Certain Anticipated Effects of Voluntary Adoption of IFRSApril 8, 2013
SoftBank Corp. (the “Company”) announced on January 31, 2013 that it would apply IFRS to its consolidated financial statements in lieu of Japanese GAAP, which was used in the past to present the consolidated financial statements. The Company expects to begin disclosing its consolidated financial statements according to IFRS from the first quarter of the fiscal year ending March 31, 2014 (transition date April 1, 2012).
The Company expects that compared to its financial condition and results of operations under Japanese GAAP the switch to IFRS will result in material changes. Today the Company announces some of the differences that will occur as a result of the differences in financial reporting standards. The differences expected to occur due to a shift to IFRS include, but are not limited to, the differences stated below.
1. Treatment of handset sales commissions.
Under Japanese GAAP, commissions paid to handset dealers have been treated as a sales expense. However, under IFRS the Company will begin treating these commissions as a deduction from sales of handsets.
2. Recording of certain accounts receivable securitizations on the consolidated balance sheet.
Under IFRS, the Company will begin recording on its consolidated balance sheet amounts related to securitizations of installment sales receivables. For the Company's consolidated balance sheet as of December 31, 2012, this treatment would have increased total consolidated assets by JPY 314.0 billion, while also increasing consolidated interest-bearing debt by JPY 306.0 billion, which would in turn increase total consolidated liabilities. The IFRS treatment will also lead to a decrease in reported cash from operating activities and a corresponding increase in reported cash from financing activities. Note that the above calculations of the various effects are provisional and the actual figures may be different from the figures presented in this press release.
3. Suspension of periodic amortization of goodwill.
While goodwill is amortized under Japanese GAAP, it is not under IFRS. The Company has elected to apply the exemption provision prescribed in IFRS 1, and the Company retains the outstanding amount of goodwill under Japanese GAAP (i.e. the outstanding balance as of the transition date to IFRS). As a result of the transition to IFRS, amortization of goodwill will be suspended and will be tested annually for any impairment.
4. Consolidation of Certain Equity Method Affiliates
eAccess Ltd. (“eAccess”) is a wireless company operating under the EMOBILE brand. Wireless City Planning Inc. (“Wireless City Planning”) operates a mobile communications network using AXGP (TD-LTE compatible) technology. Under Japanese GAAP, the Company treated eAccess and Wireless City Planning as equity method affiliates. However, IFRS uses a broader test for effective control of entities than Japanese GAAP. As a result, under IFRS these two companies are treated as consolidated subsidiaries and, compared to under Japanese GAAP, the consolidated balance sheet will show increases for the interest-bearing debt and other liabilities attributable to these two companies.
5. Accounting for the JPY 200.0 Billion Preferred Securities Issued by SFJ Capital Limited as Interest-bearing Debt.
SFJ Capital Limited (“SFJ Capital”) is a consolidated subsidiary used to raise funds through the issuance of preferred equity securities with restricted voting rights. In the past, the Company recorded the preferred securities issued by SFJ Capital and guaranteed by the Company as a minority interest in accordance with Japanese GAAP. However, under IFRS, this is recorded under liabilities. As a result, the Company's consolidated balance sheet under IFRS shows an increase in interest-bearing debt and a decrease in non-controlling interest compared to under Japanese GAAP. For the consolidated balance sheet as of December 31, 2012, the increase in interest-bearing debt would have been JPY 197.0 billion, and the decrease in non-controlling interests would have been JPY 200.0 billion. Note that the above calculations of the various effects are provisional and the actual figures may be different from the figures presented in this press release.
The various effects of the above differences in accounting treatment may offset each other to some degree. Nonetheless, for the first quarter of the fiscal year ending March 31, 2014 the Company anticipates a reduction in net sales, driven by the IFRS treatment of handset sales commissions, and increases in both operating income and net income, driven primarily by the suspension of amortization of goodwill under IFRS. The Company's recognition of accounts receivable securitizations and consolidation of eAccess and Wireless City Planning will each increase total assets and total liabilities, but the Company anticipates that liabilities will see a larger increase, mainly because under IFRS preferred securities issued by SFJ Capital are treated as liabilities. While the expected net effect on cash and cash equivalents under IFRS is relatively small, there will be a greater effect on cash flows due to the differing treatment of securitizations of accounts receivable, among other factors.
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