AEON Mall : Notes to “Consolidated Financial Statements” and “Nonconsolidated Financial Statements” 207KB

Note: This document has been translated from a part of 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.

Matters Not Included in Paper-Based Documents

Delivered to Shareholders Who Requested the

Delivery of Such Documents Based on Laws and

Regulations and the Articles of Incorporation for

Notice of the 113th Ordinary General Meeting of

Shareholders

Notes to "Consolidated Financial Statements" and

"Nonconsolidated Financial Statements"

Business year	(March 1, 2023 - February 29, 2024)
(113th term)

AEON MALL Co., Ltd.

In accordance with the provisions of laws and regulations and Article 15 of the Company's Articles of Incorporation, the above matters are excluded from the paper-based documents delivered to shareholders who requested the delivery of documents stating matters for which measures for providing information in electronic format are to be taken.

Notes to significant matters for preparation of consolidated financial statements

1. Matters concerning scope of consolidation
Number of consolidated subsidiaries:	57

Names of major consolidated subsidiaries:

AEON MALL (China) Business Management Co., Ltd., AEON MALL (Cambodia) Co., Ltd., PT. AEON MALL Indonesia, AEON MALL (Guangdong) Business Management Co., Ltd., PT. AMSL Indonesia, AEON MALL HIMLAM Company Limited, AEON MALL Vietnam Co., Ltd., PT. AMSL DELTA MAS, AEON MALL (China) Co., Ltd., AEON MALL DIANYA (TIANJIN) Business Management Co., Ltd., OPA Co., Ltd.

AEON MALL (CHANGSHA) BUSINESS MANAGEMENT CO., LTD., Changsha Wangcheng Mall Investment Limited, Life Design Fund Investment Limited Partnership, and Changsha Mall Xiangjiang New Area Commercial Development Co., Ltd. were established during the current fiscal year. Accordingly, these entities have been included in the scope of consolidation.

2. Matters concerning the application of the equity method Number of affiliates applying the equity method: 1

Name of company applying the equity method:

Marimo Co., Ltd.

Marimo Co., Ltd. is included in the scope of application of the equity method during the current fiscal year following the acquisition of its shares. While the fiscal year for the affiliate accounted for by the equity method differs from the consolidated fiscal year, the equity method is applied based on financial statements for the fiscal year of the affiliate.

1. Matters concerning fiscal years, etc. of consolidated subsidiary
   Of consolidated subsidiaries, AEON MALL (China) Business Management Co., Ltd. and 49 other companies end their fiscal years on December 31. In preparation of the consolidated financial statements, the financial statements as of the said balance sheet date are used. In addition, AEON MALL MYANMAR CO., LTD and one other company end their fiscal years on March 31. We prepare our consolidated financial statements using the December 31 respective balance sheet dates of our consolidated subsidiaries. For consolidation purposes, the Company makes necessary adjustments to reflect any significant transactions occurring between January 1 and the consolidated balance sheet date.
2. Matters concerning accounting policies
3. 1. Measurement policy and method of significant assets
   2. 1. Securities Available-for-sale securities
         Securities other than shares without market value
         Stated at market value (all valuation gains and losses are treated as a component of net assets and the cost of securities sold is determined by the moving-average method.)
         Shares without market value
         Stated at cost determined by the moving-average method
      2. Derivatives
         Stated at market value

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1. Method for depreciating and amortizing significant depreciable and amortizable assets
2. 1. Property, plant and equipment (excluding right-of-use assets)
      Depreciated using the straight-line method based on the economic useful life

The Company has adopted the following ranges of economic useful life for each asset category:

Buildings and structures	2 to 39 years
Machinery and transportation equipment	3 to 17 years
Furniture and fixtures	2 to 20 years

1. 1. Intangible assets
      Amortized using the straight-line method
      Software used in-house is amortized using the straight-line method over an estimated useful life of five years for internal use.
   2. Right-of-useassets
      Amortized using the straight-line method
   3. Long-termprepaid expenses
      Amortized in equal installments based on contract periods and other factors (period of amortization: 2 to 50 years)
2. Accounting policy for deferred assets
   Bond issuance costs are treated as expenses when paid.
3. Accounting policy for significant allowances and provisions
4. 1. Allowance for doubtful receivables
      The Company has recorded the estimated unrecoverable amount as the provision for losses arising from bad debt of receivables such as notes and accounts receivable-trade after reviewing the recoverability of ordinary receivables based on the historical bad debt ratio, and the recoverability of certain receivables such as doubtful account receivables on an individual basis.
   2. Allowance for employee bonus
      The Company has recorded the estimated amount of payment incurring during the current fiscal year as allowance for bonuses to be paid to employees, including part-time employees.
   3. Allowance for director and corporate auditor performance-based remuneration
      The Company has recorded the estimated amount of payment incurring during the current fiscal year as allowance for performance-based remuneration for director and corporate auditor.
   4. Provision for loss on store closing
      The Company has recorded estimated losses on store closing, including early cancellation penalty charges, which are reasonably expected to incur due to store closures.
5. Accounting policy for significant revenue and expenses
   The following is a description of the major performance obligations in the Group principal businesses related to revenue from contracts with customers and the usual time at which such performance obligations are satisfied (usual time at which revenues are recognized). For major Group transactions involving performance obligations related to real estate lease transactions based on mall-opening contracts with customers, the Group recognizes in accordance with the "Accounting Standard for Lease Transactions" (ASBJ No.13, March 30, 2007).
   Common area expense income based on store-opening contracts, etc.
   As the manager of commercial facilities operated by the Group and based on store-opening contracts with customers, we are obligated to provide security, cleaning, greenery management and other facilities

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management services, maintenance and management services related to electricity, water, and other facilities. We are also obligated to provide effective sales promotion activities for the benefit of tenants. As these services are provided to tenants in satisfaction of these performance obligations, the Company recognizes revenues over the contract period with tenants, primarily based on the passage of time.

In addition, a variable income component is included for maintenance and management obligations related to facilities such as electricity and water on a pay-as-incurred basis. The terms of this variable income are related to the actual use of electricity, water, etc., by tenants, and the variable income is allocated to the performance obligations related to the variable income in its entirety after considering the performance obligation and payment terms in the contract.

Payments from tenants are usually received prior to the satisfaction of performance obligations, or is generally collected within approximately one month from the time the performance obligations are satisfied, and does not include a significant financial component.

PM Management Contract Fees

Under management contract agreements with customers, the Group is obligated to perform all services related to the operation of commercial facilities, including the creation of operating policies, facility management services such as security and cleaning, and tenant leasing services. As these services are provided to customers in satisfaction of performance obligations, the Company recognizes revenues over the contract period with tenants, primarily based on the passage of time.

In addition, management contract agreements include a variable income component based on the operating performance of the commercial facilities in question as an incentive fee. The terms of this variable income are related to the actual commercial facilities management results, and the variable income is allocated to the performance obligation related to the variable income in its entirety after considering the entirety of the performance obligation and payment terms in the contract.

Payments from customers are usually received within one month of the satisfaction of the performance obligation and does not include a significant financial component.

1. Accounting policy for translating significant foreign currency-denominated assets and liabilities into Japanese yen
   Foreign currency-denominated monetary claims and obligations are translated into yen amounts at the rates of exchange in effect as of the consolidated balance sheet date. Differences are treated as a gain or loss. Assets and liabilities of overseas subsidiaries are translated into yen amounts at the rates of exchange in effect as of the balance sheet dates of each subsidiary in question. Revenues and expenses are translated into yen amounts at the average exchange rate during the period. Translation differences of overseas subsidiaries are included in foreign currency translation adjustment and non-controlling interests under net assets.

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1. Significant accounting policy for hedging
2. 1. Accounting policy for hedging
      Deferred hedge accounting is used in principle. Special hedge accounting is applied to interest rate swaps that meet the criteria for the special hedge accounting.
   2. Hedging instruments and hedged items

Hedging instruments:	Interest rate swaps
Hedged items:	Debts

1. Hedging policy
   Based on Group regulations, interest rate swaps are conducted for the purpose of hedging against the risk of fluctuations in interest rates.

The exceptional treatment prescribed in the Practical Solution on the Treatment of Hedge Accounting for Financial Instruments that Reference LIBOR (ASBJ PITF No.40, March 17, 2022) is applied to all hedging relationships above included in the scope of the Practical Solution. The details of hedging relationships to which the Practical Solution is applied are as follows.

Accounting policy for hedging: Special hedge accounting is used.

Hedging instruments:	Interest rate swaps
Hedged items:	Debts

Type of hedge transactions: Transactions conducted for the purpose of hedging against the risk of fluctuations in interest rates

1. 1. Evaluation of hedging effectiveness
      The Company compares fluctuations in market prices or cash flows between hedged items and hedging instruments over their respective periods from the start of hedging to the time of the measurement of effectiveness. The fluctuations in these parameters are used as a benchmark for evaluating hedging effectiveness. However, the evaluation of hedging effectiveness for interest rate swaps accounted for under special hedge accounting is omitted.
2. Other significant matters concerning the preparation of consolidated financial statements Accounting method for retirement benefits
   The Company has recorded retirement benefit obligations less pension assets at the end of the current fiscal year for the provision of retirement benefits for employees. In the calculation of retirement benefit obligations, the method of attributing estimated retirement benefits to terms up to the current fiscal year is in line with benefits calculation formula rules.
   Actuarial differences are expensed from the following fiscal year using the straight-line method over a period not exceeding a certain period (10 years) of average remaining service period of employees when the actuarial differences are incurred.
   Unrecognized actuarial gains and losses are recorded in remeasurements of defined benefit plans as part of total other comprehensive income under net assets after adjusting for tax effects.

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Notes to accounting estimates Impairment of fixed assets

(1) Amount recognized in consolidated financial statements for the current fiscal year

Property, plant and equipment	¥1,323,673 million
Intangible assets	¥3,559 million
Long-term prepaid expenses	¥47,979 million
Impairment loss	¥1,960 million

1. Information that contributes to understanding of the content of accounting estimates
2. 1. Calculation method of amount recognized in consolidated financial statements for the current fiscal year
      The Group has defined individual stores in the Mall Business as the smallest unit for asset grouping, in principle, for the purpose of applying impairment accounting of its fixed assets. As for the Group's domestic fixed assets, upon having identified any such asset or asset group as showing signs of impairment in accordance with the Accounting Standard for Impairment of Fixed Assets and other such standards, the carrying amount of such an asset or asset group is reduced to its recoverable amount and posted as an impairment loss if the sum total of undiscounted future cash flows derived from such an asset or asset group is less than the carrying amount. The recoverable amount is calculated as the higher of either the net realizable value or the value in use of the fixed assets.
      Fixed assets of the overseas subsidiaries are to be accounted for in compliance with the International Financial Reporting Standards (IFRS), and in accordance with the Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries, etc. for Consolidated Financial Statements (ASBJ PITF No. 18). Therefore, upon having identified any such asset or asset group as showing signs of impairment, the carrying amount of such an asset or asset group is reduced to its recoverable amount and posted as an impairment loss if the sum total of discounted future cash flows derived from such asset or asset group is less than the carrying amount. The recoverable amount is calculated as the higher of either the fair value less disposal costs or the value in use.
      In estimating future cash flows for the sake of recognizing and measuring impairment losses on fixed assets, the Company uses forecast values calculated based on certain rates of growth and other such variables for periods extending beyond those of business plans, pursuant to business plans that have been approved by management. Operating revenue, which serves a major component of the business plans and mainly consists of fixed rent from tenants, variable rent, and other proceeds, is reflected in the business plans upon taking into account the likelihood of future volatility.
      Moreover, discount rates used to estimate value in use are calculated based on available external data and enlist the advice of corporate valuation professionals when necessary. For details on discount rate values used in each business segment, please refer to "Notes to consolidated statement of income, 4. Impairment loss." Net realizable value (Japan) and fair value less disposal costs (overseas subsidiaries) are calculated largely based on real estate appraisal values.
   2. Significant assumptions used to calculate the amount recognized in consolidated financial statements for the current fiscal year
      Significant assumptions enlisted in estimating future cash flows for individual assets and asset groups include forecasted rates of market growth, changes in the status of developing areas in the vicinity of store locations, effects of measures such as store renovations, attracting tenants, and sales promotions, changes in customer traffic and rents, and forecasts of utility bills, etc. Changes particularly with respect to rates of market growth and the status of developing areas in the vicinity of mall locations are estimated based on available external data and publicly available information. Effects of measures such as store renovations, attracting tenants, and sales promotions are estimated based on decisions made by the Company and contracts entered into with tenants and other parties.

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Changes in customer traffic and rents are estimated based on factors that include past performance at other similar stores. Utility bills, etc. are estimated with the latest electricity prices and others taken into account.

1. Impact on consolidated financial statements for the following fiscal year
   Impairment loss recognition and measurement are subject to estimates based on the aforementioned significant assumptions. As such, there is a possibility that the Company may incur impairment losses in the following fiscal year under a scenario of deteriorating profitability of respective stores due to situations such as downturns in rental income attributable to tenant departures and sluggish personal spending or a rise in expenses resulting from fluctuations in prices, etc., and an increase in the discount rate owing to changes in interest rate.

Notes to consolidated balance sheet

1. The amount of receivables from contracts with customers in notes and accounts receivable-trade, and the amount of contract liability in other (current liabilities) are provided under "Notes on revenue recognition, 3. Information to understand the amount of revenue for the current fiscal year and for the following and subsequent fiscal years."
2. Assets pledged as collateral

		(Millions of yen)
Buildings and structures	23,583
Land	2,456
	Total	26,040
	Obligations backed by above collateral
		(Millions of yen)
Current portion of long-term debt	16,976
Long-term debt	2,857
	Total	19,833
3. Accumulated depreciation of property, plant and equipment	¥615,907 million

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Notes to consolidated statement of income

1. Gains on sale of fixed assets consist of the following items.

(Millions of yen)

AEON MALL Natori (Natori, Miyagi Prefecture)	2,009
Other	0
Total	2,009

2. Losses on sale of fixed assets consist of the following items.

Other	(Millions of yen)
4
Total	4

3. Losses on retirement of fixed assets consist of the following items.

	(Millions of yen)
Buildings and structures	156
Furniture and fixtures	23
Demolition and removal expenses	713
Other	56
Total	951

4. Impairment losses

The Group recorded impairment losses on the following asset groups during the current fiscal year (March 1, 2023 to February 29, 2024).

			(Millions of yen)
Location	Use	Type	Amount
Overseas (China)	Store	Right-of-use assets, etc.	1,960
		Total	1,960

The Group has defined individual stores in the Mall Business as the smallest unit for asset grouping. Idle assets are grouped in the unit of the respective assets. Common-use assets are grouped in larger units that include groups contributing to the generation of future cash flows.

The carrying amounts of asset groups above were reduced to their respective recoverable amount due to a significant decline in their profitability. The write-down was posted as impairment loss under extraordinary losses.

The recoverable amount is calculated as the higher of either the fair value less disposal costs or the value in use. The value in use is calculated by discounting at 9.94% for overseas (China).

The total impairment losses above includes ¥438 million in long-term prepaid expenses, and ¥1,522 million in right-of-use assets.

5. A provision for loss on store closings is recorded following the decision to terminate the management and operation of QUALITE PRIX.

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Notes to consolidated statement of changes in shareholders' equity 1. Matters concerning the type and total number of shares issued

		Number of shares at	Increase in	Decrease in	Number of shares at
	Type of shares	the beginning of the	the end of the current
	shares	shares	Remarks
	current fiscal year	fiscal year
		(shares)	(shares)
		(shares)	(shares)
Shares issued	Common stock	227,559,339	1,600	-	227,560,939	(Note 1)
Treasury stock	Common stock	4,270	526	-	4,796	(Note 2)

(Notes)

1. An increase of 1,600 shares issued and outstanding is due to the exercise of stock acquisition rights.
2. An increase in treasury stock is due to the Company's purchase of 526 shares constituting less than one unit.

2. Matters concerning dividends

(1) Dividends paid

Resolution	Type of shares	Total dividends	Dividend per share	Record date	Effective date
(Millions of yen)	(yen)
Board of Directors	Common stock	5,688	25.00	February 28, 2023	May 1, 2023
meeting on April 11, 2023
Board of Directors	Common stock	5,688	25.00	August 31, 2023	October 20, 2023
meeting on October 10,
2023

1. Dividends whose record date is in the current fiscal year and whose effective date is in the following fiscal year
   The following resolutions are scheduled at the Board of Directors meeting to be held on April 9, 2024.

Type of shares	Total dividends	Source of	Dividend per share
(Millions of yen)	dividends	(yen)
Common stock	5,688	Retained earnings	25.00

Record date

February 29, 2024

Effective date

May 7, 2024

3. Matters concerning stock acquisition rights

Type and the number of shares underlying the stock acquisition rights at the end of the current fiscal year (excluding those for which the first date of exercise period has not come).

Common stock

27,100 shares

Notes to financial instruments

1. Matters concerning the status of financial instruments

1. Policy on financial instruments
   The Group operates the Mall Business while assuming the central role of Shopping Center Development Business for AEON and leases mall store spaces to general tenants, as well as general merchandise store operators, AEON Retail Co., Ltd. and the companies of the AEON Group. In conducting the respective businesses, funds are managed mainly through specific financial assets such as highly secured time deposits and deposits of funds with AEON CO., LTD., and financing is procured by means of indirect financing, including bank borrowings, as well as direct financing through the issuance of corporate bonds and commercial papers, and liquidation of receivables. Derivatives are not intended to be traded for speculative purposes under a policy with the aim of avoiding risks of interest or exchange rate fluctuations arising from fund procurement, or loans and borrowings with respect to overseas consolidated subsidiaries.

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1. Contents and risks of financial instruments
   Notes and accounts receivable-trade, which are trade receivables, are exposed to the credit risk of customers.
   Deposits paid to affiliates represent management trust deposits with AEON CO., LTD., the parent company, based on depositary agreements with the said company.
   Investment securities mainly consist of stocks of companies that have business relationships with the Group and are exposed to market price fluctuation risk and credit risk.
   Lease deposits paid, which are mostly related to leases of stores, are exposed to credit risk of lessees. Notes and accounts payable-trade, which are trade payables, are mainly due within one year.
   Short-term debt, commercial paper, lease obligations, long-term debt and straight bonds are mainly for financing for business transactions and capital investment, etc. Although there involve liquidity risks that prevent the payment from being made on the payment due date, the liquidity risks are systematically mitigated through diversification of the timings of repayment or redemption. In addition, some of the aforementioned financial instruments are exposed to the risk of fluctuations in interest rates that are variable; however, for new loans, interest rate swaps are used for hedging purposes.
   Lease deposits from lessees are the deposits and security deposits made under tenant lease agreements, etc.
   Derivative transactions involve interest rate swap transactions to mitigate interest rate fluctuation risks in long-term obligations, currency swap transactions to mitigate exchange rate fluctuation risks, and forward exchange contracts. In addition, matters concerning hedge accounting such as hedging instruments, hedging policies, and methods for evaluating the hedging effectiveness are described under "(7) Significant accounting policy for hedging, 4. Matters concerning accounting policies under Notes to significant matters for preparation of consolidated financial statements."
2. Risk management systems relating to financial instruments
3. 1. Management of credit risks
      As for trade receivables such as notes and accounts receivable-trade, the Sales Division and the Finance & Accounting Division in accordance with the policies of the Group, regularly monitor the status of business partners, manage the payment term and the outstanding balance of each business partner, and work to quickly grasp concerns over the recovery of the trade receivables and to lower the risk of bad debts arising from deterioration in financial positions.
      Among investment securities, the market value for shares with market value are determined on a quarterly basis, and the financial position of the issuer of shares without market value are grasped regularly.
      Part of lease deposits paid is backed by collaterals, such as by establishing mortgages and right of pledges.
      For the use of derivatives, credit risk is recognized to be minimal because all contracting parties are highly-credited financial institutions.
   2. Management of market risks
      The Group uses interest rate swap transactions to mitigate the risk of fluctuations in interest rates on borrowings, currency swap transactions to mitigate the risk of fluctuations in foreign exchange for loans and borrowings with respect to overseas consolidated subsidiaries, and forward exchange contracts. The derivative transactions are authorized on an individual basis following the internal settlement procedures for the executions of borrowings and loans. The Finance & Accounting Division executes and manages the transactions.
      For investment securities, etc., market trends, market value, and financial position of the issuer (trade party) are regularly monitored and reported to management, and also the holding status of the investment securities is continuously reviewed.

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