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LINE Corporation Announces Consolidated Financial Results for the Six Months Ended June 30, 2017LINE Corporation (NYSE:LN) (TOKYO:3938) announces its consolidated financial results for the six months ended June 30, 2017. This is an English translation of the original Japanese-language document. Should there be any inconsistency between the translation and the original Japanese text, the latter shall prevail. All references to the "Company," "we," "us," or "our" shall mean LINE Corporation and, unless the context otherwise requires, its consolidated subsidiaries. Cautionary statement with respect to forward-looking statements, and other information This document contains forward-looking statements with respect to the current plans, estimates, strategies and beliefs of the Company. Forward-looking statements include, but are not limited to, those statements using words such as "anticipate," "believe," "continues," "expect," "estimate," "intend," "project" and similar expressions and future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may," or similar expressions generally intended to identify forward-looking statements. These forward-looking statements are based on information currently available to the Company, speak only as of the date hereof and are based on the Company's current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond the Company's control. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ significantly from those expressed in any forward-looking statements in the document. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented and the Company does not intend to update any of these forward-looking statements. Risks and uncertainties that might affect the Company include, but are not limited to:
A. Corporate information I. Corporate overview
2. Business description During the six months ended June 30, 2017, there were no material changes in the business of the Company or in the principal subsidiaries and affiliates of the Company. II. Business 1. Risk factors During the six months ended June 30, 2017, there were no material changes either regarding the occurrence of new operational risks or regarding operational risks as mentioned in the Company's annual report. For readers of this English translation: There were no material changes from the information presented in the Risk Factors section of the Company's Annual Report on Form 20-F (No. 001-37821) filed with the Securities and Exchange Commission (the "SEC") on March 31, 2017. 2. Material contracts No important operational contracts, etc. were decided or entered into during the second quarter ended June 30, 2017. For readers of this English translation: With respect to material contracts, there were no material changes from the information presented in the Company's Annual Report on Form 20-F (No. 001-37821) filed with the SEC on March 31, 2017. 3. Analysis of financial position, operating results and cash flow position The analysis of financial position, operating results and cash flow position of the Group is as follows: (1) Operating results In the first six months of 2017 (from January 1, 2017 to June 30, 2017), amid continuing uncertainty regarding the economic policies of the new U.S. administration, emerging economies in Asia, particularly the Chinese economy, began to show signs of respite from the global economic slowdown. In addition, GDP growth rates in some of the Company's key countries, including Thailand and Taiwan showed a moderate trend of recovery. Meanwhile, in the Japanese economy, there were signs of recovery in exports in industries such as the IT industry, firm improvement in employment rates and personal income levels, while personal spending showed moderate improvement. Amid such circumstances, in the internet industry in which the Group is engaged, the total number of mobile phone shipments in Japan for the fiscal year ended December 31, 2016 was 36.06 million, a decrease of 3.0% year on year. The ratio of smartphones to the total number of mobile phone shipments in Japan was 81.6%, an increase of 3.6 percentage points year on year. Although the overall number of mobile phone shipments in Japan has hit a ceiling, there was an increase in users switching from feature phones to smartphones and an increase in the number of SIM-free smartphones. Current estimates suggest that the number of smartphone contracts in Japan will exceed 100 million by year 2018, and the mobile internet market is expected to continue to grow on the back of this expansion (Source: MM Research Institute, Japan mobile phone handset shipment estimates for year 2016 and Overview of domestic mobile phone shipments for FY 2016). In this business environment, the Group actively moved forward with the LINE business and portal segment. As of June 30, 2017, MAUs* in our four key countries (Japan, Taiwan, Thailand and Indonesia) reached 169 million, a year-on-year increase of 7.5%. * Monthly Active Users ("MAUs") in a given month refers to the number of user accounts that (i) accessed the LINE messaging application or any LINE Games through mobile devices; (ii) sent messages through the LINE messaging application from personal computers; or (iii) sent messages through any other LINE application from mobile devices, in each case at least once during that month. Revenues LINE Business and Portal segment The Group's revenues from continuing operations from its major services in the first six months of 2016 and 2017 are as follows:
Profit from operating activities Profit from operating activities consists of revenues and other operating income reduced by operating expenses. In the first six months of 2017, other operating income included 10,444 million yen in gain on transfer of the camera application business. With respect to operating expenses, there was an increase in employee compensation expenses due to headcount growth in accordance with business expansion, an increase in marketing expenses due mainly to the active running of TV commercials for LINE Mobile, an increase in authentication and other service expenses due mainly to additional network costs for LINE Mobile accompanying arising number of users, an increase in depreciation expenses of furniture and fixtures which were newly purchased due to the relocation of the headquarter offices, and an increase in other operating expenses due to an increase in LINE Points expenses to attract new users for LINE Pay and an increase in rent payments for the new headquarter offices, which were partially offset by a decrease in share-based payment expenses. Accordingly, the Group recorded operating expenses of 71,091 million yen, a year-on-year increase of 20.5%. As a result, for the first six months of 2017, the Group recorded profit from operating activities of 18,629 million yen, a year-on-year increase of 39.4%. Profit for the period from continuing operations The Group recorded profit before tax for the period from continuing operations of 16,961 million yen in the first six months of 2017, a 58.7% increase year on year, due in part to an increase in profit from operating activities, a decrease in loss on foreign currency transactions, net, and a decrease in other non-operating expenses, which were offset in part by an increase in share of loss of associates and joint ventures. Income tax expense increased by 4.1% to 6,405 million yen for the first six months of 2017 compared to the first six months of 2016. On an after-tax basis, profit for the period from continuing operations was 10,556 million yen in the first six months of 2017, an increase of 132.9% year on year. The effective tax rate for the six-month period ended June 30, 2017 of 37.8% differed from the Japanese statutory tax rate of 31.7% for the year ended December 31, 2017. The effective income tax rate of 37.8% was primarily due to pre-tax losses recorded by subsidiaries on a standalone basis and pre-tax losses recorded by associates and a joint ventures for which no deferred tax assets were recognized as the related tax benefits could not be recognized. Profit for the period Loss for the period from discontinued operations, which relate to the MixRadio business, for the first six months of 2017 decreased from the corresponding period in 2016. Therefore, after subtracting the loss for the period from discontinued operations, profit for the period was 10,549 million yen in the first six months of 2017, an increase of 268.1% year on year. Profit for the period attributable to the shareholders of the Company was 10,273 million yen in the first six months of 2017, an increase of 301.4% year on year. (2) Financial position Regarding the financial position of the Group as of June 30, 2017, total assets of the Group increased by 14,523 million yen compared to the end of the previous fiscal year to 270,612 million yen, primarily due to a 10,087 million yen increase in investments in associates and joint ventures mainly due to the acquisition of additional shares of Snow Corporation, which is an associate of the Group, in exchange for the camera application business and a 3,781 million yen increase in property and equipment, which related mainly to the relocation of the headquarter offices. Total liabilities decreased by 1,646 million yen to 93,420 million yen as of June 30, 2017. The main factor of decrease was a 2,719 million yen decrease in income taxes payable due to tax payments, while the main factor of increase was a 1,611 million yen increase in provisions, non-current, caused by an increase in provision for asset retirement associated with the relocation of the headquarter offices. Total shareholders' equity increased by 16,169 million yen to 177,192 million yen as of June 30, 2017. These changes were primarily attributable to profit for the period of 10,549 million yen. (3) Cash flow position The balance of cash and cash equivalents (hereinafter, "cash") as of June 30, 2017 decreased by 9,186 million yen from the end of the previous fiscal year to 125,512 million yen. The respective cash flow positions are as follows. Cash flows from operating activities Net cash provided by operating activities was 181 million yen in the first six months of 2017, compared to net cash provided by operating activities of 11,863 million yen in the first six months of 2016. Cash provided by operating activities in the first six months of 2017 primarily consisted of profit before tax of 16,950 million yen, which was partly offset by adjustment for gain on loss of control of subsidiaries and business of 10,444 million yen, a non-cash item. Cash used in operating activities in the first six months of 2017 primarily consisted of income taxes paid of 6,788 million yen. Cash flows from investing activities Net cash used in investing activities was 8,810 million yen in the first six months of 2017, compared to net cash used in investing activities of 762 million yen in the first six months of 2016. Factors affecting the cash outflows in the first six months of 2017 are primarily related to acquisition of property and equipment and intangible assets of 5,793 million yen, purchase of equity investments of 2,310 million yen and loan receivables of 2,077 million yen. Factors affecting the cash inflows in the first six months of 2017 are primarily related to the return of the guarantee deposits for the Japanese Payment Services Act of 3,325 million yen. Cash flows from financing activities Net cash used in financing activities was 623 million yen in the first six months of 2017, compared to net cash used in financing activities of 683 million yen in the first six months of 2016. The cash outflows in the first six months of 2017 are primarily related to repayment of short-term borrowings, net of 2,037 million yen. The cash inflows in the first six months of 2017 are primarily related to proceeds from exercise of stock options of 1,454 million yen. (4) Operational and financial issues to be addressed During the six months ended June 30, 2017, there were no material changes in operational and financial issues to be addressed by the Group. (5) Research and development activities Not applicable. III. Company information 1. Share information (1) Total number of shares
(2) Stock acquisition rights Not applicable. (3) Exercises of bonds with stock acquisition rights with exercise price amendment clause Not applicable. (4) Rights plans Not applicable.
(6) Principal shareholders
(7) Voting rights a. Shares issued
b. Treasury stock, etc. Not applicable. 2. Directors and executive officers Not applicable. IV. Accounting Preparation of interim condensed consolidated financial statements The interim condensed consolidated financial statements of the Group are prepared in conformity with International Accounting Standard 34, "Interim Financial Reporting" pursuant to the provisions of Article 93 of the Ordinance on Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements (Cabinet Office Ordinance No. 64 of 2007; hereinafter referred to as the "Ordinance on QCFS"). In 2017, the Group changed the rounding of its interim condensed consolidated financial statements from thousands to millions. Prior periods have been revised to reflect this change in presentation.
Notes to Interim Condensed Consolidated Financial Statements - Unaudited 1. Reporting Entity LINE Corporation (the "Company") was incorporated in September, 2000 in Japan in accordance with the Companies Act of Japan under the name Hangame Japan Corporation to provide online gaming services. The Company changed its name to NHN Japan Corporation in August 2003, and subsequently changed its name to LINE Corporation in April 2013. The Company is a subsidiary of NAVER Corporation ("NAVER"), formerly NHN Corporation, which is domiciled in Korea. NAVER is the Company and its subsidiaries' (collectively, the "Group") ultimate parent company. The Company's head office is located at 4-1-6 Shinjuku, Shinjuku-ku, Tokyo, Japan. Shares of the Company's common stock are traded on the New York Stock Exchange, in the form of American depositary shares, and on the Tokyo Stock Exchange. The Group mainly operates a cross-platform messenger application, LINE, and provides communication and content sales and advertising services. Communication and content is provided via the LINE platform, while advertising services are provided via LINE advertising, livedoor blog and NAVER Matome. 2. Basis of Preparation The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. In 2017, the Group changed the rounding of its financial statements from thousands to millions. Prior periods have been revised to reflect this change in presentation. The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group's annual consolidated financial statements as of December 31, 2016. The unaudited interim condensed consolidated financial statements were approved by Representative Director, President and Chief Executive Officer Takeshi Idezawa and Director and Chief Financial Officer In Joon Hwang on August 10, 2017. The Company meets the criteria of a "specified company" defined under Article 1-2 of the Ordinance on QCFS. The preparation of the unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts at the date of the unaudited interim condensed consolidated financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates and assumptions are reviewed by management on a regular basis. The effects of a change in estimates and assumptions are recognized in the period of the change or in the period of the change and future periods. On February 12, 2016, the board of directors approved the abandonment of the MixRadio service ("MixRadio"). The operation of the MixRadio business was classified as a discontinued operation on March 21, 2016, when the abandonment took effect. Intercompany balances and transactions have been eliminated upon consolidation. 3. Significant Accounting Policies The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended December 31, 2016. The adoption of new and revised IFRS issued by the International Accounting Standards Board that are mandatorily effective for an accounting period that begins on or after January 1, 2017 had no impact on the Group's unaudited interim condensed consolidated financial statements as of and for the six-month periods ended June 30, 2016 and 2017 and annual consolidated financial statements as of December 31, 2016. Standards issued but not yet effective IFRS 15 Revenue from Contracts with Customers The IASB issued IFRS 15 Revenue from Contracts with Customers for recognizing revenue. IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer, regardless of the type of revenue transaction or industry, with limited exceptions. The Group recognizes revenue associated with communication and content sales and with advertising services by reference to the stage of completion. These transactions are satisfied over time and measured by the progress towards complete satisfaction of performance obligations. The Group has preliminary assessed that many of the methods currently used to measure the progress towards complete satisfaction of these performance obligations will continue to be appropriate under IFRS 15. Under IFRS 15, the allocation of a consideration will be made based on relative stand-alone selling prices for each performance obligation. The Group is currently in the process of assessing the impact mainly on the allocation of transaction price to the performance obligations, customers' unexercised rights and the treatment of contract costs, and it is not practicable to provide a reasonable financial estimate of the potential effect of the application of IFRS 15 until the detailed review is complete. As a result, the above preliminary assessment is subject to change. The Group plans to complete the assessment on the full impact of the application of IFRS 15 on the financial statements by the end of the fiscal year 2017. The Group does not intend to early adopt the standard and intends to use the full retrospective method upon adoption. The Group has not early adopted any other standards, interpretations or amendments that have been issued but are not yet effective. 4. Segment Information The Group identifies operating segments based on the internal report regularly reviewed by the Group's Chief Operating Decision Maker to make decisions about resources to be allocated to segments and assess performance. An operating segment of the Group is a component for which discrete financial information is available. The Chief Operating Decision Maker has been identified as the Company's board of directors. No operating segments have been aggregated to form the reportable segments.
Description of Reportable Segment
5. Property and Equipment During the six-month periods ended June 30, 2016 and 2017, the Group acquired property and equipment with a cost of 2,988 million yen and 6,302 million yen, respectively. During the six-month period ended June 30, 2016, such purchases mainly consisted of server infrastructure in the amount of 1,064 million yen for the operation of the LINE business and portal segment. During the six-month period ended June 30, 2017, such purchases mainly consisted of furniture and fixture in the amount of 2,736 million yen and the recognition of asset retirement obligations in the amount of 1,493 million yen related to the relocation of the headquarter offices. Contractual commitments for the acquisition of property and equipment as of December 31, 2016 and June 30, 2017 were 1,464 million yen and 930 million yen, respectively. 6. Income Taxes The Group's tax provision for interim periods is determined using an estimate of the Group's annual effective tax rate, adjusted for discrete items arising during the period. In each quarter the Group updates the estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Group makes a cumulative adjustment in that quarter. The effective tax rate for the six-month period ended June 30, 2016 of 57.6% differed from the Japanese statutory tax rate of 35.6 % for the year ended December 31, 2015. The effective income tax rate of 57.6% was primarily due to non-deductible share-based payment expenses, including share-based payment expenses in connection with stock options granted to non-Japanese employees and directors and attributable to pre-tax losses recorded by subsidiaries on a standalone basis for which no deferred tax assets were recognized as the related tax benefits could not be recognized. The effective tax rate for the six-month period ended June 30, 2017 of 37.8% differed from the Japanese statutory tax rate of 33.1 % for the year ended December 31, 2016. The effective income tax rate of 37.8% was primarily due to pre-tax losses recorded by subsidiaries on a standalone basis and pre-tax losses recorded by associates and joint ventures for which no deferred tax assets were recognized as the related tax benefits could not be recognized. The effective tax rate for the six-month period ended June 30, 2017 was 37.8% compared to the effective tax rate of 57.6% for the six-month period ended June 30, 2016. This change resulted mainly from an increase in the estimated annual profit before tax and a decrease in estimated annual non-deductible share-based payment expenses for the year ending December 31, 2017 as compared to the year ended December 31, 2016, resulting in a decrease in the percentage of income tax expenses over the profit before tax from continuing operations for the six-month period ended June 30, 2017 compared to the same period in 2016. The decrease in estimated annual non-deductible share-based payment expenses is mainly due to the fact that the recognition period of share-based payment expenses, which corresponds to the vesting period of the stock options granted in previous years to the directors and employees, was completed in the three-month period ended March 31, 2017. 7. Financial Assets and Financial Liabilities The carrying amounts and fair value of financial instruments, except for cash and cash equivalents, by line item in the Interim Condensed Consolidated Statement of Financial Position and by category as defined in IAS 39 Financial Instruments: Recognition and Measurement as of December 31, 2016 and June 30, 2017, are as follows: The fair value is not disclosed for those financial instruments which are not measured at fair value in the Interim Condensed Consolidated Statement of Financial Position, and whose fair value approximates their carrying amount due to their short-term and/or variable-interest bearing nature. Refer to Note 12 Fair Value Measurements for more details of the financial instruments, which are measured at fair value.
7. Financial Assets and Financial Liabilities (continued)
8. Issued Capital and Reserves (1) Shares issued The movements of shares issued for the six-month period ended June 30, 2017 are as follows:
(2) Share premium The movements in share premium for the six-month period ended June 30, 2016 are as follows:
The movements in share premium for the six-month period ended June 30, 2017 are as follows:
(1) Refer to Note 13 Share-Based Payments for further details. 9. Supplemental Cash Flow Information Transfer of Camera Application Business to Snow Corporation On May 1, 2017, the Group has transferred the camera application business, which was operated by a wholly owned subsidiary, LINE Plus Corporation, to Snow Corporation, an associate of the Group. The transferred camera application business includes services such as B612, LINE Camera, Foodie and Looks. The Group acquired 208,455 newly issued common shares of Snow Corporation in exchange for the camera application business. The number of common shares newly issued by Snow Corporation was determined based on the ratio of the fair value of the camera application business transferred as well as the cash and cash equivalent comparing to the enterprise value of Snow Corporation. As a result of this transaction, the Group's ownership of Snow Corporation increased from 25.0% to 48.6%. The Group continues to account for its ownership in Snow Corporation using the equity method. Also, as a result of this transaction, NAVER's ownership of Snow Corporation decreased from 75.0% to 51.4%. The common shares of Snow Corporation received in exchange for the camera application business are measured and recorded at fair value as of the transaction date. The fair value of the common shares were measured based on the fair value of the camera application business which was estimated using the discounted cash flow method. The assets and liabilities of the camera application business transferred to Snow Corporation are presented below.
(1) This amount is included in "Other operating income" in the Group's Interim Condensed Consolidated Statement of Profit or Loss. 10. Discontinued Operations The Group acquired MixRadio on March 16, 2015. Subsequently, the Group made a strategic decision to focus on its core LINE business and portal segment. On February 12, 2016, the board of directors approved the abandonment of the MixRadio segment. The operation of the MixRadio business was classified as a discontinued operation on March 21, 2016, when the abandonment took effect. The aggregated results of the discontinued operations for the six-month periods ended June 30, 2016 and 2017 are presented below.
The aggregated cash flow information for the discontinued operations for the six-month periods ended June 30, 2016 and 2017 are presented below.
11. Earnings per Share The profit or loss for the period and the weighted average number of shares used in the calculation of earnings per share are as follows: For the six-month period ended June 30
For the three-month period ended June 30
11. Earnings per Share (continued)
In calculating diluted earnings per share, share options outstanding and other potential shares are taken into account where their impact is dilutive. Potential common shares used in the calculation of diluted earnings per share for the six-month period ended June 30, 2016, included options representing 25,514,500 shares which were outstanding as of June 30, 2016 as they had a dilutive impact. Potential common shares used in the calculation of diluted earnings per share for the six-month period ended June 30, 2017, included options representing 21,274,000 shares which were outstanding as of June 30, 2017 as their impact was dilutive. Subsequent to June 30, 2017, 23,860 stock options were granted on July 18, 2017, the exercise of which would result in an additional 2,386,000 common shares to the directors and executive officers of the Company and its subsidiary. Also, on July 18, 2017, the Company issued 1,007,810 new common shares through a third party allotment in accordance with introduction of the Employee Stock Ownership Plan. Refer to Note 19 Subsequent Events for further details. 12. Fair Value Measurements (1) Fair value hierarchy The Group referred to the levels of the fair value hierarchy for financial instruments measured at fair value on the interim condensed consolidated financial statements based on the following inputs: - Level 1 inputs are quoted prices in active markets for identical assets or liabilities. - Level 2 inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. - Level 3 inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable, which reflect the reporting entity's own assumptions that market participants would use in establishing a price. Transfers between levels of the fair value hierarchy are recognized as if they have occurred at the beginning of the reporting period. (2) Fair value measurements by fair value hierarchy Assets measured at fair values on a recurring basis in the Interim Consolidated Statement of Financial Position as of December 31, 2016 and June 30, 2017 are as follows:
There have been no transfers among Level 1, Level 2 and Level 3 during the six-month period ended June 30, 2017, except for the transfer from Level 1 to Level 3 as described in (3) below. 12. Fair Value Measurements (continued) (3) Reconciliations from the opening balance to the closing balance of financial instruments categorized within Level 3 are as follows:
12. Fair Value Measurements (continued) (4) Valuation techniques and inputs Assets measured at fair value on a recurring basis in the Interim Consolidated Statement of Financial Position Conversion right and redemption right of preferred stock The conversion right and redemption right of preferred stock are embedded derivatives. Such conversion right and redemption right are bifurcated from the underlying preferred stock and measured at fair value using a binomial option pricing model. Below is the quantitative information regarding the valuation technique and significant unobservable inputs used in measuring the fair value of certain conversion right and redemption right of preferred stock:
A significant increase (decrease) in the comparable listed companies' average historical volatility would result in a higher (lower) fair value of the conversion right and redemption right of preferred stock, while a significant increase (decrease) in the discount rate would result in a lower (higher) fair value of the conversion right and redemption right of preferred stock. Private equity and other financial instruments Available-for-sale financial assets categorized within Level 3 mainly consist of unlisted equity securities and private equity investment funds. Private equity investment funds were measured at fair value based on net asset value as of December 31, 2016 and June 30, 2017. Unlisted equity securities are measured at fair value either based on the most recent transactions, or using other market approaches and option pricing model. Below is the quantitative information regarding the valuation techniques and significant unobservable inputs used in measuring the fair value of certain unlisted equity securities:
A significant increase (decrease) in the EBITDA and revenue multiple would result in a higher (lower) fair value of the unlisted equity securities, while a significant increase (decrease) in the liquidity discount, comparable listed companies' average historical volatility and discount rate would result in a lower (higher) fair value of the unlisted equity securities. The valuation techniques and the valuation results of the Level 3 financial assets, including those performed by the external experts, were reviewed and approved by the management of the Group. 13. Share-Based Payments The Group has stock option incentive plans for directors and employees. Each stock option represents the right to purchase 500 common shares at a fixed price for a defined period of time. During the six-month period ended June 30, 2017, no additional stock options were granted. The fair value of stock options is determined using the Black-Scholes model, a commonly accepted stock option pricing method. Stock options granted vest after two years from the grant date and are exercisable for a period of eight years from the vesting date. Conditions for vesting and exercise of the stock options require that those who received the allotment of stock options continue to be employed by the Group from the grant date to the vesting date, and from the grant date to the exercise date, respectively, unless otherwise permitted by the board of directors. (1) Movements during the six-month period ended June 30, 2017 The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, outstanding Common Stock Options on a per-common-share basis during the period:
(1) The weighted average share price at the date of exercise of these options was 3,777 yen. The options outstanding as of June 30, 2017 had an exercise price in the range of 344 yen to 1,320 yen, and the weighted average remaining contractual life for the stock options outstanding as of June 30, 2017 was 6.1 years. (2) The Group has recognized 4,961 million yen and 748 million yen of share-based compensation expenses in the Interim Condensed Consolidated Statement of Profit or Loss for the six-month periods ended June 30, 2016 and 2017, respectively. 14. Related Party Transactions The following tables provides the total amount of related party transactions entered into during the six-month periods ended June 30, 2016 and 2017, as well as balances with related parties as of December 31, 2016 and June 30, 2017. (1) Significant related party transactions during the six-month period ended June 30, 2016, and outstanding balances with related parties as of December 31, 2016, are as follows:
14. Related Party Transactions (continued) (2) Significant related party transactions during the six-month period ended June 30, 2017 and outstanding balances with related parties as of June 30, 2017, are as follows:
(3) The total compensation of key management personnel for the six-month periods ended June 30, 2016 and 2017 are as follows:
Key management personnel include directors and corporate auditors of the Company. 15. Business Combinations Acquisition in 2016 Acquisition of M.T. Burn On February 29, 2016, the Group acquired 50.5% of the voting shares of M.T. Burn Inc., ("M.T. Burn"), an unlisted company based in Japan, specializing in developing and providing a native mobile advertising platform, "Hike". M.T. Burn became a consolidated subsidiary. The Group acquired M.T. Burn for the purpose of enhancing the Group's knowledge and technological capability for advertising. The final purchase price allocation of M.T. Burn was completed in the second quarter of 2016. Assets acquired and liabilities assumed The identifiable assets and liabilities of M.T. Burn, which are measured at fair value as of the date of acquisition except for limited exceptions in accordance with IFRS, were as follows:
All consideration was paid in cash. The fair value of the trade receivables was 83 million yen. The gross contractual amounts of the trade receivables were not materially different from the fair value determined as part of the purchase price allocation. 15. Business Combinations (continued) Acquisition in 2016 (continued) Acquisition of M.T. Burn (continued) Non-controlling interest in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured at the present ownership instruments' proportionate share in the recognized amounts of the acquiree's identifiable net assets at the acquisition date. Goodwill of 416 million yen represented the value of expected synergies arising from the acquisition and was allocated entirely to the LINE business and portal segment. None of the goodwill recognized was expected to be deductible for income tax purposes. From the date of acquisition, M.T. Burn had contributed 252 million yen to the revenue of the Group and had reduced profit before tax from continuing operations of the Group by 146 million yen. If the combination had taken place on January 1, 2016, revenue for the Group from continuing operations would have been 67,447 million yen (unaudited) and the profit before tax from continuing operations for the Group would have been 10,678 million yen (unaudited) for the six-month period ended June 30, 2016. Transaction costs of 5 million yen have been expensed and are included in "Other operating expenses" in the Interim Condensed Consolidated Statement of Profit or Loss.
Acquisition in 2017 There were no significant business combinations, individually or in aggregate, during the six-month period ended June 30, 2017. 16. Principal Subsidiaries Information on subsidiaries The table below includes subsidiaries which were newly consolidated during the six-month period ended June 30, 2017, and subsidiaries in which the Group's percentage of ownership changed during such period:
Ultimate parent company of the Group The next senior and the ultimate parent company of the Group is NAVER, which is domiciled in Korea and listed on the Korea Exchange. 17. Investments in Associates and Joint Ventures Investment in K-Fund I In January 2017, the Group and NAVER established K-Fund I, which invests in start-up companies in technology and digital sectors in Europe. The Group's and NAVER's interests in this associate are 49.9% and 50.0%, respectively. The Group's carrying amount of the investment in this associate was 1,366 million yen as of June 30, 2017. Investment in Orfeo SoundWorks Corporation In June 2017, LINE Friends Corporation acquired a 20.7% interest in Orfeo SoundWorks Corporation to develop and sell products with Orfeo SoundWorks Corporation's technology such as earphones and headsets. The Group's carrying amount of the investment in this associate was 116 million yen as of June 30, 2017. Business transfer of camera application business to Snow Corporation In May 2017, the Group has transferred its camera application business, which was a part of LINE Plus Corporation, to Snow Corporation, an associate of the Group. In exchange for this transfer, the Group has acquired common shares of Snow Corporation. The Group's carrying amount of the investment in this associate was 13,527 million yen as of June 30, 2017. Refer to Note 9 Supplemental Cash Flow Information for further details. 18. Other Operating Expenses Other operating expenses for the six-month period ended June 30, 2017, consist of various operating expenses, including 2,767 million yen of rent, 1,695 million yen of cost of goods, and 1,133 million yen of supply expenses compared to 1,472 million yen, 1,522 million yen and 453 million yen, respectively, for the six-month period ended June 30, 2016. Rent and supply expenses increased mainly due to the relocation of headquarter offices. 19. Subsequent Events Issuance of Stock Options (Warrants) Base on the resolution of shareholders' meeting held on March 30, 2017 and the meeting of the board of directors of the Company held June 26, 2017, the Company has granted stock options (warrants) (LINE Corporation 20th Warrants and LINE Corporation 21st Warrants) to directors and executive officers of the Company and a director of a subsidiary with the grant date of July 18, 2017.
19. Subsequent Events (continued) Issuance of new shares through a third party allotment On July 18, 2017, the Company issued 1,007,810 of new shares to Trust & Custody Services Bank, Ltd. (Trust E) (the "Trust Bank") through a third party allotment in accordance with the introduction of an Employee Stock Ownership Plan which has been resolved at the board of directors meeting held on June 26, 2017, and the Company has completed payment procedures for the issuance. The total amount issued, amount of share capital to be increased, and amount of share premium to be increased are as follows:
The shares of the Company held by the Trust Bank will be accounted for in the same treatment as the treasury shares and will be recorded as an offset to the share premium on the consolidated financial statements. Introduction of the Employee Stock Ownership Plan The Group has the Regulations on Stock Compensation which is to provide its employees with incentive which correspond to the movements of the Company's share price in order to achieve the retention of excellent human resources and their long-term success. On July 18, 2017, the Group granted its employees points equivalent to 839,103 shares in accordance with the Regulations on Stock Compensation. The right for employees to receive compensation based on the points will vest as the employees satisfy the conditions described on the Regulations on Stock Compensation. As the points vest, the Trust Bank will distribute a portion of the Company's shares, which are equivalent to the number of vested points, to the employees. And, the Trust bank will sell the rest of the Company's common shares, which the Trust Bank holds, in the market and distribute the cash received from the sales of the Company's common shares in the market to the employees. The one of the vesting conditions, which is an employment condition described in the Regulations on Stock Compensation, for the points granted on July 18, 2017 is for the Group's employees to remain employed as of each vesting date, which is scheduled between April 1, 2018 and April 1, 2020. 2 Others Not applicable. B. Information on guarantors Not applicable.
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