whereas trust beneficiary rights are exposed to the credit risk of underlying assets. Loans in the banking business include non-business individual loans, housing loans, and business loans, all of which are exposed to credit risk of customers. To manage the credit risk of such financial instruments, which is mainly from counterparties in Japan, the Group secures collateral and obtains guarantees that correspond to each customer's credit status after performing credit research and setting a line of credit in accordance with internal customer credit management rules. In addition, the Company performs due date controls and balance controls for each customer and periodically monitors their credit status.
    All non-business individual loans and guaranteed business loans in the banking business are guaranteed by guarantee companies. All housing loans are secured.
    The Group conducts foreign exchange margin transactions with customers and covering transactions with counterparties in order to avoid risks arising from the transactions.
    The Group is exposed to the credit risks of customers that include possible uncollectible receivables arising from losses that exceed the customers' funds, and the credit risks of financial institutions as counterparties of the transactions. Because automatic stop-loss rules and systems are implemented, the exposure to the credit risks of customers is limited. As to the credit risks of counterparties, the Group believes that the possibility of default is remote because the Group conducts covering transactions only with creditworthy financial institutions. Also, in conducting covering transactions, positions, gains and losses of the transactions are checked in accordance with internal management policy.
    The carrying amount of financial instruments, net of impairment, which is presented in the consolidated statement of financial position, as well as the amount of lending commitments, represents the Company's maximum exposure to credit risk on financial assets. The value of collateral held and other credit enhancements are not included. The details of lending commitments are described in "Note 40. Contingencies."
    Trade and other receivables include security deposits received as credit enhancements. Such deposits as of March 31, 2020 and 2019 were ¥1,082 million ($9,942 thousand) and ¥1,376 million, respectively. Non-business individual loans and guaranteed business loans in the banking business are guaranteed for credit enhancements. The guaranteed amounts as of March 31, 2020 and 2019 were ¥84,191 million ($773,601 thousand) and ¥76,675 million, respectively.
    Foreign exchange dealings deposits from customers include security deposits received from customers. Such deposits as of March 31, 2020 and 2019 were ¥118,978 million ($1,093,246 thousand) and ¥115,372 million, respectively.
    The Group measures the loss allowance at an amount equal to the lifetime expected credit losses for trade receivables, contract assets, and committed lines of cash advances. For receivables other than trade receivables, contract assets, or committed lines of cash advances, the Group measures the loss allowance at an amount equal to the future expected credit losses after assessing whether credit risk has increased significantly. When making the assessment, the Group uses the change in the risk of a default occurring after considering past due information, adverse changes in operating results, and external credit ratings. For receivables other than trade receivables or contract assets, the Group in principle measures the loss allowance at an amount equal to 12-month expected credit losses. If the credit risk on that receivable has increased significantly since initial recognition, the Group measures the loss allowance at an amount equal to the lifetime expected credit losses.
    • 69 -

The Group's definition of default is being credit-impaired. When one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred, the Group measures the expected credit losses for each receivables as a credit-impaired financial asset. Such events include:

  1. significant financial difficulty of the issuer or the borrower,
  2. a breach of contract, such as a default of principle or interest or a past due event, and
  3. it is becoming probable that the borrower will enter bankruptcy or other financial reorganization.

If the financial asset is not individually significant, it is measured on a collective basis based on the characteristics of the credit risks and nature of the transactions.

  1. Credit Risk Exposure
    Credit risk exposure of loans in the credit card business is as follows: As of March 31, 2020

Millions of Yen

Financial Assets for Which

Financial Assets for Which Loss Allowance Is Measured at

Loss Allowance Is

an Amount Equal to the Lifetime Expected Credit Losses

Measured at an Amount

Financial Assets for Which Credit

Equal to 12-Month

Risk Has Increased Significantly

Credit-Impaired

Past Due Dates

Expected Credit Losses

Since Initial Recognition

Financial Assets

Total

None

¥ 306,529

-

-

¥ 306,529

Within 30 days

31,816

-

-

31,816

30 days to 90 days

-

¥3,451

-

3,451

Over 90 days

-

-

¥ 11,006

11,006

Total

¥ 338,346

¥3,451

¥ 11,006

¥ 352,804

Thousands of U.S. Dollars

Financial Assets for Which

Financial Assets for Which Loss Allowance Is Measured at

Loss Allowance Is

an Amount Equal to the Lifetime Expected Credit Losses

Measured at an Amount

Financial Assets for Which Credit

Equal to 12-Month

Risk has Increased Significantly

Credit-Impaired

Past Due Dates

Expected Credit Losses

Since Initial Recognition

Financial Assets

Total

None

$ 2,816,585

-

-

$ 2,816,585

Within 30 days

292,345

-

-

292,345

30 days to 90 days

-

$ 31,710

-

31,710

Over 90 days

-

-

$ 101,130

101,130

Total

$ 3,108,940

$ 31,710

$ 101,130

$ 3,241,789

As of March 31, 2019

Millions of Yen

Financial Assets for Which

Financial Assets for Which Loss Allowance Is Measured at

Loss Allowance Is

an Amount Equal to the Lifetime Expected Credit Losses

Measured at an Amount

Financial Assets for Which Credit

Equal to 12-Month

Risk Has Increased Significantly

Credit-Impaired

Past Due Dates

Expected Credit Losses

Since Initial Recognition

Financial Assets

Total

None

¥ 229,077

-

-

¥ 229,077

Within 30 days

21,158

-

-

21,158

30 days to 90 days

-

¥3,041

-

3,041

Over 90 days

-

-

¥9,466

9,466

Total

¥ 250,235

¥3,041

¥9,466

¥ 262,743

As of March 31, 2020 and 2019, other than those in the table above, no financial assets for which the credit risk has increased significantly were identified. The credit risks on the carrying amounts of such financial assets were not significant.

- 70 -

  1. Analysis of the Allowance Account for Credit Losses
    Changes in the allowance account for credit losses for loans in the credit card business are as follows: As of March 31, 2020

Millions of Yen

Lifetime Expected Credit Losses

Financial Assets for Which Credit

12-Month Expected

Risk Has Increased Significantly

Credit-Impaired

Credit Losses

Since Initial Recognition

Financial Assets

Total

Beginning balance

¥1,025

¥1,376

¥6,999

¥ 9,402

Increase-Provision

310

104

846

1,261

Decrease-Used

-

-

(69)

(69)

Decrease-Reversal

(0)

(1)

(34)

(35)

Total

¥1,336

¥1,480

¥7,742

¥ 10,558

Thousands of U.S. Dollars

Lifetime Expected Credit Losses

Financial Assets for Which Credit

12-Month Expected

Risk Has Increased Significantly

Credit-Impaired

Credit Losses

Since Initial Recognition

Financial Assets

Total

Beginning balance

$ 9,418

$ 12,643

$ 64,311

$ 86,391

Increase-Provision

2,848

955

7,773

11,586

Decrease-Used

-

-

(634)

(634)

Decrease-Reversal

(0)

(9)

(312)

(321)

Total

$ 12,276

$ 13,599

$ 71,138

$ 97,013

As of March 31, 2019

Millions of Yen

Lifetime Expected Credit Losses

Financial Assets for Which Credit

12-Month Expected

Risk Has Increased Significantly

Credit-Impaired

Credit Losses

Since Initial Recognition

Financial Assets

Total

Beginning balance

¥ 728

¥1,082

¥4,330

¥6,141

Increase-Provision

297

293

2,750

3,341

Decrease-Used

-

-

(81)

(81)

Total

¥1,025

¥1,376

¥6,999

¥9,402

  1. Liquidity risk
    The Group is exposed to liquidity risk in funding, use and repayment of cash in relation to operating transactions and investing activities. In order to prevent and reduce the liquidity risk, the Group limits its use of funds to highly liquid and low-risk investments which mature within a year. The Group finances its funds through direct financing such as bank loans, bonds, and securitization of receivables for which repayment periods are decided after considering the market environment and long-term and short-term balances.
    The banking subsidiary's funds are managed with an emphasis on financing capabilities in emergencies and a preference for investment in bonds with high liquidity. As to fund raising, in order to prevent excessive dependence on short-term finances, the banking subsidiary sets limits on short-term cash requirements and monitors the observance of such limits on a daily basis. The banking subsidiary also monitors the balances of assets that can be converted into cash to respond to emergency cash requirements, such as large outflows of customer deposits.
    • 71 -

Maturities of financial liabilities are as follows:

As of March 31, 2020

Millions of Yen

Carrying

Contractual

Within

5 Years and

Amount

Cash Flow

a Year

1-2 Years

2-3 Years

3-4 Years

4-5 Years

Thereafter

Non-derivative financial liabilities:

Trade and other payables

¥ 487,242

¥

487,242

¥

487,242

¥

0

-

-

-

-

Customer deposits in banking business

903,118

903,245

882,093

6,770

¥

6,278

¥

2,661

¥

2,330

¥

3,110

Interest-bearing liabilities:

Long-term bank loans

614,612

618,254

574,616

20,541

2,584

1,385

3,751

15,375

Bonds

354,327

357,146

10,485

15,459

85,365

30,265

75,152

140,418

Lease liabilities

116,593

117,691

26,990

24,225

16,125

12,075

10,314

27,959

Others

903

911

195

178

170

158

125

82

Other financial liabilities

6,019

6,019

671

2,862

473

454

401

1,157

Derivative financial liabilities-

Other financial liabilities

4,137

4,137

3,749

387

-

-

-

-

Off balance items:

Committed lines of cash advances

(Note 2)

-

4,573,130

4,573,130

-

-

-

-

-

Credit guarantees (Note 2)

-

6,380

6,380

-

-

-

-

-

Thousands of U.S. Dollars

Carrying

Contractual

Within

5 Years and

Amount

Cash Flow

a Year

1-2 Years

2-3 Years

3-4 Years

4-5 Years

Thereafter

Non-derivative financial liabilities:

Trade and other payables

$ 4,477,092

$

4,477,092

$

4,477,092

$

0

-

-

-

-

Customer deposits in banking business

8,298,428

8,299,595

8,105,237

62,207

$

57,686

$

24,450

$

21,409

$

28,576

Interest-bearing liabilities:

Long-term bank loans

5,647,450

5,680,915

5,279,941

188,743

23,743

12,726

34,466

141,275

Bonds

3,255,784

3,281,687

96,342

142,047

784,388

278,094

690,544

1,290,250

Lease liabilities

1,071,331

1,081,420

248,001

222,594

148,166

110,952

94,771

256,905

Others

8,297

8,370

1,791

1,635

1,562

1,451

1,148

753

Other financial liabilities

55,306

55,306

6,165

26,297

4,346

4,171

3,684

10,631

Derivative financial liabilities-

Other financial liabilities

38,013

38,013

34,448

3,556

-

-

-

-

Off balance items:

Committed lines of cash advances

(Note 2)

-

42,020,858

42,020,858

-

-

-

-

-

Credit guarantees (Note 2)

-

58,623

58,623

-

-

-

-

-

As of March 31, 2019

Millions of Yen

Carrying

Contractual

Within

5 Years and

Amount

Cash Flow

a Year

1-2 Years

2-3 Years

3-4 Years

4-5 Years

Thereafter

Non-derivative financial liabilities:

Trade and other payables

¥ 394,545

¥

394,545

¥

394,545

-

-

-

-

-

Customer deposits in banking business

768,613

768,790

746,519

¥

6,037

¥

5,950

¥

3,159

¥

2,773

¥

4,349

Interest-bearing liabilities:

Long-term bank loans

69,997

70,367

43,906

3,619

20,078

1,513

1,008

241

Bonds

130,000

131,935

5,345

10,338

15,313

25,263

30,177

45,497

Others

15,215

16,204

2,018

2,058

1,975

1,888

1,870

6,392

Other financial liabilities

5,101

5,101

522

1,889

553

534

445

1,155

Derivative financial liabilities-

Other financial liabilities

3,582

3,582

3,212

370

-

-

-

-

Off balance items:

Committed lines of cash advances

(Note 2)

-

3,854,555

3,854,555

-

-

-

-

-

Credit guarantees (Note 2)

-

7,668

7,668

-

-

-

-

-

- 72 -

Notes: 1. Financial liabilities payable on demand are included in "Within a Year." Customer deposits in banking business include ¥779,566 million ($7,163,153 thousand) and ¥643,894 million of demand deposits as of March 31, 2020 and 2019, respectively.

2. Please refer to "Note 40. Contingencies."

(3) Categories of Financial Instruments

Components of financial instruments (excluding cash and cash equivalents) by category are as follows:

As of March 31, 2020

Millions of Yen

Financial

Debt

Equity

Financial

Assets

Instruments

Instruments

Assets at

Financial Assets

at FVTPL

at FVTOCI

at FVTOCI

Amortized Cost

Total

Trade and other receivables

-

-

-

¥

386,799

¥

386,799

Loans in credit card business

-

-

-

342,245

342,245

Investment securities in banking business

¥ 11,717

¥ 361,724

-

42,366

415,809

Loans in banking business

-

-

-

98,752

98,752

Other financial assets

44,582

-

¥ 77,342

142,288

264,213

Total

¥ 56,299

¥ 361,724

¥ 77,342

¥

1,012,451

¥

1,507,818

Millions of Yen

Financial

Financial

Liabilities

Liabilities at

Financial Liabilities

at FVTPL

Amortized Cost

Total

Trade and other payables

-

¥

487,242

¥

487,242

Customer deposits in banking business

-

903,118

903,118

Interest-bearing liabilities

-

1,086,436

1,086,436

Other financial liabilities

¥4,137

6,019

10,157

Total

¥4,137

¥ 2,482,817

¥ 2,486,955

Thousands of U.S. Dollars

Financial

Debt

Equity

Financial

Assets

Instruments

Instruments

Assets at

Financial Assets

at FVTPL

at FVTOCI

at FVTOCI

Amortized Cost

Total

Trade and other receivables

-

-

-

$ 3,554,157

$

3,554,157

Loans in credit card business

-

-

-

3,144,767

3,144,767

Investment securities in banking business

$ 107,663

$ 3,323,752

-

389,286

3,820,720

Loans in banking business

-

-

-

907,396

907,396

Other financial assets

409,648

-

$ 710,668

1,307,433

2,427,758

Total

$ 517,311

$ 3,323,752

$ 710,668

$ 9,303,050

$ 13,854,801

Thousands of U.S. Dollars

Financial

Financial

Liabilities

Liabilities at

Financial Liabilities

at FVTPL

Amortized Cost

Total

Trade and other payables

-

$

4,477,092

$

4,477,092

Customer deposits in banking business

-

8,298,428

8,298,428

Interest-bearing liabilities

-

9,982,872

9,982,872

Other financial liabilities

$ 38,013

55,306

93,329

Total

$ 38,013

$ 22,813,718

$ 22,851,741

- 73 -

As of March 31, 2019

Millions of Yen

Financial

Debt

Equity

Financial

Assets

Instruments

Instruments

Assets at

Financial Assets

at FVTPL

at FVTOCI

at FVTOCI

Amortized Cost

Total

Call loans in banking business

-

-

-

¥

20,000

¥

20,000

Trade and other receivables

-

-

-

328,281

328,281

Loans in credit card business

-

-

-

253,340

253,340

Investment securities in banking business

¥ 25,927

¥ 348,851

-

44,771

419,551

Loans in banking business

-

-

-

80,942

80,942

Other financial assets

38,944

-

¥ 50,704

101,611

191,260

Total

¥ 64,872

¥ 348,851

¥ 50,704

¥

828,947

¥

1,293,375

Millions of Yen

Financial

Financial

Liabilities

Liabilities at

Financial Liabilities

at FVTPL

Amortized Cost

Total

Trade and other payables

-

¥

394,545

¥

394,545

Customer deposits in banking business

-

768,613

768,613

Interest-bearing liabilities

-

215,212

215,212

Other financial liabilities

¥3,582

5,101

8,683

Total

¥3,582

¥

1,383,473

¥

1,387,056

(4) Equity Instruments at FVTOCI

  1. Fair value of significant investments
    An investment, which is held for the purpose of maximizing profit by strengthening the services of the Company with collaboration gained through investments, is designated as equity instruments at FVTOCI. A significant item of such investments is as follows:

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

PayPay (preferred shares (Note))

¥ 35,000

-

$ 321,602

Tpoint Japan Co., Ltd.

15,237

¥ 16,422

140,007

KREO CO., LTD.

1,115

1,356

10,245

GameWith, Inc.

958

2,172

8,802

User Local, Inc.

853

1,204

7,837

Note: The amount as of March 31, 2020 does not include equity in losses of PayPay of ¥6,822 million ($62,684 thousand) allocated to the preferred shares. For details, please refer to "Summarized consolidated financial information and other information on significant investments accounted for using the equity method" in "(3) Investments accounted for using the equity method" in "Note 14. Disclosure of interests in other entities."

- 74 -

  1. Equity instruments at FVTOCI derecognized during the year
    The fair value at the date of sale of equity instruments at FVTOCI derecognized during the year, which were sold because they were not expected to maximize profit by strengthening the services of the Company, and the related pretax cumulative gains or losses on sale are as follows:

Thousands of

Millions of Yen

U.S. Dollars

Year Ended

Year Ended

March 31

March 31,

2020

2019

2020

Fair value at the date of sale

¥4,065

¥ 13,192

$ 37,351

Cumulative gains or losses on sale

1,682

10,289

15,455

  1. Transfer to retained earnings
    The Group transfers cumulative gains or losses from changes in the fair value of an equity instrument measured at FVTOCI to retained earnings when the instrument is derecognized or when the fair value has been less than the carrying amount to a significant degree or for a long term. The cumulative gains or losses transferred to retained earnings, which were previously recognized in other comprehensive income, for the years ended March 31, 2020 and 2019, were losses of ¥1,877 million ($17,247 thousand) and gains of ¥9,823 million, respectively.

30. FAIR VALUE OF FINANCIAL INSTRUMENTS

(1) Categorization by Level within the Fair Value Hierarchy

Financial instruments that are measured at fair value on a recurring basis after initial recognition are classified into three levels of the fair value hierarchy based on the observability and significance of inputs used for the measurement.

Levels 1 to 3 of the fair value hierarchy are defined as follows:

Level 1: Fair value is measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Fair value is measured using inputs, other than those used in Level 1, that are observable, either directly or indirectly.

Level 3: Fair value is measured using unobservable inputs.

If the fair value measurement uses different levels of inputs, the fair value is categorized based on the lowest level of input that is significant to the entire fair value measurement.

Transfers between levels of the fair value hierarchy are recognized as if they have occurred at the beginning of each quarter. There were no transfers between Levels 1 and 2 during the fiscal years ended March 31, 2020 and 2019.

Because carrying amounts of financial instruments on the consolidated statement of financial position are equal to or reasonably approximate to their fair values, information regarding comparisons between carrying amounts and fair values for each class of financial instruments is omitted.

- 75 -

Financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy are as follows:

As of March 31, 2020

Millions of Yen

Level 1

Level 2

Level 3

Total

Financial assets:

Derivatives used in foreign

exchange dealings

-

¥

28,186

-

¥

28,186

Equity securities

¥

6,442

-

¥ 66,479

72,922

Debt securities

5,027

243,571

2,182

250,781

Trust beneficiary rights

-

117,126

117,126

Others

4,627

6,069

15,653

26,350

Total

¥ 16,097

¥ 277,827

¥ 201,442

¥ 495,367

Financial liabilities:

Derivatives used in foreign

exchange dealings

-

¥

3,601

-

¥

3,601

Others

¥

91

443

-

535

Total

¥

91

¥

4,045

-

¥

4,137

Thousands of U.S. Dollars

Level 1

Level 2

Level 3

Total

Financial assets:

Derivatives used in foreign

exchange dealings

-

$ 258,991

-

$

258,991

Equity securities

$ 59,193

-

$ 610,851

670,054

Debt securities

46,191

2,238,086

20,049

2,304,337

Trust beneficiary rights

-

-

1,076,228

1,076,228

Others

42,515

55,765

143,829

242,120

Total

$ 147,909

$ 2,552,853

$ 1,850,978

$ 4,551,750

Financial liabilities:

Derivatives used in foreign

exchange dealings

-

$

33,088

-

$

33,088

Others

$

836

4,070

-

4,915

Total

$

836

$

37,168

-

$

38,013

- 76 -

As of March 31, 2019

Millions of Yen

Level 1

Level 2

Level 3

Total

Financial assets:

Derivatives used in foreign

exchange dealings

-

¥

19,449

-

¥

19,449

Equity securities

¥ 13,570

-

¥

37,038

50,609

Debt securities

2,703

254,908

2,896

260,508

Trust beneficiary rights

-

104,458

104,458

Others

5,901

9,607

13,894

29,403

Total

¥ 22,175

¥

283,964

¥

158,288

¥

464,427

Financial liabilities:

Derivatives used in foreign

exchange dealings

-

¥

3,212

-

¥

3,212

Others

-

370

-

370

Total

-

¥

3,582

-

¥

3,582

(2) Valuation Techniques for Financial Instruments

Derivatives used in foreign exchange dealings are categorized as Level 2 as they are measured based on the quoted market price of similar transactions.

As for equity securities, fair values of listed equity securities are evaluated at quoted prices at the end of the year, whereas fair values of non-listed equity securities are measured using quoted prices of comparable companies and valuation techniques such as the discounted cash flow model. They are classified as Level 2 if all significant inputs such as quoted prices and perpetual growth rates that are used for the measurement of future cash flows are observable, whereas if inputs include significant unobservable inputs, they are classified as Level 3.

Fair values of debt securities and trust beneficiary rights are measured by using prices based on available information, including reference trading statistics and brokers' quotes. The Group also utilizes the discounted cash flow model using discount rates as inputs after taking into account risk-free interest rates and credit spreads. They are categorized as Level 2 or Level 3 depending on their observability and significance.

Because the fair values of financial assets on the consolidated statement of financial position other than above are the same or reasonably approximate their carrying values, the carrying values are deemed to be their fair values.

- 77 -

(3) Fair Value Measurements of Financial Instruments That Are Categorized as Level 3

  1. Valuation techniques and inputs
    Valuation techniques and significant unobservable inputs used in the Level 3 fair value measurements are as follows:

Ranges of

Unobservable

Inputs

Valuation

Unobservable

As of March 31

Techniques

Inputs

2020

2019

Equity securities

Discounted

Capital cost

10.5%-40.0%

11.0%

cash flow

Perpetual

1.0%

1.0%

growth rate

EBIT ratio

20.3%

(Note)

Note: In determining the terminal value, EBIT ratios of similar corporations are used.

Perpetual growth rate and EBIT ratio have a positive correlation with the fair value of equity securities, whereas capital cost has a negative correlation. Other than those above, certain financial assets are measured by using the Guideline Transaction Method.

  1. Reconciliation of financial instruments categorized as Level 3
    Reconciliation of financial instruments categorized as Level 3 is as follows: For the Year Ended March 31, 2020

Millions of Yen

Equity

Trust

Securities

Debt

Beneficiary

(Note 3)

Securities

Rights

Other

As of April 1, 2019

¥ 37,038

¥2,896

¥ 104,458

¥ 13,894

Gains or losses:

Profit for the year (Note 1)

(31)

60

1,046

Other comprehensive income (Note 2)

(2,859)

(3)

(12)

(6)

Purchases (Note 3)

38,767

33,774

1,024

Sales or redemption

(1,616)

(770)

(21,094)

Others (Note 3)

(4,818)

(305)

As of March 31, 2020

¥ 66,479

¥2,182

¥ 117,126

¥ 15,653

- 78 -

Thousands of U.S. Dollars

Equity

Trust

Securities

Debt

Beneficiary

(Note 3)

Securities

Rights

Other

As of April 1, 2019

$ 340,328

$ 26,610

$

959,827

$ 127,667

Gains or losses:

Profit for the year (Note 1)

(284)

551

9,611

Other comprehensive income (Note 2)

(26,270)

(27)

(110)

(55)

Purchases (Note 3)

356,216

310,337

9,409

Sales or redemption

(14,848)

(7,075)

(193,825)

Others (Note 3)

(44,270)

(2,802)

As of March 31, 2020

$ 610,851

$ 20,049

$

1,076,228

$ 143,829

Notes: 1. Gains or losses included in profit for the year are included in "Other non-operating income" and "Other non-operating expenses" in the consolidated statement of profit or loss.

  1. Gains or losses included in other comprehensive income are included in "Equity instruments measured at fair value through other comprehensive income," "Debt instruments measured at fair value through other comprehensive income," and "Exchange differences on translating foreign operations" in the consolidated statement of comprehensive income.
  2. The Group acquired and holds preferred shares of PayPay and the acquisition cost of ¥35,000 million ($321,602 thousand) of which is included in "Purchases" in the table above. In addition, equity in losses of PayPay of ¥6,822 million ($62,684 thousand) allocated to the preferred shares of PayPay is included in "Others" in the table above. For details, please refer to "Summarized consolidated financial information and other information on significant investments accounted for using the equity method" in "(3) Investments accounted for using the equity method" in "Note 14. Disclosure of interests in other entities."

For the Year Ended March 31, 2019

Millions of Yen

Trust

Equity

Debt

Beneficiary

Securities

Securities

Rights

Other

As of April 1, 2018

¥ 31,145

¥3,942

¥

25,336

¥

8,354

Gains or losses:

Profit for the year (Note 1)

(124)

(101)

607

Other comprehensive income (Note 2)

3,779

86

133

Purchases

8,957

86,346

5,156

Sales or redemption

(1,683)

(939)

(7,312)

(157)

Transfer due to obtaining control

(5,003)

Others

(31)

(5)

(199)

As of March 31, 2019

¥ 37,038

¥2,896

¥

104,458

¥

13,894

- 79 -

Notes: 1. Gains or losses included in profit for the year are included in "Other non-operating income" and "Other non-operating expenses" in the consolidated statement of profit or loss.

  1. 2. Gains or losses included in other comprehensive income are included in "Equity instruments measured at fair value through other comprehensive income," "Debt instruments measured at fair value through other comprehensive income," and "Exchange differences on translating foreign operations" in the consolidated statement of comprehensive income.

  2. Sensitivity analysis
    For financial instruments classified as Level 3, no significant changes in fair value are expected to occur as a result of changing unobservable inputs to other alternative assumptions that are considered reasonable.
  3. Valuation processes
    The fair value of Level 3 financial instruments is measured by our personnel in the investment management department, taking into account external specialists' advice and using the most appropriate valuation techniques and inputs that reflect the nature, characteristics, and risks of the financial instruments subject to fair valuation. The result of the fair value measurement, including the valuation by the external specialists, is reviewed by managers of the investment management department and approved by the Chief Financial Officer (Managing Corporate Officer and Executive Vice President).

31. TRANSFERS OF FINANCIAL ASSETS

The Company enters into securitization transactions involving certain trade receivables included in trade and other receivables and certain monthly clear receivables (right to claim for charges for products or services provided to a credit cardholder who purchased such products or services by choosing a payment method in which the cardholder pays the total amount one month after the purchase) included in loans in credit card business. Certain securitized receivables have recourse that makes the Group obliged to pay in the case of the debtor's default and other conditions. The Group bears credit risks arising from such transactions until collection of receivables. Such receivables are not derecognized because they do not meet the criteria for derecognition of financial assets. The proceeds from such transfers are recorded as a borrowing and included in interest-bearing liabilities.

The Group recorded ¥3,995 million ($36,708 thousand) and ¥3,994 million of transferred assets that do not meet the criteria for derecognition of financial assets included in trade and other receivables as of March 31, 2020 and 2019, respectively. The Group also recorded ¥1,360 million

($12,496 thousand) of such transferred assets included in loans in credit card business as of March 31, 2020. In addition, the Group recorded ¥63,995 million ($588,027 thousand) and ¥3,994 million of other financial liabilities in relation to the transferred assets as of March 31, 2020 and 2019, respectively. This liability will be settled without significant delay when the payment for the transferred assets by the original debtors is executed; however, the Group is unable to utilize the transferred assets until the related liabilities are settled or the original debtors paid. The difference between the amount of transferred assets and related financial liabilities for the year ended March 31, 2020 is treated as collection of loans in credit card business.

- 80 -

32. REVENUE

(1) Disaggregation of Revenue

Revenue of each reporting segment is disaggregated into "Advertising," "Business," "Personal," and "Others." Revenues from these businesses are recognized based on the contracts with customers. The amount of revenue which includes variable consideration is not significant. The promised amounts of consideration do not contain significant financing components. The components of revenue are as follows:

For the Year Ended March 31, 2020