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Annual Securities Report [These documents are based on the Company's Annual Securities Report (Japanese only) prepared following the Financial Instruments and Exchange Act for the purpose of providing accurate financial information and other information in a manner that is easy to understand. In the event of any discrepancy between these translated documents and the Japanese originals, the originals shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translations.] Annual Securities Report (The 17th Fiscal Year) From January 1, 2018 to December 31, 2018 NEXON Co., Ltd Table of Contents Page Annual Securities Report for the 17th Fiscal Year 【Cover】 ··················································································································· 1 Part I 【Information on the Company】 ················································································ 2 I. 【Overview of the Company】 ···················································································· 2 1 【Changes in Key Management Indicators】 ································································ 2 2 【History】 ······································································································· 6 3 【Description of Business】 ··················································································· 10 4 【Group Companies】 ·························································································· 18 5 【Employees】 ··································································································· 21 II. 【Business Overview】 ····························································································· 22 1 【Management Policy, Business Environment and Issues to be Addressed】 ··························· 22 2 【Risk Factors】 ································································································· 24 3 【Management’s Analysis of Financial Position, Operating Results and Cash Flows】 ··············· 31 4 【Material Agreements, etc. in Business Operation】 ······················································ 36 5 【Research and Development】 ··············································································· 38 III. 【Property, Plant and Equipment】··············································································· 39 1 【Summary of Capital Investment, etc.】 ···································································· 39 2 【Major Facilities】 ····························································································· 40 3 【Plans for Additions, Disposals, etc. of Property, Plant and Equipment】 ······························ 43 IV. 【Information on the Company】 ················································································· 44 1 【Information on the Company’s Stock, etc.】 ······························································ 44 2 【Information on Purchase, etc. of Treasury Stock】 ······················································· 65 3 【Dividend Policy】 ···························································································· 66 4 【Changes in Share Prices】 ··················································································· 67 5 【Information on the Company’s Officers】 ································································· 68 6 【Information on Corporate Governance, etc.】····························································· 71 V. 【Financial Information】 ·························································································· 80 1 【Consolidated Financial Statements, etc.】 ································································· 81 2 【Non-Consolidated Financial Statements, etc.】 ··························································· 160 VI. 【Stock-Related Administrative Information of the Company】 ············································· 172 VII. 【Reference Information on the Company】 ···································································· 173 1 【Information on the Company’s Parent Company, etc.】 ················································· 173 2 【Other Reference Information】 ············································································· 173 Part II 【Information on Guarantors, etc. for the Company】 ······················································· 175 【Cover】 【Document filed】 Annual Securities Report 【Governing law】 Article 24, Paragraph 1 of the Financial Instruments and Exchange Act of Japan 【Filed with】 Director, Kanto Local Finance Bureau 【Filing date】 March 27, 2019 【Fiscal year】 The 17th Fiscal Year (from January 1, 2018 to December 31, 2018) 【Company name】 Kabushiki Kaisha NEXON 【Company name in English】 NEXON Co., Ltd. 【Name and title of representative】 Owen Mahoney, Chief Executive Officer and President 【Address of head office】 1-4-5 Roppongi, Minato-ku, Tokyo 【Telephone number】 03-6629-5318 (main) 【Contact person】 Shiro Uemura, Representative Director and Chief Financial Officer 【Nearest contact address】 1-4-5 Roppongi, Minato-ku, Tokyo 【Telephone number】 03-6629-5318 (main) 【Contact person】 Shiro Uemura, Representative Director and Chief Financial Officer 【Place where a copy of this document is Tokyo Stock Exchange, Inc. made available for public inspection】 (2-1 Nihonbashi Kabutocho, Chuo-ku, Tokyo) ―1― Part I 【Information on the Company】 I. 【Overview of the Company】 1 【Changes in Key Management Indicators】 (1) Consolidated management indicators, etc. (Millions of yen, unless otherwise stated) International Accounting Standard Term 13th FY 14th FY 15th FY 16th FY 17th FY Fiscal year-end December 2014 December 2015 December 2016 December 2017 December 2018 Revenue 172,930 190,263 183,128 234,929 253,721 Income before income taxes 52,671 68,006 47,123 69,995 117,444 Net income attributable to owners of the 29,316 55,132 20,133 56,750 107,672 parent company Total comprehensive income 41,824 40,642 2,905 91,917 72,012 Total equity attributable to owners of the 340,380 374,447 372,924 465,207 555,268 parent company Total assets 437,022 425,586 441,832 543,231 649,998 Total equity attributable to owners of the 394.64 431.27 428.78 528.42 620.91 parent company per share (yen) Basic earnings per share (yen) 33.71 63.93 23.13 64.67 121.03 Diluted earnings per share (yen) 33.17 62.34 22.70 63.46 119.65 Ratio of equity attributable to owners of the 77.9 88.0 84.4 85.6 85.4 parent company to total assets (%) Return on equity (%) 9.0 15.4 5.4 13.5 21.1 Price earnings ratio (times) 16.7 15.5 36.6 25.4 11.7 Cash flows from operating activities 58,118 60,152 73,293 80,718 118,018 Cash flows from investing activities (61,820) 56,412 (97,084) (81,891) (68,183) Cash flows from financing activities (27,050) (35,639) (9,275) (3,019) 8,260 Cash and cash equivalents at end of year 117,729 194,225 152,683 153,242 205,292 Number of employees 4,656 5,033 5,525 5,768 6,441 [average number of temporary workers] [186] [169] [157] [130] [143] (persons) (Notes) 1. Revenue does not include consumption taxes, etc. 2．The Company executed a two-for-one stock split of its common stock as of April 1, 2018. As a result, “Total equity attributable to owners of the parent company per share,” “Basic earnings per share” and “Diluted earnings per share” are calculated assuming the stock split was executed at January 1, 2014. 3．During the 13th fiscal year, the total number of issued shares became 431,256,017 shares due to changes in common stock because of the following reasons: ・Decrease by 10,569,883 shares due to cancellation of treasury stock on August 29, 2014 ・Increase by 2,482,000 shares due to exercise of stock options 4．During the 14th fiscal year, the total number of issued shares became 434,117,117 shares due to changes in common stock because of the following reasons: ・Decrease by 7,313,900 shares due to cancellation of treasury stock on May 29, 2015 ・Increase by 10,175,000 shares due to exercise of stock options ―2― 5．During the 15th fiscal year, the total number of issued shares became 434,871,414 shares due to changes in common stock because of the following reasons: ・Decrease by 3,168,703 shares due to cancellation of treasury stock on November 30, 2016 ・Increase by 3,923,000 shares due to exercise of stock options 6．During the 16th fiscal year, the total number of issued shares became 440,184,332 shares due to changes in common stock because of the following reasons: ・Decrease by 3,103,082 shares due to cancellation of treasury stock on December 29, 2017 ・Increase by 8,416,000 shares due to exercise of stock options 7．During the 17th fiscal year, the total number of issued shares became 894,278,664 shares due to increases in common stock because of the following reasons: ・Increase by 443,794,332 shares due to a two-for-one stock split of common stock as of April 1, 2018 ・Increase by 10,300,000 shares due to exercise of stock options 8．During the 17th fiscal year, the provisional accounting related to the business combination was finalized and provisionally measured fair values were revised, and therefore the consolidated statement of financial position has been restated retrospectively. As a result, the relevant key management indicators for the 16th fiscal year reflect the restatement. Refer to “V. Financial Information, 1. Consolidated Financial Statements, etc., Notes to consolidated financial statements, 38 Business combination” for details of the retrospective restatement. ―3― (2) The
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