IFRS 3, para B64, certain acquisition disclosures, gain on prior holding

KDDI CORPORATION – Annual report – 31 March 2019

Industry: telecoms

4 Business Combinations
ENERES Co., Ltd.
i. Overview of business combination
On December 27, 2018, the Company acquired additional shares in ENERES Co., Ltd. (“ENERES”) through a public tender. As a result, ENERES and its consolidated subsidiaries became the Company’s consolidated subsidiaries on the same date.

ii. Main objectives of business combination
Through this business combination, KDDI aims to realize a three-way alliance centering on ENERES and including KDDI and Electric Power Development Co., Ltd., which possess a wealth of knowledge about the electric power business. We will swiftly respond to changes in the business environment leveraging each company’s strengths. By spurring innovation to create business opportunities, we aim to enhance the corporate value of ENERES and expand the Group’s electric power business.

iii. Name and business description of the acquire (as of March 31, 2019)


iv. The proportion of acquired equity interest with voting rights
Share of voting rights held just before the acquisition:                                      29.73%
Share of additional voting rights acquired on the combination date:             20.40%
Share of voting rights after the acquisition:                                                          50.13%

v. Acquisition date
December 27, 2018

vi. Consideration transferred and its components


2 million of acquisition-related costs for the business combination is recognized as selling, general and administrative expenses in the Consolidated Statement of Income.

vii. Fair value of assets and liabilities, non-controlling interests and goodwill on the acquisition date


Regarding this business combination, we conducted provisional treatment because the allocation of the acquisition cost was not determined in the consolidated third quarter of the fiscal year ended March 31, 2019. However, following the determination of the allocation in the fiscal year ended March 31, 2019, the amount of goodwill on the acquisition date decreased 10 million. This was due to increases in intangible assets, deferred tax liabilities and non-controlling interests of 28 million, 9 million and 10 million, respectively.

Notes: 1. The analysis of property, plant and equipment and intangible assets
The main components of property, plant and equipment are equipment and property.
The main components of intangible assets are customer related assets, trademarks and software.
2. Estimation of fair values of acquired receivables, contractual amounts receivables and amounts not expected to be collected
As for the fair value of 171 million of acquired receivables and other receivables, the total amount of contracts is 171 million and the estimate of the contractual cash flows not expected to be collected at the acquisition date is none.
3. Non-controlling interests
Non-controlling interests are measured by multiplying the net assets of the acquiree that can be indentified on the acquisition date by the ratio of non-controlling interests after the business combination.
4. Goodwill
Goodwill reflects excess earning power expected from the collective human resources related to the future business development and its synergy with the existing businesses. There is no item deductible from the taxable income related to the recognized goodwill.

viii. Consideration for expenditures due to the acquisition of control over the subsidiary


ix. Gain on step acquisitions
The equity in ENERES that KDDI held prior to the acquisition date was remeasured at the fair value on the acquisition date. As a result, we recognized a gain on step acquisitions of 27 million due to the business combination. This income is recorded as other non-operating profit and loss in the consolidated statement of income.

x. Revenue and loss for the year of the acquiree
Revenue and loss for the year of the acquiree after the acquisition date, which are recorded on the consolidated statement of income for the year ended March 31, 2019 are 207 million and 2 million, respectively.

xi. Consolidated revenue and consolidated profit for the year assuming that the business combination was completed at the beginning of the fiscal year (Pro forma information)
Revenue and profit for the quarter in pro forma information (unaudited) related to the consolidated results, assuming that the acquisition of control by business combination was effective on April 1, 2018, are 46,235 million and 6,319 million, respectively.