Accounting Treatments for
SoftBank Vision Fund
September 1, 2017
SoftBank Group Corp.
1
Disclaimer
This material was prepared based on information available and views held at the time it was made. Statements in this material that are
not historical facts, including, without limitation, plans, forecasts and strategies are “forward-looking statements”.
Forward-looking statements are by their nature subject to various risks and uncertainties, including, without limitation, a decline in
general economic conditions, general market conditions, technological developments, changes in customer demand for products and
services, increased competition, risks associated with international operations, and other important factors, each of which may cause
actual results and future developments to differ materially from those expressed or implied in any forward-looking statement.
With the passage of time, information in this material (including, without limitation, forward-looking statements) could be
superseded or cease to be accurate. SoftBank Group Corp. disclaims any obligation or responsibility to update, revise or
supplement any forward-looking statement or other information in any material or generally to any extent. Use of or reliance on the
information in this material is at your own risk. Information contained herein regarding companies other than SoftBank Group Corp. and
other companies of the SoftBank Group is quoted from public sources and others. SoftBank Group Corp. has neither verified nor is
responsible for the accuracy of such information.
All the conditions and amounts used as assumptions for the case studies in this material are not factual and are provided for an
illustrative purpose only. They do not represent the factual conditions or amounts stipulated in the agreements or contracts
related to the SoftBank Vision Fund.
2
Agenda
- Accounting treatments -
1. General
1) Accounting treatment for entities composing SoftBank Vision Fund
2) Accounting treatment for investees (portfolio companies)
3) Accounting treatment for third-party interests in SoftBank Vison Fund
4) Overview of consolidated financial statements and segment information
2. Illustrations
1) Interests of SoftBank Group Corp. and third-party
2) Accounting treatments and presentations of investments
*Abbreviations in this material: “SBG” represents SoftBank Group Corp., and “SVF” for SoftBank Vision Fund
3
Agenda
- Appendix -
1) Definition of “investment entity” under IFRS
2) Accounting treatments and presentations of investments (non-subsidiary)
i. General
ii. Bridge investments
3) List of major investments from SVF
4) Valuation techniques for investments
4
- Accounting treatments -
5
*Abbreviations in this material: “SBG” represents SoftBank Group Corp., and “SVF” for SoftBank Vision Fund
Agenda
- Accounting treatments -
1. General
1) Accounting treatment for entities composing SoftBank Vision Fund
2) Accounting treatment for investees (portfolio companies)
3) Accounting treatment for third-party interests in SoftBank Vison Fund
4) Overview of consolidated financial statements and segment information
2. Illustrations
1) Interests of SoftBank Group Corp. and third-party
2) Accounting treatments and presentations of investments
6
1) Accounting treatment for entities composing SVF
Advisory
SoftBank Group Corp.
Investees (Portfolio companies)
Investment advise
Limited Partnership (Fund)
Intercompany transactions such as
management fees and performance fees from
each limited partnership will be eliminated in
consolidation.
Management fees
Performance fees
Third-party
investors
SoftBank Vision Fund (SVF) consists of several limited partnerships (funds), general partners (“GPs”), advisory
companies and newly-established holding entities for several of the portfolio company investments. All these entities are
consolidated by SBG.
Dr) Cash 100
Cr) Sales 100
Dr) Operating expense 100
Cr) Cash 100
Dr) Cash 50
Cr) Sales 50
Dr) Operating expense 50
Cr) Cash 50
Intercompany
elimination
Intercompany
elimination
Investment as LP
GP
(General Partner)
*As of June 30, 2017
*Some intermediate holding companies are not
presented in this table.
Wholly-owned
subsidiary
Wholly-owned
subsidiary
7
<Control>
Fund (stand-alone):
SoftBank Group Corp.
SoftBank Vision Fund
>50%
<20%
≧20%
(Investment entity* under IFRS)
(NOT investment entity* under IFRS)
FVTPL
Investees
Subsidiary
Associate Other
Accounting
treatment
*FVTPL (Fair Value Through Profit or Loss): assets and liabilities are valued at fair value at the end of each quarter, with changes recognized on P/L.
Investees
SoftBank Group Corp.
Subsidiary
Associate Other
Consolidated
FVTPL
(in principle)
FVTPL
(in principle)
SoftBank Vision Fund
>50% <20%
≧20%
SBG consolidation:
(NOT investment entity* under IFRS)
(Investment entity* under IFRS)
Subsidiaries are consolidated, and investments except for subsidiaries are in principle treated as
financial instruments at FVTPL in SBG consolidated financial statements
2) Accounting treatment for investees (portfolio companies)
See “Illustrations 2) Accounting treatments and
presentations of investments”
*See P24 for the definition of “Investment entity”
8
3) Accounting treatment for third-party interests in SVF
Third-party interests are classified as liabilities
Third-party interests
classified as “liabilities”
Fund life is finite;
Obliged to distribute to
investors
Two types of contribution to SVF:
- Equity (Performance-based)
- Preferred Equity (Fixed)
9
Consolidated Statement of Financial Position (B/S)
(except for a case where the investee is a subsidiary)
4) Overview of consolidated financial statements and segment information - 1
Assets
Liabilities and Equity
Investments from SVF
(except for investments in subsidiaries)
Third-party interests classified
as liabilities
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets etc.
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments accounted for using
the equity method
Investments from SVF accounted for
using FVTPL
Other financial assets etc.
Current liabilities
Interest-bearing debt
Trade and other payables etc.
Non-current liabilities
Interest-bearing debt
Third-party interests in SVF
Other financial liabilities
Provisions
Deferred tax liabilities etc.
Equity
Equity attributable to owners of the
parent
Non-controlling interests
10
4) Overview of consolidated financial statements and segment information - 2
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (excluding income from SVF)
Operating income from SVF
Operating income
Finance cost (interest expenses)
Income (loss) on equity method investments
Changes in third-party interests in SVF
Other non-operating income (loss)
Income before income tax
Income taxes
Net income
Net income attributable to
Owners of the parent
Non-controlling interests
[Gains/losses from investments]
• Realized gain and loss on sales of investments
• Unrealized gain and loss on valuation of
investments
• Interest and dividend income from investments
（except for gain and loss on investments in subsidiaries）
[Operating expenses]
• Incorporation expenses of entities that comprise
SVF
• Investment research expenses arising from the
GP and advisory companies
• Administrative expenses arising from each entity
• Changes in third- party interests in SVF
arising from operating income from SVF.
Consolidated Statement of Income (P/L)
(except for a case where the investee is a subsidiary)
11
Cash flows from operating activities
Net income
Depreciation and amortization
Gain on investments at SVF
Change in third-party interests in SVF etc.
Subtotal
Interest and dividends received
Interest paid
Cash flows from investing activities
Purchase of property, plant and equipment,
and intangible assets
Payments for acquisition of investments by SVF
Proceeds from sales of investments by SVF etc.
Cash flows from financing activities
Proceeds from interest-bearing debt
Repayment of interest-bearing debt
Contributions into SVF from third-party
interests in SVF
Distributions and redemption paid to third-party
interests in SVF etc.
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
4) Overview of consolidated financial statements and segment information - 3
Cash flow related to third- party investors
in SVF (contributions / redemption /
distribution etc.)
Cash flow related to investments from
SVF (acquisitions / disposals etc.)
Consolidated Statement of Cash Flows (CF)
(except for a case where the investee is a subsidiary)
12
Domestic
telecom
・・・
SVF Other
Reconcili-
ations
Consolidat
ed
Net sales
xxx
・・・
- xxx xxx xxx
Segment income
xxx
・・・
xxx xxx xxx xxx
EBITDA
xxx
・・・
xxx xxx xxx xxx
Unrealized gain/loss on
valuation of investments in SVF
-
・・・
(xxx) xxx xxx xxx
Adjusted EBITDA
xxx
・・・
xxx xxx xxx xxx
Segment information (except for a case where the investee is a subsidiary)
＝Operating income from SVF
Deduct unrealized
gain/loss
= Realized gain and loss on sales of investments + Interest and dividend
income from investments – operating expenses
4) Overview of consolidated financial statements and segment information - 4
13
*Abbreviations in this material: “SBG” represents SoftBank Group Corp., and “SVF” for SoftBank Vision Fund
Agenda
- Accounting treatments -
1. General
1) Accounting treatment for entities composing SoftBank Vision Fund
2) Accounting treatment for investees (portfolio companies)
3) Accounting treatment for third-party interests in SoftBank Vison Fund
4) Overview of consolidated financial statements and segment information
2. Illustrations
1) Interests of SoftBank Group Corp. and third-party
2) Accounting treatments and presentations of investments
14
1) Interests of SoftBank Group Corp. and third-party - 1
Below are the assumptions used for illustrations on P15-16 (A Co.=subsidiary, B Co.=non-subsidiary):
■Total amount of capital called by the Fund: 1,000 consist of
SBG (performance-based distribution type) = 300;
third-party investors (performance-based distribution type) = 300; and
third-party investors (fixed distribution type) = 400
■Total investments made by the Fund: 1,000
A Co. (subsidiary) = 600, B Co. (Other; non-subsidiary) = 400
■Fair value of the investment as of the current fiscal year-end: 2,200 (gain on valuation: 1,200)
A Co. = 1,500 (gain on valuation: 900), B Co. = 700 (gain on valuation: 300)
■Operating expenses of the Fund excluding management/performance fees: 200
■Management fees and performance fees paid to GP/Advisory from the Fund: 250
■Distribution for the current fiscal year to fixed distribution type investors: 50
■Distribution ratio for performance-based distribution:
SBG : Third-party investors = 1 : 1
■B/S of A Co. : Asset 1,800, Debt 800
■P/L of A Co. : Net sales 900, operating expenses 500 (no other sales or expenses incurred)
*All of the conditions and amounts shown above are all assumptions only used for these illustrations.
15
Gain on valuation 1,200
Distributable
to investors
750
Gain on valuation
–
operating
expenses
*1
= Operating income
from SVF
1,000
Operating
expenses
*1
200
Management Fees &
performance fees 250
GP
LP
*2
* 1: Excluding management fees and performance fees
2: Limited partnerships
Waterfall for distribution to SBG and third-party investors
Investments
1,000
Fixed fees
Performance-based fees
(subject to clawback)
Interests of SBG
Performance-
based distribution
Fixed distribution
Interests of third-
party investors
Fixed & performance-
based fees 250
Performance-based
distribution 350
Performance-
based distribution
350
Fixed distribution 50
Principal of performance
-based distribution type
investments 300
Principal of performance
-based distribution type
investments 300
Principal of fixed
distribution type
investments
400
1) Interests of SoftBank Group Corp. and third-party - 2
16
SBG consolidated P/L
LP
(Fund)
GP /
Advisory
Reconcili-
ations
Consolidated Presentation
Net sales Gain on valuation +1,200 - - -
Net sales Management fees & performance fees
+250
(250) - -
Operating
expenses
Operation Expenses excluding management
fees & performance fees
(200)
---
Operating
expenses
Management fees & performance fees (250) - +250 - -
Operating
income
+750 +250 - +1,000
Operating income
from SVF
Non-operating
expenses
- - (400) (400)
Change in third-party
interests in SVF
Net income
*This P/L is simplified for illustrative examples.
+750 +250 (400) +600 Net income
Net income
attributable to
SBG (performance-based distribution type)
+350 +250 +600
third-party investors (performance-based
distribution type)
+350
Third-party investors (fixed distribution type) +50
2
Intercompany transactions, such as management fees and performance fees to the GPs or advisories paid out from each limited partnership, are
eliminated in consolidation.
Out of Fund’s net income (750), net income attributable to third-party investors (400) is recognized as non-operating expenses in SBG consolidated P/L.
Illustrative example of PL for the distribution flow on page 15 (assumptions: all investees are non-subsidiaries)
1
1
2
1) Interests of SoftBank Group Corp. and third-party - 3
SVF P/L
Recorded item
=
17
2) Accounting treatments and presentations of investments - 1
Other (non-subsidiary)
Subsidiary
B Co.
(FVTPL)
A Co.
(Consolidated)
SBG
Third-party investors
Fund
(Assumption) Investments from the Fund and capital relationship
18
Below are the assumptions used for illustrations on P19-20 (A Co.=subsidiary, B Co.=non-subsidiary):
■Total amount of capital called by the Fund: 1,000 consist of
SBG (performance-based distribution type) = 300;
third-party investors (performance-based distribution type) = 300; and
third-party investors (fixed distribution type) = 400
■Total investments made by the Fund: 1,000
A Co. (subsidiary) = 600, B Co. (Other; non-subsidiary) = 400
■Fair value of the investments as of the current fiscal year-end: 2,200 (gain on valuation: 1,200)
A Co. = 1,500 (gain on valuation: 900), B Co. = 700 (gain on valuation: 300)
■Operating expenses of the Fund excluding management/performance fees: 200
■Management fees and performance fees paid to GP/Advisory from the Fund: 250
■Distribution for the current fiscal year for fixed distribution type investors: 50
■Distribution ratio for performance-based distribution:
SBG : Third-party investors = 1 : 1
■B/S of A Co. : Asset 1,800, Debt 800
■P/L of A Co. : Net sales 900, operating expenses 500 (no other revenues or expenses incurred)
*All of the conditions and amounts shown above are all assumptions only used for these illustrations.
2) Accounting treatments and presentations of investments - 2
19
Asset
1,800
Debt
800
=
Consolidated SBG B/S
A Co. Asset
1,800
Third-party
interests
1,100
Fair value
700
Flow chart of fund investments consolidation
Investment
600
Gain on
valuation
900
FV of investments for A Co.
1,500
Investment
400
Valuation
gain 300
Op. expenses 200
B Co.
Financial
instruments at
FVTPL 700
A Co. Debt
800
Third-party
interests
1,100
Consolidates SBG P/L
A Co. expense
500
A Co. sales
900
300
Change in third-party
interests in SVF 400
＋
Reconciliation
B Co. shares
＋
A Co. B/S
Expense
500
Sales
900
A Co. P/L
B Co. shares
Valuation
gain 300
Reconciliation
=
＋
＋
Third-party
interests 400
FV of investments for B Co.
700
Investment to
A Co.& B Co.
1,000
SBG
300
Third-party
investors
700
SBG
600
Third-party
investors 400
Fair Value (FV) of investments by the Fund
Gain on valuation of A Co.& B Co.:1,200
Op. expenses 200
Operating
income
from SVF
1,000
400+700=1,100
2) Accounting treatments and presentations of investments - 3
Valuation gain from financial instruments at FVTPL for B Co. investments
20
SVF Other
Reconcili-
ations
Consoli-
dated
Net sales
- 900 - 900
Segment
income
1,000 400 (900) 500
Segment
Net sales
Cost of sales
Gross profit
SG&A
Operating income (excluding
income from SVF)
Operating income from SVF
Operating income
Change in third-party
interests in SVF
・・・・・・・・・
Income before income tax
・・・・・・・・・
Net income
Consolidated P/L
Since valuation gain from
A Co.(subsidiary) is
eliminated, operating
income from SVF only
includes valuation gain
from B Co. (non-
subsidiary) and operating
expenses.
Financial results from
A Co.
In the segment information, valuation gain/loss from investments in subsidiaries at FVTPL in SVF is
recognized in the SVF segment, and eliminated in Reconciliations.
900
(300)
600
(200)
400
100
500
(400)
■Supplementary assumptions for the case study
A Co. (subsidiary) : Net sales 900, operating expense 500 (cost of sales 300 and SG&A 200);
Valuation gain from investments at FVTPL in SVF : A Co. (subsidiary) 900, B Co. (non-subsidiary) 300; and
Fund operating expenses: 200 (no other revenues or expenses)
Financial results from A Co.
Valuation gain from A Co. (subsidiary)
Valuation gain from B Co. (non-subsidiary)
Operating expenses
SVF segment income
Elimination of valuation gain
from A Cp. (subsidiary) in SVF
+900
+300
(200)
+1,000
2) Accounting treatments and presentations of investments - 4
21
2) Accounting treatments and presentations of investments - 5
Below are the assumptions used for illustrations on the following page:
■The Fund only invests to Arm (subsidiary). There is no SBG’s subsidiary other than Arm.
■Gain on valuation for entire Arm shares: 4,000
Of which, attributable to SVF (approx. 24.99%): 1,000
(4,000 x 24.99%)
■No Fund operating expense excluding management/performance fees incurred.
■Management fees and performance fees paid to GP/Advisory from the Fund: 250
■Distribution for the current fiscal year for fixed distribution type investors: 50
■ Distribution ratio for performance-based distribution:
SBG : Third-party investors = 1 : 1
■Arm P/L: Net sales 900, operating expenses 500 (cost of sales 300 and SG&A 200), no other revenues or expenses incurred.
*All of the conditions and amounts shown above are all assumptions only used for these illustrations.
22
Arm SVF
Reconcili-
ations
Consoli-
dated
Net sales
900 --900
Segment
income
400 1,000 (1,000) 400
Segment
i. Financial
results from Arm
(100%)
Elimination of the
ii on the left
ii. Valuation gain from Arm
attributable to SVF
(Max24.99%)
Only financial results
from Arm segment
(100%) remains to
consolidated P/L
FVTPL valuation gain/loss of Arm shares (max 24.99% shares of total) is recognized in the SVF
segment and eliminated in Reconciliations
Increase in fair
value of Arm
for the fiscal year
4,000
(of which)
Attributable to SVF
1,000
(Max24.99%)
Third-party investors 400
SBG 600
2) Accounting treatments and presentations of investments - 6
Net sales
Cost of sales
Gross profit
SG&A
Operating income (excluding
income from SVF)
Operating income from SVF
Operating income
Change in third-party
interests in SVF
・・・・・・・・・
Income before income tax
・・・・・・・・・
Net income
Consolidated P/L
900
(300)
600
(200)
400
-
400
(400)
Since valuation gain
from Arm is
eliminated, operating
income from SVF is
zero.
23
- Appendix -
24
1) Definition of “investment entity” under IFRS
■Definition of investment entity under IFRS
IFRS10 27 (excerpt)
An investment entity is an entity that:
a. obtains funds from one or more investors for the purpose of providing those investor(s) with
investment management services;
b. commits to its investor(s) that its business purpose is to invest funds solely for returns from
capital appreciation, investment income, or both; and
c. measures and evaluates the performance of substantially all of its investments on a fair value
basis.
■Accounting treatment for a parent of an investment entity
IFRS10 33 (excerpt)
A parent of an investment entity shall consolidate all entities that it controls, including
those controlled through an investment entity subsidiary, unless the parent itself is an investment
entity.
25
2) Accounting treatments and presentations of investments
(non-subsidiary) -1
Securities acquired as Accounting treatment in P/L Presentation as asset in B/S
a. Investments from SVF
FVTPL
（Operating income from SVF）
Investments from SVF
accounted for using FVTPL
b.
Investments form SBG
entities (excl. SVF)
Investment securities
i. General
Investments by SVF are presented separately from investments made other than SVF
■Case study: Acquired B Co.’s shares at 400 during the fiscal year, recognized valuation gain from
financial instruments at FVTPL at 300 during the fiscal year, book value at 700 at the fiscal-year end
Securities acquired as
BS PL CF
a. Investments from
SVF
Investments from SVF
accounted for using FVTPL
700 Operating income from
SVF
300 Payments for acquisition
of investments by SVF
400
b. Investments form
SBG entities (excl.
SVF)
Investment securities 700 Other non-operating
income/loss (FVTPL
gain/loss)
300 Payments for acquisition
of investments
400
or
FVTOCI
FVTPL(Other non-operating income/loss)
Income/loss on equity method investments
or
26
ii. Bridge investments (investments acquired by SBG with an intension of recommending to SVF)
Presentation for bridge investments depends on whether they are determined to be transferred to SVF
Securities acquired as Accounting treatment in P/L Presentation as asset in B/S
a. Investments from SVF
FVTPL
(Operating income from SVF)
Investments from SVF
accounted for using FVTPL
a’.
Bridge investments from SBG
(Transfer determined）
a”.
Bridge investments from SBG
(Recommendation planned)
FVTPL
(Other non-operating income/loss)
Investment securities
b.
Investments form SBG entities
(excl. SVF)
or
Securities acquired as
BS PL CF
a.
Investment from SVF
Investments from SVF
accounted for using FVTPL
700
Operating income
from SVF
300
Payments for
acquisition of
investments by SVF
400
a’.
Bridge investments from SBG
(Transfer determined)
a”.
Bridge investments from SBG
(Recommendation planned)
Investment securities 700
Other non-operating
income/loss (FVTPL
gain/loss)
300
Payments for
acquisition of
investments
400
b.
Investments form SBG entities
(excl. SVF)
■Case study: Acquired B Co.’s shares at 400 during the fiscal year, recognized valuation gain from financial instruments
at FVTPL at 300 during the fiscal year, book value at 700 at the fiscal-year end
2) Accounting treatments and presentations of investments
(non-subsidiary) -2
FVTOCI
FVTPL(Other non-operating income/loss)
Income/loss on equity method investments
or
27
Investee Held by L.P. Acquisition cost Fair value
(as of June 30, 2017)
NVIDIA SVF L.P. 2.8B 3.9B
Guardant AIV M1 L.P. 0.1B 0.1B
Others 0.3B 0.3B
Total 3.2B 4.3B
Acquisition cost and fair value of major investees
3) List of major investments from SVF
(U.S. dollars)
28
4) Valuation techniques for investments (shares)
The valuation techniques for financial instruments
【In active markets for identical assets or liabilities if such prices are available】
Quoted prices
【If such prices are unavailable】
■ If prices of recent arm’s-length transactions or equity financing are available,
Recent transaction price adjusting for market and company performance
■In absence of a recent transaction
・to the extent comparable guideline public companies are available
The market approach
・when reliable cash flow projections are available
The income approach
Generally-accepted methods are applied
