ミニストップ（9946） – Matters for Internet Disclosure Under Laws and Regulations and the Articles of Incorporation

This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damage arising from the translation. Matters for Internet Disclosure Under Laws and Regulations and the Articles of Incorporation Notes to the Consolidated Financial Statements Notes to the Non-consolidated Financial Statements (From March 1, 2021 to February 28, 2022) MINISTOP Co., Ltd. The Notes to the Consolidated Financial Statements and Notes to the Non-consolidated Financial Statements are provided to shareholders on the Company’s online website (https://www.ministop.co.jp/) pursuant to the provisions of laws and regulations as well as Article 15 of the Company’s Articles of Incorporation. 1 Notes to the Consolidated Financial Statements (Notes on important matters forming the basis of preparation of consolidated financial statements) 1. Scope of consolidation All subsidiaries of the Company are consolidated subsidiaries. 5 companies Number of consolidated subsidiaries Network Service Inc. MINISTOP Korea Co., Ltd. QINGDAO MINISTOP CO., LTD. VINH KHANH CONSULTANCY CORPORATION MINISTOP VIETNAM COMPANY LIMITED Qingdao Fresh Foods Co., Ltd. has been excluded from the scope of consolidation due to the transfer of all shares of the company held by the Company in the consolidated fiscal year under review. 2. Application of the equity method (1) Number of associates accounted for using the equity method Not applicable (2) Change in scope of application of the equity method ROBINSONS CONVENIENCE STORES, INC. has been excluded from the scope of application of the equity method due to the transfer of all shares of the company held by the Company in the consolidated fiscal year under review. 3. Fiscal years of consolidated subsidiaries The fiscal year end of QINGDAO MINISTOP CO., LTD., VINH KHANH CONSULTANCY CORPORATION, and MINISTOP VIETNAM COMPANY LIMITED is December 31. The consolidated financial statements were prepared using the non-consolidated financial statements dated as of that date, and adjustments required for consolidation purposes were made regarding any significant transactions that took place between that date and the consolidated fiscal year end date. The fiscal year end of Network Service Inc. and MINISTOP Korea Co., Ltd. is the same as the consolidated fiscal year end date. 4. Accounting policies (1) Standards and methods for valuation of important assets 1) Securities Other securities Securities with market value Securities without market value 2) Derivatives Recorded using the market value method 3) Inventories a. Merchandise The Company Stated at fair value based mainly on the market price prevailing at the consolidated fiscal year end (valuation differences are recorded as a separate component of net assets, and the cost of marketable securities sold is calculated using the moving average method) Stated at cost using the moving-average method Stated using the average cost retail method as set forth in the Series of Opinions Regarding Adjustment between Business Accounting Principles and Relevant Laws and Regulations No. 4 (balance sheet amounts are written down based on a decline in profitability) However, fast foods processed in store are stated using the 2 last purchase price method Overseas consolidated subsidiaries Stated mainly by using the moving-average method (balance sheet amounts are written down based on a decline in profitability) Stated using the last purchase price method b. Supplies (2) Depreciation or amortization methods for important depreciable or amortizable assets 1) Property, plant and equipment (excluding leased assets) Straight-line method based on economic useful life The estimated useful lives of major categories of property, plant and equipment are as follows: Buildings and structures Stores and offices Facilities attached to buildings Structures 20–40 years 5–18 years 5–20 years Machinery, equipment and vehicles Machinery and equipment Vehicles Furniture and fixtures Signboard installation Store fittings, other 2) Intangible assets 17 years 5 years 5–10 years 3–6 years Straight-line method Software for internal use is amortized by the straight-line method based on the estimated useful life of the software (5 years in principle). 3) Leased assets Leased assets arising from transactions under finance lease contracts that do not transfer ownership to the lessee Depreciated to a residual value of zero by the straight-line method using the lease term as the estimated useful life 4) Right-of-use assets Amortized by the straight-line method over the lease term 5) Long-term prepaid expenses Amortized by equal payments over the contract term (3) Basis for significant reserves 1) Allowance for doubtful accounts To provide for possible bad debt losses on accounts receivable, the Company records an allowance based on historical percentage for ordinary receivables and on an estimate of the collectability of receivables for specific claims with default possibility. 2) Provision for bonuses To provide for future bonus payments to employees, the portion of the projected payable amount to be paid in the consolidated fiscal year under review is recorded. 3) Provision for directors achievement rewards To provide for performance-linked compensation to be paid to directors and other officers, the portion of the projected payable amount to be paid in the consolidated fiscal year under review is recorded. 4) Provision for loss on store closings To provide for losses due to store closings, estimated store-closing-related losses such as early cancellation penalties reasonably estimated to be incurred due to store closings are recorded. 5) Provision for loss on business withdrawal Projected losses due to the withdrawal from business by QINGDAO MINISTOP are recorded. 3 (4) Accounting treatment of retirement benefits 1) Method of attributing projected retirement benefits to periods When calculating retirement benefit obligations, expected benefits are attributed to the period until the end of the consolidated fiscal year under review on a benefit formula basis. 2) Method of amortization of actuarial differences and past service costs Past service costs are accounted for in the consolidated fiscal year they are incurred. Actuarial differences are charged to expenses in the consolidated fiscal year following the year in which they were incurred, mainly by amortizing a proportional amount using the straight-line method over a definite period no longer than the average remaining service years of employees (10 years) of the consolidated fiscal year in which they were incurred. (5) Standards of translation of important assets and liabilities denominated in foreign currencies into Japanese yen All monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot exchange rate prevailing at the consolidated fiscal year end, with translation differences recognized as gains or losses. All assets and liabilities of overseas consolidated subsidiaries are translated into Japanese yen at the spot exchange rate prevailing at the fiscal year end of the consolidated subsidiaries. Revenues and expenses are translated into Japanese yen at the average exchange rate during the consolidated fiscal year, and translation adjustments are included in non-controlling interests and foreign currency translation adjustment under net assets. (6) Accounting for consumption taxes, etc. National and local consumption taxes are accounted for by the tax exclusion method. 5. Additional information Not applicable. 4 (Notes to changes in presentation method) Changes due to the application of Accounting Standard for Disclosure of Accounting Estimates The Company has adopted the Accounting Standard for Disclosure of Accounting Estimates (ASBJ Statement No. 31, March 31, 2020) and included “Notes to accounting estimates” in the Notes to Consolidated Financial Statements from the consolidated fiscal year under review. (Notes to accounting estimates) 1. Impairment of non-current assets (1) Amounts recorded in the consolidated financial statements for the consolidated fiscal year under review Asset type Property, plant and equipment Intangible assets Total (Millions of yen)Carrying amounts in the Consolidated Balance Sheet 22,969 4,195 27,165 (2) Information on the nature of significant accounting estimates in the identified categories 1) Method of calculation of amounts recorded in the consolidated financial statements for the consolidated fiscal year under review In the recognition of impairment losses, the Company conducts asset grouping that regards stores as the minimum cash-generating units. It also determines whether or not to recognize impairment losses on headquarters assets, such as store core systems, in larger units as shared assets. In individual asset groups, for asset groups showing signs of impairment, such as continued losses from operating activities or stores that have indicated an intention to close, if the total of future cash flows before discounting for the residual useful life of the asset group is less than the book value, the book value is written down to the recoverable value, and the impairment losses are recorded as extraordinary losses. In the consolidated fiscal year under review, signs of impairment of the Company’s shared assets have been identified and a determination has been made as to whether or not to recognize impairment losses for a larger unit including shared assets. As the total of future cash flows before discount obtained from the subject asset group is greater than the book value, impairment losses have not been recorded. 2) Major assumptions used in the calculation of amounts recorded in the consolidated financial statements for the fiscal year under review Future cash flows used for the calculation of recognition of impairment losses and utility value and for other purposes are based on the figures that provide the assumptions for the medium-term plans approved by the Board of Directors and take into consideration factors such as the current state of use, reasonable plans for use, and additional investment plans. As the major basis for management decisions, these figures incorporate future revenue growth projections in daily store sales, etc., as well as forecast fluctuations in cost of sales and selling and administrative expenses, such as personnel costs and rents. Regarding the effects of COVID-19, while it is believed that economic activities will trend toward a gentle recovery as progress is made in the roll-out of vaccines and the development of therapeutic drugs, estimates have been made on the assumption that customer numbers in the next consolidated fiscal year will remain unchanged. 3) Effect on consolidated financial statements for the following consolidated fiscal year The major assumptions may be affected by factors such as changes in business strategies and changes in the external economic environment. If a review of the estimates of future cash flows becomes necessary, there is a possibility that additional impairment losses will be incurred in the consolidated financial statements for the following consolidated fiscal year. 5 2. Recoverability of deferred tax assets (1) Amount recorded in consolidated financial statements for the consolidated fiscal year under review Asset type Deferred tax assets fiscal year under review (Millions of yen)Carrying amounts in the Consolidated Balance Sheet 5,367 (2) Information on the nature of significant accounting estimates in the identified categories 1) Method of calculation of amounts stated in the consolidated financial statements for the consolidated For the recording of deferred tax assets, based on the company classification set forth in Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, March 28, 2016), recoverability was determined on the basis of whether or not it would have the effect of mitigating future tax burden. Deferred tax assets are recognized for deductible temporary differences and tax losses carried forward at the end of the consolidated fiscal year under review only to the extent that they can be used to mitigate tax burden in the following consolidated fiscal year, determined after estimating taxable income based on future earning capacity. 2) Major assumptions used in the calculation of amounts recorded in the consolidated financial statements for the consolidated fiscal year under review For the above estimate, in addition to the projected amount of gain on sale pertaining to the transfer of shares in MINISTOP Korea, based on the figures that provide the assumptions for the medium-term plans approved by the Board of Directors and taking into consideration past performance, future management environment, and other factors, estimates are made on taxable income before adjustment of temporary differences and on the period of elimination of the temporary differences. Regarding the impact of COVID-19, while it is believed that economic activities will trend toward a gentle recovery as progress is made in the roll-out of vaccines and the development of therapeutic drugs, estimates have been made on the assumption that customer numbers in the next consolidated fiscal year will remain unchanged. 3) Effect on consolidated financial statements for the following consolidated fiscal year The major assumptions may be affected by factors such as changes in business strategies and changes in the external economic environment. If it is determined that all or part of the deferred tax assets become unrecoverable, there is a possibility that the deferred tax assets in the following fiscal year’s consolidated financial statements will be reversed and income taxes – deferred will be incurred. (Notes to the Consolidated Balance Sheet) 1. Accumulated depreciation of property, plant and equipment 2. Deposits received In addition to deposits received for utility payment collection services, the amount includes ¥25,586 million in contract monies, etc. pertaining to the share transfer agreement of MINISTOP Korea. 61,381 million yen 6 (Notes to the Consolidated Statement of Income) 1. Major breakdown of selling, general and administrative expenses Sales commission Advertising expenses Employees’ salaries and bonuses Provision for bonuses Rent expenses on land and buildings Depreciation 2. Impairment losses (Millions of yen) 9,420 3,069 11,031 191 17,997 10,884 (1) Overview of asset groups in which impairment losses were recognized Use Store Store Store Store Type Buildings, etc. Buildings, etc. Buildings, etc. Buildings, etc. Total Location Japan Korea China Vietnam Number of stores 1,074 618 22 38 1,752 (Millions of yen)Amount (2) Background leading to recognition of impairment losses The book values of asset groups that continue to or are projected to continue to generate losses from store operating activities have been marked down to their recoverable values, and those losses have been recorded as impairment losses in extraordinary losses. 3,202 592 196 24 4,016 1,255 21 1,674 1,018 45 4,016 (Millions of yen)Amount (3) Amount of impairment losses Type Buildings and structures Machinery, equipment and vehicles Furniture and fixtures Leased assets Other Total (4) Asset grouping method Grouping was performed based on stores as the minimum cash flow-generating units. Head office is considered a shared asset as it does not generate an independent cash flow. (5) Method of calculating recoverable amount The recoverable amount for asset groups was measured either by net sales value or utility value. Net sales value is appraised by a reasonable estimate that takes examples of transactions, etc. into consideration. Utility value is calculated by discounting future cash flows by 3.3–7.6%. For those furniture and fixtures, leased assets, etc. previously considered divertible that are not expected to be diverted in future, recoverable amounts were appraised at zero. 3. Loss on withdrawal from business and provision for loss on business withdrawal ¥671 million in losses due to the transfer of all of the shares in ROBINSONS CONVENIENCE STORES, INC. held by the Company, ¥628 million in loss on withdrawal from business and provision for loss on business withdrawal due to the liquidation of QINGDAO MINISTOP CO., LTD., and ¥26 million in loss on withdrawal from business due to the transfer of shares in Qingdao Fresh Foods Co., Ltd. have been recorded. 7 (Notes to the Consolidated Statement of Changes in Equity) 1. Matters concerning outstanding shares and treasury shares Type of shares Increase Decrease Number of shares on March 1, 2021 Number of shares on February 28, 2022 29,372 363 – 0 – – 29,372 363 Outstanding shares Treasury shares Ordinary shares (Thousand shares) Ordinary shares (Thousand shares) 2. Dividends (1) Dividend amount Resolution Type of shares Record date Effective date Total dividend amount (Millions of yen) Dividends per share (Yen) Board of Directors meeting on April 8, 2021 Board of Directors meeting on October 6, 2021 Ordinary shares Ordinary shares 290 10.00 April 28, 2021 February 28, 2021 290 10.00 August 31, 2021 November 8, 2021 (2) Dividends whose record date is during this fiscal year, but whose effective date is after the end of this fiscal year Resolution Board of Directors meeting on April 8, 2022 Type of shares Source of dividends Dividends per share (Yen) Record date Effective date Total dividend amount (Millions of yen) Ordinary shares Retained earnings 290 10.00 April 27, 2022 February 28, 2022 3. Type and number of shares to be issued upon exercise of share acquisition rights Ordinary shares 2,500 shares 8 (Notes on financial instruments) 1. Status of financial instruments For its fund management, the Group invests in highly secure financial assets based on its internal fund management rules and raises funds through borrowings from banks and other financial institutions. For accounts receivable – due from franchised stores, accounts receivable – other, and guarantee deposits, as well as regularly monitoring the status of major business partners and managing maturity dates and outstanding balances for each business partner, the Group strives to identify, at the earliest possible date, concerns about recoverability that may arise from deteriorating financial position, etc. and thus mitigate the risk of unrecoverable debts. Investment securities are mainly shares of companies with which the Group has business relationships, and fair values of marketable shares are determined on a quarterly basis. Accounts payable – trade, accounts payable – due to franchised stores, accounts payable – other, and deposits received are due within one year. The Company’s Accounting Department prepares and updates cash flow plans in a timely manner based on reports from individual departments, and manages liquidity risk mainly by maintaining liquidity on hand. Short-term and long-term borrowings are mainly to raise funds for working capital. Lease liabilities pertain to the acquisition of right-of-use assets and leased assets. The Group uses derivative transactions in accordance with its derivative transaction management regulations for the purpose of avoiding financial market risks associated with its operating activities. It is the Group’s policy not to engage in speculative transactions. 2. Fair value, etc. of financial instruments The carrying amounts in the Consolidated Balance Sheet, fair values, and their differences as of February 28, 2022 are as follows. Financial instruments whose fair values are deemed to be extremely difficult to determine are not included in the table below (see Note 2). Fair value Difference Carrying amount on Consolidated Balance Sheet (Millions of yen) (1) Cash and deposits (2) Accounts receivable – due from franchised stores (*) (3) Accounts receivable – other (*) (4) Investment securities Other marketable securities (5) Deposits paid to subsidiaries and associates (6) Guarantee deposits (*) Total assets (1) Accounts payable – trade (2) Accounts payable – due to 8,663 8,358 10,669 70 21,000 22,778 71,541 20,494 695 8,663 8,358 10,669 70 21,000 22,917 71,680 20,494 695 – – – – – – 139 139 – – franchised stores – (3) Short-term borrowings – (4) Accounts payable – other – (5) Income taxes payable – (6) Deposits received 1 (7) Long-term borrowings (cid:4666)1) (8) Guarantee deposits received (110) (9) Lease liabilities (109) Total liabilities Derivative transactions – * Allowance for doubtful accounts provided individually for accounts receivable – due from franchised stores, accounts receivable – other, and guarantee deposits has not been deducted from the carrying amounts on the Consolidated Balance Sheet. 7,613 5,106 293 36,576 171 6,935 6,681 84,569 – 7,613 5,106 293 36,576 169 6,936 6,791 84,678 – 9 Notes: 1. Methods of calculating fair values of financial instruments and matters concerning marketable securities and derivative transactions Assets: (1) Cash and deposits, (2) Accounts receivable – due from franchised stores, (3) Accounts receivable – other, and (5) Deposits paid to subsidiaries and associates As these are settled within a short period of time and their fair values approximate their book values, the fair values are based on book values. (4) Investment securities, Other marketable securities Fair values of these shares are based on prices quoted in security exchanges. (6) Guarantee deposits Fair values are calculated based on their present value obtained by discounting by the risk-free rate, based on reasonably estimated scheduled redemption timings for each certain type of credit. Guarantee deposits scheduled for collection within one year are included. Liabilities: (1) Accounts payable – trade, (2) Accounts payable – due to franchised stores, (3) Short-term borrowings, (4) Accounts payable – other, (5) Income taxes payable, and (6) Deposits received As these are settled within a short period of time and their fair values approximate their book values, the fair values are based on book values. (7) Long-term borrowings, (9) Lease liabilities Fair values are calculated based on their present value obtained by discounting the sum of their principal amounts and interest by the risk-free rate in light of credit risk. Lease liabilities scheduled for repayment within one year are included. (8) Guarantee deposits received Fair values are calculated based on their present value obtained by discounting by the risk-free rate in light of credit risk, based on reasonably estimated scheduled repayment timings for each certain type of credit. Guarantee deposits received that are scheduled for repayment within one year are included. Derivative transactions: There are no applicable transactions. 2. Financial instruments whose fair values are deemed to be extremely difficult to determine Category Carrying amount on Consolidated Balance Sheet (Millions of yen) 1 0 Given the fact that no quoted market prices exist for these financial instruments and it is extremely difficult to estimate their fair values, they are not included in (4) Investment securities, Other marketable securities. Unlisted company shares Other (Notes on per share information) 1. Net assets per share 2. Loss per share 980.41 yen133.27 yen10 (Significant subsequent events) Transfer of consolidated subsidiary The Company concluded a share transfer agreement with LOTTE Corporation on January 21, 2022 for all shares in its consolidated subsidiary, MINISTOP Korea Co., Ltd., and transferred all shares on March 29, 2022. With this share transfer, MINISTOP Korea Co., Ltd. will be excluded from the Company’s scope of consolidation from the beginning of the fiscal year ending February 28, 2023. 1. Overview of sale of shares (1) Name of counterpart company in share transfer LOTTE Corporation (2) Reason for share transfer The Company first entered the Korean market in 1990 and had developed the convenience store business there through its subsidiary, MINISTOP Korea. Upon a comprehensive assessment of future outlook and from the perspectives of the optimization of the Group’s management and the concentration and streamlining of management resources, the Company determined that a transfer to a third party that would be able to support MINISTOP Korea’s sustainable growth would be best for the Group and for MINISTOP Korea. With agreement reached with LOTTE Corporation regarding the terms of the transfer and other matters, the Company made the decision to transfer all of its shares in MINISTOP Korea. (3) Date of finalization of share transfer March 29, 2022 (4) Number of shares transferred, transfer price, and status of shareholdings before and after transfer Number of shares held prior to transfer 5,080,000 shares (Share: 100%) 5,080,000 shares (Share: 100%) Number of shares transferred 320,988 million won (Approx. 31,071 million yen) Transfer price 0 shares (Share: 0%) Number of shares held after transfer *Converted at 1 won = 0.0968 yen 2. Overview of consolidated subsidiary (1) Description of business Convenience store business in Korea (2) Details of transactions with the Company A technical support agreement has been concluded, under which the Company receives royalty income. (3) Size of business 1) Assets and liabilities (as of February 28, 2022) (Millions of yen) Total assets Liabilities Net assets 32,142 25,119 7,023 *Converted at exchange rate on February 28, 2022 2) Profit/loss (From March 1, 2021 to February 28, 2022) Gross operating revenue Operating profit Ordinary profit Profit (Millions of yen) 103,670 (1,136) (1,031) (1,169) 11 *Converted at average exchange rate for the year ended February 28, 2022 3) Amount of royalties paid to Japan (From March 1, 2021 to February 28, 2022) Royalty commissions (Millions of yen) 511 *Converted at average exchange rate for the year ended February 28, 2022 3. Impact on consolidated business results Due to the share transfer, from the beginning of the fiscal year ending February 28, 2023, MINISTOP Korea Co., Ltd. will be excluded from the Company’s scope of consolidation. The Company expects to record extraordinary income of ¥23.0 billion (estimate) as gain on sale of shares of subsidiaries and associates in the three months ending May 31, 2022. 12 Notes to the Non-consolidated Financial Statements (Notes on significant accounting policies) 1. Standards and methods for valuation of securities (1) Shares of subsidiaries and associates (2) Other securities Securities with market value Securities without market value 2. Valuation standards for derivatives Recorded using the market value method 3. Valuation standards and methods for inventories (1) Merchandise Stated at cost using the moving-average method Stated at fair value based on the market price prevailing at the fiscal year end, etc. (valuation differences are recorded as a separate component of net assets, and the cost of marketable securities sold is calculated using the moving average method) Stated at cost using the moving-average method Stated using the average cost retail method as set forth in the Series of Opinions Regarding Adjustment between Business Accounting Principles and Relevant Laws and Regulations No. 4 (balance sheet amounts are written down based on a decline in profitability) However, fast foods processed in store are stated using the last purchase price method Stated using the last purchase price method (2) Supplies 4. Depreciation or amortization methods for non-current assets (1) Property, plant and equipment (excluding leased assets) Straight-line method based on economic useful life The estimated useful lives of major categories of property, plant and equipment are as follows: Buildings Stores and offices Facilities attached to buildings Structures Machinery and equipment Furniture and fixtures Signboard installation Store fittings, other 20 years 8–18 years 10–20 years 17 years 5–10 years 4–6 years (2) Intangible assets (3) Leased assets Straight-line method Software for internal use is amortized by the straight-line method based on the estimated useful life of the software (5 years in principle). Leased assets arising from transactions under finance lease contracts that do not transfer ownership to the lessee Depreciated to a residual value of zero by the straight-line method using the lease term as the estimated useful life (4) Long-term prepaid expenses Amortized by equal payments over the contract term 13 5. Recognition of significant reserves (1) Allowance for doubtful accounts To provide for possible bad debt losses on accounts receivable, the Company records an allowance based on historical percentage for ordinary receivables and on an estimate of the collectability of receivables for specific claims with default possibility. (2) Provision for bonuses To provide for future bonus payments to employees, the portion of the projected payable amount to be paid in the fiscal year under review is recorded. (3) Provision for directors achievement rewards To provide for performance-linked compensation to be paid to directors and other officers, the portion of the projected payable amount to be paid in the fiscal year under review is recorded. (4) Provision for loss on store closings To provide for losses due to store closings, estimated store-closing-related losses such as early cancellation penalties reasonably estimated to be incurred due to store closings are recorded. (5) Provision for retirement benefit To prepare for the payment of employees’ retirement benefits, a provision is recorded based on the retirement benefit obligations at the end of the fiscal year under review and the projected amount of pension assets. 1) Method of attributing projected retirement benefits to periods When calculating retirement benefit obligations, expected benefits are attributed to the period until the end of the fiscal year under review on a benefit formula basis. 2) Method of amortization of actuarial differences and past service costs Past service costs are accounted for in the fiscal year they are incurred. Actuarial differences are charged to expenses in the fiscal year following the year in which they were incurred, by amortizing a proportional amount using the straight-line method over a definite period no longer than the average remaining service years of employees (10 years) of the fiscal year in which they were incurred. 6. Other significant matters that constitute the basis for preparation of non-consolidated financial statements (1) Accounting for retirement benefits The method of accounting for unaccounted-for amounts of unrecognized actuarial differences pertaining to retirement benefits differs from the accounting methods used for such amounts in the Consolidated Balance Sheet. (2) Accounting for consumption taxes, etc. National and local consumption taxes are accounted for by the tax exclusion method. (Notes to changes in presentation method) Changes due to the application of Accounting Standard for Disclosure of Accounting Estimates The Company has adopted the Accounting Standard for Disclosure of Accounting Estimates (ASBJ Statement No. 31, March 31, 2020) and included “Notes to accounting estimates” in the Notes to Non-consolidated Financial Statements from the fiscal year under review. 14 (Notes to accounting estimates) 1. Impairment of non-current assets (1) Amounts recorded in the financial statements for the fiscal year under review Asset type Property, plant and equipment Intangible assets Total (Millions of yen)Carrying amounts in the Non-consolidated Balance Sheet 12,011 4,028 16,039 (2) Information on the nature of significant accounting estimates in the identified categories 1) Method of calculation of amounts recorded in the non-consolidated financial statements for the year under review In the recognition of impairment losses, the Company conducts asset grouping that regards stores as the minimum cash-generating units. It also determines whether or not to recognize impairment losses on headquarters assets, such as store core systems, in larger units as shared assets. In individual asset groups, for asset groups showing signs of impairment, such as continued losses from operating activities or stores that have indicated an intention to close, if the total of future cash flows before discounting for the residual useful life of the asset group is less than the book value, the book value is written down to the recoverable value, and the impairment losses are recorded as extraordinary losses. In the fiscal year under review, signs of impairment of shared assets have been identified and a determination has been made as to whether or not to recognize impairment losses for a larger unit including shared assets. As the total of future cash flows before discount obtained from the subject asset group is greater than the book value, impairment losses have not been recorded. 2) Major assumptions used in the calculation of amounts recorded in the non-consolidated financial statements for the fiscal year under review Future cash flows used for the calculation of recognition of impairment losses and utility value and for other purposes are based on the figures that provide the assumptions for the medium-term plans approved by the Board of Directors and take into consideration factors such as the current state of use, reasonable plans for use, and additional investment plans. As the major basis for management decisions, these figures incorporate future revenue growth projections in daily store sales, etc., as well as forecast fluctuations in cost of sales and selling and administrative expenses, such as personnel costs and rents. Regarding the effects of COVID-19, while it is believed that economic activities will trend toward a gentle recovery as progress is made in the roll-out of vaccines and the development of therapeutic drugs, estimates have been made on the assumption that customer numbers in the next fiscal year will remain unchanged. 3) Effect on non-consolidated financial statements for the following fiscal year The major assumptions may be affected by factors such as changes in business strategies and changes in the external economic environment. If a review of the estimates of future cash flows becomes necessary, there is a possibility that additional impairment losses will be incurred in the non-consolidated financial statements for the following fiscal year. 2. Recoverability of deferred tax assets (1) Amount recorded in non-consolidated financial statements for the fiscal year under review Asset type Deferred tax assets (Millions of yen)Carrying amounts in the Non-consolidated Balance Sheet 3,669 (2) Information on the nature of significant accounting estimates in the identified categories 1) Method of calculation of amounts stated in the non-consolidated financial statements for the fiscal year under review For the recording of deferred tax assets, based on the company classification set forth in 15 Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, March 28, 2016), recoverability was determined on the basis of whether or not it would have the effect of mitigating future tax burden. Deferred tax assets are recognized for deductible temporary differences and tax losses carried forward at the end of the fiscal year under review only to the extent that they can be used to mitigate tax burden in the following fiscal year, determined after estimating taxable income based on future earning capacity. 2) Major assumptions used in the calculation of amounts recorded in the non-consolidated financial statements for the fiscal year under review For the above estimate, in addition to the projected amount of gain on sale pertaining to the transfer of shares in MINISTOP Korea, based on the figures that provide the assumptions for the following fiscal year’s budget approved by the Board of Directors and taking into consideration past performance, future management environment, and other factors, estimates are made on taxable income before adjustment of temporary differences and on the period of elimination of the temporary differences. Regarding the impact of COVID-19, while it is believed that economic activities will trend toward a gentle recovery as progress is made in the roll-out of vaccines and the development of therapeutic drugs, estimates have been made on the assumption that customer numbers in the next fiscal year will remain unchanged. 3) Effect on non-consolidated financial statements for the following fiscal year The major assumptions may be affected by factors such as changes in business strategies and changes in the external economic environment. If it is determined that all or part of the deferred tax assets become unrecoverable, there is a possibility that the deferred tax assets in the following fiscal year’s non-consolidated financial statements will be reversed and income taxes – deferred will be incurred. (Notes to the Non-consolidated Balance Sheet) 1. Accumulated depreciation of property, plant and equipment 2. Short-term monetary receivables from subsidiaries and associates 3. Long-term monetary receivables from subsidiaries and associates 4. Short-term monetary payables to subsidiaries and associates 5. Deposits received (Millions of yen) 38,649 21,428 170 82 In addition to deposits received for utility payment collection services, the amount includes ¥25,586 million in contract monies, etc. pertaining to the share transfer agreement of MINISTOP Korea. (Notes to the Non-consolidated Statement of Income) 1. Major breakdown of selling, general and administrative expenses Sales commission Advertising expenses Employees’ salaries and bonuses Provision for bonuses Rent expenses on land and buildings Depreciation 2. Transactions with subsidiaries and associates (1) Operating transactions Other operating revenue Selling, general and administrative expenses (2) Non-operating transactions Interest received Dividends received 16 (Millions of yen) 3,335 1,898 7,817 173 17,373 3,630 (Millions of yen) 708 434 (Millions of yen) 28 500 3. Impairment losses (1) Overview of asset groups in which impairment losses were recognized Use Type Store Buildings, etc. Location Japan Number of stores 1,074 (Millions of yen)Amount 3,202 (2) Background leading to recognition of impairment losses The book values of asset groups that continue to or are projected to continue to generate losses from store operating activities have been marked down to their recoverable values, and those losses have been recorded as impairment losses in extraordinary losses. (3) Amount of impairment losses Type Buildings Structures Machinery and equipment Furniture and fixtures Land Leased assets Other Total (Millions of yen)Amount 831 115 21 1,207 3 1,018 4 3,202 (4) Asset grouping method Grouping was performed based on stores as the minimum cash flow-generating units. (5) Method of calculating recoverable amount The recoverable amount for asset groups was measured either by net sales value or utility value. Net sales value is appraised by a reasonable estimate that takes examples of transactions, etc. into consideration. Utility value is calculated by discounting future cash flows by 4.8%. For those furniture and fixtures, leased assets, etc. previously considered divertible that are not expected to be diverted in future, recoverable amounts were appraised at zero. 4. Loss on withdrawal from business ¥1,389 million in losses due to the transfer of all of the shares in ROBINSONS CONVENIENCE STORES, INC. held by the Company and ¥1,259 million in loss on withdrawal from business due to the liquidation of QINGDAO MINISTOP CO., LTD. have been recorded. (Notes to the Non-consolidated Statement of Changes in Equity) Matters concerning treasury shares Type of shares Ordinary shares (Thousand shares) Number of shares on March 1, 2021 Increase Decrease Number of shares on February 28, 2022 363 0 – 363 17 (Millions of yen) 2,661 2,605 1,853 1,256 582 1,204 10,163 (cid:4666)1,831) (cid:4666)4,469) (cid:4666)6,300) 3,863 8 101 83 193 3,669 (Millions of yen) (2,520) 2,243 (276) 167 (109) (Notes on tax effect accounting) Main causes of deferred tax assets and liabilities and their details Sub-total (Deferred tax assets) Property, plant and equipment Retained losses for tax purposes Investments in capital of subsidiaries and associates Shares of subsidiaries and associates Asset retirement obligations Other Valuation reserve for retained losses for tax purposes Valuation reserve for total of deductible temporary differences, etc. Valuation reserve (Deferred tax liabilities) Valuation difference on available-for-sale securities Guarantee deposits Other Total Net deferred tax assets Total (Notes on retirement benefits) 1. Overview of adopted retirement benefits scheme The Company has adopted the defined-benefit corporate pension plan, defined contribution pension plan, and advance payment scheme established by its parent company, Aeon Co., Ltd., and its major domestic subsidiaries, etc. 2. Matters concerning retirement benefit obligations Retirement benefit obligations Pension assets Unfunded retirement benefit obligations Unrecognized actuarial differences Provision for retirement benefit 3. Matters concerning retirement benefit expenses Service costs Interest expenses Expected return on plan assets Expensed amount of actuarial differences Other (Note) Retirement benefit expenses Note: Refers to amounts of premiums paid into defined contribution plan and amounts of advance retirement payments 92 19 (67) 56 119 221 (Millions of yen) made to employees. 4. Matters concerning basis for calculation of retirement benefit obligations, etc. Method for distribution of projected retirement benefits among periods Discount rate Rate of expected return on plan assets Period of accounting for actuarial differences Period of accounting for past service costs Benefit formula method 0.8% 3.21% 10 years from year incurred Collectively in fiscal year incurred 18 (Notes on transactions with affiliates) 1. Parent company Category Address Business Company name Capital or equity investment (Millions of yen) Ratio of voting rights holding (held) Relationship Concurrent directors, etc. Business relationship Parent company Aeon Co., Ltd. Mihama-ku, Chiba, Chiba Prefecture 220,007 Pure holding company (Held) Direct Indirect Total 48.5%5.3%53.8%None Contracted fund manage-ment Transaction details Account Trans- action amount (Millions of yen) End-of-fiscal-year balance (Millions of yen) Contracted fund manage-ment Receipt of interest 3,358 21,000 Deposits paid to subsid-iaries and associates Accounts receivable – other 2 19 Notes: 1. Transaction amounts do not include consumption taxes, etc. The interest on contracted fund management is decided in light of market interest rates. The amount of contracted fund management is the average balance during the fiscal year. 2. 3. 2. Affiliated companies Category Address Business Company name Capital or equity investment (Millions of yen) Ratio of voting rights holding (held) Relationship Concurrent directors, etc. Business relationship Transaction details Trans- action amount (Millions of yen) Company with the same parent company AEON Credit Service Co., Ltd. Chiyoda-ku, Tokyo 500 Financial services None None Company with the same parent company ACS-leasing Co., Ltd. Chiyoda-ku, Tokyo 250 Leasing business None None Account Accounts receivable – other Deposits received Accounts payable – other Lease liabilities due within 1 year 393 85 End-of-fiscal-year balance (Millions of yen) 2,706 1,088 89 773 956 Collection agency for credit purchases Credit and e-money commissions Acquisition of leased assets Leasing of POS equipment Payment of interest 18 Lease liabilities Notes: 1. Transaction amounts do not include consumption taxes, etc. 2. 3. The transaction amount for AEON Credit Service Co., Ltd. represents the commissions for the use of credit cards at stores as well as for the use and recharging of e-money. The credit and e-money commissions and POS equipment leasing are decided reasonably after discussions between the parties. (Notes on per share information) 1. Net assets per share 2. Loss per share 1,085.91 yen109.78 yen (Significant subsequent events) Transfer of consolidated subsidiary The Company concluded a share transfer agreement with LOTTE Corporation on January 21, 2022 for all shares in its consolidated subsidiary, MINISTOP Korea Co., Ltd., and transferred all shares on March 29, 2022. With this share transfer, the Company expects to record extraordinary income of ¥19.0 billion (estimate) as gain on sale of shares of subsidiaries and associates in the fiscal year ending February 28, 2023. For details, please refer to the “Significant subsequent events” in Notes to the Consolidated Financial Statements. 19