As filed with the Securities and Exchange Commission on April 30, 201527, 2017
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
ACT OF 1934 |
For the fiscal year ended December 31, |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE |
ACT OF 1934 |
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number1-14418
SK Telecom Co., Ltd.
(Exact name of Registrant as specified in its charter)
SK Telecom Co., Ltd.
(Translation of Registrant’s name into English)
The Republic of Korea
(Jurisdiction of incorporation or organization)
SKT-Tower
65, Eulji-ro, Jung-gu, Seoul, Korea
(Address of principal executive offices)
Ms. Tae HeeMin Joo Kim
65, Eulji-ro, Jung-gu, Seoul, Korea
Telephone No.:82-2-6100-2114
Facsimile No.:82-2-6100-7830
(Name, telephone, email and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class | Name of Each Exchange on Which Registered | |
American Depositary Shares, each representing
| New York Stock Exchange | |
Common Stock, par value ₩500 per share | New York Stock Exchange* |
* Not for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
70,936,33670,609,160 shares of common stock, par value₩500 per share (not including 9,809,37510,136,551 shares of common stock held by the company as treasury shares)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ☑ Yes þNo¨ ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.Yes ☐ Yes ¨Noþ ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☑ Yes þNo¨ ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes ☐ Yes ¨No¨ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a non-accelerated filer.an emerging growth company. See definitiondefinitions of “accelerated filer, and large” “large accelerated filer” and “emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerþ ☑ Accelerated filer ☐ ¨Non-accelerated filer ☐ Non-accelerated filer Emerging growth company¨ ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP¨ ☐ International Financial Reporting Standards as issued by the International Accounting Standards Boardþ ☑ Other ☐ Other ¨
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which financial statement item the registrant has elected to follow.Item 17¨ ☐ Item 18þ ☑
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ¨☐No þ☑
CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT | 1 | |||||
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Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |||||
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Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | |||||
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Item | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | |||||
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(ii)
CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT
All references to “Korea” contained in this annual report shall mean The Republic of Korea. All references to the “Government” shall mean the government of The Republic of Korea. All references to “we,” “us,” or “our” shall mean SK Telecom Co., Ltd. and, unless the context otherwise requires, its consolidated subsidiaries. References to “SK Telecom” shall mean SK Telecom Co., Ltd., but shall not include its consolidated subsidiaries. All references to “U.S.” shall mean the United States of America.
All references to “MHz” contained in this annual report shall mean megahertz, a unit of frequency denoting one million cycles per second. All references to “GHz” shall mean gigahertz, a unit of frequency denoting one billion cycles per second. All references to “Mbps” shall mean one million bits of informationper second and all references to “Gbps” shall mean one billion bits per second. All references to “GB” shall mean gigabytes, which is one billion bytes. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.
All references to “Won,” or “₩” in this annual report are to the currency of Korea, all references to “Dollars” or “US$” are to the currency of the United States of America, all references to “CHF” or “Franc” are to the currency of Switzerland, all references to “MYR” are to the currency of Malaysia, all references to “euro” or “€” are to the currency of the European Union and all references to “Australian Dollars” or “AUD” are to the currency of the Commonwealth of Australia.
Pursuant to amendments to the Government Organization Act and the Act on the Establishment and Operation of Korea Communications Commission, both effective as of March 23, 2013, the Ministry of Science, ICT and Future Planning (the “MSIP”) was established. The MSIP is charged with regulating information and telecommunications, which function was formerly performed by the Korea Communications Commission (the “KCC”) under the previous Government. The KCC, which had taken over the regulatory functions relating to information and telecommunications policies and radio and broadcasting management from the Ministry of Information and Communication (the “MIC”) in 2008, is currently charged with regulating the public interest aspects of and fairness in broadcasting. In this annual report, we refer to the MIC and the KCC as the relevant governmental authorities in connection with any approval granted or action taken by the MIC or the KCC, as applicable, prior to such amendments and to the MSIP or other relevant governmental authority in connection with any approval granted or to be granted or action taken or to be taken by the MSIP or such other relevant governmental authority subsequent to such amendments.
Subscriber information for the wireless and fixed-line telecommunications industry set forth in this annual report are derived from information published by the MSIP unless expressly stated otherwise.
The consolidated financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”). As such, we make an explicit and unreserved statement of compliance with IFRS, as issued by the IASB, with respect to our consolidated financial statements as of December 31, 20142016 and 2013,2015, and for the years ended December 31, 2014, 20132016, 2015, and 20122014 included in this annual report.
In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission (the “SEC”), which became effective on March 4, 2008, we are not required to provide a reconciliation to generally accepted accounting principles in the United States, or U.S. GAAP.
Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.
This report contains “forward-looking statements,” as defined in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,
“believe,” “considering,” “depends,” “estimate,” “expect,” “intend,” “plan,” “planning,” “planned,” “project” and similar expressions, or that certain events, actions or results “may,” “might,” “should” or “could” occur, be taken or be achieved.
Forward-looking statements in this annual report include, but are not limited to, statements about the following:
our ability to anticipate and respond to various competitive factors affecting the wireless telecommunications industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors;
our implementation of high-speed downlink packet access (“HSDPA”) technology, high-speed uplink packet access (“HSUPA”) technology, evolved high-speed uplink packet access (“HSPA+”) technology, wireless broadband Internet (“WiBro”) technology, long-term evolution (“LTE”) technology, and long-term evolution advanced(“LTE-A”) technology and the next-generation wireless technology, which we call “5G” technology;
our plans for capital expenditures in 20152017 for a range of projects, including investments to improve and expand our LTE network and launch our LTE-A services, investments to maintainimprove and expand our wide-band code division multiple access (“WCDMA”) network-based products andWi-Fi network, investments to develop our platform services investments in our wireless Internet-related and convergence businessesbusiness portfolio and funding formid- to long-term research and development projects, as well as other initiatives, primarily related to the development of our new businesses such as our business-to-business (“B2B”) solutions and healthcaregrowth businesses, as well as initiatives related to our ongoing businesses in the ordinary course;
our efforts to make significant investments to build, develop and broaden our businesses, including developing our next-generation growth businesses in Internet of Things (“IoT”) solutions, media and providing wireless data, multimedia, mobile commercee-commerce and Internetother innovative products and services offered through our platform services;
our ability to comply with governmental rules and regulations, including the regulations of the Government related to telecommunications providers, the Mobile Device Distribution Improvement Act (“MDDIA”), rules related to our status as a “market-dominating business entity” under the Korean Monopoly Regulation and Fair Trade Act (the “Fair Trade Act”) and the effectiveness of steps we have taken to comply with such regulations;
our ability to effectively manage effectively our bandwidth and to implement timely and efficiently implement new bandwidth-efficient technologies;technologies and our intention to participate in, and acquire additional bandwidth pursuant to, frequency bandwidth auctions held by the MSIP;
our expectations and estimates related to interconnection fees, tariffsrates charged by our competitors, regulatory fees, operating costs and expenditures, working capital requirements, principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases, and research and development expenditures and other financial estimates;
the success of our various joint ventures and investments;
our ability to successfully manage our acquisition in 2012 of a stake ininvestments, including SK hynixHynix, Inc. (known as Hynix Semiconductor Inc. at the time of such acquisition, “SK Hynix”), a memory-chip maker;
our ability to successfully manage our investments in various overseas businesses;
our ability to successfully enter and operate in new business areas, including the platform, B2B solutions and healthcare businesses;
our ability to successfully attract and retain subscribers; and
the growth of the telecommunications industry in Korea and other markets in which we do business and the effect that economic, political or social conditions have on our number of subscribers call volumes and results of operations.
We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. Risks and uncertainties associated with our business include, but are not limited to, risks related to changes in the regulatory environment, technology changes, potential litigation and governmental actions, changes in the competitive environment, political changes, foreign exchange
currency risks, foreign ownership limitations, credit risks and other risks and uncertainties that are more fully described under the heading “Item 3. Key Information — Risk Factors” and elsewhere in this annual report. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.
Item 1. | IDENTITYOFDIRECTORS,SENIORMANAGEMENTANDADVISERS |
Item 1.A. | DirectorsandSeniorManagement |
Not applicable.
Item 1.B. | Advisers |
Not applicable.
Item 1.C. | Auditors |
Not applicable.
Item 2. | OFFER |
Not applicable.
Item 3. | KEYINFORMATION |
Item 3.A. | SelectedFinancialData |
You should read the selected consolidated financial and operating data below in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual report. The selected consolidated financial data set forth below as of and for the years ended December 31, 2016, 2015, 2014, 2013 2012, 2011 and 20102012 have been derived from our audited consolidated financial statements and related notes thereto, which have been prepared in accordance with IFRS as issued by the IASB.
In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with Korean International Financial Reporting Standards(“K-IFRS”) as adopted by the Korean Accounting Standards Board (the “KASB”), which we are required to file with the Financial Services Commission of Korea (the “FSC”) and the Korea Exchange Inc. (the “Korea Exchange”) under the Financial Investment Services and Capital Markets Act (the “FSCMA”). English translations of such financial statements are furnished to the SEC on Form6-K. Beginning with our financial statements prepared in accordance withK-IFRS as of and for the year ended December 31, 2012, we are required to adopt certain amendments toK-IFRS No. 1001, Presentation of Financial Statements, as adopted by the KASB in 2012. The amendments require operating income,profit, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. Operating expense represents expenses incurred in our main operating activities and includes cost of products that have been resold and selling, general and administrative expenses.
In our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report, such changes in presentation were not adopted. As a result, the presentation of operating incomeprofit in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating incomeprofit in the consolidated statements of income prepared in accordance withK-IFRS for the corresponding periods. For additional information, see “Item 5.A. Operating Results — Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.”
STATEMENT OF INCOME DATA Operating Revenue and Other Income Revenue Other income Operating Expense Operating Income Profit before Income Tax Profit from Continuing Operations Profit (Loss) from Discontinued Operation, net of income taxes Profit for the Year Basic Earnings per Share(1) Diluted Earnings per Share(2) Basic Earnings per Share from Continuing Operations(1) Diluted Earnings per Share from Continuing Operations(2) Dividends Declared per Share (Won) Dividends Declared per Share (US$)(3) Weighted Average Number of Shares Year Ended December 31, 2014 2013 2012 2011 2010 (In billions of Won, except per share and number of shares data) ₩ 17,220.3 ₩ 16,677.0 ₩ 16,343.3 ₩ 15,852.8 ₩ 15,473.4 17,163.8 16,602.1 16,141.4 15,803.2 15,392.7 56.5 74.9 201.9 49.6 80.7 15,612.4 15,098.6 14,605.6 13,690.1 13,139.3 1,607.8 1,578.4 1,737.6 2,162.7 2,334.1 2,253.8 1,827.1 1,519.4 2,212.3 2,363.5 1,799.3 1,426.3 1,231.2 1,610.3 1,813.8 — 183.2 (115.5 ) (28.3 ) (36.1 ) 1,799.3 1,609.5 1,115.7 1,582.1 1,766.8 25,154 23,211 16,525 22,848 25,598 25,154 23,211 16,141 22,223 24,942 25,154 20,708 18,015 23,339 24,843 25,154 20,708 17,583 22,699 24,208 9,400 9,400 9,400 9,400 9,400 8.6 8.9 8.8 8.1 8.3 70,936,336 70,247,592 69,694,999 70,591,937 71,942,387
As of December 31, | ||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
(In billions of Won) | ||||||||||||||||||||
STATEMENT OF FINANCIAL POSITION DATA | ||||||||||||||||||||
Working Capital (Deficit)(4) | ₩ | (337.2 | ) | ₩ | (945.8 | ) | ₩ | (880.5 | ) | ₩ | (556.1 | ) | 451.8 | |||||||
Property and Equipment, Net | 10,567.7 | 10,196.6 | 9,712.7 | 9,031.0 | 8,153.4 | |||||||||||||||
Total Assets | 27,941.2 | 26,576.5 | 25,595.6 | 24,366.0 | 23,132,4 | |||||||||||||||
Non-current Liabilities(5) | 7,272.7 | 6,340.7 | 6,565.9 | 4,959.7 | 4,522.2 | |||||||||||||||
Share Capital | 44.6 | 44.6 | 44.6 | 44.6 | 44.6 | |||||||||||||||
Total Equity | 15,248.3 | 14,166.6 | 12,854.8 | 12,732.7 | 12,408.0 |
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||
(In billions of Won, except per share and number of shares data) | ||||||||||||||||||||||||||||||||||||||||
STATEMENT OF INCOME DATA | ||||||||||||||||||||||||||||||||||||||||
Operating Revenue and Other Income | ₩ | 17,158.3 | ₩ | 17,167.6 | ₩ | 17,220.3 | ₩ | 16,677.0 | ₩ | 16,343.3 | ||||||||||||||||||||||||||||||
Revenue | 17,091.8 | 17,136.7 | 17,163.8 | 16,602.1 | 16,141.4 | |||||||||||||||||||||||||||||||||||
Other income | 66.5 | 30.9 | 56.5 | 74.9 | 201.9 | |||||||||||||||||||||||||||||||||||
Operating Expense | 15,854.9 | 15,672.2 | 15,612.4 | 15,098.6 | 14,605.6 | |||||||||||||||||||||||||||||||||||
Operating Profit | 1,303.4 | 1,495.4 | 1,607.8 | 1,578.4 | 1,737.6 | |||||||||||||||||||||||||||||||||||
Profit before Income Tax | 2,096.1 | 2,035.4 | 2,253.8 | 1,827.1 | 1,519.4 | |||||||||||||||||||||||||||||||||||
Profit from Continuing Operations | 1,660.1 | 1,515.9 | 1,799.3 | 1,426.3 | 1,231.2 | |||||||||||||||||||||||||||||||||||
Profit (Loss) from Discontinued Operation, net of income taxes | — | — | — | 183.2 | (115.5 | ) | ||||||||||||||||||||||||||||||||||
Profit for the Year | 1,660.1 | 1,515.9 | 1,799.3 | 1,609.5 | 1,115.7 | |||||||||||||||||||||||||||||||||||
Basic Earnings per Share(1) | 23,497 | 20,988 | 25,154 | 23,211 | 16,525 | |||||||||||||||||||||||||||||||||||
Diluted Earnings per Share(2) | 23,497 | 20,988 | 25,154 | 23,211 | 16,141 | |||||||||||||||||||||||||||||||||||
Basic Earnings per Share from Continuing Operations(1) | 23,497 | 20,988 | 25,154 | 20,708 | 18,015 | |||||||||||||||||||||||||||||||||||
Diluted Earnings per Share from Continuing Operations(2) | 23,497 | 20,988 | 25,154 | 20,708 | 17,583 | |||||||||||||||||||||||||||||||||||
Dividends Declared per Share (Won) | 10,000 | 10,000 | 9,400 | 9,400 | 9,400 | |||||||||||||||||||||||||||||||||||
Dividends Declared per Share (US$)(3) | 8.3 | 8.6 | 8.6 | 8.9 | 8.8 | |||||||||||||||||||||||||||||||||||
Weighted Average Number of Shares | 70,609,160 | 71,551,966 | 70,936,336 | 70,247,592 | 69,694,999 | |||||||||||||||||||||||||||||||||||
As of December 31, | ||||||||||||||||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||
(In billions of Won) | ||||||||||||||||||||||||||||||||||||||||
STATEMENT OF FINANCIAL POSITION DATA | ||||||||||||||||||||||||||||||||||||||||
Working Capital (Deficit)(4) | ₩ | (447.5 | ) | ₩ | (96.3 | ) | ₩ | (337.2 | ) | ₩ | (945.8 | ) | ₩ | (880.5 | ) | |||||||||||||||||||||||||
Property and Equipment, Net | 10,374.2 | 10,371.3 | 10,567.7 | 10,196.6 | 9,712.7 | |||||||||||||||||||||||||||||||||||
Total Assets | 31,297.7 | 28,581.4 | 27,941.2 | 26,576.5 | 25,595.6 | |||||||||||||||||||||||||||||||||||
Non-current Liabilities(5) | 8,737.1 | 7,950.8 | 7,272.7 | 6,340.7 | 6,565.9 | |||||||||||||||||||||||||||||||||||
Share Capital | 44.6 | 44.6 | 44.6 | 44.6 | 44.6 | |||||||||||||||||||||||||||||||||||
Total Equity | 16,116.4 | 15,374.1 | 15,248.3 | 14,166.6 | 12,854.8 | |||||||||||||||||||||||||||||||||||
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||
(In billions of Won, except percentage data) | (In billions of Won, except percentage data) | |||||||||||||||||||||||||||||||||||||||
OTHER FINANCIAL DATA | ||||||||||||||||||||||||||||||||||||||||
Capital Expenditures(6) | ₩ | 3,008.0 | ₩ | 2,879.1 | ₩ | 3,394.3 | ₩ | 2,960.6 | ₩ | 2,142.3 | ||||||||||||||||||||||||||||||
R&D Expense(7) | 397.8 | 363.7 | 346.3 | 295.9 | 355.9 | |||||||||||||||||||||||||||||||||||
Capital Expenditures(6) | ₩ | 2,490.5 | ₩ | 2,478.8 | ₩ | 3,008.0 | ₩ | 2,879.1 | ₩ | 3,394.3 | ||||||||||||||||||||||||||||||
R&D Expense(7) | 351.1 | 322.7 | 397.8 | 363.7 | 346.3 | |||||||||||||||||||||||||||||||||||
Depreciation and Amortization Expense | 2,714.7 | 2,661.6 | 2,421.1 | 2,286.6 | 2,118.4 | 2,941.9 | 2,845.3 | 2,714.7 | 2,661.6 | 2,421.1 | ||||||||||||||||||||||||||||||
Net Cash Provided by Operating Activities | 3,677.4 | 3,558.6 | 3,999.7 | 6,306.4 | 4,343.4 | 4,243.2 | 3,778.1 | 3,677.4 | 3,558.6 | 3,999.7 | ||||||||||||||||||||||||||||||
Net Cash Used in Investing Activities | (3,683.2 | ) | (2,506.5 | ) | (5,309.6 | ) | (4,239.1 | ) | (2,339.0 | ) | (2,462.2 | ) | (2,880.5 | ) | (3,683.2 | ) | (2,506.5 | ) | (5,309.6 | ) | ||||||||||||||||||||
Net Cash Provided by (Used in) Financing Activities | (559.4 | ) | (573.2 | ) | 585.3 | (1,079.3 | ) | (2,246.1 | ) | (1,044.8 | ) | (964.6 | ) | (559.4 | ) | (573.2 | ) | 585.3 | ||||||||||||||||||||||
Margins (% of total sales): | ||||||||||||||||||||||||||||||||||||||||
Operating Margin(8) | 9.3 | % | 9.5 | % | 10.6 | % | 13.6 | % | 15.0 | % | ||||||||||||||||||||||||||||||
Net Margin(8) | 10.4 | % | 9.7 | % | 6.8 | % | 9.9 | % | 11.3 | % | ||||||||||||||||||||||||||||||
Operating Margin(8) | 7.6 | % | 8.7 | % | 9.3 | % | 9.5 | % | 10.6 | % | ||||||||||||||||||||||||||||||
Net Margin(8) | 9.7 | % | 8.8 | % | 10.4 | % | 9.7 | % | 6.8 | % |
As of or for the Year Ended December 31, | As of or for the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||
SELECTED OPERATING DATA | ||||||||||||||||||||||||||||||||||||||||
Population of Korea (in millions)(9) | 51.3 | 51.1 | 50.9 | 50.7 | 50.5 | |||||||||||||||||||||||||||||||||||
Our Wireless Penetration(10) | 55.7 | % | 53.5 | % | 52.9 | % | 52.3 | % | 50.9 | % | ||||||||||||||||||||||||||||||
Number of Employees(11) | 25,689 | 23,789 | 22,148 | 20,955 | 20,143 | |||||||||||||||||||||||||||||||||||
Wireless Subscribers(12) | 28,613,341 | 27,352,482 | 26,961,045 | 26,552,716 | 25,705,049 | |||||||||||||||||||||||||||||||||||
Average Monthly Outgoing Voice Minutes per Subscriber(13) | 195 | 182 | 179 | 192 | 199 | |||||||||||||||||||||||||||||||||||
Average Monthly Churn Rate(14) | 2.0 | % | 2.3 | % | 2.6 | % | 2.7 | % | 2.7 | % | ||||||||||||||||||||||||||||||
Population of Korea (in millions)(9) | 51.7 | 51.5 | 51.3 | 51.1 | 50.9 | |||||||||||||||||||||||||||||||||||
Our Wireless Penetration(10) | 57.2 | % | 55.6 | % | 55.1 | % | 53.5 | % | 52.9 | % | ||||||||||||||||||||||||||||||
Number of Employees(11) | 25,844 | 25,992 | 25,689 | 23,789 | 22,148 | |||||||||||||||||||||||||||||||||||
Our Wireless Subscribers (in thousands)(12) | 29,595 | 28,626 | 28,279 | 27,352 | 26,961 | |||||||||||||||||||||||||||||||||||
Our LTE Subscribers (in thousands)(13) | 21,078 | 18,980 | 16,737 | 13,487 | 7,530 | |||||||||||||||||||||||||||||||||||
Our LTE Penetration(14) | 71.2 | % | 66.3 | % | 59.2 | % | 49.3 | % | 27.9 | % | ||||||||||||||||||||||||||||||
Average Monthly Data Usage per Subscriber(15) | 5.2GB | 3.9GB | 3.0GB | 2.0GB | 1.8GB | |||||||||||||||||||||||||||||||||||
Average Monthly Churn Rate(16) | 1.5 | % | 1.5 | % | 2.0 | % | 2.3 | % | 2.6 | % | ||||||||||||||||||||||||||||||
Cell Sites | 50,158 | 44,764 | 35,584 | 21,999 | 17,483 | 54,986 | 55,085 | 50,158 | 44,764 | 35,584 |
(1) | Basic earnings per share is calculated by dividing profit attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period. Basic earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period. |
(2) | Diluted earnings per share is calculated by dividing profit attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds. Diluted earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds. |
(3) | The Dollar amounts shown for the years ended December 31, |
(4) | Working capital means current assets minus current liabilities. |
(5) | Our monetary assets and liabilities denominated in foreign currencies are valued at the exchange rates prevailing at the end of each reporting period. See note |
(6) | Consists of cash outflows for the acquisition of property and equipment. |
(7) | Consists of research and development costs that are expensed and costs that are amortized during the respective period as well as donations to Korean research institutions and educational organizations in 2012 |
(8) | Operating revenue and other income and operating |
(9) | Population numbers reflect the number of registered residents as published by the Ministry of |
(10) |
(11) | Includes regular employees and temporary employees. See “Item 6.D. Employees.” |
(12) | Wireless subscribers include those subscribers who are temporarily deactivated, including (i) subscribers who voluntarily deactivate temporarily for a period of up to three months no more than twice a year and (ii) subscribers with delinquent accounts who may be involuntarily deactivated up to two months before permanent deactivation, which we determine based on various factors, including prior payment history. The number of subscribers as of December 31, 2016, 2015, 2014 and 2013 |
(13) | The |
(14) | Our LTE wireless penetration is |
Average monthly data usage per LTE subscriber is determined by dividing the total GBs of data usage for the last month of the period by the average number of LTE subscribers for such month. |
(16) | The average monthly churn rate for a period is the number calculated by dividing the sum of voluntary and involuntary deactivations during the period by the simple average of the number of subscribers at the beginning and end of the period, then dividing that number by the number of months in the period. Churn includes subscribers who upgrade to a |
Exchange Rates
The following table sets forth, for the periods and dates indicated, certain information concerning the noon buying rate for translations of Won amounts into Dollars. We make no representation that the Won or Dollar amounts we refer to in this annual report could have been or could be converted into Dollars or Won, as the case may be, at any particular rate or at all.
Year Ended December 31, | At End of Period | Average Rate(1) | High | Low | At End of Period | Average Rate(1) | High | Low | ||||||||||||||||||||||||
(Won per US$1.00) | (Won per US$1.00) | |||||||||||||||||||||||||||||||
2010 | 1,130.6 | 1,155.7 | 1,253.2 | 1,104.0 | ||||||||||||||||||||||||||||
2011 | 1,158.5 | 1,106.9 | 1,197.5 | 1,049.2 | ||||||||||||||||||||||||||||
2012 | 1,063.2 | 1,126.2 | 1,185.0 | 1,063.2 | 1,063.2 | 1,126.2 | 1,185.0 | 1,063.2 | ||||||||||||||||||||||||
2013 | 1,055.3 | 1,094.7 | 1,161.3 | 1,050.1 | 1,055.3 | 1,094.7 | 1,161.3 | 1,050.1 | ||||||||||||||||||||||||
2014 | 1,090.9 | 1,052.3 | 1,117.7 | 1,008.9 | 1,090.9 | 1,052.3 | 1,117.7 | 1,008.9 | ||||||||||||||||||||||||
2015 | 1,169.3 | 1,131.0 | 1,196.4 | 1,063.0 | ||||||||||||||||||||||||||||
2016 | 1,203.7 | 1,159.3 | 1,242.6 | 1,090.0 |
Past Six Months | ||||||||
High | Low | |||||||
(Won per US$1.00) | ||||||||
October 2014 | 1,074.4 | 1,043.9 | ||||||
November 2014 | 1,114.7 | 1,077.0 | ||||||
December 2014 | 1,117.7 | 1,080.8 | ||||||
January 2015 | 1,109.1 | 1,075.3 | ||||||
February 2015 | 1,112.8 | 1,086.8 | ||||||
March 2015 | 1,135.7 | 1,095.7 | ||||||
April 2015 (through April 24) | 1,100.4 | 1,075.9 |
Past Six Months | ||||||||
High | Low | |||||||
(Won per US$1.00) | ||||||||
October 2016 | 1,146.5 | 1,104.8 | ||||||
November 2016 | 1,181.6 | 1,131.4 | ||||||
December 2016 | 1,212.2 | 1,161.7 | ||||||
January 2017 | 1,207.2 | 1,151.5 | ||||||
February 2017 | 1,154.5 | 1,129.2 | ||||||
March 2017 | 1,158.1 | 1,108.3 | ||||||
April 2017 (through April 21) | 1,147.8 | 1,117.7 |
Source: Federal Reserve Bank of New York.
(1) | The average rates for the annual periods were calculated based on daily noon buying rates for cable transfers in New York City certified for customs purposes by the Federal Reserve Bank of New York. |
On April 24, 2015,21, 2017, the noon buying rate was Won 1,075.91,134.2 to US$1.00.
Item 3.B. | CapitalizationandIndebtedness |
Not applicable.
Item 3.C. | ReasonsfortheOfferandUseofProceeds |
Not applicable.
Item 3.D. | RiskFactors |
Risks Relating to Our Business
Competition may reduce our market share and harm our results of operations and financial condition.
We face substantial competition across all our businesses, including our wireless telecommunications business. We expect competition to intensify as a result of continuing consolidation of market leaders and the development of new technologies, products and services. We expect that such trends will continue to put downward pressure on the prevailing tariffsrates we can charge our subscribers.
Prior to April 1996, we were the only wireless telecommunications service provider in Korea. Since then, several new providers have entered the market, offering wireless voice and data transmission services that compete directly with our business. The collective market share of these other providers amounts to approximately 50.0%, in terms of numbers of wireless subscribers, as of December 31, 2014. Since 2000,Historically, there has also been considerable consolidation in the wireless telecommunications industry, resulting in the emergence of stronger competitors, includingcurrent competitive landscape comprising three mobile and fixed network operators in the merger of KT Freetel Co., Ltd. (“KTF”), one of our principal wireless competitors before the merger, intoKorean market, us, KT Corporation (“KT”), Korea’s principal fixed-line operator, in June 2009 and the merger in January 2010 of LG DACOM Corporation and LG Powercomm Co., Ltd. into LG Telecom Co., Ltd. (“LG Telecom”), which subsequently changed its name to LG Uplus Corp. (“LG U+”). Such consolidation has created large, well-capitalizedOur competitors withhave substantial financial, technical, marketing and other resources to respond to our business offerings. In addition, our broadband Internet access service provided through SK Broadband Co., Ltd. (“SK Broadband”) (formerly, Hanarotelecom Incorporated) competes with other providers of Internet access services, including KT, LG U+ and cable companies, and our fixed-line telephone service provided through SK Broadband competes with KT, as well as providers of voice over Internet protocol (“VoIP”) services. Future business combinations and alliances in the telecommunications industry may also create significant new competitors or enhance the abilities
The collective market share of our current competitors amounts to offer more competitive services and could harm our business and resultsapproximately 50.9%, in terms of operations.
Continued competition from the othernumber of wireless and fixed-line service providers hassubscribers, as of December 31, 2016. We also resulted in, and may continue to result in, a substantial level of deactivations among our subscribers. Subscriber deactivations, or churn, may significantly harm our business and results of operations. In 2014, the churn rate in our wireless telecommunications business ranged from 1.7% to 2.3%,compete for subscriber activations with an average churn rate of 2.0%, which was a decrease from 2.3% in 2013. Intensification of competition in the future may cause our churn rates to increase. The increased competition may cause us to increase our marketing expenses as a percentage of sales to attract and retain subscribers.
In 2007, the KCC introduced certain regulations to allow telecommunication service providers to bundle their services as well as allow our competitors to employ services provided by us soMVNOs, including MVNOs that they can offer similar discounted package services. Competition intensified as licensed transmission service providers were permitted to offer local, domestic long-distance and international telephone services, as well as broadband Internet access and Internet phone services, without additional business licenses. Moreover, beginning in September 2010, we were required to lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, to any MVNO at such MVNO’s request, at a rate mutually agreed upon that complies with the standards set by the KCC, which remain effective. To date, ten MVNOs have commenced providing wireless telecommunications services using the networks leased fromincluding us. Furthermore, CJ HelloVision Co., Ltd. commenced providing wireless voice and data transmission services as an MVNO using the networks leased from KT in January 2012. In addition, other companies may enter the telecommunications service market by applying foracquiring the required licenses from the MSIP. For example, between 2010in October 2015, Sejong Telecom, K Mobile and 2014, KoreaQuantum Mobile Internet and Internet Space Time Co., Ltd. applied for such licenses multiple times butto become Korea’s fourth mobile network operator. Although the MSIP rejected the applications of all of their applications were either rejected or withdrawn. three companies in January 2016, the MSIP may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in the future.
We believe the introductionincrease in market share of bundled servicesMVNOs and the entrance of MVNOs or another wireless telecommunications service provider intoa new mobile network operator in the wireless telecommunications market may further increase competition in the telecommunications sector, as well as cause downward price pressure on the fees we charge for our services, which, in turn, may have a material adverse effect on our results of operations, financial position and cash flows.
Increasingly,Our fixed-line telephone service competes with KT and LG U+, as well as other providers of voice over Internet protocol (“VoIP”) services. As of December 31, 2016, our market share of the fixed-line telephone and VoIP service market was 15.2% (including the services provided by SK Broadband and SK Telink Co., Ltd. (“SK Telink”) in terms of number of subscribers compared to KT with 57.8% and LG U+ with 17.4%. In addition, our broadband Internet access and Internet protocol TV (“IPTV”) services provided through SK Broadband competes with other providers of such services, including KT, LG U+ and cable companies. As of December 31, 2016, our market share of the broadband Internet market was 25.3% in terms of number of subscribers compared to KT with 41.4% and LG U+ with 17.6%. As of December 31, 2016, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 13.1% compared to KT with 23.2% and LG U+ with 8.4% and the collective market share of other pay TV providers with 55.3%.
Continued competition from other wireless and fixed-line voiceservice providers has also resulted in, and text message servicesmay continue to result in, a substantial level of deactivations among our subscribers. Subscriber deactivations, or churn, may significantly harm our business and results of operations. In 2016, the monthly churn rate in our wireless telecommunications business ranged from 1.4% to 1.5%, with an average monthly churn rate of 1.5%, which remained unchanged from 2015. Intensification of competition in the future may cause our churn rates to increase, which in turn may cause us to increase our marketing expenses as a percentage of sales to attract and retain subscribers.
With respect to thee-commerce business operated by SK Planet Co., Ltd. (“SK Planet”), 11st, our marketplace business, faces intense competition from variouse-commerce providers, including online open marketplaces such as Gmarket, Auction and Interpark and online social commerce operators such as Coupang, Ticket Monster and Wemakeprice. We also face competition from companies that provide voicetraditional retailers with online and text message services over the fixed-line or mobile Internetshopping portals such as Skype, KakaoSSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various online marketplaces for specific consumer segments or product groups. The industry in which 11st competes is evolving rapidly and is intensely competitive, and we face a broad array of competitors domestically and increasingly, internationally.
Talk and Line, some without charging a fee for such services. This trend could negatively impact customer demand for our voice and text message services and may have a material adverse effect on our results of operations, financial position and cash flows.
We expect competition to intensify as a result of continued consolidation of our competitors, regulatory changes and the rapid development of new technologies, products and services. Our ability to compete successfully in all of the businesses that we operate will depend on our ability to anticipate and respond to various competitive factors affecting the industry,respective industries, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors.
Inability to successfully implement or adapt our network and technology to meet the continuing technological advancements affecting the wireless telecommunications industry will likely have a material adverse effect on our financial condition, results of operation, cash flows and business.
The telecommunications industry has been characterized by continual improvement and advances in technology, and this trend is expected to continue. We and our competitors have continually implemented technology upgrades from our basic code division multiple access (“CDMA”) network to WCDMA, which is the third generation technology implemented by us,our wideband code division multiple access (“WCDMA”) network, and subsequently to LTE technology, which is generally referred to as a fourth generation technology. We commenced commercial LTE services in July 2011 at the same time with LG U+, while KT commenced its commercial LTE services in January 2012. In June 2013, we commenced providing commercialLTE-A services using carrier aggregation technology which combines spectrum frequencies to improve data transmission speeds, and since then,in June 2014, we have continuedlaunched widebandLTE-A services of up to deploy improved LTE-A technology225 Mbps and expanded coverage nationwide in 2014.
In December 2014, we commencedtri-bandLTE-A services, which bundles three different bandwidths to increase the maximum data transmission speedallow faster network service at speeds of our services.up to 300 Mbps in Seoul and other metropolitan areas. KT and LG U+ have also launched similarLTE-A services around the same time as us. Since then, we expanded coverage nationwide and as of December 31, 2015, the last date for which the MSIP has announced such information, the nationwide geographic coverage percentage of ourtri-bandLTE-A service was approximately 51.9%. The more successful operation of an LTE network or development of improved LTE technology by a competitor, including better market acceptance of a competitor’s LTE services, could materially and adversely affect our existing wireless telecommunications businesses as well as the returns on future investments we may make in our LTE network or our other businesses.
Additionally, in order to promote the growth of our IoT solutions business, we deployed new networks nationwide, namely our high-speedLTE-M network in March 2016 and ourlow-cost Low Power Wide Area Network based on LoRa technology (our “LoRa network”) in July 2016. We believe that these new networks will support the active development and provision of diverse IoT solutions at a lower cost. For a more detailed description of our backbone networks, see “Item 4.B. Business Overview — Cellular Services — Digital Wireless Network.”
Our business could also be harmed if we fail to implement, or adapt to, future technological advancements in the telecommunications sector in a timely manner.manner, such as the implementation of 5G technology. In addition to introducing new technologies and offerings, we must phase out outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, our results of operations could be adversely affected.
Implementation of LTE technology has required, and may continue to require, significant capital and other expenditures, which we may not recoup.
We have made, and intend to continue to make, capital investments to develop, launch and enhance our LTE service, including launchingLTE-A services. In 2014, 20132016, 2015 and 2012,2014, we spent Won 1,357.21,104.0 billion, Won 1,439.41,022.7 billion and Won 1,767.11,357.2 billion, respectively, in capital expenditures to build and enhance our LTE network. We plan to make further capital investments related to our LTE andLTE-A services in the future. Our LTE-relatedwireless technology-related investment plans are subject to change, and will depend, in part, on market demand for LTE andLTE-A services, the competitive landscape for provision of such services and the development of competing technologies. There may not be sufficient demand for services based on our LTE or LTE-A services,latest wireless technologies, as a result of competition or otherwise, to permit us to recoup or profit from our LTE-relatedwireless technology-related capital investments.
Our growth strategy calls for significant investments in new businesses and regions, including businesses and regions in which we have limited experience.
We seek growth through investments in new businesses. While we believe that entering into new businesses enables us to diversify our business portfolio, we may be exposed to additional risks. For example, in February
2012, we acquired a 21.1% equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder. Since the memory semiconductor industry in which SK Hynix operates is subject to cyclical fluctuations, our financial condition and results of operations may be adversely affected by a downturn in the memory semiconductor industry.
From time to time, the memory semiconductor industry has experienced significant and sometimes prolonged downturns, which often occur in connection with a deterioration of global economic conditions, and is subject to intense competition. For example, SK Hynix and its subsidiaries, on a consolidated basis, incurred net losses of Won 158.8 billion and Won 56.0 billion in 2012 and 2011, respectively, primarily due to increased supply and weak demand for semiconductor products. Although the memory semiconductor industry has recovered since then and SK Hynix has been recording net profits since 2013, the industry is subject to cyclical fluctuations and we expect that there may be future downturns in the industry. Accordingly, SK Hynix’s operating results would be adversely affected if it fails to compete successfully or decrease manufacturing costs at an adequate level. Since our share of any net losses incurred by SK Hynix would be reflected in our income statement as share of losses related to investments in associates, any significant loss of SK Hynix could have a material adverse effect on our results of operations.
We also continue to seek other opportunities to expand our business abroad, as such opportunities present themselves. These global businesses may require further investment from us. For a more detailed description of our investments in our global business, see “Item 4.B. Business Overview — Global Business.”
We believe that we must continue to make significant investments to build, develop and broaden our existing businesses. Entering into new businesses and regions in which we have limited experience may require us to make substantial investments, and despite such investments, we may still be unsuccessful in these efforts to expand and diversify. We might not be able to recoup or profit from our investments in new businesses and regions. For example, in November 2010, we invested approximately US$60 million in LightSquared Inc. (“LightSquared”), which planned to build a wholesale wireless broadband network in the United States. However, LightSquared is currently in bankruptcy proceedings in the United States pursuant to Chapter 11 of the U.S. Bankruptcy Code. In addition, when we enter into these businesses and regions with partners through joint ventures or other strategic alliances, we and those partners may have disagreements with respect to strategic directions or other aspects of business, or may otherwise be unable to coordinate or cooperate with each other, any of which could materially and adversely affect our operations in such businesses and regions.
We may fail to successfully complete or integrate our new acquisitions and joint ventures and may fail to realize the anticipated benefits.
We continue to seek opportunities to develop new businesses that we believe are complementary to our existing product and service portfolio and expand our global business through selective acquisitions.
In 2014 and 2015, we acquired a 66.7%an 83.9% interest in Neosnetworks Co., Ltd. (“Neosnetworks”), a provider of residential and small business electronic security and other related alarm monitoring services, for an aggregate purchase price of approximately Won 24.064.0 billion and a 49.0% equity stake in Iriver Ltd. (“Iriver”), a manufacturer of digital audio players and other portable media devices, for an aggregate purchase price of approximately Won 54.5 billion. In October 2016, we acquired the remaining 16.1% interest in Neosnetworks through SK Telink. In 2014, a 95.2%-owned subsidiary of SK Planet acquired (through its 95.2%-owned subsidiary) a 100.0% ownership interest in Shopkick Inc. (“Shopkick”), athe developer of “shopkick,” a mobile shopping app for mobile devicesapplication that provides benefits tochecks in and rewards customers for visiting stores,that arrive at a participating retail store in order to penetrate the mobile commerce market in the United States. For a more detailed description of our recent investments in new businesses, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Investments in New Businesses and Global Expansion and Other Needs.”
WhileIn addition, in November 2015, we entered into a share purchase agreement with CJ O Shopping Co., Ltd. (“CJ O Shopping”) to acquire a 30.0% interest in CJ HelloVision, a fixed-line cable TV broadcast service provider, and SK Broadband entered into a merger agreement with CJ HelloVision. However, in July 2016, the Korea Fair Trade Commission denied approval of the proposed merger, which was a closing condition to the consummation of the merger agreement, and both the share purchase agreement and the merger agreement were subsequently terminated. Similarly, while we are hoping to benefit from a range of synergies from theour recent or future acquisitions as well as develop new growth engines for our business, we may not be able to successfully complete or integrate oursuch acquisitions or new businesses and may fail to realize the expected benefits in the near term, or at all.
Due to the existing high penetration rate of wireless telecommunications services in Korea, we are unlikely to maintain our subscriber growth rate, which could adversely affect our results of operations.
According to data published by the MSIP and the historical population data published by the Ministry of Government Administration and Home Affairs,the Interior, the penetration rate for the Korean wireless telecommunications industry as of December 31, 20142016 was approximately 111.5%111.3%, which is relatively high compared to many industrialized countries. Therefore, we expect that the penetration rate for wireless telecommunications service in Korea will not grow significantly.remain relatively stable. As a result of the already high penetration rate in Korea for wireless telecommunications services coupled with our leading
market share, we expect our subscriber growth rate to decrease. Slowed growth in the penetration rate without a commensurate increase in revenues through the introduction of new services and increased use of our services by existing subscribers would likely have a material adverse effect on our financial condition, results of operations and cash flows.
Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.
One of the principal limitations on a wireless network’s subscriber capacity is the amount of spectrum available for use by the network. We currently use 10 MHz of bandwidth in the 800 MHz spectrum for our CDMA services, 40 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum, and 35 MHz of bandwidth in the 1.8 GHz spectrum and 60 MHz of bandwidth in the 2.6 GHz spectrum for our LTE services, as well as 2730 MHz of spectrum in the 2.3 GHz band for our WiBrowireless broadband Internet (“WiBro”) services.
The growth of our wireless data businesses has been a significant factor in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice services. In particular, the increasing popularity of smartphones and data intensive applications among smartphone users has recently been a major factor for the high utilization of our bandwidth. This trend has been offset in part by the implementation of new technologies, such as our tri-band LTE-Atri-bandLTE-A technology, which enables more efficient usage of our bandwidth than was possible on our basic LTE network. However, if the current trend of increased data transmission use by our subscribers continues, or the volume of the multimedia content we offer through our wireless data services substantially grows, our bandwidth capacity requirements are likely to increase. While we believe that we can address the capacity constraint issue through system upgrades and efficient allocation of bandwidth, inability to address such capacity constraints in a timely manner may adversely affect our business, results of operations, financial position and cash flows. In the event we are unable to maintain sufficient bandwidth capacity, our subscribers may perceive a general slowdown of wireless telecommunications services. Growth of our wireless telecommunications business will depend in part upon our ability to effectively manage our bandwidth capacity and to implement efficiently and in a timely manner new bandwidth-efficient technologies if they become available. We cannot assure you that bandwidth constraints will not adversely affect the growth of our wireless telecommunications business. Furthermore, we
We may choose to participate in frequency bandwidth auctions held by the MSIP in 2017, if any, in order to acquire bandwidths that are complementary to our existing network. We may be required to pay a substantial amount to acquire bandwidth capacity in order to meet increasing bandwidth demand and we may not be successful in acquiring the necessary bandwidth to meet such demand, which may adversely affect our financial condition and results of operations.
We rely on key researchers and engineers and senior management, and the loss of the services of any such personnel or the inability to attract and retain them may negatively affect our business.
Our success depends to a significant extent upon the continued service of our research and development and engineering personnel, and on our ability to continue to attract, retain and motivate qualified researchers and engineers. In particular, our focus on leading the market in introducing new services has meant that we must aggressively recruit engineers with expertise in cutting-edge technologies.
We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult to find and integrate replacement personnel in a timely manner, or at all.
The loss of the services of any of our key research and development and engineering personnel or senior management without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our operations.
We need to observe certain financial and other covenants under the terms of our debt instruments, the failure to comply with which would put us in default under those instruments.
Certain of our debt instruments contain financial and other covenants with which we are required to comply on an annual and semi-annual basis. The financial covenants with respect to SK Telecom’s debt instruments include,
but are not limited to, a maximum netdebt-to-EBITDA ratio of 2.75 and a minimum interest coverage ratio of 4.00, each as determined on a separate financial statement basis. The debt arrangements also contain negative pledge provisions limiting our ability to provide liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts due under such debt if an event of default or acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing.
If we breach our financial or other covenants, our financial condition will be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt.
We may have to make further financing arrangements to meet our capital expenditure requirements and debt payment obligations.
As a network-based wireless telecommunications provider, we have had, and expect to continue to have, significant capital expenditure requirements as we continue to build out, maintain and upgrade our networks. We spent Won 3,008.02,490.5 billion for capital expenditures in 2014.2016. We expect to spend lessa similar amount for capital expenditures in 20152017 compared to 20142016 for a range of projects, including investments to improve and expand our LTE network and launch our LTE-A services, investments to maintainimprove and expand our WCDMA network-based products andWi-Fi network, investments to develop our platform services investments in our wireless Internet-related and convergence businessesbusiness portfolio and funding formid- to long-term research and development projects, as well as other initiatives, primarily related to the development of our new businesses such as our B2B solutions and healthcaregrowth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. If we acquire new bandwidths in any frequency bandwidth auctions held by the MSIP in 2017, we may be required to spend additional amounts on capital expenditures in connection with building out our networks on such new bandwidths.
In particular, we continue to make significant capital investments to expand and upgrade our wireless networks in response to growing bandwidth demand by our subscribers. Bandwidth usage by our subscribers has rapidly increased in recent years primarily due to the increasing popularity of smartphones and data intensive applications among smartphone users.users. If heavy usage of bandwidth-intensive services grows beyond our current expectations, we may need to invest more capital than currently anticipated to expand the bandwidth capacity of our networks or our customers may have a suboptimal experience when using our services. Any of these events could adversely affect our competitive position and have a material adverse effect on our business, financial condition, results of operation and cash flow. For a more detailed discussion of our capital expenditure plans and a discussion of other factors that may affect our future capital expenditures, see “Item 5.B. Liquidity and Capital Resources.”
As of December 31, 2014,2016, we had approximately Won 1,755.51,542.8 billion in contractual payment obligations due in 2015, almost all of2017, which mostly involve repayment of debt obligations.obligations and payments related to frequency licenses. See “Item 5.B. Liquidity and Capital Resources — Contractual Obligations and Commitments.”
We have not arranged firm financing for all of our current or future capital expenditure plans and contractual payment obligations. We have, in the past, obtained funds for our proposed capital expenditure and payment obligations from various sources, including our cash flow from operations as well as from financings, primarily debt and equity financings. Any material adverse change in our operational or financial condition could impact our ability to fund our capital expenditure plans and contractual payment obligations. Still volatile financial market conditions may also curtail our ability to obtain adequate funding. Inability to fund such capital expenditure requirements may have a material adverse effect on our financial condition, results of operations and business. In addition, although we currently anticipate that the capital expenditure levels estimated by us will be adequate to meet our business needs, such estimates may need to be adjusted based on developments in technology and markets. In the event we are unable to meet any such increased expenditure requirements or to obtain adequate financing for such requirements, on terms acceptable to us, or at all, this may have a material adverse effect on our financial condition, results of operations and business.
Termination or impairment of our relationship with a small number of key suppliers for network equipment and for leased lines could adversely affect our results of operations, financial position and cash flows.
We purchase wireless network equipment from a small number of suppliers. To date, we have purchased substantially all of the equipment for our CDMA networknetworks from Samsung Electronics Co., Ltd. (“Samsung Electronics”) and substantially all of the equipment for our WCDMA network, including the software and firmware used to upgrade our WCDMA network, from Samsung Electronics and ,
Ericsson-LG Co., Ltd. (formerly known as LG-Ericsson Co., Ltd.) (“Ericsson-LG”). To date, we have purchased substantially all of the equipment for our LTE network from Samsung Electronics, Ericsson-LG and Nokia Siemens Networks B.V. We believe Samsung Electronics currently manufactures approximately half of the wireless handsets sold to our subscribers. Although other manufacturers sell the equipment we require, sourcing such equipment from other manufacturers could result in unanticipated costs in the maintenance and enhancement of our wireless networks. Inability to obtain the equipment needed for our networks in a timely manner may have an adverse effect on our business, financial condition, results of operations and cash flows.
We cannot assure you that we will be able to continue to obtain the necessary equipment from one or more of our suppliers. Any discontinuation or interruption in the availability of equipment from our suppliers for any reason
could have an adverse effect on our results of operations. Inability to lease adequate lines at commercially reasonable rates may impact the quality of the services we offer and may also damage our reputation and our business.
Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.
We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries, including Korea, Japan, China and the United States, and in Europe. In addition to active research and development efforts, our success depends in part on our ability to obtain patents and other intellectual property rights covering our services.
We may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although we have not experienced any significant patent or other intellectual property disputes, we cannot be certain that any significant patent or other intellectual property disputes will not occur in the future. Defending our patent and other proprietary rights could require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could result in our loss of rights to employ certain technologies to provide services.
Malicious and abusive Internet practices could impair our services.
Our wireless and fixed-line subscribers increasingly utilize our network to access the Internet and, as a consequence, we or they may become victim to common malicious and abusive Internet activities, such as unsolicited mass advertising (i.e.(i.e., “spam”), hacking of personal information and dissemination of viruses, worms and other destructive or disruptive software. These activities could have adverse consequences on our network and our customers, including degradation of service, excessive call volume to call centers and damage to our or our customers’ equipment and data. Significant incidents could lead to customer dissatisfaction and, ultimately, loss of customers or revenue, in addition to increased costs to us to service our customers and protect our network. For example, in July 2011, there was a leak of personal information of subscribers of the NATE and Cyworld websites operated by SK Communications Co., Ltd. (“SK Communications”), our consolidated subsidiary. Various lawsuits have been filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to three of the lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of MarchDecember 31, 2015, nineteen2016, twelve of the lawsuits, seeking damages of approximately Won 1.20.8 billion in aggregate, were pending at various district courts, various high courts and the Supreme Court of Korea. Any significant loss of our subscribers or revenue due to incidents of malicious and abusive Internet practices or significant increase in costs of serving those subscribers could adversely affect our business, financial condition and results of operations.
Labor disputes may disrupt our operations.
Although we are not experiencing any significant labor disputes, there can be no assurance that we will not experience labor disputes in the future, including protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operation.
Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has atwo-year duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain such a working relationship with our employees and will not experience labor disputes resulting from disagreements with the labor union in the future.
We may be exposed to potential claims for unpaid wages and become subject to additional labor costs arising from the Supreme Court of Korea’s interpretation of ordinary wages.
Under the Labor Standards Act, an employee’s “ordinary wage” is a key legal construct used to calculate many statutory benefits and entitlements in Korea. Increasing or decreasing the amount of compensation included in employees’ ordinary wages has the effect of increasing or decreasing the amounts of various statutory entitlements
that are calculated based on “ordinary wage,” such as overtime premium pay. Under guidelines previously issued by the Ministry of Employment and Labor (formerly the Ministry of Labor), an employee’s ordinary wage included base salary and certain fixed monthly allowances. Prior to the Supreme Court of Korea’s decision described below, we and other companies in Korea had, in reliance on these guidelines, excluded from the scope of ordinary wages, fixed bonuses that are paid other than on a monthly basis, namely on a bi-monthly, quarterly or biannual basis.
On December 18, 2013, the Supreme Court of Korea ruled that regular bonuses (including those that are paid other than on a monthly basis) shall be deemed ordinary wages if these bonuses are paid “regularly” and “uniformly” on a “fixed basis” notwithstanding differential amounts based on seniority. Under this decision, any collective bargaining agreement or labor-management agreement which attempts to exclude such regular bonuses from employees’ ordinary wages will be deemed void for violation of the mandatory provisions of Korean law. However, the Supreme Court of Korea further ruled that employees’ claims for underpayments during the past three years (within the statute of limitations) due to failure to include a regular bonus in employees’ ordinary wages, may be denied based on principles of good faith if (i) there has been an agreement between the employer and employees that the regular bonus shall be excluded from employees’ ordinary wages in determining the total amount of wages, (ii) such claims, if successful, would result in further wage payments that far exceed the total amount of wages agreed between the employer and employees, and (iii) such payments would cause an unexpected financial burden to the employer leading to material managerial difficulty or a threat to the employer’s existence. These principles of good faith, however, do not apply to an agreement on wages entered into between the employer and employees after December 18, 2013, the date of the above decision of the Supreme Court of Korea.
We anticipate that this decision will result in additional labor costs for us in the form of additional payments required under the expanded scope of ordinary wages, both those incurred during the past three years and those to be incurred in the future. Any such additional payments may have an adverse effect on our financial condition and results of operation.
Our businesses are subject to extensive Government regulation and any change in Government policy relating to the telecommunications industry could have a material adverse effect on our results of operations, financial condition and cash flows.
Most of our businesses are subject to extensive governmental supervision and regulation. When the currentformer president ParkGeun-hye took office in February 2013, she announced that the Government will work toward reducing telecommunications service charges and promoting transparency in the decision making of telecommunications service providers. Accordingly, the Government has set detailed policy objectives to (1) gradually reduce and abolish initial subscription fees by 2015, (2) expand MVNO and mobile VoIP (“m-VoIP”) service, (3) intensify regulations on handset subsidies and (4) construct a data-based tariffrate system.
Pursuant to the above policy objectives, the MSIP discussed with us, KT and LG U+ gradually reducing and abolishing initial subscription fees by 2015. Accordingly, we gradually reduced our initial subscription fees by 40% in August 2013 and again by an additional 50% in August 2014. Starting in November 2014, we ceased charging initial subscription fees to new subscribers. KT and LG U+ also gradually reduced the initial subscription fees that they charge and have ceased charging initial subscription fees to new subscribers as of March 31, 2015. Similarly, the Government has periodically reviewed the tariffsrates charged by wireless telecommunications service providers and has, from time to time, suggested tariffrate reductions. Although these suggestions were not binding, we have implemented some tariffrate reductions in response to such recommendations. The MSIP may suggest other tariffrate reductions in the future and any further tariffrate reductions we make in response to such suggestion may adversely affect our results of operations.
In furtherance of the above policy objectives, the Government also enacted the MDDIA, which became effective on October 1, 2014. The MDDIA was enacted for the purpose of establishing a transparent and fair distribution practice for mobile devices, and it limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber, (ii) providing subsidies exceeding a maximum limit established by the KCC (such
limit to be determined between Won 250,000 and Won 350,000, which may be adjusted every six months, with the current limit set at Won 330,000, effective as of April 24,8, 2015) for the purchase of mobile phone models that were launched within the last 15 months, and (iii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. The prohibition from providing mobile phone subsidies exceeding the amount set by the KCC is set to expire in September 2017 pursuant to the expiration of the three-year effective period of the relevant provision of the MDDIA. In the past, certain legislators have introduced bills that would abolish the ceiling on mobile phone subsidies, arguing that such action would be beneficial to consumers. We cannot provide assurance that an amount corresponding to such subsidies. It is difficult to estimateabolishment of the impact the MDDIAceiling on mobile phone subsidies will not have a material adverse effect on our results of operations as we believe the imposition ofsuch an amendment to the MDDIA may lead to an increase in our marketing expenses and affect the wireless telecommunications industryconsumer behavior and our competitors in various ways that we cannot fully predict, including the impact on our competitors and consumer behavior, which may have an adverse impact on our business.predict. See “Item 4.B. Business5. Operating and Financial Review and Prospects — Item 5.A. Operating Results — Overview — Law and Regulation — Competition Regulation — Rate Regulation.New Regulations Relating to Handset Subsidies.”
The Government also plays an active role in the selection of technology to be used by telecommunications operators in Korea. For example, the MIC adopted the WCDMA and CDMA2000 technologies as the only standards available in Korea for implementing third generation (“3G”) services. The MSIP may impose similar restrictions on the choice of technology used in future telecommunications services, and it is possible that technologies promoted by the Government in the future may not provide the best commercial returns for us.
Furthermore, the Government sets the policies regarding the use of frequencies and allocates the spectrum of frequencies used for wireless telecommunications. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Frequency Allocation.” The reallocation of the spectrum to our existing competitors could increase competition among wireless telecommunications service providers, which may have an adverse effect on our business.
Pursuant to the Telecommunications Business Act, certain wireless telecommunications service providers designated by the MSIP, which currently include only us, are required to lease their networks or allow use of their networks (collectively, “wholesale lease”) to other network service providers, such as an MVNO, that have requested such wholesale lease in order to provide their own services using the leased networks. To date, tenfourteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us. We believe that leasing a portion of our bandwidth capacity to an MVNO would impair our ability to use our bandwidth in ways that would generate maximum revenues and would strengthen our MVNO competitors by granting them access and lowering their costs to enter into our markets. Accordingly, our profitability may be adversely affected.
Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Our interconnection arrangements, including the interconnection rates we pay and interconnection rates we charge, affect our revenues and operating results. The MSIP determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. The KCC, which determined such basic framework under the previous Government, changed the basic framework for interconnection arrangements several times. We cannot assure you that we will not be adversely affected by the MSIP’s interconnection policies and future changes to such policies. See “Item 4.B. Business Overview — Interconnection — Domestic Calls.”
In January 2003, the MIC announced its plan to implement number portability with respect to wireless telecommunications service in Korea. The number portability system allows wireless subscribers to switch wireless telecommunications service providers while retaining the same mobile phone number. In addition, the MIC has also required all new subscribers to be given numbers with the “010” prefix starting January 2004, and it has been gradually retracting the mobile service identification numbers which had been unique to each wireless telecommunications service provider, including “011” for our cellular services. The MSIP, which is pursuing the integration process, required all 3G and LTE service users to change their mobile telephone number prefix to “010” by December 31, 2013 as the next step in the “010” integration process. As a result, all 3G and LTE service users’ mobile telephone numbers start with the “010” prefix as of January 1, 2014. The MSIP plans to complete the integration process by around 2018, when all mobile telephone numbers would have the prefix identification number “010.” Historically, “011” has had high brand recognition in Korea as the prefix for premium wireless telecommunications service. The Government’s adoption of the number portability system and the consolidation of the prefix numbers have resulted in and may continue to result in weakened customer loyalty, increased competition among wireless telecommunications service providers and higher costs of marketing, increased subscriber
deactivations and increased churn rate, all of which had, and may continue to have, an adverse effect on our results of operations. See “Item 5. Operating and Financial Review and Prospects” and “Item 4.B. Business Overview — Subscribers — Number Portability.”
In addition, the MSIP may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIP may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. The KCC had the same authority in the previous Government and exercised such authority to suspend our business and impose fines on us. For example, in December 2013, the KCC imposed fines on each of us, KT and LG U+, which amounted to a combined amount of approximately Won 106 billion, which is the largest fine ever imposed by the KCC for providing discriminatory handset subsidies to subscribers. In March 2014, the MSIP imposed a suspension on each of us, KT and LG U+ from acquiring new subscribers for a period of 45 days, which is the longest suspension period imposed on us by the Government for providing discriminatory handset subsidies to subscribers. In addition, the MSIP announced that it plans to bring criminal charges with monetary fines of up to Won 150 million and up to three-years imprisonment against any carrier and responsible personnel that fails to adhere to the suspension or continues to offer illegal subsidies after the suspension is completed. The KCC also imposed an additional suspension of business on us for a period of seven days and on LG U+ for a period of 14 days and imposed a fine on each of us, KT and LG U+ for the same reason. On March 26, 2015, the KCC imposed a fine of Won 23.5 billion on us and imposed a suspension on acquiring new subscribers for a period of seven days for providing subsidies to subscribers in excess of the amounts permitted under the MDDIA. For more information about the penalties imposed on us for violating Governmental regulations, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — MIC, KCC and MSIP Proceedings.” TheSuch penalties, which may include the revocation of our cellular licenses, suspension of our business or imposition of monetary penalties by the MSIP, could have a material adverse effect on our business. We believe we are currently in compliance with the material terms of all our cellular licenses, including our WCDMA, LTE and WiBro licenses.
We are subject to additional regulations as a result of our dominant market position in the wireless telecommunications sector, which could harm our ability to compete effectively.
The Government endeavors to promote competition in the Korean telecommunications markets through measures designed to prevent a dominant service provider from exercising its market power and deterring the emergence and development of viable competitors. We have been designated by the MSIP as the “dominant network service provider” in respect of our wireless telecommunications business. As such, we are subject to additional regulations to which certain of our competitors are not subject. For example, under current Government regulations, we must obtain prior approval from the MSIP to raise our existing rates or introduce new rates. On June 24, 2016, the Government proposed a bill to the National Assembly to change the approval requirement to a simple reporting requirement, which is the requirement for our competitors. However, the bill is still under review by the relevantsub-committee and there is no assurance as to whether such bill will be passed. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.” The MSIP could also require us to charge higher usage rates than our competitors for future services or to take certain actions earlier than our competitors, as when the KCC required us to introduce number portability earlier than our competitors, KT and LG U+.
We also qualify as a “market-dominating business entity” under the Fair Trade Act, which subjects us to additional regulations.regulations, including the application of varied interconnection rates. For instance, duringmore information about the interconnection rates applicable to us and our acquisition of Shinsegi Telecom, Inc. (“Shinsegi”), which closed in 2002, the FTC approved the acquisition on the condition that, among other things, our and Shinsegi’s combined market share in the wireless telecommunications market, based on numbers of subscribers, be less than 50.0% as of June 30, 2001. In order to satisfy this condition, we reduced the level of our subscriber activations and adopted more stringent involuntary subscriber deactivation policies beginning in 2000 and ceased accepting new subscribers from April 1, 2001 through June 30, 2001. While we are no longer subject to any market share limitations, the Government may impose restrictions on our market share in the future. If we become subject to market share limitations, our ability to compete effectively will be impeded.competitors, see “Item 4.B. Business Overview — Interconnection.”
The additional regulationregulations to which we are subject has affected our competitiveness in the past and may materially hurt our profitability and impede our ability to compete effectively against our competitors in the future.
Concerns that radio frequency emissions may be linked to various health concerns could adversely affect our business and we could be subject to litigation relating to these health concerns.
In the past, allegations that serious health risks may result from the use of wireless telecommunications devices or other transmission equipment have adversely affected share prices of some wireless telecommunications companies in the United States. In May 2011, the International Agency for Research on Cancer (the “IARC”), a part of the World Health Organization, announced that it has classified radiofrequency electromagnetic fields associated with wireless phone use as possibly carcinogenic to humans, based on an increased risk for glioma, a malignant type of brain cancer. The IARC conducts research on the causes of human cancer and the mechanisms of carcinogenesis and aims to develop scientific strategies for cancer control. We cannot assure you that these health concerns will not adversely affect our business. Several class action and personal injury lawsuits have been filed in the United States against several wireless phone manufacturers and carriers, asserting product liability, breach of warranty and other claims relating to radio transmissions to and from wireless phones. Certain of these lawsuits have been dismissed. We could be subject to liability or incur significant costs defending lawsuits brought by our subscribers or other parties who claim to have been harmed by or as a result of our services. In addition, the actual or perceived risk of wireless telecommunications devices could have an adverse effect on our business by reducing the number of our subscribers or the usage per subscriber.
Our ability to deliver services may be disrupted due to a systems failure, shutdown in our networks or natural disasters.
Our services are currently carried through our wireless and fixed-line networks, which could be vulnerable to damage or interruptions in operations due to fires, floods, earthquakes, power losses, telecommunication failures, network software flaws, unauthorized access, computer viruses and similar events. The occurrence of any of these events could impact our ability to deliver services and have a negative effect on our results of operations.
A global or Korean economic downturn may have a material adverse impact on our business and the ability to meet our funding needs, and could cause the market value of our common shares and American Depositary Shares (“ADSs”) to decline.
In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. The legislators and financial regulators in the United States and other jurisdictions, including Korea, have implemented a number of policy measures designed to add stability to financial markets. The overall impact of these legislative and regulatory efforts onIn addition, the global financial markets continuescontinue to be uncertain, and they may not have the intended stabilizing effects. While the rate of deterioration of the global economy has slowed since the second half of 2009, with some signs of stabilization and improvement, the overall prospects for the Korean and global economy in 2015 and beyond remain uncertain. For example, commencing in the second half of 2011, the global financial markets have experiencedexperience significant volatility as a result of, among other things, the financial difficulties affecting many other governments worldwide, in particular in Southern Europe and Latin America and the slowdown of economic growth and financial instability in China and other major emerging market economies, as well as political and social instability in various countries, including countries in the Middle East and Northern Africa including insuch as Iraq, Syria and Yemen,Egypt, as well as in the Ukraine and Russia. In light of the high level of interdependence of the global economy, these or other developmentsany of the foregoing factors may continue to negatively impact local economic conditions in Korea and global economic conditions and financial markets, which could potentially trigger anotherhave a material adverse effect on our business, financial condition and economic crisis.results of operations.
We are exposed to risks related to changes in the global and Korean economic environments, changes in interest rates and instability in the global financial markets. Adverse global and Korean economic conditions may lead to overall decline and volatility in securities prices of Korean companies, including ours, which may result in trading and valuation losses on our trading and investment securities portfolio. Increases in credit spreads, as well as limitations on the availability of credit resulting from heightened concerns about the stability of the markets generally and the strength of counterparties specifically may lead many lenders and institutional investors to reduce or cease providing funding to borrowers, which may negatively impact our liquidity and results of operations. Major market disruptions and adverse changes in economic conditions and regulatory climate may further impair our ability to meet our desired funding needs. We cannot predict future changes in economic conditions. Adverse
developments in the global or Korean economies or financial markets may have a material adverse effect on our business and the ability to meet our funding needs, as well as negatively affect the market value of our common shares and ADSs.
Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on our results of operations and the market value of our common shares and ADSs.
Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect our results of operations because, among other things, it causes:
an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt; and
an increase, in Won terms, of the costs of equipment that we purchase from overseas sources which we pay for in Dollars or other foreign currencies.
Fluctuations in the exchange rate between the Won and the Dollar will affect the Dollar equivalent of the Won price of the our common shares on the KRX KOSPI Market of the Korea Exchange (the “KRX KOSPI Market”). These fluctuations also will affect:
the amounts a registered holder or beneficial owner of ADSs will receive from the American Depositary Receipt (“ADR”) depositary in respect of dividends, which will be paid in Won to the ADR depositary and converted by the ADR depositary into Dollars;
the Dollar value of the proceeds that a holder will receive upon sale in Korea of our common shares; and
the secondary market price of our ADSs.
For historical exchange rate information, see “Item 3.A. Selected Financial Data — Exchange Rates.”
Risks Relating to Korea
Unfavorable financial and economic developments in Korea may have an adverse effect on us.
We are incorporated in Korea, and a significant portion of our operations is based in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and future growth of the economy is subject to many factors beyond our control.
In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the U.S. and global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has also fluctuated widely. See “Item 3.A. Selected Financial Data — Exchange Rates.” A depreciation of the Won increases the cost of imported goods and services and the Won revenue needed by Korean companies to service foreign currency denominated debt. An appreciation of the Won, on the other hand, causes export products of Korean companies to be less competitive by raising their prices in terms of the relevant foreign currency and reduces the Won value of such export sales. Furthermore, as a result of adverse global and Korean economic conditions, there has been continuingsignificant volatility in the stock prices of Korean companies. Thecompanies in recent years. Future declines in the Korea Composite Stock Price Index (“KOSPI”) declined from 1,897.1 on December 31, 2007 to 938.8 on October 24, 2008. While(known as the KOSPI has recovered since 2008, closing at 2,147.67 on April 28, 2015, there is no guarantee that the stock prices of Korean companies will not decline again in the future. Future declines in the KOSPI“KOSPI”) and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.
Developments that could have an adverse impact on Korea’s economy in the future include:
difficultiesadverse conditions or uncertainty in the financial sectors ineconomies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, and as well as increased uncertainty in light of a future Brexit;
increased sovereign default risks in selectedselect countries and the resulting adverse effects on the global financial markets;
adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, the euro, or the Japanese yen exchange rates or revaluation of the Chinese renminbi)renminbi exchange rates), interest rates, inflation rates or stock markets;
increasing levelsa continuing rise in the level of household debt;debt and increasing delinquencies and credit defaults by retail or small- and medium-sized enterprise borrowers;
continuing adverse conditions in the economies of countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and China, or in emerging market economies in Asia or elsewhere;
further decreases in the market prices of Korean real estate;
increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers;
declines in consumer confidence and a slowdown in consumer spending;
difficulties in the financial sector in Korea, including the savings bank sector;
the continued emergencegrowth of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China);, as well as a slowdown in the growth of China’s economy, which is Korea’s most important export market;
the recent political scandal in Korea involving a confidant of the President and the resulting public protests, as well as related investigations of large Korean conglomerates and their senior management for bribery, embezzlement and other possible misconduct;
social and labor unrest;
decreases in the market prices of Korean real estate;
a decrease in tax revenues and a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased Government budget deficit;
financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector;
loss of investor confidence arising from corporate accounting irregularities and corporate governance issues concerning certain Korean conglomerates;
increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;
the economic impact of any pending or future free trade agreements;
geo-political uncertainty and risk of further attacks by terrorist groups around the world;
natural or man-made disasters that have a significant adverse economic or other impact on Korea (such as the sinking of the Sewol ferry in 2014, which significantly dampened consumer sentiment in Korea) or its major trading partners;
the occurrence of severe health epidemics in Korea and other parts of the world, includingsuch as the recent Ebola outbreak;Middle East Respiratory Syndrome outbreak in Korea in 2015;
deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy;policy (such as the ongoing controversy between Korea and China regarding the deployment of a Terminal High Altitude Area Defense system in Korea by the United States);
political uncertainty or increasing strife among or within political parties in Korea;
hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or increase in the price of oil;
an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States; and
changes in financial regulations in Korea.
Political and societal unrest surrounding the impeachment of President ParkGeun-hye could adversely affect the Korean economy and our business.
In November 2016, the Korean prosecutor’s office indicted a confidant of President ParkGeun-hye who had allegedly used her ties with the President to extort donations from Korean business groups for twonon-profit foundations over which she is purported to have substantial influence, as well as a number of current and former presidential aides, on charges of, among others, abuse of power, coercion and leaking classified documents. On November 30, 2016, a special independent prosecutor was appointed to conduct an investigation of the extent of the President’s involvement, and mass weekend rallies have been held in Seoul and other cities both to protest against, and to express support for, President Park.
On December 9, 2016, the National Assembly voted in favor of impeaching President Park for a number of alleged constitutional and criminal violations, including violation of the Constitution and abuse of power by allowing her confidant to exert influence on state affairs and allowing senior presidential aides to aid in her extortion from companies. President Park was suspended from power immediately, with the prime minister simultaneously taking over the role of acting President. On March 10, 2017, the Constitutional Court unanimously upheld the parliamentary vote to impeach President Park, triggering her immediate dismissal. A special election to elect a new President is scheduled to be held on May 9, 2017. In connection with its investigation of former President Park, the special independent prosecutor also conducted related investigations of several large Korean business groups and members of their senior management for bribery, embezzlement and other possible misconduct, which the Korean prosecutor’s office has continued following the end of the special independent prosecutor’s term. There is no assurance that such events will not have a material adverse effect on the Korean economy and on our business, financial condition and results of operations.
Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common shares and ADSs.
Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of future events. In particular, since the death of KimJong-il in December 2011, there has been increased uncertainty with respect to the future of
North Korea’s political leadership and concern regarding its implications for political and economic stability in the region. Although KimJong-il’s third son, Kim Jong-un, has assumed power as his father’s designated successor, the long-term outcome of such leadership transition remains uncertain.
In addition, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and long-range missile programs as well as its hostile military and other actions against Korea. Some of the significant incidents in recent years include the following:
In April 2013,From time to time, North Korea blocked accesshas conducted ballistic missile tests. In February 2016, North Korea launched a long-range rocket in violation of its agreement with the United States as well as United Nations sanctions barring it from conducting launches that use ballistic missile technology. Despite international condemnation, North Korea released a statement that it intends to continue its rocket launch program and it conducted additional ballistic missile tests in June 2016, a submarine-launched ballistic missile test in August 2016 and intermediate-range ballistic missile tests in February and March 2017. In February and March 2017, the inter-Korean industrial complex in its border city of GaeseongUnited Nations Security Council issued unanimous statements condemning North Korea and agreeing to South Koreans, whilecontinue to closely monitor the U.S. deployed nuclear-capable stealth bomberssituation and destroyers to Korean air and sea space.take further significant measures.
In March 2013, North Korea stated that it had entered “a state of war” with Korea, declaring the 1953 armistice invalid, and put its artillery at the highest level of combat readiness to protest the Korea-United States allies’ military drills and additional sanctions imposed on North Korea for its missile and nuclear tests.
North Korea renounced its obligations under the NuclearNon-Proliferation Treaty in January 2003 and conducted three rounds of nuclear tests between October 2006 to February 2013, which increased tensions in the region and elicited strong objections worldwide. In response, the United Nations Security Council unanimously passed resolutions that condemnedJanuary 2016, North Korea for the nuclear tests and expanded sanctions against North Korea, most recently in March 2013.conducted a fourth
nuclear test, claiming that the test involved its first hydrogen bomb, which claim has not been independently verified. In response to such test (as well as North Korea’s long-range rocket launch in February 2016), the United Nations Security Council unanimously passed a resolution in March 2016 condemning North Korea’s actions and significantly expanding the scope of the sanctions applicable to North Korea, while the United States and the European Union also imposed additional sanctions on North Korea. In September 2016, North Korea conducted a fifth nuclear test, claiming to have successfully detonated a nuclear warhead that could be mounted on ballistic rockets, which claim has not been independently verified. |
In December 2012,August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army re-initiated its propaganda program toward North Korea launched a satellite into orbit using a long-range rocket, despite concernsutilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the international community that such a launch would be in violationhighest level of the agreement with the United States as well as United Nations Security Council resolutions that prohibitmilitary readiness for both Koreas. High-ranking officials from North Korea from conducting launches that use ballistic missile technology.and Korea subsequently entered into an agreement on August 25, 2015 intended to diffuse military tensions.
In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.
North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea.
There can be no assurance that the level of tension affecting the Korean peninsula will not escalate in the future. Any further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material adverse effect on our business, results of operations and financial condition and the market value of our common shares and ADSs.
Korea’s legislation allowing class action suits related to securities transactions may expose us to additional litigation risk.
The Securities-related Class Action Act of Korea enacted in January 2004 allows class action suits to be brought by shareholders of companies (including us) listed on the KRX KOSPI Market for losses incurred in connection with purchases and sales of securities and other securities transactions arising from (1) false or inaccurate statements provided in the registration statements, prospectuses, business reports, audit reports, semi-annual or quarterly reports and material fact reports and omission of material information in such documents, (2) insider trading, (3) market manipulation and (4) unfair trading. This law permits 50 or more shareholders who collectively hold 0.01% of the shares of a company to bring a class action suit against, among others, the issuer and its directors and officers. Because of the relatively recent enactment of the act, there is not enough judicial precedent to predict how the courts will apply the law. Litigation can be time-consuming and expensive to resolve, and can
divert management time and attention from the operation of a business. We are not aware of any basis upon which such suit may be brought against us, nor are any such suits pending or threatened. Any such litigation brought against us could have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to Securities
If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.
The Telecommunications Business Act currently sets a 49.0% limit on the aggregate foreign ownership of our issued shares. Under the Telecommunications Business Act, as amended, a Korean entity, such as SK Holdings Co., Ltd. (“SK Holdings”), is deemed to be a foreign entity if its largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreigner and such shareholder (together with the shareholdings of its related parties) holds 15.0% or more of the issued voting stock of the Korean entity. As of
December 31, 2014,2016, SK Holdings owned 20,363,452 shares of our common stock, or approximately 25.22%, of our issued shares. If SK Holdings were considered to be a foreign shareholder, then its shareholding in us would be included in the calculation of our aggregate foreign shareholding and our aggregate foreign shareholding (based on our foreign ownership level as of December 31, 2014,2016, which we believe was 43.47%40.8%) would exceed the 49.0% ceiling on foreign shareholding. As of December 31, 2014, a2016, the two largest foreign investment fund and its related parties collectivelyshareholders of SK Holdings each held a 1.1%3.50% stake in SK Holdings. We could breach the foreign ownership limitations if the number of common shares or ADSs owned by other foreign persons significantly increases.therein.
If our aggregate foreign shareholding limit is exceeded, the MSIP may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign investment fund and its related parties who ownshareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, if SK Holdings is considered a foreign shareholder, it will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIP will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. For a description of further actions that the MSIP could take, see “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.”
Sales of our shares by SK Holdings and/or other large shareholders may adversely affect the market value of our common shares and ADSs.
Sales of substantial amounts of our common shares, or the perception that such sales may occur, could adversely affect the prevailing market value of our common shares or ADSs or our ability to raise capital through an offering of our common shares.
As of December 31, 2014,2016, SK Holdings owned 25.22% of our total issued common shares and has not agreed to any restrictions on its ability to dispose of our shares. See “Item 7.A. Major Shareholders.” We can make no prediction as to the timing or amount of any sales of our common shares. We cannot assure you that future sales of our common shares, or the availability of our common shares for future sale, will not adversely affect the prevailing market value of our common shares or ADSs from time to time.
If an investor surrenders his or her ADSs to withdraw the underlying shares, he or she may not be allowed to deposit the shares again to obtain ADSs.
Under the deposit agreement, holders of our common shares may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the ADR depositary and receive our common shares. However, under the terms of the deposit agreement, as amended, the depositary bank is required to obtain our prior consent to any such deposit if, after giving effect to such deposit, the total number of our common shares represented by ADSs, which was 10,000,4889,106,281 shares as of March 31, 2015,2017, exceeds a specified maximum, subject to adjustment under certain circumstances. In addition, the depositary bank or the custodian may not accept deposits of our common shares for issuance of ADSs under certain circumstances, including (1) if it has been determined by us that we should block the deposit to prevent a violation of applicable
Korean laws and regulations or our articles of incorporation or (2) if a person intending to make a deposit has been identified as a holder of at least 3.0% of our common shares. See “Item 10.B. Memorandum and Articles of IncorporationAssociation — Description of American Depositary Shares.” It is possible that we may not give the consent. Consequently, an investor who has surrendered his or her ADSs and withdrawn the underlying shares may not be allowed to deposit the shares again to obtain ADSs.
An investor in our ADSs may not be able to exercise preemptive rights for additional new shares and may suffer dilution of his or her equity interest in us.
The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer a right to subscribe for additional new common shares or any other rights of similar nature, the ADR depositary, after consultation with us, may make the rights available to an ADS holder or use reasonable efforts to dispose of the rights on behalf of the ADS holder and make the net proceeds available to
the ADS holder. The ADR depositary, however, is not required to make available to an ADS holder any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:
a registration statement filed by us under the Securities Act is in effect with respect to those shares; or
the offering and sale of those shares is exempt from, or is not subject to, the registration requirements of the Securities Act.
We are under no obligation to file any registration statement with respect to any ADSs. If a registration statement is required for an ADS holder to exercise preemptive rights but is not filed by us, the ADS holder will not be able to exercise his or her preemptive rights for additional shares. As a result, ADS holders may suffer dilution of their equity interest in us.
Short selling of our ADSs by purchasers of securities convertible or exchangeable into our ADSs could materially adversely affect the market price of our ADSs.
SK Holdings, through one or more special purpose vehicles, has engaged and may in the future engage in monetization transactions relating to its ownership interest in us. These transactions have included and may include offerings of securities that are convertible or exchangeable into our ADSs. Many investors in convertible or exchangeable securities seek to hedge their exposure in the underlying equity securities at the time of acquisition of the convertible or exchangeable securities, often through short selling of the underlying equity securities or similar transactions. Since a monetization transaction could involve debt securities linked to a significant number of our ADSs, we expect that a sufficient quantity of ADSs may not be immediately available for borrowing in the market to facilitate settlement of the likely volume of short selling activity that would accompany the commencement of a monetization transaction. This short selling and similar hedging activity could place significant downward pressure on the market price of our ADSs, thereby having a material adverse effect on the market value of ADSs owned by you.
A holder of our ADSs may not be able to enforce a judgment of a foreign court against us.
We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this document reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this document and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of our ADSs to effect service of process within the United States, or to enforce against us any judgments obtained from the United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.
We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries.
Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies, which may differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the SEC and listed on the New York Stock Exchange (the
“NYSE” “NYSE”), we are, and in the future will be, subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the NYSE. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public ornon-public companies in other countries. Such differences in corporate governance standards and less public information available could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.
There are special risks involved with investing in securities of Korean companies, including the possibility of restrictions being imposed by the Government in emergency circumstances.
As we are a Korean company and operate in a business and cultural environment that is different from that of other countries, there are risks associated with investing in our securities that are not typical for investments in securities of companies in other jurisdictions.
Under the Korean Foreign Exchange Transactions Law, if the Government deems that certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Minister of Strategy and Finance for the acquisition of Korean securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities or from disposition of such securities or other transactions involving foreign exchange.
Item 4. | INFORMATIONONTHECOMPANY |
Item 4.A. | HistoryandDevelopmentoftheCompany |
As Korea’s first wireless telecommunications service provider, we have a recognized history of leadership and innovation in the domestic telecommunications sector. Today, we remain Korea’s leading wireless telecommunications services provider and have continued to pioneer the commercial development and implementation ofstate-of-the-art wireless technologies. We also continue to look outside Korea for investment and growth opportunities. We believe we are also a leader in developing new products and services that reflect the increasing convergence of telecommunications technologies, as well as the growing synergies between the telecommunications sector and other industries.
We provide our wireless telecommunications services principally through backbone networks using CDMA, WCDMAindustries, and LTE technologies. Collectively, these networks can access approximately 99% of the Korean population. In addition, we also provide wireless broadband Internet accessare well-positioned to become Korea’s leading platform service provider through our WiBro service. For a more detailed description ofnext-generation growth businesses in IoT solutions, media ande-commerce and other innovative products offered through our backbone networks, see “— Digital Wireless Network” below. Our advanced and extensive wireless telecommunications infrastructure has enabled us to offer high-quality cellular voice transmission services at competitive prices, as well as to develop and deploy an increasingly sophisticated range of wireless data and multimedia products and services, including wireless Internet services, in step with technological advancements and growing consumer demand. We believe our network infrastructure also provides us with a competitive advantage in pioneering new business opportunities created by digital convergence.
As of December 31, 2014, we had approximately 28.6 million wireless subscribers throughout Korea, including the number of MVNO subscribers leasing our networks, of which 26.3 million owned Internet-enabled handsets capable of accessing our wireless Internetplatform services. As of December 31, 2014, our share of the Korean wireless market was approximately 50.0%, based on number of subscribers, according to the MSIP. MVNOs leasing our networks had a total of 2.1 million subscribers, representing a market share of approximately 3.7%.
In March 2008, we completed the acquisition of an additional 38.7% equity stake inJune 2015, SK Broadband, for approximately Won 1.1 trillion, increasing our total equity interest in SK Broadband to 43.4%. In September 2009, we acquired additional shares of SK Broadband’s common stock, increasing our equity stake to 50.6%, which we intend to increase to 100.0%held a 50.6% interest, became our wholly-owned subsidiary pursuant to a share exchange transaction described in “— Recent Developments” below. Through SK Broadband,(the “Share Exchange”) through which we currently provide broadband Internet access service and other Internet-related services, including video-on-demand and Internet protocol TV (“IP TV”) services, as well as fixed-line telephone
services. Asacquired all of December 31, 2014, we had approximately 4.8 million broadband Internet access subscribers, 2.8 million IP TV subscribers and 4.8 million fixed-line telephone subscribers (including subscribers to VoIP servicesthe shares of SK Broadband that we did not otherwise own in exchange for 1,692,824 of our treasury shares and SK Telink Co., Ltd. (“SK Telink”)).
In September 2009, we completed the acquisition of the leased-line business and related ancillary businesses of SK Networks Co., Ltd. (“SK Networks”) for approximately Won 892.8 billion and assumed Won 611.4 billion of debt as part of the transaction. Historically, we have relied on KT and SK Networks to provide a substantial majority of the transmission lines we lease.cash.
In February 2012, we acquired a 21.1% equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder.
On March 31, 2015,2017, we had a market capitalization of approximately Won 22.020.3 trillion (US$19.918.2 billion, as translated at the noon buying rate of March 31, 2015)2017) or approximately 1.7%1.5% of the total market capitalization on the KRX KOSPI Market, making us the seventhfourteenth largest company listed on the KRX KOSPI Market based on market capitalization on that date. Our ADSs, each representingone-ninth of one share of our common stock, have traded on the NYSE since June 27, 1996.
We established our telecommunications business in March 1984 under the name of Korea Mobile Telecommunications Co., Ltd. We changed our name to SK Telecom Co., Ltd., effective March 21, 1997. In January 2002, we merged with Shinsegi, which was then the third-largest wireless telecommunications service provider in Korea. Our registered office is at SKT-Tower, 65,Eulji-ro, Jung-gu, Seoul 100-999,04539, Korea and our telephone number is+82-2-6100-2114.
Recent Developments
On March 20, 2015, each of the board of directors of SK Telecom and SK Broadband resolved to approve a share exchange transaction (the “Share Exchange”) through which we plan to acquire all of the shares of SK Broadband that we do not otherwise own in exchange for our treasury shares such that SK Broadband will become our wholly-owned subsidiary. We believe that by SK Broadband becoming our wholly-owned subsidiary, we will be able to strengthen our competitiveness by improving management efficiency of, and maximizing synergies between, us and SK Broadband. The Share Exchange is currently scheduled for June 9, 2015, but remains subject to the approval of SK Broadband’s shareholders and our board of directors pursuant to applicable Korean law. In certain circumstances, the Share Exchange may require the approval of SK Telecom’s shareholders in lieu of the approval of our board of directors. We expect to exchange 2,471,883 treasury shares for the common shares of SK Broadband at a share exchange ratio of 1:0.0168936, subject to adjustments.
Upon the completion of the Share Exchange, (i) there will be no change in the share ownership interest of our existing shareholders, our corporate governance structure or our management, (ii) SK Telecom will be the parent company of SK Broadband with 100% ownership and will remain a listed corporation on the KRX KOSPI Market and the NYSE and (iii) SK Broadband will become a wholly-owned subsidiary of SK Telecom and will be delisted from the KRX KOSDAQ Market of the Korea Exchange (the “KRX KOSDAQ Market”). For further details regarding the Share Exchange, refer to the Form 6-K furnished to the SEC on March 20, 2015 and the Form 6-K/A furnished to the SEC on April 8, 2015 as well as our Form CB filed with the SEC on April 21, 2015.
Korean Telecommunications Industry
Established in March 1984, we became the first wireless telecommunications service provider in Korea. We remained the sole provider of wireless telecommunications services until April 1996, when Shinsegi commenced cellular service. The Government began to introduce competition into the fixed-line and wireless telecommunications services markets in the early 1990’s. During this period, the Government allowed new competitors to enter the fixed-line sector, sold a controlling stake in us to the SK Group, and granted a cellular license to our first competitor, Shinsegi. In October 1997, three additional companies KTF, LG Telecom and Hansol PCS, began providing wireless telecommunications services under Government licenses to provide wireless telecommunications services.
In 2000 and 2001, the Korean wireless telecommunications market experienced significant consolidation. In January 2002, Shinsegi was merged into us. Additionally, two of the other wireless telecommunications services providers merged. See “Item 4.B. Business Overview — Competition.”
There are currently three providers of wireless telecommunications servicesmobile network operators in Korea: our company, KT (into which KTF merged) and LG U+ (formerly, LG Telecom). According to the MSIP, asAs of December 31, 2014,2016, the market share of the Korean wireless telecommunications market, in terms of number of subscribers, of KT and LG U+ was approximately 30.3%30.6% and 19.7%20.3%, respectively (compared to our market share of 50.0%
49.1%), each including the number of MVNO subscribers leasing the respective networks. As of December 31, 2014,2016, MVNOs had a combined market share of 8.0%11.3%, of which MVNOs leasing our networks represented 3.7%10.7%, MVNOs leasing KT’s networks represented 3.6%17.2% and MVNOs leasing LG U+’s networks represented 0.6%4.0%.
A one-way mobile number portability (“MNP”) system was first implemented in the beginning of January 2004 when our subscribers were allowed to transfer to KTF and LG Telecom. From July 2004, a two-way MNP system was implemented so that KTF subscribers could transfer to us and LG Telecom. A three-way MNP system has been in effect since January 2005 so that subscribers from each of the wireless telecommunications service providers may transfer to any other wireless telecommunications service provider. During 2014, 2013 and 2012, approximately 3.6 million, 4.2 million and 4.5 million, respectively, of our subscribers migrated to our competitors and approximately 3.4 million, 3.8 million and 4.5 million, respectively, of our competitors’ subscribers migrated to our service.
In January 2005, the Government granted each of us and KT a license to offer WiBro service.
Telecommunications industry growth in Korea has been among the most rapid in the world, with fixed-line penetration being under five lines per 100 population in 1978 and increasing to 47.9 lines per 100 population as of December 31, 2006 before decreasing to 33.031.6 lines per 100 population as of December 31, 2014,2016, and wireless penetration increasing from 7.0 subscribers per 100 population in 1996 to 111.5116.6 subscribers per 100 population as of December 31, 2014.2016. The table below sets forth certain subscription and penetration information regarding the Korean telecommunications industry as of the dates indicated:
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||
(In thousands, except for per population amounts) | (In thousands, except for per population amounts) | |||||||||||||||||||||||||||||||||||||||
Population of Korea(1) | 51,328 | 51,141 | 50,948 | 50,734 | 50,516 | |||||||||||||||||||||||||||||||||||
Population of Korea(1) | 51,700 | 51,529 | 51,328 | 51,141 | 50,948 | |||||||||||||||||||||||||||||||||||
Wireless Subscribers | 57,208 | 54,681 | 53,624 | 52,507 | 50,767 | 60,287 | 57,937 | 56,310 | 54,681 | 53,624 | ||||||||||||||||||||||||||||||
Wireless Subscribers per 100 Population | 111.5 | 106.9 | 105.3 | 103.5 | 100.5 | 116.6 | 112.4 | 109.7 | 106.9 | 105.3 | ||||||||||||||||||||||||||||||
Telephone Lines in Service | 16,939 | 17,620 | 18,261 | 18,633 | 19,273 | 15,746 | 16,341 | 16,939 | 17,620 | 18,261 | ||||||||||||||||||||||||||||||
Telephone Lines per 100 Population | 33.0 | 34.5 | 35.8 | 36.7 | 38.2 | 31.6 | 31.7 | 33.0 | 34.5 | 35.8 |
(1) | Source: The Ministry of |
The Korean telecommunications industry is one of the most developed in the world in terms of wireless penetration and in terms of the growth of wireless data services, including wireless Internet services. The wireless penetration rate, which is calculated by dividing the number of wireless subscribers by the population, was 111.5% as of December 31, 2014 and the number of wireless subscribers has increased from approximately 3.2 million in 1996 to approximately 57.2 million as of December 31, 2014.
Since the introduction of short text messaging in 1998, Korea’s wireless data market has grown rapidly. This growth has been driven, in part, by the rapid development of wireless Internet service since its introduction in the second half of 1999. All1999 and the implementation of the Korean wireless telecommunications service providers have developed extensive wireless Internet service portals.
LTE technology providing for fast data transmission speeds and large data transmission capacity. As of December 31, 2014,2016, approximately 52.855.1 million Korean wireless subscribers owned Internet-enabled handsets capable of accessing wireless Internet services, including 40.646.4 million subscribers that own smartphones that have direct access to the Internet using mobile Internet technology. The table below sets forth certain penetration information regarding the number of Internet-enabled handsets, smartphones and wireless subscribers in Korea as of the dates indicated:
As of December 31, | ||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
(In thousands, except for percentage data) | ||||||||||||||||||||
Number of Wireless Internet-Enabled Handsets | 52,833 | 50,858 | 50,420 | 49,297 | 48,085 | |||||||||||||||
Number of Smartphones | 40,560 | 37,517 | 32,727 | 22,578 | N/A | |||||||||||||||
Total Number of Wireless Subscribers | 57,208 | 54,681 | 53,624 | 52,507 | 50,767 | |||||||||||||||
Penetration of Wireless Internet-Enabled Handsets | 92.4 | % | 93.0 | % | 94.0 | % | 93.9 | % | 94.7 | % | ||||||||||
Penetration of Smartphones | 68.2 | % | 66.9 | % | 61.0 | % | 43.0 | % | N/A |
As of December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(In thousands, except for percentage data) | ||||||||||||||||||||
Number of Wireless Internet-Enabled Handsets | 55,085 | 53,737 | 52,833 | 50,858 | 50,420 | |||||||||||||||
Number of Smartphones | 46,418 | 43,668 | 40,560 | 37,517 | 32,727 | |||||||||||||||
Total Number of Wireless Subscribers | 60,287 | 57,937 | 56,310 | 54,681 | 53,624 | |||||||||||||||
Penetration of Wireless Internet-Enabled Handsets | 91.4 | % | 92.8 | % | 93.8 | % | 93.0 | % | 94.0 | % | ||||||||||
Penetration of Smartphones | 77.0 | % | 75.4 | % | 72.0 | % | 66.9 | % | 61.0 | % |
In addition to its well-developed wireless telecommunications sector, Korea has one of the largest Internet markets in the Asia Pacific region. According to Korea Internet & Security Agency, (“KISA”), the numberpercentage of Internet users in Korea increased from approximately 3.1 millionwas 88.3% of the population in 1998 to approximately 41.1 million as of July 2014, representing a 17.6% compound annual growth rate.2016. From the end of 2005 to the end of 2014,2016, the number of broadband Internet access subscribers increased from approximately 12.2 million to approximately 19.2 million, representing a 5.2% compound annual growth rate.20.6 million. In connection with such growth in broadband Internet usage, the number of IP TVIPTV subscribers has also increased rapidly. The table below sets forth certain information regarding Internet users and broadband Internet access subscribers and IPTV subscribers as of the dates indicated:
As of December 31, | ||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Number of Internet Users(1) | 41,118 | (2) | 40,080 | (2) | 38,120 | (2) | 37,180 | (2) | 37,010 | (3) | ||||||||||
Number of Broadband Internet Access Subscribers(4) | 19,199 | 18,738 | 18,253 | 17,860 | 17,224 | |||||||||||||||
Number of IP TV Subscribers(5) | 10,840 | 8,738 | 6,457 | 4,894 | 3,646 |
As of December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Number of Broadband Internet Access Subscribers(1) | 20,556 | 20,025 | 19,199 | 18,738 | 18,253 | |||||||||||||||
Number of IPTV Subscribers | 11,850 | 10,991 | 9,670 | 8,738 | 6,457 |
(1) |
Item 4.B. | BusinessOverview |
Overview
We are Korea’s leading wireless telecommunications services provider and continue to pioneer the commercial development and implementation ofstate-of-the-art wireless technologies. We provide the following core services:
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ourcellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform business, which is operated by our wholly-owned subsidiary, SK Planet Co., Ltd. (“SK Planet”) and includes platforms such as 11th Street, Syrup, T Store, T-Map Navigation and Hoppin;services;
our B2B solutionsfixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business through which we provide customized business solutions and applications to corporate customers;communications services;
e-commerce services, which include 11st, our healthcare business;open marketplace business, and online-to-offline (“O2O”) commerce solutions; and
our other businesses, including our multimedia and audio/video product business through which we provide products such as smart beams, smart speakers and other audio products developed by Iriver, which we acquired in 2014.businesses.
We provide our wireless telecommunications services through our proprietary backbone networks based on CDMA, WCDMA and LTE technologies. We also offer wireless data transmission and wireless Internet access services through our WiBro network. For more information on our backbone networks, see “— Digital Wireless Network.”
Our Business Strategy
We believe that the current trends in the Korean telecommunications industry during the next decade will mirror those in the global market and will beare characterized by rapid technological change, reduced regulatory barriersevolving consumer needs and increased competition.increasing digital convergence. Against the backdrop of these industry trends, we aim to enhance shareholder value by maintaining and consolidatingmaintain our leading position in the Korean market for wireless telecommunications services including wireless voice and actively develop our next-generation growth businesses in IoT solutions, media ande-commerce and other innovative products offered through our platform services. We plan to further utilize our big data transmissionanalysis capabilities to create products and services that are tailored to our customers’ evolving needs, as well as incorporate artificial intelligence capabilities directly into many of the products and services we offer.
Our corporate vision is to be a “Partner for New Possibilities” for both individuals and businesses by leveraging our competitive strengths to exploit new opportunities arising from increasing digital convergencenetwork infrastructure and cutting-edge technologies. To take advantage of these industry trends and further realize our corporate vision, we have undertaken the globalization of the telecommunications market.
Our principal strategies are to:following strategic initiatives.
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Through our IoT solutions business, we offer “Smart Home,” a home monitoring service for residential customers and customized IoT solutions utilizingmachine-to-machine (“M2M”) connections to our business customers. We endeavor to provide customized value-added services to our business customers and create
an ecosystem through which domestic and global manufacturers can develop innovative hardware for our IoT solutions business. In 2016, we partnered with car manufacturers to successfully launch Korea’s first “connected car” service integrating our interactive navigation service “T map” with theirin-vehicle navigation systems. We expect to further expand our “connected car” technologies over the next few years. Through our platform services business, we provide innovative products and services that seek to meet our customers’ evolving needs in an increasingly connected world, including artificial intelligence solutions. In September 2016, we launched NUGU, the first intelligent virtual assistant service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. NUGU currently offers a wide range of services including music streaming, connectivity with “Smart Home” and other IoT solutions for the home, ordering food delivery, and informational and other personal assistance services, and we plan to continually enhance its functionalities through software updates. Furthermore, we will continue to enlarge the scope of our media services and content offerings available on our advanced media platform to provide our subscribers with a vast library of high-quality content that can be accessed through our wireless and fixed-line networks. We believe these services will enable us to increase the retention of our wireless subscribers as well as attract new customers.
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Digital Wireless NetworkCellular Services
We offer wireless voice and data transmission services, throughout Korea using digitalsell wireless devices and provide IoT solutions and innovative platform services through our cellular services segment. Our wireless voice and data transmission services are offered through our backbone networks that collectively can be accessed by approximately 99.0% of the Korean population. We had 29.6 million wireless subscribers, including a CDMA network, a WCDMA network, an LTE network, a WiBro network and a Wi-Fi network. We commenced commercial LTE services in Seoul on July 1, 2011 and expanded the coverage area ofMVNO subscribers leasing our LTE services to 28 citiesnetworks, as of January 1, 2012. We further expandedDecember 31, 2016, representing a market share of 49.1%, the coverage area of our LTE services to nationwide by the end of April 2012.largest market share among Korean wireless telecommunications service providers. The table below sets forth the number of subscribers, including subscribers of MVNOs that lease our wireless networks, using our various digital wireless networks as of the dates indicated:
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2011 | 2010 | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||
(In thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
Network | ||||||||||||||||||||||||||||||||||||||||
LTE | 21,078 | 18,980 | 16,737 | 13,487 | 7,530 | |||||||||||||||||||||||||||||||||||
WCDMA | 6,491 | 7,008 | 8,020 | 9,909 | 14,459 | |||||||||||||||||||||||||||||||||||
CDMA | 3,521,205 | 3,956,520 | 4,972,306 | 6,881,756 | 9,804,407 | 2,026 | 2,638 | 3,521 | 3,957 | 4,972 | ||||||||||||||||||||||||||||||
WCDMA | 8,354,711 | 9,909,196 | 14,458,523 | 19,036,649 | 15,900,632 | |||||||||||||||||||||||||||||||||||
LTE | 16,737,425 | 13,486,766 | 7,530,216 | 634,311 | — | |||||||||||||||||||||||||||||||||||
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Total | 29,595 | 28,626 | 28,279 | 27,352 | 26,961 | |||||||||||||||||||||||||||||||||||
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Source: MSIP.In 2016, 2015 and 2014, our cellular services segment revenue was Won 13,004.9 billion, Won 13,269.3 billion and Won 13,527.9 billion, respectively, representing approximately 76.1%, 77.4% and 78.8%, respectively, of our consolidated revenue.
CDMAWireless Services
We offer wireless voice transmission and data transmission services to our subscribers through our backbone networks. Our wireless telecommunications services are available to our subscribers receiving service under the SK Telecom brand. In addition, customers can obtain wireless telecommunications services that operate on our network from MVNOs that lease our wireless networks. We derive revenues from our wireless telecommunications service principally through monthly plan-based fees as described in “— Rate Plans” below.
To complement our basic voice transmission services, we provide avoice-over-LTE service, known as our “HD Voice” service, to all of our LTE subscribers. HD Voice service is a premium communication service which features high-quality voice transmission, fast call connection,voice-to-video call switching and digital content sharing during calls.
We also offer our subscribers a wide range of wireless data transmissions services. Our messaging service allows our subscribers to send and receive text, graphic, audio and video messages. In addition, our subscribers can access a wide variety of digital content and services through mobile applications providing music, video, gaming, news, commerce and financial services as well as solutions that enable subscribers to access the Internet ande-mail. We intend to continue to build our wireless data services as a platform for growth, extending our portfolio of wireless data services and developing new content for our subscribers.
Through service agreements with various foreign wireless telecommunications service providers, we offer cellular global roaming services, branded as our“T-Roaming” service. Global roaming services allow subscribers traveling abroad to make and receive calls using their regular mobile phone numbers. In addition, we provide global roaming service to foreigners traveling to Korea. In such cases, we generally receive a fee from the traveler’s local wireless telecommunications service provider.
Through SK Telink, we also operate our MVNO business under the brand “7Mobile,” which we believe offers excellent quality at reasonable rates utilizing SK Telecom’s wireless networks. SK Telink is focused on developinglow-cost distribution channels and targeting niche customer segments that have a lower average revenue per user than that of SK Telecom’s subscriber base.
In addition, we provide interconnection service to connect our networks to domestic and international fixed-line and other wireless networks. See “Item 4.B. Business Overview — Interconnection.”
Wireless Device Sales
We offer several categories of wireless devices, including smartphones and basic phones, tablets and other Internet access devices and wearable devices that are sold through an extensive distribution network, which consists of authorized exclusive dealers and independent retailers, as well as branch offices and stores directly operated by us through our wholly-owned subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”). As of December 31, 2016, approximately 21.9 million, or 74.0%, of our subscribers owned smartphones that have direct access to the Internet compared to approximately 20.6 million subscribers, or 72.0%, as of December 31, 2015.
SmartphonesandBasicPhones. All of the smartphones we offer are enabled to utilize our LTE and/or WCDMA networks and run on various operating systems, such as Apple iOS and Google Android. Most of the basic phones we offer are enabled to utilize our WCDMA networks and have the ability to access wireless Internet services.
TabletsandOtherInternetDevices. We offer tablets which can access the Internet via our LTE and/or WCDMA networks and aWi-Fi connection. The tablets run primarily on the Apple iOS and Google Android operating systems. In addition, we also offer “T Pocket-Fi” devices that provide a mobile LTE connection and are capable of connecting multipleWi-Fi enabled devices to the Internet at one time. We offer targeted rate plans for our T Pocket-Fi device. See “— Rate Plans” below.
WearableDevices. We offer various wearable devices including smart watches, “T kids’ phone – Joon” and “T pet,” our pet tracking device. These devices utilize our WCDMA network and have specific features for the relevant target customer. For example, T kids’ phone – Joon is a wearable phone targeted towards children and provides simple calling, messaging and chat services as well as GPS tracking capabilities. T pet devices enable pet owners to send voice messages to their pets, track their position using global positioning system (“GPS”) technology as well as track and log their activity. We offer targeted rate plans that are specific to these wearable devices. See “— Rate Plans” below.
We purchase a substantial majority of our wireless devices from Samsung Electronics, Apple and LG Electronics. We also offer a number of devices that were designed by us to exclusively run on our networks such as the Luna which was launched in September 2015 and the Sol which was launched in January 2016. The Luna and the Sol were both designed to include convenient features to easily access media contents that are popular among our subscribers and to provide high-quality devices at a relativelylow-to-mid range price point. We launched the Luna S in October 2016 and the Sol Prime in January 2017 to also compete with premium smartphones. We intend to continue to work with device manufacturers to develop exclusive devices offering high quality and convenience at competitive prices.
IoT Solutions
Through our IoT solutions business, we provide a home monitoring service platform for residential customers and network access and enhanced services to support telemetry-type applications, which are characterized by M2M wireless connections, to business customers. In order to promote the growth of our IoT solutions business, we recently deployed new networks nationwide that are designed to support IoT devices, namely our high-speedLTE-M network in March 2016 and ourlow-cost Low Power Wide Area Network based on LoRa technology in July 2016.
In May 2015, we launched “Smart Home,” a mobile application-based home monitoring service for residential customers. Smart Home is a paid subscription service available not only to our wireless and fixed-line service subscribers but also to subscribers of our competitors’ wireless and fixed-line services. Through Smart Home, users can control and monitor their home environment from their mobile devices and enhance the safety and convenience of their daily lives. We have partnered with more than 60 electronics and appliance manufacturers, including Samsung Electronics and LG Electronics, to develop a wide range of appliances, electronic devices, door security, heating and lighting systems that are compatible with our Smart Home service.
We also provide network access and customized IoT solutions to our business customers. Our M2M services support devices that are used in a variety of market segments, including retail, utilities, security, automotive, agriculture and data analytics. For example, in 2016, we partnered with Renault Samsung Motors, SsangYong Motor, Jaguar Land Rover and Kia Motors to integrateT-map, our interactive navigation service, with theirin-vehicle navigation systems, and we expect to further expand our “connected car” technologies over the next few years. In addition, we provide enhanced solutions to businesses in order to connect with and monitor their equipment, such as fleet management devices used to monitor city-operated rental bicycles and utility monitoring devices for smart grid applications.
Platform Services
Through our platform services business, we seek to provide innovative products and services that meet our customers’ evolving needs in an increasingly connected world. For example, we provide location-based services such as “T map,” an interactive navigation service which we provide to our and our competitors’ wireless subscribers free of charge. T map uses GPS technology to transmit driving directions, real-time traffic updates and emergency rescue assistance to wireless devices. As of December 31, 2016, there were approximately 10.6 million total subscribers to our T map service, of which approximately 9.3 million were our wireless subscribers. As discussed in “— IoT Solutions”, in 2016, we integrated our T map services with our automotive IoT solutions.
In addition, we provide “T phone” service, which is available on most devices running on the Google Android operating system. In October 2016, we extended our T phone service to devices running on the Apple operating system. Our T phone service provides our customers with a number of convenient call functions, including a function to block spam calls and a function called “T114” that informs customers of the phone numbers of stores, hospitals and other facilities closest in proximity to the customer’s current location. In May 2016, we expanded access to our T phone service to users regardless of whether they have a wireless service subscription with us. As of December 31, 2016, there were more than 10 million subscribers to the T phone service compared to approximately 8.0 million subscribers as of December 31, 2015.
We also offer artificial intelligence solutions through our platform services business. For example, in September 2016, we launched NUGU, the first intelligent virtual assistant service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. NUGU currently offers a wide range of services including music streaming, connectivity with “Smart Home” and other IoT solutions for the home, ordering food delivery, and informational and other personal assistance services, and we plan to continually enhance its functionalities through software updates. Through cloud-based deep-learning technology, NUGU is designed to evolve on its own as it collects more data about its users over time.
In November 2016, we launched our web and mobile application “hidden,” a social networking platform for users to share their expertise and talents in various areas such as food, leisure, fashion, beauty and pets, by creating their own content or by offering classes or other activities to interested users for a fee. As of December 31, 2016, hidden had approximately 1.4 million monthly average users and over 600 active experts.
Rate Plans
We offer our wireless telecommunications services on both a postpaid and prepaid basis. Approximately 93.8% of our subscribers received our wireless telecommunications services on a postpaid basis as of December 31, 2016. Postpaid accounts primarily represent retail subscribers under contract with SK Telecom under which a subscriber is billed in advance a monthly fixed rate in return for a monthly network service allowance and usage for outgoing voice calls and wireless data services beyond the allowance is billed in arrears, where payment of the total amount of the bill is due at the end of the month. The standard contract period for our rate plans is 24 months, although our subscribers have the option to enter into shorter term contracts or no fixed-term contract at all. We provide various subsidies and discounts, including handset subsidies, depending on the length of the contract and the subscriber’s chosen rate plan. Our prepaid service enables individuals to obtain wireless telecommunications services without a fixed-term contract by paying for all services in advance according to expected usage. We do not charge our customers for incoming calls, although we do receive interconnection charges from KT and other companies for calls from the fixed-line network terminating on our networks and interconnection revenues from other wireless network operators. See “Item 4.B. Business Overview — Interconnection.”
We also charge our customers a 10.0% value-added tax. We can offset the value-added tax we collect from our customers against value-added tax refundable to us by the Korean tax authorities. We remit taxes we collect from our customers to the Korean tax authorities. We record revenues in our financial statements net of such taxes.
BasicRatePlans. We offer various postpaid account plans for smartphones and basic phones that are designed to meet a wide range of subscriber needs and interests. As of December 31, 2016, approximately 13 million subscribers have subscribed to “Band Data” plans, which are our representative smartphone rate plans featuring unlimited domestic voice minutes and text messaging and a fixed data transmission allowance per month as well as free access to live TV on “oksusu,” our mobile IPTV service, that range from Won 29,900 to Won 100,000 per month. Our “Voice Free” plans are available for our basic phones and feature a fixed allowance of voice minutes and 50 text messages per month with rates that range from Won 19,000 to Won 94,000 per month. We also offer a standard rate plan for Won 11,000 per month, through which the subscriber is charged per usage amount, other than on text message usage up to 50 messages per month.
In addition, we provide a variety of differentiated rate plans for our customer segments by age such as children, teenagers and senior citizens. We also offer rate plans for specific customer segments, such as our “Band Data Global Pack” rate plans for foreigners featuring unlimited domestic voice minutes and text messaging, a fixed allowance of international voice minutes and data transmission per month and our rate plans for people in the military service featuring unlimited domestic voice minutes, text messaging and data transmission for Won 2,000 per day of use while on leave. In 2016, we launched our “T Signature” rate plans for customers seeking unlimited wireless data usage for fixed rates and a multitude of other premium benefits such as mobile device insurance coverage and mobile device upgrades, as well as our “Band YT” rate plans targeting customers in their twenties and thirties seeking a wider range of content services such as subscriptions to upgraded music streaming services.
For our T Pocket-Fi device, we provide a fixed monthly data transmission allowance of 10 GB for Won 16,500 per month and 20 GB for Won 22,500 per month. With respect to the wearable devices that we offer, we offer targeted rate plans such as the “T Outdoor” rate plan for smart watches at Won 11,000 per month, the “T pet” rate plan for our T pet device at Won 5,000 per month and the “T kids” rate plan for our T kids’ phone – Joon devices at Won 8,000 per month.
DataAdd-onRatePlans. We offer a variety of optional“add-on” rate plans that are designed to meet a wide range of subscriber needs with respect to increased data usage that followed the widespread use of smartphones and faster transmission speeds made possible by LTE technology. For example, we offer data plans that offer unlimited data based on time, place and occasion such as our “Subway Free” plan, which offers unlimited wireless data usage on subway platforms and inside subways and our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour, each for a fixed rate of Won 9,000 per month. For certain rate plan subscribers, we also offer a daily allowance of 1 GB of oksusu access and a monthly allowance of 8,000 points to purchase media content on oksusu through our “Band Play Pack” plan for Won 5,000 per month. “Safe Option Premium” offers an additional daily data transmission allowance of 50 MB to subscribers who have used the maximum data transmission on their existing plan without incurring additional data transmission fees for a fixed rate of Won 8,000
per month. We also offer “T Data Coupons,” through which subscribers can purchase a fixed amount of data for a fixed price. T Data Coupons range from Won 2,000 for 100 MB of data to Won 33,000 for 5 GB of data. As T Data Coupons are valid for one year after first use, we believe they are attractive to sporadic data users. T Data Coupons can also be sent as “gifts” to family and friends that need additional data allowance. We believe that our dataadd-on rate plan offerings have contributed to the increase in data usage to 5.2 GB of average monthly data usage per LTE subscriber as of December 31, 2016 from 3.9 GB as of December 31, 2015.
RoamingPlans. We provide fixed-rate international roaming plans such as our “T Roaming Data OnePass” plans which provide data roaming services at different speeds depending on usage amount for Won 9,000 to Won 15,000 per day and are available in up to 150 countries, depending on the specific plan chosen. With respect to international calls placed by a subscriber, unless the subscriber uses one of our fixed-rate international roaming plans, we bill the subscriber the international rate charged by the Korean international telephone service provider through which the call is routed. We remit to that provider the international charge less our usage charges. See “Item 4.B. Business Overview — Interconnection.”
Digital Wireless Network
CDMA technology is a continuous digital transmission technology that accommodates higher throughput than analog technology by using various coding sequences to allow concurrent transmission of voice and data signals forWe offer wireless communication. In January 1996, we launched our first wireless network based on CDMA technology and became the world’s first to commercialize CDMA cellular service. In 2004, we completed the full upgrade of our CDMA network to CDMA 1xEV-DO technology which enables data to be transmitted at speeds of up to 2.4 Mbps allowing for interactive transmission of data required for videophone services, a high-speed wireless Internet connection, as well as a multitude of multimedia services.
WCDMA Network
WCDMA is a high capacity wireless communication system that enables us to offer significantly faster and higher-quality voice and data transmission services throughout Korea using digital wireless networks, primarily consisting of our LTE network, WCDMA network, CDMA network,Wi-Fi network and supports more sophisticatedLoRa network. We continually upgrade and increase the capacity of our wireless networks to keep pace with advancements in technology, the growth of our subscriber base and the increased usage of voice and wireless data transmission services including video telephony and other multimedia communications, than is possible throughby our CDMA networks. We commenced provision of our WCDMA services using our HSDPA-upgraded WCDMA network on a limited basis in Seoul at the end of 2003. In 2005, we completed commercial development of HSDPA technology and integrated this technology in the subsequent build-out of our WCDMA network. HSDPA, which represents an evolution of the WCDMA standard, is a more advanced technology than the initial WCDMA technology we implemented. In March 2007, we completed the nationwide expansion of our HSDPA-capable WCDMA network. In May 2010, we commenced commercial HSUPA services and in October 2010, we commenced HSPA+ services. In particular, while HSDPA enables significantly improved downlink data transmission speeds, HSUPA permits faster uplink speeds. Our implementation of HSDPA, HSUPA and HSPA+ technology allows us to offer significantly improved, and a wider range of, wireless data transmission services, including more sophisticated multimedia digital contents and products, within our WCDMA network.
WiBro Network
We received a license from the MIC in 2005 to provide WiBro services which we believe complements our existing networks and technologies. WiBro is a data-only transmission technology that enables high-speed wireless broadband access to portable computers, mobile phones and other portable devices. We conducted initial pilot testing of WiBro service in limited areas of metropolitan Seoul in May 2006 and currently provide service nationwide. We use our WiBro network as a backhaul for our mobile Wi-Fi network.
Wi-Fi Network
Wi-Fi technology enables our subscribers with Wi-Fi-capable devices such as smartphones, laptops and tablet computers to access mobile Internet at a speed faster than our WCDMA or WiBro networks, although the service range of each Wi-Fi access point is smaller than that of our WCDMA or WiBro networks. We started to build Wi-Fi
access points in 2010 and, as of December 31, 2014, we had more than 142,000 Wi-Fi access points in public areas such as shopping malls, restaurants, coffee shops, subways and airports where, generally, the demand for high-speed wireless Internet service is high. While each Wi-Fi access point typically has a radius of approximately20-30 meters, some of our Wi-Fi hot zones, which have multiple Wi-Fi access points, including those installed at public transportation facilities and amusement parks, have much wider service areas. We plan to continue to increase the number of Wi-Fi access points in 2015.subscribers.
LTE Network
Network.We commenced commercial wireless telecommunications services based on LTE technology, which is generally referred to as a fourth generation technology, on July 1, 2011 and expanded the coverage area of our LTE services to nationwide by the end of April 2012. We launched our LTE multi-carrier service in the 1.8 GHz spectrum in July 2012. In June 2013, we commenced providing commercialLTE-A services at speeds of up to 150 Mbps using carrier aggregation technology which combines spectrum frequencies to improve data transmission speed and capacity, and in June 2014, we launched wideband LTE-A services at speeds of up to 225 Mbps and expanded coverage nationwide in 2014. In December 2014, we commenced tri-band LTE-Atri-bandLTE-A services, which bundles three different bandwidths to allow faster network service at speeds of up to 300 Mbps in Seoul and other metropolitan areasareas. Since then, we expanded coverage nationwide and as of December 31, 2015, the last date for which the MSIP has announced such information, the nationwide geographic coverage percentage of ourtri-bandLTE-A service was approximately 51.9%. As of December 31, 2016, we expectwere the only wireless network operator to expandprovide subscribers with accurate information with respect to the geographic coverage area of our coveragenetworks, according to the MSIP. We continue to deploy improvedLTE-A technology to increase the maximum data transmission speed of our services. In March 2016, we launched ourLTE-M services at speeds of up to 10 Mbps for such services in 2015. Several wireless carriers in the United States, Europe and Asia commenced LTE services in 2010 and 2011 andM2M connections relating to our IoT solutions. LTE technology has become widely accepted globally as the standard fourth generation technology. LTE technology enables data to be transmitted at speeds faster than our CDMA and WCDMA or WiBro networks. Our continued upgrades to our LTE technology enables even faster data transmission speeds, as shown below.
Wireless network technology ( | Maximum download speed for data transmission | Maximum upload speed for data transmission | ||||||
LTE (July 2011) | 75 Mbps | 37.5 Mbps | ||||||
LTE-A (June 2013) | 150 Mbps | 75 Mbps | ||||||
WidebandLTE-A (June 2014) | 225 Mbps | 112.5 Mbps | ||||||
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LTE-M (March 2016) | 10 Mbps | 5 Mbps |
The faster data transmission speed of our LTE network has allowed us to offer significantly improved wireless data transmission services, providing our subscribers with faster wireless access to multimedia content. We have been building new access networks and evolved packet cores for our LTE network, while we utilize our existing WCDMA network for other parts of our LTE network. For more information about our capital expenditures relating to our LTE network, see “Item 5.B. Liquidity and Capital Resources.” As
CDMAandWCDMANetworks. CDMA technology is a continuous digital transmission technology that accommodates higher throughput than analog technology by using various coding sequences to allow concurrent transmission of voice and data signals for wireless communication. In January 1996, we launched our first wireless network based on CDMA technology and became the world’s first to commercialize CDMA cellular service.
WCDMA technology enables us to offer significantly faster and higher-quality voice and data transmission and supports more sophisticated wireless data transmission services than is possible through our CDMA network. We commenced provision of our WCDMA services on a limited basis in Seoul at the end of 2003. Since then, we expanded our WCDMA network nationwide and implemented various technologies to improve data transmission speeds within our WCDMA network.
Wi-FiNetwork. Wi-Fi technology enables our subscribers withWi-Fi-capable devices such as smartphones, laptops and tablet computers to access mobile Internet. We started to buildWi-Fi access points in 2010 and, as of December 31, 2014,2016, we had 16.7 millionmore than 137,000Wi-Fi access points in public areas such as shopping malls, restaurants, coffee shops, subways and airports where, generally, the demand for high-speed wireless Internet service is high. While eachWi-Fi access point typically has a radius of approximately20-30 meters, some of ourWi-Fi hot zones, which have multipleWi-Fi access points, including those installed at public transportation facilities and amusement parks, have much wider service areas. We also have a WiBro network that we use as a backhaul for ourWi-Fi network.
LoRaNetworks. ALow-Power Wide-Area Network based on LoRa technology is a type of telecommunications network designed to support communication among IoT devices. It can transmit data over tens of kilometers while consuming much less power than LTE subscribers.networks, lowering costs for connectivity as well as lowering battery power usage. We completed the nationwide deployment of our LoRa network in July 2016. We expect that our LoRa network will provide the infrastructure necessary for the growth of not only our own IoT solutions business but also the IoT industry as a whole.
Network Infrastructure
The principal components of our wireless networks are:
• | cell sites |
• | switching stations |
• | transmission lines |
As of December 31, 2014,2016, our CDMA,LTE, WCDMA, LTECDMA and WiBro networks had an aggregate of 50,158approximately 55,000 cell sites.
We have purchased substantially all of the equipment for our CDMA network from Samsung Electronics and have purchased substantially all of the equipment for our WCDMA network, including the software and firmware used to upgrade our WCDMA network, from Samsung Electronics and Ericsson–LG. We have purchased substantially all of the equipment for our LTE networknetworks from Samsung Electronics, Ericsson–LG and Nokia Siemens Networks B.V.
Most of the transmission lines we use, including virtually all of the lines linking switching stations, as well as a portion of the lines linking cell sites to switching stations, comprise optical fiber lines that we own and operate directly. However, we have not undertaken to install optical fiber lines to link every cell site and switching station. In places where we have not installed our own transmission lines, we have leased lines from SK Networks, KT and, to a lesser extent, SK Broadband and LG U+. In September 2009, we acquired the leased-line business and related ancillary businesses of SK Networks for Won 892.8 billion and assumed Won 611.4 billion of debt as part of the transaction. We intend to increase the efficiency of our network utilization and provide optimal services by internalizing transmission lines.
We use a wireless network surveillance system. This system oversees the operation of cell sites and allows us to monitor our main equipment located throughout the country from one monitoring station. The automatic inspection and testing provided to the cell sites lets the system immediately rebalance to the most suitable setting, and the surveillance system provides for automatic dispatch of repair teams and quick recovery in emergency situations.
Marketing, Distribution and Customer Service
Marketing.Our Servicesmarketing strategy is focused on offering solutions tailored to the needs of our various customer segments, promoting our brand and leveraging our extensive distribution network. Our marketing plan includes a coordinated program of television, print, radio, outdoor signage, Internet andpoint-of-sale media promotions designed to relay a consistent message across all of our markets. Our “T” brand signifies the centrality of “Telecommunications” and “Technology” to our business and also seeks to emphasize our commitment to providing “Top” quality, “Trustworthy” products and services to our customers. We market our wireless products and services under the “T” brand.
We offer wireless digital voicehave implemented certain information technology improvements in connection with our marketing strategy, including customer management systems, as well as more effective information security controls. We believe these upgrades have enhanced our ability to process and utilize marketing- and subscriber-related data, transmission services via networkswhich, in turn, has helped us to develop more effective and targeted marketing strategies. We currently operate a customer information system designed to provide us with an extensive customer database. Our customer information system includes a billing system that collectivelyprovides us with comprehensive account information for internal purposes and enables us to efficiently respond to customer requests. Our customers can access approximately 99.0% ofalso change their rate plans, verify the Korean population. charges accrued on their accounts, receive their bills online and send text messages to our other subscribers through our website at www.tworld.co.kr and through our “T world” mobile application.
We continually upgrade and increase the capacity ofstrive to improve subscriber retention through our T Membership program, which is a membership service available to our wireless networkssubscribers. Our T Membership program provides various membership benefits to keep paceits members such as discounts with advancements in technology, the growth of our membership partners for dining, shopping, entertainment and travel, access to our online membership shopping mall and invitations to various promotional events. Although our competitors also have similar membership programs, we believe that our T Membership program has a competitive advantage over our competitors’ membership programs due to our large subscriber base and the increased usagebreadth of voicemembership benefits.
Distribution. We use a combination of an extensive network, including branch offices and wireless data servicesstores, directly operated by us through our subscribers.wholly-owned subsidiary, PS&Marketing, almost 4,000 authorized exclusive dealers and an extensive network of independent retailers in order to increase subscriber growth while reducing subscriber acquisition costs.
For a discussionAs part of our backbone networks, see “— Digital Wireless Network” above.
Cellular Voice Services
Our cellular voice services, which comprise basic wireless voice transmission servicesinitiative to provide a differentiated customer service experience, we operate T Premium Stores that allow our potential and related “value-added” services, as well as global roaming services, remain oneexisting subscribers to experience certain of our core business areas. We derive revenues from our cellular voice services principally through monthly plan-based fees, usage charges for outgoing voice calls, roaming charges and value-added service fees. For a more complete description of the fees we charge, see “— Revenues and Rates” below.
To complement our basic voice transmission services, in recent years, we have offered increasingly sophisticated and differentiated subscriber-oriented value-added services made possible due to rapid advancements in network technology. Our most popular value-added voice-related services in 2014 includedsuch as services that provide a recordare available through our IoT solutions and platform services. As of missed calls inDecember 31, 2016, we operated approximately 200 T Premium Stores and we intend to further expand the event a subscriber’s mobile phone is engaged or switched off, known as our “Call Keeper” service; services that play a “ring back” melody in lieu of a conventional dial tone when callers dial a subscriber’s mobile phone, known as “COLORing” service, as well as COLORing services that periodically change the default ring back melody according to the subscriber’s music category selection, known as “Auto COLORing” service; and services that alert subscribers when a dialed number that was engaged when first dialed is no longer engaged. We also launched a voice-over-LTE service, known as our “HD Voice” service, in August 2012. HD Voice service is a premium communication service which features high quality voice transmission, fast call connection, voice-to-video call switching and digital content sharing during calls. In addition, we launched our “T phone” service in February 2014. Our T phone service provides our customers with a number of convenient call functions, including a function to block spam calls and a function called “T114” that informs customers of the phone numbers of stores, hospitals and other facilities closestT Premium Stores in proximity to the customer’s current location.
We also offer cellular global roaming services, branded as our “T-Roaming” service, through service agreements with various foreign wireless telecommunications service providers. Global roaming services allow subscribers traveling abroad to make and receive calls, often using their regular mobile phone numbers. Subscribers
using EV-DO-, WCDMA- and LTE-capable handsets are able to make and receive calls using their regular mobile phone number without changing their handsets. In addition, we provide global roaming service to foreigners traveling to Korea. In such cases, we generally receive a fee from the traveler’s local wireless telecommunications service provider.
Our global roaming service is offered in four technologies, in part depending on which mobile phone standards are available in a particular region: CDMA, Global System for Mobile (“GSM”) Communication standard for wireless telecommunications, WCDMA and LTE roaming. We currently offer CDMA voice roaming services in 14 countries, GSM voice roaming services in 200 countries and WCDMA voice roaming services in 109 countries. We currently do not provide any LTE voice roaming services. In addition, we offer CDMA data roaming services in 7 countries, GSM data roaming services in 153 countries, WCDMA data roaming services in 108 countries and LTE data roaming services in 32 countries. In 2014, approximately 12.0 million subscribers utilized our global roaming services.
SK Telink launched its pre-paid MVNO service in June 2012 and its post-pay MVNO service in January 2013. An MVNO leases the networks of a mobile network operator and provides wireless telecommunication services under its own brand and fee structure, without owning telecommunication networks or frequencies.2017.
In addition, we provide interconnection serviceoperate an online distribution channel, “T world Direct,” through which subscribers can conveniently purchase wireless devices and subscribe to connect our networks to domestic and international fixed-line and other wireless networks. See “— Interconnection” below.
Wireless Data Services (including Wireless Internet Services)
Our wireless data transmission services represent a key and growing business area. We currently offer our subscribers wireless data communications services, as well as wireless access to a wide variety of digital content and services, including Internet-based content and services.online. We intend to continue to builddevelop our online distribution channel to leverage our offline distribution capabilities to provide convenience and additional value to our subscribers. For example, subscribers purchasing wireless data servicesdevices through T World Direct can opt to pick up their devices at one of our offline stores.
Currently, authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer, as well as an average ongoing commission calculated as a platformpercentage of that subscriber’s monthly plan-based rate for growth, extending our portfolio of wireless data services and developing new content for our subscribers.
We plan to take advantage of the efficiency of our wireless network infirst four years. In order to enablestrengthen our clients to easily access the Internet. For more information onrelationships with our backbone networks, see “— Digital Wireless Network.”
Wireless Data, SMS and MMS Services. We provide wireless data communication services, including our basic short text message service (“SMS”), which allows subscribers to send and receive short text messages to and from their mobile phones and other devices. In addition to text-only SMS,exclusive dealers, we also offer a multimedia message service (“MMS”). MMS allows subscribersdealer financing plan, pursuant to send and receive multimedia messages containing graphic, audio and video clipswhich we provide to and from their mobile phones. While MMS is possible through our CDMA network, the implementationeach authorized dealer an interest-free orlow-interest loan of WCDMA and LTE technologies has significantly increased the quality, speed and rangeup to Won 4.0 billion with a repayment period of our MMS. In December 2012, we also launched a new all-IP service called “joyn.T,” an integrated mobile and SMS messaging service with additional features such as photo, video and location sharing that is available over various networks and mobile devices. While our subscribers continueup to use our SMS, MMS and joyn.T services, usage of such services has not increased in 2014, in part due to the widespread use of free text message services such as Kakao Talk and Line.
Wireless Internet Services. We provide our smartphone subscribers with direct access to the Internet using mobile Internet technology. Prior to the introduction of smartphones, we offered our feature phone subscribers wireless Internet access to a wide variety of multimedia contents and interactive services through our “NATE” portal.three years. As of December 31, 2016, we had an aggregate of approximately Won 66.0 billion outstanding in loans to authorized dealers.
CustomerService. We provide high-quality customer service directly through our two wholly-owned subsidiaries, Service Ace Co., Ltd. and Service Top Co., Ltd., rather than rely on outsourcing. Network O&S Co., Ltd. operates our switching stations and related transmission and power facilities and offers quality customer service primarily to our business customers. We have held the top position with respect to our telecommunications service and retail sales service in Korea’s leading three customer satisfaction indices, the National Customer Satisfaction Index, the Korean Customer Satisfaction Index and the Korean Standard Service Quality Index, for over 16 years each.
Fixed-line Telecommunication Services
We offer fixed-line telephone, broadband Internet and advanced media platform services (including IPTV) and business communications services through our fixed-line telecommunication services segment. Our fixed-line telecommunications services are provided by our subsidiaries, SK Broadband and SK Telink. The following table sets forth historical information about our subscriber base for our fixed-line telecommunication services for the periods indicated:
As of December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Fixed-Line Telephone (including VoIP)(1) | 4,277,939 | 4,672,195 | 4,774,748 | |||||||||
Broadband Internet | 5,207,495 | 5,036,057 | 4,810,493 | |||||||||
IPTV(2) | 3,962,033 | 3,481,969 | 2,819,130 |
(1) | Includes subscribers to VoIP services of SK Broadband and SK Telink. |
(2) | Includes subscribers to SK Broadband’s B tv service and excludesvideo-on-demand only service subscribers. |
In 2016, 2015 and 2014, our fixed-line telecommunication services segment revenue was Won 2,651.2 billion, Won 2,494.5 billion and Won 2,449.9 billion, respectively, representing approximately 19.5 million, or 68.1%15.5%, 14.6% and 14.3%, respectively, of our subscribers owned smartphones compared to approximately 18.3 million subscribers, or 66.9%, as of December 31, 2013.
In connection with the continued increase in smartphone usage by our subscribers and the faster data transmission speeds made available by our LTE network, we offer various rate plans that we believe are tailored to meet the increased data usage of our subscribers. Examples of our rate plans that target various data usage patterns include data plans that offer 8GB, 12 GB or 16 GB a month for a monthly fixed rate and up to 2GB of daily usage for any data usage over the monthly fixed amount as well as data plans that offer unlimited data based on time, place and occasion such as our “Subway Free” plan, which offers unlimited wireless data usage on subway platforms and inside subways and our “Commuter Free” plan, which offers unlimited wireless data usage during
rush hour, each for a monthly fixed rate. We believe that such rate plan offerings contribute to a continual increase in data usage by our LTE and smartphone subscribers such that the monthly data usage per LTE subscriber increased to 3.0 GB in December 2014 from 2.0 GB in December 2013. For more detailed information relating to our various rate plans, see “— Revenue and Rates.”consolidated revenue.
Broadband Internet, IP TV and Fixed-line Telephone Services
In March 2008, we completed the acquisition of an additional 38.7% equity stake in SK Broadband for approximately Won 1.1 trillion, increasing our total equity interest in SK Broadband to 43.4%. In 2009, we purchased additional shares of SK Broadband’s common stock, further increasing our equity interest to 50.6%, which we intend to increase to 100.0% pursuant to the Share Exchange through which we plan to acquire all of the shares of SK Broadband that we do not otherwise own in exchange for our treasury shares. For additional details relating to the Share Exchange, see “Item 4.A. History and Development of the Company — Recent Developments.” Through SK Broadband, we currently provide broadband Internet access service and other Internet-related services, including video-on-demand and IP TV services, as well as fixed-line telephone services and corporate data services.
SK Broadband is the second largest provider of broadband Internet access services in Korea in terms of both revenue and subscribers, and its network covered more than 80% of households in Korea as of December 31, 2014. ItsOur fixed-line telephone services comprise local, domestic long distance, international long distance and VoIP services. VoIP is a technology that transmits voice data through an Internet Protocol network. As of December 31, 2016, we had approximately 4.3 million fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband hasand SK Telink). Our fixed-line telephone services are primarily offered under the “B phone” brand name. SK Telink also provides affordable international calling services under the brand name “00700.”
Broadband Internet Access Services
Our broadband Internet access network covered more than 80% of households in Korea as of December 31, 2016. As of December 31, 2016, we had approximately 5.2 million broadband Internet access subscribers. We offer broadband Internet access products with various throughput speeds, including “band Giga,” which is up to 10 times faster than data transmission speeds on networks utilizingfiber-to-the-home, or FTTH, technology and allows for data transmission at a maximum speed of 1 Gbps.
Advanced Media Platform (including IPTV)
As part of our initiative to be the leading next-generation platform provider, we aim to provide an advanced media platform with various media content and service offerings.
We have offeredvideo-on-demand services since 2006 and has rolled outlaunched real-time IPIPTV services in 2009. We currently offer IPTV services under the brand name “B tv” with access to more than 166 live high definition channels as well asvideo-on-demand service providing a wide range of media content, including recent box office movie releases, popular U.S. and other foreign TV services since January 2009. In addition, SK Broadband offersshows and various children’s TV programs. We also offer “B tv MobileUHD,” which is an ultra-high definition IPTV service and has a resolution that is four times as high as the standard high definition broadcasting service in the IPTV industry. As of December 31, 2016, we had approximately 4.0 million IPTV subscribers.
In January 2016, we launched “oksusu,” a mobile IP TVIPTV service that currentlyis a combination of the services we previously provided as “B tv mobile” and “hoppin” and provides subscribers access to a wide variety of media contents, including various television programs, movies and other video contents that can be downloaded to wireless devices. For the year endedOksusu subscribers have access to more than 90 live TV channels, a wide range of sports contents and popular U.S. and other foreign TV shows, among other contents. We are also collaborating with media content developers to provide original media content for our oksusu service. As of December 31, 2016, we had approximately 6.6 million subscribers to oksusu.
We continue to expand the scope of our media services and content offerings to provide our subscribers with a vast library of high-quality content that can be accessed through our wireless networks and our fixed-line network.
Business Communications Services
We offer other business communications services to our business customers, including corporations and government entities. Our business communications services include leased line solutions, Internet data center solutions and network solution services.
Our leased line solutions are exclusive lines that allowpoint-to-point connection for voice and data traffic between two or more geographically separate points. We hold a license to operate leased line services on a nationwide basis in Korea and also use international transmission lines to provide leased line services to other countries. Our leased line services enable high volumes of data to be transmitted swiftly and reliably. We also provideback-up storage for transmitted data. Through our Internet data center, we provide our business subscribers with server-based support includingco-location, dedicated server hosting and cloud computing services. Our network solution service utilizes our network infrastructure and voice platform to provide24-hour monitoring and control of our customers’ networks. Through this service, we conduct remote monitoring of our customers’ data and voice communications infrastructure and network and traffic conditions, and carry out preventive examinations andon-site visits.
Rate Plans
For our residential customers, we offer both bundled rate plans for a combination of our fixed-line service offerings as well as individual rate plans for each separate service offering. Bundled rate plans are offered at a discount compared to subscribing to the same services through individual rate plans. Approximately 84% of subscribers to our fixed-line services subscribe to two or more of our services through our bundled rate plans. Bundled rate plans for a combination of fixed-line telephone, broadband Internet access and IPTV services range from Won 28,000 to Won 67,000 per month.
Our “Unlimited Home Phone” plan for subscribers to our fixed-line telephone service features unlimited domesticland-to-land voice minutes for a fixed rate and range from Won 7,000 to Won 10,500 per month depending on whether or not the subscriber opts for a contract and if so, the length of the contract period. We offer individual fixed-rate plans for our broadband Internet access service that range from Won 20,000 to Won 50,000 per month depending on the data throughput speed and existence and length of a contract. We offer individual fixed-rate plans for our IPTV service that range from Won 6,000 to Won 28,000 per month depending on the number of channels provided and existence and length of a contract. In addition, subscribers can purchase individual videos on demand or subscribe to certain paid content on a periodic basis.
With respect to our business communications services, we offer rates that are tailored to the specific needs of our business customers. We also charge certain installation fees and equipment rental fees as well as other ancillary fees with respect to certain of our fixed-line telecommunications services.
Marketing, Distribution and Customer Service
We focus on bringing our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV) to residential users, and various business communications services to corporate users. We market our fixed-line telecommunications products and services under the “B” brand. Our “B” brand signifies the centrality of “Broadband” to our business and also seeks to emphasize our commitment to providing the “Best” quality products and services to our customers that go “Beyond” expectations, leading to a “Bravo” response. Our “B” brand also strengthens our shared identity with our wireless service’s “T” brand.
We currently outsource a significant portion of our retail sales force needs. We market our services and provide after-sales service support to customers through more than 90 customer centers and a network of more than 240 authorized exclusive dealers located throughout Korea. In addition, SK Telecom’s direct retail stores and authorized dealers for wireless telecommunications services also market our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV), which we believe has contributed to the increase in the number of subscribers to such services. We have contracts with our customer centers to sell our services exclusively. These centers receive a commission for each service contract and installation contract secured. In addition, we pay these centers for the maintenance and repair work that they perform for our subscribers. Customer and service centers often enter intosub-contracts with smaller distribution outlets within their area to increase their sales coverage and engage in telemarketing efforts. Authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer.
Sales to business subscribers are handled through ourin-house sales group. Our sales teams focus on securing contracts with large commercial complexes, allowing us to install our remote terminals at their premises. After installation, sales teams direct their attention to individual business clients within these premises. Sales teams that have secured contracts with business clients remain the primary contacts for all aspects of the client’s needs, including further installation and customer andfollow-up service.
E-Commerce Services
Oure-commerce services segment consists primarily of our marketplace business and O2O commerce business operated by our subsidiary, SK Planet. In 2016, 2015 and 2014, SK Broadband had revenues ofoure-commerce services segment revenue was Won 2,654.41,001.3 billion, Won 1,060.0 billion and net profitWon 972.0 billion, respectively, representing approximately 5.9%, 6.2% and 5.7%, respectively, of Won 4.3 billion, comparedour consolidated revenue.
Marketplace. We operate “11st” which is an online open marketplace that offers a wide range of products through an online and mobile platform. Individual consumers can buy a vast array of products such as clothes and accessories, beauty products, groceries, baby products, books, office supplies, furniture, home goods, outdoor and sporting goods, appliances, electronics, travel packages, entertainment tickets and local deals for restaurants and other services from small- to revenues of Won 2,539.4 billion and net profit of Won 12.3 billion in 2013.large-sized retailers that operate “mini malls” on the 11st platform.
As of December 31, 2014, SK Broadband had approximately 4.8 million broadband Internet access subscribers. According2016, the mobile version of 11st was the leading mobile commerce platform in terms of unique visitors according to Korean Click. The mobile version of 11st is continuing to grow with an increase in the MSIP, its market sharepercentage of Korean broadband Internet access subscribers was approximately 25.1%. Broadband Internet accessannual gross merchandise volume, which represents the total annual monetary value of customer purchases of goods and services, accounted for 32.4%net of SK Broadband’s revenues forestimated refunds, derived from the year ended December 31,mobile platform to 52% in 2016 from 41% in 2015 and 28% in 2014.
AsWe have expanded our online open marketplace business globally to Turkey, Indonesia, Malaysia and Thailand. In March 2013, Dogus Planet, a joint venture between SK Planet and Dogus Group, a Turkish conglomerate, launched “n11.com” in Turkey. In March 2014, XL Planet, a joint venture between SK Planet and XL Axiata Tbk, an Indonesian mobile telecommunications service provider, launched “elevenia” in Indonesia. Further, in April 2015, Celcom Planet, a joint venture between SK Planet and Celcom Axiata, a Malaysian telecommunications service provider, launched “11street” in Malaysia. Our online marketplaces in Turkey, Indonesia and Malaysia have rapidly grown into top tier players. In February 2017, SK Planet launched 11street in Thailand through a wholly-owned subsidiary.
We intend to continue our efforts to increase usage of the mobile version of 11st, enhance the convenience of our 11st mobile and web user interface and develop our growth in oversease-commerce markets.
O2OCommerce. We provide diverse O2O commerce solutions under the “Syrup” brand name, which include the following:
Syrup Wallet, a mobile wallet service that is the successor to our Smart Wallet service, allows users to conveniently manage membership card points and payment methods such as coupons, credit cards and gift vouchers on their mobile devices for both online and offline purchases and provides shopping information to users in certain shopping areas using advanced location-based technology;
OK Cashbag by Syrup, Korea’s largest loyalty points program in terms of number of members with more than 53,000 participating merchants and 34 million members, which allows members to collect and redeem loyalty points at its partnering merchants and offers differentiated marketing services to such partnering merchants;
Syrup Pay, a convenient and secure payment service through which users can register their credit card to simplify payments for online and mobile purchases, including through 11st, our online open marketplace;
Syrup Gifticon, an online and mobile gift exchange and delivery service;
Syrup Order, a food ordering service that allows users to conveniently place and pay for orders at restaurants in advance;
Syrup Table, a location-based restaurant discovery service that provides users with information about nearby restaurants; and
Syrup Style, a shopping platform allowing users in Korea and China to conveniently view and purchase clothing from well-known offline fashion stores on their mobile devices.
The cumulative number of monthly average users of our O2O commerce solutions was 12 million as of December 31, 2016.
We are also expanding our O2O commerce solutions business globally. In October 2014, SK Broadband had approximately 2.8 million IP TV subscribers with a market share of approximately 26.6%. IP TV services (including revenues from video-on-demand services and B tv Mobile) accounted for 18.0%95.2%-owned subsidiary of SK Broadband’s revenuesPlanet acquired a 100.0% ownership interest in Shopkick, the developer of “shopkick,” a mobile shopping application that checks in and rewards customers that arrive at a participating retail store, for an aggregate purchase price of Won 230.9 billion and the year ended December 31, 2014.assumption of Won 18.7 billion in current liabilities.
As of December 31, 2014, SK Broadband had approximately 4.5 million fixed-line telephone subscribers (including subscribers to VoIP services). Since the nationwide implementation of fixed line number portability on August 1, 2004, SK Broadband has been expanding the coverage and subscriber base with its integrated services of long distance and international telephony as well as VoIP services. Fixed-line telephone services accounted for 21.5% of SK Broadband’s revenues for the year ended December 31, 2014.
In addition, through our 83.5% owned subsidiary, SK Telink, we provide international telecommunications services, including direct-dial as well as pre- and post-paid card calling services, bundled services for corporate customers, voice services using Internet protocol, Web-to-phone services, and data services. SK Telink provides affordable international call services under the brand name “00700” and has been offering commercial long-distance telephone service since February 2005. SK Telink also operates certain value-added residential telephone services, including a “080” service that allows companies to establish “toll-free” customer service telephone hotlines, for which all call charges are paid by the company, as well as a “general corporate number” service that automatically routes calls made to a company’s general telephone number to the caller’s nearest local branch. SK Telink also offers VoIP services with telephone numbers that have the “070” prefix and provides low-priced residential telephone services with additional value-added services, including SMS, remote office, caller ID display and video call services as well as various commercial telephone services. As of December 31, 2014, SK Telink had 261,190 subscribers to its VoIP services.
NewOther Businesses
We strive to continually diversify our products and services by engaging in variousand develop new businessesgrowth engines that we believe are complementary to our existing products and services. The principal newservices, such as our portal service and other miscellaneous businesses, thatwhich we are engagedinclude in are the platform business, the B2B solutions businessour others segment. In 2016, 2015 and the healthcare business2014, our others segment revenue was Won 434.4 billion, Won 312.9 billion and Won 214.0 billion, respectively, representing approximately 2.5%, 1.8% and 1.2%, respectively, of our consolidated revenue.
We offer a portal service under our “Nate” brand name through SK Communications. Nate can be accessed through its website, www.nate.com, or through its mobile application. Nate offers a wide variety of content and services, including Nate Search, an Internet search engine, Nate News, which provides a library of articles about current events, sports, entertainment and culture, Nate Pann, a user-generated content service as well as other businesses.access to freee-mail accounts through Nate Mail.
Platform Business. Our platform business provides business platforms and technological support systems for third-party content developers and merchants. We plan to growofferhigh-end audio devices under the brand name “Astell&Kern” that are manufactured by our platform business by sharing our telecommunication infrastructure with other service providers and application developers.subsidiary, Iriver. In October 2011, in order to develop a management system and corporate culture that is more suitable for the platform business and facilitate the expeditious execution2016, two of business strategies, we spun off our platform business into a new wholly-owned subsidiary, SK Planet. Our principal platforms are set forth below:
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B2B Solutions Business. Our B2B solutions business provides customized business solutions and applications to corporate customers. We plan to grow our B2B solutions business to generate greater value and growth for both us and our customers and partners around the globe.
In April 2014, we acquired a 66.7% controlling interest in Neosnetworks, a provider of residential and small business electronic security and other related alarm monitoring services, for an aggregate purchase price of approximately Won 24.0 billion. We acquired additional interests in Neosnetworks in April 2015 for Won 40.0 billion, resulting in an increase in our ownership of Neosnetworks to 83.9%. We expect that this acquisition will enable us to create synergies and provide cross-over services between our network services and home security and monitoring services.
Healthcare Business. We believe that the healthcare business is one of the new growth industriesIriver’s audio devices were selected as society ages and medical and health technologies evolve and become integrated with information and communication technologies (“ICT”). In 2011, we began pursuing new opportunitiesCES Innovation Awards Honorees in the healthcare business area by acquiring a 9.3% equity interestPortable Media Player and Accessories category and High Performance Home Audio/Video category, respectively, and in NanoEnTek Inc. (“NanoEnTek”), a biotechnology and nanotechnology company manufacturing, among others, point-of-care diagnostics devices. In April 2014, we became the largest shareholder of NanoEnTek with a 26.0% equity interest. In January 2012, we established a joint venture, Healthconnect Co., Ltd. (“Healthconnect”), with Seoul National University Hospital to develop a health management service model for mobile2017, an Iriver audio device users utilizing ICT and currently hold a 49.5% equity interest in Healthconnect. In March 2012, we established a new internal organization, the Health Group, dedicated to developing our healthcare business and related research and development efforts.
We are also seeking opportunities in global healthcare markets. In the first quarter of 2013, we acquired a 49.0% equity interest in X’ian Tianlong Service and Technology Co., Ltd. (“Tianlong”), a Chinese medical device manufacturer. In July 2014, we established the SK Telecom Healthcare R&D Center in Shenzhen, China and the Shenzhen VISTA-SK Medical Center, which we believe will provide us with a strong foothold in expanding our healthcare business in China. Shenzhen VISTA-SK Medical Center was established through a joint venture with Vista Medical Center, a major private healthcare service provider based in Beijing, China, and has the capacity to
provide medical examinations and checkups to approximately 30,000 people annually. We believe that there are opportunities to create synergies among these centers and the medical device business of Tianlong in expanding our healthcare business in China.
In June 2014, we also entered into a contract to provide medical information systems to six Saudi Arabian hospitals for approximately Won 70.0 billion through a consortium with Seoul National University Bundang Hospital. We expect to further expand our healthcare business in Saudi Arabia and other Middle Eastern countriesselected as an CES Innovation Awards Honoree in the future.
Other Businesses. We also engage in other businesses, including the IoT business (our multimedia and audio/video product business through which we provide products such as smart beams, smart speakers and audio products developed by Iriver), the portal service business and the social networking services business.
Accessories category. In August 2014, we acquired a 39.3% equity interest ofin Iriver, a manufacturer of digital audio players and other portable media devices, which we increased to 49.0% in December 2014, for an aggregate purchase price of approximately Won 54.5 billion. We also acquired Won 5.0 billion of convertible bonds issued by Iriver, which may be converted into additional equity interests ofin Iriver when certain conditions are met. We expect that the “Internet
In addition, we operate a security and network surveillance business through Neosnetworks, a provider of Things” (“IoT”)residential and small business which refers to the network of physical electronic devices embedded with various software and connectivity, among other things, will continue to grow and that various smart devices offering advanced features utilizing wireless data networks will continue to be developed and commercialized. We believe the IoT business is one of the main features of the changing ICT business environment and with our acquisition of Iriver, we believe we have established a strong foundation to further engage in the smart device business and develop products such as smart beams, smart speakers, smart robotssecurity and other audio/video products which leverage our expertise in telecommunicationsrelated alarm monitoring services. In 2014 and healthcare technology.
SK Communications offers a portal service under our “NATE” brand name at the website www.NATE.com. NATE.com offers a wide variety of content and services, including an Internet search engine, as well as access to free e-mail accounts. SK Communications also operates NATE-ON, an instant messaging service available to NATE users that allows users to chat online using a variety of mobile devices.
In the first quarter of 2012, SK Planet acquired Mad Smart Co., Ltd., which provides “tic-toc” service, in order to expand its business to mobile communication and social networking services. Mobile social networking service, still in its early stage of development, presents ample opportunities for new businesses and is expected to grow rapidly in the future. SK Planet has focused on providing “tic-toc” in global markets and launched this service in Southeast Asia and the United States in October 2012 and Turkey in November 2013, expecting to secure its subscriber base by offering a wide range of services, including m-VoIP, multimedia contents sharing and connection with other mobile social networking services. SK Planet plans to continue to create synergies from the acquisition by combining its know-how in platform service and the strengths of “tic-toc” in social networking services in global markets. SK Planet developed “Frankly”, a mobile messenger service that built upon and customized “tic-toc” to local market condition and launched this service in the United States in September 2013 and Korea in October 2013. While “tic-toc” and “Frankly” are also offered in Korea, we do not believe this service will have any material adverse effect on the level of SMS usage by our subscribers because free text messaging services were already popular before its launch.
Global Business
We participate in various overseas markets and continue to seek opportunities to expand our global business.
United States. In November 2010,2015, we acquired a 3.3% equityan 83.9% interest in LightSquared for approximately US$60 million. LightSquared planned to build a wholesale wireless broadband network in the United States. However, LightSquared is currently in bankruptcy proceedings in the United States pursuant to Chapter 11 of the U.S. Bankruptcy Code.
In October 2014, SK Planet acquired (through its 95.2%-owned subsidiary) a 100.0% ownership interest in Shopkick, a developer of a shopping app for mobile devices that provides benefits to customers for visiting stores, in order to penetrate the mobile commerce business in the United StatesNeosnetworks for an aggregate purchase price of Won 230.964.0 billion, andas part of our initiative to further develop our IoT solutions business. In October 2016, we acquired the assumption of Won 18.7 billion in current liabilities.
China. In February 2008, through our wholly-owned Chinese subsidiary, SK Telecom China Holding Company, we invested US$15.6 million to acquire a 65.5% equityremaining 16.1% interest in Shenzhen E-eye High Tech Co., Ltd. (“Shenzhen E-eye High Tech”), a GPS service company in China. In 2009, Shenzhen E-eye High Tech andNeosnetworks through SK Marketing & Company Co., Ltd. (which was subsequently merged into SK Planet in February 2013) established a joint venture to provide telematics services in Beijing, Shanghai and Shenzhen. We believe the acquisition of Shenzhen E-eye High Tech allows us to leverage opportunities created by the rapidly growing telematics market in China.
In March 2008, we acquired a 42.2% equity interest in TR Music Co., Ltd., a major record label in China, for US$10.7 million. In addition, in May 2008 we invested US$7.8 million to acquire a 30.0% equity interest in Magic Tech Network Co., Ltd., a Hong Kong company that develops and publishes online games in China.Telink.
We are also expanding into the healthcare businessoperate a mobile application marketplace, “One Store” in China through our acquisition of Tianlongcollaboration with KT, LG U+ and the establishment of SK Telecom Healthcare R&D Center in Shenzhen, China and the Shenzhen VISTA-SK Medical Center described in “— Our Services — New Businesses — Healthcare Business” above.
Malaysia. In July 2010, we acquired a 27.2% equity interest in Packet One Networks (“P1”), a Malaysian fourth generation WiMAX telecommunications company and subsidiary of Green Packet Berhad, for US$101 million. In connection with P1’s plan to increase its capital, we made an additional investment of MYR50 million (approximately US$16.3 million) in 2011, which increased our ownership interest to 28.2%. P1 is the first WiMAX service provider in the country which has established itself as the market leader in high-speed wireless broadband services. In February 2014, Green Packet Berhad entered into a share purchase agreement with Telekom Malaysia Berhad (“TM”), the largest fixed-line telecommunications provider in Malaysia, under which TM became P1’s largest shareholder. As data communication usage continues to increase in Malaysia,NAVER Corporation. Through this joint collaboration, we expect to see potential LTE-related business opportunities asincrease the second largest shareholdercompetitiveness of One Store to compete with Google Playstore, the leading mobile application marketplace in P1.
In November 2014, SK Planet and Celcom Axiata, which is a leading telecommunications service provider in Malaysia, established a joint venture, Celcom Planet, to launch online commerce services tailored to the Malaysian market in the first half of 2015 by combining SK Planet’s expertise in operating 11th Street and the local business capabilities of Celcom Axiata.
Indonesia. In May 2010, we agreed with PT. Telekomunikasi Indonesia Tbk (“TELKOM”), the largest telecommunication company in Indonesia, to establish a joint venture to launch and operate a digital content exchange hub (“DCEH”) in Indonesia. DCEH is a new type of content distribution system to distribute digital content like music, games and video clips for access not only by consumers but also by online music stores and telephone operators. We will provide management expertise in building the DCEH business platform and digital content, while TELKOM will provide its knowledge of the Indonesian market utilizing its position as a key player in the Indonesian telecommunication industry. In July 2013, SK Planet and PT. XL Axiata Tbk, an Indonesian mobile telecommunications provider, established an equally-held joint venture, XL Planet, to launch and operate a mobile commerce business, and in March 2014, launched an online shopping mall “Elevenia.”
Turkey. In June 2012, SK Planet and Dogus Group, a Turkish conglomerate engaged in various businesses, established an equally-held joint venture, Dogus Planet, to launch and operate mobile commerce businesses based on the commerce platform of 11th Street, in Turkey. In March 2013, Dogus Planet launched n11.com, an online marketplace for the Turkish market. The revenue of n11.com increased by 183% to Won 385.7 billion in 2014 from Won 136.3 billion in 2013 and with revenue of Won 157.1 billion in the fourth quarter of 2014, n11.com became the market leading service provider in Turkey in terms of quarterly revenue.
We also provide healthcare-related services in Saudi Arabia as described in “— Our Services — Healthcare Business” above and social networking services in Southeast Asia, United States and Turkey as described in “— Our Services — New Businesses — Other Businesses” above.
Regional and International Strategic Alliances. We have also entered into various strategic alliances with leading companies in the Asian and European wireless telecommunications markets. For instance, we are a member of the Bridge Alliance, the largest pan-Asian alliance of its kind, which includes eleven of the region’s leading wireless telecommunications service providers. In June 2007, we also signed a memorandum of understanding with FreeMove, an alliance of leading European wireless telecommunications service providers, including Orange SA of
France, Telecom Italia Mobile S.p.A. of Italy, T-Mobile International AG & Co. AG of Germany and TeliaSonera Mobile Networks AB of Sweden, for the development of expanded WCDMA-based roaming service in Europe. We plan to continue to improve customer service as well as service quality, by developing co-marketing programs and other joint projects with our regional and global partners and by further fostering our regional and international alliances.
Provision of Wireless Internet Platforms and Wireless Network Solutions to Foreign Wireless Network Operators. We have also sought to expand our global business through sales of our wireless Internet platforms and wireless network solutions, as well as provision of consulting services in the field of mobile communications. In addition, we have also been successful in exporting to other Asian countries and the United States the technological solutions underlying certain value-added and other wireless telecommunications services, such as our color mail solution, which is a messaging service that allows subscribers to send messages containing multimedia files including graphic, audio and video clips.
Revenues and Rates
We offer our wireless telecommunications services on both a postpaid and prepaid basis. Postpaid accounts primarily represent retail subscribers under contract with SK Telecom under which a subscriber is billed in advance a monthly fixed rate in return for a monthly network service allowance, and usage for outgoing voice calls and wireless data services beyond the allowance is billed in arrears. The standard contract period for our rate plans is 24 months, although our subscribers have the option to enter into shorter term contracts or no contract at all. We provide various subsidies, including handset subsidies depending on the length of the contract. Our prepaid service enables individuals to obtain wireless telecommunications services without a long-term contract by paying for all services in advance according to expected usage. Approximately 4.9% of our subscribers received our wireless telecommunications services on a postpaid basis as of February 28, 2015. We do not charge our customers for incoming calls, although we do receive interconnection charges from KT and other companies for calls from the fixed-line network terminating on our networks and interconnection revenues from other wireless network operators. See “— Interconnection.”
We offer various postpaid account plans designed to meet a wide range of subscriber needs and interests, including the following popular plans for subscribers to our LTE network, which accounted for approximately 90% of our new or renewed subscriptions in 2014:
our “LTE Between T” plans, which feature unlimited domestic voice minutes with other SK Telecom subscribers, a fixed domestic voice minute allowance for calls to other wireless subscribers and a fixed data transmission allowance per month; and
our “LTE Nationwide” plans, which feature unlimited domestic voice minutes regardless of the call counterparty’s subscription network, a fixed data transmission allowance per month and depending on the plan, an additional 2GB of daily usage for any data usage over the monthly fixed amount.
Our fixed-rate LTE plans range from Won 35,000 to Won 100,000 per month and our fixed-rate WCDMA plans range from Won 34,000 to Won 100,000 per month. We also offer a standard rate plan for Won 11,000 per month, through which the subscriber is charged per usage amount, other than on SMS usage up to 50 messages per month.
In connection with the increase in data usage due to the widespread use of smartphones and faster transmission speeds made possible by LTE technology, rate plans that provide for increased data usage are our most popular plans. We offer a variety of differentiated optional “add-on” rate plans that are designed to meet a wide range of subscriber needs and interests, particularly with respect to increased data usage. For example, in the first half of 2014, we launched data plans that offer unlimited data based on time, place and occasion such as our “Subway Free” plan, which offers unlimited wireless data usage on subway platforms and inside subways and our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour, each for a fixed rate of Won 9,000 per month. We also offer a daily allowance of 2GB of B tv Mobile access through our “Btv Mobile” plan for Won 9,000 per month.
We also provide fixed-rate international roaming plans such as our “T Roaming Data Unlimited OnePass,” which provides unlimited data roaming services for Won 9,000 per day and is available in 147 countries and our
“T Roaming Data OnePass Premium,” which provides unlimited data roaming services and a usage charge for outgoing voice calls of Won 500 per minute for Won 12,000 per day and is available in 23 countries.
The Government has periodically reviewed the tariffs charged by wireless telecommunications service providers and has, from time to time, suggested tariff reductions. Although these suggestions were not binding, we have implemented some tariff reductions in response to such recommendations, including gradually reducing and abolishing initial subscription fees charged to new customers. See “Item 3.D. Risk Factors — Risks Relating to Our Business — Our businesses are subject to extensive Government regulation and any change in Government policy relating to the telecommunications industry could have a material adverse effect on our results of operations, financial condition and cash flows,” “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation” and “Item 5.A. Operating Results — Overview.”
For all calls made from our subscribers’ handsets in Korea to any destination in Korea, we charge usage fees based on a subscriber’s cellular rate plan. The fees are the same whether the call is local or long distance. With respect to international calls placed by a subscriber, we bill the subscriber the international rate charged by the Korean international telephone service provider through which the call is routed. We remit to that provider the international charge less our usage charges. See “— Interconnection.”
We offer a variety of value-added services, including COLORing, Auto COLORing, Call Keeper and Perfect Call services. Depending on the rate plan selected by the subscriber, the monthly fixed rate may or may not include these value-added services, except Caller ID and call waiting services, which are offered free of charge to all subscribers. In addition, we charge subscribers for purchases of certain digital contents and for certain wireless telecommunications services, such as our mobile commerce transaction services.
Because we have been designated by the MSIP as a “dominant network service provider,” any modification to our fees, charges or the terms and condition of our service, including promotional rates, requires prior approval by the MSIP. Such pre-approval of the MSIP is not required if we are planning to reduce the rates for each type of services that we provide under the MSIP-approved contractual terms; however, we still have a duty to report the rate reduction to the MSIP.
We also charge our customers a 10.0% value-added tax. We can offset the value-added tax we collect from our customers against value-added tax refundable to us by the Korean tax authorities. We remit taxes we collect from our customers to the Korean tax authorities. We record revenues in our financial statements net of such taxes.
Subscribers
We had 28.6 million wireless subscribers, including the number of MVNO subscribers leasing our networks, asKorea. As of December 31, 2014, representing2016, we held a market share of 50.0%, the largest market share among Korean wireless telecommunications service providers. We believe that, historically, our subscriber growth has been affected by many factors, including:
our expansion and technical enhancement of our networks, including with high-speed data capabilities;
increasing consumer awareness of the benefits of wireless telecommunications;
an effective marketing strategy;
our focus on customer service;
the introduction of value-added services, such as COLORing, wireless Internet services and various mobile applications; and
the negative impact from highly saturated and competitive wireless market conditions.
The following table sets forth selected historical information about our subscriber base for the periods indicated:
As of or for the Year Ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Wireless: | ||||||||||||
Subscribers(1) | 28,613,341 | 27,352,482 | 26,961,045 | |||||||||
Subscriber Growth Rate | 4.6 | % | 1.5 | % | 1.8 | % | ||||||
Activations | 7,834,510 | 7,755,292 | 8,643,852 | |||||||||
Deactivations | 6,573,651 | 7,363,858 | 8,235,523 | |||||||||
Average Monthly Churn Rate(2) | 2.0 | % | 2.3 | % | 2.6 | % | ||||||
Broadband Internet: | ||||||||||||
Subscribers | 4,810,493 | 4,569,105 | 4,394,123 | |||||||||
Subscriber Growth Rate | 5.3 | % | 4.0 | % | 4.8 | % | ||||||
Fixed-line Telephone (including VoIP): | ||||||||||||
Subscribers | 4,774,748 | 4,801,047 | 4,757,152 | |||||||||
Subscriber Growth Rate | (0.5 | )% | 0.9 | % | 7.6 | % |
For the year ended December 31, 2014, we had 7.8 million activations and 6.6 million deactivations. For 2014, our churn rate ranged from 1.7% to 2.3%, with an average churn rate of 2.0% for 2014, which decreased by 0.3%p from 2013. Our subscribers include those subscribers who are temporarily deactivated, including (1) subscribers who voluntarily deactivate temporarily for a period of up to three months no more than twice a year and (2) subscribers with delinquent accounts who may be involuntarily deactivated up to two months before permanent deactivation, which we determine based on various factors, including prior payment history.
Number Portability
Prior to January 2003, Korea’s wireless telecommunications system was based on a network-specific prefix system,65.5% interest in which a unique prefix was assigned to all the phone numbers of a specific wireless telecommunications service provider. We were assigned the “011” prefix, and all of our subscriber’s mobile phone numbers began with “011” (former Shinsegi subscribers use the “017” prefix) and our subscribers could not change their wireless phone service to another wireless telecommunications service provider and keep their existing numbers. In January 2003, the MIC announced its plan to implement number portability with respect to wireless telecommunications services in Korea, allowing wireless subscribers to switch wireless telecommunications service providers while retaining the same mobile phone number. As mandated by the MIC, we were the first wireless telecommunications service provider to introduce number portability in January 1, 2004, allowing our customers to transfer their numbers to our competitors. Our competitors’ customers were not able to transfer their number to our service, however, until KT and LG Telecom introduced number portability beginning July 1, 2004 and January 1, 2005, respectively. Subscribers who choose to transfer to a different wireless telecommunications service provider have the right to return to their original service provider without paying any penalties within 14 days of their initial transfer.
During 2014, 2013 and 2012, approximately 3.6 million, 4.2 million and 4.5 million, respectively, of our subscribers migrated to our competitors and approximately 3.4 million, 3.8 million and 4.5 million, respectively, of our competitors’ subscribers migrated to our service.
During 2014, 2013 and 2012, respectively, we gained approximately 1.3 million, 0.4 million and 0.4 million new subscribers, which represented approximately 49.9%, 37.1% and 36.6% of the aggregate number of new wireless subscribers gained by us, KT and LG U+ in each year.One Store.
In addition, in order to manage the availability of phone numbers efficiently and to secure phone number resources for wireless telecommunications services, the Government has been integrating mobile telephone identification numbers into a common prefix identification number “010” since January 1, 2004, as further described in “— Law and Regulation — Competition Regulation — Number Portability.” For details regarding certain fines imposed on us by the MIC in connection with our marketing efforts related to the number portability system, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — MIC, KCC and MSIP Proceedings.”
Interconnection
Our wireless and fixed linefixed-line networks interconnect with the public switched telephone networks operated by KT and SK Broadband and, through their networks, with the international gateways of KT and LG U+ and Onse Telecom Corporation,, as well as the networks of the other wireless telecommunications service providers in Korea. These connections enable our subscribers to make and receive calls from telephones outside our networks. Under Korean law, service providers are required to permit other service providers to interconnect to their networks. If a new service provider desires interconnection with the networks of an existing service provider but the parties are unable to reach an agreement within 90 days, the new service provider can appeal to the KCC.
For 2014, our total interconnection revenues were Won 874.4 billion and our total interconnection expenses were Won 997.3 billion. For 2013, our total interconnection revenues were Won 923.7 billion, and our total interconnection expenses were Won 1,043.7 billion. For 2012, our total interconnection revenues were Won 958.7 billion, and our total interconnection expenses were Won 1,057.1 billion.
Our interconnection revenue decreased in 2014 by Won 49.3 billion and our interconnection expenses decreased in 2014 by Won 46.4 billion, primarily due to decreases in interconnection rates in 2014, which were partially offset by an increase in total call volume to mobile devices.
Domestic Calls
Guidelines issued by the MSIP require that all interconnection charges levied by a regulated carrier take into account (i) the actual costs to that carrier of carrying a call or (ii) imputed costs. TheStarting in 2016, the MSIP determines interconnection rates applicable to each carrier based on the increase or decrease in costs caused by changes in long-term traffic volume, taking into account other factors such as research results, competition and trends in technology development.
Wireless-to-Fixed-line. According to our interconnection arrangement with KT, for a call from our wireless network to KT’s fixed-line network, we collect the usage rate from our wireless subscriber and in turn pay KT the interconnection charges. Similarly, KT pays interconnection charges to SK Broadband for a call from KT’s wireless network to SK Broadband’s fixed-line network. The interconnection rate applicable to both KT and SK Broadband was Won 13.4411.98 per minute, Won 16.5713.44 per minute and Won 16.5814.73 per minute for 2014, 20132016, 2015 and 2012,2014, respectively.
Fixed-line-to-Wireless. The MSIP determines interconnection arrangements for calls from a fixed-line network to a wireless network. For a call initiated by a fixed-line user to one of our wireless subscribers, the fixed-line network operator collects our usage fee from the fixed-line user and remits to us an interconnection charge. Interconnection with KT accounts for substantially all of ourfixed-line-to-wireless interconnection revenue and expenses.
The interconnection rates paid by fixed-line network service providers to each wireless network service provider are set out below. In December 2010, the KCC announced thatBeginning in 2017, a single interconnection rate will applyapplies to all wireless telecommunications service providers, starting from 2013, which will eliminate the cost benefit that KT and LG U+ currently derivehad historically derived from the differences in interconnection rates. However, in November 2012, the KCC announced that it would continue to apply variedhigher interconnection rates for the year 2013 considering the cost difference among wireless network service providers and our position as a dominant network service provider. These regulations remain effective, as the MSIP, in announcing the interconnection rates for 2015, maintained the varied interconnection rates due to our dominant market position.they had received.
Rate per Minute | Rate per Minute | |||||||||||||||||||||||
Applicable Year | SK Telecom | KT | LG U+ | SK Telecom | KT | LG U+ | ||||||||||||||||||
2010 | ₩ | 31.41 | ₩ | 33.35 | ₩ | 33.64 | ||||||||||||||||||
2011 | 30.50 | 31.75 | 31.93 | |||||||||||||||||||||
2012 | 27.05 | 28.03 | 28.15 | ₩ | 27.05 | ₩ | 28.03 | ₩ | 28.15 | |||||||||||||||
2013 | 26.27 | 26.98 | 27.04 | 26.27 | 26.98 | 27.04 | ||||||||||||||||||
2014 | 22.22 | 22.73 | 22.78 | 22.22 | 22.73 | 22.78 | ||||||||||||||||||
2015 | 19.53 | 19.92 | 19.96 | 19.53 | 19.92 | 19.96 | ||||||||||||||||||
2016 | 17.03 | 17.14 | 17.17 | |||||||||||||||||||||
2017 | 14.56 | 14.56 | 14.56 |
Wireless-to-Wireless. The MIC implemented interconnectionInterconnection charges foralso apply to calls between wireless telephone networks in Korea starting in January 2000.Korea. Under these arrangements, the operator originating the call pays an interconnection charge to the operator terminating the call. The applicable interconnection rate is the same as thefixed-line-to-wireless interconnection rate set out in the table above.
Our revenues from thewireless-to-wireless charge were Won 540.3 billion in 2016, Won 582.6 billion in 2015 and Won 651.2 billion in 2014, Won 641.2 billion in 2013 and Won 601.5 billion in 2012.2014. Our expenses from these charges were Won 548.1 billion in 2016, Won 579.0 billion in 2015 and Won 700.3 billion in 2014, Won 615.6 billion in 2013 and Won 639.8 billion in 2012.2014. The charges above were agreed among the parties involved and confirmed by the KCC.
International Calls and International Roaming Arrangements
With respect to international calls, if a call is initiated by our wireless subscribers, we bill the wireless subscriber for the international charges of KT, LG U+ or SK Broadband, and we receive interconnection charges from such operators. If an international call is received by our subscriber, KT, LG U+ or SK Broadband pays interconnection charges to us based on our imputed costs.
International Roaming Arrangements
To complement the services we provide to our subscribers in Korea, we offer international voice and data roaming services. We charge our subscribers usage fees for global roaming service and, in turn, pay foreign wireless network operators fees for the corresponding usage of their network. For a more detailed discussion of our global roaming services, see “— Our“Item 4.B. Business Overview — Cellular Services — Cellular VoiceWireless Services” above.
MarketingCompetition
We operate in highly saturated and Service Distributioncompetitive markets, and we believe that our subscriber growth is affected by many factors, including the expansion and technical enhancement of our networks, the development and deployment of new technologies, the effectiveness of our marketing and distribution strategy, the quality of our customer service, the introduction of new products and services, competitive pricing of our rate plans, new market entrants and regulatory changes.
Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, KT, LG U+ and us. Our competitors have substantial financial, technical, marketing and other resources to respond to our business offerings.
The following table shows the market share information, based on number of subscribers, as of December 31, 2016, for the following markets.
Market Share (%) | ||||||||||||||||
SK Telecom | KT | LG U+ | Others | |||||||||||||
Wireless Service(1) | 49.1 | 30.6 | 20.3 | — | ||||||||||||
LTE Service(1) | 45.5 | 30.8 | 23.7 | — | ||||||||||||
Fixed-Line Telephone (including VoIP) | 15.2 | 57.8 | 17.4 | 9.6 | ||||||||||||
Broadband Internet | 25.3 | 41.4 | 17.6 | 15.7 | ||||||||||||
IPTV(2) | 13.1 | 23.2 | 8.4 | 55.3 |
(1) | Includes MVNO subscribers that lease the wireless networks of the respective mobile network operator. |
(2) | Excludesvideo-on-demand only service subscribers. Market share is expressed as a percentage of the pay TV market (which includes IPTV, cable TV and satellite TV). |
Marketing, Sales and Service NetworkCellular Services
We market our services and provide after-sales service support to customers through approximately 20 marketing teams, 30 branch offices and a network of approximately 3,690 authorized exclusive dealers located throughout Korea. Our dealers are connected via computer to our database and are capable of assisting customers with account information. In addition, approximately 12,400 independent retailers assist new subscribers to complete activation formalities, including processing subscription applications.
Currently, authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer, as well as an average ongoing commission calculated as a percentage of that subscriber’s monthly plan-based rate for the first four years. In order to strengthen our relationships with our exclusive dealers, we offer a dealer financing plan, pursuant to which we provide to each authorized dealer an interest-free or low-interest loan of up to Won 4.0 billion with a repayment period of up to three years. As of December 31, 2014,2016, we had an aggregate29.6 million subscribers, representing a market share of Won 82.7 billionapproximately 49.1%, including MVNO subscribers leasing our networks. As of December 31, 2016, KT and LG U+ had 18.5 million and 12.2 million subscribers, respectively, representing approximately 30.6% and 20.3%, respectively, of the total number of wireless subscribers in loansKorea on such date, each including MVNO subscribers leasing its networks. As of December 31, 2016, we had 21.1 million LTE subscribers and KT and LG U+ had 14.3 million and 11.0 million LTE subscribers, respectively, each including MVNO subscribers leasing its networks.
In 2016, we had 6.1 million activations and 5.1 million deactivations. For 2016, our monthly churn rate ranged from 1.4% to authorized dealers outstanding.
In April 2009, we established a wholly-owned subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”)1.5%, with an investmentaverage monthly churn rate of Won 150.0 billion1.5% for 2016, which remained unchanged from 2015. In 2016, we gained 47.0% of the total number of new wireless subscribers and subscribers that migrated to diversifya different wireless telecommunications service provider, compared to KT with 27.7% and LG U+ with 25.3%.
We also compete for subscriber activations with MVNOs, including MVNOs that lease our sales activities. PS&Marketing began operating 13 stores in May 2009. In April 2014, PS&Marketing acquirednetworks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the retail distribution business of SK Networks and aswireless network providers from which they lease their networks, including us. To date, fourteen MVNOs have commenced providing wireless
telecommunications services. As of December 31, 2014, PS&Marketing2016, MVNOs had 560 stores nationwide with 2,357 employees. a combined market share of 11.3%, of which MVNOs leasing our networks represented 46.3%, MVNOs leasing KT’s networks represented 46.5% and MVNOs leasing LG U+’s networks represented 7.2%.
In addition, we established two wholly-owned subsidiaries, Service Ace Co., Ltd.other companies may enter the telecommunications service market by acquiring the required licenses from the MSIP. For example, in October 2015, Sejong Telecom, K Mobile and Service Top Co., Ltd.,Quantum Mobile applied for licenses to become Korea’s fourth mobile network operator. Although the MSIP rejected the applications of all three companies in June 2010,January 2016, the MSIP may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in order to provide customer service directly through our subsidiaries to enhance the qualityfuture. For a description of services compared to outsourcing.
In April 2010, our authorized dealers for wireless telecommunications services started to market SK Broadband’s broadband Internet and fixed-line telephone services,the risks associated with the competitive environment in which we believe has contributedoperate, see “Item 3.D. Risk Factors — Risks Relating to the increase in the numberOur Business — Competition may reduce our market share and harm our results of broadband Internetoperations and fixed-line telephone subscribers.financial condition.”
Over the last several years,Prior to 2015, competition in the wireless telecommunications business hashad caused us to significantly increase our marketing and advertising expenses. Between 2012 and 2014, marketing expenses as a percentage of SK Telecom’s revenue, on a separate basis, fluctuated heavily between 23.9% to 33.7%, depending on the competitive landscape. However, we expectSuch percentage was 24.3% in 2015 and 23.9% in 2016. We attribute such percentagestabilization to stabilize due tothe maturity of the LTE market and the implementation of the MDDIA. Pursuant to the MDDIA, which prohibits wireless telecommunications service providers are prohibited from unfairly providing discriminatory subsidies based on certain criteria such as type of subscription, subscription plan and characteristics of the subscriber and from providing subsidies exceeding a maximum limit established by the KCC (such limit to be determined between Won 250,000 and Won 350,000, which may be adjusted every six months, with the current limit set at Won 330,000, effective as of April 24, 2015) for the purchase of mobile phone models that were launched within the last 15 months, among other restrictions and requirements. For a more detailed discussion of the MDDIA, see “—“Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.”
Marketing StrategiesThe prohibition from providing mobile phone subsidies exceeding the amount set by the KCC is set to expire in September 2017 pursuant to the expiration of the three-year effective period of the relevant provision of the MDDIA. In the past, certain legislators have introduced bills that would abolish the ceiling on mobile phone subsidies, arguing that such action would be beneficial to consumers. We cannot provide assurance that an abolishment of the ceiling on mobile phone subsidies will not have a material adverse effect on our results of operations as we believe such an amendment to the MDDIA could increase our marketing expenses and Marketing Information Managementaffect consumer behavior and our competitors in ways we cannot fully predict.
Information technology improvements.We have implemented certain information technology improvements in connection with marketing strategy, including customer management systems,face competition from KT and LG U+ as well as more effective information security controls. We believe these upgrades have enhanced our ability to process and utilize marketing- and subscriber-related data, which,other platform service providers in turn, has helped us to develop more effective and targeted marketing strategies.
We currently operate a customer information system designed to provide us with an extensive customer database. Our customer information system includes a billing system that provides us with comprehensive account information for internal purposes and enables us to efficiently respond to customer requests. Our customers can also change their service plans, verify the charges accrued on their accounts, receive their bills online and send text messages to our other subscribers throughcellular service businesses. For example, our website at www.tworld.co.kr.Smart Home service competes with KT’s Giga IoT Home service and LG U+’s IoT@Home service.
T Membership.Fixed-Line Telecommunication Services We strive to improve subscriber retention through our T Membership program, which is a membership
Our fixed-line telephone service available to our wireless subscribers. Our T Membership program provides various membership benefits to its members suchcompetes with KT and LG U+ as discounts with our membership partners for dining, shopping, entertainment and travel, access to our online membership shopping mall and invitations to various promotional events.well as providers of other VoIP services. As of December 31, 2014,2016, our market share of the fixed-line telephone and VoIP service market was 15.2% (including the services provided by SK Broadband and SK Telink) in terms of number of subscribers compared to KT with 57.8% and LG U+ with 17.4%.
We are the second largest provider of broadband Internet access services in Korea in terms of both revenue and subscribers, and our network covered more than 10 million80% of households in Korea as of December 31, 2016. As of December 31, 2016, our wirelessmarket share of the broadband Internet market was 25.3% in terms of number of subscribers joinedcompared to KT with 41.4% and LG U+ with 17.6%.
Our IPTV service competes with other providers of such pay TV services, including KT, LG U+ and cable companies. As of December 31, 2016, our T Membership program. Although our competitors also have similar membership programs, we believe that our T Membership program has a competitive advantage over our competitors’ membership programs duemarket share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 13.1% compared to KT with 23.2% and LG U+ with 8.4% and the collective market share of other pay TV providers of 55.3%. With respect to our large subscriber basemobile IPTV business, we face competition from similar services provided by KT and breadth of membership benefits. In addition, we expect that due to the limitations on subsidies pursuant to the MDDIA, the competitiveness of our T Membership program will play a greater roleLG U+. We also face increasing competition from global media streaming service providers such as Amazon Video and Netflix, which launched its services in enhancing the loyalty of our wireless subscribers.Korea in January 2016.
E-Commerce Services
“T”-brand Marketing Strategy. To increase brand awarenessThee-commerce industry is evolving rapidly and promote our corporate image, in August 2006,is intensely competitive, and we launched our “T”-brand marketing campaign.face a broad array of competitors domestically and increasingly, internationally. Our “T” brand signifies the centrality of “Telecommunications” and “Technology” to ourmarketplace business, and also seeks to emphasize our commitment to providing “Top” quality, “Trustworthy” products and services to our customers. We are marketing all our products and services under the “T” brand.11st, faces intense
competition from variouse-commerce providers, including online open marketplaces such as Gmarket, Auction and Interpark and online social commerce operators such as Coupang, Ticket Monster, and Wemakeprice. We also face competition from traditional retailers with online and mobile shopping portals such as SSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various online marketplaces for specific consumer segments or product groups.
The O2O commerce solutions industry is in its early stages of development and is heavily fragmented with a wide range of services being introduced. Thus, it is difficult to determine the markets in which we compete with respect to such services at this stage of the industry’s development.
Other Investments and Relationships
We have investments in several other businesses and companies and have entered into various business arrangements with other companies. Our principal investments fall into the following categories:
SK Hynix
In February 2012, we acquired a 21.1% equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder. By investing in the export-driven semiconductor business, we aim to achieve a more diversified business portfolio, as well as seeking global growth opportunities utilizing SK Hynix’s overseas network. SK Hynix designs, manufactures and sells advanced memory semiconductor products, including DRAM and NAND flash products, used in various electronic devices. SK Hynix operates four wafer fabrication facilities in Korea and China.
In 2014, 20132016, 2015 and 2012,2014, SK Hynix and its subsidiaries, on a consolidated basis, hadreported revenues of Won 17,125.617,198.0 billion, Won 14,165.118,798.0 billion and Won 10,162.217,125.6 billion, respectively, profit before income tax of Won 5,047.73,216.5 billion, Won 5,269.1 billion and Won 3,074.9 billion and loss before income benefit of Won 199.35,047.7 billion, respectively, and profit for the year of Won 4,195.22,960.5 billion, Won 4,323.6 billion and Won 2,872.9 billion and loss for the year of Won 158.84,195.2 billion, respectively. As of December 31, 2014, 20132016, 2015 and 2012,2014, SK Hynix and its subsidiaries, on a consolidated basis, hadreported total assets of Won 26,883.332,216.0 billion, Won 20,797.329,677.9 billion and Won 18,648.726,883.3 billion, respectively, and total equity of Won 18,036.324,023.5 billion, Won 13,066.921,387.7 billion and Won 9,739.418,036.3 billion, respectively.
Healthcare Business
We believe that the healthcare business is one of the new growth industries as society ages and medical and health technologies evolve and become integrated with information and communication technologies (“ICT”). In 2011, we began pursuing new opportunities in the healthcare business area by acquiring a 9.3% equity interest in NanoEnTek Inc. (“NanoEnTek”), a biotechnology and nanotechnology company manufacturing, among others,point-of-care diagnostics devices. In April 2014, we became the largest shareholder of NanoEnTek with a 26.0% equity interest. In January 2016, NanoEnTek acquired Bio Focus Co., Ltd., a manufacturer of in vitro diagnostic products. In 2016, NanoEnTek received approvals from the U.S. Food and Drug Administration and the China Food and Drug Administration to market certain of its devices in the United States and China. In January 2012, we established a joint venture, Healthconnect Co., Ltd. (“Healthconnect”), with Seoul National University Hospital to develop a health management service model for mobile device users utilizing ICT and currently hold a 49.5% equity interest in Healthconnect.
We are also seeking opportunities in global healthcare markets. In the first quarter of 2013, we acquired a 49.0% equity interest in X’ian Tianlong Science and Technology Co., Ltd. (“Tianlong”), a Chinese medical device manufacturer, which has since expanded its product portfolio with the development of a new diagnostic product and entry into new business areas. In July 2014, we established the SK Telecom Healthcare R&D Center in Shenzhen, China and the ShenzhenVISTA-SK Medical Center, which we believe will provide us with a strong foothold in expanding our healthcare business in China. ShenzhenVISTA-SK Medical Center was established through a joint venture with Vista Medical Center, a major private healthcare service provider based in Beijing, China, and has the capacity to provide medical examinations and checkups to approximately 30,000 people annually. We also collaborate with a hospital in the Wuxi region to operate a Smart Primary Healthcare Center based on ICT
healthcare solutions, and we plan to provide a mobile healthcare clinic to underserved regions. We believe that there are opportunities to create synergies among these centers and the medical device business of Tianlong in expanding our healthcare business in China.
In June 2014, we also entered into a contract to provide medical information systems to six Saudi Arabian hospitals for approximately Won 70.0 billion through a consortium with Seoul National University Bundang Hospital. We established a joint venture in Saudi Arabia in March 2016 to provide medical information systems to additional hospitals and further expand our healthcare business in the Middle East.
KEBHana Card
In February 2010, we purchased shares newly issued by Hana SK Card Co., Ltd. (which was subsequently merged into KEB Card Co., Ltd. and renamed KEBHana Card Co., Ltd. (“KEBHana Card”) in November 2014), a credit card services provider, for a total purchase price of Won 400.0 billion. We currently hold 25.4%15.0% of the total outstanding shares of KEBHana Card. KEBHana Card offers certain credit card products that provide for discounts on some of our wireless network services and integrate T Membership benefits, among other features.
Hana-SK Fintech Corporation
In order to provide an everyday finance platform, we entered into a joint venture agreement with Hana Financial Group in July 2016. Combining our leading mobile technology and big data analysis capabilities with Hana Financial Group’s financial service, Hana-SK Fintech Corporation plans to provide innovative mobile financial services such as mobile asset management, easy payment and overseas wire transfer services. We hold a 49.0% equity interest in the joint venture, and Hana Financial Group holds the remaining 51.0%. The services are scheduled to launch in the first half of 2017.
Other Investments
Our other investments include:
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SKY Property |
• | Kakao. We currently own a 2.0% equity interest in Kakao, with a book value as of December 31, 2016 of Won 104.5 billion, pursuant to the transaction in February 2016 through which we sold our 15.0% interest in Loen Entertainment to Kakao for Won 218.0 billion in cash and 1,357,367 new shares of Kakao. |
• | SM Mobile Communications. We currently own a 46.2% equity interest in SM Mobile Communications, with a book value as of December 31, 2016 of Won 12.1 billion, pursuant to the transaction in October 2016 through which we transferred our media platform businesses Hotzil and 5Ducks to SM Mobile Communications in exchange for shares of SM Mobile Communications. |
For more information regarding our investment securities, see note 98 of the notes to our consolidated financial statements.
Competition
We were the only wireless telecommunications services provider in Korea prior to April 1996, when Shinsegi began offering its CDMA service. In 1996, the Government issued three additional licenses to KTF, LG Telecom and Hansol PCS to operate CDMA services. Each of KTF, LG Telecom and Hansol PCS commenced operation of its CDMA service in October 1997. Furthermore, in 2001, the Government awarded three companies the licenses to provide 3G wireless telecommunications services. In Korea, this 3G license is also known as the “IMT-2000” license. IMT-2000 is the global standard for 3G wireless communications, as defined by the International Telecommunication Union, an organization established to standardize and regulate international radio and telecommunications. One of these licenses was awarded to our former subsidiary, SK IMT Co., Ltd., which was merged into us on May 1, 2003. The other two licenses were awarded to LG Telecom, and to consortia led by or associated with KT. In addition, our wireless voice businesses compete with Korea’s fixed-line operators, and our wireless Internet businesses compete with providers of fixed-line data and Internet services.
Beginning in 2000, there has been considerable consolidation in the wireless telecommunications industry, resulting in the emergence of stronger competitors. In 2000, KT acquired 47.9% of Hansol M.Com Co., Ltd.’s outstanding shares and renamed the company KT M.Com Co., Ltd. (“KT M.Com”). KT M.Com merged into KTF in May 2001. In June 2009, KTF merged into KT, which had held a 54.25% interest in KTF before the merger. In addition, in January 2010, LG DACOM and LG Powercomm merged into LG Telecom, which subsequently changed its name to LG U+. Such consolidation has created large, well-capitalized competitors with substantial financial, technical, marketing and other resources to respond to our business offerings.
Significant advances in technology are occurring that may affect our businesses, including the roll-out or the planned roll-out by us and our competitors of advanced high-speed wireless telecommunications networks based on technologies including CDMA, WCDMA, CDMA2000, WiBro and LTE.
As of December 31, 2014, according to the MSIP, KT and LG U+ had 17.3 million and 11.3 million subscribers, respectively, representing approximately 30.3% and 19.7%, respectively, of the total number of wireless subscribers in Korea on such date, each including the number of MVNO subscribers leasing its networks. As of December 31, 2014, we had 28.6 million subscribers, representing a market share of approximately 50.0%, including the number of MVNO subscribers leasing its networks. MVNOs leasing our networks had a total of 2.1 million subscribers, representing a market share of approximately 3.7%.
As of December 31, 2014, according to the MSIP, KT and LG U+ had 10.8 million and 8.5 million LTE subscribers, respectively, compared to our 16.7 million LTE subscribers.
For a description of the risks associated with the competitive environment in which we operate, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Competition may reduce our market share and harm our results of operations and financial condition.”
Law and Regulation
Overview
Korea’s telecommunications industry is subject to comprehensive regulation by the MSIP, which is responsible for information and telecommunications policies. The MSIP regulates and supervises a broad range of communications issues, including:
entry into the telecommunications industry;
scope of services provided by telecommunications service providers;
allocation of radio spectrum;
setting of technical standards and promotion of technical standardization;
rates, terms and practices of telecommunications service providers;
interconnection and revenue-sharing between telecommunications service providers;
research and development budgetingof policy formulation for information and objectives of telecommunications service providers;telecommunications; and
competition among telecommunications service providers.
Pursuant to amendments to the Government Organization Act and the Act on the Establishment and Operation of Korea Communications Commission, both effective as of March 23, 2013, the MSIP was established. The MSIP is charged with regulating information and telecommunications, the function which was formerly performed by the KCC in the previous Government. The KCC, which had taken over the regulatory functions relating to information and telecommunications policies and radio and broadcasting management from the MIC in 2008, is currently charged with regulating the public interest aspects of and fairness in broadcasting. In this annual report, we refer to the MIC and the KCC as the relevant governmental authorities in connection with any approval granted or action taken by the MIC or the KCC, as applicable, prior to such amendments and to the MSIP or other relevant governmental authority in connection with any approval granted or to be granted or action taken or to be taken by the MSIP or such other relevant governmental authority subsequent to such amendments.
Telecommunications service providers are currently classified into three categories: network service providers, value-added service providers, and specific service providers. We are classified as a network service provider because we provide telecommunications services with our own telecommunications networks and related facilities. As a network service provider, we are required to obtain a license from the MSIP for the services we provide. Our licenses permit us to provide cellular services, third generation wireless telecommunications services using WCDMA and WiBro technologies and fourth generation wireless telecommunications services using LTE technology. Our cellular license is valid until 2021 after a 10-year extension issued in June 2011, our IMT-2000 license is valid until 2016, our WiBro license is valid until 2019 after a 7-year extension issued in March 2012 and our LTE license is valid until December 2021.
The MSIP may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control and corrective orders issued in connection with any violation of rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIP may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. A network service provider that wants to cease its business or dissolve must obtain MSIP approval.
In the past, the Government has stated that its policy was to promote competition in the Korean telecommunications market through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. While all network service providers are subject to MSIP regulation, we are subject to increased regulation because of our position as the dominant wireless telecommunications services provider in Korea.
Competition Regulation
The KCC is charged with ensuring that network service providers engage in fair competition and has broad powers to carry out this goal. If a network service provider is found to be in violation of the fair competition requirement, the KCC may take corrective measures it deems necessary, including, but not limited to, prohibiting further violations, requiring amendments to the articles of incorporation or to service contracts with customers, requiring the execution or performance of, or amendments to, interconnection agreements with other network service providers and prohibiting advertisements to solicit new subscribers. The KCC is required to consult with the Minister of the MSIP before it takes certain corrective measures.
In addition, we qualify as a “market-dominating business entity” under the Fair Trade Act. Accordingly, we are prohibited from engaging in any act of abusing our position as a market-dominating entity, such as unreasonably determining, maintaining or altering service rates, unreasonably controlling the rendering of services, unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers.
Because we are a member company of the SK Group, which is a large business group as designated by the FTC, we are subject to the following restrictions under the Fair Trade Act:
• | Restrictionondebtguaranteeamongaffiliates. Any affiliate within the SK Group may not guarantee the debts of another domestic affiliate, except for certain guarantees prescribed in the Fair Trade Act, such as those relating to the debts of a company acquired for purposes of industrial rationalization, bid deposits for overseas construction work or technology development funds. |
• | Restrictiononcross-investment. A member company of the SK Group may not acquire or hold shares in an affiliate belonging to the SK Group that owns shares in the member company. |
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• | Publicnoticeofboardresolutiononlarge-scaletransactionswithspeciallyrelatedpersons. If a member company of the SK Group engages in a transaction with a specially related person in the amount of 5.0% or more of the member company’s capital orpaid-in capital or for Won 5.0 billion or more, the transaction must be approved by a resolution of the member company’s board of directors and the member company must publicly disclose the transaction. |
• | Restrictionsoninvestmentsbysubsidiariesandsub-subsidiariesofholdingcompanies. The Fair Trade Act prohibits subsidiaries of holding companies from investing in, or holding shares of common stock of, |
domestic affiliates that belong to the same large business group, unless such domestic affiliates are their own subsidiaries. Furthermore, any subsidiaries of a holding company’s subsidiaries(“sub-subsidiaries”) are prohibited from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless all shares issued by the affiliates are held by thesub-subsidiary. Therefore, we and other subsidiaries of SK Holdings may not invest in any domestic affiliate that is also a member company of the SK Group, except in the case where we invest in our own subsidiary or where another subsidiary of SK Holdings invests in its own subsidiary. |
• | Publicnoticeofthecurrentstatusofabusinessgroup. Under the Fair Trade Act and the Enforcement Decree thereof, a member company of the SK Group must publicly disclose the general status of the SK Group, including the name, business scope and financial status of affiliates, information on the officers of affiliates, information on shareholding and cross-investments between member companies of the SK Group, information on transactions with certain related persons and, if a member company engages in a transaction with an affiliated company in the amount of 5.0% or more of the member company’s quarterly sales or Won 5.0 billion or more, information on transactions with such affiliated company on a quarterly basis. |
NumberPortability. In January 2003, the MIC announced its plan to implement number portability with respect to wireless telecommunications service in Korea. The number portability system allows wireless subscribers to switch wireless telecommunications service providers while retaining the same mobile phone number. For details of the number of subscribers who transferred to the services of our competitors following the implementation of the number portability system, see “— Subscribers.”
In addition, the Government has been integrating mobile telephone identification numbers into a common prefix identification number “010” and gradually retracting the current mobile service identification numbers which had been unique to each wireless telecommunications service provider, including “011” for our cellular services, since January 1, 2004. All new subscribers have been given the “010” prefix starting January 2004. As the next step in the “010” integration process, the mobile telephone number prefix for all 3GWCDMA and LTE service users has been changed to “010” as of January 1, 2014. The MSIP plans to complete the integration process by around 2018,June 2021, when all mobile telephone numbers would have the prefix identification number “010.”
For risks relating to number portability, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our businesses are subject to extensive Government regulation and any change in Government policy relating to the telecommunications industry could have a material adverse effect on our results of operations, financial condition and cash flows.”
RateRegulation. Most network service providers must report to the MSIP the rates and contractual terms for each type of service they provide. However, as the dominant network service provider for specific services (based on having the largest market share in terms of number of subscribers and meeting certain revenue thresholds), we must obtain prior approval of the MSIP on our rates and terms of service; provided, however, that suchpre-approval of the MSIP is not required, if we are planning to reduce the rates for any type of services that we provide under the
MSIP-approved contractual terms. In each of the previous years in which this requirement has been applicable, the KCC designated us for wireless telecommunications service, and KT for local telephone and Internet services, as dominant network service providers that are subject to such approval requirement. The KCC’sMSIP’s policy wasis to approve rates if they are appropriate, fair and reasonable (that is, if the rates have been reasonably calculated, considering supply costs, profits, classification of costs and profits for each service, cost savings through changes in the way services are provided and the influence on fair competition, among others). The MSIP takes a similar approach in regulating the rates. The MSIP may order changes in the submitted rates if it deems the rates to be significantly unreasonable or against public policy. On June 24, 2016, the Government proposed a bill to the National Assembly to change the approval requirement to a simple reporting requirement, which is the requirement for our competitors. However, the bill is still under review by the relevantsub-committee and there is no assurance as to whether such bill will be passed.
Furthermore, in 2007, the Government announced a “road map” highlighting revisions in regulations to promote deregulation of the telecommunications industry. In accordance with the road map and pursuant to the Combined Sales Regulation, promulgated in May 2007, telecommunications service providers are now permitted to bundle their services, such as wireless data transmission service, wireless voice transmission service, broadband Internet access service, fixed-line telephone service and IP TVIPTV service, at a discounted rate; provided, however, that we and KT, as market-dominating business entities under the Telecommunications Business Act, allow other competitors to employ the services provided by us and KT, respectively, so that such competitors can provide similar discounted package
services. In September 2007, the regulations and provisions under the Telecommunications Business Act were amended to permit licensed transmission service providers to offer local, domestic long-distance and international telephone services, as well as broadband Internet access and Internet phone services, without additional business licenses.
Moreover, under the amended Telecommunications Business Act, which became effective on September 23, 2010, an MVNO system was adopted for a duration of three years until September 22, 2013. The expiration date of the system was extended to September 22, 2016 under the amended Telecommunications Business Act, which became effective on August 13, 2013. Under this system, the MSIP may designate and obligate certain wireless telecommunications services providers to allow an MVNO, at such MVNO’s request, to use their telecommunication network facilities at a rate mutually agreed upon that complies with the standards set by the MSIP. We were designated as the only wireless telecommunications services provider obligated to allow the other wireless telecommunications services provider to use our telecommunications network facilities. Since the expiration of the MVNO system on September 22, 2016, we have continued to lease our networks to MVNOs based on mutually agreed upon terms. To date, tenfourteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us.
On October 1, 2014, the MDDIA, enacted for the purpose of establishing a transparent and fair mobile distribution practice, became effective. The MDDIA limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber, (ii) providing subsidies exceeding a maximum limit established by the KCC (such limit to be determined between Won 250,000 and Won 350,000, which may be adjusted every six months, with the current limit set at Won 330,000, effective as of April 24, 2015) for the purchase of mobile phone models that were launched within the last 15 months, and (iii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide benefits, such as discounted rates, to subscribers who subscribe to the service without receiving subsidies. The prohibition from providing mobile phone subsidies exceeding the amount set by the KCC is set to expire in an amount correspondingSeptember 2017 pursuant to the expiration of the three-year effective period of the relevant provision of the MDDIA. In the past, certain legislators have introduced bills that would abolish the ceiling on mobile phone subsidies, arguing that such subsidies.action would be beneficial to consumers.
Interconnection. Dominant network service providers such as ourselves that own essential infrastructure facilities or possess a certain market share are required to provide interconnection of their telecommunications network facilities to other service providers upon request. The MSIP sets and announces the standards for determining the scope, procedures, compensation and other terms and conditions of such provision, interconnection orco-use. We have entered into interconnection agreements with KT, LG U+, Onse Telecom Corporation and other network service providers
permitting these entities to interconnect with our network. We expect that we will be required to enter into additional agreements with new operators as the MSIP grants permits to additional telecommunications service providers.
FrequencyAllocation. The MSIP has the discretion to allocate and adjust the frequency bandbandwidths for each type of service and may auction off the rights to certain frequency bands.bandwidths. Upon allocation of new frequency bandsbandwidths or adjustment of frequency bands,bandwidths, the MSIP is required to give a public notice. The MSIP also regulates the frequency to be used by each radio station, including the transmission frequency used by equipment in our cell sites. All of our frequency allocations are for a definite term. We pay fees to the MSIP for our frequency usage that are determined based upon our number of subscribers, frequency usage by our networks and other factors. For 2014, 20132016, 2015 and 2012,2014, the fee amounted to Won 188.1186.8 billion, Won 206.5189.8 billion and Won 204.2188.1 billion, respectively.
We currently use 10 MHz of bandwidth in the 800 MHz spectrum for our CDMA services, 40 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum, and 35 MHz of bandwidth in the 1.8 GHz spectrum and 60 MHz of bandwidth in the 2.6 GHz spectrum for our LTE services, as well as 2730 MHz of spectrum in the 2.3 GHz band for our WiBro services. For more information regarding the license fees for the various bandwidths that we use, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures” and note 1715 of the notes to our consolidated financial statements.
For risks relating to the maintenance of adequate bandwidth capacity, see “Item 3.D. Risk Factors — Risks Relating to OursOur Business — Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.”
Mandatory Contributions and Obligations
UniversalServiceObligation. All telecommunications service providers other than value-added service providers, specific service providers and regional paging service providers or any telecommunications service providers whose net annual revenue is less than an amount determined by the MSIP (currently set at Won 30.0 billion) are required to provide “universal” telecommunications services including local telephone services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships and telephone services for handicapped andlow-income citizens, or contribute toward the supply of such universal services. The MSIP designates universal services and the service provider who is required to provide each service. Currently, under the MSIP guidelines, we are required to offer free subscription and a discount of between 35.0%30.0% to 50.0% of our monthly fee for wireless telecommunications services to handicapped andlow-income citizens.
In addition to such universal services for handicapped andlow-income citizens, we are also required to make certain monetary contributions to compensate for other service providers’ costs for the universal services. The size of a service provider’s contribution is based on its net annual revenue (calculated pursuant to the MSIP guidelines, which differ from our accounting practices). Our contribution amount for our fiscal year 2015 has not yet been determined. In 2015, our contribution amount was Won 21.0 billion for our fiscal year 2014. In 2014, our contribution amount was Won 21.8 billion for our fiscal year 2013. In 2013, our contribution amount was Won 19.2 billion for our fiscal year 2012. In 2012, our contribution amount was Won 20.2 billion for our fiscal year 2011. As a wireless telecommunications services provider, we are not considered a provider of universal telecommunications services and do not receive funds for providing universal service. Other network service providers that do provide universal services make all or a portion of their “contribution” in the form of expenses related to the universal services they provide.
Foreign Ownership and Investment Restrictions and Requirements
Because we are a network service provider, and the exception for the foreign shareholding limit under the amended Telecommunications Business Act, which became effective on August 13, 2013, does not apply to us, foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) are prohibited from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of the
outstanding voting stock of such Korean entities are also deemed foreigners. If this 49.0% ownership limitation is violated, certain of our foreign shareholders will not be permitted to exercise voting rights in excess of the limitation, and the MSIP may require other corrective action.
As of December 31, 2014,2016, SK Holdings owned 20,363,452 shares of our common stock, or approximately 25.22% of our issued shares. As of December 31, 2014, a2016, the two largest foreign investment fund and its related parties collectivelyshareholders of SK Holdings each held a 1.1%3.5% stake in SK Holdings.therein. If thesuch foreign investment fund and its related partiesshareholders increase their shareholdings in SK Holdings to 15% or more and any such foreign investment fund and its related parties collectively constituteshareholder constitutes the largest shareholder of SK Holdings, SK Holdings will be considered a foreign shareholder, and its shareholding in us would be included in the calculation of our aggregate foreign shareholding. If SK Holdings’ shareholding in us is included in the calculation of our aggregate foreign shareholding, then our aggregate foreign shareholding, assuming the foreign ownership level as of December 31, 20142016 (which we believe was 43.47%40.8%), would reach 68.69%66.0%, exceeding the 49.0% ceiling on foreign shareholding.
If our aggregate foreign shareholding limit is exceeded, the MSIP may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign investment fund and its related parties who ownshareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, SK Holdings will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIP will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. If a corrective order is issued to us by the MSIP arising from the violation of the foregoing foreign ownership limit, and we do not comply within the prescribed period under such corrective order, the MSIP may:
revoke our business license;
suspend all or part of our business; or
if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose aone-time administrative penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years.
Additionally, the Telecommunications Business Act also authorizes the MSIP to assess monetary penalties of up to 0.3% of the purchase price of the shares for each day the corrective order is not complied with, as well as a prison term of up to one year or a penalty of Won 50 million. See “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.”
We are required under the Foreign Exchange Transaction Act to file a report with a designated foreign exchange bank or with the Ministry of Strategy and Finance (the “MOSF”), in connection with any issue of foreign currency denominated securities by us in foreign countries. Issuances of US$30 million or less require the filing of a report with a designated foreign exchange bank, and issuances that are over US$30 million in the aggregate within one year from the filing of a report with a designated foreign exchange bank require the filing of a report with the MOSF.
The Telecommunications Business Act provides for the creation of a Public Interest Review Committee under the MSIP to review investments in or changes in the control of network service providers. The following events would be subject to review by the Public Interest Review Committee:
the acquisition by an entity (and its related parties) of 15.0% or more of the equity of a network service provider;
a change in the largest shareholder of a network service provider;
agreements by a network service provider or its shareholders with foreign governments or parties regarding important business matters of such network service provider, such as the appointment of officers and directors and transfer of businesses; and
a change in the shareholder that actually controls a network service provider.
If the Public Interest Review Committee determines that any of the foregoing transactions or events would be detrimental to the public interest, then the MSIP may issue orders to stop the transaction, amend any agreements, suspend voting rights, or divest the shares of the relevant network service provider. Additionally, if a dominant network service provider (which would currently include us and KT), together with its specially related persons (as defined under the FSCMA), holds more than 5.0% of the equity of another dominant network service provider, the voting rights on the shares held in excess of the 5.0% limit may not be exercised.
Patents and Licensed Technology
Access to the latest relevant technology is critical to our ability to offer the most advanced wireless telecommunications services and to design and manufacture competitive products. In addition to active internal and external research and development efforts as described in “Item 5.C. Research and Development, Patents and Licenses, etc.,” our success depends in part on our ability to obtain patents, licenses and other intellectual property rights covering our products. We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries, including Korea, Japan, China and the United States and in Europe. Our patents are mainly related to LTE technology and wireless Internet applications. We have also acquired a number of patents related to WCDMA and CDMA technologies. There are no licensed patents that are material to our business.
We are not currently involved in any material litigation regarding patent infringement. For a description of the risks associated with our reliance on intellectual property, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.”
Seasonality of the Business
Our business is not affected by seasonality.
Item 4.C. | OrganizationalStructure |
Organizational Structure
We are a member of the SK Group, based on the definition of “group” under the Fair Trade Act. As of December 31, 2014,2016, SK Group members owned in aggregate 25.22% of the shares of our issued common stock. The SK Group is a diversified group of companies incorporated in Korea with interests in, among other things, telecommunications, trading, energy, chemicals, engineering and leisure industries.
Significant Subsidiaries
For information regarding our subsidiaries, see note 1(2) of the notes to our consolidated financial statements.
Item 4.D. | Property,PlantsandEquipment |
The following table sets forth certain information concerning our principal properties as of December 31, 2014:2016:
Location | Primary Use | Approximate Area in Square Feet | ||||
Seoul Metropolitan Area | Corporate Headquarters | 988,447 | ||||
Regional Headquarters | 607,249 | |||||
Customer Service Centers | 107,277 | |||||
Training Centers | 616,845 | |||||
Central Research and Development Center | 482,719 | |||||
Busan | Regional Headquarters | 363,282 | ||||
Daegu | Regional Headquarters | 148,065 | ||||
Jeolla and Jeju Provinces | Regional Headquarters | 265,614 | ||||
Chungcheong Province | Regional Headquarters | 459,302 | ||||
(1) | Includes cell sites. |
In December 2004, we constructed a building with an area of approximately 82,624 square feet, of which we have full ownership, for use as our corporate headquarters. In addition, we own or lease various locations for cell sites and switching equipment. We do not anticipate that we will encounter material difficulties in meeting our future needs for any existing or prospective leased space for our cell sites. See “Item 4.B. Business Overview — Digital Wireless NetworkCellular Services — Network Infrastructure.”
We maintain a range of insurance policies to cover our assets and employees, including our directors and officers. We are insured against business interruption, fire, lightening,lightning, flooding, theft, vandalism, public liability and certain other risks that may affect our assets and employees. We believe that the types and amounts of our insurance coverage are in accordance with general business practices in Korea.
Item | UNRESOLVEDSTAFFCOMMENTS |
We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Exchange Act.
Item 5. | OPERATINGANDFINANCIALREVIEWANDPROSPECTS |
You should read the following discussion together with our consolidated financial statements and the related notes thereto which appear elsewhere in this annual report. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. In addition, you should read carefully the section titled “— Critical Accounting Policies, Estimates and Judgments” as well as note 43 of the notes to our consolidated financial
statements which provide summaries of certain critical accounting policies that require our management to make difficult, complex or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our financial conditions and results of operations.
Item 5.A. | OperatingResults |
Overview
WeOur operations are reported in four segments: (1) cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services,(2) fixed-line telecommunication services, which includefixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services,(3) e-commerce services, which
include our open marketplace platform, 11st, and O2O commerce solutions, and (4) other businesses, which include our portal service, our hardware business and other operations that do not meet the quantitative thresholds to be separately considered reportable segments.
In our cellular services segment, we earn revenue principally from our wireless voice and data transmission services through monthlyplan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services andvalue-added service fees paid by subscribers to our wireless telecommunications services,subscribers as well as interconnection fees paid to us by other telecommunications operators for use of our wireless network by their customers and subscribers. We also derive revenue from sales of wireless devices by our subsidiary, PS&Marketing. Other sources of revenue include revenue from our IoT solutions and platform services as well as other miscellaneous cellular services.
In ourfixed-line telecommunication services segment, we earn revenue principally from ourfixed-line telephone services and broadband Internet services and advanced media platform services (including IPTV) through monthlyplan-based fees and usage charges as well as interconnection fees paid to us by other telecommunications operators for use of ourfixed-line network by their customers and subscribers. In addition, we derive revenue from international calling services and our business communications services through customized fee arrangements with our business customers.
Oure-commerce services segment became a separate reportable segment as of January 1, 2016. In oure-commerce services segment, we derive revenue from our consolidated subsidiary SK Planet, which earns revenue principally throughthird-party seller fees earned (including commissions) for transactions in which it acts as a selling agent to the “mini malls” on 11st, its online open marketplace platform, as well as advertising revenue from 11st and its O2O commerce solutions. In March 2016, SK Planet effected aspin-off of its former platform and T Store businesses by establishing SK TechX Co., Ltd. (“SK TechX”) and One Store, respectively. As a result, the results of operations from SK Planet’s former platform business and T store business are included in oure-commerce services segment for the years ended December 31, 2014 and 2015 but such revenues are included in our others segment for the year ended December 31, 2016.
In our others segment, we earn revenue from our hardware businesses through sales of projection display devices andhigh-end audio devices, our security business operated by our subsidiary, Neosnetworks, advertising revenue from our “Nate” portal service operated by our subsidiary, SK Communications, and sales commissions through our mobile application marketplaces. As discussed above, the results of operations from SK TechX and One Store are included in our others segment for the year ended December 31, 2016.
Our cellular service revenue amount dependsandfixed-line telecommunications service revenue depend principally upon the number of our wireless subscribers, the rates we charge for our services, the frequency and volume of subscriber usage of our services and the terms of our interconnection with other telecommunications operators. We also deriveOure-commerce service revenue from businesses operated bydepends principally upon the gross merchandise volume, which is the total monetary value of customer purchases of goods and services, net of estimated refunds, of 11st and the number of merchants that utilize 11st and our consolidated subsidiaries, including broadband Internet (including IP TV services)O2O platforms to advertise and fixed-line telephone services offered by SK Broadband, various platform businesses conducted by SK Planetpromote their products and handset sales made by PS&Marketing. Government regulation also affects our revenues.
Our operations are reported in three segments: (1) cellular services, which include cellular voice service, wireless data service and wireless Internet services, (2) fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services (including IP TV services) and leased line services and (3) others, which include our Internet portal services, online shopping servicesthe extent of such advertisement and other platform services and other operations that do not meet the quantitative thresholds to be separately considered reportable segments.promotion.
Among other factors, management uses operating incomeprofit of each reportable segment presented in accordance withK-IFRS (“segment operating income”profit”) in its assessment of the profitability of each reportable segment. The sum of segment operating incomeprofit for all threefour reportable segments differs from our operating incomeprofit presented in accordance with IFRS by IASB as segment operating incomeprofit does not include certain items such as donations, gain and loss from disposal of property and equipment and intangible assets and impairment loss on property and equipment and intangible assets. For a reconciliation of operating incomeprofit presented in accordance with IFRS by IASB and operating incomeprofit presented in accordance withK-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.”
In addition to the information set forth below, see note 54 of the notes to our consolidated financial statements for more detailed information regarding each of our reportable segments.
A number of recent developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:
NewRegulationsRelatingtoHandsetSubsidies. We provide handset subsidies to subscribers who agree to use our service for a predetermined service period and purchase handsets on an installment basis. Generally, handset
subsidies may be provided to any subscriber that uses our service and purchases handsets either directly from us or through third parties. Prior to the implementation of the MDDIA, there was intense competition among wireless telecommunications service providers to acquire subscribers by providing higher subsidies. In October 2014, the Government started limiting the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers under the MDDIA. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber, (ii) providing subsidies exceeding a maximum limit established by the KCC (such limit to be determined between Won 250,000 and Won 350,000, which may be adjusted every six months, with the current limit set at Won 330,000, effective as of April 24,8, 2015) for the purchase of mobile phone models that were launched within the last 15 months, and (iii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. The prohibition from providing mobile phone subsidies exceeding the amount set by the KCC is set to expire in an amount corresponding to such subsidies.
It is difficult to estimate the impact such Government regulations will have on our results of operations as we believe the imposition of such regulations may affect the cellular telecommunications industry in various ways that we cannot fully predict. We believe that handset subsidies will not increaseSeptember 2017 pursuant to the extent they did inexpiration of thethree-year effective period of the relevant provision of the MDDIA. In the past, when wireless telecommunications service providers were engaged in intense competitioncertain legislators have introduced bills that would abolish the ceiling on mobile phone subsidies, arguing that such action would be beneficial to acquire new subscribers as the MDDIA imposes a maximum limit on handset subsidies. However, as we provided lower subsidies to existing subscribers who purchased new handsets than to new subscribers that switched wireless telecommunications service providers in the past but under the MDDIA, we are required to provide the same level of subsidies to both types of subscribers, ifconsumers.
In 2016, the number of existing subscribers who purchaseelected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA increased due to greater public awareness of the availability of such discounted rates as well as the increase in the applicable discount rate to 20% in April 2015 from 12% in October 2014. According to the MSIP, an average of 26.5% of all new handsets increases,subscribers of SK Telecom, KT and LG U+ elected to receive discounted rates in lieu of handset subsidies in September 2016 compared to 1.5% in the six months prior to the increase in the applicable discount rate. Such increase contributed to a decrease in cellular services revenue in 2016 compared to 2015 but also led to a decrease in our marketing expenses may increase. Failurefor cellular services for the same period. Furthermore, failure to comply with the MDDIA may lead to suspension of our business or imposition of monetary penalties. For more information about the MDDIA and the penalties imposed for violating Government regulations, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation” and “Item 8.A. Consolidated Statements and Other Financial Information—Information — Legal Proceedings — MIC, KCC and MSIP Proceedings.”
AbolishmentofInitialSubscriptionFees. Upon recommendation by the MSIP, we, KT and LG U+ agreed to gradually reduce initial subscription fees charged to new customers and in August 2013, reduced the initial subscription fee by 40% and again by an additional 50% in August 2014. Starting in November 2014, we ceased charging any initial subscription fees to new customers. The gradual reduction and ultimate abolishment of initial subscription fees adversely impacted our wireless service revenuerevenues in 20142016 and 2015 compared to 2013 and may continue to have a material impact on our results of operations in 2015.2014. For more information about the rates we charge, see “Item 4.B. Business Overview — Revenues and Rates”Cellular Services — Rate Plans” and “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.”
DecreaseinInterconnectionFees.Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and internationalfixed-line and other wireless networks. Charges for interconnection affect our revenues and operating results. The MSIP determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. Under our interconnection agreements, we are required to make payments in respect of calls which originate from our networks and terminate in the networks of other Korean telecommunications operators, and the other operators are required to make payments to us in respect of calls which originate in their networks and terminate in our network. The MSIP has continued to gradually decrease the interconnection rates in Korea, which has led to a continued decrease in our interconnection revenue as well as interconnection expenses from 2012 to 20142016 and any further reduction in interconnection rates by the MSIP may continue to impact our results of operations. Beginning in 2017, a single interconnection rate paid by fixed-line network service providers for fixed-line to wireless calls applies to all wireless telecommunications service providers. For more information about our interconnection revenue and expenses, see “Item 4.B. Business Overview — Interconnection.”
Increase Decreasein Average MonthlyRevenueperSubscriber. TheWe measure monthly average per subscriber using two metrics: billing average monthly per subscriber (“billing ARPU”) and total average monthly revenue per subscriber (“total ARPU”). Billing average monthly revenue per subscriber is derived by dividing the sum of total SK Telecom revenues from voice service and data service for the period by the monthly average number of subscribers (excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period. Total ARPU is derived by dividing the sum of total SK PlanetTelecom revenues from voice service, data service, initial subscription fees and interconnection revenue, as well as other revenues, for the period by the monthly average number of subscribers (including(excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period.
Our total average monthly revenue per subscriber increasedbilling ARPU decreased by 4.1%1.3% to Won 44,12335,636 in 20142016 from Won 42,377 and increased by 5.6%36,118 in 20132015, which represented an increase of 1.3% from Won 40,12835,663 in 2012.2014. The increasesdecrease in total average monthly revenue per subscriberbilling ARPU in 2014 and 2013 were2016 was primarily due to increasesa decrease in revenue attributable to an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies. The increase in billing ARPU in 2015 was primarily due to the increase in LTE subscribers who subscribe to data plans with higher monthly basic charges than our other wireless telecommunications services and greater data service usage attributable to increases in the number of smartphone users. However, theusers, offset in part by a decrease in revenue due to an increase in the growthapplicable discount rate for the subscribers that elected to receive discounted rates in lieu of ourreceiving handset subsidies.
Our total average monthlyARPU decreased by 2.6% to Won 41,126 in 2016 from Won 42,221 in 2015, which represented a slight decrease of 0.7% from Won 42,512 in 2014. The decrease in total ARPU in 2016 was primarily due to a decrease in revenue per subscriber to 4.1% in 2014 from 5.6% in 2013 is attributable to the higher relativean increase in LTEthe number of subscribers that subscribewho elected to fixed-rate plans with lower monthlyreceive discounted rates in lieu of receiving handset subsidies. The slight decrease in total ARPU in 2015 was primarily due to decreases in initial subscription fees comparedand interconnection revenue, mostly offset by the reasons set forth above relating to those that subscribe to fixed-rate plans with higher monthly feesthe increase in connection with the continual migration of wireless subscribers with low data usage (unlike early LTE adopters that generally have high data usage) to LTE services.billing ARPU in 2015.
AcquisitionofSK Hynix Shares. In February 2012, we acquired a 21.05% equity stake in SK Hynix, one of the world’s largest memory chip makers by revenue, for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder. As of December 31, 2014, we held a 20.1% equity stake in SK Hynix. SK Hynix’s profit for the year was Won 4,195.2 billion in 2014 and Won 2,872.9 billion in 2013 and
recorded a loss for the year of Won 158.8 billion in 2012. Our investment in SK Hynix is accounted for using the equity method and the results of SK Hynix’s performance is reflected in our operating results as gains (loss) related to investments in subsidiaries and associates.
Acquisition of SK Networks’RetailDistributionBusiness. In April 2014, PS&Marketing acquired the retail distribution business of SK Networks. As a result of such acquisition, there was an increasewere increases in digital handsetwireless device sales in 20142016 and 2015 compared to 2013 as well as2014, in which the acquisition only impacted results of operations for part of the year, along with an increase in various related operating expenses, including cost of products that have been resold and labor costs.
Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS
In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance withK-IFRS as adopted by the KASB, which we are required to file with the FSC and the Korea Exchange under the FSCMA.
Beginning with our financial statements prepared in accordance withK-IFRS as of and for the year ended December 31, 2012, we are required to adopt certain amendments toK-IFRS No. 1001, Presentation of Financial Statements, as adopted by KASB in 2012. The amendments require operating income,profit, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. Operating expense represents expenses incurred in our main operating activities and includes cost of products that have been resold and selling, general and administrative expenses. Accordingly, beginning with our consolidated statements of income prepared in accordance withK-IFRS for the year ended December 31, 2012, we present operating incomeprofit in accordance with the amendedK-IFRS No. 1001, Presentation of Financial Statements. Prior to the adoption of the amendments toK-IFRS No. 1001, Presentation of Financial Statements, the operating incomeprofit we presented in our consolidated statements of income prepared in accordance withK-IFRS took into account certain other operating revenue and other operating expenses that are no longer included in the calculation of operating incomeprofit pursuant to these amendments.
In our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report, such changes in presentation were not adopted. As a result, the presentation of operating incomeprofit in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating incomeprofit in the consolidated statements of income prepared in accordance withK-IFRS for the corresponding periods. The table below sets forth a reconciliation of our operating income
profit as presented in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB for the years ended December 31, 2014, 20132016, 2015 and 20122014 to the operating incomeprofit as presented in the consolidated statements of income prepared in accordance withK-IFRS after giving effect to the amendments toK-IFRS No. 1001, Presentation of Financial Statements, for each of the corresponding years.
For the Year Ended December 31, | For the Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
(In billions of Won) | (In billions of Won) | |||||||||||||||||||||||
Operating income pursuant to IFRS by IASB | ₩ | 1,607.9 | ₩ | 1,578.4 | ₩ | 1,737.7 | ||||||||||||||||||
Operating profit pursuant to IFRS by IASB | ₩ | 1,303.4 | ₩ | 1,495.4 | ₩ | 1,607.8 | ||||||||||||||||||
Differences: | ||||||||||||||||||||||||
Other income pursuant to IFRS | ||||||||||||||||||||||||
Fee revenues | (8.2 | ) | (7.3 | ) | (4.0 | ) | (0.6 | ) | — | (8.2 | ) | |||||||||||||
Gain on disposal of property and equipment and intangible assets | (8.8 | ) | (8.0 | ) | (162.6 | ) | (6.9 | ) | (7.1 | ) | (8.8 | ) | ||||||||||||
Others | (39.5 | ) | (59.7 | ) | (35.3 | ) | (59.1 | ) | (23.8 | ) | (39.5 | ) | ||||||||||||
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(56.5 | ) | (75.0 | ) | (201.8 | ) | (66.6 | ) | (30.9 | ) | (56.5 | ) | |||||||||||||
Other operating expenses pursuant to IFRS that are classified as other non-operating expenses pursuant to K-IFRS | ||||||||||||||||||||||||
Loss on impairment of property and equipment and intangible assets | 47.5 | 13.8 | 37.0 | 24.5 | 35.8 | 47.5 | ||||||||||||||||||
Loss on disposal of property and equipment and intangible assets | 33.0 | 267.5 | 15.1 | 63.8 | 21.4 | 33.0 | ||||||||||||||||||
Donations | 67.8 | 82.1 | 81.3 | 96.6 | 72.5 | 67.8 | ||||||||||||||||||
Bad debt for accounts receivable — other | 17.9 | 22.2 | 30.1 | 40.3 | 15.3 | 17.9 | ||||||||||||||||||
Others | 107.5 | 122.2 | 30.7 | 73.7 | 98.5 | 107.6 | ||||||||||||||||||
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273.8 | 507.7 | 194.2 | 298.9 | 243.5 | 273.8 | |||||||||||||||||||
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Operating income pursuant to K-IFRS | ₩ | 1,825.1 | ₩ | 2,011.1 | ₩ | 1,730.0 | ||||||||||||||||||
Operating profit pursuant toK-IFRS | ₩ | 1,535.7 | ₩ | 1,708.0 | ₩ | 1,825.1 | ||||||||||||||||||
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However, there is no impact on profit for the yearyears or earnings per share for the years ended December 31, 2014, 20132016, 2015 and 2012.2014.
AccountingRecently Issued International Financial Reporting Standards Updates
We have adoptedplan to adopt certain amendments to IAS 32,IFRS 9, Financial Instruments: Presentation, for the year ended December 31, 2014.Instruments, IFRS 15, Revenue from Contracts with Customers and IFRS 16, Leases. See note 33(26) of the notes to our consolidated financial statements for a summary of IAS 32, Financial Instruments: Presentation.significant accounting standards that have been issued but not yet adopted. The expected impact of the adoption of these amendments is not expected to have a significant impact on our consolidated results of operations and financial position is currently unknown or financial position.cannot be reasonably estimated.
Operating Results
The following table sets forth summary consolidated income statement information, including that expressed as a percentage of operating revenue and other income, for the periods indicated:
For the Year Ended December 31, | ||||||||||||||||||||||||
2014 | 2013 | 2012 | ||||||||||||||||||||||
(In billions of Won, except percentage data) | ||||||||||||||||||||||||
Operating Revenue and Other Income | ₩ | 17,220.3 | 100.0 | % | ₩ | 16,677.0 | 100.0 | % | ₩ | 16,343.3 | 100.0 | % | ||||||||||||
Revenue | 17,163.8 | 99.7 | 16,602.1 | 99.6 | 16,141.4 | 98.8 | ||||||||||||||||||
Other income | 56.5 | 0.3 | 74.9 | 0.4 | 201.9 | 1.2 | ||||||||||||||||||
Operating Expense | 15,612.4 | 90.7 | 15,098.6 | 90.5 | 14,605.6 | 89.4 | ||||||||||||||||||
Operating Income | 1,607.8 | 9.3 | 1,578.4 | 9.5 | 1,737.6 | 10.6 | ||||||||||||||||||
Profit before Income Tax | 2,253.8 | 13.1 | 1,827.1 | 11.0 | 1,519.4 | 9.3 | ||||||||||||||||||
Income Tax Expense from Continuing Operations | 454.5 | 2.6 | 400.8 | 2.4 | 288.2 | 1.8 | ||||||||||||||||||
Profit from Continuing Operations | 1,799.3 | 10.4 | 1,426.3 | 8.6 | 1,231.2 | 7.5 | ||||||||||||||||||
Profit (Loss) from Discontinued Operation, Net of Income Taxes(1) | — | — | 183.2 | 1.1 | (115.5 | ) | (0.7 | ) | ||||||||||||||||
Profit (Loss) for the Year Attributable to: | ||||||||||||||||||||||||
Owners of the Parent Company | 1,801.2 | 10.5 | 1,638.9 | 9.8 | 1,151.7 | 7.0 | ||||||||||||||||||
Non-controlling Interests | (1.9 | ) | (0.0 | ) | (29.4 | ) | (0.2 | ) | (36.0 | ) | (0.2 | ) | ||||||||||||
Profit for the Year | 1,799.3 | 10.4 | 1,609.5 | 9.6 | 1,115.7 | 6.8 |
For the Year Ended December 31, | ||||||||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||||||
(In billions of Won, except percentages and earnings per share data) | ||||||||||||||||||||||||
Operating revenue and other income | ₩ | 17,158.3 | 100.0 | % | ₩ | 17,167.6 | 100.0 | % | ₩ | 17,220.3 | 100.0 | % | ||||||||||||
Revenue | 17,091.8 | 99.6 | 17,136.7 | 99.8 | 17,163.8 | 99.7 | ||||||||||||||||||
Other income | 66.5 | 0.4 | 30.9 | 0.2 | 56.5 | 0.3 | ||||||||||||||||||
Operating expenses | 15,854.9 | 92.4 | 15,672.2 | 91.3 | 15,612.4 | 90.7 | ||||||||||||||||||
Operating profit | 1,303.4 | 7.6 | 1,495.4 | 8.7 | 1,607.8 | 9.3 | ||||||||||||||||||
Profit before income tax | 2,096.1 | 12.2 | 2,035.4 | 11.9 | 2,253.8 | 13.1 | ||||||||||||||||||
Income tax expense | 436.0 | 2.5 | 519.5 | 3.0 | 454.5 | 2.6 | ||||||||||||||||||
Profit (loss) for the year | 1,660.1 | 9.7 | 1,515.9 | 8.8 | 1,799.3 | 10.4 | ||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||
Owners of the Parent Company | 1,676.0 | 9.8 | 1,518.6 | 8.8 | 1,801.2 | 10.5 | ||||||||||||||||||
Non-controlling interests | (15.9 | ) | (0.1 | ) | (2.7 | ) | (0.0 | ) | (1.9 | ) | (0.0 | ) |
The following table sets forth additional information about our operations with respect to our reportable segments during the periods indicated:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||||||||||||||||||||
Amount | Percentage of Total Revenue | Amount | Percentage of Total Revenue | Amount | Percentage of Total Revenue | Amount | Percentage of Total Revenue | Amount | Percentage of Total Revenue | Amount | Percentage of Total Revenue | |||||||||||||||||||||||||||||||||||||
(In billions of Won, except percentages) | (In billions of Won, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Cellular Services Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||
Wireless Service(1) | ₩ | 11,010.6 | 64.2 | % | ₩ | 11,001.1 | 66.3 | % | ₩ | 10,591.5 | 65.6 | % | ||||||||||||||||||||||||||||||||||||
Wireless Service(1) | ₩ | 10,583.0 | 61.9 | % | ₩ | 10,720.5 | 62.6 | % | ₩ | 11,010.6 | 64.2 | % | ||||||||||||||||||||||||||||||||||||
Cellular Interconnection | 817.0 | 4.8 | 845.0 | 5.1 | 860.3 | 5.3 | 614.4 | 3.6 | 710.0 | 4.1 | 817.0 | 4.8 | ||||||||||||||||||||||||||||||||||||
Digital Handset Sales (2) | 761.6 | 4.4 | 645.9 | 3.9 | 1,131.7 | 7.0 | ||||||||||||||||||||||||||||||||||||||||||
Wireless Device Sales | 922.4 | 5.4 | 963.4 | 5.6 | 761.6 | 4.4 | ||||||||||||||||||||||||||||||||||||||||||
Miscellaneous | 938.6 | 5.5 | 823.5 | 5.0 | 635.5 | 3.9 | 885.1 | 5.2 | 875.4 | 5.1 | 938.6 | 5.5 | ||||||||||||||||||||||||||||||||||||
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Total Cellular Services Revenue | 13,527.9 | 78.8 | 13,315.5 | 80.2 | 13,218.9 | 81.9 | 13,004.9 | 76.1 | 13,269.3 | 77.4 | 13,527.9 | 78.8 | ||||||||||||||||||||||||||||||||||||
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Fixed-line Telecommunication Services Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-line Telephone Service | ₩ | 467.3 | 2.7 | % | ₩ | 474.4 | 2.9 | % | ₩ | 485.9 | 3.0 | % | 357.8 | 2.1 | 420.6 | 2.5 | 467.3 | 2.7 | ||||||||||||||||||||||||||||||
Fixed-line Interconnection | 57.4 | 0.3 | 78.7 | 0.5 | 98.5 | 0.6 | 134.1 | 0.8 | 57.1 | 0.3 | 57.4 | 0.3 | ||||||||||||||||||||||||||||||||||||
Broadband Internet Service | 1,152.7 | 6.7 | 1,023.2 | 6.2 | 865.0 | 5.4 | 1,472.8 | 8.6 | 1,308.8 | 7.6 | 1,152.7 | 6.7 | ||||||||||||||||||||||||||||||||||||
International Calling Service | 112.0 | 0.7 | 127.0 | 0.8 | 144.1 | 0.9 | 96.0 | 0.6 | 99.1 | 0.6 | 112.0 | 0.7 | ||||||||||||||||||||||||||||||||||||
Miscellaneous | 660.5 | 3.8 | 621.1 | 3.7 | 600.4 | 3.7 | 590.5 | 3.4 | 608.9 | 3.6 | 660.5 | 3.8 | ||||||||||||||||||||||||||||||||||||
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Total Fixed-line Telecommunication Services Revenue | 2,449.9 | 14.3 | 2,324.4 | 14.0 | 2,193.9 | 13.6 | 2,651.2 | 15.5 | 2,494.5 | 14.6 | 2,449.9 | 14.3 | ||||||||||||||||||||||||||||||||||||
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E-commerce Services Revenue(4)(6) | 1,001.3 | 5.9 | 1,060.0 | 6.2 | 972.0 | 5.7 | ||||||||||||||||||||||||||||||||||||||||||
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Commerce Service(7) | ₩ | 911.5 | 5.3 | % | ₩ | 742.6 | 4.5 | % | ₩ | 391.9 | 2.4 | % | ||||||||||||||||||||||||||||||||||||
Portal Service(8) | 73.0 | 0.4 | 92.2 | 0.6 | 167.8 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||
Miscellaneous(9) | 201.6 | 1.2 | 127.4 | 0.8 | 168.9 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||
Portal Service(5) | 54.2 | 0.3 | 71.8 | 0.4 | 80.3 | 0.5 | ||||||||||||||||||||||||||||||||||||||||||
Miscellaneous(4)(6) | 380.2 | 2.1 | 241.1 | 1.4 | 133.7 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||
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Total Other Revenue | 1,186.0 | 6.9 | 962.2 | 5.8 | 728.6 | 4.5 | 434.4 | 2.4 | 312.9 | 1.8 | 214.0 | 1.2 | ||||||||||||||||||||||||||||||||||||
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Total Revenue | ₩ | 17,163.8 | 100.0 | % | ₩ | 16,602.1 | 100.0 | % | ₩ | 16,141.4 | 100.0 | % | 17,091.8 | 100.0 | 17,136.7 | 100.0 | 17,163.8 | 100.0 | ||||||||||||||||||||||||||||||
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Total Revenue Growth | 3.4 | % | 2.9 | % | 2.1 | % | (0.3 | )% | (0.2 | )% | 3.4 | % | ||||||||||||||||||||||||||||||||||||
Segment Operating Expense(10) | ||||||||||||||||||||||||||||||||||||||||||||||||
Segment Operating Expense(7) | ||||||||||||||||||||||||||||||||||||||||||||||||
Cellular Services | ₩ | 11,773.5 | 68.6 | % | ₩ | 11,329.4 | 68.2 | % | ₩ | 11,535.5 | 71.5 | % | 11,205.8 | 65.6 | 11,591.0 | 67.6 | 11,773.5 | 68.6 | ||||||||||||||||||||||||||||||
Fixed-line Telecommunication Services | 2,369.5 | 13.8 | 2,268.8 | 13.7 | 2,140.7 | 13.3 | 2,518.8 | 14.7 | 2,386.2 | 13.9 | 2,369.5 | 13.8 | ||||||||||||||||||||||||||||||||||||
E-commerce Services | 1,366.5 | 8.0 | 1,066.7 | 6.3 | 962.2 | 5.6 | ||||||||||||||||||||||||||||||||||||||||||
Others | 1,195.8 | 7.0 | 992.8 | 6.0 | 735.1 | 4.6 | 465.0 | 2.7 | 384.8 | 2.2 | 233.5 | 1.4 | ||||||||||||||||||||||||||||||||||||
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Total Segment Operating Expense | ₩ | 15,338.7 | 89.4 | % | ₩ | 14,591.0 | 87.9 | % | ₩ | 14,411.3 | 89.3 | % | 15,556.1 | 91.0 | 15,428.7 | 90.0 | 15,338.7 | 89.4 | ||||||||||||||||||||||||||||||
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Cellular Services | ₩ | 1,754.4 | 10.6 | % | ₩ | 1,986.1 | 12.0 | % | ₩ | 1,683.4 | 10.4 | % | 1,799.1 | 10.5 | 1,678.3 | 9.8 | 1,754.4 | 10.2 | ||||||||||||||||||||||||||||||
Fixed-line Telecommunication Services | 80.4 | 0.5 | 55.6 | 0.3 | 53.1 | 0.3 | 132.4 | 0.8 | 108.3 | 0.6 | 80.4 | 0.5 | ||||||||||||||||||||||||||||||||||||
E-commerce Services | (365.2 | ) | (2.1 | ) | (6.7 | ) | (0.0 | ) | 9.8 | 0.1 | ||||||||||||||||||||||||||||||||||||||
Others | (9.8 | ) | (0.1 | ) | (30.6 | ) | (0.2 | ) | (6.5 | ) | (0.0 | ) | (30.6 | ) | (0.2 | ) | (71.9 | ) | (0.4 | ) | (19.5 | ) | (0.2 | ) | ||||||||||||||||||||||||
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Total Segment Operating Income | ₩ | 1,825.1 | 10.6 | % | ₩ | 2,011.1 | 12.1 | % | ₩ | 1,730.0 | 10.7 | % | ||||||||||||||||||||||||||||||||||||
Total Segment Operating Profit | ₩ | 1,535.7 | 9.0 | % | ₩ | 1,708.0 | 10.0 | % | ₩ | 1,825.1 | 10.6 | % | ||||||||||||||||||||||||||||||||||||
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(1) | Wireless service revenue includes revenue from |
Miscellaneous cellular services revenue includes revenue from |
Portal service revenue includes revenues from |
Miscellaneous others revenue includes |
“Segment operating expense” means operating expense for each reportable segment presented in accordance with K-IFRS and therefore, does not include certain expenses that are classified as other non-operating expenses underK-IFRS. For more information on the difference between our consolidated operating expense pursuant toK-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.” |
20142016 Compared to 20132015
OperatingRevenueandOtherIncome. Our consolidated operating revenue and other income increaseddecreased by 3.3%0.1% to Won 17,220.317,158.3 billion in 20142016 from Won 16,677.017,167.6 billion in 2013,2015, due to the following increasesa decrease in operating revenue, andoffset in part by an increase in other income.income, as discussed below.
Our consolidated operating revenue increaseddecreased slightly by 3.4%0.3% to Won 17,163.817,091.8 billion in 20142016 from Won 16,602.117,136.7 billion in 2013,2015, primarily as a result of improved revenues from our consolidated subsidiaries, including an increase in digital handset sales principally due to the acquisitiondecreases in wireless service revenue, cellular interconnection revenue,fixed-line telephone service revenue ande-commerce services revenue, partially offset by PS&Marketing of the retail distribution business of SK Networksincreases in April 2014, strong growth of SK Planet’s commerce service businesses such as 11th Street and increased revenue from SK Broadband’s IP TV services, as well as growth in the number of new subscribers to our LTEbroadband Internet service and increase in data usage.advanced media platform service revenue, miscellaneous revenue and fixed-line interconnection revenue, each as further discussed below.
Our consolidated other income decreasedincreased by 24.7%115.2% to Won 56.566.5 billion in 20142016 from Won 74.930.9 billion in 20132015 primarily due to a decreaserefunds received in value-added tax refunds to Won 8.1 billion2016 in 2014 from Won 10.3 billion in 2013 and other income recognized in 2013 but not in 2014 relating to one-off items such asconnection with the receiptoverturn of insurance coverage payments for typhoon damage of Won 4.6 billion and gain from sale of property and equipment of Won 4.5 billion.certain fines previously imposed on us by the FTC that we had paid.
The following sets forth additional information about our operating revenues with respect to each of our reportable segments.
Cellular Services Segment
services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, digital handsetwireless device sales and miscellaneous cellular services, increaseddecreased by 1.6%2.0% to Won 13,527.913,004.9 billion in 20142016 from Won 13,315.513,269.3 billion in 2013.
2015. The increasedecrease in our cellular services revenue was principally due to increasesdecreases in our digital handset sales and miscellaneous cellular services revenue, partially offset by a decrease in cellular interconnection revenue. There was no significant change in wireless service revenue, between 2013cellular interconnection revenue and 2014.wireless device sales.
Digital handset sales increasedWireless service revenue decreased by 17.9%1.3% to Won 761.610,583.0 billion in 20142016 from Won 645.910,720.5 billion in 2013,2015, primarily due to the acquisition by PS&Marketing of 190 retail stores as part of its acquisition of the retail
distribution business of SK Networks in April 2014. Miscellaneous cellular services revenue increased by 14.0% to Won 938.6 billion in 2014 from Won 823.5 billion in 2013, primarily dueattributable to an increase in revenuethe number of subscribers who elected to receive discounted rates in
lieu of receiving handset subsidies pursuant to the MDDIA due to greater public awareness of the availability of such discounted rates as well as the increase in the applicable discount rate to 20% in April 2015 from our Internet solutions business.12% in October 2014.
Cellular interconnection revenue decreased by 3.3%13.5% to Won 817.0614.4 billion in 20142016 from Won 845.0710.0 billion in 2013.2015. The decrease was primarily attributable to decreases in interconnection rates in 2014, which was partially offset by an increase in totalandland-to-mobile call volume to mobile devices.in 2016.
Wireless service revenue remained steady atdevice sales decreased by 4.3% to Won 11,010.6922.4 billion in 2014 compared to2016 from Won 11,001.1963.4 billion in 2013. Factors that contributed2015, primarily attributable to an increase in wireless service revenue in 2014 were an increasea decrease in the number of subscribers that subscribe to LTE plans, which have higher monthly rates than our other wireless service plans,devices sold in 2016 as well as an increase ina result of the numbermaturity of LTE subscribers that subscribe to more expensive fixed-rate plans that feature a higher data transmission allowance (in connection with the increased availability of data-intensive wireless contents such as mobile video streaming). A factor that offset this increase and contributed to a decrease in wireless service revenue in 2014 was a decrease in initial subscription fees which we ceased charging since November 2014 after gradually decreasing the fee since August 2013.device market.
Fixed-line Telecommunication Services Segment
telecommunications services: The revenue of ourfixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IP TV service)IPTV),fixed-line telephone service, international calling service,fixed-line interconnection and miscellaneousfixed-line telecommunication services, increased by 14.3%6.3% to Won 2,449.92,651.2 billion in 20142016 from Won 2,324.42,494.5 billion in 2013, primarily2015, due to an increaseincreases in revenue from our broadband Internet service and advanced media platform service (including IPTV) revenue andfixed-line interconnection revenue, partially offset by decreases infixed-line telephone service revenue, from miscellaneousfixed-line interconnection telecommunication services revenue and international calling service.service revenue.
Revenue from our broadband Internet service and advanced media platform service (including IPTV) increased by 12.7%12.5% to Won 1,152.71,472.8 billion in 20142016 from Won 1,023.21,308.8 billion in 2013,2015, primarily attributabledue to an increase in the number of IP TVIPTV subscribers to 2.84.0 million subscribers as of December 31, 20142016 from 2.13.5 million subscribers as of December 31, 2013. 2015 and an increase in the purchase of paid media content by IPTV subscribers.Fixed-line interconnection revenue increased by 134.9% to Won 134.1 billion in 2016 from Won 57.1 billion in 2015, primarily due to additional interconnection charges we received from KT and LG U+ as a result of certain changes to the methodology for calculating interconnection charges.
Fixed-line telephone service revenue decreased by 27.1%14.9% to Won 57.4357.8 billion in 20142016 from Won 78.7420.6 billion in 2013,2015, primarily due to a decrease in residential calling volume. Revenuevolume as a result of shifting consumer preferences toward wireless communication. Miscellaneousfixed-line telecommunication services revenue decreased by 3.0% to Won 590.5 billion in 2016 from internationalWon 608.9 billion in 2015, primarily due to a decline in new contracts for business communications services provided by SK Broadband. International calling service revenue decreased by 11.8%3.1% to Won 112.096.0 billion in 20142015 from Won 127.099.1 billion in 2013,2015, primarily due to a decrease in international calling volume.
Others Segment
E-commerce services: The revenue of oure-commerce services segment, which is primarily composed of revenues from 11st, our open marketplace platform, and O2O commerce solutions, decreased by 5.5% to Won 1,001.3 billion in 2016 from Won 1,060.0 billion in 2015, primarily due to thespin-off of SK Planet’s former platform and T Store businesses, revenues from which are excluded from oure-commerce services segment beginning in 2016.
Others: The revenue of our others segment, which is composed of revenuesrevenue from our commerce service and portal service and miscellaneous other revenue, increased by 3.4%38.8% to Won 1,186.0434.4 billion in 20142016 from Won 962.2312.9 billion in 2013, due to increases in commerce service revenue and miscellaneous other revenue, partially offset by a decrease in portal service revenue.
Commerce service revenue increased by 22.7% to Won 911.5 billion in 2014 from Won 742.6 billion in 2013, primarily2015, due to an increase in revenue generated by 11th Street.miscellaneous other revenue. Miscellaneous other revenue increased by 58.2%57.7% to Won 201.6380.2 billion in 20142016 from Won 127.4241.1 billion in 2013,2015, primarily due to the revenue attributable to Neosnetworksspin-off of SK Planet’s former platform and Iriver, which were acquired by SK Telecom in 2014.
Portal service revenue decreased by 20.8% to Won 73.0 billion in 2014 from Won 92.2 billion in 2013, primarily due to a decrease in advertisingT Store businesses, revenues from the portal services operated by SK Communications.which are included in our others segment beginning in 2016.
OperatingExpense. Our consolidated operating expense increased by 3.4%1.2% to Won 15,612.415,854.9 billion in 20142016 from Won 15,098.615,672.2 billion in 2013,2015, primarily due to a 29.2%3.3% increase in commissions to Won 5,376.7 billion in 2016 from Won 5,207.0 billion in 2015 and a 3.4% increase in depreciation and amortization to Won 2,941.9 billion in 2016 from Won 2,845.3 billion in 2015. Such increases were partially offset by a 6.0% decrease in cost of products that have been resold to Won 1,680.11,838.4 billion in 20142016 from Won 1,300.41,955.9 billion in 2013, which was attributable mainly to the acquisition by PS&Marketing of the retail distribution business of SK Networks in April 2014; a 3.5%2015.
The increase in commissions paid to Won 5,692.7 billion in 2014 from Won 5,498.7 billion in 2013, which was primarily attributable mainly to an increase in marketing expensescosts relating to acquire new LTE subscriberspromotional activities for 11st, our open marketplace platform, which was partially offset by a decrease in the first half of 2014 amidst intensified competition among us, KT and LG U+; and a 6.3%marketing costs relating to our cellular services.
The increase in labor costs to Won 1,659.8 billion in 2014 from Won 1,561.4 billion in 2013, whichdepreciation and amortization was primarily due to the significant increaseamortization of certain frequency bandwidth usage rights we acquired orre-licensed in 2016 as well as amortization of software.
The decrease in cost of products that have been resold was primarily due to a decrease in the number of employeeswireless devices resold in
connection with several acquisitions in 2014, including the acquisition by PS&Marketing of the retail distribution business of SK Networks in April 2014, the acquisitions by SK Telecom of Neosnetworks in April 2014 and Iriver in August 2014 and the acquisition by SK Planet of Shopkick in October 2014. Such increase was partially offset by an 8.8% decrease in other operating expenses to Won 1,592.6 billion in 2014 from Won 1,746.3 billion in 2013, which was attributable mainly to a decrease in loss on disposal of property and equipment and intangible assets to Won 33.0 billion in 2014 from Won 267.5 billion in 2013. 2016.
The following sets forth additional information about our segment operating expense with respect to each of our reportable segments, which do not include certain expenses that are classified as othernon-operating expenses underK-IFRS. For more information on the difference between our consolidated operating expense pursuant toK-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.”
Cellular Services Segment
Cellular services: The segment operating expense for our cellular services segment increaseddecreased by 3.9%3.3% to Won 11,773.511,205.8 billion in 20142016 from Won 11,329.411,591.0 billion in 2013, primarily2015, attributable mainly to a decrease in marketing costs due to increases in commissions paid, costthe stabilized competitive environment due to the maturity of products that have been resoldthe LTE market and labor costs, each for the reasons described above, andimplementation of the MDDIA as well as an increase in depreciation and amortization expenses, which was attributable mainlythe number of subscribers who elected to an increasereceive discounted rates in our LTE wireless network equipment and amortizationlieu of our frequency licenses.receiving handset subsidies pursuant to the MDDIA.
Fixed-line Telecommunication Services Segment
telecommunication services: The segment operating expense for ourfixed-line telecommunication services segment increased by 4.4%5.6% to Won 2,369.52,518.8 billion in 20142016 from Won 2,268.82,386.2 billion in 2013,2015, primarily due to an increase in commissionsmarketing costs to gain more subscribers to ourultra-high definition IPTV and high speed broadband Internet services and an increase in expenses paid related to IP TV contents.obtain certain rights to media content.
Others SegmentE-commerce services: The segment operating expense for oure-commerce services segment increased by 28.1% to Won 1,366.5 billion in 2016 from Won 1,066.7 billion in 2015, primarily due to an increase in marketing costs relating to promotional activities for 11st, our online open marketplace, which more than offset the impact of the exclusion of SK Planet’s former platform and T store businesses from oure-commerce services segment beginning in 2016.
Others: The segment operating expense for our others segment increased by 20.4%20.8% to Won 1,195.8465.0 billion in 20142016 from Won 992.8384.8 billion in 2013,2015, primarily due to an increase in marketing costs resulting from increased competitionrelating to the impact of the inclusion of SK Planet’s former platform and T store businesses in the e-commerce market.others segment beginning in 2016.
Operating Income.Profit. Our consolidated operating income increasedprofit decreased by 1.9%12.8% to Won 1,607.81,303.4 billion in 20142016 from Won 1,578.41,495.4 billion in 2013, as2015, due to the increasedecrease in operating revenue and other income was slightly greater thanand the increase in operating expense.
Our segment operating incomeprofit with respect to each of our reportable segments is based onK-IFRS and the sum of segment operating incomeprofit for all threefour reportable segments differs from our consolidated operating incomeprofit presented in accordance with IFRS by IASB. For a reconciliation of operating incomeprofit presented in accordance with IFRS by IASB and operating incomeprofit presented in accordance withK-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.”
Cellular services: The segment operating incomeprofit of our cellular services segment decreasedincreased by 11.7%7.2% to Won 1,754.41,799.1 billion in 20142016 from Won 1,986.11,678.3 billion in 2013, primarily2015, due to an increasethe greater decrease in marketing expensessegment operating expense, as compared to acquire new LTE subscribersthe decrease in segment revenue, for the first half of 2014 amidst intensified competition among us, KT and LG U+.reasons described above. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating incomeprofit divided by revenue from such segment, expressed as a percentage) of our cellular services segment decreasedincreased to 13.0%13.8% in 20142016 from 14.9%12.6% in 2013.2015.
Fixed-line telecommunication services: The segment operating incomeprofit of ourfixed-line telecommunication services segment increased by 44.6%22.1% to Won 80.4132.4 billion in 20142016 from Won 55.6108.3 billion in 2013,2015,
primarily due to |
E-commerce services: The segment operating marginloss of our fixed-line telecommunicatione-commerce services segment increased significantly to 3.3%Won 365.2 billion in 20142016 from 2.4%Won 6.7 billion in 2013.2015, primarily due to the increase in marketing costs relating to promotional activities for 11st described above.
Others: The segment operating loss of our others segment decreased by 57.4% to Won 9.8 billion in 2014 from Won 30.6 billion in 2013. As discussed above, while our commerce service revenue increased2016 from Won 71.9 billion in 2014, intense competition2015, primarily due to the inclusion of the results of operations from SK TechX and One Store in the commerce service industry led to increased marketing costs, and thus, the profitability of our commerce service business did not improve in 2014; however, while our portal service
revenue decreased in 2014, our operating expenses related to this business decreased to a greater degree such that the profitability of our commerce service business improved in 2014 resulting in the aforementioned decrease in the segment operating loss of our others segment.segments as described above.
FinanceIncomeandFinanceCosts. Our finance income increased by 11.4%453.5% to Won 126.3575.1 billion in 20142016 from Won 113.4103.9 billion in 2013,2015, primarily due to gain on valuation of derivatives of Won 8.7 billion in 2014 compared to no such gain in 2013; a 47.6% increase in gain on foreign currency transactions to Won 16.3 billion in 2014 from Won 11.0 billion and a 50.5%significant increase in gain on disposal oflong-term investment securities to Won 14.0459.3 billion in 20142016 from Won 9.310.8 billion in 2013 attributable primarily2015 relating to the disposalsale of equity interestsour 15.0% interest in Loen Entertainment in February 2016 and the sale of iHQ, Inc. Such increases were partially offset by an 8.5% decreaseour 1.3% interest in interest income to Won 60.0 billionPOSCO in 2014 from Won 65.6 billion in 2013, which was mainly due to a general decrease in interest rates and no gain on valuation of financial asset at fair value through profit or loss in 2014 compared to Won 5.2 billion of such gain in 2013, related to the valuation of convertible bonds of NanoEnTek in 2013, which were subsequently converted into equity in 2014. November 2016.
Our finance costs decreased by 32.3%6.7% to Won 386.7326.8 billion in 20142016 from Won 571.2350.1 billion in 20132015 primarily due to a 92.3%75.7% decrease in impairment loss relatingforavailable-for-sale financial assets to financial liability atWon 5.3 billion in 2016 from Won 21.8 billion in 2015, primarily due to an increase in the fair value through profit or lossof certain of ouravailable-for-sale financial assets, and a 2.4% decrease in interest expense to Won 10.4290.5 billion in 20142016 from Won 134.2297.7 billion in 2013 due to the valuation loss on our exchangeable bonds due to rising stock prices in 2013 and loss on redemption of debentures upon the exercise of exchange claims in 2013.2015.
Gains(Losses)RelatedtoInvestmentsinSubsidiariesandAssociates. Gains related to investments in subsidiaries and associates increased 28.3%decreased by 30.7% to Won 906.3544.5 billion in 20142016 from Won 706.5786.1 billion in 2013,2015, primarily due to a Won 916.5 billion gain attributable to our investment32.1% decrease in share of profits of SK Hynix to Won 572.1 billion in which we have a 20.1% interest.2016 from Won 842.1 billion in 2015. Such decrease was primarily due to the 31.5% decrease in SK Hynix’s profit for the year increased 46.0% to Won 4,195.22,960.5 billion in 20142016 from 2,872.9Won 4,323.6 billion in 2013, primarily as a result of increases in unit sales of its dynamic random-access memory and NAND products.2015.
IncomeTax. Income tax expense from continuing operations increaseddecreased by 13.4%16.1% to Won 454.5436.0 billion in 20142016 from Won 400.8519.5 billion in 2013, primarily due to2015 notwithstanding a 23.4%3.0% increase in profit before income tax to Won 2,253.82,096.1 billion in 20142016 from Won 1,827.12,035.4 billion in 2013.2015, primarily due to changes in the interpretation of certain tax regulations allowing for the use in 2016 of tax loss carryforwards incurred by SK Planet relating to its loss on disposal of shares of SK Communications. Our effective tax rate in 20142016 decreased by 1.7%p4.8% to 20.2%20.8% in 20142016 from 21.9%25.5% in 2013,2015, primarily due to an increase in unrecognized deferred tax liabilities in connection with our investments in SK Hynix and income tax refunds received as a result of our successful appeals tofor the relevant tax authorities.reasons set forth above.
Profit (Loss) from Discontinued Operations. We did not recognize any profit or loss from discontinued operations in 2014. In 2013, we recognized profit from discontinued operations of Won 183.2 billion with respect to forthe disposition by SK Planet of its 52.6% equity stake in Loen Entertainment for an aggregate sale price of approximately Won 265.9 billion.
Profit for the Year. Principally as a result of the factors discussed above, our profit for the year increased by 11.8%9.5% to Won 1,799.31,660.1 billion in 20142016 from Won 1,609.51,515.9 billion in 2013.2015. Profit for the year as a percentage of operating revenue and other income was 10.4%9.7% in 20142016 compared to 9.7%8.8% in 2013.2015.
20132015 Compared to 20122014
OperatingRevenueandOtherIncome. Our consolidated operating revenue and other income increaseddecreased by 2.0%0.3% to Won 16,667.017,167.6 billion in 20132015 from Won 16,343.317,220.3 billion in 2012,2014, due to the following increasesdecreases in operating revenue and other income.
Our consolidated operating revenue increased by 2.9%decreased slightly to Won 16,602.117,136.7 billion in 20132015 from Won 16,141.417,163.8 billion in 2012,2014, primarily due to decreases in wireless service revenue and cellular interconnection revenue, partially offset by increases in wireless device sales and broadband Internet service and advanced media platform service revenue, each as a result of strong growth in the number of new subscribers to our LTE service, which entail higher revenues per subscriber, as well as improved revenues from our consolidated subsidiaries, including SK Planet, SK Broadband and PS&Marketing, which more than offset a decrease in revenues from digital handset sales.further discussed below.
Our consolidated other income decreased by 62.9%45.2% to Won 74.930.9 billion in 20132015 from Won 201.856.5 billion in 20122014 primarily due to a decrease invalue-added tax refunds to Won 2.1 billion in 2015 from Won 8.1 billion in 2014 and a decrease in gain on disposal of property and equipment and intangible assets to Won 8.07.1 billion in 20132015 from Won 162.68.8 billion in 2012, primarily attributable to sales of certain office buildings in 2012, partially offset by an increase in other income to Won 66.6 billion in 2013 from Won 33.4 billion in 2012, due mainly to an increase in value-added tax refunds to Won 10.3 billion in 2013 from Won 5.5 billion in 2012 as well as compensation for typhoon damage of Won 4.5 billion in 2013 which was not recognized in 2012.2014.
The following sets forth additional information about our operating revenues with respect to each of our reportable segments.
Cellular Services Segment
services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, digital handsetwireless device sales and miscellaneous cellular services, increased by 0.7% to Won 13,315.5 billion in 2013 from Won 13,218.9 billion in 2012.
The increase in our cellular services revenue was principally due to increases in our wireless service revenue and miscellaneous cellular services revenue, partially offset by decreases in digital handset sales and cellular interconnection revenue.
decreased by 1.9% to Won 13,269.3 billion in 2015 from Won 13,527.9 billion in 2014. The decrease in our cellular services revenue was principally due to decreases in our wireless service revenue and cellular interconnection revenue partially offset by an increase in our wireless device sales. |
Wireless service revenue increaseddecreased by 3.9%2.6% to Won 11,001.110,720.5 billion in 20132015 from Won 10,591.511,010.6 billion in 2012,2014, primarily due to anthe decrease in initial subscription fees which we ceased charging beginning November 2014 and the increase in revenue from monthly plan-based fees and wireless data services driven by an increased number of LTE subscribers and smartphone users who subscribe to fixed-price voice and data plans with higher monthly basic charges than our other wireless telecommunications services, partially offset by a decrease in usage charges for outgoing voice calls. The decrease in usage charges for outgoing voice calls is primarily due to an increasedthe number of subscribers who subscribeelected to fixed-price voice plans and our introductionreceive discounted rates in lieu of unlimited voice service features. Miscellaneous cellular services revenue increased by 29.6% to Won 823.5 billion in 2013 from Won 635.5 billion in 2012. The increase was primarily attributable to increases in revenue from our Internet solutions business, online shopping services, resale of fixed-line telecommunication services, number portability processing fees and other operating incomereceiving handset subsidies pursuant to the extent attributableMDDIA due to the cellular services segment.increase in the applicable discount rate to 20% in April 2015 from 12% in October 2014.
Digital handset sales decreased by 42.9% to Won 645.9 billion in 2013 from Won 1,131.7 billion in 2012, primarily due to a decrease in handset sales to new subscribers, which was mainly attributable to an easing of marketing competition for new subscribers among us, KT and LG U+ in 2013 following disciplinary measures imposed by the Government. Cellular interconnection revenue decreased by 1.8%13.1% to Won 845.0710.0 billion in 20132015 from Won 860.3817.0 billion in 2012.2014. The decrease was dueprimarily attributable to decreases in interconnection rates andland-to-mobile call volume in 2013 and decreases in land-to-mobile call volume.
Fixed-line Telecommunication Services Segment2015.
Wireless device sales increased by 26.5% to Won 963.4 billion in 2015 from Won 761.6 billion in 2014. Such increase was due in part to the reflection of the full year impact of the acquisition by PS&Marketing in April 2014 of the retail distribution business of SK Networks in 2015 compared to 2014 in which the acquisition only impacted revenue for part of the year.
Fixed-line telecommunications services: The revenue of ourfixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IP TV service)IPTV),fixed-line telephone service, international calling service,fixed-line interconnection and miscellaneousfixed-line telecommunication services, increased by 5.9%1.8% to Won 2,324.42,494.5 billion in 20132015 from Won 2,193.92,449.9 billion in 2012,2014, primarily due to an increase in revenue from our broadband Internet service.service and advanced media platform service (including IPTV), partially offset by decreases infixed-line telephone service revenue, miscellaneousfixed-line telecommunication services revenue and international calling service revenue.Fixed-line interconnection revenue was stable between 2014 and 2015.
Revenue from our broadband Internet service and advanced media platform service (including IP TV service)IPTV) increased by 18.3%13.5% to Won 1,023.21,308.8 billion in 20132015 from Won 865.01,152.7 billion in 2012,2014, primarily as a result ofdue to an increase in the number of IPTV subscribers to 3.5 million subscribers as of December 31, 2015 from 2.8 million subscribers as of December 31, 2014 and an increase in the purchase of paid media content by IPTV subscribers.
Fixed-line telephone service revenue decreased by 10.0% to Won 420.6 billion in 2015 from Won 467.3 billion in 2014, primarily due to a decrease in residential calling volume. Miscellaneousfixed-line telecommunication services revenue decreased by 7.8% to Won 608.9 billion in 2015 from Won 660.5 billion in 2014, primarily due to a decline in new contracts for business communications services provided by SK Broadband. International calling service revenue decreased by 11.5% to Won 99.1 billion in 2015 from Won 112.0 billion in 2014, primarily due to a decrease in international calling volume.
E-commerce services: The revenue of oure-commerce services segment, which is primarily composed of revenues from 11st, our open marketplace platform, and O2O commerce solutions, increased by 9.1% to Won 1,060.0 billion in 2015 from Won 972.0 billion in 2014, primarily due to increases in the annual gross merchandise volume of 11st through its mobile version and revenue from our IP TV service attributable to an increased number of IP TV subscribers and increased purchases of premium product offerings.
Others SegmentSK Planet’s advertising business.
Others: The revenue of our others segment, which is composed of revenues from our commerce service and portal service and miscellaneous other revenue, increased by 32.1%46.2% to Won 962.2312.9 billion in 20132015 from Won 728.6214.0 billion in 2012,2014, due to an increase in miscellaneous other revenue. Miscellaneous other revenue increased by 80.3% to Won 241.1 billion in 2015 from Won 133.7 billion in 2014, primarily due to increases in revenue from our commerce service, partially offset by decreases in portal service revenue and miscellaneous other revenue.
Commerce service revenue increased by 89.5% to Won 742.6 billion in 2013 from Won 391.9 billion in 2012, primarily due to an increase in revenue generated by 11th Street.
Portal service revenue decreased by 45.1% to Won 92.2 billion in 2013 from Won 167.8 billion in 2012, primarily due to a decrease in advertising revenues from the portal servicessecurity business operated by SK Communications. Miscellaneous other revenue decreased by 24.6% to Won 127.4 billion in 2013 from Won 168.9 billion in 2012,Neosnetworks.
primarily due to the cessation of revenue flows from Loen Entertainment after SK Planet, our wholly-owned subsidiary, disposed of a 52.6% equity stake in Loen Entertainment in July 2013 and it ceased being our consolidated subsidiary.
OperatingExpense. Our consolidated operating expense in 2013 increased by 3.4%0.4% to Won 15,098.615,672.2 billion in 20132015 from Won 14,605.615,612.4 billion in 2012,2014, primarily due to a 30.1%16.4% increase in other operating expensescost of products that have been resold to Won 1,746.31,955.9 billion in 20132015 from Won 1,342.01,680.1 billion in 2012, which was attributable mainly to an increase in loss on disposal of property and equipment and intangible assets to Won 267.5 billion in 2013 from Won 15.1 billion in 2012, which was primarily due to loss on disposal of various intangible assets,2014, a 23.1%14.1% increase in labor cost to Won 1,561.41,893.7 billion in 20132015 from Won 1,267.91,659.8 billion in 2012,2014 and a 4.8% increase in depreciation and amortization to Won 2,845.3 billion in 2015 from Won 2,714.7 billion in 2014. Such increase was partially offset by an 8.5% decrease in commissions to Won 5,207.0 billion in 2015 from Won 5,692.7 billion in 2014.
The increase in cost of products that have been resold was primarily due to the reflection of the full year impact of the acquisition by PS&Marketing in April 2014 of the retail distribution business of SK Networks in 2015 compared to 2014 in which the acquisition only impacted associated costs for part of the year and an increase inhigh-end wireless device sales.
The increase in labor cost was primarily due toone-time severance payments in connection with our early retirement program and the increase in the number of employees at SK Broadband to further expand our advanced media platform service business and in connection with several acquisitions in 2014, including the acquisition by PS&Marketing of the retail distribution business of SK Networks in April 2014 and the acquisition by SK Planet of Shopkick in October 2014.
The increase in depreciation and amortization was primarily due to increased capital investments to upgrade our LTE network and broadband Internetfixed-line network and the increase in amortization of software.
The decrease in commissions was attributable mainly to the stabilized competitive environment due to the maturity of the LTE market and the implementation of the MDDIA as well as an increase in the number of our employees resulting primarily fromsubscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the merger of SK Marketing & Company Co., Ltd. into SK Planet in February 2013 and our new business initiatives, as well as a 9.9% increase in depreciation and amortization expenses to Won 2,661.6 billion in 2013 from Won 2,421.1 billion in 2012, which was attributable mainly to depreciation of our newly built-out LTE wireless network and amortization of our frequency license for the 35 MHz of bandwidth in the 1.8 GHz spectrum which we started using in 2013.MDDIA.
The following sets forth additional information about our segment operating expense with respect to each of our reportable segments, which do not include certain expenses that are classified as othernon-operating expenses underK-IFRS. For more information on the difference between our consolidated operating expense pursuant toK-IFRS and pursuant to IFRS as issued by the IASB, see “ —“— Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.”
Cellular Services Segment
Cellular services: The segment operating expense for our cellular services segment decreased by 1.8%1.6% to Won 11,329.411,591.0 billion in 20132015 from Won 11,535.511,773.5 billion in 2012,2014, primarily due to a decrease in commission paid primarily attributable to an easing of marketing competition for new subscribers among us, KT and LG U+ in 2013,commissions, which was partially offset by increases in other operating expenses,cost of products that have been resold, labor costscost and depreciation and amortization, expenseseach for the reasons discusseddescribed above.
Fixed-line Telecommunication Services Segment
telecommunication services: The segment operating expense for ourfixed-line telecommunication services segment slightly increased by 6.0% to Won 2,268.82,386.2 billion in 20132015 from Won 2,140.72,369.5 billion in 2012,2014, primarily due to an increase in marketing costs attributable mainly to increased media advertisementsgain more subscribers to our IPTV service and an increase in connection withlabor cost due to an increase in the number of employees related to the expansion of our customer base, partially offsetadvanced media platform service business.
E-commerce services: The segment operating expense for oure-commerce services segment increased by a decrease10.9% to Won 1,066.7 billion in fees paid2015 from Won 962.2 billion in 2014, primarily attributabledue to a decreasean increase in fixed-line network construction.
Others Segmentmarketing costs relating to various promotional events for 11st and our O2O commerce solutions and an increase in labor cost due to the increase in the number of employees pursuant to the acquisition by SK Planet of Shopkick in October 2014.
Others: The segment operating expense for our others segment increased by 35.1%64.8% to Won 992.8384.8 billion in 20132015 from Won 735.1233.5 billion in 2012,2014, primarily due to an increase in marketing costs resulting from increased competition in the e-commerce market.operating expense relating to our security business operated by Neosnetworks.
Operating Income.Profit. Our consolidated operating incomeprofit decreased by 9.2%7.0% to Won 1,578.41,495.4 billion in 20132015 from Won 1,737.71,607.8 billion in 2012, as2014, due to the decrease in operating revenue and other income and the increase in operating expense and decrease in other income outpaced the increase in operating revenue.expense.
Our segment operating incomeprofit with respect to each of our reportable segments is based onK-IFRS and the sum of segment operating incomeprofit for all three reportable segments differs from our consolidated operating incomeprofit presented in accordance with IFRS by IASB. For a reconciliation of operating incomeprofit presented in accordance with IFRS by IASB and operating incomeprofit presented in accordance withK-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information underK-IFRS.”
Cellular services: The segment operating incomeprofit of our cellular services segment increaseddecreased by 18.0%4.3% to Won 1,986.11,678.3 billion in 20132015 from Won 1,683.41,754.4 billion in 2012,2014, primarily due to an increase in revenue from monthly plan-based fees and wireless data services driven by an increased number of LTE subscribers and smartphone users who subscribe to fixed-price voice and data plans with higher monthly basic charges than our other wireless telecommunications services, which was enhanced by athe decrease in commissions paid relating to marketing expenses to acquire new
subscribers.initial subscription fees which we ceased charging beginning November 2014. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating income divided by revenue from such segment, expressed as a percentage) of our cellular services segment increaseddecreased to 14.9%12.6% in 20132015 from 12.7%13.0% in 2012.2014.
Fixed-line telecommunication services: The segment operating incomeprofit of ourfixed-line telecommunication services segment increased by 4.7%34.7% to Won 55.6108.3 billion in 20132015 from Won 53.180.4 billion in 2012,2014, primarily due to the increase in revenue from our IPTV service despite the increase in costs to expand our advanced media platform service business. As a result, the segment operating margin of ourfixed-line telecommunication services segment increased to 4.3% in 2015 from 3.3% in 2014.
E-commerce services: We recognized segment operating loss of oure-commerce services segment of Won 6.7 billion in 2015 compared to segment operating profit of oure-commerce services segment of Won 9.8 billion in 2014, primarily due to an increase in marketing costs relating to promotional activities for 11st despite the increase in revenue from 11st and our broadband Internet service.O2O commerce solutions.
Others: The segment operating margin of our fixed-line telecommunication services segment remained stable at 2.4% in 2013 and 2012. However, the segment operating loss of our others segment increased significantlyby 268.7% to Won 30.671.9 billion in 20132015 from Won 6.519.5 billion in 2012, primarily due2014. As discussed above, while miscellaneous other revenue increased in 2015, operating expense relating to decreased profitabilityour security business operated by Neosnetworks increased to a greater extent, leading to a greater operating loss of our e-commerce business resulting from increased competition in thee-commerce market.others segment.
FinanceIncomeandFinanceCosts. Our finance income decreased by 74.5%17.8% to Won 113.4103.9 billion in 20132015 from Won 444.6126.3 billion in 2012,2014, primarily due to a Won 273.3 billion decrease in gain on disposal of long-term investment securities to Won 9.3 billion in 2013 from Won 282.6 billion in 2012, which was mainly attributable to the sale in October 2012 of half of the POSCO shares we owned, as well as a 32.6%23.5% decrease in interest income to Won 65.645.9 billion in 20132015 from Won 97.360.0 billion in 2012,2014, which was mainly due to a general decrease in interest rates. rates, and a 77.9% decrease in gain on valuation of derivatives to Won 1.9 billion in 2015 from Won 8.7 billion in 2014. Such decreases were partially offset by a gain on valuation of financial asset at fair value through profit or loss of Won 5.2 billion in 2015 relating to profit recognized from the early redemption of certain structured bonds compared to no such gain in 2014, a 23.4% increase in dividend income to Won 16.1 billion in 2015 from Won 13.0 billion in 2014 and a 16.1% increase in gain on foreign currency transactions to Won 18.9 billion in 2015 from Won 16.3 billion in 2014.
Our finance costs decreased by 10.5%9.5% to Won 571.2350.1 billion in 20132015 from Won 638.3386.7 billion in 2012,2014 primarily due to a 72.7% decrease in other finance costs to Won 52.1 billion in 2013 from Won 190.6 billion in 2012 as a result of a decrease in impairment losses for our available-for-sale financial assets, and a 19.5%an 8.1% decrease in interest expense to Won 331.8297.7 billion in 20132015 from Won 412.4323.9 billion asin 2014, which was mainly due to a result of decreasesgeneral decrease in our interest-bearing financial debt and interest rates, which was partially offset byand a Won 126.4 billion increase95.2% decrease in loss relating to financial liability at fair value through profit or loss to Won 134.20.5 billion in 20132015 from Won 7.810.4 billion in 2012 as2014. In 2014, we recognized such loss relating to financial liability at fair value through profit or loss due to the increase in the fair value of debentures in connection with the general decrease in interest rates. Such decreases were partially offset by a result of valuationsignificant increase in loss on our exchangeable bonds duesettlement of derivatives to rising stock prices and loss on redemption of debentures upon the exercise of exchange claims.Won 4.8 billion in 2015 from Won 0.7 billion in 2014.
Gains(Losses)RelatedtoInvestmentsinSubsidiariesandAssociates. We recorded net gainsGains related to investments in subsidiaries and associates ofdecreased 13.3% to Won 706.5786.1 billion in 2013 compared to net losses related to investments in subsidiaries and associates of2015 from Won 24.6906.3 billion in 2012. The change2014, primarily due to a net gainan 8.1% decrease in share of profits of SK Hynix to Won 842.1 billion in 2015 from Won 916.5 billion in 2014. Such decrease was primarily due to athe Won 610.288.7 billion gain attributablerecognized in connection with the dilution of equity interest in 2014 due to our investmentthe conversion by noteholders of SK Hynix’s convertible bonds to SK Hynix’s common shares compared to no such gain recognized in 2015 despite the 3.1% increase in SK Hynix, in which we have a 20.57% interest. SK Hynix recordedHynix’s profit for the year ofto Won 2,872.94,323.6 billion in 2013 compared to loss for the year of2015 from Won 158.8 billion in 2012, primarily as a result of increases in both average selling prices and unit sales of its dynamic random-access memory and NAND products.4,195.2 billion.
IncomeTax. Income tax expense from continuing operations increased by 39.1%14.3% to Won 400.8519.5 billion in 20132015 from Won 288.2454.5 billion in 2012.2014 notwithstanding a 9.7% decrease in profit before income tax to Won 2,035.4 billion in 2015 from Won 2,253.8 billion in 2014, primarily due to changes in unrealizable deferred taxes which led to an increase in income tax expense of Won 83.6 billion in 2015, mainly related to the dividend in kind made by SK Planet of SK Communication’s common shares to SK Telecom, compared to such changes which led to a decrease in income tax expense of Won 43.8 billion in 2014. Our effective tax rate in 2013 also2015 increased by 2.9%p5.3% to 21.9%25.5% in 20132015 from 19.0%20.2% in 2012. Our income tax expense from continuing operations and effective tax rate increased in 2013 compared to 20122014, primarily due to a decrease in tax credits related to our capital expenditures in 2013, as well as a decrease in discretionary exemptions extended byfor the tax authority in 2013.reasons set forth above.
Profit (Loss) from Discontinued Operations. We recognized profit from discontinued operations of Won 183.2 billion in 2013 compared to loss from discontinued operations of Won 115.5 billion in 2012. The profit from discontinued operations in 2013 was related to Loen Entertainment, in which SK Planet, our wholly-owned subsidiary, disposed of a 52.6% equity stake for an aggregate sale price of approximately Won 265.9 billion and as a result, ceased to be our consolidated subsidiary in 2013. The loss from discontinued operations in 2012 was related to SK Telink’s former satellite DMB business, which was ceased during 2012.
Profit for theYear. Principally as a result of the factors discussed above, our profit for the year increaseddecreased by 9.7%15.8% to Won 1,609.51,515.9 billion in 20132015 from Won 1,115.71,799.3 billion in 2012.2014. Profit for the year as a percentage of operating revenue and other income was 9.7%8.8% in 20132015 compared to 6.8%10.4% in 2012.2014.
Inflation
We do not consider inflation in Korea to have had a material impact on our results of operations in recent years. According to data published by The Bank of Korea, annual inflation in Korea was 1.0% in 2016, 0.7% in 2015 and 1.3% in 2014, 1.3% in 2013 and 2.2% in 2012.2014.
Item 5.B. | LiquidityandCapitalResources |
Liquidity
We had a working capital deficit (current liabilities in excess of current assets) of Won 337.2447.5 billion as of December 31, 20142016 and Won 945.896.3 billion as of December 31, 2013.2015. The working capital deficitdeficits as of December 31, 2014 was2015 and 2016 were primarily due to cash expenditures in 2014 used to fund SK Planet’s acquisition of Shopkick and SK Telecom’s acquisitions of Neosnetworks and Iriver. The working capital deficit asneeds in the ordinary course of December 31, 2013 was primarily caused by our acquisition of property and equipment in connection with the further expansion and enhancement of our LTE network in 2013 and our repayment of debt incurred in connection with the financing of our acquisition of a 21.05% equity stake in SK Hynix in February 2012.business. We plan to fund our current liabilities with the cash flow generated by our operations, proceeds from the disposal of investment securities or property and equipment that are no longer deemed profitable and proceeds from additional borrowings, as necessary.
We had cash, cash equivalents,short-term financial instruments andshort-term investment securities of Won 1,427.72,081.4 billion as of December 31, 20142016 and Won 1,816.21,552.3 billion as of December 31, 2013.2015. We had outstandingshort-term borrowings of Won 366.62.6 billion as of December 31, 20142016 and Won 260.0 billion as of December 31, 2013.2015. As of December 31, 2014,2016, we had credit lines with several local banks that provided for borrowing of up to Won 566.0440 billion, all of which was available for borrowing.
Cash flows from operating activities and debt financing have been our principal sources of liquidity. We had cash and cash equivalents of Won 834.41,505.2 billion as of December 31, 20142016 and Won 1,398.6768.9 billion as of December 31, 2013.2015. We believe that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings.
Year Ended December 31, | Change | |||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 to 2013 | 2013 to 2012 | ||||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||
Net Cash Provided by Operating Activities | ₩ | 3,677.4 | ₩ | 3,558.6 | ₩ | 3,999.7 | ₩ | 118.8 | 3.3 | % | ₩ | (441.1 | ) | (11.0 | )% | |||||||||||||
Net Cash Used in Investing Activities | (3,683.2 | ) | (2,506.5 | ) | (5,309.6 | ) | (1,176.7 | ) | 46.9 | 2,803.1 | (52.8 | ) | ||||||||||||||||
Net Cash Provided by (Used in) Financing Activities | (559.4 | ) | (573.2 | ) | 585.3 | 13.8 | (2.4 | ) | (1,158.5 | ) | N/A | |||||||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents Held in Foreign Currencies | 1.0 | (0.4 | ) | (6.0 | ) | 1.4 | N/A | 5.6 | (93.3 | ) | ||||||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (565.2 | ) | 478.9 | (724.7 | ) | (1,044.1 | ) | N/A | 1,203.6 | N/A | ||||||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 1,398.6 | 920.1 | 1,650.8 | 478.5 | 52.0 | (730.7 | ) | (44.3 | ) | |||||||||||||||||||
Cash and Cash Equivalents at End of Period | 834.4 | 1,398.6 | 920.1 | (564.2 | ) | (40.3 | )% | 478.5 | 52.0 | % |
N/A = Not applicable.
Year Ended December 31, | Change | |||||||||||||||||||||||||||
2016 | 2015 | 2014 | 2016 to 2015 | 2015 to 2014 | ||||||||||||||||||||||||
(In billions of Won, except percentages) | ||||||||||||||||||||||||||||
Net Cash Provided by Operating Activities | ₩ | 4,243.2 | ₩ | 3,778.1 | ₩ | 3,677.4 | ₩ | 465.1 | 12.3 | % | ₩ | 100.7 | 2.7 | % | ||||||||||||||
Net Cash Used in Investing Activities | (2,462.2 | ) | (2,880.5 | ) | (3,683.2 | ) | 418.3 | (14.5 | ) | 802.7 | (21.8 | ) | ||||||||||||||||
Net Cash Used in Financing Activities | (1,044.8 | ) | (964.6 | ) | (559.4 | ) | (80.2 | ) | 8.3 | (405.2 | ) | 72.4 | ||||||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents Held in Foreign Currencies | 0.2 | 1.5 | 1.0 | (1.3 | ) | (86.7 | ) | 0.5 | 49.2 | |||||||||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 736.2 | (67.0 | ) | (565.2 | ) | 803.2 | (1,198.7 | ) | 498.2 | (88.2 | ) | |||||||||||||||||
Cash and Cash Equivalents at Beginning of Period | 768.9 | 834.4 | 1,398.6 | (65.5 | ) | (7.8 | ) | (564.2 | ) | (40.3 | ) | |||||||||||||||||
Cash and Cash Equivalents at End of Period | 1,505.3 | 768.9 | 834.4 | 736.4 | 95.8 | (65.5 | ) | (7.9 | )% |
CashFlowsfromOperatingActivities. Net cash provided by operating activities was Won 4,243.2 billion in 2016, Won 3,778.1 billion in 2015 and Won 3,677.4 billion in 2014, Won 3,558.6 billion in 2013 and Won 3,999.7 billion in 2012.2014. Profit for the year was Won 1,660.1 billion in 2016, Won 1,515.9 billion in 2015 and Won 1,799.3 billion in 2014, Won 1,609.5 billion in 2013 and Won 1,115.7 billion in 2012.2014. Net cash provided by operating activities in 20142016 increased by 3.3%12.3% from 2013,2015 primarily due to an 11.8% increase in profit for the year to Won 1,799.3 billion in 2014 from Won 1,609.5 billion in 2013.fulfillment of certainyear-end cash payment obligations on the next business day after December 31, 2016, which was not a business day. Net cash provided by operating activities in 2013 decreased2015 increased slightly by 11.0%2.7% from 2012, primarily due to a decrease in collections of other accounts receivable related to sales of handsets on installment payment plans and a decrease in other accounts payable. There have been no additional other accounts receivable related to sales of handsets on installment payment plans since September 2010, when Hana SK Card (which has subsequently merged into KEB Card) took over this financing from us.2014.
CashFlowsfromInvestingActivities. Net cash used in investing activities was Won 2,462.2 billion in 2016, Won 2,880.5 billion in 2015 and Won 3,683.2 billion in 2014, Won 2,506.5 billion in 2013 and Won 5,309.6 billion in 2012.2014. Cash inflows from investing activities were Won 1,140.7 billion in 2016, Won 914.5 billion in 2015 and Won 341.4 billion in 2014,2014. Cash inflows in 2016 were primarily attributable to proceeds from disposals oflong-term investment securities of Won 1,251.8555.5 billion, mostly in connection with the disposal of our 15.0% interest in Loen Entertainment for shares of Kakao Corporation and Won 218.0 billion in 2013cash in February 2016 and the disposal of our 1.3% interest in POSCO for Won 1,831.2305.1 billion in 2012.November 2016, collection ofshort-term loans of Won 239.0 billion and decrease inshort-term financial instruments, net of Won 222.3 billion. Cash inflows in 2015 were primarily attributable to collection ofshort-term loans of Won 398.3 billion and proceeds from disposals of investments in associates and joint ventures of Won 185.1 billion, mostly in connection with the disposal of 27,725,264 shares of KEBHana Card for Won 176.3 billion. Cash inflows in 2014 were primarily attributable to collection ofshort-term loans of Won 207.4 billion. Cash inflows in 2013 were primarily attributable to collection of short-term loans of Won 290.9 billion, proceeds from disposal of long-term investment
securities of Won 287.8 billion, mostly in connection with the merger of SK Marketing & Co., Ltd. into SK Planet in February 2013, proceeds from disposal of a subsidiary of Won 215.9 billion, mostly attributable to the sale in July 2013 of shares of Loen Entertainment, net proceeds from the disposition of non-current assets held for sale of Won 190.4 billion, relating to the sale of shares of SKY Property Management, and a decrease in short-term financial instruments, net of Won 186.4 billion, the proceeds of which were used to repay our outstanding debt. Cash inflows in 2012 were primarily attributable to proceeds from disposal of long-term investment securities of Won 511.4 billion, mostly relating to the sale in October 2012 of half of the POSCO shares we owned, a decrease in short-term financial instruments, net of Won 464.5 billion, the proceeds of which were used to repay our outstanding debt, collection of short-term loans of Won 282.7 billion, as well as proceeds from disposal of property and equipment of Won 271.1 billion, mostly relating to the sales of certain office buildings.
Cash outflows for investing activities were Won 3,602.9 billion in 2016, Won 3,795.0 billion in 2015 and Won 4,024.6 billion in 2014, Won 3,758.3 billion in 2013 and Won 7,140.8 billion in 2012.2014. Cash outflows in 2016, 2015 and 2014 were primarily attributable to expenditures related to the acquisition of property and equipment of Won 2,490.5 billion, Won 2,478.8 billion and Won 3,008.0 billion, respectively, primarily in connection with the acquisition of LTE equipment. Cash outflows in 2013 were primarily attributable to expenditures related toequipment and the acquisition of property and equipment of Won 2,879.1 billion, primarily in connection with the further expansion of our LTE network to provide nationwide coverage and to enhance and improve its quality. Cash outflows in 2012 were largely attributable to expenditures related to the acquisition of property and equipment of Won 3,394.3 billion, primarily in connection with the further expansion of our LTE network to provide nationwide coverage and to enhance and improve its quality, and the acquisition of investments in associates of Won 3,098.8 billion, primarily relating to our acquisition of a 21.05% equity stake in SK Hynix.network.
CashFlowsfromFinancingActivities. Net cash used in financing activities was Won 1,044.8 billion in 2016, Won 964.6 billion in 2015 and Won 559.4 billion in 2014 and Won 573.2 billion in 2013 and net cash provided by financing activities was Won 585.3 billion in 2012.2014. Cash inflows from financing activities were Won 861.6 billion in 2016, Won 1,375.2 billion in 2015 and Won 1,421.0 billion in 2014, Won 1,852.2 billion in 2013 and Won 4,245.3 billion in 2012.2014. Such inflows were primarily driven by the issuance of debentures, which provided cash of Won 776.7 billion in 2016, Won 1,375.0 billion in 2015 and Won 1,255.5 billion in 2014 Won 1,328.7 billion in 2013 and Won 2,098.4 billion in 2012, proceeds fromlong-term borrowings, which provided cash of Won 49.0 billion in 2016 and Won 62.6 billion in 2014, Won 105.1 billion in 2013 and Won 2,059.0 billion in 2012, and the issuance of hybrid bonds in 2013, which provided cash of Won 398.5 billion.2014. In 2014, we had cash inflows of Won 102.9 billion due to proceeds fromshort-term borrowings. The proceeds from long-term borrowings in 2012 consist primarily of borrowings pursuant to a syndicated loan in connection with our acquisition of a 21.05% equity stake in SK Hynix.
Cash outflows for financing activities were Won 1,906.5 billion in 2016, Won 2,339.8 billion in 2015 and Won 1,980.5 billion in 2014, Won 2,425.4 billion in 2013 and Won 3,660.0 billion in 2012.2014. Cash outflows for financing activities included payment of dividends, repayments of current portion oflong-term debt, repayment oflong-term borrowings, repayment of debentures, acquisition of treasury stock and repayment ofshort-term borrowings, among other items. Payment of dividends were Won 706.1 billion in 2016, Won 668.5 billion in 2015 and Won 666.8 billion in 2014,2014. Repayments of otherlong-term account payables were Won 655.9122.7 billion in 2013 and2016, Won 655.1191.4 billion in 2012. Repayments of current portion of long-term debt were2015 and Won 207.8 billion in 2014,2014. Repayment oflong-term borrowings were Won 161.633.4 billion in 2013 and2016, Won 102.721.9 billion in 2012. Repayment of long-term borrowings were2015 and Won 23.3 billion in 2014, Won 467.2 billion in 2013 and Won 1,660.5 billion in 2012.2014. Repayment of debentures were Won 770.0 billion in 2016, Won 620.0 billion in 2015 and Won 1,039.9 billion in 2014, Won 772.0 billion in 2013 and Won 1,145.7 billion in 2012.2014. Decrease inshort-term borrowings, net accounted for Won 340.2257.4 billion and Won 61.4106.6 billion of cash outflows for financing activities in 20132016 and 2012,2015, respectively. In 2015, we had cash outflows of Won 490.2 billion due to acquisition of treasury stock and cash outflows of Won 220.4 billion related to equity interest transactions, principally in connection with the Share Exchange.
As of December 31, 2014,2016, we had totallong-term debt (excluding current portion) outstanding of Won 5,798.96,478.6 billion, which included debentures in the amount of Won 5,649.26,338.9 billion and bank and institutional borrowings in the amount of Won 149.7139.7 billion. As of December 31, 2013,2015, we had totallong-term debt (excluding current portion) outstanding of Won 5,010.46,560.7 billion, which included debentures in the amount of Won 4,905.66,439.1 billion and bank and institutional borrowings in the amount of Won 104.8121.6 billion. The increase in our long-term debt as of December 31, 2014 was primarily due to an increase in debentures issued during 2014 for investments to develop new growth engines, including acquisitions such as Neo S Networks, Iriver and Shopkick, and for investments to enhance the competitiveness of our broadband Internet and IP TV services. For a description of ourlong-term debt, see note 1816 of the notes to our consolidated financial statements.
In September 2006,As of December 31, 2016, we issued Korean Won-denominated corporate bonds in anhad Won 4,549.6 billion aggregate principal amount of KoreanWon-denominated debentures outstanding, of which SK Telecom issued Won 200.03,319.6 billion, with a maturity of ten yearsSK Broadband issued Won 1,210.0 billion and an annual interest rate of 5.0%.
In July 2007, wePS&Marketing issued U.S. dollar-denominated bonds in theWon 20 billion, and Won 2,670.5 billion aggregate principal amount of US$400 million with a maturity of twenty yearsdebentures outstanding denominated in foreign currencies, including U.S. dollars, Swiss Francs and an annual interest rate of 6.625%.
In March 2008, we issued two tranches of Korean Won-denominated bonds, each tranche in the principal amount of Won 200.0 billion with an annual interest rate of 5.00%, maturing in seven and ten years, respectively.
In January 2009, we issued notes in the principal amounts of Won 40.0 billion with a maturity of seven years and annualAustralian Dollars. The interest rates of 5.54%. In March 2009, we issued notes inour debentures range from 1.58% to 6.63% depending on the principal amount of Won 230.0 billion with aoffering size, maturity, of seven years and an annual interest rate environment at the time of 5.92%.
In December 2011, we issued two tranches of Korean Won-denominated bonds in the principal amounts of Won 110.0 billionoffering and Won 190.0 billioncurrency, among other factors. We have a diversified maturity profile with maturities of fiverespect to our debentures. See “— Contractual Obligations and ten years, respectively, and annual interest rates of 3.95% and 4.22%, respectively.
In June 2012, we issued Swiss Franc-denominated bonds in the principal amount of CHF 300 million with a maturity of five years and an annual interest rate of 1.75%. In August 2012, we issued three tranches of Korean Won-denominated bonds in the following principal amounts with the following maturities and annual interest rates: (i) a principal amount of Won 170.0 billion with a maturity of seven years and an annual interest rate of 3.24%, (ii) a principal amount of Won 140.0 billion with a maturity of ten years and an annual interest rate of 3.30% and (iii) a principal amount of Won 90.0 billion with a maturity of twenty years and an annual interest rate of 3.45%. In November 2012, we issued U.S. dollar-denominated bonds in the principal amount of US$700 million with a maturity of 5.5 years and an annual interest rate of 2.13%.
In January 2013, we issued Australian Dollar-denominated bonds in the principal amount of AUD 300 million with a maturity of four years and an annual interest rate of 4.75%. In March 2013, we issued floating rate notes in the principal amount of US$300 million with a maturity of 17 years and an annual interest rate based on LIBOR plus 0.88%. In April 2013, we issued two tranches of Korean Won-denominated bonds in the following principal amounts with the following maturities and annual interest rates: (i) a principal amount of Won 230.0 billion with a maturity of ten years and an annual interest rate of 3.03% and (ii) a principal amount of Won 130.0 billion with a maturity of twenty years and an annual interest rate of 3.22%.Commitments” for more details.
In May 2014, we issued (i) two tranches of Korean Won-denominated bonds in the principal amounts of Won 50.0 billion and Won 150.0 billion with maturities of five years and ten years, respectively, and annual interest rates of 3.30% and 3.64%, respectively and (ii) two tranches of Korean Won-denominated bonds with optional redemption terms in the principal amount of Won 50.0 billion with maturities of fifteen years each, and annual interest rates of 4.73% and 4.72%, respectively. In October 2014, we issued three tranches of KoreanWon-denominated bonds in the principal amounts of Won 160.0 billion, Won 150.0 billion and 190.0 billion with maturities of five years, seven years and ten years, respectively, and annual interest rates of 2.53%, 2.66% and 2.82%, respectively.
In November 2011, SK Telink issued Korean Won-denominated bonds in the principal amount of Won 10.0 billion with a maturity of four years and an annual interest rate of 4.62%.
In January 2012, SK Broadband issued three tranches of Korean Won-denominated bonds in the following principal amounts with the following maturities and annual interest rates: (i) a principal amount of Won 110.0 billion with a maturity of three years and an annual interest rate of 4.09%, (ii) a principal amount of Won 110.0 billion with a maturity of three years and an annual interest rate of 4.14% and (iii) a principal amount of Won 100.0 billion with a maturity of five years and an annual interest rate of 4.28%. In October 2012, SK Broadband issued two tranches of Korean Won-denominated bonds in the principal amounts of Won 130.0 billion and Won 120.0 billion with maturities of three and five years, respectively, and annual interest rates of 3.14% and 3.27%, respectively. In October 2013, SK Broadband issued U.S. dollar-denominated bonds in the principal amount of US$300 million with a maturity of five years and an annual interest rate of 2.875%.
In April 2014, SK Broadband issued two tranches of Korean Won-denominated bonds in the principal amounts of Won 80.0 billion and Won 210.0 billion with maturities of two years and five years, respectively, and annual interest rates of 3.05% and 3.49%, respectively. In September 2014, SK Broadband issued KoreanWon-denominated bonds in the principal amount of Won 130.0 billion with a maturity of five years and an annual interest rate of 2.76%.
In May 2014, PS&Marketing issued Korean Won-denominated bonds in the principal amount of Won 10.0 billion with a maturity of two years and an annual interest rate of 3.24%. In June 2014, PS&Marketing issued Korean Won-denominated bonds in the principal amount of Won 20.0 billion with a maturity of three years and an annual interest rate of 3.48%. In October 2014, PS&Marketing issued Korean Won-denominated bonds in the principal amount of Won 10.0 billion with a maturity of six months and an annual interest rate of 3.12%.
As of December 31, 2014,2016, a substantial portion of our foreign currency-denominated long-termcurrency-denominatedlong-term borrowings, which amounted to approximately 30.6%37.1% of our total outstandinglong-term debt, including current portion and present value discount as of such date, was denominated in Dollars. However, substantially all of our revenue and operating expenses are denominated in Won. We generally pay for imported capital equipment in Dollars. Appreciation of the Won against the Dollar will result in net foreign currency transaction and translation gains, while depreciation of the Won against the Dollar will result in net foreign currency transaction and translation losses. Changes in foreign currency exchange rates will also affect our liquidity because of the effect of such changes on the amount of funds required for us to make interest and principal payments on our foreigncurrency-denominated debt. For a description of swap or derivative transactions we have entered into, among other transactions, to mitigate the effects of such losses, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
Capital Requirements
Historically, capital expenditures, repayment of outstanding debt, frequency usage payments and research and development expenditures have represented our most significant use of funds. In recent years, we have also increasingly dedicated capital resources to develop and invest in new and growing business areas,growth engines, including ournext-generation growth businesses in IoT solutions, media ande-commerce and other innovative products and services offered through our platform business, our B2B solutions business and our healthcare business, including through acquisitions and strategic alliances, as well as our investment in SK Hynix.services. In addition, we have used funds for the acquisition of treasury shares, financing of our subscribers’ handset purchases on installment payment plans and payment of retirement and severance benefits, as well as for the acquisition of additional frequency licenses.benefits.
To fund our scheduled debt repayment and planned capital expenditures over the next several years, we intend to rely primarily on cash flows from operating activities, as well as bank and institutional borrowings, and offerings of debt or equity in the domestic or international markets. We believe that these sources will be sufficient to fund our planned capital expenditures for 2015.2017. Our ability to rely on these alternatives could be affected by the liquidity of the Korean financial markets or by Government policies regarding Won and foreign currency borrowings and the issuance of equity and debt. Our failure to make needed expenditures would adversely affect our ability to sustain subscriber growth and provide quality services and, consequently, our results of operations.
CapitalExpenditures. The following table sets forth our actual capital expenditures for 2014, 20132016, 2015 and 2012:2014:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
(In billions of Won) | (In billions of Won) | |||||||||||||||||||||||
LTE Network | ₩ | 1,357.2 | ₩ | 1,439.4 | ₩ | 1,767.1 | ₩ | 1,104.0 | ₩ | 1,022.7 | ₩ | 1,357.2 | ||||||||||||
WCDMA Network | 92.3 | 124.2 | 294.7 | 27.7 | 90.0 | 92.3 | ||||||||||||||||||
Fixed-line Network | 399.0 | 403.5 | 324.8 | 699.6 | 559.4 | 601.4 | ||||||||||||||||||
Other Network | 283.2 | 338.5 | 492.6 | 376.3 | 332.4 | 283.2 | ||||||||||||||||||
Others | 876.3 | 573.5 | 515.1 | 282.9 | 474.3 | 673.9 | ||||||||||||||||||
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Total | ₩ | 3,008.0 | ₩ | 2,879.1 | ₩ | 3,394.3 | ₩ | 2,490.5 | ₩ | 2,478.8 | ₩ | 3,008.0 | ||||||||||||
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(1) | Includes all capital expenditures made by SK Broadband. |
(2) | Includes investments in our CDMA, WiBro andWi-Fi networks as well as other capital expenditures related to our networks. |
Includesnon-network related investments such as capital expenditures for product development and maintenance and upgrades of our information technology systems and equipment. |
We set our capital expenditure budget for each upcoming year on an annual basis. Our actual capital expenditures in 2016, 2015 and 2014 were Won 2,490.5 billion, Won 2,478.8 billion and Won 3,008.0 billion.billion, respectively. Of such amount,amounts, we spent approximately Won 1,357.2 billion, or44.3%, 41.3% and 45.1%, in 2016, 2015 and 2014, respectively, on capital expenditures related to expanding and enhancing the quality of our LTE network and Won 876.3 billion onnetwork. Our other
non-network related capital expenditures in 2016, 2015 and 2014 primarily related to developing new products and maintenance and upgrades to our information technology systems. Our actual capital expenditures in 2013 were Won 2,879.1 billion. Of such amount, we spent approximately Won 1,439.4 billion, or 50.0%, related to expanding and enhancing the quality of our LTE network. Our actual capital expenditures in 2012 were Won 3,394.3 billion. Of such amount, we spent approximately Won 1,767.1 billion, or 52.1%, related to expanding and enhancing the quality of our LTE network.
We are required to pay the cost of our WCDMA license for 2 x 10 MHz of spectrum in the 2.1 GHz band that we acquired in May 2010 in annual installments of Won 17.5 billion each year from 2012 through 2014 after the initial payment of Won 52.6 billion in 2010. We are also required to pay license fees for the additional frequency licenses in the 800 MHz and 1.8 GHz spectrums that we acquired in 2011. The license fee for the 30 MHz bandwidth in the 800 MHz spectrum is Won 416.5 billion, of which Won 208.3 billion was paid in 2011 with the remainder payable in annual installments from 2013 through 2015. The license fee for the 20 MHz of bandwidth in the 1.8 GHz spectrum was Won 995.0 billion, of which Won 74.6 billion, Won 74.6 billion and Won 248.8 billion was paid in 2013, 2012 and 2011, respectively, and the remainder has been waived in connection with our return of the right to use the 20 MHz bandwidth. The license fee for the 35 MHz of bandwidth in the 1.8 GHz spectrum was Won 1.08 trillion, of which Won 115.2 billion was paid in 2013, and the remainder is payable in annual installments through the end of the license period in 2021. In addition, we were reallocated 27 MHz of spectrum in the 2.3 GHz band for our WiBro service in March 2012. The license fee for such spectrum is Won 17.3 billion, of which Won 8.7 billion was paid in 2012, and the remainder is payable in annual installments from 2014 through 2016. For more information, see note 17 of the notes to our consolidated financial statements.
In addition, we have been making capital expenditures to build more advanced networks based on LTE technology. We commenced commercial LTE services in July 2011 and expanded our LTE network nationwide and launched our LTEmulti-carrier technology in 2012. We launched ourLTE-A service in June 2013, our wideband LTE-A service in September 2013 and our tri-bandLTE-A service in December 2014. For a more detailed description of our LTE network, see “Item 4.B.
Business Overview — Digital Wireless Network — LTE Network.” We plan to continue to make capital investments in 20152017 to further expandimprove and enhanceexpand our LTE network and further develop related technologies.
The following table sets forth our payment obligations relating to our acquisitions of frequency usage rights.
Band | Technology (width) | Date of Acquisition | Initial Payment (in billions of Won) | Initial Payment Year | Annual Payment (in billions of | Annual Payment Term | ||||||||||||||||||
800MHz | CDMA(10M) |
June 2011 |
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208.3 |
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69.4 |
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2013-2015 |
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LTE(20M) | ||||||||||||||||||||||||
1.8GHz
| LTE(35M)
| 20M | Dec. 2011 | 248.8 | 2011 | 74.6 | 2012-2021 | |||||||||||||||||
15M | Sept. 2013 | 115.3 | 2013 | 43.2 | 2014-2021 | |||||||||||||||||||
2.1GHz | WCDMA(20M) | May 2010 | 52.6 | 2010 | 17.5 | 2012-2014 | ||||||||||||||||||
LTE(40M) | Dec. 2001 | 650.0 | 2001 | 130.0 | (1) | 2007-2016 | ||||||||||||||||||
WCDMA(20M) | Dec. 2016 | 141.2 | 2016 | 85.3 | 2017-2021 | |||||||||||||||||||
2.3GHz | WiBro(30M) | March 2012 | 8.7 | 2012 | 2.9 | 2014-2016 | ||||||||||||||||||
2.6GHz | LTE(40M+20M) | August 2016 | 332.5 | 2016 | 99.8 | 2017-2026 |
(1) | Denotes the average annual payment amount for years 2007 through 2016. The actual annual payment amounts for years 2007 through 2016 ranged from Won 90 billion to Won 170 billion. |
For more information, see notes 15 and 17 of the notes to our consolidated financial statements.
We expect that our capital expenditure amount in 20152017 will be less thansimilar to that in 2014.of 2016. Our expenditures will be for a range of projects, including investments to improve and expand our LTE network and launch our LTE-A services, investments to maintainimprove and expand our WCDMA network-based products and services,Wi-Fi network, investments into develop our wirelessInternet-related and convergence businessesplatform business portfolio and funding for mid-tolong-term research and development projects, as well as other initiatives, primarily related to the development of our new businesses such as our B2B solutions and healthcaregrowth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. However, our overall expenditure levels and our allocation among projects remain subject to many uncertainties. We may increase, reduce or suspend our planned capital expenditures for 20152017 or change the timing and area of our capital expenditure spending from the estimates described above in response to market conditions or for other reasons. We may also make additional capital expenditure investments as opportunities arise.arise, including in connection with building out our networks on any new bandwidths we may choose to acquire in any frequency bandwidth auctions held by the MSIP in 2017. Accordingly, we periodically review the amount of our capital expenditures and may make adjustments based on the current progress of capital expenditure projects and market conditions. No assurance can be given that we will be able to meet any such increased expenditure requirements or obtain adequate financing for such requirements, on terms acceptable to us, or at all.
In addition, through the Share Exchange, we intend to acquire all of the shares of SK Broadband that we do not otherwise own in exchange for our treasury shares such that SK Broadband will become our wholly-owned subsidiary. For a more detailed discussion of the Share Exchange, see “Item 4.A. History and Development of the Company — Recent Developments.”
RepaymentofOutstandingDebt. As of December 31, 2014,2016, our principal repayment obligations with respect tolong-term borrowings, bonds and obligations under capital leases outstanding were as follows for the periods indicated:
Year Ending December 31, | Total | |||
(In billions of Won) | ||||
2015 | ₩ | 947,046.8 | ||
2016 | 697.5 | |||
2017 | 1,578,059.5 | |||
2018 and thereafter | 4,261,548.0 |
Year Ending December 31, | Total | |||
(In billions of Won) | ||||
2017 | ₩ | 889.6 | ||
2018 | 1,671.7 | |||
2019 | 928.4 | |||
2020 and thereafter | 3,904.8 |
We note that no commercial bank in Korea may extend credit (including loans, guarantees and purchase of bonds) in excess of 20.0% of its shareholders’ equity to any one borrower. In addition, no commercial bank in Korea may extend credit exceeding 25.0% of the bank’s shareholders’ equity to any one borrower and to any person with whom the borrower shares a credit risk.
InvestmentsinNew Businesses and Global Expansion and Other Needs.GrowthBusinesses. We may also require capital for investments to support our development of growing businesses areas.new growth businesses.
For example, in February 2012, we acquired a 21.05% equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of approximately Won 3.4 trillion, and became its largest shareholder.
In April 2014, we acquired a controlling interest in Neosnetworks, a provider of residential and small business electronic security and other related alarm monitoring services, for an aggregate purchase price of approximately
Won 24.0 billion. We acquired additional interests in Neosnetworks in April 2015 for Won 40.0 billion, resulting in an increase in our ownership of Neosnetworks to 83.9%. In October 2016, we acquired the remaining 16.1% interest in Neosnetworks through SK Telink. In August 2014, we acquired a 39.3% equity interest of Iriver, a manufacturer of digital audio players and other portable media devices, which we increased to 49.0% in December 2014, for an aggregate purchase price of approximately Won 54.5 billion.
We also acquired Won 5.0 billion of convertible bonds issued by Iriver, which may be converted into additional equity interests of Iriver when certain conditions are met. In October 2014, SK Planet acquired a 100.0% ownership interest through its less thanwholly-owned subsidiary of Shopkick, a developer of a shopping app for mobile devices that provides benefits to customers for visiting stores, in order to penetrate the commerce business in the United States for an aggregate purchase price of Won 230.9 billion and the assumption of Won 18.7 billion in current liabilities.
From time to time, we may make other investments in telecommunications or other businesses, in Korea or abroad, where we perceive attractive opportunities for investment. From time to time, we may also dispose of existing investments when we believe that doing so would be in our best interest.
SeverancePayments. The defined benefit obligation, which is the total accrued and unpaid retirement and severance benefits for our employees, as of December 31, 20142016 was Won 91.670.7 billion. This amount was reflected in our consolidated financial statements as a liability, which is net of deposits with insurance companies totaling Won 346.3555.2 billion to fund a portion of the employees’ severance indemnities.
Also see “Item 6.D. Employees — Employee Stock Ownership Association and Other Benefits” and note 2220 of the notes to our consolidated financial statements.
Dividends. Total cash outflows for payments of dividends amounted to Won 706.1 billion in 2016, Won 668.5 billion in 2015 and Won 666.8 billion in 2014, Won 655.9 billion in 2013 and Won 655.1 billion in 2012.2014.
In April 2015,2017, we distributed annual dividends at Won 8,4009,000 per share (exclusive of an interim dividend of Won 1,000 per share) to our shareholders for an aggregate payout amount of Won 595.9635.5 billion.
Contractual Obligations and Commitments
The following summarizes our contractual cash obligations at December 31, 2014,2016, and the effect such obligations are expected to have on liquidity and cash flow in future periods:
Payments Due by Period(1) | Payments Due by Period(1) | |||||||||||||||||||||||||||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 4-5 Years | After 5 Years | Total | Less Than 1 Year | 1-3 Years | 4-5 Years | After 5 Years | |||||||||||||||||||||||||||||||
(In billions of Won) | (In billions of Won) | |||||||||||||||||||||||||||||||||||||||
Bonds | ||||||||||||||||||||||||||||||||||||||||
Principal | ₩ | 6,247,161 | ₩ | 565,000 | ₩ | 1,513,156 | ₩ | 2,019,200 | ₩ | 2,149,805 | ₩ | 7,220.1 | ₩ | 856.0 | ₩ | 2,518.5 | ₩ | 1,402.6 | ₩ | 2,443.0 | ||||||||||||||||||||
Interest | 1,263,101 | 205,663 | 296,430 | 247,522 | 513,486 | 1,263.3 | 227.9 | 304.8 | 210.2 | 520.4 | ||||||||||||||||||||||||||||||
Long-term borrowings | ||||||||||||||||||||||||||||||||||||||||
Principal | 540,187 | 382,043 | 65,601 | 54,628 | 37,915 | 174.4 | 33.6 | 81.6 | 52.3 | 6.9 | ||||||||||||||||||||||||||||||
Interest | 15,221 | 4,771 | 4,999 | 3,819 | 1,632 | 12.9 | 6.4 | 4.7 | 1.7 | 0.1 | ||||||||||||||||||||||||||||||
Capital lease obligations | ||||||||||||||||||||||||||||||||||||||||
Principal | 4 | 4 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Interest | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Operating leases | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Facility deposits | 4,453 | 560 | — | — | 3,893 | 6.3 | 0.4 | — | — | 5.9 | ||||||||||||||||||||||||||||||
Derivatives | 130,889 | 15,145 | 112,404 | 2,604 | 736 | 88.4 | 88.2 | — | 0.2 | — | ||||||||||||||||||||||||||||||
Other long-term payables(2) | ||||||||||||||||||||||||||||||||||||||||
Otherlong-term payables(2) | ||||||||||||||||||||||||||||||||||||||||
Principal | 900,024 | 190,134 | 238,552 | 235,669 | 235,669 | 2,013.1 | 302.9 | 605.7 | 605.7 | 498.8 | ||||||||||||||||||||||||||||||
Interest | 94,669 | 25,604 | 36,218 | 22,993 | 9,854 | 117.3 | 24.8 | 48.6 | 27.2 | 16.7 | ||||||||||||||||||||||||||||||
Short-term borrowings | 366,600 | 366,600 | — | — | — | 2.6 | 2.6 | — | — | — | ||||||||||||||||||||||||||||||
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Total contractual cash obligations | ₩ | 9,562,309 | ₩ | 1,755,524 | ₩ | 2,267,360 | ₩ | 2,586,435 | ₩ | 2,952,990 | ₩ | 10,898.4 | ₩ | 1,542.8 | ₩ | 3,563.9 | ₩ | 2,299.9 | ₩ | 3,491.8 | ||||||||||||||||||||
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(1) | We are contractually obligated to make severance payments to eligible employees we have employed for more than one year, upon termination of their employment, regardless of whether such termination is voluntary or involuntary. Accruals for severance indemnities are recorded based on the amount we would be required to pay in the event the employment of all our employees were to terminate at the balance date. However, we have not yet estimated cash flows for future periods. Accordingly, payments due in connection with severance indemnities have been excluded from this table. |
(2) | Related to acquisition of frequency licenses. See note 17 of the notes to our consolidated financial statements. |
See note 3735 of the notes to our consolidated financial statements for details related to our other commitments and contingencies.
Critical Accounting Policies, Estimates And Judgments
Our consolidated financial statements are prepared in accordance with IFRS. The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments including those related to allowances for doubtful accounts, fair value measurements of financial instruments, estimated useful lives and impairment oflong-lived assets, impairment of goodwill, provisions, retirement benefit plans and income taxes. We base our estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies, the following may involve a higher degree of judgment or complexity:
Allowances for Doubtful Accounts
An allowance for doubtful accounts is provided based on a review of the status of individual receivable accounts at the end of the year. We maintain allowances for doubtful accounts for estimated losses that result from the inability of our customers to make required payments. We base our allowances on the likelihood of
recoverability of accounts receivable based on the aging of accounts receivables at the end of the period, past customer default experience and their credit status, and economic and industrial factors. Allowance for doubtful accounts amounted to Won 328.2369.3 billion in 20142016 and Won 324.0344.0 billion in 2013.2015. As there was no significant change in our assumptions and judgments including on the aging of accounts receivables, past customer default experience and credit status, and economic and industrial factors, there was no significant change in the percentage of allowance for doubtful accounts as of December 31, 20142016 compared to the prior year. If economic or specific industry trends worsen beyond our estimates, the allowances for doubtful accounts we have recorded may be materially adjusted in the future.
Fair Value Measurement of Financial Instruments
Subsequent to initial recognition,available-for-sale financial assets and derivative financial assets are stated at fair value with any gains or losses arising on remeasurement recognized in profit for the period or other comprehensive income. When measuring fair value, we use quoted prices in active markets to the extent such prices exist. The fair values of financial instruments, including derivative instruments, that are not traded in an active market are determined using valuation techniques that require management’s estimates of future cash flows and discount rates. Our management uses its judgment to select a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of each reporting period. See note 42 of the notes to our consolidated financial statements.
Estimated Useful Lives of Long-lived Assets
We estimate the useful lives of long-lived assets in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The useful lives are estimated at the time a long-lived asset is acquired and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization expense in future periods. See note 4 of the notes to our consolidated financial statements.
Impairment ofLong-lived Assets Including the Frequency Usage Rights
Long-lived assets generally consist of property, plant and equipment and intangible assets. We review our depreciation and amortization methods, estimated useful lives and residual values oflong-lived assets at the end of each annual reporting period. An impairment loss is recognized when the asset’s recoverable amount is less than its carrying amount. The recoverable amount of a long-lived asset is the greater of an asset’s fair value less costs to sell
and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The recoverable amounts ofcash-generating units are determined based onvalue-in-use calculations, which require the use of estimates. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated recovery value.
Our intangible assets include our frequency usage rights, which have contractual lives of 6.35 to 13.1 years and are amortized from the date commercial service is initiated through the end of their contractual lives. Because the use of frequency usage rights presents risks and challenges to our business, any or all of which, if realized or not properly addressed, may have a material adverse effect on our financial condition, results of operations and cash flows, we review the frequency usage rights for impairment on an annual basis. In connection with our review, we utilize the estimatedlong-term revenue and cash flow forecasts. The use of different assumptions within our cash flow model could result in different recoverable amounts for our frequency usage rights. The results of our review using the testing method described above resulted in no impairment of our frequency usage rights in 2014.2016. See note 1715 of the notes to our consolidated financial statements.
Impairment of Goodwill
Goodwill is measured as the excess of the sum of: (1) the consideration transferred, (2) the amount of anynon-controlling interests in the acquiree and (3) the fair value of the acquirer’s previously held equity interest in the acquiree (if any), over the net fair value of theacquisition-date amounts of the identifiable assets acquired and the
liabilities assumed. Goodwill is not depreciated, but tested for impairment at the end of each annual reporting period or whenever there is an indication that the asset may be impaired. Goodwill is carried at cost less accumulated impairment losses and the impairment losses are not reversed. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known ascash-generating units. Determining whether goodwill is impaired requires an estimation of the value in use of thecash-generating units to which goodwill has been allocated. The value in use calculation requires our management to estimate the future cash flows expected related to the respectivecash-generating unit and the determination of an appropriate discount rate in order to calculate present value. See note 1614 of the notes to our consolidated financial statements.
Provisions for Handset Subsidy and Restoration
We provide handset subsidies to subscribers who purchase handsets on an installment basis. When the subscribers agree to use our services for a predetermined service period and purchase handsets on an installment basis, the subsidies are paid every month over the installment period and we estimate a provision for handset subsidies to be paid, which is recognized as commissions paid in operating expenses at the time telecommunication service contracts are made. Our provision for handset subsidies was Won 26.824.7 billion as of December 31, 20142016 and Won 53.95.7 billion as of December 31, 2013.2015. Our provision for handset subsidies has decreasedgenerally decreases as we gradually reducedreduce the amount of handset subsidies provided to subscribers.
We estimate restoration costs required to restore leased premises on which our cell sites and switching equipment are located after termination of the leases. These restoration costs are calculated on the basis of the identified costs for the current financial year, extrapolated into the future based on management’s best estimates of future trends in prices, inflation, and other factors, and are discounted to present value at arisk-adjusted rate specifically applicable to the relevant liability. Forecasts of estimated future provisions are revised in light of future changes in business conditions or technological requirements. See note 1918 of the notes to our consolidated financial statements.
Retirement Benefit Plans
We have defined retirement benefit plans. The costs of providing benefits under the plans are determined using actuarial valuation methods that require management assumptions on discount rates, expected rates of salary increases and expected rates of returns on plan assets. These assumptions involve critical uncertainties due to thelong-term nature of the retirement benefit plans. Due to changing market and economic conditions, the underlying key assumptions may differ from actual developments and may lead to significant changes in our defined retirement
benefit plans. We immediately recognize all actuarial gains and losses arising from defined retirement benefit plans in retained earnings. If the estimated average discount rates by actuarial assumptions used in these valuations were increased by 0.5%, then the estimated defined benefit obligations would have decreased by Won 17.324.2 billion, or 4.0%4.1% in total. If the expected rates of salary increase were increased by 0.5%, then the estimated defined benefit obligations would have increased by Won 18.126.4 billion, or 4.1%4.4% in total. Defined benefit liabilities were Won 91.670.7 billion in 20142016 and 74.2Won 98.9 billion in 2013.2015. Defined benefit liabilities in 2014 increased2016 decreased by Won 17.428.2 billion compared to 20132015 due to a decrease by 0.74%p0.49% of the estimated average discount rate anddespite an increase by 0.29%p0.02% of the average expected rates of salary increase. See note 2220 of the notes to our consolidated financial statements.
Income Taxes
We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each year’s liability by taxing authorities.
We believe that the accounting estimate related to assessment of deferred tax assets for recoverability is a “critical accounting estimate” because (1) it requires management to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities and (2) the impact that changes in actual performance versus these estimates could have on the realization of tax benefits as reported in our results of operations could be material. Management’s assumptions require significant judgment
because actual performance has fluctuated in the past and may continue to do so. As of December 31, 20142016 and 2013,2015, unused tax loss carryforwards of Won 729.6755.1 billion and Won 669.91,034.0 billion, respectively, were not recognized as deferred tax assets because we did not believe that their realization would be probable. The increasedecrease of Won 59.7278.9 billion in unrecognized tax loss carryforwards in 20142016 compared to 2013 were2015 was primarily duerelated to unrecognizedchanges in the interpretation of certain tax regulations allowing for the use in 2016 of tax loss carryforwards.carryforwards incurred by SK Planet relating to its loss on disposal of shares of SK Communications. See note 3129 of the notes to our consolidated financial statements.
Item 5.C. | ResearchandDevelopment,PatentsandLicenses,etc. |
We maintain a high level of spending on our research and development activity. We also donate funds to several Korean research institutes and educational organizations that focus on research and development activity. We believe that we must maintain a substantialin-house technology capability to achieve our strategic goals.
In 2014, 20132016, 2015 and 2012,2014, our annual research and development expenses were Won 397.8351.1 billion, Won 363.7322.7 billion and Won 346.3 billion.397.8 billion, respectively. Such expenses consist of research and development costs that are expensed and costs that are amortized during the respective period as well as donations to Korean research institutions and educational organizations of Won 4.0 billion in 2012.period.
Our total research and development expenses were approximately 2.0% in 2016, 1.9% in 2015 and 2.3% in 2014, 2.1% in 2013 and 1.9% in 2012, respectively, of operating revenue and other income.
The main focus of our research and development activity is the development of new wireless technologies and services and value-added technologies and services for our LTE network, such as wireless data communications, as well as development of new technologies that reflect the growing convergence between telecommunications and other industries. Our research and development activity is centered at a research center withstate-of-the-art facilities and equipment established in January 1999 inBundang-gu,Seongnam-si, Gyeonggi-do, Korea. To more efficiently manage our research and development resources, our research and development center is organized into the following core areas:
The network technologyNetwork Technology R&D center,Center, through which has pioneered the development of WCDMAwe research and LTE technologies. This center is developing next-generation networkdevelop5G-related technologies as well as technologies for access network, core network, equipmentbroadband Internet, wireless devices and new services. Current projects include the improvement of LTE technology and the next generation transmission technology and the development of data femtocell and hybrid access points to improve network coverage, as well as location-based services and mobile voice blogging service.next-generation open source software;
The information technologyFuture Technology R&D center,Center, through which focuses on improving the qualitywe research and operation ofdevelop technologies for human machine interface, artificial intelligence, video, big data and other business solutions;
Platform Technology R&D Center, through which we research and develop technologies for our core networks; building a flexible service infrastructure that will support the introduction of newIoT solutions, media and commerce and other innovative products and services offered through our platform services and enable easy maintenance; developing new technologies relating to IT security, public cloud services, B2B solutionsquantum technologies; and next-generation IT technologies, as well as developing new services based on customer needs.
The fusion technologyNetwork IT Convergence R&D center,Center, through which is responsible for developing core semiconductor technology, smart storage systemwe research and develop technologies that converge network technology and quantum technology, including short-distance cryptographic communication technology.
The emerging technology R&D center, which is responsible for developing base technologies such as high-quality voice recognition, sentence generation and other new technologies as well as future technologies such as core video and imaging technology and platform technology related to biographical data.
The health care group, which is responsible for developing diagnostic instruments and chemicals by combining information technology and health care technology and analyzing computer data relating to health information as well as developing core technologies for medical devices.in the ICT area.
Each business unit also has its own research team that can concentrate on specific short-term research needs. Such research teams permit our research center to concentrate on long-term, technology-intensive research projects. We aim to establish strategic alliances with selected domestic and foreign companies with a view to exchanging or jointly developing technologies, products and services.
Item 5.D. | TrendInformation |
These matters are discussed under Item 5.A. and Item 5.B. above where relevant.
Item 5.E. | Off-Balance |
None.
Item 5.F. | TabularDisclosureofContractualObligations |
These matters are discussed under Item 5.B. above where relevant.
Item 5.G. | SafeHarbor |
These matters are discussed under “Forward-Looking Statements.”
Item 6. | DIRECTORS,SENIORMANAGEMENTANDEMPLOYEES |
Item 6.A. | DirectorsandSeniorManagement |
Our board of directors has ultimate responsibility for the management of our affairs. Under our articles of incorporation, our board is to consist of at least three but no more than twelve directors, more than half of whom must be independentnon-executive directors. We currently have a total of six directors, four of whom are independentnon-executive directors. We elect our directors at a general meeting of shareholders with the approval of at least a majority of those shares present or represented at such meeting. Such majority must represent at leastone-fourth of our total issued and outstanding shares with voting rights.
As required under relevant Korean laws and our articles of incorporation, we have a committee for recommendation of independentnon-executive directors within the board of directors, the Independent Director Nomination Committee. Independentnon-executive directors are appointed from among those candidates recommended by the Independent Director Nomination Committee.
The term of offices for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms. Our shareholders may remove them from office by a resolution at a general meeting of shareholders adopted by the holders of at leasttwo-thirds of the voting shares present or represented at the meeting, and such affirmative votes also represent at leastone-third of our total voting shares then issued and outstanding.
Representative directors are directors elected by the board of directors with the statutory power to represent our company.
The following are the names and positions of our standing andnon-standing directors. The business address of all of our directors is the address of our registered office at SKT-Tower, 65, Eulji-ro, Jung-gu, Seoul100-999, Korea.
Standing directors are our full-time employees and executive officers, and they also comprise the senior management, or the key personnel who manage us. Their names, dates of birth and positions at our company and other positions are set forth below:
Name | Date of Birth | Director Since | Expiration of Term | Position | Other Principal Directorships and | Business Experience | ||||||||||||
Dong Hyun Jang | Aug. 20, 1963 | 2015 | 2018 | President and Chief Executive Officer | — | Chief Operating Officer, SK Planet; Chief Marketing Officer, Chief Finance Officer, and Executive Vice President of Strategy and Planning Division, SK Telecom | ||||||||||||
Dae Sik Cho | Nov. 27, 1960 | 2013 | 2016 | Executive Director | Chief Executive Officer, SK Holdings | Chief Finance Officer, Head of Finance Division and Risk Management & Corporate Auditing Office, SK Holdings; Head of Business Management Office, SK Holdings | ||||||||||||
Our current non-standing directors are as set forth below: | ||||||||||||||||||
Name | Date of Birth | Director Since | Expiration of Term | Position | Other Positions | Business Experience | ||||||||||||
Dae Shick Oh | Nov. 28, 1954 | 2013 | 2016 | Independent Non-executive Director | Advisor, Bae, Kim & Lee LLC | Outside Director, CJ Corporation, Head of Seoul Regional Tax Office; Head of Investigation Department, Korea National Tax Service | ||||||||||||
Jay Young Chung | Oct. 15, 1944 | 2011 | 2017 | Independent Non-executive Director | Honorary Professor, Sung Kyun Kwan University | Chief, Asia-Pacific Economic Association; Vice President, Sung Kyun Kwan University; Independent Non-executive Director, POSCO | ||||||||||||
Jae Hoon Lee | Sep. 26, 1955 | 2014 | 2017 | Independent Non-executive Director | President, Association of Future Strategy Forum on Energy & Resources Development | Vice Minister, Ministry of Knowledge Economy; Vice Minister, Ministry of Commerce, Industry and Energy; Assistant Minister, Ministry of Commerce, Industry and Energy | ||||||||||||
Jae Hyeon Ahn | Feb. 2, 1961 | 2014 | 2017 | Independent Non-executive Director | Vice President, College of Business, KAIST | Dean, College of Information and Media Management, KAIST; President, Korea Media Management Association; Senior Technical Staff Member, AT&T Bell Labs |
Name | Date of Birth | Director Since | Expiration of Term | Position | Other Principal | Business Experience | ||||||||||||
Jung Ho Park | May 27, 1963 | 2017 | 2020 | Executive Director | President and Chief Executive Officer | Chief Executive Officer, SK Holdings; Head of Corporate Development Office, SK C&C Co., Ltd.; Head of Business Development Office, SK Telecom Co., Ltd. |
Involvement in Certain Legal ProceedingsOur currentnon-standing directors are as set forth below:
In January 2012, Seoul Central Prosecutors’ Office indicted Mr. Jae Won Chey, our director at the time, and Mr. Tae Won Chey, the Chairman and Chief Executive Officer of SK Holdings, on charges of embezzlement and criminal breach of fiduciary duty alleging that they misappropriated Won 46.85 billion of our corporate funds and additional funds of our affiliates. On February 27, 2014, the Supreme Court of Korea confirmed the Seoul High Court’s decision, sentencing Mr. Jae Won Chey and Mr. Tae Won Chey to prison terms of three and a half years and four years, respectively.
Name | Date of Birth | Director Since | Expiration of Term | Position | Other Positions | Business Experience | ||||||||||||
Dae Sik Cho | Nov. 27, 1960 | 2017 | 2020 | Non-executive Director | Chairman, SK SUPEX Council | Chief Executive Officer, SK Holdings; Chief Finance Officer, Head of Finance Division and Risk Management & Corporate Auditing Office, SK Holdings; Head of Business Management Office, SK Holdings | ||||||||||||
Dae Shick Oh | Nov. 28, 1954 | 2013 | 2019 | IndependentNon-executive Director | Advisor, Bae, Kim & Lee LLC | Outside Director, CJ Corporation, Head of Seoul Regional Tax Office; Head of Investigation Department, Korea National Tax Service | ||||||||||||
Jae Hoon Lee | Sep. 26, 1955 | 2017 | 2020 | IndependentNon-executive Director | President, Association of Future Strategy Forum on Energy & Resources Development | Vice Minister, Ministry of Knowledge Economy; Vice Minister, Ministry of Commerce, Industry and Energy; Assistant Minister, Ministry of Commerce, Industry and Energy | ||||||||||||
Jae Hyeon Ahn | Feb. 2, 1961 | 2017 | 2020 | IndependentNon-executive Director | Professor, Advanced Innovative Management Program, KAIST | Vice President, College of Business, KAIST; Dean, College of Information and Media Management, KAIST; President, Korea Media Management Association; Senior Technical Staff Member, AT&T Bell Labs | ||||||||||||
Jung Ho Ahn | Feb. 11, 1978 | 2017 | 2020 | IndependentNon-executive Director | Associate Professor, Graduate School of Convergence Science and Technology, Seoul National University | Visiting Scholar, Google Inc.; Senior Research Scientist, Exascale Computing Lab, HP Labs |
Item 6.B. | Compensation |
The aggregate of the remuneration paid andin-kind benefits granted to the directors (all standing directors, who also serve as our executive officers, andnon-standing directors) during the year ended December 31, 20142016 totaled approximately Won 3.52.1 billion. This amount included Won 750570.0 million in salary and Won 708757.0 million in bonus paid to our former director, president and President and Chief Executive Office,chief executive officer, Mr. Sung Min Ha,Dong Hyun Jang, who has since resigned, and Won 377 million in salary and Won 349 million in bonus paid to our former director and Head of our Corporate Vision Department, Mr. Dong Seob Jee, who has since resigned.
Remuneration for the directors is determined by shareholder resolution. Severance allowances for directors are determined by the board of directors in accordance with our regulation on severance allowances for officers, which was adopted by shareholder resolution. The regulation provides for monthly salary, performance bonus, severance payment and fringe benefits. The amount of performance bonuses is independently decided by a resolution of the board of directors.
In March 2002, pursuant to resolutions of the shareholders, and in accordance with our articles of incorporation, certain of our directors and officers were granted options to purchase our common shares, which have all expired without being exercised. Since 2003, noneOn March 24, 2017, pursuant to resolutions of the shareholders, and in accordance with our directorsarticles of incorporation, Mr. Jung Ho Park, our President and officers have beenChief Executive Officer, was granted options to purchase 66,504 shares of our common shares.stock. The following table summarizes the stock options granted to Mr. Jung Ho Park on March 24, 2017:
Exercise period | Number of shares issuable | |||||||
From | To | |||||||
March 25, 2019 | March 24, 2022 | Exercise Price | 22,168 | |||||
March 25, 2020 | March 24, 2023 | Exercise Price times 1.08 | 22,168 | |||||
March 25, 2021 | March 24, 2024 | Exercise Price times (1.08)2 | 22,168 |
(1) | “Exercise Price” is defined as the arithmetic mean of volume-weighted average closing prices from the following periods prior to the grant date: two months, one month and one week. |
Item 6.C. | BoardPractices |
For information regarding the expiration of each director’s term of appointment, as well as the period from which each director has served in such capacity, see the table set out under “Item 6.A. Directors and Senior Management” above.
Termination of Directors, Services
Directors are given a retirement and severance payment upon termination of employment in accordance with our internal regulations on severance payments. Upon retirement, directors who have made significant contributions to our company during their term may be appointed to serve either as an advisor to us or as an officer of an affiliate company.
Audit Committee
Under relevant Korean laws and our articles of incorporation, we are required to have an audit committee under the board of directors. The committee is composed of at least three members,two-thirds of whom must be independentnon-executive directors in accordance with applicable rules. The members of the audit committee are appointed annually by a resolution of the general meeting of shareholders. They are required to:
examine the agenda for the general meeting of shareholders;
examine financial statements and other reports to be submitted by the board of directors to the general meeting of shareholders;
review the administration by the board of directors of our affairs; and
examine the operations and asset status of us and our subsidiaries.
In addition, the audit committee must appoint independent auditors to examine our financial statements. An audit and review of our financial statements by independent auditors is required for the purposes of a securities report. Listed companies must provide such report on an annual, semi-annual and quarterly basis to the FSC and the KRX KOSPI Market.
Our audit committee is composed of three independentnon-executive directors: Dae Shick Oh, Jae Hoon Lee and Jae Hyeon Ahn, each of whom is financially literate and independent under the rules of the NYSE as applicable. The board of directors has determined that Dae Shick Oh is an “audit committee financial expert” as defined under the applicable rules of the SEC. See “Item 16A. Audit Committee Financial Expert.”
Independent Director Nomination Committee
This committee is devoted to recommending independentnon-executive directors for the board of directors. The objective of the committee is to help promote fairness and transparency in the nomination of candidates for these positions. The board of directors decides from time to time who will comprise the members of this committee. The committee is comprised of one executive director, Dong Hyun Jang,Jung Ho Park, and two independent directors, Dae Shick Oh and Jae Hoon Lee.Hyeon Ahn.
Capex Review Committee
This committee is responsible for reviewing our business plan (including the budget). It also examines major capital expenditure revisions, and routinely monitors capital expenditure decisions that have already been executed. The committee is comprised of four independent directors, Dae Shick Oh, Jae Hoon Lee, Jay Young Chung , Dae Shick OhJae Hyeon Ahn and Jae HyeonJung Ho Ahn.
Compensation Review Committee
This committee oversees our overall compensation scheme fortop-level executives and directors. It is responsible for reviewing both the criteria for and level of compensation. It is comprised of three independent directors, Jay Young Chung andDae Shick Oh, Jae Hoon Lee and Jae HyeonJung Ho Ahn.
Corporate Citizenship Committee
This committee was established to help us achieve world-class sustainable growth and to help us fulfill our corporate social responsibilities. It is comprised of three independent directors, Jae Hoon Lee, Jae Hyeon Ahn Jay Young Chung and Dae Shick Oh.Jung Ho Ahn.
Item 6.D. | Employees |
The following table sets forth the numbers of our regular employees, temporary employees and total employees as of the dates indicated:
Regular Employees | Temporary Employees | Total | ||||||||||
December 31, 2012 | 16,447 | 5,701 | 22,148 | |||||||||
December 31, 2013 | 21,546 | 2,243 | 23,789 | |||||||||
December 31, 2014 | 24,404 | 1,285 | 25,689 |
Regular Employees | Temporary Employees | Total | ||||||||||
December 31, 2014 | 24,404 | 1,285 | 25,689 | |||||||||
December 31, 2015 | 24,479 | 1,513 | 25,992 | |||||||||
December 31, 2016 | 24,569 | 1,275 | 25,844 |
Labor Relations
As of December 31, 2014,2016, SK Telecom had a company union consisting of 2,1142,164 regular employees out of 4,1394,229 total regular employees. We have never experienced a work stoppage of a serious nature. Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has atwo-year duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Our wage negotiations for 2012 were completed in April 2012 and resulted in an average wage increase of 4.0% for SK Telecom employees. Our wage negotiations for 2013 were completed in October 2013 and resulted in an average wage increase of 1.5% for SK Telecom employees. Our wage negotiations for 2014 were completed in May 2014 and resulted in no change to the average wage of SK Telecom employees. Our wage negotiations for 2015 were completed in November 2015 and resulted in an average monthly wage increase of Won 80,000 for SK Telecom employees. Our wage negotiations for 2016 were completed in September 2016 and resulted in no change to the average monthly wage of SK Telecom employees. Our wage negotiations for 2017 have not commenced yet.yet We consider our relations with our employees to be good.
Employee Stock Ownership Association and Other Benefits
Since April 1999, we have been required to contribute an amount equal to 4.5% of employee wages toward a national pension plan. Employees are eligible to participate in an employee stock ownership association. We are not required to, and we do not, make any contributions to the employee stock ownership association, although we subsidize the employee stock ownership association through the Employee Welfare Fund by providing low interest rate loans to employees who desire to purchase our stock through the plan in the event of a capitalization by the association. On December 26, 2007 and January 23, 2008, we loaned Won 31.0 billion and Won 29.7 billion, respectively, to our employee stock ownership association to help fund the employee stock ownership association’s
acquisition of our treasury shares. Such loans are to be repaid over a period of five years, beginning on the second anniversary of each loan date. We expect these loans to be repaid in full by 2015. As of December 31, 2014, the employee stock ownership association owned approximately 0.11% of our issued common stock.
We are required to pay a severance amount to eligible employees who voluntarily or involuntarily cease employment with us, including through retirement. This severance amount is based upon the employee’s length of service with us and the employee’s salary level at the time of severance. As of December 31, 2014,2016, the defined benefit obligation, which is the accrued and unpaid retirement and severance benefits, of Won 437.8595.7 billion for all of our employees are reflected in our consolidated financial statements as a liability, of which a total of Won 346.3555.2 billion was funded. Under Korean laws and regulations, we are prevented from involuntarily terminating a full-time employee except under certain limited circumstances. In September 2002, we entered into an employment stabilization agreement with the union. Among other things, this agreement provides for a one-year guarantee of the same wage level in the event that we reorganize a department into a separate entity or we outsource an employee to a separate entity where the wage is lower.lower, this agreement provides for a guarantee of the same wage level for the year that such an event occurs.
Under the Basic Labor Welfare Act, we may also contribute up to 5.0% of our annual earnings before tax for employee welfare. Contribution amounts are determined annually following negotiation with the union. The contribution amount for 20142016 was set at 1.51%2.24% of SK Telecom’s profit before income tax on a separate basis, or Won 20.0350 billion. The contribution amount for 20132015 was set at 1.64%2.04% of SK Telecom’s profit before income tax on a separate basis, or Won 20.030.0 billion. The contribution amount for 20122014 was set at 1.29%1.51% of SK Telecom’s profit before income tax on a separate basis, or Won 20.0 billion.
In addition, we provide our employees with miscellaneous other fringe benefits including housing loans, free medical examinations, subsidized on-site child care facilitiescost subsidies, family camp programs and sabbatical programs for long-term employees.
Item 6.E. | ShareOwnership |
The following table sets forth the share ownership by our standing andnon-standing directors as of March 31, 2015:2017:
Name | Position | Number of Shares Owned | Percentage of Total Shares Outstanding | Special Voting Rights | Options | Position | Number of Shares Owned | Percentage of Total Shares Outstanding | Special | Options | ||||||||||||||||||||||
Standing Directors: | ||||||||||||||||||||||||||||||||
Dong Hyun Jang | President & Chief Executive Officer | 251 | 0.0 | % | None | None | ||||||||||||||||||||||||||
Standing Director: | ||||||||||||||||||||||||||||||||
Jung Ho Park | President & Chief Executive Officer | 0 | 0.0 | % | None | 66,504 | ||||||||||||||||||||||||||
Non-Standing Directors: | ||||||||||||||||||||||||||||||||
Dae Sik Cho | Executive Director | 0 | 0 | None | None | Non-executive Director | 0 | 0 | None | None | ||||||||||||||||||||||
Non-Standing Directors: | ||||||||||||||||||||||||||||||||
Dae Shick Oh | IndependentNon-executive Director | 0 | 0 | None | None | IndependentNon-executive Director | 0 | 0 | None | None | ||||||||||||||||||||||
Jay Young Chung | IndependentNon-executive Director | 0 | 0 | None | None | |||||||||||||||||||||||||||
Jae Hoon Lee | Independent Non-executive Director | 0 | 0 | None | None | IndependentNon-executive Director | 0 | 0 | None | None | ||||||||||||||||||||||
Jae Hyeon Ahn | Independent Non-executive Director | 0 | 0 | None | None | IndependentNon-executive Director | 0 | 0 | None | None | ||||||||||||||||||||||
Jung Ho Ahn | IndependentNon-executive Director | 0 | 0 | None | None |
Item 7. | MAJORSHAREHOLDERSANDRELATEDPARTYTRANSACTIONS |
Item 7.A. | MajorShareholders |
As of the close of our shareholders’ registry on December 31, 2014,2016, approximately 56.53%59.22% of our issued shares were held in Korea by approximately 23,38054,585 shareholders. According to Citibank, N.A. (“Citibank”),
depositary for our American Depositary Receipts,ADRs, as of December 31, 2014,2016, there were 47,422 U.S.approximately 28,056 record holders of our American Depositary ReceiptsADRs evidencing ADSs resident in the United States to the best of Citibank’s knowledge, and 11,237,6678,809,104 shares of our common stock were held in the form of ADSs. As of such date, outstanding ADSs represented approximately 15.8%10.9% of our outstanding common shares.
The following table sets forth certain information as of MarchDecember 31, 20152016 with respect to any person known to us to be the beneficial owner of more than 5.0% of our common shares and with respect to the total amount of such shares owned by our officers and directors, as a group:
Shareholder/Category | Number of Shares | Percentage Total Shares Issued | Percentage Total Shares Outstanding | Number of Shares | Percentage Total Shares Issued | Percentage Total Shares Outstanding | ||||||||||||||||||
Domestic Shareholders | ||||||||||||||||||||||||
SK Holdings | 20,363,452 | 25.22 | % | 28.71 | % | 20,363,452 | 25.22 | % | 28.84 | % | ||||||||||||||
Treasury shares(1) | 9,809,375 | 12.15 | N/A | |||||||||||||||||||||
Treasury shares(1) | 10,136,551 | 12.55 | — | |||||||||||||||||||||
Officers and Directors | 4,822 | 0.01 | 0.01 | 251 | 0.00 | 0.00 | ||||||||||||||||||
National Pension Service | 7,159,704 | 8.87 | 10.14 | |||||||||||||||||||||
Other Domestic Shareholders | 14,958,435 | 18.53 | 21.09 | 10,160,010 | 12.58 | 14.39 | ||||||||||||||||||
Foreign Shareholders(2) | ||||||||||||||||||||||||
Foreign Shareholders(2) | ||||||||||||||||||||||||
Shareholders holding ADRs | 10,000,488 | 12.39 | 14.10 | 8,809,104 | 10.91 | 12.48 | ||||||||||||||||||
Shareholders holding common stock | 25,609,139 | 31.72 | 36.10 | 24,116,639 | 29.87 | 34.16 | ||||||||||||||||||
Total Issued Shares(3) | 80,745,711 | 100 | % | — | ||||||||||||||||||||
Total Outstanding Shares(4) | 70,936,336 | — | 100 | % | ||||||||||||||||||||
Total Issued Shares | 80,745,711 | 100 | % | — | ||||||||||||||||||||
Total Outstanding Shares(3) | 70,609,160 | — | 100 | % |
(1) | Treasury shares do not have any voting rights. Pursuant to the Share Exchange |
(2) | Based on the data collected by the KRX KOSPI Market under the Foreign Exchange Transaction Laws. |
(3) |
Represents total issued shares excluding treasury shares. |
The following table sets forth significant changes in the percentage ownership held by our major shareholders during the past three years:
As of December 31, | As of December 31, | |||||||||||||||||||||||
Shareholder | 2014 | 2013 | 2012 | 2016 | 2015 | 2014 | ||||||||||||||||||
(As a percentage of total issued shares)(1) | (As a percentage of total issued shares)(1) | |||||||||||||||||||||||
SK Group(2) | 25.22 | % | 25.22 | % | 25.22 | % | ||||||||||||||||||
SK Group(2) | 25.22 | % | 25.22 | % | 25.22 | % | ||||||||||||||||||
SK Holdings | 25.22 | 25.22 | 25.22 | 25.22 | 25.22 | 25.22 | ||||||||||||||||||
National Pension Service | 7.09 | 5.90 | 4.97 | 8.87 | 8.62 | 7.09 |
(1) | Includes |
(2) | SK Group’s ownership interest as of December 31, |
Except as described above, other than companies in the SK Group, no other persons or entities known by us to be acting in concert, directly or indirectly, jointly or severally, own in excess of 5.0% of our total shares outstanding or exercise control or could exercise control over our business.
On July 1, 2007, the company formerly known as SK Corporation underwent a corporate reorganization, pursuant to which SK Corporation spun off substantially all of its operating business divisions into a newly established corporation named SK Energy Co., Ltd. The surviving company currently operates as a holding
company, renamed SK Holdings. Ownership of all our shares held by SK Corporation immediately preceding the reorganization passed to SK Holdings as of July 1, 2007. On April 20,August 1, 2015, SK Holdings announced its decision to mergemerged with and into SK C&C in August 2015, subject to the approval of the respective board of directors of SK Holdings and SK C&C and the receipt of relevant regulatory consents and approvals, among other conditions.merged entity was renamed SK Holdings.
As of March 31, 2015,2017, SK Holdings held 25.22% of our shares of common stock. For a description of our foreign ownership limitation, see “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes
us to breach the foreign ownership limitations on our common shares, we may experience a change of control” and “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In the event that SK Holdings announces plans of a sale of our shares, we expect to be able to discuss the details of such sale with them in advance and will endeavor to minimize any adverse effects on our share prices as a result of such sale.
As of March 31, 2015,2017, the total number of our common shares outstanding was 70,936,336.70,609,160.
Other than as disclosed herein, there are no other arrangements, to the best of our knowledge, which would result in a material change in the control of us. Our major shareholders do not have different voting rights.
Item 7.B. | RelatedPartyTransactions |
We are part of the SK Group of affiliated companies. See “Item 7.A. Major Shareholders.” As disclosed in note 34 of the notes to our consolidated financial statements, we had related party transactions with a number of affiliated companies of the SK Group during the year ended December 31, 2016.
SK Networks
In September 2009, we acquired the leased-line business and related ancillary businesses from SK Networks for Won 892.76892.8 billion and assumed Won 611.44611.4 billion of debt as part of the transaction. Prior to such acquisition, KT and SK Networks provided a substantial majority of our leased lines. For a more detailed discussion of the lines we lease from fixed-line operators, see “Item 4.B. Business Overview — Digital Wireless NetworkCellular Services — Network Infrastructure.” In addition, PS&Marketing acquired the retail distribution business of SK Networks in April 2014.
As of December 31, 2014,2016, we had Won 2.63.3 billion of accounts receivable from SK Networks. As of the same date, we had Won 238.4247.7 billion of accounts payable to SK Networks, mainly consisting of commissionsrelating to dealers ownedpayments for wireless devices by SK Networks.PS&M. The aggregate fees we paid to SK Networks for dealer commissions amounted to Won 1,509.01,131.6 billion, Won 1,463.31,258.0 billion and Won 1,747.11,509.0 billion in 2014, 20132016, 2015 and 2012.2014.
Other Related Parties
On July 22, 2003, we acquired 2,481,310 shares of POSCO common stock held by SK Holdings at a price of Won 134,000 per share in accordance with a resolution of our board of directors dated July 22, 2003. We decided to purchase the shares for strategic reasons in order to address overhang concerns arising from POSCO’s ownership of our shares. In the first half of 2012, POSCO sold all of our shares that it owned and on October 8, 2012, we sold half of the POSCO shares we owned. We currently own 1.42% of POSCO’s shares.
We enter into agreements with SK C&C Co., Ltd. (“SK C&C”)Holdings from time to time for specific information technology-related projects. The aggregate fees we paid to SK C&CHoldings for information technology services amounted to Won 652.9 billion in 2016, Won 324.1 billion in 2015 and Won 360.8 billion in 2014, Won 357.9 billion in 2013 and Won 324.2 billion in 2012.2014. We also purchase various information technology-related equipment from SK C&CHoldings from time to time. The total amount of such purchases was Won 235.5 billion in 2016, Won 236.4 billion in 2015 and Won 168.8 billion in 2014, Won 206.3 billion in 2013 and Won 304.1 billion in 2012.2014. We are a party to several service agreements with SK C&CHoldings relating to the development and maintenance of our information technologies systems.
We are partalso pay SK Holdings for use of the SK Group of affiliated companies. See “Item 7.A. Major Shareholders.” As disclosed in note 36 of the notes to our consolidated financial statements, we had related party transactions with a number of affiliated companies of the SK Group during the year ended December 31, 2014.brand.
Item 7.C. | InterestsofExpertsandCounsel |
Not applicable.
Item 8. | FINANCIALINFORMATION |
Item 8.A. | ConsolidatedStatementsandOtherFinancialInformation |
See “Item 18. Financial Statements” and pagesF-1 through G-75.G-72.
Legal Proceedings
FTC Proceedings
In June 2011, the FTC fined us Won 2.0 billion and Loen Entertainment, our consolidated subsidiary at the time, Won 8.7 billion for activities allegedly restricting competition in markets for digital music services. We and Loen Entertainment paid such fine in August 2011 and filed appeals at the Seoul High Court and subsequently at the Supreme Court of Korea, which ruled against us and Loen Entertainment.
In March 2012, the FTC fined us Won 21.9 billion for allegedly colluding with KT, LG U+, Samsung Electronics, LG Electronics and Pantech (which were also assessed separate fines) to inflate the prices of handsets
while advertising that the handsets are offered at a discount through subsidy plans. We paid such fine in September 2012 and filed an appeal at the Seoul High Court, which ruled against us in October 2014. We appealed the decision to the Supreme Court of Korea, where the case is currently pending.
In July 2012, the FTC fined us Won 25.0 billion for alleged violation of Article 23 of the Fair Trade Act relating to the payment of system management and operation fees. We paid such fine in November 2012 and filed an appeal at the Seoul High Court, which ruled forin favor of us onin May 2014. The FTC appealed the decision to the Supreme Court of Korea, where the case is currently pending.which ruled in favor of us in March 2016.
MIC, KCC and MSIP Proceedings
On December 24, 2012,Prior to the implementation of the MDDIA, the KCC ordered us to pay a fine of Won 6.9 billion, which we paid in December 2012,and the MSIP imposed a suspensionsuspensions on acquiring new subscribers from January 31, 2013 to February 21, 2013 and issued a correction orderfines on us for providing subsidies to subscribers which were not universally available. On March 14,In 2013, the KCC imposed an additional fine of Won 3.1 billion on us for the same reason after further investigations. We paid such additional fine in April 2013. On July 18, 2013, the KCC imposed an additional fine of Won 36.5 billion on us for the same reason and we paid such fine in July 2013. On December 27, 2013, the KCC imposed an additional finefines on us of Won 56.096.3 billion which is the largest fine ever imposed byin aggregate. In 2014, the KCC for providing handset subsidies to subscribers which were not universally available. We paid such additional fine in December 2013.
On March 7, 2014,and the MSIP imposed a suspension onsuspended us from acquiring new subscribers for a periodan aggregate of 45 days, which is the longest suspension period imposed on us by the Government for providing subsidies to subscribers which were not universally available. On March 13, 2014, the KCC imposed an additional suspension of business on us for a period of seven52 days and imposed a finefines on us of Won 16.754.6 billion on us for the same reason, which we paid in April 2014. We suspended acquisition of new customers during the period from September 11, 2014 to September 17, 2014.
On August 21, 2014, the KCC imposed a fine of Won 37.1 billion on us and issued a correctional order for providing discriminatory subsidies to subscribers. We paid such fine in September 2014.aggregate.
On March 26, 2015, the KCC imposed a fine of Won 23.5 billion on us and imposed a suspension on acquiring new subscribers for a period of seven days for providing subsidies to subscribers in excess of the amounts permitted under the MDDIA. We suspended acquisition of new customers during the period from October 1, 2015 to October 7, 2015. On May 13, 2015, the KCC imposed a fine of Won 3.6 billion on us and issued a correctional order for violating its obligations to protect personal information. We paid such fine in July 2015 and reported to the KCC on the implementation of actions pursuant to the correctional order in September 2015. On May 28, 2015 and December 10, 2015, the KCC imposed a fine of Won 350 million and Won 560 million, respectively, on us and issued a correctional order for misleading and exaggerated advertisement of bundled wireless and fixed-line telecommunications products. On January 14, 2016, the KCC imposed a fine of Won 15 million on us and issued a correctional order for failure to comply with the retention period for our subscribers’ personal information. On December 6, 2016, the KCC imposed a fine of Won 3.75 billion on us for unfair marketing practices in connection with our bundled wireless and fixed-line telecommunications services. On December 21, 2016, the KCC imposed fines of Won 100 million and Won 30 million on us for engaging in certain prohibited sales activities and violating certain subscriber location data protection regulations, respectively. On March 22, 2017, the KCC imposed a fine of Won 794 million on us for providing subsidies to foreign subscribers in excess of the amounts permitted under the MDDIA.
KT Interconnection Fee Litigation
In December 2010, we filed a lawsuit in the Seoul Central District Court against KT alleging that they paid us lower interconnection fees for intentionally bypassing our WCDMA spectrum and using our CDMA network rather than our WCDMA network. In response, KT filed a counterclaim against us, alleging that we failed to respond to their request for information and that we intentionally delayed the interconnection for calls from fixed-line KT users to our wireless subscribers and seeking damages of Won 33.7 billion. In September 2012, the Seoul Central District Court dismissed our lawsuit against KT and rendered a judgment that accepted KT’s claims in part. We filed an appeal at the Seoul High Court in October 2012,February 2013, and in January 2014, the Seoul High Court overturned the District Court’s decision and rendered a judgment that accepted our claims in part.part, ordering KT to pay us damages of Won 49.2 billion. We and KT each filed an appeal at the Supreme Court of Korea in March 2014, which the Supreme Court of Korea dismissed in February 2014.2017, finalizing the judgment of the Seoul High Court.
SK Communications Litigation
In July 2011, there was a leak of personal information of subscribers of NATE and Cyworld websites operated by SK Communications, our consolidated subsidiary. Various lawsuits have been filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to three of the lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of MarchDecember 31, 2015, nineteen2016, twelve of the lawsuits, seeking damages of approximately Won 1.20.8 billion in aggregate, were pending at various district courts, various high courts and the Supreme Court of Korea.
COLORing Litigation
In May 2010, Korea Music Copyright Association (“KOMCA”) filed a lawsuit against us seeking license fees for our COLORing service that plays a ring back melody in lieu of a conventional dial tone. In February 2011, the court rendered a judgment against us ordering us to pay Won 570 million to KOMCA, which was affirmed by the appellate court in October 2011. We appealed the decision to the Supreme Court of Korea in November 2011. In July 2013, the Supreme Court of Korea overturned the appellate court’s decision and sent the case back to the appellate court for further deliberation. In September 2014, the appellate court ruled the remanded case in our favor. KOMCA filed an appeal at the Supreme Court of Korea, which ruled in our favor on January 15, 2015.
Except as described above, neither we nor any of our subsidiaries are involved in any litigation, arbitration or administrative proceedings relating to claims which may have, or have had during the twelve months preceding the date hereof, a significant effect on our financial position or the financial position of our subsidiaries taken as a whole, and, so far as we are aware, no such litigation, arbitration or administrative proceedings are pending or threatened.
Dividends
Annual dividends, if any, on our outstanding shares must be approved at the annual general meeting of shareholders. This meeting is generally held in March of the following year, and the annual dividend is generally paid shortly after the meeting. Since our shareholders have discretion to declare annual dividends, we cannot give any assurance as to the amount of dividends per share or that any dividends will be declared at all. Interim dividends, if any, can be approved by a resolution of our board of directors. Once declared, dividends must be claimed within five years, after which the right to receive the dividends is extinguished and reverted to us.
We pay cash dividends to the ADR depositary in Won. Under the terms of the deposit agreement, cash dividends received by the ADR depositary generally are to be converted by the ADR depositary into Dollars and distributed to the holders of the ADSs, less withholding tax, other governmental charges and the ADR depositary’s fees and expenses. The ADR depositary’s designated bank in Korea must approve this conversion and remittance of cash dividends. See “Item 10.B. Memorandum and Articles of IncorporationAssociation — Description of American Depositary Shares” and “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”
The following table sets forth the dividend per share and the aggregate total amount of dividends declared (including any interim dividends), as well as the number of outstanding shares entitled to dividends, with respect to the years indicated. The dividends set out for each of the years below were paid in the immediately following year.
Year Ended December 31, | Dividend per Share | Total Amount of Dividends | Number of Shares Entitled to Dividend | |||||||||
(In Won) | (In billions of Won) | |||||||||||
2010 | ₩ | 9,400 | ₩ | 669.5 | 71,094,999 | |||||||
2011 | 9,400 | 656.5 | 69,694,999 | (1) | ||||||||
2012 | 9,400 | 655.1 | 69,694,999 | |||||||||
2013 | 9,400 | 666.4 | 70,936,336 | |||||||||
2014 | 9,400 | 666.8 | 70,936,336 |
Year Ended December 31, | Dividend per Share | Total Amount of Dividends | Number of Shares Entitled to Dividend | |||||||||
(In Won) | (In billions of Won) | |||||||||||
2012 | ₩ | 9,400 | ₩ | 655.1 | 69,694,999 | |||||||
2013 | 9,400 | 666.4 | 70,936,336 | |||||||||
2014 | 9,400 | 666.8 | 70,936,336 | |||||||||
2015 | 10,000 | 708.1 | 70,609,160 | |||||||||
2016 | 10,000 | 706.1 | 70,609,160 | (1) |
(1) | The number of shares entitled to the interim dividend was |
We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our common shares represented by the ADSs have the same dividend rights as other outstanding common shares.
Holders ofnon-voting shares are entitled to receive dividends in priority to the holders of common shares. The dividend on thenon-voting shares is between 9.0% and 25.0% of the par value as determined by the board of directors at the time of their issuance. If the dividends for common shares exceed the dividends fornon-voting shares, the holders ofnon-voting shares will be entitled to participate in the distribution of such excess amount with the holders of common shares. If the amount available for dividends is less than the aggregate amount of the minimum required dividend, holders ofnon-voting shares will be entitled to receive such accumulated unpaid dividend from dividends payable in the next fiscal year before holders of common shares. There are nonon-voting shares issued or outstanding.
We declare dividends annually at the annual general meeting of shareholders which is generally held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record or registered pledges as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in shares. However, a dividend of shares must be distributed at par value. Dividends in shares may not exceedone-half of the annual dividend. Our obligation to pay dividend expires if no claim to dividend is made for five years from the payment date.
Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on anon-consolidated basis, over the sum of (1) our stated capital, (2) the total amount of our capital surplus
reserve, (3) legal reserve accumulated up to the end of the relevant dividend period and (4) the increase in our net asset value resulting from the evaluation of our assets and liabilities that has not been offset against unrealized losses. In addition, we may not pay an annual dividend unless we have set aside as a legal reserve an amount equal to at least 10.0% of the cash portion of the annual dividend or until we have accumulated a legal reserve of not less thanone-half of our stated capital. We may not use our legal reserve to pay cash dividends but may transfer amounts from our legal reserve to capital stock or use our legal reserve to reduce an accumulated deficit.
In addition, the Korean Commercial Code and our articles of incorporation provide that, in addition to annual dividends, we may pay interim dividends once during each fiscal year. Unlike annual dividends, the decision to pay interim dividends can be made by a resolution of the board of directors and is not subject to shareholder approval. Any interim dividends must be paid in cash to the shareholders of record as of June 30 of the relevant fiscal year. In July 2014, we distributed such interim dividends at Won 1,000 per share to our shareholders for a total amount of approximately Won 71.0 billion.
Under the Korean Commercial Code, the total amount of interim dividends payable in a fiscal year shall not be more than the net assets on the balance sheet of the immediately preceding fiscal year, after deducting (1) a company’s capital in the immediately preceding fiscal year, (2) the aggregate amount of its capital reserves and legal reserves accumulated up to the immediately preceding fiscal year, (3) the amount of earnings for dividend payments confirmed at the general shareholders’ meeting with respect to the immediately preceding fiscal year and (4) the amount of legal reserve that should be set aside for the current fiscal year following the interim dividend payment. Furthermore, the rate of interim dividends fornon-voting shares must be the same as that for our common shares.
Our obligation to pay interim dividends expires if no claims to such dividends are made for a period of five years from the payment date.
Item 8.B. | SignificantChanges |
Not applicable.
Item 9. | THEOFFERANDLISTING |
Item 9.A. | OfferingandListingDetails |
These matters are described under Item 9.C. below where relevant.
Item 9.B. | PlanofDistribution |
Not applicable.
Item 9.C. | Markets |
The principal trading market for our common shares is the KRX KOSPI Market. As of March 31, 2015, 70,936,3362017, 70,609,160 shares of our common stock were outstanding.
The ADSs are traded on the NYSE and the London Stock Exchange. The ADSs have been issued by the ADR depositary and are traded on the NYSE under the ticker symbol “SKM”. Each ADS representsone-ninth of one share of our common stock. As of March 31, 2015,2017, ADSs representing 10,000,4889,106,281 shares of our common stock were outstanding.
Shares of Common Stock
The following table sets forth the high, low and closing prices and the average daily trading volume of our common shares on the KRX KOSPI Market since January 1, 2010:2012:
Prices | Average Daily Trading Volume | Prices | Average Daily Trading Volume | |||||||||||||||||||||||||||||
Calendar Year | High(1) | Low(1) | Close | High(1) | Low(1) | Close | ||||||||||||||||||||||||||
(Won per shares) | (Number of shares) | (Won per shares) | (Number of shares) | |||||||||||||||||||||||||||||
2010 | 188,000 | 158,500 | 173,500 | 193,937 | ||||||||||||||||||||||||||||
First Quarter | 188,000 | 168,500 | 173,500 | 306,532 | ||||||||||||||||||||||||||||
Second Quarter | 178,000 | 158,500 | 160,500 | 202,245 | ||||||||||||||||||||||||||||
Third Quarter | 171,500 | 158,500 | 171,500 | 145,561 | ||||||||||||||||||||||||||||
Fourth Quarter | 180,500 | 168,500 | 173,500 | 127,235 | ||||||||||||||||||||||||||||
2011 | 172,500 | 131,000 | 141,500 | 214,788 | ||||||||||||||||||||||||||||
First Quarter | 172,500 | 156,000 | 163,500 | 124,796 | ||||||||||||||||||||||||||||
Second Quarter | 169,000 | 152,500 | 161,500 | 160,839 | ||||||||||||||||||||||||||||
Third Quarter | 161,500 | 131,000 | 149,500 | 324,018 | ||||||||||||||||||||||||||||
Fourth Quarter | 165,000 | 141,500 | 141,500 | 249,500 | ||||||||||||||||||||||||||||
2012 | 161,000 | 120,500 | 152,500 | 216,031 | 161,000 | 120,500 | 152,500 | 216,031 | ||||||||||||||||||||||||
First Quarter | 146,000 | 134,500 | 139,500 | 193,924 | 146,000 | 134,500 | 139,500 | 193,924 | ||||||||||||||||||||||||
Second Quarter | 142,500 | 120,500 | 125,000 | 284,712 | 142,500 | 120,500 | 125,000 | 284,712 | ||||||||||||||||||||||||
Third Quarter | 153,000 | 125,000 | 147,000 | 208,276 | 153,000 | 125,000 | 147,000 | 208,276 | ||||||||||||||||||||||||
Fourth Quarter | 161,000 | 145,500 | 152,500 | 177,955 | 161,000 | 145,500 | 152,500 | 177,955 | ||||||||||||||||||||||||
2013 | 238,500 | 150,000 | 230,000 | 212,769 | 238,500 | 150,000 | 230,000 | 212,769 | ||||||||||||||||||||||||
First Quarter | 185,500 | 150,000 | 180,500 | 234,684 | 185,500 | 150,000 | 180,500 | 234,684 | ||||||||||||||||||||||||
Second Quarter | 225,500 | 172,000 | 210,000 | 245,151 | 225,500 | 172,000 | 210,000 | 245,151 | ||||||||||||||||||||||||
Third Quarter | 226,500 | 202,000 | 218,500 | 175,670 | 226,500 | 202,000 | 218,500 | 175,670 | ||||||||||||||||||||||||
Fourth Quarter | 238,500 | 211,500 | 230,000 | 195,925 | 238,500 | 211,500 | 230,000 | 195,925 | ||||||||||||||||||||||||
2014 | 298,500 | 196,500 | 268,000 | 170,709 | 298,500 | 196,500 | 268,000 | 170,709 | ||||||||||||||||||||||||
First Quarter | 229,000 | 196,500 | 215,500 | 184,185 | 229,000 | 196,500 | 215,500 | 184,185 | ||||||||||||||||||||||||
Second Quarter | 243,500 | 198,000 | 236,500 | 180,743 | 243,500 | 198,000 | 236,500 | 180,743 | ||||||||||||||||||||||||
Third Quarter | 298,500 | 236,000 | 290,000 | 152,740 | 298,500 | 236,000 | 290,000 | 152,740 | ||||||||||||||||||||||||
Fourth Quarter | 298,500 | 259,000 | 268,000 | 165,710 | 298,500 | 259,000 | 268,000 | 165,710 | ||||||||||||||||||||||||
2015 (through April 28) | 301,000 | 262,500 | 288,000 | 166,540 | ||||||||||||||||||||||||||||
2015 | 301,000 | 215,000 | 215,500 | 185,999 | ||||||||||||||||||||||||||||
First Quarter | 301,000 | 264,000 | 272,500 | 151,786 | ||||||||||||||||||||||||||||
Second Quarter | 293,500 | 240,500 | 250,000 | 209,931 | ||||||||||||||||||||||||||||
Third Quarter | 263,000 | 237,000 | 263,000 | 185,542 | ||||||||||||||||||||||||||||
Fourth Quarter | 261,500 | 215,000 | 215,500 | 195,488 | ||||||||||||||||||||||||||||
2016 | 233,500 | 193,000 | 224,000 | 157,834 | ||||||||||||||||||||||||||||
First Quarter | 233,500 | 193,000 | 208,500 | 212,966 | ||||||||||||||||||||||||||||
Second Quarter | 222,000 | 201,500 | 215,500 | 152,755 | ||||||||||||||||||||||||||||
Third Quarter | 232,000 | 214,500 | 226,000 | 120,700 | ||||||||||||||||||||||||||||
Fourth Quarter | 232,500 | 216,000 | 224,000 | 146,790 | ||||||||||||||||||||||||||||
2017 (through April 21) | 262,500 | 218,000 | 251,500 | 161,941 | ||||||||||||||||||||||||||||
First Quarter | 301,000 | 264,000 | 272,500 | 151,786 | 262,500 | 218,000 | 252,000 | 170,277 | ||||||||||||||||||||||||
January | 290,000 | 264,000 | 289,000 | 159,103 | 229,000 | 219,000 | 223,000 | 129,406 | ||||||||||||||||||||||||
February | 301,000 | 274,000 | 286,500 | 126,689 | 232,000 | 218,000 | 231,500 | 146,082 | ||||||||||||||||||||||||
March | 290,500 | 269,000 | 272,500 | 164,195 | 262,500 | 229,500 | 252,000 | 229,426 | ||||||||||||||||||||||||
Second Quarter (through April 28) | 293,500 | 262,500 | 288,000 | 210,803 | ||||||||||||||||||||||||||||
April (through April 28) | 293,500 | 262,500 | 288,000 | 210,803 | ||||||||||||||||||||||||||||
Second Quarter (through April 21) | 257,000 | 242,500 | 251,500 | 127,488 | ||||||||||||||||||||||||||||
April (through April 21) | 257,000 | 242,500 | 251,500 | 127,488 |
Source: Korea Exchange
(1) | Both high and low prices are based on the daily closing prices for the period. |
American Depositary Shares
The following table sets forth the high, low and closing prices and the average daily trading volume of the ADSs on the NYSE since January 1, 2010:2012:
Prices | Average Daily Trading Volume | Prices | Average Daily Trading Volume | |||||||||||||||||||||||||||||
Calendar Year | High | Low | Close | High | Low | Close | ||||||||||||||||||||||||||
(US$ per ADS) | (Number of ADSs) | (US$ per ADS) | (Number of ADSs) | |||||||||||||||||||||||||||||
2010 | 19.13 | 14.73 | 18.63 | 1,288,546 | ||||||||||||||||||||||||||||
First Quarter | 18.33 | 16.32 | 17.26 | 1,422,379 | ||||||||||||||||||||||||||||
Second Quarter | 18.51 | 14.73 | 14.73 | 1,486,937 | ||||||||||||||||||||||||||||
Third Quarter | 17.48 | 14.84 | 17.47 | 1,294,034 | ||||||||||||||||||||||||||||
Fourth Quarter | 19.13 | 17.74 | 18.63 | 960,206 | ||||||||||||||||||||||||||||
2011 | 19.80 | 13.47 | 13.61 | 1,866,528 | ||||||||||||||||||||||||||||
First Quarter | 19.02 | 16.83 | 18.81 | 1,639,731 | ||||||||||||||||||||||||||||
Second Quarter | 19.80 | 17.36 | 18.70 | 1,640,469 | ||||||||||||||||||||||||||||
Third Quarter | 18.77 | 13.47 | 14.07 | 2,125,730 | ||||||||||||||||||||||||||||
Fourth Quarter | 15.89 | 13.49 | 13.61 | 2,060,180 | ||||||||||||||||||||||||||||
2012 | 16.41 | 10.85 | 15.83 | 1,758,414 | 16.48 | 11.14 | 15.83 | 1,756,344 | ||||||||||||||||||||||||
First Quarter | 14.60 | 12.89 | 13.91 | 1,644,366 | 14.60 | 12.90 | 13.91 | 1,644,382 | ||||||||||||||||||||||||
Second Quarter | 14.18 | 10.85 | 12.10 | 2,135,473 | 14.13 | 11.14 | 12.10 | 2,127,012 | ||||||||||||||||||||||||
Third Quarter | 15.08 | 12.03 | 14.54 | 1,836,959 | 15.06 | 12.23 | 14.54 | 1,837,010 | ||||||||||||||||||||||||
Fourth Quarter | 16.41 | 14.41 | 15.83 | 1,409,508 | 16.48 | 14.48 | 15.83 | 1,409,691 | ||||||||||||||||||||||||
2013 | 25.16 | 15.63 | 24.62 | 1,407,958 | 25.16 | 15.69 | 24.62 | 1,407,958 | ||||||||||||||||||||||||
First Quarter | 18.72 | 15.63 | 17.87 | 1,884,190 | 18.69 | 15.69 | 17.87 | 1,884,190 | ||||||||||||||||||||||||
Second Quarter | 22.45 | 16.91 | 20.33 | 1,724,433 | 22.37 | 17.05 | 20.33 | 1,724,433 | ||||||||||||||||||||||||
Third Quarter | 22.79 | 19.42 | 22.70 | 848,082 | 22.70 | 19.47 | 22.70 | 848,082 | ||||||||||||||||||||||||
Fourth Quarter | 25.16 | 22.12 | 24.62 | 1,204,890 | 25.16 | 22.16 | 24.62 | 1,204,890 | ||||||||||||||||||||||||
2014 | 31.75 | 20.76 | 27.01 | 905,341 | 31.75 | 20.76 | 27.01 | 905,341 | ||||||||||||||||||||||||
First Quarter | 24.07 | 20.76 | 22.57 | 952,847 | 24.07 | 20.76 | 22.57 | 952,847 | ||||||||||||||||||||||||
Second Quarter | 26.50 | 20.76 | 25.94 | 908,195 | 26.50 | 20.76 | 25.94 | 903,143 | ||||||||||||||||||||||||
Third Quarter | 31.75 | 25.54 | 30.34 | 963,636 | 31.75 | 25.54 | 30.34 | 963,636 | ||||||||||||||||||||||||
Fourth Quarter | 30.62 | 27.01 | 27.01 | 803,932 | 30.62 | 27.01 | 27.01 | 803,932 | ||||||||||||||||||||||||
2015 (through April 28) | 30.07 | 26.22 | 29.93 | 731,767 | ||||||||||||||||||||||||||||
2015 | 30.07 | 20.15 | 20.15 | 598,527 | ||||||||||||||||||||||||||||
First Quarter | 29.76 | 26.22 | 27.21 | 787,402 | ||||||||||||||||||||||||||||
Second Quarter | 30.07 | 23.96 | 24.79 | 598,632 | ||||||||||||||||||||||||||||
Third Quarter | 25.22 | 22.08 | 24.40 | 510,694 | ||||||||||||||||||||||||||||
Fourth Quarter | 25.49 | 20.15 | 20.15 | 506,235 | ||||||||||||||||||||||||||||
2016 | 23.17 | 17.89 | 20.90 | 621,501 | ||||||||||||||||||||||||||||
First Quarter | 20.98 | 17.89 | 20.17 | 674,708 | ||||||||||||||||||||||||||||
Second Quarter | 21.08 | 19.27 | 20.92 | 745,167 | ||||||||||||||||||||||||||||
Third Quarter | 23.17 | 20.48 | 22.60 | 485,527 | ||||||||||||||||||||||||||||
Fourth Quarter | 22.60 | 20.71 | 20.90 | 582,486 | ||||||||||||||||||||||||||||
2017 (through April 21) | 25.85 | 20.64 | 24.33 | 637,028 | ||||||||||||||||||||||||||||
First Quarter | 29.76 | 26.22 | 27.21 | 787,402 | 25.85 | 20.64 | 25.18 | 658,365 | ||||||||||||||||||||||||
January | 29.27 | 26.78 | 28.75 | 959,500 | 21.60 | 20.64 | 21.50 | 612,453 | ||||||||||||||||||||||||
February | 29.76 | 27.65 | 29.07 | 739,883 | 22.74 | 21.32 | 22.60 | 588,355 | ||||||||||||||||||||||||
March | 29.30 | 26.22 | 27.21 | 269,414 | 25.85 | 22.22 | 25.18 | 756,122 | ||||||||||||||||||||||||
Second Quarter (through April 28) | 30.07 | 26.49 | 29.93 | 553,149 | ||||||||||||||||||||||||||||
April (through April 28) | 30.07 | 26.49 | 29.93 | 553,149 | ||||||||||||||||||||||||||||
Second Quarter (through April 21) | 25.31 | 23.74 | 24.33 | 542,536 | ||||||||||||||||||||||||||||
April (through April 21) | 25.31 | 23.74 | 24.33 | 542,536 |
The Korean Securities Market
The Korea Exchange Inc.
With the enactment of the Korea Stock and Futures Exchange Act, which came into effect on January 27, 2005, the three existing spot and futures exchanges (which were the Korea Stock Exchange, Korean Futures Exchange, and KOSDAQ) and KOSDAQ Committee, asub-organization of Korea Securities Dealers Association, were merged and integrated into the Korea Exchange as a joint stock company. There are four different markets run by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, the KRX KONEX Market and the KRX Derivatives Market. The Korea Exchange has three trading floors located in Seoul, one for the KRX KOSPI Market, one for the KRX KOSDAQ Market and one for the KRX KONEX Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (1) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the
Korea Futures Exchange, (2) the Small & Medium Business Corporation, (3) the Korea Securities Finance
Corporation and (4) the Korea Financial Investment Association. Currently, the Korea Exchange is the only stock exchange in Korea and is run by membership, having most of Korean securities companies and some Korean branches of foreign securities companies as its members.
As of December 31, 2014,2016, the aggregate market value of equity securities listed on the KRX KOSPI Market was approximately Won 1,192.31,308.4 trillion. For the year ended December 31, 2016, the average daily trading volume of equity securities was approximately 376.8 million shares with an average trading value of Won 4,523.0 billion. For the year ended December 31, 2015, the average daily trading volume of equity securities was approximately 455.3 million shares with an average trading value of Won 5,351.7 billion. For the year ended December 31, 2014, the average daily trading volume of equity securities was approximately 278.1 million shares with an average trading value of Won 3,983.6 billion. For the year ended December 31, 2013, the average daily trading volume of equity securities was approximately 328.3 million shares with an average trading value of Won 3,993.4 billion. For the year ended December 31, 2012, the average daily trading volume of equity securities was approximately 486.5 million shares with an average trading value of Won 4,823.6 billion.
The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or tode-list a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semi-annually and quarterly and to release immediately all information that may affect trading in a security.
The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community that can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers an excess capacity in a particular industry and induced private companies to publicly offer their securities.
The Korea Exchange publishes the KOSPI, every ten seconds, which is an index of all equity securities listed on the KRX KOSPI Market. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.
Movements in KOSPI are set out in the following table together with the associated dividend yields and price to earnings ratios:
Period Average | ||||||||||||||||||||||||
Year | Opening | High | Low | Closing | Dividend Yield(1) (%) | Price to Earnings(2) | ||||||||||||||||||
1980 | 100.00 | 119.36 | 100.00 | 106.87 | 20.9 | 2.6 | ||||||||||||||||||
1981 | 97.95 | 165.95 | 93.14 | 131.37 | 13.2 | 3.1 | ||||||||||||||||||
1982 | 123.60 | 134.49 | 106.00 | 127.31 | 10.5 | 3.4 | ||||||||||||||||||
1983 | 122.52 | 134.46 | 115.59 | 121.21 | 6.9 | 3.8 | ||||||||||||||||||
1984 | 116.73 | 142.46 | 114.37 | 142.46 | 5.1 | 4.5 | ||||||||||||||||||
1985 | 139.53 | 163.37 | 131.40 | 163.37 | 5.3 | 5.2 | ||||||||||||||||||
1986 | 161.40 | 279.67 | 153.85 | 272.61 | 4.3 | 7.6 | ||||||||||||||||||
1987 | 264.82 | 525.11 | 264.82 | 525.11 | 2.6 | 10.9 | ||||||||||||||||||
1988 | 532.04 | 922.56 | 527.89 | 907.20 | 2.4 | 11.2 | ||||||||||||||||||
1989 | 919.61 | 1,007.77 | 844.75 | 909.72 | 2.0 | 13.9 | ||||||||||||||||||
1990 | 908.59 | 928.77 | 566.27 | 696.11 | 2.2 | 12.8 | ||||||||||||||||||
1991 | 679.75 | 763.10 | 586.51 | 610.92 | 2.6 | 11.2 | ||||||||||||||||||
1992 | 624.23 | 691.48 | 459.07 | 678.44 | 2.2 | 10.9 | ||||||||||||||||||
1993 | 697.41 | 874.10 | 605.93 | 866.18 | 1.6 | 12.7 | ||||||||||||||||||
1994 | 879.32 | 1,138.75 | 860.47 | 1,027.37 | 1.2 | 16.2 | ||||||||||||||||||
1995 | 1,013.57 | 1,016.77 | 847.09 | 882.94 | 1.2 | 16.4 | ||||||||||||||||||
1996 | 888.85 | 986.84 | 651.22 | 651.22 | 1.3 | 17.8 | ||||||||||||||||||
1997 | 653.79 | 792.29 | 350.68 | 376.31 | 1.5 | 17.0 | ||||||||||||||||||
1998 | 385.49 | 579.86 | 280.00 | 562.46 | 1.9 | 10.8 | ||||||||||||||||||
1999 | 587.57 | 1,028.07 | 498.42 | 1,028.07 | 1.1 | 13.5 |
Period Average | Period Average | |||||||||||||||||||||||||||||||||||||||||||||||
Year | Opening | High | Low | Closing | Dividend Yield(1) (%) | Price to Earnings(2) | Opening | High | Low | Closing | Dividend Yield(1) (%) | Price to Earnings(2) | ||||||||||||||||||||||||||||||||||||
1980 | 100.00 | 119.36 | 100.00 | 106.87 | 20.9 | 2.6 | ||||||||||||||||||||||||||||||||||||||||||
1981 | 97.95 | 165.95 | 93.14 | 131.37 | 13.2 | 3.1 | ||||||||||||||||||||||||||||||||||||||||||
1982 | 123.60 | 134.49 | 106.00 | 127.31 | 10.5 | 3.4 | ||||||||||||||||||||||||||||||||||||||||||
1983 | 122.52 | 134.46 | 115.59 | 121.21 | 6.9 | 3.8 | ||||||||||||||||||||||||||||||||||||||||||
1984 | 116.73 | 142.46 | 114.37 | 142.46 | 5.1 | 4.5 | ||||||||||||||||||||||||||||||||||||||||||
1985 | 139.53 | 163.37 | 131.40 | 163.37 | 5.3 | 5.2 | ||||||||||||||||||||||||||||||||||||||||||
1986 | 161.40 | 279.67 | 153.85 | 272.61 | 4.3 | 7.6 | ||||||||||||||||||||||||||||||||||||||||||
1987 | 264.82 | 525.11 | 264.82 | 525.11 | 2.6 | 10.9 | ||||||||||||||||||||||||||||||||||||||||||
1988 | 532.04 | 922.56 | 527.89 | 907.20 | 2.4 | 11.2 | ||||||||||||||||||||||||||||||||||||||||||
1989 | 919.61 | 1,007.77 | 844.75 | 909.72 | 2.0 | 13.9 | ||||||||||||||||||||||||||||||||||||||||||
1990 | 908.59 | 928.77 | 566.27 | 696.11 | 2.2 | 12.8 | ||||||||||||||||||||||||||||||||||||||||||
1991 | 679.75 | 763.10 | 586.51 | 610.92 | 2.6 | 11.2 | ||||||||||||||||||||||||||||||||||||||||||
1992 | 624.23 | 691.48 | 459.07 | 678.44 | 2.2 | 10.9 | ||||||||||||||||||||||||||||||||||||||||||
1993 | 697.41 | 874.10 | 605.93 | 866.18 | 1.6 | 12.7 | ||||||||||||||||||||||||||||||||||||||||||
1994 | 879.32 | 1,138.75 | 860.47 | 1,027.37 | 1.2 | 16.2 | ||||||||||||||||||||||||||||||||||||||||||
1995 | 1,013.57 | 1,016.77 | 847.09 | 882.94 | 1.2 | 16.4 | ||||||||||||||||||||||||||||||||||||||||||
1996 | 888.85 | 986.84 | 651.22 | 651.22 | 1.3 | 17.8 | ||||||||||||||||||||||||||||||||||||||||||
1997 | 653.79 | 792.29 | 350.68 | 376.31 | 1.5 | 17.0 | ||||||||||||||||||||||||||||||||||||||||||
1998 | 385.49 | 579.86 | 280.00 | 562.46 | 1.9 | 10.8 | ||||||||||||||||||||||||||||||||||||||||||
1999 | 587.57 | 1,028.07 | 498.42 | 1,028.07 | 1.1 | 13.5 | ||||||||||||||||||||||||||||||||||||||||||
2000 | 1,059.04 | 1,059.04 | 500.60 | 504.62 | 2.4 | 15.3 | 1,059.04 | 1,059.04 | 500.60 | 504.62 | 2.4 | 15.3 | ||||||||||||||||||||||||||||||||||||
2001 | 520.95 | 704.50 | 468.76 | 693.70 | 1.7 | 29.3 | 520.95 | 704.50 | 468.76 | 693.70 | 1.7 | 29.3 | ||||||||||||||||||||||||||||||||||||
2002 | 724.95 | 937.61 | 584.04 | 829.44 | 1.8 | 15.6 | 724.95 | 937.61 | 584.04 | 829.44 | 1.8 | 15.6 | ||||||||||||||||||||||||||||||||||||
2003 | 635.17 | 822.16 | 515.24 | 810.71 | 2.1 | 10.1 | 635.17 | 822.16 | 515.24 | 810.71 | 2.1 | 10.1 | ||||||||||||||||||||||||||||||||||||
2004 | 821.26 | 936.06 | 719.59 | 895.92 | 2.1 | 15.8 | 821.26 | 936.06 | 719.59 | 895.92 | 2.1 | 15.8 | ||||||||||||||||||||||||||||||||||||
2005 | 893.71 | 1,379.37 | 870.84 | 1,379.37 | 1.7 | 11.0 | 893.71 | 1,379.37 | 870.84 | 1,379.37 | 1.7 | 11.0 | ||||||||||||||||||||||||||||||||||||
2006 | 1,389.27 | 1,464.70 | 1,192.09 | 1,434.46 | 1.7 | 11.4 | 1,389.27 | 1,464.70 | 1,192.09 | 1,434.46 | 1.7 | 11.4 | ||||||||||||||||||||||||||||||||||||
2007 | 1,435.26 | 2,064.85 | 1,355.79 | 1,897.13 | 1.4 | 16.8 | 1,435.26 | 2,064.85 | 1,355.79 | 1,897.13 | 1.4 | 16.8 | ||||||||||||||||||||||||||||||||||||
2008 | 1,853.45 | 1,888.88 | 938.75 | 1,124.47 | 2.6 | 9.0 | 1,853.45 | 1,888.88 | 938.75 | 1,124.47 | 2.6 | 9.0 | ||||||||||||||||||||||||||||||||||||
2009 | 1,157.4 | 1,718.88 | 1,018.81 | 1,682.77 | 1.2 | 23.7 | 1,157.4 | 1,718.88 | 1,018.81 | 1,682.77 | 1.2 | 23.7 | ||||||||||||||||||||||||||||||||||||
2010 | 1,696.14 | 2,052.97 | 1,532.68 | 2,051.00 | 1.1 | 17.8 | 1,696.14 | 2,052.97 | 1,532.68 | 2,051.00 | 1.1 | 17.8 | ||||||||||||||||||||||||||||||||||||
2011 | 2,070.08 | 2,228.96 | 1,652.71 | 1,825.74 | 1.6 | 10.9 | 2,070.08 | 2,228.96 | 1,652.71 | 1,825.74 | 1.6 | 10.9 | ||||||||||||||||||||||||||||||||||||
2012 | 1,826.37 | 2,049.28 | 1,769.31 | 1,997.05 | 1.3 | 12.9 | 1,826.37 | 2,049.28 | 1,769.31 | 1,997.05 | 1.3 | 12.9 | ||||||||||||||||||||||||||||||||||||
2013 | 2,031.10 | 2,059.58 | 1,780.63 | 2,011.34 | 1.2 | 13.5 | 2,031.10 | 2,059.58 | 1,780.63 | 2,011.34 | 1.2 | 13.5 | ||||||||||||||||||||||||||||||||||||
2014 | 2,013.11 | 2,093.08 | 1,881.73 | 1,915.59 | 1.1 | 15.3 | 2,013.11 | 2,093.08 | 1,881.73 | 1,915.59 | 1.1 | 15.3 | ||||||||||||||||||||||||||||||||||||
2015 (through April 28) | 1,914.24 | 2,173.41 | 1,882.45 | 2,147.67 | 1.1 | 16.7 | ||||||||||||||||||||||||||||||||||||||||||
2015 | 1,926.44 | 2,173.41 | 1,829.81 | 1,961.31 | 1.2 | 16.1 | ||||||||||||||||||||||||||||||||||||||||||
2016 | 1,918.76 | 2,068.72 | 1,835.28 | 2,026.46 | 1.5 | 14.3 | ||||||||||||||||||||||||||||||||||||||||||
2017 (through April 21) | 2,026.16 | 2,178.38 | 2,026.16 | 2,165.04 | 1.4 | 14.6 |
Source: Korea Exchange
(1) | Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only. |
(2) | The price to earnings ratio is based on figures for companies that record a profit in the preceding year. |
KOSPI closed at 2,147.672,165.04 on April 28, 2015.21, 2017.
Shares are quoted “ex-dividend”“ex-dividend” on the first trading day of the relevant company’s accounting period. Since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.
With certain exceptions, principally to take account of a share being quoted “ex-dividend”“ex-dividend” and “ex-rights,“ex-rights,” upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 15.0% of the previous day’s closing price of the shares, rounded down as set out below:
Previous Day’s Closing Price₩ | Rounded Down to ₩ | |||
Less than 5,000 | ₩ | 5 | ||
5,000 to less than 10,000 | 10 | |||
10,000 to less than 50,000 | 50 | |||
50,000 to less than 100,000 | 100 | |||
100,000 to less than 500,000 | 500 | |||
500,000 or more | 1,000 |
As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.
Due to a recent deregulation of restrictions on brokerage commission rates, theThe brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the securities companies. In addition, a securities transaction tax of 0.15% of the sales price will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the KRX KOSPI Market. See “Item 10.E. Taxation — Korean—Korean Taxation.”
The following table sets forth the number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization and the average daily trading volume at the end of the periods indicated:
Market Capitalization on the Last Day of Each Period | Average Daily Trading Volume, Value | Market Capitalization on the Last Day of Each Period | Average Daily Trading Volume, Value | |||||||||||||||||||||||||||||||||||||||||||||
Year | Number of Listed Companies | (Billions of Won) | (Millions of US$)(1) | Thousands of Shares | (Millions of Won) | (Thousands of US$)(1) | Number of Listed Companies | (Billions of Won) | (Millions of US$)(1) | Thousands of Shares | (Millions of Won) | (Thousands of US$)(1) | ||||||||||||||||||||||||||||||||||||
1981 | 343 | ₩ | 2,959 | US$ | 4,223 | 10,565 | ₩ | 8,708 | US$ | 12,427 | 343 | ₩ | 2,959 | US$ | 4,223 | 10,565 | ₩ | 8,708 | US$ | 12,427 | ||||||||||||||||||||||||||||
1982 | 334 | 3,001 | 4,012 | 9,704 | 6,667 | 8,914 | 334 | 3,001 | 4,012 | 9,704 | 6,667 | 8,914 | ||||||||||||||||||||||||||||||||||||
1983 | 328 | 3,490 | 4,361 | 9,325 | 5,941 | 7,425 | 328 | 3,490 | 4,361 | 9,325 | 5,941 | 7,425 | ||||||||||||||||||||||||||||||||||||
1984 | 336 | 5,149 | 6,207 | 14,847 | 10,642 | 12,829 | 336 | 5,149 | 6,207 | 14,847 | 10,642 | 12,829 | ||||||||||||||||||||||||||||||||||||
1985 | 342 | 6,570 | 7,362 | 18,925 | 12,315 | 13,798 | 342 | 6,570 | 7,362 | 18,925 | 12,315 | 13,798 | ||||||||||||||||||||||||||||||||||||
1986 | 355 | 11,994 | 13,863 | 31,755 | 32,870 | 37,991 | 355 | 11,994 | 13,863 | 31,755 | 32,870 | 37,991 | ||||||||||||||||||||||||||||||||||||
1987 | 389 | 26,172 | 32,884 | 20,353 | 70,185 | 88,183 | 389 | 26,172 | 32,884 | 20,353 | 70,185 | 88,183 | ||||||||||||||||||||||||||||||||||||
1988 | 502 | 64,544 | 93,895 | 10,367 | 198,364 | 288,571 | 502 | 64,544 | 93,895 | 10,367 | 198,364 | 288,571 | ||||||||||||||||||||||||||||||||||||
1989 | 626 | 95,477 | 140,119 | 11,757 | 280,967 | 412,338 | 626 | 95,477 | 140,119 | 11,757 | 280,967 | 412,338 | ||||||||||||||||||||||||||||||||||||
1990 | 669 | 79,020 | 109,872 | 10,866 | 183,692 | 255,412 | 669 | 79,020 | 109,872 | 10,866 | 183,692 | 255,412 | ||||||||||||||||||||||||||||||||||||
1991 | 686 | 73,118 | 95,541 | 14,022 | 214,263 | 279,973 | 686 | 73,118 | 95,541 | 14,022 | 214,263 | 279,973 | ||||||||||||||||||||||||||||||||||||
1992 | 688 | 84,712 | 107,027 | 24,028 | 308,246 | 389,445 | 688 | 84,712 | 107,027 | 24,028 | 308,246 | 389,445 | ||||||||||||||||||||||||||||||||||||
1993 | 693 | 112,665 | 138,870 | 35,130 | 574,048 | 707,566 | 693 | 112,665 | 138,870 | 35,130 | 574,048 | 707,566 | ||||||||||||||||||||||||||||||||||||
1994 | 699 | 151,217 | 190,762 | 36,862 | 776,257 | 979,257 | 699 | 151,217 | 190,762 | 36,862 | 776,257 | 979,257 | ||||||||||||||||||||||||||||||||||||
1995 | 721 | 141,151 | 181,943 | 26,130 | 487,762 | 628,721 | 721 | 141,151 | 181,943 | 26,130 | 487,762 | 628,721 | ||||||||||||||||||||||||||||||||||||
1996 | 760 | 117,370 | 138,490 | 26,571 | 486,834 | 928,418 | 760 | 117,370 | 138,490 | 26,571 | 486,834 | 928,418 | ||||||||||||||||||||||||||||||||||||
1997 | 776 | 70,989 | 41,881 | 41,525 | 555,759 | 327,881 | 776 | 70,989 | 41,881 | 41,525 | 555,759 | 327,881 | ||||||||||||||||||||||||||||||||||||
1998 | 748 | 137,799 | 114,261 | 97,716 | 660,429 | 547,619 | 748 | 137,799 | 114,261 | 97,716 | 660,429 | 547,619 | ||||||||||||||||||||||||||||||||||||
1999 | 725 | 349,504 | 307,662 | 278,551 | 3,481,620 | 3,064,806 | 725 | 349,504 | 307,662 | 278,551 | 3,481,620 | 3,064,806 | ||||||||||||||||||||||||||||||||||||
2000 | 704 | 188,042 | 148,415 | 306,163 | 2,602,211 | 2,053,837 | 704 | 188,042 | 148,415 | 306,163 | 2,602,211 | 2,053,837 | ||||||||||||||||||||||||||||||||||||
2001 | 689 | 255,850 | 194,785 | 473,241 | 1,997,420 | 1,520,685 | 689 | 255,850 | 194,785 | 473,241 | 1,997,420 | 1,520,685 | ||||||||||||||||||||||||||||||||||||
2002 | 683 | 258,681 | 216,071 | 857,245 | 3,041,598 | 2,540,590 | 683 | 258,681 | 216,071 | 857,245 | 3,041,598 | 2,540,590 | ||||||||||||||||||||||||||||||||||||
2003 | 684 | 355,363 | 298,624 | 542,010 | 2,216,636 | 1,862,719 | 684 | 355,363 | 298,624 | 542,010 | 2,216,636 | 1,862,719 | ||||||||||||||||||||||||||||||||||||
2004 | 683 | 412,588 | 398,597 | 372,895 | 2,232,109 | 2,156,419 | 683 | 412,588 | 398,597 | 372,895 | 2,232,109 | 2,156,419 | ||||||||||||||||||||||||||||||||||||
2005 | 702 | 655,075 | 648,589 | 467,629 | 3,157,662 | 3,126,398 | 702 | 655,075 | 648,589 | 467,629 | 3,157,662 | 3,126,398 | ||||||||||||||||||||||||||||||||||||
2006 | 731 | 704,588 | 757,622 | 279,096 | 3,435,180 | 3,693,742 | 731 | 704,588 | 757,622 | 279,096 | 3,435,180 | 3,693,742 | ||||||||||||||||||||||||||||||||||||
2007 | 746 | 951,900 | 1,017,205 | 363,732 | 5,539,588 | 5,919,697 | 746 | 951,900 | 1,017,205 | 363,732 | 5,539,588 | 5,919,697 | ||||||||||||||||||||||||||||||||||||
2008 | 765 | 576,888 | 457,122 | 355,205 | 5,189,644 | 4,112,238 | 765 | 576,888 | 457,122 | 355,205 | 5,189,644 | 4,112,238 | ||||||||||||||||||||||||||||||||||||
2009 | 770 | 887,316 | 762,528 | 485,657 | 5,795,552 | 4,980,494 | 770 | 887,316 | 762,528 | 485,657 | 5,795,552 | 4,980,494 | ||||||||||||||||||||||||||||||||||||
2010 | 777 | 1,114,882 | 1,260,486 | 379,171 | 5,607,749 | 6,340,121 | 777 | 1,114,882 | 1,260,486 | 379,171 | 5,607,749 | 6,340,121 | ||||||||||||||||||||||||||||||||||||
2011 | 791 | 1,041,999 | 899,438 | 353,759 | 6,863,146 | 5,924,166 | 791 | 1,041,999 | 899,438 | 353,759 | 6,863,146 | 5,924,166 | ||||||||||||||||||||||||||||||||||||
2012 | 784 | 1,154,294 | 1,085,679 | 486,734 | 4,824,610 | 4,537,819 | 784 | 1,154,294 | 1,085,679 | 486,734 | 4,824,610 | 4,537,819 | ||||||||||||||||||||||||||||||||||||
2013 | 777 | 1,185,974 | 1,123,826 | 328,325 | 3,993,422 | 3,784,158 | 777 | 1,185,974 | 1,123,826 | 328,325 | 3,993,422 | 3,784,158 | ||||||||||||||||||||||||||||||||||||
2014 | 773 | 1,192,253 | 1,092,908 | 278,082 | 3,983,580 | 3,651,646 | 773 | 1,192,253 | 1,092,908 | 278,082 | 3,983,580 | 3,651,646 | ||||||||||||||||||||||||||||||||||||
2015 (through April 24) | 762 | 1,346,808 | 1,251,797 | 398,452 | 5,133,955 | 4,771,777 | ||||||||||||||||||||||||||||||||||||||||||
2015 | 770 | 1,242,832 | 1,062,885 | 455,256 | 5,351,734 | 4,576,870 | ||||||||||||||||||||||||||||||||||||||||||
2016 | 779 | 1,308,440 | 1,086,988 | 376,772 | 4,523,044 | 3,757,524 | ||||||||||||||||||||||||||||||||||||||||||
2017 (through April 21) | 774 | 1,401,852 | 1,235,961 | 395,452 | 4,507,039 | 3,973,690 |
Source: Korea Exchange
(1) | Converted at the noon buying rate on the last business day of the period indicated. |
The Korean securities markets are principally regulated by the FSC and became subject to the FSCMA beginning in February 2009. The law imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.
Further Opening of the Korean Securities Market
Stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the Korea Stock Exchange. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks.
In addition, the Korea Stock Exchange opened new option markets for stocks of seven companies including our shares of common stock and common stock of six other companies on January 28, 2002. Foreigners will be permitted to invest in such options for individual stocks subject to certain procedural requirements.
Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the Korea Stock Exchange or registered on the KOSDAQ, subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.
As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The FSC sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.
Currently, foreigners are permitted to invest in securities including shares of most Korean companies that are not listed on the KRX KOSPI Market or the KRX KOSDAQ Market and in bonds that are not listed.
Protection of Customer’s Interest in Case of Insolvency of Financial Investment Companies with a Brokerage License
Under Korean law, the relationship between a customer and a financial investment company with a brokerage license in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the financial investment company with a brokerage license) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or rehabilitation procedure involving a financial investment company with a brokerage license, the customer of such financial investment company is entitled to the proceeds of the securities sold by such financial investment company.
When a customer places a sell order with a financial investment company with a brokerage license which is not a member of the Korea Exchange and this financial investment company places a sell order with another financial investment company with a brokerage license which is a member of the Korea Exchange, the customer is still entitled to the proceeds of the securities sold received by thenon-member company from the member company regardless of the bankruptcy or rehabilitation of thenon-member company.
Under the FSCMA, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a financial investment company with a brokerage license which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member.
When a customer places a buy order with anon-member company and thenon-member company places a buy order with a member company, the customer has the legal right to the securities received by thenon-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and thenon-member company’s creditors are concerned.
As the cash deposited with a financial investment company with a brokerage license is regarded as belonging to such financial investment company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the financial investment company with a brokerage license if a bankruptcy or
rehabilitation procedure is instituted against such financial investment company and, therefore, can suffer from loss
or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to Won 50 million per investor in case of such financial investment company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the FSCMA, subject to certain exceptions, financial investment companies with a brokerage license are required to deposit the cash received from their customers with the Korea Securities Finance Corporation, a special entity established pursuant to the FSCMA.Set-off or attachment of cash deposits by financial investment companies with a brokerage license is prohibited. The premiums related to this insurance under the Depositor Protection Act are paid by financial investment companies with a brokerage license.
Item | SellingShareholders |
Not Applicable.
Item 9.E. | Dilution |
Not Applicable.
Item 9.F. | Expenses |
Not Applicable.
Item 10. | ADDITIONAL |
Item 10.A. | ShareCapital |
Not Applicable.
Description of Capital Stock
This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the FSCMA, the Korean Commercial Code, the Telecommunications Business Act and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the FSCMA, the Korean Commercial Code and the Telecommunications Business Act. We have filed copies of our articles of incorporation and the Telecommunications Business Act as exhibits to our annual reports onForm 20-F.
General
The name of our company is SK Telecom Co., Ltd. We are registered under the laws of Korea under the commercial registry number of 110111-0371346. As specified in Article 2 (Objectives) of our articles of incorporation, as amended and approved at our general shareholders meeting held on March 20, 2015,24, 2017, our objectives are the rational management of the telecommunications business, development of telecommunications technology, and contribution to public welfare and convenience. In order to achieve these objectives, we are engaged in the following:
information and communication business;
sale and lease of subscriber handsets;
new media business;
advertising business;
mail order sales business;
real estate business (development, management and leasing, etc.) and chattel leasing business;
research and technology development relating to the first four items above;
overseas and import/export business relating to the first four items above;
manufacture and distribution business relating to the first four items above;
travel business;
electronic financial services business;
film business (production, import, distribution and screening);
lifetime education and management of lifetime educational facilities;
electric engineering business;
information- and communication-related engineering business;
ubiquitous city construction and related service business;
any related business through investment, management and operation of our Korean or offshore subsidiaries and investment companies;
construction business, including the machine and equipment business;
export/import business and export/import intermediation/agency business;
electrical business such as intelligent electrical grid business; and
any business or undertaking incidental or conducive to the attainment of the objectives stated above.
Currently, our authorized share capital is 220,000,000 shares, which consists of shares of common stock, par value Won 500 per share, and shares ofnon-voting stock, par value Won 500 per share (common shares andnon-voting shares together are referred to as “shares”). Under our articles of incorporation, we are authorized to issue up to 5,500,000non-voting preferred shares. As of March 31, 2015,2017, 80,745,711 common shares were issued, of which 9,809,37510,136,551 shares were held by us in treasury. Pursuant to the Share Exchange which is currently scheduled forin June 2015, we expect to exchange 2,471,883exchanged 1,692,824 treasury shares for the common shares of SK Broadband, subjectBroadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a sharebuy-back program to adjustments.further increase shareholder value. We have never issued anynon-voting preferred shares. All of the issued and outstanding common shares are fully-paid andnon-assessable and are in registered form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.
Board of Directors
Meetings of the board of directors are convened by the representative director as he or she deems necessary or upon the request of three or more directors. The board of directors determines all important matters relating to our business. In addition, the prior approval of the majority of the independentnon-executive directors is required for certain matters, which include:
investment by us or any of our subsidiaries in a foreign company in equity or acquisition of such foreign company’s other overseas assets in an amount equal to 5.0% or more of our equity under our most recent balance sheet; and
contribution of capital, loans or guarantees, acquisition of our subsidiaries’ assets or similar transactions with our affiliated companies in excess of Won 10.0 billion through one or a series of transactions.
Resolutions of the board are adopted in the presence of a majority of the directors in office and by the affirmative vote of a majority of the directors present. No director who has an interest in a matter for resolution may exercise his or her vote upon such matter.
There are no specific shareholding requirements for director’s qualification. Directors are elected at a general meeting of shareholders if the approval of the holders of the majority of the voting shares present at such meeting is obtained and if such majority also represents at leastone-fourth of the total number of shares outstanding. Under the Korean Commercial Code, unless otherwise stated in the articles of incorporation, holders of an aggregate of 1.0% or more of the outstanding shares with voting rights may request cumulative voting in any election for two or more directors. Our articles of incorporation do not permit cumulative voting for the election of directors.
The term of office for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms and our shareholders may remove them from office at any time by a special resolution adopted at a general meeting of shareholders.
Dividends
We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our common shares represented by the ADSs have the same dividend rights as other outstanding common shares. For a detailed discussion of our dividend policy, see “Item 8.A. Consolidated Statements and Other Financial Information — Dividends.”
Distribution of Free Shares
In addition to paying dividends in shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.
Preemptive Rights and Issuance of Additional Shares
We may at times issue authorized but unissued shares, unless otherwise provided in the Korean Commercial Code, on terms determined by our board of directors. All our shareholders are generally entitled to subscribe to any newly-issued shares in proportion to their existing shareholdings. We must offer new shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ registry as of the relevant record date. We must give public notice of the preemptive rights regarding new shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute shares for which preemptive rights have not been exercised or where fractions of shares occur.
Under the Korean Commercial Code and our articles of incorporation, we may issue new shares pursuant to a board resolution to persons other than existing shareholders only if (1) the new shares are issued for the purpose of issuing depositary receipts in accordance with the relevant regulations or through an offering to public investors and (2) the purpose of such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition. If we make an allotment of new shares to persons other than our existing shareholders, we are required by the Korean Commercial Code to notify our existing shareholders of (a) the class and number of new shares, (b) the issuance price of new shares and the date set for the payment thereof, (c) in cases of no par value shares, the amount to be included in thepaid-up capital out of the issuance price of new shares and (d) the method of subscription to new shares by no later than two weeks before the date of payment of the subscription price, or publicly announce such information. Under our articles of incorporation, only our board of directors is authorized to set the terms and conditions with respect to such issuance of new shares.
In addition, under our articles of incorporation, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 400.0 billion, to persons other than existing shareholders, where such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition.
Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the shares publicly offered pursuant to the FSCMA. This right is exercisable only to the extent that the total number of shares so acquired and held by members of our employee stock ownership association does not exceed 20.0% of the sum of the number of shares then outstanding and the number of newly-issued shares. As of December 31, 2014, approximately 0.11% of the issued shares were held by members of our employee stock ownership association.
General Meeting of Shareholders
We generally hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:
as necessary;
at the request of holders of an aggregate of 3.0% or more of our outstanding common shares;
at the request of shareholders holding an aggregate of 1.5% or more of our outstanding shares and preferred shares for at least six months; or
at the request of our audit committee.
Holders ofnon-voting preferred shares may request a general meeting of shareholders only after thenon-voting shares become entitled to vote or “enfranchised,” as described under “— Voting Rights” below.
We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding voting shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use The Korea Economic Daily News and Maeil Business Newspaper, both published in Seoul, for this purpose, but we may give notice in the future through electronic means. Shareholders who are not on the shareholders’ registry as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders ofnon-voting preferred shares, unless enfranchised, are not entitled to receive notice of or vote at general meetings of shareholders.
Our general meetings of shareholders have historically been held in or near Seoul.
Voting Rights
Holders of our common shares are entitled to one vote for each common share, except that voting rights of common shares held by us (including treasury shares and shares held by bank trust funds controlled by us), or by a corporate shareholder in which we own more than 10.0% equity interest, either directly or indirectly, may not be exercised. The Korean Commercial Code, unless otherwise stated in the articles of incorporation, permits cumulative voting, which would allow each shareholder to have multiple voting rights corresponding to the number of directors to be appointed in the voting and to exercise all voting rights cumulatively to elect one director. Our articles of incorporation do not permit cumulative voting for the election of directors.
Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting if such affirmative votes also represent at leastone-fourth of our total voting shares then issued and outstanding. However, under the Korean Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at leasttwo-thirds of the voting shares present or represented at a meeting, and such affirmative votes must also represent at leastone-third of our total voting shares then issued and outstanding:
amending our articles of incorporation;
removing a director;
effecting any dissolution, merger or consolidation of us;
transferring the whole or any significant part of our business;
effecting our acquisition of all of the business of any other company or a part of the business of any other company having a material effect on our business;
reducing our capital; or
issuing any new shares at a price lower than their par value.
In general, holders ofnon-voting preferred shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders.
However, in case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases which affect the rights or interests of thenon-voting preferred shares, approval of the holders ofnon-voting preferred shares is required. We may obtain the approval by a resolution of holders of at leasttwo-thirds of thenon-voting preferred shares present or represented at a class meeting of the holders ofnon-voting preferred shares, where the affirmative votes also represent at leastone-third of our total issued and outstandingnon-voting shares. In addition, if we are unable to pay dividends onnon-voting preferred shares as provided in our articles of
incorporation, the holders ofnon-voting shares will become enfranchised and will be entitled to exercise voting
rights beginning at the next general meeting of shareholders to be held after the declaration ofnon-payment of dividends is made until such dividends are paid. The holders of enfranchisednon-voting preferred shares will have the same rights as holders of common shares to request, receive notice of, attend and vote at a general meeting of shareholders.
Shareholders may exercise their voting rights by proxy. A shareholder may give proxies only to another shareholder, except that a corporate shareholder may give proxies to its officers or employees.
Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying common shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote our common shares underlying their ADSs.
Limitation on Shareholdings
The Telecommunications Business Act prohibits foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of such Korean entities’ outstanding voting stock are deemed foreigners. A foreigner who has acquired shares of our voting stock in excess of such limitation may not exercise the voting rights with respect to the shares exceeding such limitation and may be subject to the MSIP’s corrective orders.
Rights of Dissenting Shareholders
Under Financial Investment Services and Capital Market Act, in some limited circumstances, including the transfer of all or a significant part of our business or our merger or consolidation with another company (with certain exceptions), dissenting shareholders have the right to require us to purchase their shares. To exercise this right, shareholders, including holders ofnon-voting shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Then, within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their shares. We are obligated to purchase the shares of such dissenting shareholders within one month after the expiration of the20-day period. The purchase price for the shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily share prices on the KRX KOSPI Market for thetwo-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant resolution. However, a court may determine the purchase price if we or dissenting shareholders do not accept the purchase price.
Registry of Shareholders and Record Dates
Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It records and registers transfers of shares on the register of shareholders upon presentation of the share certificates.
The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the registry of shareholders is closed for the period from January 1 to January 31 of the following year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of shares and the delivery of share certificates may continue while the register of shareholders is closed.
Annual Report
At least one week before the annual general meeting of shareholders, we must make our annual reports and auditednon-consolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the auditednon-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.
Under the FSCMA, we must file with the FSC and the Korea Exchange (1) an annual securities report within 90 days after the end of our fiscal year, (2) amid-year report within 45 days after the end of the first six months of our fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the ninth month of our fiscal year. Copies of these reports are or will be available for public inspection at the FSC and the Korea Exchange.
Transfer of Shares
Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his or her name, seal and address registered on our registry of shareholders, maintained by our transfer agent. Anon-Korean shareholder may file a sample signature in place of a seal, unless he or she is a citizen of a country with a sealing system similar to that of Korea. In addition, anon-resident shareholder must appoint an agent in Korea authorized to receive notices on his or her behalf and file his or her mailing address in Korea.
Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of shares bynon-residents ornon-Korean citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”
Our transfer agent is Kookmin Bank, located at 24,Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea.
Restrictions Applicable to Shares
Pursuant to the Telecommunications Business Act, the maximum aggregate foreign shareholding in us is limited to 49.0%. See “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In addition, certain foreign exchange controls and securities regulations apply to the acquisition of securities bynon-residents ornon-Korean citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”
Acquisition of Shares by Us
We may acquire our own shares pursuant to an approval at the general meeting of shareholders, through purchases on the Korea Exchange or a tender offer, or by acquiring the interests in a trust account holding our own shares through agreements with trust companies and asset management companies. The aggregate purchase price for the shares may not exceed the total amount available for distribution as dividends as of the end of the preceding fiscal year less the amount of dividends and mandatory reserves required to be set aside for that fiscal year, subject to certain procedural requirements.
Under the Korean Commercial Code, we may resell or transfer any shares acquired by us to a third party pursuant to an approval by the Board of Directors. In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our common stock. Under the FSCMA, we are subject to certain selling restrictions with respect to the shares acquired by us.
Liquidation Rights
In the event of our liquidation, remaining assets after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to their shareholdings. Holders ofnon-voting preferred shares have no preference in liquidation. Holders of debt securities have no preference over other creditors in the event of liquidation.
Description of American Depositary Shares
The following is a summary of the deposit agreement dated as of May 31, 1996, as amended by amendment no. 1 dated as of March 15, 1999, amendment no. 2 dated as of April 24, 2000 and amendment no. 3 dated as of
July 24, 2002, among us, Citibank, N.A., as ADR depositary, and all holders and beneficial owners of ADSs, as supplemented by side letters dated as of July 25, 2002, October 1, 2002 and October 1, 2007. The deposit agreement
is governed by the laws of the State of New York. Because it is a summary, this description does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the ADR. The deposit agreement has been filed as an exhibit to our registration statementAnnual Report on Form F-3 (File No. 333-91304)20-F filed with the SEC.SEC on June 30, 2006. Copies of the deposit agreement are available for inspection at the principal New York office of the ADR depositary, currently located at 388 Greenwich Street, 14th Floor, New York, New York 10013, United States of America, and at the principal London office of the ADR depositary, currently located at Canada Square, Canary Wharf, London, E14 5LB, England.
American Depositary Receipts
The ADR depositary may execute and deliver ADRs evidencing the ADSs. Each ADR evidences a specified number of ADSs, each ADS representingone-ninth of one share of our common stock to be deposited with the ADR depositary’s custodian in Seoul. Korea Securities Depository is the institution authorized under applicable law to effect book-entry transfers of our common shares, known as the “Custodian”. The Custodian is located at358-8,Hosu-ro,Ilsandong-gu, Goyang-si, Gyeonggi-do411-770, Korea. An ADR may represent any number of ADSs. We and the ADR depositary will treat only persons in whose names ADRs are registered on the books of the registrar as holders of ADRs.
Deposit and Withdrawal of Shares of Common Stock
Notwithstanding the provisions described below, under the terms of the deposit agreement, the deposit of shares and issuance of ADSs may only be made if the total number of shares represented by ADSs after such deposit does not exceed a specified maximum, 24,321,893 shares as of March 31, 2015.2017. This limit will be adjusted in certain circumstances, including (1) upon the cancellation of existing ADSs, (2) upon future offerings of ADSs by us or our shareholders, (3) rights offerings and (4) adjustments for share reclassifications. The limit also may be decreased in certain circumstances. As of March 31, 2015,2017, the outstanding ADSs represented 10,000,4889,106,281 shares of our common stock. Notwithstanding the foregoing, the ADR depositary and the Custodian may not accept deposits of shares of common stock for issuance of ADSs if it has been notified by us in writing that we block deposits to prevent a violation of applicable Korean laws or regulations or a violation of our articles of incorporation. In addition, the ADR depositary may not accept deposits of shares of common stock for issuance of ADSs from a person who identifieshim-,her- or itself to the depositary, and has been identified in writing by us, as a holder of at least 3.0% of our shares of common stock.
The shares of common stock underlying the ADSs are delivered to the ADR depositary’s Custodian in book-entry form. Accordingly, no share certificates will be issued but the ADR depositary will hold the shares of common stock through the book-entry settlement system of the Custodian. The delivery of the shares of common stock pursuant to the deposit agreement will take place through the facilities of the Custodian in accordance with its applicable settlement procedures. The ADR depositary will execute and deliver ADSs if you or your broker deposit shares or evidence of rights to receive shares of common stock with the Custodian. Upon payment of fees and expenses and any taxes or charges, such as stamp taxes or stock transfer taxes, the ADR depositary will register the appropriate number of ADSs in the names you designate. The ADR depositary and the ADR depositary’s Custodian will refuse to accept shares of common stock for deposit whenever we restrict transfer of shares of common stock to comply with ownership restrictions under applicable law or our articles of incorporation or whenever the deposit would cause the total number of shares of common stock deposited to exceed a level we determine from time to time. We may instruct the ADR depositary to take certain actions with respect to a holder of ADSs who holds in excess of the ownership limitation set forth in the deposit agreement, including the mandatory sale or disposition of the shares represented by the ADSs in excess of such ownership limitations if, and to the extent, permitted by applicable law.
You may surrender your ADRs to the ADR depositary to withdraw the underlying shares of our common stock. Upon payment of the fees and any governmental charges and taxes provided in the deposit agreement, and subject to applicable laws and regulations of Korea and our articles of incorporation, you will be entitled to physical delivery or electronic delivery to an account in Korea or, if permissible under applicable Korean law, outside the
United States, of the shares of common stock evidenced by the ADRs and any other property at the time represented by ADR you surrendered. If you surrender an ADR evidencing a number of ADSs not evenly divisible by nine, the
ADR depositary will deliver the appropriate whole number of shares of common stock represented by the surrendered ADSs and will execute and deliver to you a new ADR evidencing ADSs representing any remaining fractional shares of common stock.
If you request withdrawal of shares of common stock, you must deliver to the ADR depositary a written order directing the ADR depositary to cause the shares of common stock being withdrawn to be delivered or to cause such delivery upon the written order of the person designated in your order, subject to applicable Korean laws and the provisions of the deposit agreement.
Under the provisions of the deposit agreement, the ADR depositary may not lend shares of common stock or ADSs. However, subject to the provisions of the deposit agreement and limitations established by the ADR depositary, the ADR depositary may execute and deliver ADSs before deposit of the underlying shares of common stock. This is called apre-release of the ADS. The ADR depositary may also deliver shares of common stock upon cancellation ofpre-released ADSs (even if the cancellation occurs before the termination of thepre-release). The ADR depositary maypre-release ADSs only under the following circumstances:
before or at the time of thepre-release, the person to whom thepre-release is being made must represent to the ADR depositary in writing that the person, or, in case of an institution its customer, owns the shares of common stock or ADSs to be deposited and show evidence of the ownership to the ADR depositary’s satisfaction;
before or at the time of suchpre-release, the person to whom thepre-release is being made must agree in writing that he or she will hold the shares of common stock or ADSs in trust for the ADR depositary until their delivery to the ADR depositary or Custodian, reflect on his or her records the ADR depositary as owner of such shares of common stock or ADSs and deliver such shares of common stock upon the ADR depositary’s request;
thepre-release must be fully collateralized with cash or U.S. government securities;
the ADR depositary must be able to terminate thepre-release on not more than five business days’ notice; and
thepre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate.
The ADR depositary may retain for its own account any compensation received by it in connection with thepre-release, such as earnings on the collateral.
If you want to withdraw the shares of common stock from the depositary facility, you must register your identity with the Financial Supervisory Service of Korea (the “FSS”) before you acquire the shares of common stock unless you intend to sell the shares of common stock within three months. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations — Restrictions Applicable to Shares.”
Dividends, Other Distributions and Rights
If the ADR depositary can, in its judgment and pursuant to applicable law, convert Won (or any other foreign currency) into Dollars on a reasonable basis and transfer the resulting Dollars to the United States, the ADR depositary will as promptly as practicable convert all cash dividends and other cash distributions received by it on the deposited shares of common stock into Dollars and distribute the Dollars to you in proportion to the number of ADSs representing shares of common stock held by you, after deduction of the fees and expenses of the ADR depositary. If the ADR depositary determines that in its judgment any currency other than Dollars it receives from us cannot be converted and distributed on a reasonable basis, the ADR depositary may distribute the currency it receives to the extent permitted under applicable law or hold the currency for your account if you are entitled to receive the distribution. The ADR depositary will not be liable for any interest. Before making a distribution, the ADR depositary will deduct any withholding taxes that must be paid.
In the event that the ADR depositary or the ADR depositary’s Custodian receives any distribution upon any deposited shares of common stock in property or securities (other than shares of common stock,non-voting preferred stock or rights to receive shares of common stock ornon-voting preferred stock), the ADR depositary will
distribute the property or securities to you in proportion to your holdings in any manner that the ADR depositary deems, after consultation with us, equitable and practicable. If the ADR depositary determines that any distribution of property or securities (other than shares of common stock,non-voting preferred stock or rights to receive shares of common stock ornon-voting preferred stock) cannot be made proportionally, or if for any other reason the ADR depositary deems the distribution not to be feasible, the ADR depositary may, after consultation with us, dispose of all or a portion of the property or securities in such amounts and in such manner, including by public or private sale, as the ADR depositary deems equitable or practicable. The ADR depositary will distribute to you the net proceeds of any such sale, or the balance of the property or securities, after the deduction of the fees and expenses of the ADR depositary.
If a distribution by us consists of a dividend in, or free distribution of, our shares of common stock, the ADR depositary may, with our approval, and will, if we request, deposit the shares of common stock and either (1) distribute to you, in proportion to your holdings, additional ADSs representing those shares of common stock, or (2) reflect on the records of the ADR depositary the increase in the aggregate number of ADSs representing those number of shares of common stock, in both cases, after the deduction of the fees and expenses of the ADR depositary. If the ADR depositary deems that such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the shares of common stock received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole ADSs. If the ADR depositary does not distribute additional ADSs, then each outstanding ADS will also represent the new shares so distributed.
If a distribution by us consists of a dividend in, or free distribution of, shares ofnon-voting preferred stock, the ADR depositary will deposit such shares ofnon-voting preferred stock under anon-voting preferred stock deposit agreement to be entered into among us, the ADR depositary and all holders and beneficial owners of depositary shares. The ADR depositary will deliver to you, in proportion to your holdings of ADSs, depositary shares issued under thenon-voting preferred stock deposit agreement representing the number ofnon-voting shares received as such dividend or distribution. If the ADR depositary deems such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the nonvoting shares received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole depositary shares. We are not obligated to list depositary shares representingnon-voting shares on any exchange.
If we offer holders of our securities any rights to subscribe for additional shares of common stock or any other rights, the ADR depositary may make these rights available to you. The ADR depositary must first determine whether it is lawful and feasible to do so. If the ADR depositary determines that it is not lawful or feasible to make these rights available to you, then upon our request, the ADR depositary will sell the rights and distribute the proceeds in the same way as it would do with cash. The ADR depositary may allow these rights that are not distributed or sold to lapse. In that case, you will receive no value for these rights.
If we issue any rights with respect tonon-voting shares, the securities issuable upon any exercise of such rights by holders or beneficial owners will be depositary shares representing thosenon-voting shares issued under the provisions of anon-voting preferred stock deposit agreement.
If a registration statement under the Securities Act is required with respect to the securities to which any rights relate in order for us to offer the rights to you and to sell the securities represented by these rights, the ADR depositary will not offer such rights to you until such a registration is in effect, or unless the offering and sale of such securities and such rights to you are exempt from the registration requirements of the Securities Act or any required filing, report, approval or consent has been submitted, obtained or granted. We or the ADR depositary will not be obligated to register the rights or securities under the Securities Act or to submit, obtain or request any filing, report, approval or consent.
The ADR depositary may not be able to convert any currency or to sell or dispose of any distributed or offered property or rights in a timely manner or at a specified price, or at all.
Record Dates
The ADR depositary will fix a record date, after consultation with us, in each of the following situations:
any cash dividend or other cash distribution becomes payable;
any distribution other than cash is made;
rights are issued with respect to deposited shares of common stock;
the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or
the ADR depositary receives notice of any shareholders’ meeting.
The record date will, to the extent practicable, be as near as the record date fixed by us for the shares of common stock. The record date will determine (1) the ADR holders who are entitled to receive the dividend, distribution or rights, or the net proceeds of the sale of the rights; or (2) the ADR holders who are entitled to receive notices or exercise rights.
Voting of the Underlying Shares of Common Stock
We will give the ADR depositary a notice of any meeting or solicitation of shareholder proxies immediately after we finalize the form and substance of such notice but not less than 14 days before the meeting. As soon as practicable after it receives our notice, the ADR depositary will fix a record date, and upon our written request, the ADR depositary will mail to you a notice that will contain the following:
the information contained in our notice to the ADR depositary including an English translation, or, if requested by us, a summary of the information provided by us;
a statement that the ADR holders as of the close of business on a specified record date will be entitled to instruct the ADR depositary as to how to exercise their voting rights for the number of shares of deposited shares of common stock, subject to the provisions of applicable Korean law and our articles of incorporation, which provisions, if any, will be summarized in the notice to the extent that they are material; and
a statement as to the manner in which the ADR holders may give their instructions.
Upon your written request received on or before the date set by the ADR depositary for this purpose, the ADR depositary will endeavor, in so far as practicable, to vote or cause to be voted the deposited shares of common stock in accordance with the instructions set forth in your written requests. The ADR depositary may not itself exercise any voting discretion over any deposited shares of common stock. You may only exercise the voting rights in respect of nine ADSs or multiples of nine ADSs. ADR holders may not be entitled to give instruction to vote the shares represented by the ADSs if, and to the extent, the total number of shares represented by the ADSs of an ADR holder exceeds the limit set under applicable law. We can give no assurance to you, however, that we will notify the ADR depositary sufficiently in advance of the scheduled date of a meeting or solicitation of consents or proxies to enable the ADR depositary to make a timely mailing of notices to you, or that you will receive the notices sufficiently in advance of a meeting or solicitation of consents or proxies to give instructions to the ADR depositary.
Inspection of Transfer Books
The ADR depositary will keep books at its principal New York office, which is currently located at 388 Greenwich Street, 14th Floor, New York, New York 10013, for the registration and transfer of ADRs. You may inspect the books of the ADR depositary as long as the inspection is not for the purpose of communicating with holders in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADRs.
Reports and Notices
On or before the first date on which we give notice, by publication or otherwise, of any meeting of shareholders, or of any adjourned meeting of shareholders, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of the shares of common stock, we will transmit to the
Custodian and the ADR depositary sufficient copies of the notice in English in the form given or to be given to shareholders. We will furnish to the ADR depositary English language versions of any reports, notices and other communications that we generally transmit to holders of our common stock, including our annual reports, with annual audited consolidated financial statements prepared in conformity with IFRS and unauditednon-consolidated semiannual financial statements prepared in conformity with IFRS. The ADR depositary will arrange for the prompt mailing of copies of these documents, or, if we request, a summary of any such notice provided by us to you or, at our request, make notices, reports (other than the annual reports and semiannual financial statements) and other communications available to you on a basis similar to that for the holders of our common stock or on such other basis as we may advise the ADR depositary according to any applicable law, regulation or stock exchange requirement.
Notices to you under the deposit agreement will be deemed to have been duly given if personally delivered or sent by mail or cable, telegraph or facsimile transmission, confirmed by letter, addressed to you at your address as it appears on the transfer books of the ADR depositary or at such other address as you have notified the ADR depositary.
In addition, the ADR depositary will make available for inspection by holders at its principal New York office and its principal London office any notices, reports or communications, including any proxy soliciting materials, received from us that we generally transmit to the holders of our common stock or other deposited securities, including the ADR depositary. The ADR depositary will also send to you copies of reports and communications we will provide as provided in the deposit agreement.
Changes Affecting Deposited Shares of Common Stock
In case of a change in the par value, or asplit-up, consolidation or any other reclassification of our common shares or upon any recapitalization, reorganization, merger or consolidation or sale of assets affecting us, any securities received by the ADR depositary or the Custodian in exchange for, in conversion of or in respect of deposited shares of our common stock will be treated as new deposited shares of common stock under the deposit agreement. In that case, ADSs will, subject to the terms of the deposit agreement and applicable laws and regulations, including any registration requirements under the Securities Act, represent the right to receive the new deposited shares of common stock, unless additional ADRs are issued, as in the case of a stock dividend, or unless the ADR depositary calls for the surrender of outstanding ADRs to be exchanged for new ADRs.
Amendment and Termination of the Deposit Agreement
We may agree with the ADR depositary to amend the deposit agreement and the ADSs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or certain expenses of the ADR depositary, or prejudices any substantial existing right of ADR holders, it will only become effective 30 days after the ADR depositary notifies you of the amendment. If you continue to hold your ADSs at the time an amendment becomes effective, you will be considered to have agreed to the amendment and to be bound by the deposit agreement as amended. Except as otherwise required by any mandatory provisions of applicable law, no amendment may impair your right to surrender your ADSs and to receive the underlying deposited securities.
The ADR depositary will terminate the deposit agreement if we ask it to do so with 90 days’ prior written notice. The ADR depositary may also terminate the deposit agreement if the ADR depositary has notified us at least 90 days in advance that it would like to resign and we have not appointed a new depositary. In both cases, the ADR depositary must notify you at least 30 days before the termination date.
If any ADRs remain outstanding after the date of termination, the ADR depositary will stop performing any further acts under the deposit agreement, except:
to collect dividends and other distributions pertaining to the deposited shares of common stock;
to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and
to deliver deposited shares of common stock, together with any dividends or other distributions received with respect to the deposited shares of common stock and the net proceeds of the sale of any rights or other property represented by those ADSs in exchange for surrendered ADRs.
At any time after the expiration of six months from the date of termination, the ADR depositary may sell any remaining deposited shares of common stock and hold uninvested the net proceeds in an unsegregated account, together with any other cash or property then held, without liability for interest, for the pro rata benefit of the holders of ADSs that have not been surrendered by then.
Charges of ADR Depositary
The fees and expenses of the ADR depositary as agreed between us and the ADR depositary include:
taxes and other governmental charges;
registration fees applicable to transfers of shares of common stock on our shareholders’ register, or that of any entity acting as registrar for the shares, to the name of the ADR depositary or its nominee, or the Custodian or its nominee, when making deposits or withdrawals under the deposit agreement;
cable, telegraph and facsimile transmission expenses that are expressly provided in the deposit agreement;
expenses incurred by the ADR depositary in the conversion of foreign currency into Dollars under the deposit agreement;
a fee of up to US$5.00 per 100 ADSs, or portion thereof, for execution and delivery of ADSs and the surrender of ADRs under the deposit agreement; and
a fee of up to US$0.02 per ADS held for cash distributions, a sale or exercise of rights or the taking of any other corporate action involving distributions to shareholders.
For a detailed description of fees and charges payable by the holders of ADSs under the deposit agreement, see “Item 12.D. American Depositary Shares — Fees and Charges under Deposit Agreement.”
General
Neither we nor the ADR depositary will be liable to you if prevented or delayed by law, governmental authority, any provision of our articles of incorporation or any circumstances beyond our or its control in performing our or its obligations under the deposit agreement. The deposit agreement provides that the ADR depositary will hold the shares of common stock for your sole benefit. Our obligations and those of the ADR depositary under the deposit agreement are expressly limited to performing, in good faith and without negligence, our and its respective duties specified in the deposit agreement.
The ADSs are transferable on the books of the ADR depositary, provided that the ADR depositary may, after consultation with us, close the transfer books at any time or from time to time, when deemed expedient by it in connection with the performance of its duties. As a condition precedent to the execution and delivery of any ADSs, registration of transfer,split-up, combination of any ADR or surrender of any ADS for the purpose of withdrawal of deposited shares of common stock, the ADR depositary or the Custodian may require payment from the depositor of the shares of common stock or a holder of ADSs of a sum sufficient to reimburse the ADR depositary for any tax or other governmental charge and any stock transfer or registration fee and payment of any applicable fees payable by the holders of ADSs.
Any person depositing shares of common stock, any holder of an ADS or any beneficial owner may be required from time to time to file with the ADR depositary or the Custodian a proof of citizenship, residence, exchange control approval, payment of applicable Korean or other taxes or governmental charges, or legal or beneficial ownership and the nature of their interest, to provide information relating to the registration on our shareholders’ register (or our appointed agent for the transfer and registration of shares of common stock) of the
shares of common stock presented for deposit or other information, to execute certificates and to make representations and warranties as we or the ADR depositary may deem necessary or proper or to enable us or the ADR depositary to perform our and its obligations under the deposit agreement. The ADR depositary may withhold the execution or delivery or registration of transfer of all or part of any ADR or the distribution or sale of any
dividend or other distribution of rights or of the proceeds from their sale or the delivery of any shares deposited under the deposit agreement and any other securities, property and cash received by the ADR depositary or the Custodian until the proof or other information is filed or the certificates are executed or the representations and warranties are made. The ADR depositary shall provide us, unless otherwise instructed by us, in a timely manner, with copies of any of these proofs and certificates and these written representations and warranties.
The delivery and surrender of ADSs and transfer of ADSs generally may be suspended during any period when our or the ADR depositary’s transfer books are closed or, if that action is deemed necessary or advisable by us or the ADR depositary, at any time or from time to time in accordance with the deposit agreement. We may restrict, in a manner as we deem appropriate, transfers of shares of common stock where the transfers may result in ownership of shares of common stock in excess of limits under applicable law. Except as described in “Deposit and Withdrawal of Shares of Common Stock” above, notwithstanding any other provision of the deposit agreement, the surrender of outstanding ADRs and withdrawal of Deposited Securities (as defined in the deposit agreement) represented by the ADRs may be suspended, but only as required in connection with (1) temporary delays caused by closing the transfer books of the ADR depositary or the issuer of any Deposited Securities (or the appointed agent or agents for such issuer for the transfer and registration of such Deposited Securities) in connection with voting at a shareholders’ meeting or the payment of dividends, (2) payment of fees, taxes and similar charges, or (3) compliance with any United States or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of the Deposited Securities.
Governing Law
The deposit agreement and the ADRs will be interpreted under, and all rights under the deposit agreement or the ADRs are governed by, the laws of the State of New York.
We have irrevocably submitted to thenon-exclusive jurisdiction of New York State or United States Federal Courts located in New York City and waived any objection to legal actions or proceedings in these courts whether on the ground of venue or on the ground that the proceedings have been brought in an inconvenient forum.
This submission was made for the benefit of the ADR depositary and the holders and will not limit the right of any of them to take legal actions or proceedings in any other court of competent jurisdiction nor will the taking of legal actions or proceedings in one or more jurisdictions preclude the taking of legal actions or proceedings in any other jurisdiction (whether concurrently or not), to the extent permitted under applicable law.
Information Relating to the ADR Depositary
Citibank N.A. (“Citibank”) has been appointed as ADR depositary pursuant to the deposit agreement. Citibank is an indirect wholly-owned subsidiary of Citigroup Inc., a Delaware corporation whose principal office is located in New York, New York. Citibank is a global financial services organization serving individuals, businesses, governments and financial institutions in approximately 100 countries around the world.
Citibank was originally organized on June 16, 1812, and now is a national banking association organized under the National Bank Act of 1864 of the United States of America. Citibank is primarily regulated by the United States Office of the Comptroller of the Currency. Its principal office is at 399 Park Avenue, New York, NY 10022.
The consolidated balance sheets of Citibank are set forth in Citigroup’s most recent annual report onForm 10-K and quarterly report onForm 10-Q, each on file with the SEC.
Citibank’s Articles of Association andBy-laws, each as currently in effect, together with Citigroup’s most recent annual and quarterly reports will be available for inspection at the Depositary Receipt office of Citibank, N.A., 388 Greenwich Street, 14th Floor, New York, New York 10013.
Item | MaterialContracts |
We have not entered into any material contracts since January 1, 2014,2016, other than in the ordinary course of our business. For information regarding our agreements and transactions with entities affiliated with the SK Group, see “Item 7.B. Related Party Transactions” and note 3634 of the notes to our consolidated financial statements. For a description of certain agreements entered into during the past three years related to our capital commitments and obligations, see “Item 5B. Liquidity and Capital Resources.”
Item | ExchangeControls |
Korean Foreign Exchange Controls and Securities Regulations
General
The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree, collectively referred to as the Foreign Exchange Transaction Laws, regulate investment in Korean securities bynon-residents and issuance of securities outside Korea by Korean companies.Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The FSC has also adopted, pursuant to its authority under the FSCMA, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.
Subject to certain limitations, the MOSF has authority to take the following actions under the Foreign Exchange Transaction Laws:
if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the MOSF may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange) or impose an obligation to deposit, safe-keep or sell any means of payment to The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies; and
if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries are likely to adversely affect the Won, exchange rate or other macroeconomic policies, the MOSF may take action to require any person who intends to effect or effects a capital transaction to deposit all or a portion of the means of payment acquired in such transactions with The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies.
Under the regulations of the FSC amended on February 4, 2009, (1) if a company listed on the KRX KOSPI Market or a company listed on the KRX KOSDAQ Market has submitted a public disclosure of material matters to a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the FSC and the Korea Exchange, and (2) if a KRX KOSPI Market-listed company or KRX KOSDAQ Market-listed company is approved for listing on a foreign stock market or determined to bede-listed from the foreign stock market or actually listed on, orde-listed from a foreign stock market, then it must submit a copy of any document, which it submitted to or received from the relevant foreign government, foreign financial investment supervisory authority or the foreign stock market, and a Korean translation thereof to the FSC and the Korea Exchange.
Government Review of Issuances of ADSs
In order for us to issue ADSs in excess of US$30 million, we are required to submit a report to the MOSF with respect to the issuance of the ADSs prior to and after such issuance; provided that such US$30 million threshold amount would be reduced by the aggregate principal amount of any foreign currency loans borrowed, and any securities offered and issued, outside Korea during theone-year period immediately preceding the report’s submission date. The MOSF may at its discretion direct us to take necessary measures to avoid exchange rate fluctuation in connection with its acceptance of report of the issuance of the ADSs.
Under current Korean laws and regulations, the depositary is required to obtain our prior consent for any proposed deposit of common shares if the number of shares to be deposited in such proposed deposit exceeds the number of common shares initially deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent issuances of ADSs by us or with our consent and stock dividends or other distributions related to the ADSs).
exceeds the number of common shares initially deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent issuances of ADSs by us or with our consent and stock dividends or other distributions related to the ADSs). |
In addition to such restrictions under Korean laws and regulations, there are also restrictions on the deposits of our common shares for issuance of ADSs. See “Item 10.B. Memorandum and Articles of Incorporation — Description of American Depositary Shares.” Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.
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We submitted a report to and obtained acceptance thereof by the MOSF for the issuance of ADSs up to an amount corresponding to 24,321,893 common shares. No additional Korean governmental approval is necessary for the issuance of ADSs except that if the total number of our common shares on deposit for conversion into ADSs exceeds 24,321,893 common shares, we may be required to file a report to and obtain acceptance thereof by the MOSF with respect to the increase of such limit and the issuance of additional ADSs.
Reporting Requirements for Holders of Substantial Interests
Under the FSCMA, any person whose direct or beneficial ownership of shares with voting rights, certificates representing the rights to subscribe for shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively referred to as “equity securities”), together with the equity securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5.0% or more of the total outstanding equity securities is required to report the status and purpose (in terms of whether the purpose of shareholding is to affect control over management of the issuer) of the holdings to the FSC and the Korea Exchange within five business days after reaching the 5.0% ownership interest threshold and promptly deliver a copy of such report to the issuer. In addition, any change (1) in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total outstanding equity securities, or (2) in the shareholding purpose is required to be reported to the FSC and the Korea Exchange within five business days from the date of the change. However, reporting deadline of such reporting requirement is extended to (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control by the tenth day of the month immediately following the month of share acquisition or change in their shareholding. Those who reported the purpose of shareholding is to affect control over management of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to the report under the FSCMA.
Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the ownership of unreported equity securities exceeding 5.0%. Furthermore, the FSC may issue an order to dispose of suchnon-reported equity securities.
In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our common shares accounts for 10.0% or more of the total issued and outstanding shares with voting rights (a “major shareholder”) must report the status of his or her shareholding to the Securities and Futures Commission and the Korea Exchange within five business days after he or she becomes a major shareholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange by the fifth business day of any changes in his or her shareholding. Violations of these reporting requirements may subject a person to criminal sanctions, such as fines or imprisonment.
Restrictions Applicable to ADSs
No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery of shares in Korea in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the FSS, as described below. The acquisition of the shares by a foreigner must be reported by the foreigner or his or her standing proxy in Korea immediately to the Governor of the FSS (the “Governor”).
Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.
In addition, we are required to file a securities registration statement with the FSC and such securities registration statement has to become effective pursuant to the FSCMA in order for us to issue shares represented by ADSs, except in certain limited circumstances.
Restrictions Applicable to Shares
As a result of amendments to the Foreign Exchange Transaction Laws and the regulations of the FSC, together referred to as the Investment Rules, adopted in connection with the stock market opening from January 1992 and after that date, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including, among others:
odd-lot trading of shares;
acquisition of shares by a foreign company as a result of a merger;
acquisition or disposal of shares in connection with a tender offer;
acquisition of shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company (“converted shares”);
acquisition of shares through exercise of rights under securities issued outside of Korea;
acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;
over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded;
acquisition of shares by direct investment under the Foreign Investment Promotion Law;
acquisition and disposal of shares on an overseas stock exchange market, if such shares are simultaneously listed on the KRX KOSPI Market or KRX KOSDAQ Market and such overseas stock exchange;
arm’s length transactions between foreigners in the event all such foreigners belong to an investment group managed by the same person; and
acquisition and disposal of shares through alternative trading systems.
Forover-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a financial investment company with a brokerage license in Korea must act as an intermediary.Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a financial investment company with a dealing license in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from financial investment companies with respect to shares which are subject to a foreign ownership limit.
The Investment Rules require a foreign investor who wishes to invest in shares for the first time on the KRX KOSPI Market or the KRX KOSDAQ Market (including converted shares) and shares being publicly offered for initial listing on the KRX KOSPI Market or the KRX KOSDAQ Market to register its identity with the FSS prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire converted shares with the intention of selling such converted shares within three months from the date of acquisition of the converted shares or who acquire the shares in anover-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Foreign Investment Promotion Law. Upon registration, the FSS will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a financial investment company or financial institution in Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or longer, foreign governments, foreign
municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated
by decree promulgated under the FSCMA. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.
Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, where a foreign investor acquires or sells shares outside the KRX KOSPI Market and the KRX KOSDAQ Market, such acquisition or sale of shares must be reported by the foreign investor or such foreign investor’s standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer,odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transaction. In the event a foreign investor desires to acquire or sell shares outside the KRX KOSPI Market or the KRX KOSDAQ Market and the circumstances in connection with such sale or acquisition do not fall within the exceptions made for certain limited circumstances described above, then the foreign investor must obtain the prior approval of the Governor. In addition, in the event a foreign investor acquires or sells shares outside the KRX KOSPI Market or the KRX KOSDAQ Market, a prior report to the Bank of Korea may also be required in certain circumstances. A foreign investor must appoint one or more standing proxies among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians which will act as a standing proxy to exercise shareholders’ rights, or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than his, her or its standing proxy, to exercise rights relating to its shares or perform any tasks related thereto on his, her or its behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.
Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. The Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians are eligible to act as a custodian of shares for anon-resident or foreign investor. A foreign investor must ensure that his, her or its custodian deposits the shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.
Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person within 3.0% of the total number of shares in their articles of incorporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the outstanding shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance by, the Ministry of Trade, Industry and Energy of Korea, which delegates its authority to foreign exchange banks or the Korea Trade-Investment Promotion Agency under the relevant regulations. The acquisition of our shares by a foreign investor is also subject to the restrictions prescribed in the Telecommunications Business Act. The Telecommunications Business Act generally limits the maximum aggregate foreign shareholdings in us to 49.0% of the outstanding shares. A foreigner who has acquired shares in excess of such restriction described above may not exercise the voting rights with respect to the shares exceeding such limitations and may be subject to corrective orders.
Under the Foreign Exchange Transaction Laws, a foreign investor who intends to make a portfolio investment in shares of a Korean company listed on the KRX KOSPI Market or the KRX KOSDAQ Market must designate a foreign exchange bank at which he, she or it must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a securities company. Funds in the foreign currency account may be remitted abroad without any governmental approval.
Dividends on shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any such shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any such shares held by anon-resident of Korea must be deposited either in a Won account with the investor’s financial investment companies with a securities dealing, brokerage or collective investment license or the investor’s Won account. Funds in the investor’s Won account may be transferred to such investor’s foreign currency account or withdrawn for local living expenses, provided that any withdrawal of local living expenses in excess of a certain amount is reported to the tax authorities by the foreign exchange bank at which the Won account is maintained. Funds in the investor’s Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.
Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.
Item | Taxation |
United States Taxation
This summary describes certain material U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold our common shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:
a dealer in securities or currencies;
a trader in securities that elects to use amark-to-market method of accounting for securities holdings;
a bank;
a life insurance company;
atax-exempt organization;
a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks;
a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes;
a person whose functional currency for tax purposes is not the U.S. dollar; or
a person that owns or is deemed to own 10.0% or more of any class of our stock.
This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.
Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of common shares or ADSs in your particular circumstances.
For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are:
a citizen or resident of the United States;
a U.S. domestic corporation; or
otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS.
In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common share represented by that ADS.
Dividends
The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source “passive income” dividend income and will not be eligible for the dividends received deduction. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at a maximum rate of 20.0% if the dividends are “qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if (1) the ADSs are readily tradable on an established securities market in the United States and (2) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company as defined for U.S. federal income tax purposes (“PFIC”). The ADSs are listed on the NYSE, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements, as well as relevant market and shareholder data, we believe that we were not a PFIC with respect to our 20142016 taxable year. In addition, based on our audited financial statements and current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 20152017 taxable year.
Distributions of additional shares in respect of common shares or ADSs that are made as part of apro-rata distribution to all of our stockholders generally will not be subject to U.S. federal income tax.
Sale or Other Disposition
For U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the common shares or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.
Foreign Tax Credit Considerations
You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on the common shares or ADSs, so long as you have owned our common shares or ADSs (and not entered into specified kinds of hedging transactions) for at least a16-day period that includes theex-dividend date. Instead of claiming a credit, you may, if you so elect, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Korean taxes withheld from a distribution of additional shares that is not subject to U.S. tax may be treated for U.S. federal income tax purposes as imposed on “general category” income. Such treatment could affect your ability to utilize any available foreign tax credit in respect of such taxes.
Any Korean securities transaction tax or agricultureagricultural and fishery special surtax that you pay will not be creditable for foreign tax credit purposes.
Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial.
The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.
Specified Foreign Financial Assets
Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at anon-U.S. financial institution, as well as securities issued by anon-U.S. issuer (which would include the common shares or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors should consult their own tax advisers concerning the application of these rules to their investment in the common shares or ADSs, including the application of the rules to their particular circumstances.
U.S. Information Reporting and Backup Withholding Rules
Payments of dividends and sales proceeds that are made within the United States or through certainU.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient and demonstrates this when required or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of itsnon-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.
Korean Taxation
The following is a summary of the principal Korean tax consequences to owners of the common shares or ADSs, as the case may be, who arenon-resident individuals ornon-Korean corporations without a permanent establishment in Korea to which the relevant income is attributable or with which the relevant income is effectively connected (“(“Non-resident Holders”). The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This summary is not exhaustive of all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of the common shares or ADSs, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisors.
Tax on Dividends
Dividends on the common shares or ADSs paid (whether in cash or in shares) to aNon-resident Holder will be subject to Korean withholding taxes at the rate of 22.0% (including local income tax) or such lower rate as is applicable under a treaty between Korea and suchNon-resident Holder’s country of tax residence. Free distributions of shares representing a capitalization of certain capital surplus reserves may be subject to Korean withholding taxes.
The tax is withheld by the payer of the dividend. Since the payer is required to withhold the tax, Korean law does not entitle the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld, even if it subsequently produces evidence that it was entitled to have tax withheld at a lower rate, except in certain limited circumstances.
Tax on Capital Gains
As a general rule, capital gains earned byNon-resident Holders upon transfer of the common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (including local income tax) of the gross proceeds realized or (2) 22.0% (including local income tax) of the net realized gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs), unless exempt from Korean income taxation under the effective Korean tax treaty with theNon-resident Holder’s country of tax residence.
However, aNon-resident Holder will not be subject to Korean income taxation on capital gains realized upon the sale of the common shares through the KRX KOSPI Market if theNon-resident Holder (1) has no permanent establishment in Korea and (2) did not or has not owned (together with any shares owned by any entity with certain
special relationship with suchNon-resident Holder) 25.0% or more of the total issued and outstanding shares of us at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.
It should be noted that capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation, provided that the ADSs are deemed to have been issued overseas. If and when an owner of the underlying common shares transfers the ADSs following the conversion of the underlying shares for ADSs, such person will not be exempt from Korean income taxation.
Inheritance Tax and Gift Tax
Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (2) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. The taxes are imposed if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved.
Under Korean inheritance and gift tax laws, securities issued by a Korean corporation are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.
Securities Transaction Tax
Securities transaction tax is imposed on the transfer of shares issued by a Korean corporation or the right to subscribe for such shares generally at the rate of 0.5% of the sales price. In the case of the transfer of shares listed on the KRX KOSPI Market (such as our common shares), the securities transaction tax is imposed generally at the rate of (1) 0.3% of the sales price of such shares (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (2) subject to certain exceptions, 0.5% of the sales price of such shares if traded outside the KRX KOSPI Market.
Securities transaction tax or the agricultural and fishery special surtax is not applicable if (1) the shares or rights to subscribe for shares are listed on a designated foreign stock exchange and (2) the sale of the shares takes place on such exchange.
Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay (to the tax authority) the tax, and when such transfer is made through a financial investment company with a brokerage license only, such company is required to withhold and pay the tax. Where the transfer is effected by aNon-resident Holder without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company with a brokerage license, the transferee is required to withhold the securities transaction tax. Failure to do so will result in the imposition of penalties equal to the sum of (1) between 10.0% to 40.0% of the tax amount due, depending on the nature of the improper reporting, and (2) 10.95% per annum on the tax amount due for the default period.
Tax Treaties
Currently, Korea has income tax treaties with a number of countries, inter alia, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Ireland, the Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States under which the rate of withholding tax on dividend and interest is reduced, generally to between 5.0% and 16.5% (including local income tax), and the tax on capital gains derived by anon-resident from the transfer of securities issued by a Korean company is often eliminated.
EachNon-resident Holder of common shares should inquire for itself whether it is entitled to the benefits of a tax treaty with Korea. It is the responsibility of the party claiming the benefits of a tax treaty in respect of interest, dividend, capital gains or “other income” to submit to us (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, prior to or at the time of payment, such evidence of tax residence of the party claiming the treaty benefit as the Korean tax authorities may require in support of its claim for treaty protection. In the absence of sufficient proof, we (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, must withhold tax at the normal rates.
Furthermore, in order for anon-resident of Korea to obtain the benefits of tax exemption on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires suchnon-resident (or its agent) to submit to the payer of such Korean source income an application for a tax exemption along with a certificate of tax residency of suchnon-resident issued by a competent authority of thenon-resident’s country of tax residence, subject to certain exceptions. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.
For anon-resident of Korea to obtain the benefits of treaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires suchnon-resident (or its agents) to submit to the payer of such Korean source income an application for treaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is anon-resident of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository.
At present, Korea has not entered into any tax treaty relating to inheritance or gift tax.
Item 10.E. | DividendsandPayingAgents |
Not applicable.
Item 10.F. |
Not applicable.
Item 10.G. |
Not applicable.
We file reports, including annual reports onForm 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. Any filings we make electronically will be available to the public over the Internet at the SEC’s Website at http://www.sec.gov.
Documents filed with annual reports and documents filed or submitted to the SEC are also available for inspection at our principal business office during normal business hours. Our principal business office is located at SKT-Tower, 65, Eulji-ro, Jung-gu, Seoul 100-999,04539, Korea.
Item | SubsidiaryInformation |
Not applicable.
Item 11. | QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK |
We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities and to equity price risk as a result of our investment in equity instruments.
We have entered into afloating-to-fixed cross currency swap contractscontract to hedge foreign currency and interest rate risks with respect to long-term borrowings of US$300 million of bonds issued in March 2013, US$300 million of bonds issued in October 2013 and US$86.3 million of bonds issued in December 2013. In addition, we have entered intofixed-to-fixed cross currency swap contracts to hedge the foreign currency risks of US$400 million of bonds issued in July 2007, CHF 300 million of bonds issued in June 2012, US$700 million of bonds issued in November 2012, and AUD 300 million of bonds issued in January 2013, US$300 million of bonds issued in October 2013 and US$63.3 million of borrowings from December 2013. We also entered intofloating-to-fixed interest rate swap contracts to hedge interest rate risks with respect to Won 49.0 billion of borrowings from December 2016 and Won 44.9 billion of borrowings from January 2017. See note 2321 of the notes to our consolidated financial statements. We may consider in the future entering into other such transactions solely for hedging purposes.
The following discussion and tables, which constitute “forward looking statements” that involve risks and uncertainties, summarize our market-sensitive financial instruments including fair value, maturity and contract terms. These tables address market risk only and do not present other risks which we face in the normal course of business, including country risk, credit risk and legal risk.
Exchange Rate Risk
Korea is our main market and, therefore, substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities. These liabilities relate primarily to foreign currency denominated debt, primarily in Dollars, Franc and Australian Dollars. A 10.0% increase in the exchange rate between the Won and all foreign currencies would result in an increase in profit before income tax of approximately 0.3%0.4%, or Won 7.38.6 billion, with a decrease of 10.0% in the exchange rate having the opposite effect, as of December 31, 2014.2016. For a further discussion of our exchange rate risk exposures, see note 35(1)33(1) of the notes to our consolidated financial statements.
Interest Rate Risk
We are also subject to market risk exposure arising from changing interest rates. The following table summarizes the carrying amounts and fair values, maturity and contract terms of our exchange rate and interest sensitive short-term and long-term liabilities as of December 31, 2014:2016:
Maturities | Maturities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | Fair Value | 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||
(In billions of Won, except for percentage data) | (In billions of Won, except for percentage data) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Local currency: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-rate | ₩ | 898.0 | ₩ | 673.6 | ₩ | 244.0 | ₩ | 204.1 | ₩ | 766.5 | ₩ | 1,375.9 | ₩ | 4,162.1 | ₩ | 2,893.5 | ₩258.8 | ₩ 434.2 | ₩900.2 | ₩428.8 | ₩608.1 | ₩1,953.5 | ₩4,583.6 | ₩4,771.9 | ||||||||||||||||||||||||||||||||||||||||
Average weighted rate(1) | 3.82 | % | 5.19 | % | 4.41 | % | 5.70 | % | 3.01 | % | 3.41 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Average weighted rate(1) | 3.93 | % | 3.49 | % | 2.79 | % | 2.38 | % | 2.76 | % | 2.86 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Sub-total | 898.0 | 673.6 | 244.0 | 204.1 | 766.5 | 1,375.9 | 4,162.1 | 2,893.5 | 258.8 | 434.2 | 900.2 | 428.8 | 608.1 | 1,953.5 | 4,583.6 | 4,771.9 | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-rate | 12.7 | 12.7 | 613.3 | 1,102.2 | 12.7 | 465.0 | 2,218.6 | 2,445.4 | 13.9 | 629.3 | 1,217.8 | 13.9 | 13.9 | 484.1 | 2,372.9 | 2,618.9 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average weighted rate(1) | 1.70 | % | 1.70 | % | 3.08 | % | 2.36 | % | 1.70 | % | 6.38 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Average weighted rate(1) | 1.70 | % | 3.00 | % | 2.36 | % | 1.70 | % | 1.70 | % | 6.64 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable rate | — | — | — | — | — | 328.5 | 328.5 | 328.5 | — | — | — | — | 361.7 | — | 361.7 | 361.7 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average weighted rate(1) | — | — | — | — | — | 1.11 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average weighted rate(1) | — | — | — | — | 1.88 | % | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sub-total | 12.7 | 12.7 | 613.3 | 1,102.2 | 12.7 | 793.5 | 2,547.1 | 2,773.9 | 13.9 | 629.3 | 1,217.8 | 13.9 | 375.6 | 484.1 | 2,734.6 | 2,980.6 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total | ₩ | 910.7 | ₩ | 686.3 | ₩ | 857.3 | ₩ | 1,306.3 | ₩ | 779.2 | ₩ | 2,169.4 | ₩ | 6,709.2 | ₩ | 5,667.4 | ₩272.7 | ₩1,063.5 | ₩2,118.0 | ₩442.7 | ₩983.7 | ₩2,437.6 | ₩7,318.2 | ₩7,752.5 |
(1) | Weighted average rates of the portfolio at the period end. |
A 1.0% point increase in interest rates would result in a decrease in profit before income tax of approximately 0.02%, Won 0.50.04 billion with a 1.0% point decrease in interest rates having the opposite effect, as of December 31, 2014.2016. For a further discussion of our interest rate risk exposures, see note 35(1)33(1) of the notes to our consolidated financial statements.
Equity Price Risk
We are also subject to market risk exposure arising from changes in the equity securities market, which affect the fair value of our equity portfolio. As of December 31, 2014, 20132016, 2015 and 2012,2014, a 10.0% increase in the equity indices where ouravailable-for-sale equity instruments are listed, with all other variables held constant, would have increased our total equity by Won 54.252.6 billion, Won 63.489.8 billion and Won 58.454.2 billion, respectively, with a 10.0% decrease in the equity index having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than changes in the equity index are held constant, and that ouravailable-for-sale equity instruments had moved according to the historical correlation to the index, and as such, does not reflect any correlation between the equity index and other variables. For a further discussion of our equity price risk exposures, see note 35(1)33(1) of the notes to our consolidated financial statements.
Item 12. | DESCRIPTIONOFSECURITIESOTHERTHANEQUITYSECURITIES |
Item 12.A. | DebtSecurities |
Not applicable.
Item 12.B. | WarrantsandRights |
Not applicable.
Item 12.C. | OtherSecurities |
Not applicable.
Item 12.D. | AmericanDepositaryShares |
Fees and Charges under Deposit Agreement
The ADR depositary will charge the party receiving ADSs up to US$5.00 per 100 ADSs (or fraction thereof), provided that the ADR depositary has agreed to waive such fee as would have been payable by us in the case of (1) an offering of ADSs by us or (2) any distribution of shares of common stock or any rights to subscribe for additional shares of common stock. The ADR depositary will not charge the party to whom ADSs are delivered against deposits. The ADR depositary will charge the party surrendering ADSs for delivery of deposited securities up to US$5.00 per 100 ADSs (or fraction thereof) surrendered. The ADR depositary will also charge the party to whom any cash distribution, or for whom the sale or exercise of rights or other corporate action involving distributions to shareholders, is made with respect to ADSs up to US$0.02 per ADS held plus the expenses of the ADR depositary on aper-ADS basis. We will pay the expenses of the ADR depositary and any entity acting as registrar for the shares only as specified in the deposit agreement. The ADR depositary will pay any other charges and expenses of the ADR depositary and the entity acting as registrar for the shares.
Holders of ADRs must pay (1) taxes and other governmental charges, (2) share transfer registration fees on deposits of shares of common stock, (3) such cable, telex, facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of persons depositing shares of common stock or holders of ADRs and (4) such reasonable expenses as are incurred by the ADR depositary in the conversion of foreign currency into United States dollars.
Notwithstanding any other provision of the deposit agreement, in the event that the ADR depositary determines that any distribution in property (including shares or rights to subscribe therefor or other securities) is subject to any tax or governmental charges which the ADR depositary is obligated to withhold, the ADR depositary may dispose of all or a portion of such property (including shares and rights to subscribe therefor) in such amounts and in such
manner as the ADR depositary deems necessary and practicable to pay such taxes or governmental charges, including by public or private sale, and the ADR depositary will distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes or governmental charges to the holders of ADSs entitled thereto in proportion to the number of ADSs held by them respectively.
All such charges may be changed by agreement between the ADR depositary and us at any time and from time to time, subject to the deposit agreement. The right of the ADR depositary to receive payment of fees, charges and expenses shall survive the termination of this deposit agreement and, as to any depositary, the resignation or removal of such depositary pursuant to the deposit agreement.
For a detailed summary of the deposit agreement, see “Item 10.B. Memorandum and Articles of IncorporationAssociation — Description of American Depositary Shares.”
Payments made by ADS Depositary
AllThe depositary reimburses us for certain expenses we incur in connection with our ADR program, subject to certain ceilings. These reimbursable expenses currently include expenses relating to the preparation of SEC filings and submissions, listing fees, education and training fees, corporate action expenses and other direct and indirect payments reimbursed bymiscellaneous fees. In the fiscal year 2016, we received approximately US$1,293,630 from the depositary are as following:in connection with such reimbursements.
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Item 13. | DEFAULTS,DIVIDENDARREARAGESANDDELINQUENCIES |
None.
Item 14. | MATERIALMODIFICATIONSTOTHERIGHTSOFSECURITYHOLDERSANDUSEOFPROCEEDS |
None.
Item 15. | CONTROLSANDPROCEDURES |
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined inRules 13a-15(e) and15d-15(e) under the Exchange Act, as of December 31, 2014.2016. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act, as of December 31, 2014.2016. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS as issued by the IASB. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.2016.
Report of the Independent Registered Public Accounting Firm on the Effectiveness of Our Internal Control Over Financial Reporting
The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG Samjong”), on the effectiveness of our internal control over financial reporting as of December 31, 20142016 is included in Item 18 of thisForm 20-F.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during 20142016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16. | RESERVED |
Item | AUDITCOMMITTEEFINANCIALEXPERT |
Dae Shick Oh is the chairman of our audit committee and was elected and designated an “audit committee financial expert” within the meaning of this Item 16A at a meeting of the board of directors in April 2014. The board of directors have further determined that Dae Shick Oh is independent within the meaning of applicable SEC rules and the listing standards of the NYSE. See “Item 6.C. Board Practices — Audit Committee” for additional information regarding our audit committee.
Item | CODEOFETHICS |
Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller
We have a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, senior accounting officers and employees. We also have internal control and disclosure policy designed to promote full, fair, accurate, timely and understandable disclosure in all of our reports and publicly filed documents. A copy of our code of ethics is available on our website atwww.sktelecom.com. www.sktelecom.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website.
Item | PRINCIPALACCOUNTANTFEESANDSERVICES |
The table sets forth the fees we paid to our independent registered public accounting firm KPMG Samjong and its affiliates for the years ended December 31, 20142016 and 2013:2015:
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of Won) | (In millions of Won) | |||||||||||||||
Audit Fees | ₩ | 3,522 | ₩ | 2,102 | ₩ | 3,029 | ₩ | 3,325 | ||||||||
Audit-Related Fees | ₩ | 12 | ₩ | 4 | ₩ | 14 | ₩ | 36 | ||||||||
Tax Fees | ₩ | 408 | ₩ | 182 | ₩ | 273 | ₩ | 289 | ||||||||
All Other Fees | ₩ | 50 | ₩ | 9 | ₩ | 0 | ₩ | 0 | ||||||||
|
|
|
| |||||||||||||
Total | ₩ | 3,992 | ₩ | 2,297 | ₩ | 3,316 | ₩ | 3,650 | ||||||||
|
|
|
|
“AuditFees” are the aggregate fees billed by KPMG Samjong for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
“Audit-RelatedFees” are fees charged by KPMG Samjong for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees billed for advisory services associated with our financial reporting.
“TaxFees” are fees for professional services rendered by KPMG Samjong for tax compliance, tax advice on actual or contemplated transactions and tax planning services.
Fees disclosed under the category “All Other Fees” are fees for professional services rendered by KPMG Samjong, primarily for business consulting in connection with our internal control over financial reporting.
Pre-Approval of Audit andNon-Audit Services Provided by Independent Registered Public Accounting Firm
Our audit committeepre-approves all audit services to be provided by KPMG Samjong, our independent registered public accounting firm. Our audit committee’s policy regarding thepre-approval ofnon-audit services to be provided to us by our independent auditors is that all such services shall bepre-approved by our audit committee.Non-audit services that are prohibited to be provided to us by our independent auditors under the rules of the SEC and applicable law may not bepre-approved. In addition, prior to the granting of anypre-approval, our audit committee must be satisfied that the performance of the services in question will not compromise the independence of our independent registered public accounting firm.
Our audit committee did notpre-approve anynon-audit services under thedeminimis exception ofRule 2-01 (c)(7)(i)(C) ofRegulation S-X as promulgated by the SEC.
Item | EXEMPTIONSFROMTHELISTINGSTANDARDSFORAUDITCOMMITTEES |
Not applicable.
Item | PURCHASESOFEQUITYSECURITIESBYTHEISSUERANDAFFILIATEDPURCHASERS |
Neither we nor any “affiliated purchaser,” as defined in Rule10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.
Item | CHANGEIN |
Not applicable.
Item | CORPORATEGOVERNANCE |
The following is a summary of the significant differences between the NYSE’s corporate governance standards and those that we follow under Korean law.
NYSE Corporate Governance Standards | Our Corporate Governance Practice | |
Director Independence | ||
Listed companies must have a majority of independent directors. | Of the six members of our board of directors, four are independent directors. | |
Executive Session | ||
Our audit committee, which is comprised solely of three independent directors, holds meetings whenever there are matters related to management directors, and such meetings are generally held once every month. | ||
Nomination/Corporate Governance Committee | ||
Listed companies must have a nomination/corporate governance committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee. | Although we do not have a separate nomination/ corporate governance committee, we maintain an independent director nomination committee composed of two independent directors and one management director. |
NYSE Corporate Governance Standards | Our Corporate Governance Practice | |
Compensation Committee | ||
Listed companies must have a compensation committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of the Dodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company that will materially affect that member’s duties to the compensation committee. | We maintain a compensation review committee comprised of three independent directors. | |
Audit Committee | ||
Listed companies must have an audit committee that satisfies the independence and other requirements of Rule | We maintain an audit committee comprised solely of three independent directors. | |
Audit Committee Additional Requirements | ||
Listed companies must have an audit committee that is composed of | Our audit committee has three independent directors. | |
Shareholder Approval of Equity Compensation Plan | ||
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan. | We currently have two equity compensation plans: a stock option plan for officers and directors and employee stock ownership plan for employees (“ESOP”). We manage such compensation plans in compliance with the applicable laws and our articles of incorporation, provided that, under certain limited circumstances, the grant of stock options or matters relating to ESOP are not subject to shareholders’ approval under Korean law. |
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| |
Corporate Governance Guidelines | ||
Listed companies must adopt and disclose corporate governance guidelines. | Although we do not maintain separate corporate governance guidelines, we are in compliance with the Korean Commercial Code in connection with such matters, including the governance of the board of directors. | |
Code of Business Conduct and Ethics | ||
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers. | We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees, and such code is also available on our website at www.sktelecom.com |
Item | MINESAFETYDISCLOSURE |
Not applicable.
Item 17. | FINANCIALSTATEMENTS |
Not applicable.
Item 18. | FINANCIALSTATEMENTS |
F-1 | ||||
F-2 | ||||
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting | F-3 | |||
Consolidated Statements of Financial Position as of December 31, | F-4 | |||
Consolidated Statements of Income for the years ended December 31, | F-6 | |||
F-7 | ||||
F-8 | ||||
F-10 | ||||
F-12 | ||||
Financial Statements of SK Hynix | ||||
G-1 | ||||
Consolidated Statements of Financial Position as of December 31, | G-2 | |||
G-4 | ||||
G-5 | ||||
G-7 | ||||
G-8 |
Item 19. | EXHIBITS |
Number | Description | |
1.1 | Articles of Incorporation | |
2.1 | Deposit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 dated as of March 15, 1999, Amendment No. 2 dated as of April 24, 2000 and Amendment No. 3 dated as of July 24, 2002, entered into among SK Telecom Co., Ltd., Citibank, N.A., as Depositary, and all Holders and Beneficial Owners of American Depositary Shares (incorporated by reference to Exhibit 2.1 to the Registrant’s Annual Report on Form20-F filed on June 30, 2006) | |
8.1 | List of Subsidiaries of SK Telecom Co., Ltd. | |
12.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
13.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
13.2 | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
INDEX OFTO FINANCIAL STATEMENTS
F-2 | |||||
F-3 | |||||
Consolidated Statements of Financial Position as of December 31, | F-4 | ||||
Consolidated Statements of Income for the years ended December 31, | F-6 | ||||
F-7 | |||||
F-8 | |||||
F-10 | |||||
F-12 | |||||
Financial Statements of SK Hynix | |||||
G-1 | |||||
Consolidated Statements of Financial Position as of December 31, | G-2 | ||||
G-4 | |||||
G-5 | |||||
G-7 | |||||
G-8 |
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders
SK Telecom Co., Ltd.:
We have audited the accompanying consolidated statements of financial position of SK Telecom Co., Ltd. and subsidiaries as of December 31, 20142016 and 2013,2015, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014.2016. These consolidated financial statements are the responsibility of SK Telecom Co., Ltd.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SK Telecom Co., Ltd. and subsidiaries as of December 31, 20142016 and 20132015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 20142016 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SK Telecom Co., Ltd.’s internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control –— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 29, 2015,27, 2017, expressed an unqualified opinion on SK Telecom Co., Ltd.’s internal control over financial reporting.
/s/ KPMG Samjong Accounting Corp.
Seoul, Korea
April 29, 201527, 2017
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders
SK Telecom Co., Ltd.:
We have audited the internal control over financial reporting of SK Telecom Co., Ltd. as of December 31, 2014,2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. SK Telecom Co., Ltd.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on SK Telecom Co., Ltd.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, SK Telecom Co., Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), consolidated statements of financial position of SK Telecom Co., Ltd. and its subsidiaries as of December 31, 20142016 and 2013,2015, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2014,2016, and our report dated April 29, 2015,27, 2017, expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG Samjong Accounting Corp.
Seoul, Korea
April 29, 201527, 2017
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 20142016 and 20132015
(In millions of won) | Note | December 31, 2014 | December 31, 2013 | |||||||||
Assets | ||||||||||||
Current Assets: | ||||||||||||
Cash and cash equivalents | 30,34,35 | ₩ | 834,429 | 1,398,639 | ||||||||
Short-term financial instruments | 6,30,34,35,36,37 | 313,068 | 311,474 | |||||||||
Short-term investment securities | 9,34,35 | 280,161 | 106,068 | |||||||||
Accounts receivable — trade, net | 7,30,34,35,36 | 2,392,150 | 2,257,316 | |||||||||
Short-term loans, net | 7,34,35,36 | 74,512 | 79,395 | |||||||||
Accounts receivable — other, net | 7,34,35,36 | 690,527 | 643,603 | |||||||||
Prepaid expenses | 134,404 | 108,909 | ||||||||||
Derivative financial assets | 23,34,35 | — | 10 | |||||||||
Inventories, net | 8,37 | 267,667 | 177,120 | |||||||||
Assets classified as held for sale | 10 | 10,510 | 3,667 | |||||||||
Advanced payments and other | 7,9,34,35,36 | 85,720 | 37,214 | |||||||||
|
|
|
| |||||||||
Total Current Assets | 5,083,148 | 5,123,415 | ||||||||||
|
|
|
| |||||||||
Non-Current Assets: | ||||||||||||
Long-term financial instruments | 6,34,35,37 | 631 | 8,142 | |||||||||
Long-term investment securities | 9,34,35 | 956,280 | 968,527 | |||||||||
Investments in associates and joint ventures | 13 | 6,298,088 | 5,325,297 | |||||||||
Property and equipment, net | 14,36,37 | 10,567,701 | 10,196,607 | |||||||||
Investment property, net | 15 | 14,997 | 15,811 | |||||||||
Goodwill | 16 | 1,917,595 | 1,733,261 | |||||||||
Intangible assets, net | 17 | 2,483,994 | 2,750,782 | |||||||||
Long-term loans, net | 7,34,35,36 | 55,728 | 57,442 | |||||||||
Long-term accounts receivable — other | 7,34,35 | 3,596 | — | |||||||||
Long-term prepaid expenses | 37 | 51,961 | 32,008 | |||||||||
Guarantee deposits | 6,7,34,35,36 | 285,144 | 249,600 | |||||||||
Long-term derivative financial assets | 23,34,35 | 70,035 | 41,712 | |||||||||
Deferred tax assets | 2,31 | 25,083 | 26,322 | |||||||||
Other non-current assets | 7,34,35 | 127,252 | 47,589 | |||||||||
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|
|
| |||||||||
Total Non-Current Assets | 22,858,085 | 21,453,100 | ||||||||||
|
|
|
| |||||||||
Total Assets | ₩ | 27,941,233 | 26,576,515 | |||||||||
|
|
|
|
(In millions of won) | Note | December 31, 2016 | December 31, 2015 | |||||||||
Assets | ||||||||||||
Current Assets: | ||||||||||||
Cash and cash equivalents | 32,33 | ₩ | 1,505,242 | 768,922 | ||||||||
Short-term financial instruments | 5,32,33,34,35 | 468,768 | 691,090 | |||||||||
Short-term investment securities | 8,32,33 | 107,364 | 92,262 | |||||||||
Accounts receivable — trade, net | 6,32,33,34 | 2,240,926 | 2,344,867 | |||||||||
Short-term loans, net | 6,32,33,34 | 58,979 | 53,895 | |||||||||
Accounts receivable — other, net | 6,32,33,34,35 | 1,121,444 | 673,739 | |||||||||
Prepaid expenses | 169,173 | 151,978 | ||||||||||
Inventories, net | 7 | 259,846 | 273,556 | |||||||||
Advanced payments and other | 6,8,32,33,34 | 64,886 | 109,933 | |||||||||
|
|
|
| |||||||||
Total Current Assets | 5,996,628 | 5,160,242 | ||||||||||
|
|
|
| |||||||||
Non-Current Assets: | ||||||||||||
Long-term financial instruments | 5,32,33,35 | 937 | 10,623 | |||||||||
Long-term investment securities | 8,32,33 | 828,521 | 1,207,226 | |||||||||
Investments in associates and joint ventures | 11 | 7,404,323 | 6,896,293 | |||||||||
Property and equipment, net | 12,34,35 | 10,374,212 | 10,371,256 | |||||||||
Investment property, net | 13 | — | 15,071 | |||||||||
Goodwill | 14 | 1,932,452 | 1,908,590 | |||||||||
Intangible assets, net | 15 | 3,776,354 | 2,304,784 | |||||||||
Long-term loans, net | 6,32,33,34 | 65,476 | 62,454 | |||||||||
Long-term accounts receivable — other | 6,32,33,35 | 149,669 | 2,420 | |||||||||
Long-term prepaid expenses | 88,130 | 76,034 | ||||||||||
Guarantee deposits | 6,32,33,34 | 298,964 | 297,281 | |||||||||
Long-term derivative financial assets | 21,32,33 | 214,770 | 166,399 | |||||||||
Defined benefit assets | 20 | 30,247 | — | |||||||||
Deferred tax assets | 29 | 75,111 | 17,257 | |||||||||
Othernon-current assets | 6,32,33 | 61,869 | 85,457 | |||||||||
|
|
|
| |||||||||
TotalNon-Current Assets | 25,301,035 | 23,421,145 | ||||||||||
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|
|
| |||||||||
Total Assets | ₩ | 31,297,663 | 28,581,387 | |||||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Financial Position — (Continued)
As of December 31, 20142016 and 20132015
(In millions of won) | Note | December 31, 2014 | December 31, 2013 | Note | December 31, 2016 | December 31, 2015 | ||||||||||||||||||
Liabilities and Equity | ||||||||||||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||
Short-term borrowings | 18,30,34,35 | ₩ | 366,600 | 260,000 | 16,32,33 | ₩ | 2,614 | 260,000 | ||||||||||||||||
Current installments of long-term debt, net | 18,30,34,35 | 590,714 | 1,042,276 | 16,32,33 | 888,467 | 703,087 | ||||||||||||||||||
Current installments of finance lease liabilities | 21,30,34,35 | 3,804 | 19,351 | 32,33 | — | 26 | ||||||||||||||||||
Current installments of long-term payables — other | 19,34,35 | 189,389 | 206,800 | 17,32,33 | 301,773 | 120,185 | ||||||||||||||||||
Accounts payable — trade | 34,35,36 | 275,495 | 214,716 | 32,33,34 | 402,445 | 279,782 | ||||||||||||||||||
Accounts payable — other | 34,35,36 | 1,381,850 | 1,864,024 | 32,33,34 | 1,767,799 | 1,323,434 | ||||||||||||||||||
Withholdings | 34,35,36 | 1,053,063 | 728,936 | 32,33,34 | 964,084 | 865,327 | ||||||||||||||||||
Accrued expenses | 34,35 | 952,418 | 988,193 | 32,33 | 1,125,816 | 920,739 | ||||||||||||||||||
Income tax payable | 31 | 99,236 | 112,316 | 29 | 474,931 | 381,794 | ||||||||||||||||||
Unearned revenue | 327,003 | 441,731 | 188,403 | 224,233 | ||||||||||||||||||||
Provisions | 18 | 66,227 | 40,988 | |||||||||||||||||||||
Receipts in advance | 174,588 | 136,844 | ||||||||||||||||||||||
Derivative financial liabilities | 23,34,35 | — | 21,171 | 21,32,33 | 86,950 | — | ||||||||||||||||||
Provisions | 20 | 51,075 | 66,775 | |||||||||||||||||||||
Advanced receipts | 33,34 | 129,255 | 102,931 | |||||||||||||||||||||
Liabilities classified as held for sale | 10 | 408 | — | |||||||||||||||||||||
Other current liabilities | 2 | 54 | ||||||||||||||||||||||
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| |||||||||||||||||||||
Total Current Liabilities | 5,420,310 | 6,069,220 | 6,444,099 | 5,256,493 | ||||||||||||||||||||
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| |||||||||||||||||||||
Non-Current Liabilities: | ||||||||||||||||||||||||
Debentures, excluding current installments, net | 18,30,34,35 | 5,649,158 | 4,905,579 | 16,32,33 | 6,338,930 | 6,439,147 | ||||||||||||||||||
Long-term borrowings, excluding current installments | 18,30,34,35 | 149,720 | 104,808 | 16,32,33 | 139,716 | 121,553 | ||||||||||||||||||
Long-term payables — other | 19,34,35 | 684,567 | 838,585 | 17,32,33 | 1,624,590 | 581,697 | ||||||||||||||||||
Long-term unearned revenue | 19,659 | 50,894 | 2,389 | 2,842 | ||||||||||||||||||||
Finance lease liabilities | 21,30,34,35 | 26 | 3,867 | |||||||||||||||||||||
Defined benefit liabilities | 22 | 91,587 | 74,201 | 20 | 70,739 | 98,856 | ||||||||||||||||||
Long-term derivative financial liabilities | 23,34,35 | 130,889 | 103,168 | 21,32,33 | 203 | 89,296 | ||||||||||||||||||
Long-term provisions | 20 | 36,013 | 28,106 | 18 | 31,690 | 29,217 | ||||||||||||||||||
Deferred tax liabilities | 32 | 444,211 | 168,825 | 29 | 479,765 | 538,114 | ||||||||||||||||||
Other non-current liabilities | 34,35 | 66,823 | 62,705 | 32,33 | 49,112 | 50,076 | ||||||||||||||||||
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|
|
| |||||||||||||||||||||
Total Non-Current Liabilities | 7,272,653 | 6,340,738 | 8,737,134 | 7,950,798 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total Liabilities | 12,692,963 | 12,409,958 | 15,181,233 | 13,207,291 | ||||||||||||||||||||
|
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|
| |||||||||||||||||||||
Equity | ||||||||||||||||||||||||
Shareholders’ Equity | ||||||||||||||||||||||||
Share capital | 1,24 | 44,639 | 44,639 | 1,22 | 44,639 | 44,639 | ||||||||||||||||||
Capital surplus (deficit) and other capital adjustments | 24,25 | (120,520 | ) | (81,010 | ) | |||||||||||||||||||
Capital surplus (deficit) and others | 22,23,24 | (198,739 | ) | (209,008 | ) | |||||||||||||||||||
Hybrid bonds | 26 | 398,518 | 398,518 | 24 | 398,518 | 398,518 | ||||||||||||||||||
Retained earnings | 27 | 14,188,591 | 13,102,495 | 25 | 15,953,164 | 15,007,627 | ||||||||||||||||||
Reserves | 28 | (4,489 | ) | (12,270 | ) | 26 | (226,183 | ) | 9,303 | |||||||||||||||
|
|
|
| |||||||||||||||||||||
Equity attributable to owners of the Parent Company | 14,506,739 | 13,452,372 | 15,971,399 | 15,251,079 | ||||||||||||||||||||
Non-controlling interests | 741,531 | 714,185 | 145,031 | 123,017 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total Equity | 15,248,270 | 14,166,557 | ||||||||||||||||||||||
Total Shareholders’ Equity | 16,116,430 | 15,374,096 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total Liabilities and Equity | ₩ | 27,941,233 | 26,576,515 | |||||||||||||||||||||
Total Liabilities and Shareholders’ Equity | ₩ | 31,297,663 | 28,581,387 | |||||||||||||||||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won except for per share data) | Note | 2014 | 2013 | 2012 | ||||||||||||
Continuing operations | ||||||||||||||||
Operating revenue and other income: | 5,36 | |||||||||||||||
Revenue | ₩ | 17,163,798 | 16,602,054 | 16,141,409 | ||||||||||||
Other income | 20,29 | 56,471 | 74,954 | 201,844 | ||||||||||||
|
|
|
|
|
| |||||||||||
17,220,269 | 16,677,008 | 16,343,253 | ||||||||||||||
|
|
|
|
|
| |||||||||||
Operating expense: | 36 | |||||||||||||||
Labor cost | 22 | 1,659,777 | 1,561,358 | 1,267,928 | ||||||||||||
Commissions paid | 5,692,680 | 5,498,695 | 5,949,542 | |||||||||||||
Depreciation and amortization | 5 | 2,714,730 | 2,661,623 | 2,421,128 | ||||||||||||
Network interconnection | 997,319 | 1,043,733 | 1,057,145 | |||||||||||||
Leased line | 399,014 | 448,833 | 468,785 | |||||||||||||
Advertising | 415,857 | 394,066 | 384,353 | |||||||||||||
Rent | 460,309 | 443,639 | 422,388 | |||||||||||||
Cost of products that have been resold | 1,680,110 | 1,300,375 | 1,292,304 | |||||||||||||
Other operating expenses | 29 | 1,592,647 | 1,746,283 | 1,342,025 | ||||||||||||
|
|
|
|
|
| |||||||||||
Sub-total | 15,612,443 | 15,098,605 | 14,605,598 | |||||||||||||
|
|
|
|
|
| |||||||||||
Operating income | 5 | 1,607,826 | 1,578,403 | 1,737,655 | ||||||||||||
Finance income | 5,30 | 126,337 | 113,392 | 444,558 | ||||||||||||
Finance costs | 5,30 | (386,673 | ) | (571,203 | ) | (638,285 | ) | |||||||||
Gain (loss) related to investments in subsidiaries, associates and joint ventures, net | 1,5,13 | 906,338 | 706,509 | (24,560 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Profit before income tax | 2,253,828 | 1,827,101 | 1,519,368 | |||||||||||||
|
|
|
|
|
| |||||||||||
Income tax expense from continuing operations | 31 | 454,508 | 400,797 | 288,207 | ||||||||||||
|
|
|
|
|
| |||||||||||
Profit from continuing operations | 1,799,320 | 1,426,304 | 1,231,161 | |||||||||||||
|
|
|
|
|
| |||||||||||
Discontinued operation | ||||||||||||||||
Profit (loss) from discontinued operations, net of income taxes | 38 | — | 183,245 | (115,498 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Profit for the year | ₩ | 1,799,320 | 1,609,549 | 1,115,663 | ||||||||||||
|
|
|
|
|
| |||||||||||
Attributable to: | ||||||||||||||||
Owners of the Parent Company | ₩ | 1,801,178 | 1,638,964 | 1,151,705 | ||||||||||||
Non-controlling interests | (1,858 | ) | (29,415 | ) | (36,042 | ) | ||||||||||
Earnings per share | 32 | |||||||||||||||
Basic earnings per share (in Won) | ₩ | 25,154 | 23,211 | 16,525 | ||||||||||||
|
|
|
|
|
| |||||||||||
Diluted earnings per share (in Won) | ₩ | 25,154 | 23,211 | 16,141 | ||||||||||||
|
|
|
|
|
| |||||||||||
Earnings per share — Continuing operations | 32 | |||||||||||||||
Basic earnings per share (in Won) | ₩ | 25,154 | 20,708 | 18,015 | ||||||||||||
|
|
|
|
|
| |||||||||||
Diluted earnings per share (in Won) | ₩ | 25,154 | 20,708 | 17,583 | ||||||||||||
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | Note | 2014 | 2013 | 2012 | ||||||||||||
Profit for the year | ₩ | 1,799,320 | 1,609,549 | 1,115,663 | ||||||||||||
Other comprehensive income (loss) | ||||||||||||||||
Items that will never be reclassified to profit or loss, net of taxes: | ||||||||||||||||
Remeasurement of defined benefit liabilities | 3,22 | (32,942 | ) | 5,946 | (15,048 | ) | ||||||||||
Items that are or may be reclassified subsequently to profit or loss, net of taxes: | ||||||||||||||||
Net change in unrealized fair value of available-for-sale financial assets | 3,28,30 | 27,267 | 2,009 | (149,082 | ) | |||||||||||
Net change in other comprehensive income of investments in associates and joint ventures | 3,13,28 | 8,187 | 3,034 | (82,513 | ) | |||||||||||
Net change in unrealized fair value of derivatives | 3,23,28,30 | (45,942 | ) | 11,222 | (23,361 | ) | ||||||||||
Foreign currency translation differences for foreign operations | 3,28 | 14,944 | (3,714 | ) | (49,538 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss) for the year | (28,486 | ) | 18,497 | (319,542 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income | ₩ | 1,770,834 | 1,628,046 | 796,121 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income attributable to: | ||||||||||||||||
Owners of the Parent Company | ₩ | 1,777,519 | 1,655,570 | 851,565 | ||||||||||||
Non-controlling interests | (6,685 | ) | (27,524 | ) | (55,444 | ) |
(In millions of won except for per share data) | Note | 2016 | 2015 | 2014 | ||||||||||||
Operating revenue and other income: | 4,34 | |||||||||||||||
Revenue | ₩ | 17,091,816 | 17,136,734 | 17,163,798 | ||||||||||||
Other income | 27 | 66,548 | 30,935 | 56,471 | ||||||||||||
|
|
|
|
|
| |||||||||||
17,158,364 | 17,167,669 | 17,220,269 | ||||||||||||||
|
|
|
|
|
| |||||||||||
Operating expenses: | 34 | |||||||||||||||
Labor | 1,869,763 | 1,893,745 | 1,659,777 | |||||||||||||
Commissions | 5,376,726 | 5,206,951 | 5,692,680 | |||||||||||||
Depreciation and amortization | 4 | 2,941,886 | 2,845,295 | 2,714,730 | ||||||||||||
Network interconnection | 954,267 | 957,605 | 997,319 | |||||||||||||
Leased line | 394,412 | 389,819 | 399,014 | |||||||||||||
Advertising | 438,453 | 405,005 | 415,857 | |||||||||||||
Rent | 517,305 | 493,586 | 460,309 | |||||||||||||
Cost of products that have been resold | 1,838,368 | 1,955,861 | 1,680,110 | |||||||||||||
Others | 27 | 1,523,766 | 1,524,377 | 1,592,647 | ||||||||||||
|
|
|
|
|
| |||||||||||
15,854,946 | 15,672,244 | 15,612,443 | ||||||||||||||
|
|
|
|
|
| |||||||||||
Operating profit | 4 | 1,303,418 | 1,495,425 | 1,607,826 | ||||||||||||
Finance income | 4,28 | 575,050 | 103,900 | 126,337 | ||||||||||||
Finance costs | 4,28 | (326,830 | ) | (350,100 | ) | (386,673 | ) | |||||||||
Gain relating to investments in subsidiaries, associates and joint ventures, net | 1,4,11 | 544,501 | 786,140 | 906,338 | ||||||||||||
|
|
|
|
|
| |||||||||||
Profit (loss) before income tax | 2,096,139 | 2,035,365 | 2,253,828 | |||||||||||||
Income tax expense | 29 | 436,038 | 519,480 | 454,508 | ||||||||||||
|
|
|
|
|
| |||||||||||
Profit for the year | ₩ | 1,660,101 | 1,515,885 | 1,799,320 | ||||||||||||
|
|
|
|
|
| |||||||||||
Attributable to : | ||||||||||||||||
Owners of the Parent Company | ₩ | 1,675,967 | 1,518,604 | 1,801,178 | ||||||||||||
Non-controlling interests | (15,866 | ) | (2,719 | ) | (1,858 | ) | ||||||||||
Earnings per share | 30 | |||||||||||||||
Basic and diluted earnings per share (in won) | ₩ | 23,497 | 20,988 | 25,154 |
See accompanying notes to the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in EquityComprehensive Income
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | Controlling interest | Non- controlling interests | ||||||||||||||||||||||||||||||
Share capital | Capital surplus (deficit) and other capital adjustments | Hybrid bonds | Retained earnings | Reserves | Sub-total | Total equity | ||||||||||||||||||||||||||
Balance, January 1, 2012 | ₩ | 44,639 | (285,347 | ) | — | 11,642,525 | 260,064 | 11,661,881 | 1,070,828 | 12,732,709 | ||||||||||||||||||||||
Cash dividends | — | — | — | (655,133 | ) | — | (655,133 | ) | (2,133 | ) | (657,266 | ) | ||||||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||||||||||
Profit (loss) for the year | — | — | — | 1,151,705 | — | 1,151,705 | (36,042 | ) | 1,115,663 | |||||||||||||||||||||||
Other comprehensive loss | — | — | — | (14,440 | ) | (285,700 | ) | (300,140 | ) | (19,402 | ) | (319,542 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | — | — | 1,137,265 | (285,700 | ) | 851,565 | (55,444 | ) | 796,121 | |||||||||||||||||||||||
Changes in ownership in subsidiaries | — | (3,536 | ) | — | — | — | (3,536 | ) | (13,246 | ) | (16,782 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, December 31, 2012 | ₩ | 44,639 | (288,883 | ) | — | 12,124,657 | (25,636 | ) | 11,854,777 | 1,000,005 | 12,854,782 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, January 1, 2013 | ₩ | 44,639 | (288,883 | ) | — | 12,124,657 | (25,636 | ) | 11,854,777 | 1,000,005 | 12,854,782 | |||||||||||||||||||||
Cash dividends | — | — | — | (655,946 | ) | — | (655,946 | ) | (2,242 | ) | (658,188 | ) | ||||||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||||||||||
Profit (loss) for the year | — | — | — | 1,638,964 | — | 1,638,964 | (29,415 | ) | 1,609,549 | |||||||||||||||||||||||
Other comprehensive income | — | — | — | 3,240 | 13,366 | 16,606 | 1,891 | 18,497 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | — | — | 1,642,204 | 13,366 | 1,655,570 | (27,524 | ) | 1,628,046 | ||||||||||||||||||||||||
Issuance of hybrid bonds | — | — | 398,518 | — | — | 398,518 | — | 398,518 | ||||||||||||||||||||||||
Interest on hybrid bonds | — | — | — | (8,420 | ) | — | (8,420 | ) | — | (8,420 | ) | |||||||||||||||||||||
Treasury stock | — | 271,536 | — | — | — | 271,536 | — | 271,536 | ||||||||||||||||||||||||
Business combination under common control | — | (61,854 | ) | — | — | — | (61,854 | ) | — | (61,854 | ) | |||||||||||||||||||||
Changes in ownership in subsidiaries | — | (1,809 | ) | — | — | — | (1,809 | ) | (256,054 | ) | (257,863 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, December 31, 2013 | ₩ | 44,639 | (81,010 | ) | 398,518 | 13,102,495 | (12,270 | ) | 13,452,372 | 714,185 | 14,166,557 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won) | Note | 2016 | 2015 | 2014 | ||||||||||||
Profit for the year | ₩ | 1,660,101 | 1,515,885 | 1,799,320 | ||||||||||||
Other comprehensive income (loss) | ||||||||||||||||
Items that will never be reclassified to profit or loss, net of taxes: | ||||||||||||||||
Remeasurement of defined benefit liabilities | 20 | (7,524 | ) | (14,489 | ) | (32,942 | ) | |||||||||
Items that are or may be reclassified subsequently to profit or loss, net of taxes: | ||||||||||||||||
Net change in unrealized fair value ofavailable-for-sale financial assets | 26,28 | (223,981 | ) | (3,661 | ) | 27,267 | ||||||||||
Net change in other comprehensive income of investments in associates and joint ventures | 11,26 | (9,939 | ) | (5,709 | ) | 8,187 | ||||||||||
Net change in unrealized fair value of derivatives | 21,26,28 | (13,218 | ) | (1,271 | ) | (45,942 | ) | |||||||||
Foreign currency translation differences for foreign operations | 26 | 7,331 | 26,965 | 14,944 | ||||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss) for the year, net of taxes | (247,331 | ) | 1,835 | (28,486 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income | ₩ | 1,412,770 | 1,517,720 | 1,770,834 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||
Owners of the Parent Company | ₩ | 1,432,982 | 1,522,280 | 1,777,519 | ||||||||||||
Non-controlling interests | (20,212 | ) | (4,560 | ) | (6,685 | ) |
See accompanying notes to the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2016, 2015 and 2014
(In millions of won) | ||||||||||||||||||||||||||||||||
Attributable to owners | Non- controlling interests | |||||||||||||||||||||||||||||||
Share capital | Capital surplus (deficit) and others | Hybrid bonds | Retained earnings | Reserves | Total | Total equity | ||||||||||||||||||||||||||
Balance at January 1, 2014 | ₩ | 44,639 | (81,010 | ) | 398,518 | 13,102,495 | (12,270 | ) | 13,452,372 | 714,185 | 14,166,557 | |||||||||||||||||||||
Total comprehensive income: | ||||||||||||||||||||||||||||||||
Profit (loss) for the year | — | — | — | 1,801,178 | — | 1,801,178 | (1,858 | ) | 1,799,320 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | (31,440 | ) | 7,781 | (23,659 | ) | (4,827 | ) | (28,486 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | — | — | 1,769,738 | 7,781 | 1,777,519 | (6,685 | ) | 1,770,834 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Transactions with owners: | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | (666,802 | ) | — | (666,802 | ) | (170 | ) | (666,972 | ) | ||||||||||||||||||||
Interest on hybrid bonds | — | — | — | (16,840 | ) | — | (16,840 | ) | — | (16,840 | ) | |||||||||||||||||||||
Changes in consolidation scope | — | — | — | — | — | — | 23,667 | 23,667 | ||||||||||||||||||||||||
Business combination under common control | — | (28,641 | ) | — | — | — | (28,641 | ) | — | (28,641 | ) | |||||||||||||||||||||
Changes in ownership in subsidiaries | — | (10,869 | ) | — | — | — | (10,869 | ) | 10,534 | (335 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (39,510 | ) | — | (683,642 | ) | — | (723,152 | ) | 34,031 | (689,121 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at December 31, 2014 | ₩ | 44,639 | (120,520 | ) | 398,518 | 14,188,591 | (4,489 | ) | 14,506,739 | 741,531 | 15,248,270 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at January 1, 2015 | ₩ | 44,639 | (120,520 | ) | 398,518 | 14,188,591 | (4,489 | ) | 14,506,739 | 741,531 | 15,248,270 | |||||||||||||||||||||
Total comprehensive income: | ||||||||||||||||||||||||||||||||
Profit (loss) for the year | — | — | — | 1,518,604 | — | 1,518,604 | (2,719 | ) | 1,515,885 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | (13,402 | ) | 17,078 | 3,676 | (1,841 | ) | 1,835 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | — | — | 1,505,202 | 17,078 | 1,522,280 | (4,560 | ) | 1,517,720 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Transactions with owners: | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | (668,494 | ) | — | (668,494 | ) | (143 | ) | (668,637 | ) | ||||||||||||||||||||
Interest on hybrid bonds | — | — | — | (16,840 | ) | — | (16,840 | ) | — | (16,840 | ) | |||||||||||||||||||||
Acquisition of treasury shares | — | (490,192 | ) | — | — | — | (490,192 | ) | — | (490,192 | ) | |||||||||||||||||||||
Disposal of treasury shares | — | 425,744 | — | — | — | 425,744 | — | 425,744 | ||||||||||||||||||||||||
Changes in consolidation scope | — | — | — | — | — | — | (5,226 | ) | (5,226 | ) | ||||||||||||||||||||||
Changes in ownership in subsidiaries | — | (24,040 | ) | — | (832 | ) | (3,286 | ) | (28,158 | ) | (608,585 | ) | (636,743 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | (88,488 | ) | — | (686,166 | ) | (3,286 | ) | (777,940 | ) | (613,954 | ) | (1,391,894 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at December 31, 2015 | ₩ | 44,639 | (209,008 | ) | 398,518 | 15,007,627 | 9,303 | 15,251,079 | 123,017 | 15,374,096 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes tothe consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | Controlling interest | Non- controlling interests | ||||||||||||||||||||||||||||||
Share capital | Capital surplus (deficit) and other capital adjustments | Hybrid bonds | Retained earnings | Reserves | Sub-total | Total equity | ||||||||||||||||||||||||||
Balance, January 1, 2014 | ₩ | 44,639 | (81,010 | ) | 398,518 | 13,102,495 | (12,270 | ) | 13,452,372 | 714,185 | 14,166,557 | |||||||||||||||||||||
Cash dividends | — | — | — | (666,802 | ) | — | (666,802 | ) | (170 | ) | (666,972 | ) | ||||||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||||||||||
Profit (loss) for the year | — | — | — | 1,801,178 | — | 1,801,178 | (1,858 | ) | 1,799,320 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | (31,440 | ) | 7,781 | (23,659 | ) | (4,827 | ) | (28,486 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | — | — | 1,769,738 | 7,781 | 1,777,519 | (6,685 | ) | 1,770,834 | ||||||||||||||||||||||||
Interest on hybrid bonds | — | — | — | (16,840 | ) | — | (16,840 | ) | — | (16,840 | ) | |||||||||||||||||||||
Changes in consolidation scope | — | — | — | — | — | — | 23,667 | 23,667 | ||||||||||||||||||||||||
Business combination under common control | — | (28,641 | ) | — | — | — | (28,641 | ) | — | (28,641 | ) | |||||||||||||||||||||
Changes in ownership in subsidiaries | — | (10,869 | ) | — | — | — | (10,869 | ) | 10,534 | (335 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, December 31, 2014 | ₩ | 44,639 | (120,520 | ) | 398,518 | 14,188,591 | (4,489 | ) | 14,506,739 | 741,531 | 15,248,270 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||||||||||||||
Attributable to owners | ||||||||||||||||||||||||||||||||
Share capital | Capital surplus (deficit) and others | Hybrid bonds | Retained earnings | Reserves | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||
Balance at January 1, 2016 | ₩ | 44,639 | (209,008 | ) | 398,518 | 15,007,627 | 9,303 | 15,251,079 | 123,017 | 15,374,096 | ||||||||||||||||||||||
Total comprehensive income: | ||||||||||||||||||||||||||||||||
Profit (loss) for the year | — | — | — | 1,675,967 | — | 1,675,967 | (15,866 | ) | 1,660,101 | |||||||||||||||||||||||
Other comprehensive loss | — | — | — | (7,499 | ) | (235,486 | ) | (242,985 | ) | (4,346 | ) | (247,331 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | — | — | 1,668,468 | (235,486 | ) | 1,432,982 | (20,212 | ) | 1,412,770 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Transactions with owners: | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | (706,091 | ) | — | (706,091 | ) | (300 | ) | (706,391 | ) | ||||||||||||||||||||
Interest on hybrid bonds | — | — | — | (16,840 | ) | — | (16,840 | ) | — | (16,840 | ) | |||||||||||||||||||||
Changes in ownership in subsidiaries | — | 10,269 | — | — | — | 10,269 | 42,526 | 52,795 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
— | 10,269 | — | (722,931 | ) | — | (712,662 | ) | 42,226 | (670,436 | ) | ||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
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| |||||||||||||||||
Balance at December 31, 2016 | ₩ | 44,639 | (198,739 | ) | 398,518 | 15,953,164 | (226,183 | ) | 15,971,399 | 145,031 | 16,116,430 | |||||||||||||||||||||
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|
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|
|
See accompanying notes tothe consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | 2014 | 2013 | 2012 | 2016 | 2015 | 2014 | ||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Cash generated from operating activities | ||||||||||||||||||||||||
Profit for the year | ₩ | 1,799,320 | 1,609,549 | 1,115,663 | ₩ | 1,660,101 | 1,515,885 | 1,799,320 | ||||||||||||||||
Adjustments for income and expenses (Note 39) | 2,978,995 | 3,275,376 | 3,289,861 | |||||||||||||||||||||
Changes in assets and liabilities related to operating activities | (707,333 | ) | (969,870 | ) | 204,308 | |||||||||||||||||||
Adjustments for income and expenses (Note 36) | 3,039,561 | 3,250,143 | 2,978,995 | |||||||||||||||||||||
Changes in assets and liabilities related to operating activities (Note 36) | 13,764 | (685,734 | ) | (707,333 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Sub-total | 4,070,982 | 3,915,055 | 4,609,832 | 4,713,426 | 4,080,294 | 4,070,982 | ||||||||||||||||||
Interest received | 56,706 | 64,078 | 88,711 | 44,602 | 43,400 | 56,706 | ||||||||||||||||||
Dividends received | 13,048 | 10,197 | 27,732 | 98,267 | 62,973 | 13,048 | ||||||||||||||||||
Interest paid | (280,847 | ) | (300,104 | ) | (363,685 | ) | (245,236 | ) | (275,796 | ) | (280,847 | ) | ||||||||||||
Income tax paid | (182,504 | ) | (130,656 | ) | (362,926 | ) | (367,891 | ) | (132,742 | ) | (182,504 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash provided by operating activities | 3,677,385 | 3,558,570 | 3,999,664 | 4,243,168 | 3,778,129 | 3,677,385 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Cash inflows from investing activities: | ||||||||||||||||||||||||
Decrease in short-term financial instruments, net | 5,627 | 186,425 | 464,531 | 222,322 | — | 5,627 | ||||||||||||||||||
Decrease in short-term investment securities, net | — | — | 65,000 | — | 105,158 | — | ||||||||||||||||||
Collection of short-term loans | 207,439 | 290,856 | 282,658 | 238,980 | 398,308 | 207,439 | ||||||||||||||||||
Proceeds from disposals of long-term financial instruments | 2,535 | 16 | 23 | |||||||||||||||||||||
Decrease in long-term financial instruments | 28 | 7,424 | 2,535 | |||||||||||||||||||||
Proceeds from disposals of long-term investment securities | 65,287 | 287,777 | 511,417 | 555,519 | 149,310 | 65,287 | ||||||||||||||||||
Proceeds from disposals of investments in associates and | 7,333 | 43,249 | 1,518 | 66,852 | 185,094 | 7,333 | ||||||||||||||||||
Proceeds from disposals of property and equipment | 25,143 | 12,579 | 271,122 | 22,549 | 36,586 | 25,143 | ||||||||||||||||||
Proceeds from disposals of investment property | — | — | 43,093 | |||||||||||||||||||||
Proceeds from disposals of intangible assets | 10,917 | 2,256 | 21,048 | 16,532 | 3,769 | 10,917 | ||||||||||||||||||
Proceeds from disposal of assets held for sale | 3,667 | 190,393 | — | |||||||||||||||||||||
Proceeds from disposals of assets held for sale | — | 1,009 | 3,667 | |||||||||||||||||||||
Collection of long-term loans | 4,454 | 13,104 | 11,525 | 1,960 | 2,132 | 4,454 | ||||||||||||||||||
Decrease in deposits | 8,891 | 8,509 | 41,785 | 14,894 | 14,635 | 8,891 | ||||||||||||||||||
Proceeds from disposals of other non-current assets | 94 | 683 | 1,853 | 728 | 607 | 94 | ||||||||||||||||||
Proceeds from disposals of subsidiaries | — | 215,939 | 89,002 | — | 155 | — | ||||||||||||||||||
Increase in cash due to acquisitions of subsidiaries | — | — | 26,651 | |||||||||||||||||||||
Increase in cash due to acquisition of subsidiaries | — | 10,355 | — | |||||||||||||||||||||
Receipt of government grants | 300 | — | — | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Sub-total | 341,387 | 1,251,786 | 1,831,226 | 1,140,664 | 914,542 | 341,387 | ||||||||||||||||||
Cash outflows for investing activities: | ||||||||||||||||||||||||
Increase in short-term financial instruments, net | — | (385,612 | ) | — | ||||||||||||||||||||
Increase in short-term investment securities, net | (174,209 | ) | (45,032 | ) | — | (6,334 | ) | — | (174,209 | ) | ||||||||||||||
Increase in short-term loans | (202,501 | ) | (279,926 | ) | (245,465 | ) | (239,303 | ) | (370,378 | ) | (202,501 | ) | ||||||||||||
Increase in long-term loans | (4,341 | ) | (4,050 | ) | (3,464 | ) | (32,287 | ) | (16,701 | ) | (4,341 | ) | ||||||||||||
Increase in long-term financial instruments | (2,522 | ) | (7,510 | ) | (16 | ) | (342 | ) | (10,008 | ) | (2,522 | ) | ||||||||||||
Acquisitions of long-term investment securities | (41,305 | ) | (22,141 | ) | (92,929 | ) | (30,949 | ) | (312,261 | ) | (41,305 | ) | ||||||||||||
Acquisitions of investments in associates and joint ventures | (60,020 | ) | (97,366 | ) | (3,098,833 | ) | (130,388 | ) | (65,080 | ) | (60,020 | ) | ||||||||||||
Acquisitions of property and equipment | (3,008,026 | ) | (2,879,126 | ) | (3,394,349 | ) | (2,490,455 | ) | (2,478,778 | ) | (3,008,026 | ) | ||||||||||||
Acquisitions of investment property | — | — | (129 | ) | ||||||||||||||||||||
Acquisitions of intangible assets | (130,667 | ) | (243,163 | ) | (146,249 | ) | (635,387 | ) | (127,948 | ) | (130,667 | ) | ||||||||||||
Cash held by disposal group classified as held for sale | (552 | ) | — | (51,831 | ) | — | — | (552 | ) | |||||||||||||||
Increase in deposits | (6,903 | ) | (83,314 | ) | (43,534 | ) | (12,943 | ) | (12,536 | ) | (6,903 | ) | ||||||||||||
Increase in other non-current assets | (18,233 | ) | (1,830 | ) | (8,619 | ) | (763 | ) | (2,542 | ) | (18,233 | ) | ||||||||||||
Acquisition of businesses, net of cash acquired | (375,273 | ) | (94,805 | ) | (43,389 | ) | ||||||||||||||||||
Decrease in cash due to disposals of a subsidiaries | — | — | (12,003 | ) | ||||||||||||||||||||
Acquisitions of businesses, net of cash acquired | (4,498 | ) | (13,197 | ) | (124,486 | ) | ||||||||||||||||||
Acquisitions of subsidiaries, net of cash acquired | (19,223 | ) | — | (250,787 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Sub-total | (4,024,552 | ) | (3,758,263 | ) | (7,140,810 | ) | (3,602,872 | ) | (3,795,041 | ) | (4,024,552 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash used in investing activities | ₩ | (3,683,165 | ) | (2,506,477 | ) | (5,309,584 | ) | ₩ | (2,462,208 | ) | (2,880,499 | ) | (3,683,165 | ) | ||||||||||
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Cash Flows — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | 2014 | 2013 | 2012 | 2016 | 2015 | 2014 | ||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||
Cash inflows from financing activities: | ||||||||||||||||||||||||
Proceeds from short-term borrowings, net | ₩ | 102,868 | — | — | ||||||||||||||||||||
Increase in short-term borrowings, net | ₩ | — | — | 102,868 | ||||||||||||||||||||
Proceeds from issuance of debentures | 1,255,468 | 1,328,694 | 2,098,351 | 776,727 | 1,375,031 | 1,255,468 | ||||||||||||||||||
Proceeds from long-term borrowings | 62,552 | 105,055 | 2,059,004 | 49,000 | — | 62,552 | ||||||||||||||||||
Proceeds from issuance of hybrid bonds | — | 398,518 | — | |||||||||||||||||||||
Cash inflows from transaction of derivatives | 200 | 19,970 | 87,899 | |||||||||||||||||||||
Cash inflows from settlement of derivatives | 251 | 175 | 200 | |||||||||||||||||||||
Cash received from transfer of interests in subsidiaries tonon-controlling interests | 35,646 | — | — | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Sub-total | 1,421,088 | 1,852,237 | 4,245,254 | 861,624 | 1,375,206 | 1,421,088 | ||||||||||||||||||
Cash outflows for financing activities: | ||||||||||||||||||||||||
Decrease in short-term borrowings, net | — | (340,245 | ) | (61,401 | ) | (257,386 | ) | (106,600 | ) | — | ||||||||||||||
Repayments of long-term account payables-other | (207,791 | ) | (161,575 | ) | (102,672 | ) | (122,723 | ) | (191,436 | ) | (207,791 | ) | ||||||||||||
Repayments of debentures | (1,039,938 | ) | (771,976 | ) | (1,145,691 | ) | (770,000 | ) | (620,000 | ) | (1,039,938 | ) | ||||||||||||
Repayments of long-term borrowings | (23,284 | ) | (467,217 | ) | (1,660,509 | ) | (33,387 | ) | (21,924 | ) | (23,284 | ) | ||||||||||||
Cash outflows from transactions of derivatives | (6,444 | ) | — | (5,415 | ) | |||||||||||||||||||
Repayments of finance lease liabilities | (19,388 | ) | (20,342 | ) | (20,794 | ) | ||||||||||||||||||
Cash outflows from settlement of derivatives | — | (655 | ) | (6,444 | ) | |||||||||||||||||||
Payments of finance lease liabilities | (26 | ) | (3,206 | ) | (19,388 | ) | ||||||||||||||||||
Payments of dividends | (666,802 | ) | (655,946 | ) | (655,133 | ) | (706,091 | ) | (668,494 | ) | (666,802 | ) | ||||||||||||
Payments of interest on hybrid bonds | (16,840 | ) | — | — | (16,840 | ) | (16,840 | ) | (16,840 | ) | ||||||||||||||
Decrease in cash from consolidated capital transaction | — | (8,093 | ) | (8,372 | ) | |||||||||||||||||||
Acquisitions of treasury shares | — | (490,192 | ) | — | ||||||||||||||||||||
Acquisitions of additional interests in subsidiaries | — | (220,442 | ) | — | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Sub-total | (1,980,487 | ) | (2,425,394 | ) | (3,659,987 | ) | (1,906,453 | ) | (2,339,789 | ) | (1,980,487 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash provided by (used in) financing activities | (559,399 | ) | (573,157 | ) | 585,267 | |||||||||||||||||||
Net cash used in financing activities | (1,044,829 | ) | (964,583 | ) | (559,399 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (565,179 | ) | 478,936 | (724,653 | ) | 736,131 | (66,953 | ) | (565,179 | ) | ||||||||||||||
Cash and cash equivalents at beginning of the year | 1,398,639 | 920,125 | 1,650,794 | 768,922 | 834,429 | 1,398,639 | ||||||||||||||||||
Effects of exchange rate changes on cash and cash equivalents | 969 | (422 | ) | (6,016 | ) | 189 | 1,446 | 969 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Cash and cash equivalents at end of the year | ₩ | 834,429 | 1,398,639 | 920,125 | ₩ | 1,505,242 | 768,922 | 834,429 | ||||||||||||||||
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|
|
|
|
See accompanying notes to the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 20132016, 2015 and 20122014
1. | Reporting Entity |
(1) General
SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to engage in providingprovide cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications services in Korea. The head office of the Parent Company is located at 65,Eulji-ro,Jung-gu, Seoul, Korea.
The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of December 31, 2014,2016, the Parent Company’s total issued shares are held by the following:following shareholders:
Number of shares | Percentage of total shares issued (%) | Number of shares | Percentage of total shares issued | |||||||||||||
SK Holdings Co., Ltd. | 20,363,452 | 25.22 | 20,363,452 | 25.22 | ||||||||||||
National Pension Service | 5,722,692 | 7.09 | 7,159,704 | 8.87 | ||||||||||||
Institutional investors and other minority stockholders | 44,850,192 | 55.54 | ||||||||||||||
Treasury stock | 9,809,375 | 12.15 | ||||||||||||||
Institutional investors and other minority shareholders | 43,086,004 | 53.36 | ||||||||||||||
Treasury shares | 10,136,551 | 12.55 | ||||||||||||||
|
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|
| |||||||||||||
Total number of shares | 80,745,711 | 100.00 | 80,745,711 | 100.00 | ||||||||||||
|
|
|
|
These consolidated financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individuallyindividuals as “Group entities”). SK Holdings Co,Co., Ltd. is the ultimate controlling entity of the Parent Company.
(2) List of subsidiaries
The list of subsidiaries as of December 31, 20142016 and 20132015 is as follows:
Ownership (%) | ||||||||||||
Subsidiary | Location | Primary business | Dec. 31, 2014 | Dec. 31, 2013 | ||||||||
SK Telink Co., Ltd. | Korea | Telecommunication and MVNO service | 83.5 | 83.5 | ||||||||
M&Service Co., Ltd. | Korea | Data base and internet website service | 100.0 | 100.0 | ||||||||
SK Communications Co., Ltd. | Korea | Internet website services | 64.6 | 64.6 | ||||||||
Stonebridge Cinema Fund | Korea | Investment association | 56.0 | 56.0 | ||||||||
Commerce Planet Co., Ltd. | Korea | Online shopping mall operation agency | 100.0 | 100.0 | ||||||||
SK Broadband Co., Ltd. | Korea | Telecommunication services | 50.6 | 50.6 | ||||||||
K-net Culture and Contents Venture Fund | Korea | Investment association | 59.0 | 59.0 | ||||||||
Fitech Focus Limited Partnership II | Korea | Investment association | 66.7 | 66.7 | ||||||||
Open Innovation Fund | Korea | Investment association | 98.9 | 98.9 | ||||||||
PS&Marketing Corporation | Korea | Communications device retail business | 100.0 | 100.0 | ||||||||
Service Ace Co., Ltd. | Korea | Customer center management service | 100.0 | 100.0 | ||||||||
Service Top Co., Ltd. | Korea | Customer center management service | 100.0 | 100.0 | ||||||||
Network O&S Co., Ltd. | Korea | Base station maintenance service | 100.0 | 100.0 | ||||||||
BNCP Co., Ltd. | Korea | Internet website services | 100.0 | 100.0 | ||||||||
Iconcube Holdings, Inc.(*1) | Korea | Investment association | 100.0 | — | ||||||||
Iconcube, Inc.(*1) | Korea | Internet website services | 100.0 | — | ||||||||
SK Planet Co., Ltd. | Korea | Telecommunication service | 100.0 | 100.0 | ||||||||
Neosnetworks Co., Ltd.(*1,2) | Korea | Guarding of facilities | 66.7 | — | ||||||||
IRIVER LIMITED(*1,3) | Korea | Manufacturing digital audio players and other portable media devices. | 49.0 | — |
Ownership (%)(*1) | ||||||||||||||
Subsidiary | Location | Primary business | Dec. 31, 2016 | Dec. 31, 2015 | ||||||||||
Subsidiaries owned by the Parent Company | SK Telink Co., Ltd.(*2) | Korea | Telecommunication and MVNO service | 85.9 | 83.5 | |||||||||
SK Communications Co., Ltd.(*3) | Korea | Internet website services | 64.5 | 64.5 | ||||||||||
SK Broadband Co., Ltd.(*4) | Korea | Telecommunication services | 100.0 | 100.0 | ||||||||||
PS&Marketing Corporation | Korea | Communications device retail business | 100.0 | 100.0 | ||||||||||
SERVICEACE Co., Ltd. | Korea | Customer center management service | 100.0 | 100.0 | ||||||||||
SERVICE TOP Co., Ltd. | Korea | Customer center management service | 100.0 | 100.0 | ||||||||||
Network O&S Co., Ltd. | Korea | Base station maintenance service | 100.0 | 100.0 | ||||||||||
SK Planet Co., Ltd.(*5) | Korea | Telecommunication service | 98.1 | 100.0 | ||||||||||
IRIVER LIMITED (*6) | Korea | Manufacturing digital audio players and other portable media devices | 48.9 | 49.0 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Ownership (%) | ||||||||||||
Subsidiary | Location | Primary business | Dec. 31, 2014 | Dec. 31, 2013 | ||||||||
Iriver CS Co., Ltd.(*1) | Korea | After-sales service and logistics agency | 100.0 | — | ||||||||
iriver Enterprise Ltd.(*1) | Hong Kong | Management of Chinese subsidiary | 100.0 | — | ||||||||
iriver America Inc.(*1) | USA | Marketing and sales in North America | 100.0 | — | ||||||||
iriver Inc.(*1) | USA | Marketing and sales in North America | 100.0 | — | ||||||||
iriver China Co., Ltd.(*1) | China | Sales and manufacturing MP3,4 in China | 100.0 | — | ||||||||
Dongguan iriver Electronics Co., Ltd.(*1) | China | Sales and manufacturing e-book in China | 100.0 | — | ||||||||
SK Telecom China Holdings Co., Ltd. | China | Investment association | 100.0 | 100.0 | ||||||||
Shenzhen E-eye High Tech Co., Ltd. | China | Manufacturing | 65.5 | 65.5 | ||||||||
SK Global Healthcare Business Group, Ltd. | Hong Kong | Investment association | 100.0 | 100.0 | ||||||||
SK Planet Japan | Japan | Digital contents sourcing service | 100.0 | 100.0 | ||||||||
SKT Vietnam PTE. Ltd. | Singapore | Telecommunication service | 73.3 | 73.3 | ||||||||
SK Planet Global PTE. Ltd. | Singapore | Digital contents sourcing service | 100.0 | 100.0 | ||||||||
SKP GLOBAL HOLDINGS PTE. LTD. | Singapore | Investment association | 100.0 | 100.0 | ||||||||
SKT Americas, Inc. | USA | Information gathering and consulting | 100.0 | 100.0 | ||||||||
SKP America LLC. | USA | Digital contents sourcing service | 100.0 | 100.0 | ||||||||
YTK Investment Ltd. | Cayman | Investment association | 100.0 | 100.0 | ||||||||
Atlas Investment | Cayman | Investment association | 100.0 | 100.0 | ||||||||
Technology Innovation Partners, L.P. | USA | Investment association | 100.0 | 100.0 | ||||||||
SK Telecom China Fund I L.P. | Cayman | Investment association | 100.0 | 100.0 | ||||||||
shopkick Management Company, Inc.(*1) | USA | Investment association | 95.2 | — | ||||||||
shopkick, Inc.(*1) | USA | Mileage-based online transaction app development | 100.0 | — |
Ownership (%)(*1) | ||||||||||||||
Subsidiary | Location | Primary business | Dec. 31, 2016 | Dec. 31, 2015 | ||||||||||
SK Telecom China Holdings Co., Ltd. | China | Investment | 100.0 | 100.0 | ||||||||||
SK Global Healthcare Business Group, Ltd. | Hong Kong | Investment |
| 100.0 |
|
| 100.0 |
| ||||||
SKT Vietnam PTE. Ltd. | Singapore | Telecommunication services | 73.3 | 73.3 | ||||||||||
SKT Americas, Inc. | USA | Information gathering and consulting | 100.0 | 100.0 | ||||||||||
YTK Investment Ltd. | Cayman Islands | Investment association | 100.0 | 100.0 | ||||||||||
Atlas Investment | Cayman Islands | Investment association | 100.0 | 100.0 | ||||||||||
Entrix Co., Ltd. | Korea | Cloud streaming services | 100.0 | 100.0 | ||||||||||
SK techx Co., Ltd.(*7) | Korea | System software development and supply | 100.0 | — | ||||||||||
One Store Co., Ltd.(*7) | Korea | Telecommunication services | 65.5 | — | ||||||||||
Subsidiaries owned by SK Planet Co., Ltd. | M&Service Co., Ltd. | Korea | Data base and internet website service | 100.0 | 100.0 | |||||||||
Commerce Planet Co., Ltd.(*7) | Korea | Online shopping mall operation agency | — | 100.0 | ||||||||||
SK Planet Japan, K. K. | Japan | Digital contents sourcing service | 100.0 | 100.0 | ||||||||||
SK Planet Global PTE. Ltd. | Singapore | Digital contents sourcing service | 100.0 | 100.0 | ||||||||||
SKP GLOBAL HOLDINGS PTE. LTD. | Singapore | Investment | 100.0 | 100.0 | ||||||||||
SKP America LLC. | USA | Digital contents sourcing service | 100.0 | 100.0 | ||||||||||
shopkick Management Company, Inc.(*8) | USA | Investment | 100.0 | 95.2 | ||||||||||
shopkick, Inc. | USA | Reward points-basedin-store shopping application development | 100.0 | 100.0 | ||||||||||
Planet11E-commerce Solutions India Pvt. Ltd.(*7) | India | Electronic commerce platform service | 99.0 | — | ||||||||||
11street (Thailand) Co., Ltd.(*7) | Thailand | Electronic commerce | 100.0 | — | ||||||||||
Hello Nature Ltd.(*7) | Korea | Retail of agro-fisheries and livestock | 100.0 | — | ||||||||||
Subsidiaries owned by IRIVER LIMITED | iriver Enterprise Ltd. | Hong Kong | Management of Chinese subsidiary | 100.0 | 100.0 | |||||||||
iriver America Inc.(*7) | USA | Marketing and sales in North America | — | 100.0 | ||||||||||
iriver Inc. | USA | Marketing and sales in North America | 100.0 | 100.0 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
Ownership (%)(*1) | ||||||||||||||
Subsidiary | Location | Primary business | Dec. 31, 2016 | Dec. 31, 2015 | ||||||||||
iriver China Co., Ltd. | China | Sales and manufacturing MP3 and 4 players | 100.0 | 100.0 | ||||||||||
Dongguan iriver Electronics Co., Ltd. | China | Sales and manufacturinge-book | 100.0 | 100.0 | ||||||||||
groovers JP Ltd. | Japan | Digital music contents sourcing and distribution service | 100.0 | 100.0 | ||||||||||
Subsidiaries owned by SK Telink Co., Ltd. | Neosnetworks Co., Ltd.(*2) | Korea | Security and maintenance services | 100.0 | 83.9 | |||||||||
Subsidiaries owned by SK techx Co., Ltd. | K-net Culture and Contents Venture Fund | Korea | Capital investing in startups | 59.0 | 59.0 | |||||||||
Fitech Focus Limited Partnership II(*7) | Korea | Capital investing in startups | — | 66.7 | ||||||||||
Open Innovation Fund(*7) | Korea | Capital investing in startups | — | 98.9 | ||||||||||
Others(*9) | Stonebridge Cinema Fund | Korea | Capital investing in startups | 55.2 | 55.2 | |||||||||
SK Telecom Innovation Fund, L.P. (formerly, Technology Innovation Partners, L.P.)(*10) | USA | Investment | 100.0 | 100.0 | ||||||||||
SK Telecom China Fund I L.P. | Cayman Islands | Investment | 100.0 | 100.0 |
(*1) |
(*2) |
In addition, SK Telink Co., Ltd. exercised call options to purchase the entire shares of Neosnetworks Co., Ltd. held by thenon-controlling interests during the year ended December 31, 2016 and Neosnetworks Co., Ltd. became a wholly owned subsidiary of SK Telink Co., Ltd.
(*3) |
In accordanceOn November 24, 2016, the extraordinary meeting of shareholders of the SK Communications Co., Ltd. approved the sale of shares and its voluntary delisting of SK Communication Co., Ltd.’s ordinary shares from KOSDAQ market of Korea Exchange.
(*4) | On November 2, 2015, the board of directors of the Parent Company entered into a share purchase agreement to acquire 30%(23,234,060 shares) of the issued and outstanding common shares of CJ Hello Vision Co., Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”) for an aggregate purchase price of ₩500,000 million. The agreement stated government’s approval as prerequisite. |
On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Parent Company, approved the merger of SK Broadband into CJ Hello Vision, and then SK Broadband entered into a merger agreement with the Group’s accounting policy relating to the scope of consolidation, small-sized subsidiaries including IM Shopping Inc. were excluded from the list of subsidiariesCJ Hello Vision with government’s approval as the effects on the Group’s consolidated financial statements are not material considering both individual and overall quantitative and qualitative effects.prerequisite.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
After the announcement of disapproval of proposed takeover of CJ Hello Vision by the Fair Trade Commission (FTC) on July 18, 2016, the Parent Company announced the revocation of share purchase agreement with CJ O Shopping while SK Broadband withdrew from merger agreement with CJ Hello Vision on July 25, 2016 as execution of the share purchase agreement with CJ O Shopping and merger agreement between SK Broadband and CJ Hello Vision became objectively impossible.
(*5) | The ownership interest changed due to the shares issued to employee stock ownership association by SK Planet Co., Ltd. during the year ended December 31, 2016. |
(*6) | Although the Group has less than 50% of the voting rights of IRIVER LIMITED, the Group is considered to have control over IRIVER LIMITED since the Group holds significantly more voting rights than any other vote holder or organized group of vote holders, and the other shareholdings are widely dispersed. |
(*7) | Changes in subsidiaries are explained in Note1-(4). |
(*8) | During the year ended December 31, 2016, the Group acquired all of thenon-controlling interests in shopkick Management Company, Inc. |
(*9) | Others are owned together by SK techx Co., Ltd. and three other subsidiaries of the Parent Company. |
(*10) | Changed its name to SK Telecom Innovation Fund, L.P. during the year ended December 31, 2016. |
(3) Condensed financial information of subsidiaries
Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2016 is as follows:
(In millions of won) | As of December 31, 2016 | 2016 | ||||||||||||||||||
Subsidiary | Total assets | Total liabilities | Total equity | Revenue | Profit (loss) | |||||||||||||||
SK Telink Co., Ltd. | ₩ | 440,956 | 122,741 | 318,215 | 406,930 | 61,585 | ||||||||||||||
M&Service Co., Ltd. | 107,768 | 56,596 | 51,172 | 173,816 | 4,958 | |||||||||||||||
SK Communications Co., Ltd. | 128,233 | 31,592 | 96,641 | 58,154 | (20,411 | ) | ||||||||||||||
SK Broadband Co., Ltd. | 3,523,494 | 2,376,429 | 1,147,065 | 2,942,976 | 21,526 | |||||||||||||||
PS&Marketing Corporation | 546,803 | 328,846 | 217,957 | 1,679,735 | 11,908 | |||||||||||||||
SERVICEACE Co., Ltd. | 67,735 | 40,014 | 27,721 | 199,828 | 3,605 | |||||||||||||||
SERVICE TOP Co., Ltd. | 59,004 | 39,121 | 19,883 | 186,740 | 3,971 | |||||||||||||||
Network O&S Co., Ltd. | 69,774 | 35,798 | 33,976 | 218,917 | 3,755 | |||||||||||||||
SK Planet Co., Ltd.(*1) | 1,935,663 | 834,151 | 1,101,512 | 1,177,323 | (30,959 | ) | ||||||||||||||
IRIVER LIMITED(*2) | 50,075 | 11,941 | 38,134 | 52,328 | (9,987 | ) | ||||||||||||||
SKP America LLC. | 439,209 | — | 439,209 | — | 1,226 | |||||||||||||||
SK techx Co., Ltd. | 212,819 | 52,563 | 160,256 | 193,396 | 28,213 | |||||||||||||||
One Store Co., Ltd. | 134,207 | 41,738 | 92,469 | 106,809 | (22,161 | ) | ||||||||||||||
shopkick Management Company, Inc. | 354,627 | — | 354,627 | — | (85 | ) | ||||||||||||||
shopkick, Inc. | 37,947 | 34,024 | 3,923 | 45,876 | (27,149 | ) |
The above summary financial information is derived from separate financial statements of each subsidiary except for IRIVER LIMITED’s, which is consolidated financial information.
(*1) | The separate financial information of SK Planet Co., Ltd. includespre-merger income and expenses of Commerce Planet Co., Ltd. prior to the merger date of February 1, 2016. |
(*2) | The consolidated financial information of IRIVER LIMITED includes financial information of iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., Dongguan iriver Electronics Co., Ltd. and groovers Japan Co., Ltd., subsidiaries of IRIVER LIMITED. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2015 is as follows:
(In millions of won) | As of December 31, 2015 | 2015 | ||||||||||||||||||
Subsidiary | Total assets | Total liabilities | Total equity | Revenue | Profit (loss) | |||||||||||||||
SK Telink Co., Ltd. | ₩ | 309,955 | 113,878 | 196,077 | 431,368 | 55,781 | ||||||||||||||
M&Service Co., Ltd. | 89,452 | 42,414 | 47,038 | 143,255 | 5,549 | |||||||||||||||
SK Communications Co., Ltd. | 152,496 | 35,014 | 117,482 | 80,147 | (14,826 | ) | ||||||||||||||
SK Broadband Co., Ltd. | 3,291,707 | 2,170,484 | 1,121,223 | 2,731,344 | 10,832 | |||||||||||||||
PS&Marketing Corporation | 509,580 | 300,364 | 209,216 | 1,791,944 | 4,835 | |||||||||||||||
SERVICEACE Co., Ltd. | 65,424 | 34,240 | 31,184 | 206,338 | 2,778 | |||||||||||||||
SERVICE TOP Co., Ltd. | 61,897 | 38,482 | 23,415 | 197,092 | 4,396 | |||||||||||||||
Network O&S Co., Ltd. | 77,426 | 48,069 | 29,357 | 210,676 | 6,466 | |||||||||||||||
SK Planet Co., Ltd. | 2,406,988 | 784,631 | 1,622,357 | 1,624,630 | (75,111 | ) | ||||||||||||||
IRIVER LIMITED(*) | 60,434 | 12,377 | 48,057 | 55,637 | 635 | |||||||||||||||
SKP America LLC. | 380,141 | — | 380,141 | — | 791 | |||||||||||||||
Entrix Co., Ltd. | 30,876 | 3,186 | 27,690 | 4,895 | (1,826 | ) | ||||||||||||||
shopkick Management Company, Inc. | 306,248 | 7 | 306,241 | 7 | (2,455 | ) | ||||||||||||||
shopkick, Inc. | 25,388 | 32,243 | (6,855 | ) | 33,851 | (52,390 | ) |
The above summary financial information is derived from separate financial statements of each subsidiary except for IRIVER LIMITED’s, which is consolidated financial information.
(*) | The consolidated financial information of IRIVER LIMITED includes financial information of iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., Dongguan iriver Electronics Co., Ltd. and groovers Japan Co., Ltd., subsidiaries of IRIVER LIMITED. |
Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2014 is as follows:
(In millions of won) | ||||||||||||||||||||
Subsidiary | Total assets | Total liabilities | Total equity | Revenue | Profit (loss) | |||||||||||||||
SK Telink Co., Ltd. | ₩ | 324,028 | 184,074 | 139,954 | 465,463 | 13,073 | ||||||||||||||
M&Service Co., Ltd. | 79,476 | 37,505 | 41,971 | 133,789 | 7,458 | |||||||||||||||
SK Communications Co., Ltd. | 176,168 | 41,987 | 134,181 | 93,910 | (18,386 | ) | ||||||||||||||
Stonebridge Cinema Fund | 11,137 | 320 | 10,817 | — | 383 | |||||||||||||||
Commerce Planet Co., Ltd. | 26,078 | 27,259 | (1,193 | ) | 64,509 | 933 | ||||||||||||||
SK Broadband Co., Ltd. | 3,109,991 | 1,988,379 | 1,121,612 | 2,654,381 | 4,307 | |||||||||||||||
K-net Culture and Contents Venture Fund | 21,094 | 4 | 21,090 | — | 4,920 | |||||||||||||||
Fitech Focus Limited Partnership II | 19,301 | — | 19,301 | — | (2,055 | ) | ||||||||||||||
Open Innovation Fund | 21,765 | — | 21,765 | — | (6,266 | ) | ||||||||||||||
PS&Marketing Corporation | 544,292 | 336,221 | 208,071 | 1,627,217 | 2,817 | |||||||||||||||
Service Ace Co., Ltd. | 66,336 | 37,770 | 28,566 | 207,427 | 3,570 | |||||||||||||||
Service Top Co., Ltd. | 57,032 | 36,723 | 20,309 | 188,835 | 3,503 | |||||||||||||||
Network O&S Co., Ltd. | 71,348 | 45,770 | 25,578 | 211,916 | 3,823 | |||||||||||||||
BNCP Co., Ltd. | 6,785 | 5,887 | 898 | 12,869 | (1,505 | ) | ||||||||||||||
Iconcube Holdings, Inc.(*1) | 1,415 | 515 | 900 | 630 | (2,284 | ) | ||||||||||||||
SK Planet Co., Ltd. | 2,579,286 | 746,832 | 1,832,454 | 1,512,492 | 1,593 | |||||||||||||||
Neosnetworks Co., Ltd. | 31,633 | 13,251 | 18,382 | 33,302 | (1,989 | ) | ||||||||||||||
IRIVER LIMITED(*2) | 61,945 | 14,392 | 47,553 | 53,192 | 2,345 | |||||||||||||||
SK Telecom China Holdings Co., Ltd. | 37,877 | 2,335 | 35,542 | 12,420 | 1,058 | |||||||||||||||
Shenzhen E-eye High Tech Co., Ltd. | 15,566 | 408 | 15,158 | 3,637 | (1,143 | ) | ||||||||||||||
SK Global Healthcare Business Group, Ltd. | 25,874 | — | 25,874 | — | (689 | ) | ||||||||||||||
SK Planet Japan | 5,222 | 1,638 | 3,584 | 93 | (4,561 | ) | ||||||||||||||
SKT Vietnam PTE. Ltd. | 4,242 | 1,286 | 2,956 | — | (73 | ) | ||||||||||||||
SK Planet Global PTE. Ltd. | 4,215 | 64 | 4,151 | 87 | (2,543 | ) | ||||||||||||||
SKP GLOBAL HOLDINGS PTE. LTD. | 29,529 | 11 | 29,518 | — | (9,716 | ) | ||||||||||||||
SKT Americas, Inc. | 42,159 | 554 | 41,605 | 9,100 | (5 | ) | ||||||||||||||
SKP America LLC. | 297,981 | 67 | 297,914 | — | (2,370 | ) | ||||||||||||||
YTK Investment Ltd. | 27,944 | — | 27,944 | — | (15,259 | ) | ||||||||||||||
Atlas Investment(*3) | 66,825 | 94 | 66,731 | — | (6,626 | ) | ||||||||||||||
shopkick Management Company, Inc. | 230,925 | — | 230,925 | — | — | |||||||||||||||
shopkick, Inc. | 28,216 | 13,698 | 14,518 | — | — |
(In millions of won) | ||||||||||||||||||||
As of December 31, 2014 | 2014 | |||||||||||||||||||
Subsidiary | Total assets | Total liabilities | Total equity (deficit) | Revenue | Profit (loss) | |||||||||||||||
SK Telink Co., Ltd. | ₩ | 324,028 | 184,074 | 139,954 | 465,463 | 13,073 | ||||||||||||||
M&Service Co., Ltd. | 78,826 | 36,817 | 42,009 | 133,789 | 7,458 | |||||||||||||||
SK Communications Co., Ltd. | 176,168 | 41,987 | 134,181 | 93,910 | (18,386 | ) | ||||||||||||||
SK Broadband Co., Ltd. | 3,109,991 | 1,988,379 | 1,121,612 | 2,654,381 | 4,307 | |||||||||||||||
PS&Marketing Corporation | 544,292 | 336,221 | 208,071 | 1,627,217 | 2,817 | |||||||||||||||
SERVICEACE Co., Ltd. | 66,336 | 37,770 | 28,566 | 207,427 | 3,570 | |||||||||||||||
SERVICE TOP Co., Ltd. | 57,032 | 36,723 | 20,309 | 188,835 | 3,503 | |||||||||||||||
Network O&S Co., Ltd. | 71,348 | 45,770 | 25,578 | 211,916 | 3,823 | |||||||||||||||
SK Planet Co., Ltd. | 2,579,286 | 746,832 | 1,832,454 | 1,512,492 | 1,593 | |||||||||||||||
IRIVER LIMITED(*) | 61,945 | 14,392 | 47,553 | 53,192 | 2,345 | |||||||||||||||
SKP America LLC. | 297,981 | 67 | 297,914 | — | (2,370 | ) | ||||||||||||||
shopkick Management Company, Inc. | 230,925 | — | 230,925 | — | — | |||||||||||||||
shopkick, Inc. | 28,216 | 13,698 | 14,518 | — | — |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
The above summary financial information is derived from separate financial statements of each subsidiary except for IRIVER LIMITED’s, which is consolidated financial information.
(* |
The condensed financial information of IRIVER LIMITED includes financial information of iriver CS Co., Ltd., iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., and Dongguan iriver Electronics Co., Ltd., subsidiaries of IRIVER LIMITED. |
(4) Changes in subsidiaries
The list of subsidiaries that were newly included in consolidation during the year ended December 31, 2016 is as follows:
Subsidiary | Reason | |
SK techx Co., Ltd. | Established byspin-off from SK Planet Co., Ltd. | |
One Store Co., Ltd. | Established byspin-off from SK Planet Co., Ltd. | |
Planet11E-commerce Solutions India Pvt. Ltd. | Acquired by SK Planet Co., Ltd. | |
11street (Thailand) Co., Ltd. | Established by SKP GLOBAL HOLDINGS PTE. LTD. | |
Hello Nature Ltd. | Acquired by SK Planet Co., Ltd. |
The list of subsidiaries that were excluded from consolidation during the year ended December 31, 2016 is as follows:
Subsidiary | Reason | |
Commerce Planet Co., Ltd | Merged into SK Planet Co., Ltd. | |
Fitech Focus Limited Partnership II | Liquidated during the year ended December 31, 2016. | |
Open Innovation | Liquidated during the year ended December 31, 2016. | |
iriver America Inc. | Liquidated during the year ended December 31, 2016. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Condensed financial(5) The information of subsidiariessignificantnon-controlling interests of the Group as of and for the yearyears ended December 31, 2013 is2016, 2015 and 2014 are as follows:follows. There were no dividends paid during the years ended December 31, 2016, 2015 and 2014 by subsidiaries of whichnon-controlling interests are significant.
(In millions of won) | ||||||||||||||||||||
Subsidiary | Total assets | Total liabilities | Total equity | Revenue | Profit (loss) | |||||||||||||||
SK Telink Co., Ltd. | ₩ | 252,475 | 125,807 | 126,668 | 433,276 | 16,024 | ||||||||||||||
M&Service Co., Ltd. | 68,587 | 32,626 | 35,961 | 130,178 | 4,176 | |||||||||||||||
SK Communications Co., Ltd. | 205,792 | 53,755 | 152,037 | 128,272 | (41,893 | ) | ||||||||||||||
Stonebridge Cinema Fund | 11,974 | 377 | 11,597 | 1 | 1,320 | |||||||||||||||
Commerce Planet Co., Ltd. | 26,237 | 27,333 | (1,096 | ) | 56,565 | 587 | ||||||||||||||
SK Broadband Co., Ltd. | 3,044,349 | 1,916,721 | 1,127,628 | 2,539,366 | 12,306 | |||||||||||||||
K-net Culture and Contents Venture Fund | 16,181 | 12 | 16,169 | — | (16,595 | ) | ||||||||||||||
Fitech Focus Limited Partnership II | 21,446 | — | 21,446 | — | (1,179 | ) | ||||||||||||||
Open Innovation Fund | 27,996 | — | 27,996 | — | (15,408 | ) | ||||||||||||||
PS&Marketing Corporation | 277,300 | 141,356 | 135,944 | 1,095,647 | 1,369 | |||||||||||||||
Service Ace Co., Ltd. | 56,276 | 30,667 | 25,609 | 187,961 | 2,995 | |||||||||||||||
Service Top Co., Ltd. | 48,369 | 30,634 | 17,735 | 159,364 | 3,484 | |||||||||||||||
Network O&S Co., Ltd. | 56,677 | 32,353 | 24,324 | 198,664 | 2,060 | |||||||||||||||
BNCP Co., Ltd. | 12,108 | 6,433 | 5,675 | 14,819 | (9,019 | ) | ||||||||||||||
SK Planet Co., Ltd. | 2,528,054 | 766,841 | 1,761,213 | 1,378,211 | 201,556 | |||||||||||||||
SK Telecom China Holdings Co., Ltd. | 36,261 | 2,052 | 34,209 | 17,025 | 613 | |||||||||||||||
Shenzhen E-eye High Tech Co., Ltd. | 17,894 | 1,841 | 16,053 | 7,703 | (789 | ) | ||||||||||||||
SK Global Healthcare Business Group, Ltd. | 27,625 | — | 27,625 | — | 831 | |||||||||||||||
SK Planet Japan | 1,793 | 280 | 1,513 | 394 | (1,635 | ) | ||||||||||||||
SKT Vietnam PTE. Ltd. | 11,773 | 8,862 | 2,911 | — | (28,086 | ) | ||||||||||||||
SK Planet Global PTE. Ltd. | 697 | 149 | 548 | 331 | (1,420 | ) | ||||||||||||||
SKP GLOBAL HOLDINGS PTE. LTD. | 20,713 | 9 | 20,704 | — | 1,542 | |||||||||||||||
SKT Americas, Inc. | 33,876 | 1,315 | 32,561 | 9,207 | (6,544 | ) | ||||||||||||||
SKP America LLC. | 22,399 | 12 | 22,387 | — | — | |||||||||||||||
YTK Investment Ltd. | 42,118 | — | 42,118 | — | (21,764 | ) | ||||||||||||||
Atlas Investment(*) | 40,218 | 101 | 40,117 | — | (8,248 | ) |
(In millions of won) | ||||||||
SK Communications Co., Ltd. | One Store Co., Ltd. | |||||||
Ownership ofnon-controlling interests (%) | 35.46 | 34.46 | ||||||
As of December 31, 2016 | ||||||||
Current assets | ₩ | 81,806 | 90,414 | |||||
Non-current assets | 46,427 | 43,793 | ||||||
Current liabilities | (30,098 | ) | (40,969 | ) | ||||
Non-current liabilities | (1,494 | ) | (769 | ) | ||||
Net assets | 96,641 | 92,469 | ||||||
Carrying amount ofnon-controlling interests | 34,265 | 31,863 | ||||||
2016 | ||||||||
Revenue | ₩ | 58,154 | 106,809 | |||||
Loss for the year | 20,411 | 22,161 | ||||||
Total comprehensive loss | 20,841 | 22,402 | ||||||
Loss attributable tonon-controlling interests | 7,240 | 6,772 | ||||||
Net cash used in operating activities | (4,891 | ) | (4,447 | ) | ||||
Net cash provided by(used in) investing activities | 3,625 | (20,796 | ) | |||||
Net cash provided by financing activities | — | 51,426 | ||||||
Net increase(decrease) in cash and cash equivalents | (1,266 | ) | 26,183 |
(In millions of | ||||
SK Communications Co., Ltd. | ||||
Ownership of | 35.46 | |||
As of December 31, 2015 | ||||
Current assets | ₩ | 95,662 | ||
Non-current assets | 56,834 | |||
Current liabilities | (33,306 | ) | ||
Non-current liabilities | (1,708 | ) | ||
Net assets | 117,482 | |||
Carrying amount ofnon-controlling interests | 41,659 | |||
2015 | ||||
Revenue | ₩ | 80,147 | ||
Loss for the period | 14,826 | |||
Total comprehensive loss | 16,698 | |||
Loss attributable tonon-controlling interests | 5,254 | |||
Net cash used in operating activities | (2,706 | ) | ||
Net cash provided by investing activities | 8,723 | |||
Net cash provided by financing activities | — | |||
Net increase in cash and | 6,017 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Condensed financial information of subsidiaries as of and for the year ended December 31, 2012 is as follows:
(In millions of won) | ||||||||||||||||||||
Subsidiary | Total assets | Total liabilities | Total equity | Revenue | Profit (loss) | |||||||||||||||
SK Telink Co., Ltd. | ₩ | 241,977 | 128,191 | 113,786 | 341,084 | (74,951 | ) | |||||||||||||
SK Communications Co., Ltd. | 265,819 | 70,483 | 195,336 | 197,153 | (35,334 | ) | ||||||||||||||
PAXNet Co., Ltd. | 31,400 | 9,173 | 22,227 | 34,237 | (156 | ) | ||||||||||||||
Loen Entertainment, Inc. | 173,079 | 44,998 | 128,081 | 185,016 | 23,839 | |||||||||||||||
Stonebridge Cinema Fund | 10,965 | 903 | 10,062 | 509 | 5,707 | |||||||||||||||
Commerce Planet Co., Ltd. | 34,007 | 35,351 | (1,344 | ) | 52,507 | 655 | ||||||||||||||
SK Broadband Co., Ltd. | 3,035,657 | 1,656,923 | 1,378,734 | 2,486,317 | 26,412 | |||||||||||||||
Broadband media Co., Ltd. | 50,574 | 320,727 | (270,153 | ) | 90,602 | (3,396 | ) | |||||||||||||
K-net Culture and Contents Venture Fund | 43,779 | 15 | 43,764 | — | (1,778 | ) | ||||||||||||||
Fitech Focus Limited Partnership II | 22,547 | — | 22,547 | — | (3,934 | ) | ||||||||||||||
Open Innovation Fund | 43,394 | — | 43,394 | — | (788 | ) | ||||||||||||||
PS&Marketing Corporation | 317,613 | 181,737 | 135,876 | 1,484,492 | (9,662 | ) | ||||||||||||||
Service Ace Co., Ltd. | 48,956 | 24,461 | 24,495 | 146,554 | 3,418 | |||||||||||||||
Service Top Co., Ltd. | 43,332 | 25,963 | 17,369 | 133,705 | 4,198 | |||||||||||||||
Network O&S Co., Ltd. | 165,818 | 140,853 | 24,965 | 377,909 | 7,970 | |||||||||||||||
BNCP Co., Ltd. | 24,000 | 9,367 | 14,633 | 26,167 | (2,463 | ) | ||||||||||||||
SK Planet Co., Ltd. | 1,647,965 | 381,620 | 1,266,345 | 1,034,697 | 11,977 | |||||||||||||||
Madsmart, Inc. | 1,591 | 724 | 867 | 635 | (2,756 | ) | ||||||||||||||
SK Telecom China Holdings Co., Ltd. | 35,233 | 1,782 | 33,451 | 25,755 | (151 | ) | ||||||||||||||
SKY Property Mgmt. Ltd.(*1) | 773,413 | 294,305 | 479,108 | 70,808 | 10,390 | |||||||||||||||
Shenzhen E-eye High Tech Co., Ltd. | 18,915 | 1,788 | 17,127 | 9,590 | (1,068 | ) | ||||||||||||||
SK Global Healthcare Business Group, Ltd. | 25,784 | — | 25,784 | — | — | |||||||||||||||
SK Planet Japan | 47 | 4 | 43 | — | (63 | ) | ||||||||||||||
SKT Vietnam PTE. Ltd. | 38,331 | 7,904 | 30,427 | 990 | (8 | ) | ||||||||||||||
SK Planet Global PTE. Ltd. | 636 | 130 | 506 | — | (526 | ) | ||||||||||||||
SKT Americas, Inc. | 36,378 | 784 | 35,594 | 10,712 | (10,837 | ) | ||||||||||||||
SKP America LLC. | 6,669 | 2,431 | 4,238 | 109 | (3,301 | ) | ||||||||||||||
YTK Investment Ltd. | 64,036 | — | 64,036 | — | — | |||||||||||||||
Atlas Investment(*2) | 51,065 | 205 | 50,860 | — | (4,324 | ) |
(In millions of won) | ||||||||
SK Communications Co., Ltd. | SK Broadband Co., Ltd.(*) | |||||||
Ownership of non-controlling interests (%) | 35.46 | 49.44 | ||||||
As of December 31, 2014 | ||||||||
Current assets | ₩ | 89,135 | 463,764 | |||||
Non-current assets | 87,033 | 2,646,227 | ||||||
Current liabilities | (41,252 | ) | (881,886 | ) | ||||
Non-current liabilities | (735 | ) | (1,106,493 | ) | ||||
Net assets | 134,181 | 1,121,612 | ||||||
Adjustment for fair value | — | 111,561 | ||||||
Net assets of consolidated entities | 134,181 | 1,233,173 | ||||||
Carrying amount ofnon-controlling interests | 47,577 | 609,638 | ||||||
2014 | ||||||||
Revenue | ₩ | 93,910 | 2,654,381 | |||||
Profit (loss) for the period | (18,386 | ) | 4,307 | |||||
Amortization of fair value adjustment | — | (1,916 | ) | |||||
Profit (loss) of the consolidated entities | (18,386 | ) | 2,391 | |||||
Total comprehensive income (loss) | 530 | (10,324 | ) | |||||
Profit (loss) attributable tonon-controlling interests | (6,519 | ) | 1,182 | |||||
Net cash provided by (used in) operating activities | (5,962 | ) | 431,760 | |||||
Net cash used in investing activities | (17,927 | ) | (599,016 | ) | ||||
Net cash provided by financing activities | — | 119,484 | ||||||
Net decrease in cash and cash equivalents | (23,889 | ) | (47,772 | ) |
(* |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(4) Changes in subsidiaries
The list of subsidiaries that were newly included in consolidation during the year ended December 31, 2014 is as follows:
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|
(5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2014, 2013 and 2012 are as follows. There were no dividends paid during the years ended December 31, 2014, 2013 and 2012 by subsidiaries of which non-controlling interests are significant.
(In millions of won) | December 31, 2014 | |||||||
SK Communications Co., Ltd. | SK Broadband Co., Ltd. | |||||||
Ownership of non-controlling interests (%) | 35.4 | 49.4 | ||||||
Current assets | ₩ | 89,135 | 463,764 | |||||
Non-current assets | 87,033 | 2,646,227 | ||||||
Current liabilities | (41,252 | ) | (881,886 | ) | ||||
Non-current liabilities | (735 | ) | (1,106,493 | ) | ||||
Net assets | 134,181 | 1,121,612 | ||||||
Adjustment for fair value | — | 111,561 | ||||||
Net assets of consolidated entities | 134,181 | 1,233,173 | ||||||
Carrying amount of non-controlling interests | 47,577 | 609,638 | ||||||
Revenue | ₩ | 93,910 | 2,654,381 | |||||
Profit (loss) for the period | (18,386 | ) | 4,307 | |||||
Amortization of fair value adjustment | — | (1,916 | ) | |||||
Profit (loss) of the consolidated entities | (18,386 | ) | 2,391 | |||||
Total comprehensive income (loss) | 530 | (10,324 | ) | |||||
Profit (loss) attributable to non-controlling interests | (6,519 | ) | 1,182 | |||||
Net cash provided by (used in) operating activities | ₩ | (5,962 | ) | 431,760 | ||||
Net cash used in investing activities | (17,927 | ) | (599,016 | ) | ||||
Net cash provided by financing activities | — | 119,484 | ||||||
Net decrease in cash and cash equivalents | (23,889 | ) | (47,772 | ) |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | December 31, 2013 | |||||||
SK Communications Co., Ltd. | SK Broadband Co., Ltd. | |||||||
Ownership of non-controlling interests (%) | 35.4 | 49.4 | ||||||
Current assets | ₩ | 108,100 | 533,597 | |||||
Non-current assets | 97,692 | 2,510,752 | ||||||
Current liabilities | (51,868 | ) | (938,385 | ) | ||||
Non-current liabilities | (1,887 | ) | (978,336 | ) | ||||
Net assets | 152,037 | 1,127,628 | ||||||
Adjustment for fair value | — | 113,478 | ||||||
Net assets of consolidated entities | 152,037 | 1,241,106 | ||||||
Carrying amount of non-controlling interests | 53,856 | 613,560 | ||||||
Revenue | ₩ | 128,272 | 2,539,366 | |||||
Profit (loss) for the period | (41,893 | ) | 12,306 | |||||
Amortization of fair value adjustment | — | (30,977 | ) | |||||
Loss of the consolidated entities | (41,893 | ) | (18,671 | ) | ||||
Total comprehensive loss | (43,318 | ) | (13,059 | ) | ||||
Loss attributable to non-controlling interests | (14,853 | ) | (9,231 | ) | ||||
Net cash provided by (used in) operating activities | ₩ | (22,867 | ) | 440,036 | ||||
Net cash provided by (used in) investing activities | 41,788 | (329,346 | ) | |||||
Net cash provided by (used in) financing activities | 19 | (129,181 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 18,940 | (18,491 | ) |
(In millions of won) | December 31, 2012 | |||||||||||
SK Communications Co., Ltd. | SK Broadband Co., Ltd.(*1) | SKY Property Mgmt. Ltd.(*2) | ||||||||||
Ownership of non-controlling interests (%) | 35.4 | 49.4 | 40.0 | |||||||||
Revenue | ₩ | 197,153 | 2,492,160 | 70,808 | ||||||||
Profit (loss) for the period | (35,334 | ) | 22,499 | 10,390 | ||||||||
Amortization of fair value adjustment | — | (72,192 | ) | — | ||||||||
Profit (loss) of the consolidated entities | (35,334 | ) | (49,693 | ) | 10,390 | |||||||
Total comprehensive Income (loss) | (36,785 | ) | 17,397 | (23,948 | ) | |||||||
Profit (loss) attribute to non-controlling interests | (12,525 | ) | (24,595 | ) | 4,156 | |||||||
Net cash provided by (used in) operating activities | ₩ | (14,925 | ) | 375,848 | 16,258 | |||||||
Net cash provided by (used in) Investing activities | 5,319 | (287,975 | ) | (396 | ) | |||||||
Net cash provided by (used in) financing activities | 92 | (224,837 | ) | (1,405 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | (9,514 | ) | (136,964 | ) | 14,457 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
2. | Basis of Presentation |
(1) Statement of compliance
These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issuance by the Board of Directors on February 5, 2015.2, 2017.
(2) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:
derivative financial instruments are measured at fair valuevalue;
financial instruments at fair value through profit or loss are measured at fair valuevalue;
available-for-sale financial assets are measured at fair valuevalue; and
liabilities (assets) for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assetsassets.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(3) Functional and presentation currency
Financial statements of Group entities within the Group are presentedprepared in functional currency andof each group entity, which is the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.
(4) Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.
1) Critical judgments
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in Note 3 for the following notes:
revenue : See Note 4-(22)
consolidation : See Note 4-(2)
areas: consolidation: whether the Group has de facto control over an investee, and classification of lease : See Note 4-(14)lease.
2) Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipment and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit obligations,liabilities, and recognition of deferred tax assets (liabilities), and commitments and contingencies.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
.
3) Fair value measurement
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial andnon-financial assets and liabilities. The Group has an established control frameworkpolicies and processes with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executive.executives.
The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).; and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Information about assumptions used for fair value measurements are included in Note 35.
(5) Common control transactions
SK Holdings Co., Ltd. (“the Ultimate Controlling Entity”) is the Ultimate Controlling Entity of the Parent Company because it controls the Parent Company. Accordingly, gains and losses from business acquisitions and dispositions involving entities that are under the control of the Ultimate Controlling Entity are accounted for as common control transactions within equity.33.
3. |
Except for the changes below, the Group has consistently applied the accounting policies set out in Note 4 to all periods presented in these consolidated financial statements.
The Group has adopted the following amendments to standards with a date of initial application of January 1, 2014.
(1) Offsetting a financial asset and a financial liability
The Group has adopted amendments to IAS 32, ‘Financial Instruments: Presentation’, since January 1, 2014. The amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ in paragraph 42(a). According to the amendments, the right to set off should not be contingent on a future event, and legally enforceable in the normal course of business, in the event of default, and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The amendments also state that some gross settlement systems would be considered equivalent to net settlement if they eliminate or result in insignificant credit and liquidity risk and process receivables and payables in a single settlement process or cycle.
There is no material impact of the application of this amendment on the consolidated financial statements.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
Significant Accounting Policies |
The significant accounting policies applied by the Group in the preparation of its consolidated financial statements in accordance with IFRS are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements except for those as described in Note 3.statements.
(1) Operating segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group’s operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has threefour reportable segments which consist of cellular services, fixed-line telecommunication services,e-commerce services and others, as described in Note 5.4. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
The group’sGroup’s chief operating decision maker receives and reviews operating income based on Korean IFRS as the measure of segment profit and loss for each operating segment. Segment operating income differs from consolidated operating income from continuing operations used in the Group’s consolidated statements of income. Segment operating income does not include certain items such as fee revenues, gain/loss from disposal of property, plant, equipment and intangible assets, impairment losses on property, plant, equipment and intangible assets, donations, bad debt expense and penalties. The chief operating decision maker does not receive any information about segment assets and liabilities. Segment information does not include the Group’s discontinued operations information. See Note 38 for details on discontinued operations.
(2) Basis of consolidation
(i) Business combination
A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.
Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. IfThe difference between the acquired company’s fair value and the consideration transferred is accounted for goodwill. Any goodwill incurs asthat arises is tested annually for impairment. Any gain on a result of business combination, the Group performs impairment test on an annual basis and recognizes gain from bargain purchases throughpurchase is recognized in profit or loss.loss immediately. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received excluding costs to issue debt or equity securities recognized based on IASInternational Accounting Standards (“IAS”) 32 and 39.
Consideration transferred does not include the amount settled in relation to thepre-existing relationship and the amount settled in relation to thepre-existing relationship is generally recognized through profit or loss.
Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration and recognizes through profit or loss.
Entire or certain portion of market-based measure of replacement award for share-based payment transactions of the acquiree or the replacement of an acquiree’s share-based payment transactions with share-based payment transactions of the acquirer is included in measurement of contingent considerations. Portion of a replacement award that is part of the consideration transferred for the acquiree and the portion that is remuneration for post-combination service is determined by comparing market-based measure of the awards of acquire and replacement awards that is attributable to pre-combination service.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(ii) Non-controlling interests
The Group measureNon-controlling interests are measured at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the acquiree’s identifiable net assets.assets at the date of acquisition.
Changes in a Controlling Company’s ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.
(iii) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.
(iv) Loss of control
If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.
(v) Interest in investees accounted for using the equity method
Interest in investees accounted for using the equity method composed of interest in associates and joint ventures. An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement havehas rights to the net assets of the arrangement.
The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.
(vi) Intra-group transactions
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.
(vii) Business combinations under common control
SK Holdings Co., Ltd. is the ultimate controlling entity of the Group. The assets and liabilities acquired from theunder business combination of entities or business under common control are recognized at the carrying amounts in the ultimate controlling shareholder’s consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from other capital adjustments.surplus and others.
(3) Cash and cash equivalents
Cash and cash equivalents comprise cash balances, and call deposits and financial assets with maturities of three months or less from the acquisition date that are easily convertible to cash and subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.value.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(4) Inventories
Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to value inventories,track inventory quantities, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
(5) Non-derivative financial assets
The Group recognizes and measuresnon-derivative financial assets by the following four categories: financial assets at fair value through profit or loss,held-to-maturity investments, loans and receivables andavailable-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Upon initial recognition,non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the asset’s acquisition or issuance.of the asset.
(i) Financial assets at fair value through profit or loss
A financial asset is classified as financial assets are classifiedasset at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.
(ii) Held-to-maturity investments
Anon-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified asheld-to-maturity investments. investment. Subsequent to initial recognition,held-to-maturity investments are measured at amortized cost using the effective interest rate method.
(iii) Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.
(iv) Available-for-sale financial assets
Available-for-sale financial assets are thosenon-derivative financial assets that are designated asavailable-for-sale or are not classified as financial assets at fair value through profit or loss,held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value whichwith changes in fair value, net of any tax effect, recorded in other comprehensive income (OCI) in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.
(v) De-recognition of financial assets
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(vi) Offsetting between financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.
(6) Derivative financial instruments, including hedge accounting
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
(i) Hedge accounting
The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designateddesignates derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).
On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.
Fair value hedge
Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.
Cash flow hedge
When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(ii) Separable embedded derivatives
Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:
(a) | the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract; |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(b) | a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and |
(c) | the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss. |
Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.
(iii) Other derivative financial instruments
Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.
(7) Impairment of financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.
Objective evidence that a financial asset is impaired includes following loss events:
significant financial difficulty of the issuer or obligor;
a breach of contract, such as default or delinquency in interest or principal payments;
the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
it becoming probable that the borrower will enter bankruptcy or other financial reorganization;
the disappearance of an active market for that financial asset because of financial difficulties; or
observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the groupgroup.
In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
If financial assets have objective evidence that they are impaired, impairment losses should beare measured and recognized.
(i) Financial assets measured at amortized cost
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Group can recognize impairment losses directly or establish a provision to cover impairment losses.by establishing an allowance account. If, in a subsequent
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall beis reversed either directly or by adjusting an allowance account.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(ii) Financial assets carried at cost
If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shallare not be reversed.
(iii) Available-for-sale financial assets
When a decline in the fair value of anavailable-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall beis reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified asavailable-for-sale shall is not be reversed through profit or loss.loss subsequently. If, in a subsequent period, the fair value of a debt instrument classified asavailable-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall beis reversed, with the amount of the reversal recognized in profit or loss.
(8) Property plant and equipment
Property plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses.cost. The cost of property plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Subsequent to initial recognition, an item of property plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.
Subsequent costs are recognized in the carrying amount of property plant and equipment at cost or, if appropriate, as a separate itemsitem if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of theday-to-day servicing are recognized in profit or loss as incurred.
Property plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property plant and equipment is depreciated over its separate useful life.
Gains and losses on disposal of an item of property plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property plant and equipment and are recognized as othernon-operating income (loss).
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
The estimated useful lives of the Group’s property plant and equipment are as follows:
Useful lives (years) | ||||
Buildings and structures | 15 ~ 40 | |||
Machinery | 3 ~ 15 | |||
Other property | 4 ~ 10 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.
(9) Borrowing costs
The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.
To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group shall determinedetermines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall beis the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period shalldo not exceed the amount of borrowing costs incurred during that period.
(10) Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.
Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, club memberships are determined to have indefinite useful lives as there areis no foreseeable limitslimit to the periodsperiod over which club membershipsthey are expected to be available for use this intangible asset is determined as having indefinite useful lives and therefore not amortized.
The estimated useful lives of the Group’s intangible assets are as follows:
Useful lives (years) | ||
Frequency | ||
Land | 5 | |
Industrial rights | 5, 10 | |
Development costs | 5 | |
Facility usage rights | 10, 20 | |
Customer relations | 3 ~ 7 | |
Other | 3 ~ 20 |
Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
Expenditures on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.
(11) Government grants
Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.
(i) Grants related to assets
Government grants whose primary condition is that the Group purchase, constructpurchases, constructs or otherwise acquireacquires a long-term assetsasset are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.
(ii) Grants related to income
Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.
(12) Investment property
Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.
Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as a separate itemsitem if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of theday-to-day servicing are recognized in profit or loss as incurred.
Investment property except for land, are depreciated on a straight-line basis over 15~40 years as estimated useful lives.
Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.
(13) Impairment ofnon-financial assets
The carrying amounts of the Group’snon-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets andnon-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying apre-tax discount rate that reflectreflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
An impairment loss is recognized in profit or loss ifto the extent the carrying amount of anthe asset or a CGU exceeds its recoverable amount.
Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwillbusiness acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(14) Leases
The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.
(i) Finance leases
At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.
The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lesseeGroup adopts for depreciable assets that are owned. If there is no reasonable certainty that the lesseeGroup will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased asset may beassets are impaired.
(ii) Operating leases
Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.
(iii) Determining whether an arrangement contains a lease
Determining whether an arrangement is, or contains, a lease shall beis based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall beis reduced as payments are made and an imputed finance charge on the liability is recognized using the purchaser’sGroup’s incremental borrowing rate of interest.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(15) Non-current assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified asnon-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with IAS 36, ‘ImpairmentImpairment of Assets’Assets.
Anon-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).
(16) Non-derivative financial liabilities
The Group classifiesnon-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.arrangement. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.
(i) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisitionissue of the financial liability are recognized in profit or loss as incurred.
(ii) Other financial liabilities
Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition.issue of the financial liability. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.
The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).
(17) Employee benefits
(i) Short-term employee benefits
Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(ii) Other long-term employee benefits
Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present valueservice. The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurementsThat benefit is discounted to determine its present value. Remeasurements are recognized throughin profit or loss in the period in which they arise.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(iii) Retirement benefits: defined contribution plans
When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.
(iv) Retirement benefits: defined benefit plans
As ofAt the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized asat present value of defined benefit obligations net of fair value of plan assets.
The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligations,obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.
Remeasurements of the net defined benefit liability, which comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability,(excluding interest) and any change in the effect of the asset ceiling (if any, excluding amounts included in net interest on the net defined benefit liability andinterest), are recognized immediately in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.
When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.
(v) Termination benefits
The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring.restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.
(18) Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall beis recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall beis treated as a separate asset.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
A provision shall beis used only for expenditures for which the provision was originally recognized.
(19) ForeignTransactions in foreign currencies
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate.Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation ofavailable-for-sale equity instruments a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.OCI.
(ii) Foreign operations
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.rate at the reporting date.
When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed tonon-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.
(20) EquityShare capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.
When the Group repurchases its share capital,own shares, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
equity being as transaction with owners.
(21) Hybrid bond
The Group recognizes a financial instrument issued by the Group as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.
(22) Revenue
Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates are recognized as a reduction of revenue.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
When two or more revenue generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of account is accounted for separately. The allocation of consideration from a revenue arrangement to its separate units of account is based on the relative fair value of each unit.
(i) Services rendered
Revenue from cellular services consists of revenue from basic charges, voice charges, data charges, data-roaming services and interconnection charges. Such revenues are recognized as services are performed. Revenues received for the activation of service are deferred and recognized over the average customer retention period.
Revenue from fixed-line services includes domestic short and long distance call charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed.
Revenue from other services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.
(ii) Goods sold
Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
(iii) Customer loyalty programs
For customer loyalty programs, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programs is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Group performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.
(iv) Bundled arrangements(23) Operating profit
WhenOperating profit is the result generated from the continuing principal revenue producing activities of the Group sells both handsetsas well as other income and wireless servicesexpenses related to subscribers, the Group recognizes these transactions separately as sales for handset salesoperating activities. Operating profit excludes net finance costs, share of profit of equity accounted investees and wireless telecommunication services.income taxes.
(23)(24) Finance income and finance costs
Finance income comprises interest income on funds invested (includingavailable-for-sale financial assets), dividend income, gains on the disposal ofavailable-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(24)(25) Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
(i) Current tax
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, andnon-taxable ornon-deductible items from the accounting profit.
(ii) Deferred tax
Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences, except for the difference associated with investments in subsidiaries and associates except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
The Group reviews the carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if (a) there is a legally enforceable right to offset the related current tax liabilities and assets, (b)and they relate to income taxes levied by the same tax authority and (c) they intendare intended to settlebe settled current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.
(25)(26) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.employees, if any.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(26) Discontinued operations
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as a discontinued operation, the comparative consolidated statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period.
(27) Recent accounting pronouncements,Standards issued but not yet adoptedeffective
The following accountingnew standards interpretations and amendments are issued and will be effective for annual periods beginning on or after January 1, 20152016 and haveearlier application is permitted; however, the Group has not beenearly adopted earlythe following new standards in preparing these consolidated financial statements.
(i) Amendments to IAS 19, ‘Employee Benefits’ – Employee contributions
Amendments to IAS 19 introduced a practical expedient to accounting for defined benefit plan, when employees or third parties pay contributions if certain criteria are met. According to the amendments, the entity is permitted to recognize those contributions as a reduction of the service cost in the period in which the related service is rendered, instead of forecast future contributions from employees or third parties and attribute them to periods or service as negative benefits. The amendment is mandatorily effective for annual periods beginning on or after July 1, 2014. Management is in the process of evaluating the impact on the adoption of the amendment.
(ii)1) IFRS 9, Financial InstrumentInstruments
IFRS 9, published in July 2014 replaceswhich will replace the existing guidance in IAS 39,Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9Measurement, is effective for annual reporting periods beginning on or after January 1, 2018, with early adoption permitted. Management isThe Group currently plans to apply IFRS 9 in the period beginning on January 1, 2018.
Adoption of IFRS 9 will generally be applied retrospectively,except for the following:
exemption allowing the Group not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes; and
Prospective application of new hedge accounting except for those specified in IFRS 9 for retrospective application such as accounting for the time value of options and the forward element of forward contracts.
Key features of IFRS 9 includes new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics, impairment model based on changes in expected credit losses, and new approach to hedge qualification and methods for assessing hedge effectiveness.
To ensure smooth implementation of IFRS 9, the Group needs to assess the financial impact of adopting IFRS 9, to formulate the accounting policy, and to design, implement and enhance the accounting system and related controls. The expected quantitative impact of adopting IFRS 9 on the Group’s financial statements cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds and economic conditions at that time as well as accounting elections and judgments that it will make in the future.
The Group plans to change the accounting process of evaluatingand internal control and to assess the financial impact on its consolidated financial statements resulting from the adoption of the new standard.
(iii) IFRS 15, Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programs. IFRS 15 is effective for annual reporting periods beginning9 by December 31, 2017. Qualitative impacts on or after January 1, 2017, with early adoption permitted. Management is in the process of evaluating the impact on theconsolidated financial statements upon adoption of the new standard.
The Group’s operating segments have been determined to be each business unit, for which the Group provides independent services and merchandise. The Group’s reportable segments are: 1) cellular services, which include cellular voice service, wireless data service and wireless internet services, and 2) fixed-line telecommunication services, which include telephone services, internet services, and leased line services. All other operating segments, which include the Group’s Internet portal services and other operations, do not meet the quantitative thresholds to be considered reportable segments andIFRS 9 are presented as Others.
Cellular services include cellular voice service, wireless data service and wireless internet services. Fixed-line telecommunication services include telephone services, internet services, and leased line services. Others include the Group’s Internet portal services, game manufacturing and other immaterial operations.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
The segment information of the Group as of and for the years ended December 31, 2012 has been retrospectively restated to exclude the discontinued operation related to Loen Entertainment, Inc. (See Note 38-(1)).
(1) Segment information as of and for the years ended December 31, 2014, 2013 and 2012 is as follows:
(In millions of won) | ||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||
Cellular services | Fixed-line telecommu- nication services | Others | Total segments | Consolidation adjustments | Consolidated amount | |||||||||||||||||||
Total revenue | ₩ | 15,248,039 | 3,119,845 | 1,884,784 | 20,252,668 | (3,088,870 | ) | 17,163,798 | ||||||||||||||||
Internal revenue | 1,720,158 | 669,925 | 698,787 | 3,088,870 | (3,088,870 | ) | — | |||||||||||||||||
External revenue | 13,527,881 | 2,449,920 | 1,185,997 | 17,163,798 | — | 17,163,798 | ||||||||||||||||||
Depreciation and amortization | 2,113,510 | 501,623 | 99,597 | 2,714,730 | — | 2,714,730 | ||||||||||||||||||
Operating income (loss) | 1,754,433 | 80,423 | (9,751 | ) | 1,825,105 | (217,279 | ) | 1,607,826 | ||||||||||||||||
Gain related to investments in subsidiaries, associates and joint ventures, net | 906,338 | |||||||||||||||||||||||
Finance income | 126,337 | |||||||||||||||||||||||
Finance costs | (386,673 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Profit from continuing operations before income tax | 2,253,828 |
(In millions of won) | ||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||
Cellular services | Fixed-line telecommu- nication services | Others | Total segments | Consolidation adjustments | Consolidated amount | |||||||||||||||||||
Total revenue | ₩ | 14,501,829 | 2,972,642 | 1,741,599 | 19,216,070 | (2,614,016 | ) | 16,602,054 | ||||||||||||||||
Internal revenue | 1,186,297 | 648,253 | 779,466 | 2,614,016 | (2,614,016 | ) | — | |||||||||||||||||
External revenue | 13,315,532 | 2,324,389 | 962,133 | 16,602,054 | — | 16,602,054 | ||||||||||||||||||
Depreciation and amortization | 2,019,531 | 522,155 | 119,937 | 2,661,623 | — | 2,661,623 | ||||||||||||||||||
Operating income (loss) | 1,986,106 | 55,625 | (30,622 | ) | 2,011,109 | (432,706 | ) | 1,578,403 | ||||||||||||||||
Gain related to investments in subsidiaries, associates and joint ventures, net | 706,509 | |||||||||||||||||||||||
Finance income | 113,392 | |||||||||||||||||||||||
Finance costs | (571,203 | ) | ||||||||||||||||||||||
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Profit from continuing operations before income tax | 1,827,101 |
SK TELECOM CO., LTD.i) Classification and Subsidiariesmeasurement of financial assets
Notes toClassification of financial assets under IFRS 9 is driven by the Consolidated Financial Statements — (Continued)
Forentity’s business model for managing financial assets and their contractual cash flows. This contains three principal classification categories: financial assets measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). Derivatives embedded in contracts where the years ended December 31, 2014, 2013host is a financial asset are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Details of the classification based on business models and 2012
(In millions of won) | ||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||
Cellular services | Fixed-line telecommu- nication services | Others | Total segments | Consolidation adjustments | Consolidated amount | |||||||||||||||||||
Total revenue | ₩ | 14,475,379 | 3,018,156 | 1,469,457 | 18,962,992 | (2,821,583 | ) | 16,141,409 | ||||||||||||||||
Internal revenue | 1,256,475 | 824,295 | 740,813 | 2,821,583 | (2,821,583 | ) | — | |||||||||||||||||
External revenue | 13,218,904 | 2,193,861 | 728,644 | 16,141,409 | — | 16,141,409 | ||||||||||||||||||
Depreciation and amortization | 1,735,193 | 578,969 | 106,966 | 2,421,128 | — | 2,421,128 | ||||||||||||||||||
Operating income (loss) | 1,683,431 | 53,115 | (6,497 | ) | 1,730,049 | 7,606 | 1,737,655 | |||||||||||||||||
Loss related to investments in subsidiaries, associates and joint ventures, net | (24,560 | ) | ||||||||||||||||||||||
Finance income | 444,558 | |||||||||||||||||||||||
Finance costs | (638,285 | ) | ||||||||||||||||||||||
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Profit from continuing operations before income tax | 1,519,368 |
Reconciliation of total segment operating income to consolidated operating income from continuing operations for the years ended December 31, 2014, 2013 and 2012contractual cash flows are as follows:
(In millions of won) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Total segment operating income | ₩ | 1,825,105 | 2,011,109 | 1,730,049 | ||||||||
Other operating income: | ||||||||||||
Fees revenues | 8,199 | 7,303 | 3,982 | |||||||||
Gain on disposal of property and equipment and intangible assets | 8,792 | 7,991 | 162,590 | |||||||||
Others(*1) | 39,480 | 59,660 | 35,272 | |||||||||
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56,471 | 74,954 | 201,844 | ||||||||||
Other operating expenses: | ||||||||||||
Impairment loss on property and equipment and intangible assets | (47,489 | ) | (13,770 | ) | (37,007 | ) | ||||||
Loss on disposal of property and equipment and intangible assets | (32,950 | ) | (267,468 | ) | (15,117 | ) | ||||||
Donations | (67,823 | ) | (82,057 | ) | (81,330 | ) | ||||||
Bad debt for accounts receivable – other | (17,943 | ) | (22,155 | ) | (30,107 | ) | ||||||
Others(*2) | (107,545 | ) | (122,210 | ) | (30,677 | ) | ||||||
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(273,750 | ) | (507,660 | ) | (194,238 | ) | |||||||
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Consolidated operating income from continuing operations | ₩ | 1,607,826 | 1,578,403 | 1,737,655 | ||||||||
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Contractual cash flow characteristics | ||||
Business model assessment | Solely payments of principal and interest | Others | ||
Hold to collect contractual cash flows | Amortized cost(*1) | FVTPL-measured at fair value(*2) | ||
Hold to collect contractual cash flows and sell financial assets | FVOCI- measured at fair value(*1) | |||
Hold to sell financial assets and others | FVTPL-measured at fair value |
(*1) |
Intersegment sales and purchases are conducted on an arms-length basis and eliminated on consolidation. Since there are no intersegment sales of inventory, there is no unrealized intersegment profit to be eliminated on consolidation. Domestic revenue for the years ended December 31, 2014, 2013 and 2012 amounts to ₩17,073 billion, ₩16,557 billion and ₩16,093 billion, respectively. Domestic non-current assets (excluding financial assets, investments in associates and joint ventures and deferred tax assets) as of December 31, 2014, 2013 and 2012 amount to ₩14,817 billion, ₩14,762 billion and ₩14,212 billion, and non-current assets outside of Korea amount to ₩278 billion, ₩1 billion and ₩680 billion, respectively.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
No single customer contributed 10% or more to the Group’s total sales for the years ended December 31, 2014, 2013 or 2012.
Though the Group is expanding into new geographic regions, as of December 31, 2014, the Group still principally operates in its domestic market in Korea.
The Group’s operating revenue by service type is as follows:
(In millions of won) | 2014 | 2013 | 2012 | |||||||||
Cellular revenue | ||||||||||||
Wireless service(*1) | ₩ | 11,010,639 | 11,001,123 | 10,591,489 | ||||||||
Cellular interconnection | 817,038 | 844,977 | 860,250 | |||||||||
Digital handset sales(*2) | 761,629 | 645,914 | 1,131,657 | |||||||||
Miscellaneous(*3) | 938,575 | 823,518 | 635,508 | |||||||||
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13,527,881 | 13,315,532 | 13,218,904 | ||||||||||
Fixed-line telecommunication services revenue | ||||||||||||
Fixed line telephone service(*4) | 467,333 | 474,430 | 485,941 | |||||||||
Fixed line interconnection | 57,401 | 78,731 | 98,460 | |||||||||
Broadband internet service(*4) | 1,152,708 | 1,023,156 | 864,955 | |||||||||
International calling service(*5) | 111,983 | 127,005 | 144,073 | |||||||||
Miscellaneous(*6) | 660,468 | 621,067 | 600,432 | |||||||||
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2,449,893 | 2,324,389 | 2,193,861 | ||||||||||
Others revenue | ||||||||||||
Commerce service(*7) | 911,487 | 742,616 | 391,894 | |||||||||
Portal service(*8) | 72,984 | 92,153 | 167,815 | |||||||||
Miscellaneous(*9) | 201,553 | 127,364 | 168,935 | |||||||||
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1,186,024 | 962,133 | 728,644 | ||||||||||
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Consolidated operating revenue | ₩ | 17,163,798 | 16,602,054 | 16,141,409 | ||||||||
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(* |
Deposits whichAs new classification requirements for financial assets under IFRS 9 are restrictedmore stringent than requirements under IAS 39, the adoption of the new standard may result in useincrease in financial assets designated as FVTPL and higher volatility in profit or loss of the Group. As of December 31, 20142016, the Group’s financial assets consist of ₩5,937,507 million of loans and 2013receivables, ₩935,885 million ofavailable-for-sale financial assets, and ₩7,368 million of financial assets at fair value through profit or loss.
A financial asset is measured at amortized cost under IFRS 9 if the asset is held by the Group to collect its contractual cash flows and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2016, the Group has ₩5,937,507 million of loans and receivables measured at amortized cost.
A financial asset is measured at FVOCI under IFRS 9 if the objective of the business model is achieved both by collecting contractual cash flows and selling financial assets; and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2016, the Group has ₩6,755 million of debt instruments classified asavailable-for-sale financial assets.
Under IFRS 9, equity instruments that are summarizednot held for trading may be irrevocably designated as follows:FVOCI on initial recognition with no recycling of amounts from OCI to profit and loss. As of December 31, 2016, the Group has ₩929,130 million ofavailable-for-sale equity instruments; and unrealized valuation gain fromavailable-for-sale equity instruments amounting to ₩296,027 million is recycled from OCI to profit or loss during the year ended December 31, 2016.
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Short-term financial instruments | ||||||||
Charitable fund(*) | ₩ | 86,000 | 76,500 | |||||
Other | 4,321 | 5,134 | ||||||
Long-term financial instruments | ||||||||
Charitable fund(*) | — | 7,500 | ||||||
Other | 612 | 89 | ||||||
Guarantee deposits | 280 | 40 | ||||||
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₩ | 91,213 | 89,263 | ||||||
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All other financial assets are measured at FVTPL. As of December 31, 2016, the Group has no debt and equity instruments designated as FVTPL using the fair value option.
ii) Classification and measurement of financial liabilities
Under IFRS 9, for the financial liabilities designated as FVTPL using the fair value option, the element of gains or losses attributable to changes in the own credit risk should normally be recognized in OCI, with the remainder recognized in profit or loss. These amounts recognized in OCI are not recycled to profit or loss even when the liability is derecognized. However, if presentation of the fair value change in respect of the liability’s credit risk in OCI results in or enlarges an accounting mismatch in profit or loss, gains and losses are entirely presented in profit or loss.
Adoption of IFRS 9 may result in decrease in profit or loss, since the amount of fair value changes that is attributable to changes in the credit risk of the liability will be presented in OCI.
As of December 31, 2016, the Group’s total financial liability amounts to ₩12,702,059 million, among which the financial liabilities designated as FVTPL using fair value option amount to ₩59,600 million. Changes in fair value on financial liabilities designated as FVTPL using fair value option amounting to ₩4,018 million was recognized as loss during the year ended December 31, 2016.
(In millions of won) | December 31, 2014 | |||||||||||
Gross amount | Allowances for impairment | Carrying amount | ||||||||||
Current assets: | ||||||||||||
Accounts receivable — trade | ₩ | 2,614,059 | (221,909 | ) | 2,392,150 | |||||||
Short-term loans | 75,199 | (687 | ) | 74,512 | ||||||||
Accounts receivable — other | 769,115 | (78,588 | ) | 690,527 | ||||||||
Accrued income | 10,134 | — | 10,134 | |||||||||
Others | 3,865 | — | 3,865 | |||||||||
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3,472,372 | (301,184 | ) | 3,171,188 | |||||||||
Non-current assets: | ||||||||||||
Long-term loans | 82,735 | (27,007 | ) | 55,728 | ||||||||
Long-term accounts receivable — other | 3,596 | — | 3,596 | |||||||||
Guarantee deposits | 285,144 | — | 285,144 | |||||||||
Long-term accounts receivable — trade | 68,536 | — | 68,536 | |||||||||
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| |||||||
440,011 | (27,007 | ) | 413,004 | |||||||||
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₩ | 3,912,383 | (328,191 | ) | 3,584,192 | ||||||||
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iii) Impairment: financial assets and contract assets
The current impairment requirements under IAS 39 are based on an ‘incurred loss model’, where the impairment exists if there is objective evidence as a result of one or more events that occurred after the initial recognition of an asset. However, IFRS 9 replaces the incurred loss model in IAS 39 with an ‘expected credit loss model’ which applies to debt instruments measured at amortized cost or at fair value through other comprehensive income.
Under IFRS 9, the Group should recognize a loss allowance or provision at an amount equal to12-month expected credit losses or lifetime expected credit losses for financial assets determined by the extent of probable
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | December 31, 2013 | |||||||||||
Gross amount | Allowances for impairment | Carrying amount | ||||||||||
Current assets: | ||||||||||||
Accounts receivable — trade | ₩ | 2,482,001 | (224,685 | ) | 2,257,316 | |||||||
Short-term loans | 80,129 | (734 | ) | 79,395 | ||||||||
Accounts receivable — other | 715,405 | (71,802 | ) | 643,603 | ||||||||
Accrued income | 11,970 | (29 | ) | 11,941 | ||||||||
Others | 2,548 | — | 2,548 | |||||||||
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3,292,053 | (297,250 | ) | 2,994,803 | |||||||||
Non-current assets: | ||||||||||||
Long-term loans | 84,176 | (26,734 | ) | 57,442 | ||||||||
Guarantee deposits | 249,600 | — | 249,600 | |||||||||
Long-term accounts receivable — trade | 13,154 | — | 13,154 | |||||||||
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346,930 | (26,734 | ) | 320,196 | |||||||||
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₩ | 3,638,983 | (323,984 | ) | 3,314,999 | ||||||||
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credit deterioration since initial recognition as explained below. Therefore, the new impairment requirements are expected to result in earlier recognition of credit losses compared to the incurred loss model of IAS 39.
Stages (*1) | Loss allowances | |||
Stage 1 | No significant increase in credit risk since initial recognition(*2) | Loss allowances are determined for the amount of the expected credit losses that result from default events that are possible within 12 months after the reporting date. | ||
Stage 2 | Significant increase in credit risk since initial recognition | Loss allowances are determined for the amount of the expected credit losses that result from all possible default events over the expected life of the financial instrument. | ||
Stage 3 | Objective evidence of credit risk impairment |
(*1) | Under IFRS 15,Revenue from Contracts with Customers (see note 3 (27) (2)), for trade receivables and contract assets arising with no significant credit risk, loss allowances are recognized at an amount equal to lifetime expected credit losses. However, for trade receivables and contract assets with a significant financing component arising under IFRS 15, the Group may choose as its accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses. In addition, for receivables under lease arrangement, the Group may choose to recognize loss allowances at an amount equal to lifetime expected credit losses. |
(*2) | The Group may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. |
IFRS 9 allows the Group to only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for purchased or originated credit-impaired financial assets at the reporting date. As of December 31, 2016, the Group has ₩5,937,507 million of carrying amount of debt instrument financial assets measured at amortized cost and ₩369,332 million as loss allowances for these assets.
iv) Hedge accounting
IFRS 9 maintains the mechanics of hedge accounting from those in IAS 39. However, IFRS 9 replaces existing rule-based requirements under IAS 39 that are complex and difficult to apply with principle based requirement focusing more on the Group’s risk management purposes and procedures. Under IFRS 9, more hedging instruments and hedged items are permitted and80%-125% effectiveness requirement is removed.
By complying with the hedging rules in IFRS 9, the Group may apply hedge accounting for transactions that currently do not meet the hedging criteria under IAS 39 thereby reducing volatility in profit or loss. As of December 31, 2016, the Group recognized the total amount of ₩2,782,026 million as hedged liabilities that applied hedge accounting and changes in fair value of cash flow hedge in the amount of ₩96,418 million was recognized in OCI for the year ended December 31, 2016.
Upon initial application of IFRS 9, the Group may choose as its accounting policy to continue to apply hedge accounting requirements under IAS 39 instead of the requirements in IFRS 9. The Group is still in the process of evaluating whether to make such accounting policy election upon adoption date.
2) IFRS 15, Revenue from Contracts with Customers
IFRS 15,Revenue from Contracts with Customers, published in May 2014 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. It replaces existing revenue recognition guidance, including IAS 18,Revenue, IAS 11,Construction Contracts, SIC 31,Revenue: Barter Transactions Involving Advertising Services, International Financial Reporting Interpretations Committee (“IFRIC”) 13, Customer Loyalty Programs, IFRIC 15,Agreements for the Construction of Real Estate, and IFRIC 18,Transfers of Assets from Customers. The Group plans to adopt IFRS 15 on January 1, 2018. In accordance with the requirements
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
in IAS 8,Accounting Policies, Changes in Accounting Estimates and Errors, and the transition guidance in IFRS 15, the Group is considering to adopt IFRS 15 using the retrospective approach. However, the Group has not yet decided whether to apply the practical expedient and which method to use in applying the practical expedient.
IAS 18 provides separate revenue recognition criteria by transaction type which include sale of goods, rendering of services, and use of entity assets by others yielding interest, royalties and dividends. However, IFRS 15 introduces a five-step model for revenue recognition that focuses on the ‘transfer of control’ rather than the ‘transfer of risks and rewards’. The steps in five-step model are as follows:
identification of the contract with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when (or as) the entity satisfies a performance obligation.
As of December 31, 2016, the Group has not yet changed its accounting process and internal controls related to revenue recognition.
The Group plans to change the accounting process and internal control and to assess the financial impact on its consolidated financial statements resulting from the adoption of IFRS 15 by December 31, 2017. The impact of accounting changes on its consolidated financial statements that may arise from the adoption of IFRS 15 is expected to include the following:
i) Identification of the separate performance obligations in the contract
A substantial portion of the Group’s revenues are generated from provision of wireless telecommunications services. IFRS 15 requires the Group to evaluate goods or services promised to customers to determine if they are performance obligations other than wireless telecommunications service that should be accounted for separately. The amount and timing of revenue recognition under IFRS 15 may be different from those under IAS 18 depending on the conclusion over the existence of separately identifiable performance obligations and the timing of satisfying each performance obligation.
ii) Allocate the transaction price to the separate performance obligations
In accordance with IFRS 15, the Group should allocate the transaction price to each performance obligation in a contract in proportion to their stand-alone selling price. The Group plans to use adjusted market assessment method for estimating the stand-alone selling price. However, in some circumstances, ‘expected cost plus a margin’ approach will be used.
iii) Incremental costs to acquire a contract
The Group has exclusive contracts with its sales agents to sell the Group’s wireless telecommunications services to subscribers. These agents receive commissions depending on the number of subscribers newly added and retained. The commissions paid to the agents constitute a significant portion of the Group’s operating expenses. Currently, the portion of these commissions that would not have been incurred if there have been no binding contracts with the subscribers are expensed.
Under IFRS 15, incremental costs to acquire a contract and certain costs to fulfill a contract are capitalized and amortized over the period the goods and services are delivered. However, as a practical expedient, the Group plans to expense the incremental cost as incurred if the amortization period of the contract acquisition and fulfillment cost is considered to be not longer than one year.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
3) IFRS 16, Leases
IFRS 16, published in January 2016, replaces the existing guidance in IAS 17,Leases. IFRS 16 eliminates the current dual accounting model for lessees, which distinguishes betweenon-balance sheet finance leases andoff-balance sheet operating leases. Instead, there is a single,on-balance sheet accounting model that is similar to current finance lease accounting. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, with early adoption permitted. As of December 31, 2016, management is in the process of evaluating the impact of applying IFRS 16 on its financial position and results of operations.
4. | Operating Segments |
The Group’s operating segments have been identified to be each business unit, by which the Group provides independent services and merchandise. The Group’s reportable segments are cellular services, which include cellular voice service, wireless data service and wireless internet services; fixed-line telecommunication services, which include telephone services, internet services, and leased line services;e-commerce services, which include online commerce services; and all other businesses, which include the Group’s internet portal services and other immaterial operations, each of which does not meet the quantitative threshold to be considered as a reportable segment and are presented collectively as others. In 2016, the Group separately reported information about thee-commerce services operating segment as a reportable segment due to the significance of its reported segment results. Information fore-commerce services segment for 2015 and 2014, which was previously included in “other” segment, has been recasted to separately presente-commerce services segment information.
(1) Segment information for the years ended December 31, 2016, 2015 and 2014 is as follows:
(In millions of won) | ||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||
Cellular Services | Fixed-line telecommu- nication services | E-commerce Services | Others | Sub-total | Adjustments | Total | ||||||||||||||||||||||
Total revenue | ₩ | 14,635,720 | 3,349,905 | 1,177,323 | 726,374 | 19,889,322 | (2,797,506 | ) | 17,091,816 | |||||||||||||||||||
Inter-segment revenue | 1,630,811 | 698,712 | 176,007 | 291,976 | 2,797,506 | (2,797,506 | ) | — | ||||||||||||||||||||
External revenue | 13,004,909 | 2,651,193 | 1,001,316 | 434,398 | 17,091,816 | — | 17,091,816 | |||||||||||||||||||||
Depreciation and amortization | 2,262,363 | 551,811 | 68,298 | 59,414 | 2,941,886 | — | 2,941,886 | |||||||||||||||||||||
Operating profit (loss) | 1,799,127 | 132,459 | (365,194 | ) | (30,648 | ) | 1,535,744 | (232,326 | ) | 1,303,418 | ||||||||||||||||||
Gain relating to investments in subsidiaries, associates and joint ventures, net | 544,501 | |||||||||||||||||||||||||||
Finance income | 575,050 | |||||||||||||||||||||||||||
Finance costs | (326,830 | ) | ||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Profit before income tax | 2,096,139 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(In millions of won) | ||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||
Cellular Services | Fixed-line telecommu- nication services | E-commerce Services | Others | Sub-total | Adjustments | Total | ||||||||||||||||||||||
Total revenue | ₩ | 14,962,689 | 3,162,712 | 1,703,278 | 410,265 | 20,238,944 | (3,102,210 | ) | 17,136,734 | |||||||||||||||||||
Inter-segment revenue | 1,693,411 | 668,139 | 643,299 | 97,361 | 3,102,210 | (3,102,210 | ) | — | ||||||||||||||||||||
External revenue | 13,269,278 | 2,494,573 | 1,059,979 | 312,904 | 17,136,734 | — | 17,136,734 | |||||||||||||||||||||
Depreciation and amortization | 2,174,819 | 531,106 | 112,537 | 26,833 | 2,845,295 | — | 2,845,295 | |||||||||||||||||||||
Operating profit (loss) | 1,678,339 | 108,252 | (6,740 | ) | (71,845 | ) | 1,708,006 | (212,581 | ) | 1,495,425 | ||||||||||||||||||
Gain relating to investments in subsidiaries, associates and joint ventures, net | 786,140 | |||||||||||||||||||||||||||
Finance income | 103,900 | |||||||||||||||||||||||||||
Finance costs | (350,100 | ) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Profit before income tax | 2,035,365 |
(In millions of won) | 2014 | |||||||||||||||||||||||||||
Cellular Services | Fixed-line telecommu- nication services | E-commerce Services | Others | Sub-total | Adjustments | Total | ||||||||||||||||||||||
Total revenue | ₩ | 15,248,039 | 3,119,845 | 1,577,000 | 307,784 | 20,252,668 | (3,088,870 | ) | 17,163,798 | |||||||||||||||||||
Inter-segment revenue | 1,720,158 | 669,925 | 604,968 | 93,819 | 3,088,870 | (3,088,870 | ) | — | ||||||||||||||||||||
External revenue | 13,527,881 | 2,449,920 | 972,032 | 213,965 | 17,163,798 | — | 17,163,798 | |||||||||||||||||||||
Depreciation and amortization | 2,113,510 | 501,623 | 79,650 | 19,947 | 2,714,730 | — | 2,714,730 | |||||||||||||||||||||
Operating profit (loss) | 1,754,433 | 80,423 | 9,817 | (19,568 | ) | 1,825,105 | (217,279 | ) | 1,607,826 | |||||||||||||||||||
Gain relating to investments in subsidiaries, associates and joint ventures, net | 906,338 | |||||||||||||||||||||||||||
Finance income | 126,337 | |||||||||||||||||||||||||||
Finance costs | (386,673 | ) | ||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Profit before income tax | 2,253,828 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(2) | Reconciliation of total segment operating income to consolidated operating profit from continuing operations for the years ended December 31, 2016, 2015 and 2014 are as follows: |
(In millions of won) | 2016 | 2015 | 2014 | |||||||||
Total segment operating income | ₩ | 1,535,744 | 1,708,006 | 1,825,105 | ||||||||
Other operating income: | ||||||||||||
Fees revenues | 573 | — | 8,199 | |||||||||
Gain on disposal of property and equipment and intangible assets | 6,908 | 7,140 | 8,792 | |||||||||
Others(*1) | 59,067 | 23,795 | 39,480 | |||||||||
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|
| |||||||
66,548 | 30,935 | 56,471 | ||||||||||
Other operating expenses: | ||||||||||||
Impairment loss on property and equipment and intangible assets | (24,506 | ) | (35,845 | ) | (47,489 | ) | ||||||
Loss on disposal of property and equipment and intangible assets | (63,797 | ) | (21,392 | ) | (32,950 | ) | ||||||
Donations | (96,633 | ) | (72,454 | ) | (67,823 | ) | ||||||
Bad debt for accounts receivable — other | (40,312 | ) | (15,323 | ) | (17,943 | ) | ||||||
Others(*2) | (73,626 | ) | (98,502 | ) | (107,545 | ) | ||||||
|
|
|
|
|
| |||||||
(298,874 | ) | (243,516 | ) | (273,750 | ) | |||||||
|
|
|
|
|
| |||||||
Consolidated operating profit from continuing operations | ₩ | 1,303,418 | 1,495,425 | 1,607,826 | ||||||||
|
|
|
|
|
|
(*1) | Others for the year ended December 31, 2016 include ₩0.9 billion and ₩25 billion of V.A.T refund and penalty refund, respectively, and Others for the years ended December 31, 2015 and 2014 include V.A.T refund of ₩2.1 billion and ₩8.1 billion, respectively. |
(*2) | Others for the years ended December 31, 2016, 2015 and 2014 include ₩7.6 billion, ₩29.5 billion and ₩54.7 billion of penalties, respectively, and various other expenses with inconsequential amounts. |
Since there are no intersegment sales of inventory or depreciable assets, there is no unrealized intersegment profit to be eliminated on consolidation. Domestic revenue for the years ended December 31, 2016, 2015 and 2014 amounts to ₩16,940 billion, ₩17,083 billion and ₩17,073 billion, respectively. Domesticnon-current assets (excluding financial assets, investments in associates and joint ventures and deferred tax assets) as of December 31, 2016, 2015 and 2014 amount to ₩15,949 billion, ₩14,474 billion and ₩14,817 billion, andnon-current assets outside of Korea amount to ₩286 billion, ₩287 billion and ₩278 billion, respectively.
No single customer contributed 10% or more to the Group’s total sales for the years ended December 31, 2016, 2015 and 2014.
The Group principally operates its businesses in Korea and the revenue amounts earned outside of Korea are immaterial. Therefore, no entity-wide geographical information is presented.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(3) | The |
(In millions of won) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Cellular revenue: | ||||||||||||
Wireless service(*1) | ₩ | 10,582,963 | 10,720,518 | 11,010,639 | ||||||||
Cellular interconnection | 614,446 | 710,026 | 817,038 | |||||||||
Wireless device sales | 922,449 | 963,354 | 761,629 | |||||||||
Miscellaneous(*2) | 885,051 | 875,380 | 938,575 | |||||||||
|
|
|
|
|
| |||||||
13,004,909 | 13,269,278 | 13,527,881 | ||||||||||
Fixed-line telecommunication services revenue: | ||||||||||||
Fixed line telephone service | 357,754 | 420,611 | 467,333 | |||||||||
Fixed line interconnection | 134,089 | 57,130 | 57,401 | |||||||||
Broadband internet service and advanced media platform service | 1,472,776 | 1,308,789 | 1,152,708 | |||||||||
International calling service | 95,986 | 99,106 | 111,983 | |||||||||
Miscellaneous(*3) | 590,588 | 608,937 | 660,495 | |||||||||
|
|
|
|
|
| |||||||
2,651,193 | 2,494,573 | 2,449,920 | ||||||||||
E-commerce services revenue(*4) | 1,001,316 | 1,059,979 | 972,032 | |||||||||
Other revenue: | ||||||||||||
Portal service(*5) | 54,177 | 71,812 | 80,265 | |||||||||
Miscellaneous(*6) | 380,221 | 241,092 | 133,700 | |||||||||
|
|
|
|
|
| |||||||
434,398 | 312,904 | 213,965 | ||||||||||
|
|
|
|
|
| |||||||
Consolidated operating revenue | ₩ | 17,091,816 | 17,136,734 | 17,163,798 | ||||||||
|
|
|
|
|
|
(*1) | Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees. |
(*2) | Miscellaneous cellular services revenue includes revenue from IoT solutions platform services as well as other miscellaneous cellular services. |
(*3) | Miscellaneous fixed-line telecommunication services revenue includes revenues from business communications services (other than fixed-line telephone service) provided by SK Broadband and VoIP services provided by SK Telink. |
(*4) | E-commerce service revenue includes revenue from 11st, an online open marketplace platform, and O2O commerce solutions. |
(*5) | Portal service revenue includes revenues from Nate, and online portal service operated by SK Communications, and Cyworld, a social networking service formerly operated by SK Communications. In March 2014, the Cyworld business wasspun-off into an unaffiliated company. |
(*6) | Miscellaneous other revenue includes revenues from hardware business, security business operated by one of the Group’s subsidiaries, Neosnetworks, and an online open marketplace for mobile applications among other operations. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
5. | Restricted Deposits |
Deposits which are restricted in use as of December 31, 2016 and 2015 are summarized as follows:
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Short-term financial instruments(*) | ₩ | 90,278 | 82,469 | |||||
Long-term financial instruments(*) | 937 | 10,596 | ||||||
|
|
|
| |||||
₩ | 91,215 | 93,065 | ||||||
|
|
|
|
(*) | Financial instruments include charitable trust fund established by the Group where profits from the fund are donated to charitable institutions. As of December 31, 2016, the funds cannot be withdrawn before maturity. |
6. | Trade and Other Receivables |
(1) | Details of trade and other receivables as of December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||||||
December 31, 2016 | ||||||||||||
Gross amount | Allowances for doubtful accounts | Carrying amount | ||||||||||
Current assets: | ||||||||||||
Accounts receivable — trade | ₩ | 2,482,502 | (241,576 | ) | 2,240,926 | |||||||
Short-term loans | 59,526 | (547 | ) | 58,979 | ||||||||
Accounts receivable — other | 1,200,421 | (78,977 | ) | 1,121,444 | ||||||||
Accrued income | 2,780 | — | 2,780 | |||||||||
Others | 3,937 | — | 3,937 | |||||||||
|
|
|
|
|
| |||||||
3,749,166 | (321,100 | ) | 3,428,066 | |||||||||
Non-current assets: | ||||||||||||
Long-term loans | 113,456 | (47,980 | ) | 65,476 | ||||||||
Long-term accounts receivable — other | 149,669 | — | 149,669 | |||||||||
Guarantee deposits | 298,964 | — | 298,964 | |||||||||
Long-term accounts receivable — trade | 20,637 | (252 | ) | 20,385 | ||||||||
|
|
|
|
|
| |||||||
582,726 | (48,232 | ) | 534,494 | |||||||||
|
|
|
|
|
| |||||||
₩ | 4,331,892 | (369,332 | ) | 3,962,560 | ||||||||
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(In millions of won) | ||||||||||||
December 31, 2015 | ||||||||||||
Gross amount | Allowances for doubtful accounts | Carrying amount | ||||||||||
Current assets: | ||||||||||||
Accounts receivable — trade | ₩ | 2,583,558 | (238,691 | ) | 2,344,867 | |||||||
Short-term loans | 54,377 | (482 | ) | 53,895 | ||||||||
Accounts receivable — other | 752,731 | (78,992 | ) | 673,739 | ||||||||
Accrued income | 10,753 | — | 10,753 | |||||||||
Others | 1,861 | — | 1,861 | |||||||||
|
|
|
|
|
| |||||||
3,403,280 | (318,165 | ) | 3,085,115 | |||||||||
Non-current assets: | ||||||||||||
Long-term loans | 87,501 | (25,047 | ) | 62,454 | ||||||||
Long-term accounts receivable — other | 2,420 | — | 2,420 | |||||||||
Guarantee deposits | 297,281 | — | 297,281 | |||||||||
Long-term accounts receivable — trade | 46,047 | (804 | ) | 45,243 | ||||||||
|
|
|
|
|
| |||||||
433,249 | (25,851 | ) | 407,398 | |||||||||
|
|
|
|
|
| |||||||
₩ | 3,836,529 | (344,016 | ) | 3,492,513 | ||||||||
|
|
|
|
|
|
(2) | Changes in allowances for doubtful accounts of trade and other receivables |
(In millions of won) | ||||||||||||||||
2014 | 2013 | 2016 | 2015 | |||||||||||||
Balance at January 1 | ₩ | 323,984 | 300,668 | ₩ | 344,016 | 328,191 | ||||||||||
Increase of bad debt allowances | 63,697 | 79,330 | ||||||||||||||
Reversal of allowances for doubtful accounts | — | (359 | ) | |||||||||||||
Bad debt expense | 78,132 | 75,773 | ||||||||||||||
Write-offs | (89,529 | ) | (76,697 | ) | (79,891 | ) | (87,798 | ) | ||||||||
Collection of receivables previously written-off | 29,213 | 30,361 | ||||||||||||||
Net exchange differences and changes in consolidation scope | 826 | (9,319 | ) | |||||||||||||
Other | 27,075 | 27,850 | ||||||||||||||
|
|
|
| |||||||||||||
Balance at December 31 | ₩ | 328,191 | 323,984 | ₩ | 369,332 | 344,016 | ||||||||||
|
|
|
|
(3) | Details of overdue but not impaired, and impaired trade and other |
(In millions of won) | ||||||||||||||||||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||
Accounts receivable — trade | Other receivables | Accounts receivable — trade | Other receivables | Accounts receivable — trade | Other receivables | Accounts receivable — trade | Other receivables | |||||||||||||||||||||||||
Neither overdue nor impaired | ₩ | 1,831,243 | 1,089,001 | 1,882,607 | 938,131 | ₩ | 1,715,966 | 1,617,349 | 1,841,442 | 1,053,096 | ||||||||||||||||||||||
Overdue but not impaired | 76,671 | 3,481 | 46,773 | 2,030 | 41,613 | 5,663 | 77,008 | 5,155 | ||||||||||||||||||||||||
Impaired | 774,681 | 137,306 | 565,775 | 203,667 | 745,560 | 205,741 | 711,155 | 148,673 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
2,682,595 | 1,229,788 | 2,495,155 | 1,143,828 | 2,503,139 | 1,828,753 | 2,629,605 | 1,206,924 | |||||||||||||||||||||||||
Allowances for doubtful accounts | (221,909 | ) | (106,282 | ) | (224,685 | ) | (99,299 | ) | (241,828 | ) | (127,504 | ) | (239,495 | ) | (104,521 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
₩ | 2,460,686 | 1,123,506 | 2,270,470 | 1,044,529 | ₩ | 2,261,311 | 1,701,249 | 2,390,110 | 1,102,403 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
The Group establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(4) | The aging of overdue but not impaired accounts receivable as of December 31, |
(In millions of won) | ||||||||||||||||||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||
Accounts receivable — trade | Other receivables | Accounts receivable — trade | Other receivables | Accounts receivable — trade | Other receivables | Accounts receivable — trade | Other receivables | |||||||||||||||||||||||||
Less than 1 month | ₩ | 25,254 | 1,795 | 12,036 | 20 | ₩ | 11,543 | 2,838 | 20,908 | 2,770 | ||||||||||||||||||||||
1 ~ 3 months | 26,469 | 213 | 15,686 | 1,220 | 9,144 | 140 | 21,941 | 924 | ||||||||||||||||||||||||
3 ~ 6 months | 11,641 | 608 | 3,610 | 516 | 4,643 | 1 | 7,043 | 265 | ||||||||||||||||||||||||
More than 6 months | 13,307 | 865 | 15,441 | 274 | 16,283 | 2,684 | 27,116 | 1,196 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
₩ | 76,671 | 3,481 | 46,773 | 2,030 | ₩ | 41,613 | 5,663 | 77,008 | 5,155 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
Inventories |
Details of inventories as of December 31, 20142016 and 20132015 are as follows:
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||
Acquisition cost | Write- down of inventory | Carrying amount | Acquisition cost | Write- down of inventory | Carrying amount | Acquisition cost | Write-down | Carrying amount | Acquisition cost | Write-down | Carrying amount | |||||||||||||||||||||||||||||||||||||
Merchandise | ₩ | 252,063 | (5,325 | ) | 246,738 | 165,080 | (3,152 | ) | 161,928 | ₩ | 232,871 | (6,913 | ) | 225,958 | 247,294 | (5,064 | ) | 242,230 | ||||||||||||||||||||||||||||||
Finished goods | 1,930 | (216 | ) | 1,714 | 1,711 | (34 | ) | 1,677 | 1,931 | (363 | ) | 1,568 | 3,530 | (179 | ) | 3,351 | ||||||||||||||||||||||||||||||||
Work in process | 1,144 | (131 | ) | 1,013 | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Work-in-process | 2,895 | (347 | ) | 2,548 | 1,976 | (149 | ) | 1,827 | ||||||||||||||||||||||||||||||||||||||||
Raw materials and supplies | 19,242 | (1,040 | ) | 18,202 | 13,515 | — | 13,515 | 31,141 | (1,369 | ) | 29,772 | 27,296 | (1,148 | ) | 26,148 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
₩ | 274,379 | (6,712 | ) | 267,667 | 180,306 | (3,186 | ) | 177,120 | ₩ | 268,838 | (8,992 | ) | 259,846 | 280,096 | (6,540 | ) | 273,556 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The amount of the inventory write-downs charged to statementsthe consolidated statement of income andwrite-off of inventories are as follows:
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Charged to cost of products that have been resold | ₩ | 2,052 | 1,498 | 510 | ₩ | 3,751 | 1,983 | 2,052 | ||||||||||||||||
Write-off upon sale | (1,326 | ) | (95 | ) | (2,844 | ) | (1,299 | ) | (2,095 | ) | (1,326 | ) | ||||||||||||
|
|
| ||||||||||||||||||||||
₩ | 726 | 1,403 | (2,334 | ) | ||||||||||||||||||||
|
|
|
There are no significant reversals of inventory write-downs for the periods presented.
Investment Securities |
(1) | Details of short-term investment securities as of December 31, |
(In millions of won) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||
Beneficiary certificates(*) | ₩ | 277,003 | 102,828 | ₩ | 107,364 | 92,262 | ||||||||||
Current installments of long-term investment securities | 3,158 | 3,240 | ||||||||||||||
|
| |||||||||||||||
₩ | 280,161 | 106,068 | ||||||||||||||
|
|
(*) | The |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(2) Details of long-term investment securities as of December 31, 2016 and 2015 are as follows:
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Equity securities: | ||||||||
Marketable equity securities | ₩ | 657,286 | 638,445 | |||||
Unlisted equity securities(*1) | 56,236 | 47,145 | ||||||
Equity investments(*2) | 209,120 | 239,354 | ||||||
|
|
|
| |||||
922,642 | 924,944 | |||||||
Debt securities: | ||||||||
Public bonds(*3) | 158 | 356 | ||||||
Investment bonds(*4) | 36,638 | 46,467 | ||||||
|
|
|
| |||||
36,796 | 46,823 | |||||||
|
|
|
| |||||
Total | 959,438 | 971,767 | ||||||
Less current installments of long-term investment securities | (3,158 | ) | (3,240 | ) | ||||
|
|
|
| |||||
Long-term investment securities | ₩ | 956,280 | 968,527 | |||||
|
|
|
|
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Equity securities: | ||||||||
Marketable equity securities(*1) | ₩ | 526,363 | 897,958 | |||||
Unlisted equity securities(*2) | 95,300 | 96,899 | ||||||
Equity investments(*2) | 200,103 | 207,916 | ||||||
|
|
|
| |||||
821,766 | 1,202,773 | |||||||
Debt securities: | ||||||||
Investment bonds | 6,755 | 4,453 | ||||||
|
|
|
| |||||
₩ | 828,521 | 1,207,226 | ||||||
|
|
|
|
(*1) | During the year ended December 31, 2016, the Group sold 3,793,756 shares of Loen Entertainment, Inc. to Kakao Corp. in exchange for 1,357,367 shares of Kakao Corp. and ₩218,037 million in cash. In connection with the sale of Loen Entertainment shares, the Group recognized gain on disposal of long-term investment securities amounting to ₩314,745 million. |
The Group recognized gain on disposal amounting to ₩138,779 million as the Group disposed its entire marketable equity securities of POSCO Co., Ltd. for ₩305,110 million of cash during the year ended December 31, 2016. |
(*2) | Unlisted equity securities and equity investments whose fair value cannot be measured reliably are recorded at cost. |
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Less than 1 year | ₩ | 158 | 356 |
(1) Subsidiary
During the year ended December 31, 2014, the Group entered into a disposal contract regarding the Group’s ownership interests in Shenzhen E-eye High TechOn April 1, 2015, Neosnetworks Co., Ltd., a subsidiary of the Parent Company’s subsidiary. AssetsCompany, acquired an unmanned machine security business of Joeun Safe Co., Ltd., which provides security and liabilitiesmaintenance services, in order to expand infrastructure and enhance competitiveness of its security business.
The Group recognized the subsidiary amounting to ₩10,510 million and ₩408 million, were reclassified toacquired assets and liabilities held for sale, respectively,at fair value and the carrying amount in excess ofdifference between the consideration and fair value less cost to sell was recognizedof net assets as impairment loss.goodwill.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
2) | Considerations paid and identifiable assets acquired and liabilities assumed |
(2) InvestmentsConsiderations paid and assets in associates
Non-current assets held for sale relating to investments in associates as of December 31, 2014 and 2013succession recognized at the acquisition date are as follows:
(In millions of won) | ||||||||
| ||||||||
Cash and cash equivalents | ₩ | |||||||
| ||||||||
|
| |||||||
₩ | ||||||||
|
| |||||||
Assets acquired: | ||||||||
Property and equipment | ₩ | 3,208 | ||||||
Intangible assets | 8,486 | |||||||
Other assets | 1,603 | |||||||
₩ | 13,297 | |||||||
|
|
(1) |
The Parent Company acquired the ownership interests of Neosnetworks Co., Ltd., IRIVER LIMITED and shopkick, Inc. and they were newly included in the list of subsidiaries duringDuring the year ended December 31, 2014.
On April 2, 2014,2016, the Parent Company acquired thedistributed its entire ownership interest of 66.7% ofinterests in Neosnetworks Co., Ltd., which manages facility guarding services, in order to secure new growth engine in physical security market and obtained the control over NeosnetworksSK Telink Co., Ltd.
Neosnetworks Co., Ltd. recognized revenue of ₩25,743 million and loss of ₩2,277 million, respectively, from the acquisition date to December 31, 2014.
On August 13, 2014, the Parent Company obtained ownership interests of 39.3% by acquiring 10,241,722 shares of IRIVER LIMITED from investment companies in order to develop smart phone applications and media devices such as Bluetooth speakers and ear phones for future growth and additionally acquired 4,960,317 shares by participating in the capital increase. As of the end of December 31, 2014, the Parent Company has the ownership interest of 49% of IRIVER LIMITED. After the Group acquired control over IRIVER LIMITED, IRIVER LIMITED has recognized revenue of ₩16,311 million and a net profit of ₩4,066 million.
On October 10, 2014, shopkick Management Company, Inc., of which SKP America LLC., a subsidiary of the Parent Company hasas contribution in kind. Neosnetworks Co., Ltd. became a wholly owned subsidiary of SK Telink Co., Ltd. As this transaction is a business combination under common control, SK Telink Co., Ltd. recognized the ownership interest of 95.2%, obtained control over shopkick, Inc. by purchasing the ownership interest of 100% of shopkick, Inc. for the purpose of acquiring the platform of its mobile commerce business in the United States and expansionbook value of the Group’s global market position.assets and liabilities of Neosnetworks Co., Ltd. in its financial statements. There’s no effect on the assets and liabilities of the consolidated financial statements.
(2) | 2015 |
During the year ended December 31, 2015, hoppin service division of SK Planet Co., Ltd., a subsidiary of the Parent Company, was spun off from SK Planet Co., Ltd. and was merged into SK Broadband, Co., Ltd., a subsidiary of the Parent Company. There is no impact on the consolidated financial statements as it is a business combination under common control.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 2012
Consideration paid and identifiable assets acquired and liabilities assumed recognized at the acquisition date are as follows:
(In millions of won) | ||||||||||||
Neosnetworks Co., Ltd. | IRIVER LIMITED | shopkick, Inc. | ||||||||||
Consideration paid | ||||||||||||
Cash and cash equivalents | ₩ | 23,968 | 29,503 | 230,925 | ||||||||
Other current liabilities | — | — | 18,686 | |||||||||
Long-term payables — other (*) | 14,500 | — | — | |||||||||
|
|
|
|
|
| |||||||
38,468 | 29,503 | 249,611 | ||||||||||
|
|
|
|
|
| |||||||
Fair value of assets acquired and liabilities assumed | ||||||||||||
Cash and cash equivalents | ₩ | 16,631 | 3,098 | 13,881 | ||||||||
Accounts receivable — trade, net | 111 | 11,687 | 6,541 | |||||||||
Inventories, net | — | 11,780 | 727 | |||||||||
Property, equipment and intangible assets | 11,489 | 3,153 | 81,972 | |||||||||
Other assets | 1,289 | 6,824 | 6,236 | |||||||||
Accounts payable — trade | (3,411 | ) | (7,113 | ) | (796 | ) | ||||||
Borrowings and debentures | (2,150 | ) | (2,293 | ) | — | |||||||
Other liabilities | (3,305 | ) | (6,268 | ) | (13,008 | ) | ||||||
|
|
|
|
|
| |||||||
₩ | 20,654 | 20,868 | 95,553 | |||||||||
|
|
|
|
|
| |||||||
Controlling interests | 20,654 | 8,193 | 91,006 | |||||||||
Non-controlling interests | — | 12,675 | 4,547 |
PS&Marketing Corporation, a subsidiary of the Parent Company, acquired the retail distribution business of IT service department of SK Networks Co., Ltd. on April 30, 2014 in order to strengthen the mid/long-term distribution competitiveness by expanding the retail infrastructure and enlarging the direct management network.
Revenues and profit or loss recognized after the acquisition date by the acquired businesses of PS&Marketing Corporation are not disclosed as the estimate is practically impossible.
In January 2013, the Parent Company acquired 50% ownership interest in SK Marketing & Company Co., Ltd., advertising and e-commerce agency, from SK Innovation Co., Ltd., a related party under common control, through the additional purchase of shares and obtained control over SK Marketing & Company Co., Ltd., and its subsidiary, M&Service Co., Ltd.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
After obtaining control over SK Marketing & Company Co., Ltd, the Parent Company acquired the shares of SK Planet Co., Ltd. by investing its ownership interest of 100% of SK Marketing & Company Co., Ltd. as a form of investment in kind. On February 1, 2013, SK Planet Co., Ltd. merged with SK Marketing & Company Co., Ltd.
As the business combination which occurred during the years ended December 31, 2014 and 2013 was a business combination between entities under common control, the difference between the consideration and book value of net assets was recognized as a capital deficit and other capital adjustments.
(In millions of won) | ||||||||
2014 | 2013 | |||||||
Consideration paid | ||||||||
Cash and cash equivalents | ₩ | 111,330 | 190,605 | |||||
Investments in associates (carrying value) | — | 141,534 | ||||||
Accounts payables — other | 13,156 | — | ||||||
|
|
|
| |||||
124,486 | 332,139 | |||||||
Assets and liabilities transferred | ||||||||
Cash and cash equivalents | — | 95,800 | ||||||
Accounts receivable — trade | 57,760 | 132,514 | ||||||
Inventories | 94,441 | 3,472 | ||||||
Property and equipment, and intangible assets | 13,010 | 68,699 | ||||||
Other assets | 23,281 | 457,431 | ||||||
Accounts payable — trade and other | (78,821 | ) | (150,014 | ) | ||||
Other liabilities | (13,826 | ) | (337,617 | ) | ||||
|
|
|
| |||||
95,845 | 270,285 | |||||||
|
|
|
| |||||
Amount recorded in capital surplus and other capital adjustments | ₩ | 28,641 | 61,854 | |||||
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
Investments in Associates and Joint Ventures |
(1) | Investments in associates and joint ventures accounted for using the equity method as of December 31, |
(In millions of won) | December 31, 2014 | December 31, 2013 | ||||||||||||||||
Country | Ownership percentage | Carrying amount | Ownership percentage | Carrying amount | ||||||||||||||
Investments in associates | ||||||||||||||||||
SK China Company Ltd.(*1) | China | 9.6 | ₩ | 35,817 | 9.6 | ₩ | 37,434 | |||||||||||
Korea IT Fund(*2) | Korea | 63.3 | 240,676 | 63.3 | 231,402 | |||||||||||||
Etoos Co., Ltd. (*3) | Korea | — | — | 15.6 | 12,029 | |||||||||||||
KEB HanaCard Co., Ltd.(*4) | Korea | 25.4 | 425,140 | 49.0 | 378,616 | |||||||||||||
Candle Media Co., Ltd.(*5) | Korea | 35.1 | 19,486 | 40.9 | 21,241 | |||||||||||||
NanoEnTek, Inc.(*6) | Korea | 26.0 | 36,527 | 9.2 | 9,312 | |||||||||||||
SK Industrial Development China Co., Ltd. | Hong Kong | 21.0 | 79,394 | 21.0 | 77,517 | |||||||||||||
Packet One Network(*1, 5) | Malaysia | 13.6 | 53,670 | 27.0 | 60,706 | |||||||||||||
SK Technology Innovation Company | Cayman | 49.0 | 44,052 | 49.0 | 53,874 | |||||||||||||
HappyNarae Co., Ltd. | Korea | 42.5 | 15,551 | 42.5 | 13,935 | |||||||||||||
SK hynix Inc.(*7) | Korea | 20.1 | 4,849,159 | 20.6 | 3,943,232 | |||||||||||||
SK MENA Investment B.V. | Netherlands | 32.1 | 14,015 | 32.1 | 13,477 | |||||||||||||
SKY Property Mgmt. Ltd. | Virgin Island | 33.0 | 248,534 | 33.0 | 238,278 | |||||||||||||
Xinan Tianlong Science and Technology Co., Ltd. | China | 49.0 | 25,874 | 49.0 | 26,562 | |||||||||||||
Daehan Kanggun BcN Co., Ltd. and others | — | — | 158,725 | — | 164,976 | |||||||||||||
|
|
|
| |||||||||||||||
Sub-total | 6,246,620 | 5,282,591 | ||||||||||||||||
|
|
|
| |||||||||||||||
Investments in joint ventures | ||||||||||||||||||
Dogus Planet, Inc.(*8) | Turkey | 50.0 | 11,441 | 50.0 | 10,105 | |||||||||||||
PT. Melon Indonesia | Indonesia | 49.0 | 3,564 | 49.0 | 3,230 | |||||||||||||
Television Media Korea Ltd. | Korea | 51.0 | 6,944 | 51.0 | 8,659 | |||||||||||||
Celcom Planet(*9) | Malaysia | 51.0 | 16,605 | — | — | |||||||||||||
PT XL Planet Digital | Indonesia | 50.0 | 12,914 | 50.0 | 20,712 | |||||||||||||
Sub-total | 51,468 | 42,706 | ||||||||||||||||
Total | ₩ | 6,298,088 | ₩ | 5,325,297 | ||||||||||||||
|
|
|
|
(In millions of won) | December 31, 2016 | December 31, 2015 | ||||||||||||||||
Country | Ownership (%) | Carrying amount | Ownership (%) | Carrying amount | ||||||||||||||
Investments in associates: | ||||||||||||||||||
SK China Company Ltd.(*1) | China | 9.6 | ₩ | 46,354 | 9.6 | ₩ | 43,814 | |||||||||||
Korea IT Fund(*2) | Korea | 63.3 | 263,850 | 63.3 | 260,456 | |||||||||||||
KEB HanaCard Co., Ltd.(*1) | Korea | 15.0 | 265,798 | 15.0 | 254,177 | |||||||||||||
Candle Media Co., Ltd.(*3) | Korea | — | — | 35.1 | 20,144 | |||||||||||||
NanoEnTek, Inc. | Korea | 28.5 | 39,514 | 28.6 | 45,008 | |||||||||||||
SK Industrial Development China Co., Ltd. | Hong Kong | 21.0 | 74,717 | 21.0 | 86,324 | |||||||||||||
SK Technology Innovation Company | Cayman Islands | 49.0 | 47,488 | 49.0 | 45,891 | |||||||||||||
HappyNarae Co., Ltd. | Korea | 42.5 | 17,236 | 42.5 | 17,095 | |||||||||||||
SK hynix Inc. | Korea | 20.1 | 6,132,122 | 20.1 | 5,624,493 | |||||||||||||
SK MENA Investment B.V. | Netherlands | 32.1 | 15,451 | 32.1 | 14,929 | |||||||||||||
SKY Property Mgmt. Ltd. | Virgin Island | 33.0 | 263,225 | 33.0 | 251,166 | |||||||||||||
Xinan Tianlong Science and Technology Co., Ltd. | China | 49.0 | 25,880 | 49.0 | 25,767 | |||||||||||||
Daehan Kanggun BcN Co., Ltd. and others | — | — | 127,174 | — | 161,058 | |||||||||||||
|
|
|
| |||||||||||||||
Sub-total | 7,318,809 | 6,850,322 | ||||||||||||||||
|
|
|
| |||||||||||||||
Investments in joint ventures: | ||||||||||||||||||
Dogus Planet, Inc.(*4,5) | Turkey | 50.0 | 20,081 | 50.0 | 15,118 | |||||||||||||
PT. Melon Indonesia(*3,5) | Indonesia | — | — | 49.0 | 4,339 | |||||||||||||
Celcom Planet(*2,4,5) | Malaysia | 51.0 | 2,851 | 51.0 | 3,406 | |||||||||||||
PT XL Planet Digital(*4,5) | Indonesia | 50.0 | 27,512 | 50.0 | 23,108 | |||||||||||||
Finnq Co. Ltd.(*6) | Korea | 49.0 | 24,174 | — | — | |||||||||||||
12CM GLOBAL PTE. LTD.(*7) | Singapore | 62.7 | 10,896 | — | — | |||||||||||||
|
|
|
| |||||||||||||||
Sub-total | 85,514 | 45,971 | ||||||||||||||||
|
|
|
| |||||||||||||||
₩ | 7,404,323 | ₩ | 6,896,293 | |||||||||||||||
|
|
|
|
(*1) |
(*2) |
(*3) |
(*4) |
(*5) | The ownership |
(*6) | Investment in Finnq Co. Ltd., a company newly established and changed its name from HanaSK Fintech Co., Ltd. to |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(* | The |
(2) | The market price of investments in listed associates as of December 31, |
(In millions of won, except for share and per share data) | ||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of won, except for share data) | (In millions of won, except for share data) | |||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||
Market value per share (In won) | Number of shares | Market price | Market value per share (In won) | Number of shares | Market price | Market value per share (in won) | Number of shares | Fair value | Market value per share (in won) | Number of shares | Fair value | |||||||||||||||||||||||||||||||||||||
Candle Media Co., Ltd. | ₩ | 734 | 21,620,360 | 15,869 | 810 | 21,620,360 | 17,512 | ₩ | — | — | — | 1,170 | 21,620,360 | 25,296 | ||||||||||||||||||||||||||||||||||
NanoEnTek, Inc. | 5,710 | 5,870,290 | 33,519 | 5,170 | 1,807,130 | 9,343 | 5,020 | 6,960,445 | 34,941 | 7,300 | 6,960,445 | 50,811 | ||||||||||||||||||||||||||||||||||||
SK hynix Inc. | 47,750 | 146,100,000 | 6,976,275 | 36,800 | 146,100,000 | 5,376,480 | 44,700 | 146,100,000 | 6,530,670 | 30,750 | 146,100,000 | 4,492,575 |
(3) | The financial information of |
(In millions of won) | As of and for the year ended December 31, 2014 | |||||||||||||||||||||||
SK hynix Inc. | KEB HanaCard Co., Ltd. | |||||||||||||||||||||||
SK hynix Inc. | KEB HanaCard Co., Ltd.(*) | SKY Property Mgmt. Ltd. | Korea IT Fund | As of December 31, 2016 | ||||||||||||||||||||
Current assets | ₩ | 10,363,514 | 6,716,612 | 172,775 | 122,026 | ₩ | 9,838,982 | 6,868,387 | ||||||||||||||||
Non-current assets | 16,519,764 | 568,065 | 667,560 | 258,144 | 22,377,044 | 239,758 | ||||||||||||||||||
Current liabilities | 5,765,304 | 848,140 | 62,868 | — | 4,160,849 | 1,219,327 | ||||||||||||||||||
Non-current liabilities | 3,081,671 | 5,109,888 | 242,116 | — | 4,031,647 | 4,476,979 | ||||||||||||||||||
2016 | ||||||||||||||||||||||||
Revenue | 17,125,566 | 305,756 | 81,502 | 18,883 | 17,197,975 | 1,413,077 | ||||||||||||||||||
Profit (loss) from continuing operations | 4,195,169 | (11,196 | ) | 15,006 | 5,470 | |||||||||||||||||||
Profit for the year | 2,960,483 | 75,595 | ||||||||||||||||||||||
Other comprehensive income (loss) | (52,360 | ) | (734 | ) | (6,090 | ) | 4,837 | 28,844 | (154 | ) | ||||||||||||||
Total comprehensive income (loss) | 4,142,809 | (11,930 | ) | 8,916 | 10,307 | |||||||||||||||||||
Total comprehensive income | 2,989,327 | 75,441 |
(In millions of won) | ||||||||
SK hynix Inc. | KEB HanaCard Co., Ltd. | |||||||
As of December 31, 2015 | ||||||||
Current assets | ₩ | 9,760,030 | 6,228,076 | |||||
Non-current assets | 19,917,876 | 509,579 | ||||||
Current liabilities | 4,840,698 | 1,103,873 | ||||||
Non-current liabilities | 3,449,505 | 4,297,289 | ||||||
2015 | ||||||||
Revenue | 18,797,998 | 1,472,830 | ||||||
Profit for the year | 4,323,595 | 10,119 | ||||||
Other comprehensive income (loss) | 40,215 | (547 | ) | |||||
Total comprehensive income | 4,363,810 | 9,572 |
(In millions of won) | As of and for the year ended December 31, 2013 | |||||||||||||||
SK hynix Inc. | HanaSK Card Co., Ltd. | SKY Property Mgmt. Ltd. | Korea IT Fund | |||||||||||||
Current assets | ₩ | 6,653,123 | 4,687,020 | 106,122 | 132,968 | |||||||||||
Non-current assets | 14,144,175 | 211,376 | 695,653 | 232,566 | ||||||||||||
Current liabilities | 3,078,240 | 2,053,942 | 137,544 | 6 | ||||||||||||
Non-current liabilities | 4,652,200 | 2,155,165 | 163,540 | — | ||||||||||||
Revenue | 14,165,102 | 853,506 | 76,834 | 8,161 | ||||||||||||
Profit from continuing operations | 2,872,857 | 3,521 | 14,408 | 2,128 | ||||||||||||
Other comprehensive income | 6,594 | 1,906 | 55,403 | — | ||||||||||||
Total comprehensive income | 2,879,451 | 5,427 | 69,811 | 2,128 |
(In millions of won) | ||||||||
SK hynix Inc. | KEB HanaCard Co., Ltd. | |||||||
2014 | ||||||||
Revenue | ₩ | 17,125,566 | 305,756 | |||||
Profit for the year | 4,195,169 | (11,196 | ) | |||||
Other comprehensive income (loss) | (52,360 | ) | (734 | ) | ||||
Total comprehensive income (loss) | 4,142,809 | (11,930 | ) |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(4) | The condensed financial information of joint ventures as of December 31, 2016 and 2015 and for the years ended December 31, |
(In millions of won) | As of and for the year ended December 31, 2014 | |||||||||||||||||||||||||||||||||||||||
Dogus Planet, Inc. | PT XL Planet Digital | Celcom Planet | Finnq Co. Ltd. | 12CM GLOBAL PTE. LTD. | ||||||||||||||||||||||||||||||||||||
Television Media Korea Ltd. | Dogus Planet, Inc. | PT. Melon Indonesia | PT XL Planet Digital | Celcom Planet | As of December 31, 2016 | |||||||||||||||||||||||||||||||||||
Current assets | ₩ | 16,252 | 38,641 | 10,022 | 9,241 | 30,407 | ₩ | 46,433 | 20,077 | 13,445 | 48,699 | 12,061 | ||||||||||||||||||||||||||||
Cash and cash equivalents | 5,104 | 6 | 4,763 | 6,710 | 30,400 | 45,839 | 14,985 | 11,771 | 48,408 | 12,061 | ||||||||||||||||||||||||||||||
Non-current assets | 4,543 | 13,011 | 3,094 | 14,589 | 3,343 | 20,218 | 50,765 | 7,341 | 673 | 727 | ||||||||||||||||||||||||||||||
Current liabilities | 7,188 | 28,406 | 5,689 | 4,198 | 1,182 | 26,417 | 14,513 | 15,196 | 138 | 725 | ||||||||||||||||||||||||||||||
Account payable, other payables and provisions | 265 | 3,648 | — | — | — | |||||||||||||||||||||||||||||||||||
Accounts payable, other payables and provision | 1,971 | 10,306 | 9,406 | 15 | — | |||||||||||||||||||||||||||||||||||
Non-current liabilities | 464 | 377 | 102 | 124 | — | 72 | 1,305 | — | 784 | — | ||||||||||||||||||||||||||||||
Account payable, other payables and provisions | 464 | 377 | — | 124 | — | |||||||||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||||||||||
Revenue | 16,403 | 23,897 | 11,826 | 1,019 | — | 53,864 | 9,492 | 6,511 | — | — | ||||||||||||||||||||||||||||||
Depreciation and amortization | (3,732 | ) | (2,402 | ) | (928 | ) | (1,452 | ) | (1 | ) | (5,299 | ) | (940 | ) | (2,150 | ) | (12 | ) | — | |||||||||||||||||||||
Interest income | 254 | 1,154 | 268 | — | — | 394 | 267 | 134 | 182 | — | ||||||||||||||||||||||||||||||
Interest expense | — | (6 | ) | — | — | — | (2,139 | ) | — | — | — | — | ||||||||||||||||||||||||||||
Income tax expense | — | — | — | (5,334 | ) | — | ||||||||||||||||||||||||||||||||||
Profit (loss) from continuing operations | (3,361 | ) | (37,146 | ) | 523 | (15,596 | ) | (1,479 | ) | |||||||||||||||||||||||||||||||
Total comprehensive income (loss) | (3,361 | ) | (37,146 | ) | 523 | (15,596 | ) | (1,479 | ) | |||||||||||||||||||||||||||||||
Income tax benefit | — | 51 | — | — | — | |||||||||||||||||||||||||||||||||||
Loss for the period | (22,017 | ) | (49,438 | ) | (41,742 | ) | (829 | ) | (22 | ) | ||||||||||||||||||||||||||||||
Total comprehensive loss | (22,017 | ) | (49,438 | ) | (41,742 | ) | (829 | ) | (22 | ) |
(In millions of won) | As of and for the year ended December 31, 2013 | (In millions of won) | ||||||||||||||||||||||||||||||
Dogus Planet, Inc. | PT. Melon Indonesia | PT XL Planet Digital | Celcom Planet | |||||||||||||||||||||||||||||
Television Media Korea Ltd. | Dogus Planet, Inc. | PT. Melon Indonesia | PT XL Planet Digital | As of December 31, 2015 | ||||||||||||||||||||||||||||
Current assets | ₩ | 18,106 | 25,508 | 7,423 | 31,241 | ₩ | 46,248 | 12,805 | 9,500 | 21,416 | ||||||||||||||||||||||
Cash and cash equivalents | 14,532 | 10,723 | 4,428 | 30,288 | 8,091 | 4,027 | 5,034 | 19,371 | ||||||||||||||||||||||||
Non-current assets | 5,143 | 9,935 | 1,658 | 5,801 | 18,088 | 2,657 | 46,013 | 5,519 | ||||||||||||||||||||||||
Current liabilities | 6,385 | 15,471 | 2,338 | 2,133 | 34,022 | 6,416 | 8,583 | 20,257 | ||||||||||||||||||||||||
Account payable, other payables and provisions | 6,385 | 15,386 | 2,338 | 2,133 | ||||||||||||||||||||||||||||
Account payable, other payables and provision | 4,317 | 3,396 | 3,648 | 5,889 | ||||||||||||||||||||||||||||
Non-current liabilities | 359 | 142 | 100 | 14 | 78 | 140 | 714 | — | ||||||||||||||||||||||||
Account payable, other payables and provisions | 359 | 1 | — | 14 | ||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||
Revenue | 14,139 | 7,509 | 7,475 | — | 38,944 | 17,094 | 5,536 | 1,647 | ||||||||||||||||||||||||
Depreciation and amortization | (4,004 | ) | (1,315 | ) | (397 | ) | (84 | ) | (5,318 | ) | (132 | ) | (2,746 | ) | (1,332 | ) | ||||||||||||||||
Interest income | 410 | 1,598 | 289 | 357 | 465 | 288 | 525 | 345 | ||||||||||||||||||||||||
Interest expense | — | (29 | ) | — | (3 | ) | ||||||||||||||||||||||||||
Income tax expense | — | — | — | (513 | ) | |||||||||||||||||||||||||||
Profit (loss) from continuing operations | (6,021 | ) | (29,278 | ) | (575 | ) | �� | 3,606 | ||||||||||||||||||||||||
Income tax benefit | — | — | 7,025 | — | ||||||||||||||||||||||||||||
Profit (Loss) for the year | (32,713 | ) | 1,853 | (21,381 | ) | (25,881 | ) | |||||||||||||||||||||||||
Total comprehensive income (loss) | (6,021 | ) | (29,278 | ) | (575 | ) | 3,606 | (32,713 | ) | 1,853 | (21,381 | ) | (25,881 | ) |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||||||
Television Media Korea Ltd. | Dogus Planet, Inc. | PT. Melon Indonesia | PT XL Planet Digital | Celcom Planet | ||||||||||||||||
2014 | ||||||||||||||||||||
Revenue | ₩ | 16,403 | 23,897 | 11,826 | 1,019 | — | ||||||||||||||
Depreciation and amortization | (3,732 | ) | (2,402 | ) | (928 | ) | (1,452 | ) | (1 | ) | ||||||||||
Interest income | 254 | 1,154 | 268 | — | — | |||||||||||||||
Interest expense | — | (6 | ) | — | — | — | ||||||||||||||
Income tax benefit | — | — | — | 5,334 | — | |||||||||||||||
Profit (loss) for the year | (3,361 | ) | (37,146 | ) | 523 | (15,596 | ) | (1,479 | ) | |||||||||||
Total comprehensive income (loss) | (3,361 | ) | (37,146 | ) | 523 | (15,596 | ) | (1,479 | ) |
(5) | Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of December 31, |
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||
December 31, 2014 | December 31, 2016 | |||||||||||||||||||||||||||||||||||||||
Net assets | Ownership interests (%) | Net assets attributable to the ownership interests | Cost-book value differentials | Carrying amount | Net assets | Ownership interests (%) | Net assets attributable to the ownership interests | Cost-book value differentials | Carrying amount | |||||||||||||||||||||||||||||||
Associates: | ||||||||||||||||||||||||||||||||||||||||
SK hynix Inc.(*) | ₩ | 18,036,453 | 20.1 | 3,619,666 | 1,229,493 | 4,849,159 | ||||||||||||||||||||||||||||||||||
SK hynix Inc.(*1,2) | ₩ | 24,016,955 | 20.1 | 4,970,267 | 1,161,855 | 6,132,122 | ||||||||||||||||||||||||||||||||||
KEB HanaCard Co., Ltd. | 1,326,649 | 25.4 | 337,266 | 87,874 | 425,140 | 1,411,839 | 15.0 | 211,776 | 54,022 | 265,798 | ||||||||||||||||||||||||||||||
SKY Property Mgmt. Ltd.(*) | 527,479 | 33.0 | 174,068 | 74,466 | 248,534 | |||||||||||||||||||||||||||||||||||
SKY Property Mgmt. Ltd.(*1) | 576,785 | 33.0 | 190,339 | 72,886 | 263,225 | |||||||||||||||||||||||||||||||||||
Korea IT Fund | 380,170 | 63.3 | 240,676 | — | 240,676 | 416,606 | 63.3 | 263,850 | — | 263,850 |
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||
December 31, 2013 | December 31, 2015 | |||||||||||||||||||||||||||||||||||||||
Net assets | Ownership interests (%) | Net assets attributable to the ownership interests | Cost-book value differentials | Carrying amount | Net assets | Ownership interests (%) | Net assets attributable to the ownership interests | Cost-book value differentials | Carrying amount | |||||||||||||||||||||||||||||||
Associates: | ||||||||||||||||||||||||||||||||||||||||
SK hynix Inc.(*) | ₩ | 13,066,474 | 20.6 | 2,687,806 | 1,255,426 | 3,943,232 | ||||||||||||||||||||||||||||||||||
Hana SK Card Co., Ltd. | 689,290 | 49.0 | 337,752 | 40,864 | 378,616 | |||||||||||||||||||||||||||||||||||
SKY Property Mgmt. Ltd.(*) | 494,004 | 33.0 | 163,021 | 75,257 | 238,278 | |||||||||||||||||||||||||||||||||||
SK hynix Inc.(*1,2) | ₩ | 21,386,863 | 20.1 | 4,425,794 | 1,198,699 | 5,624,493 | ||||||||||||||||||||||||||||||||||
KEB HanaCard Co., Ltd. | 1,336,493 | 15.0 | 200,474 | 53,703 | 254,177 | |||||||||||||||||||||||||||||||||||
SKY Property Mgmt. Ltd.(*1) | 537,847 | 33.0 | 177,490 | 73,676 | 251,166 | |||||||||||||||||||||||||||||||||||
Korea IT Fund | 365,528 | 63.3 | 231,402 | — | 231,402 | 411,246 | 63.3 | 260,456 | — | 260,456 |
(* |
(*2) | The ownership interest is based on the number of shares owned by the Parent |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(6) | Details of the changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, |
(In millions of won) | 2014 | |||||||||||||||||||||||||||
Beginning balance | Acquisition and disposition | Share of profits (losses) | Other compre- hensive income (loss) | Impair- ment loss | Other increase (decrease) | Ending balance | ||||||||||||||||||||||
Investments in associates | ||||||||||||||||||||||||||||
SK China Company Ltd. | ₩ | 37,434 | — | (365 | ) | (1,252 | ) | — | — | 35,817 | ||||||||||||||||||
Korea IT Fund | 231,402 | — | 3,243 | 6,031 | — | — | 240,676 | |||||||||||||||||||||
Etoos Co., Ltd. | 12,029 | — | 346 | — | — | (12,375 | ) | — | ||||||||||||||||||||
KEB HanaCard Co., Ltd. | 378,616 | — | (739 | ) | (2,031 | ) | — | 49,294 | 425,140 | |||||||||||||||||||
Candle Media Co., Ltd. | 21,241 | — | (1,701 | ) | (54 | ) | — | — | 19,486 | |||||||||||||||||||
NanoEnTek, Inc. | 9,312 | 7,778 | 284 | (27 | ) | — | 19,180 | 36,527 | ||||||||||||||||||||
SK Industrial Development China Co., Ltd. | 77,517 | — | (791 | ) | 2,668 | — | — | 79,394 | ||||||||||||||||||||
Packet One Network | 60,706 | — | (11,845 | ) | 4,809 | — | — | 53,670 | ||||||||||||||||||||
SK Technology Innovation Company | 53,874 | — | (9,822 | ) | — | — | — | 44,052 | ||||||||||||||||||||
HappyNarae Co., Ltd. | 13,935 | — | 1,688 | (72 | ) | — | — | 15,551 | ||||||||||||||||||||
SK hynix Inc. | 3,943,232 | — | 916,486 | (10,559 | ) | — | — | 4,849,159 | ||||||||||||||||||||
SK MENA Investment B.V. | 13,477 | — | (4 | ) | 542 | — | — | 14,015 | ||||||||||||||||||||
SKY Property Mgmt. Ltd. | 238,278 | — | 3,438 | 6,818 | — | — | 248,534 | |||||||||||||||||||||
Xinan Tianlong Science and Technology Co., Ltd. | 26,562 | — | (688 | ) | — | — | — | 25,874 | ||||||||||||||||||||
Daehan Kanggun BcN Co., Ltd. and others | 164,976 | 14,172 | (18,126 | ) | 1,324 | (2,363 | ) | (1,258 | ) | 158,725 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 5,282,591 | 21,950 | 881,404 | 8,197 | (2,363 | ) | 54,841 | 6,246,620 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Investments in joint ventures | ||||||||||||||||||||||||||||
Dogus Planet, Inc. | 10,105 | 19,677 | (18,573 | ) | 232 | — | — | 11,441 | ||||||||||||||||||||
PT. Melon Indonesia | 3,230 | — | 256 | 78 | — | — | 3,564 | |||||||||||||||||||||
Television Media Korea Ltd. | 8,659 | — | (1,715 | ) | — | — | — | 6,944 | ||||||||||||||||||||
Celcom Planet | — | 17,433 | (656 | ) | — | — | (172 | ) | 16,605 | |||||||||||||||||||
PT XL Planet Digital | 20,712 | — | (7,798 | ) | — | — | — | 12,914 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 42,706 | 37,110 | (28,486 | ) | 310 | — | (172 | ) | 51,468 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | ₩ | 5,325,297 | 59,060 | 852,918 | 8,507 | (2,363 | ) | 54,669 | 6,298,088 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | 2013 | |||||||||||||||||||||||||||
Beginning balance | Acquisition and disposition | Share of profits (losses) | Other compre- hensive income (loss) | Impair- ment loss | Other increase (decrease) | Ending balance | ||||||||||||||||||||||
Investments in associates | ||||||||||||||||||||||||||||
SK Marketing & Company Co., Ltd.(*1) | ₩ | 145,333 | — | (3,954 | ) | 155 | — | (141,534 | ) | — | ||||||||||||||||||
SK China Company Ltd. | 37,628 | — | (7,643 | ) | 7,449 | — | — | 37,434 | ||||||||||||||||||||
Korea IT Fund | 230,016 | — | 1,348 | 38 | — | — | 231,402 | |||||||||||||||||||||
JYP Entertainment Corporation(*2) | 4,232 | — | 1,000 | 58 | — | (5,290 | ) | — | ||||||||||||||||||||
Etoos Co., Ltd. | 12,037 | — | 56 | (64 | ) | — | — | 12,029 | ||||||||||||||||||||
HanaSK Card Co., Ltd. | 378,457 | — | (612 | ) | 771 | — | — | 378,616 | ||||||||||||||||||||
Candle Media Co., Ltd. | 21,935 | — | (782 | ) | 88 | — | — | 21,241 | ||||||||||||||||||||
NanoEnTek, Inc. | 9,276 | — | 25 | 11 | — | — | 9,312 | |||||||||||||||||||||
SK Industrial Development China Co., Ltd. | 77,967 | — | (1,037 | ) | 587 | — | — | 77,517 | ||||||||||||||||||||
Packet One Network | 88,389 | 25 | (2,367 | ) | (1,843 | ) | (23,498 | ) | — | 60,706 | ||||||||||||||||||
SK Technology Innovation Company | 63,559 | — | (9,108 | ) | (577 | ) | — | — | 53,874 | |||||||||||||||||||
ViKi, Inc.(*3) | 15,667 | (14,636 | ) | (995 | ) | (36 | ) | — | — | — | ||||||||||||||||||
HappyNarae Co., Ltd. | 13,113 | — | 822 | — | — | — | 13,935 | |||||||||||||||||||||
SK hynix Inc. | 3,328,245 | — | 610,201 | 4,786 | — | — | 3,943,232 | |||||||||||||||||||||
SK MENA Investment B.V. | 13,666 | — | — | (189 | ) | — | — | 13,477 | ||||||||||||||||||||
SKY Property Mgmt. Ltd.(*4) | — | — | 5,532 | 43 | — | 232,703 | 238,278 | |||||||||||||||||||||
Xinan Tianlong Science and Technology Co., Ltd. | — | 25,731 | 831 | — | — | — | 26,562 | |||||||||||||||||||||
Daehan Kanggun BcN Co., Ltd. and others | 170,747 | 26,257 | (17,899 | ) | (4,291 | ) | (5,547 | ) | (4,291 | ) | 164,976 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 4,610,267 | 37,377 | 575,418 | 6,986 | (29,045 | ) | 81,588 | 5,282,591 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Investments in joint ventures | ||||||||||||||||||||||||||||
Dogus Planet, Inc. | 6,006 | 21,428 | (13,027 | ) | (4,302 | ) | — | — | 10,105 | |||||||||||||||||||
PT. Melon Indonesia | 4,447 | — | (282 | ) | (935 | ) | — | — | 3,230 | |||||||||||||||||||
Television Media Korea Ltd. | 11,757 | — | (3,098 | ) | — | — | — | 8,659 | ||||||||||||||||||||
PT XL Planet Digital | — | 19,713 | 1,549 | — | — | (550 | ) | 20,712 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 22,210 | 41,141 | (14,858 | ) | (5,237 | ) | — | (550 | ) | 42,706 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | ₩ | 4,632,477 | 78,518 | 560,560 | 1,749 | (29,045 | ) | 81,038 | 5,325,297 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||
Beginning balance | Acquisition and disposition | Share of profit (loss) | Other compre- hensive income (loss) | Impair- ment loss | Other increase (decrease) | Ending balance | ||||||||||||||||||||||
Investments in associates: | ||||||||||||||||||||||||||||
SK China Company Ltd. | ₩ | 43,814 | — | 2,257 | 283 | — | — | 46,354 | ||||||||||||||||||||
Korea IT Fund(*1) | 260,456 | — | 14,864 | (5,388 | ) | — | (6,082 | ) | 263,850 | |||||||||||||||||||
KEB HanaCard Co., Ltd. | 254,177 | — | 11,658 | (37 | ) | — | — | 265,798 | ||||||||||||||||||||
Candle Media Co., Ltd. | 20,144 | (18,860 | ) | (673 | ) | (611 | ) | — | — | — | ||||||||||||||||||
NanoEnTek, Inc. | 45,008 | — | (3,950 | ) | (1,544 | ) | — | — | 39,514 | |||||||||||||||||||
SK Industrial Development China Co., Ltd. | 86,324 | — | (6,298 | ) | (5,309 | ) | — | — | 74,717 | |||||||||||||||||||
SK Technology Innovation Company | 45,891 | — | 162 | 1,435 | — | — | 47,488 | |||||||||||||||||||||
HappyNarae Co., Ltd. | 17,095 | — | 240 | (99 | ) | — | — | 17,236 | ||||||||||||||||||||
SK hynix Inc.(*1) | 5,624,493 | — | 572,086 | 8,593 | — | (73,050 | ) | 6,132,122 | ||||||||||||||||||||
SK MENA Investment B.V. | 14,929 | — | 63 | 459 | — | — | 15,451 | |||||||||||||||||||||
SKY Property Mgmt. Ltd. | 251,166 | — | 16,066 | (4,007 | ) | — | — | 263,225 | ||||||||||||||||||||
Xinan Tianlong Science and Technology Co., Ltd. | 25,767 | — | 113 | — | — | — | 25,880 | |||||||||||||||||||||
Daehan Kanggun BcN Co., Ltd. and others | 161,058 | (14,659 | ) | (13,325 | ) | 754 | (6,972 | ) | 318 | 127,174 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 6,850,322 | (33,519 | ) | 593,263 | (5,471 | ) | (6,972 | ) | (78,814 | ) | 7,318,809 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Investments in joint ventures: |
| |||||||||||||||||||||||||||
Dogus Planet, Inc. | 15,118 | 18,722 | (11,008 | ) | (2,751 | ) | — | — | 20,081 | |||||||||||||||||||
PT. Melon Indonesia(*2) | 4,339 | (3,488 | ) | 918 | (1,769 | ) | — | — | — | |||||||||||||||||||
Celcom Planet | 3,406 | 20,734 | (21,289 | ) | — | — | — | 2,851 | ||||||||||||||||||||
PT XL Planet Digital | 23,108 | 29,123 | (24,719 | ) | — | — | — | 27,512 | ||||||||||||||||||||
Finnq Co. Ltd | — | 24,580 | (406 | ) | — | — | — | 24,174 | ||||||||||||||||||||
12CM GLOBAL PTE. LTD. | — | 10,896 | — | — | — | — | 10,896 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 45,971 | 100,567 | (56,504 | ) | (4,520 | ) | — | — | 85,514 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | ₩ | 6,896,293 | 67,048 | 536,759 | (9,991 | ) | (6,972 | ) | (78,814 | ) | 7,404,323 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) |
(*2) |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||
Beginning balance | Acquisition and disposition | Share of profit (loss) | Other compre- hensive income (loss) | Impair- ment loss | Other increase (decrease) | Ending balance | ||||||||||||||||||||||
Investments in associates: | ||||||||||||||||||||||||||||
SK China Company Ltd. | ₩ | 35,817 | — | 4,361 | 3,636 | — | — | 43,814 | ||||||||||||||||||||
Korea IT Fund(*) | 240,676 | — | 11,971 | 9,912 | — | (2,103 | ) | 260,456 | ||||||||||||||||||||
KEB HanaCard Co., Ltd. | 425,140 | (174,475 | ) | 3,275 | 237 | — | — | 254,177 | ||||||||||||||||||||
Candle Media Co., Ltd. | 19,486 | — | 550 | 70 | — | 38 | 20,144 | |||||||||||||||||||||
NanoEnTek, Inc. | 36,527 | 10,000 | (1,649 | ) | 130 | — | — | 45,008 | ||||||||||||||||||||
SK Industrial Development China Co., Ltd. | 79,394 | — | 3,380 | 3,550 | — | — | 86,324 | |||||||||||||||||||||
Packet One Network | 53,670 | — | (8,714 | ) | (3,030 | ) | — | (41,926 | ) | — | ||||||||||||||||||
SK Technology Innovation Company | 44,052 | — | (2,907 | ) | 4,746 | — | — | 45,891 | ||||||||||||||||||||
HappyNarae Co., Ltd. | 15,551 | — | 1,589 | (45 | ) | — | — | 17,095 | ||||||||||||||||||||
SK hynix Inc.(*) | 4,849,159 | — | 842,086 | (22,922 | ) | — | (43,830 | ) | 5,624,493 | |||||||||||||||||||
SK MENA Investment B.V. | 14,015 | — | 3 | 911 | — | — | 14,929 | |||||||||||||||||||||
SKY Property Mgmt. Ltd. | 248,534 | — | 6,408 | (3,776 | ) | — | — | 251,166 | ||||||||||||||||||||
Xinan Tianlong Science and Technology Co., Ltd. | 25,874 | — | (107 | ) | — | — | — | 25,767 | ||||||||||||||||||||
Daehan Kanggun BcN Co., Ltd. and others(*) | 158,725 | 12,320 | (15,726 | ) | 1,689 | (1,305 | ) | 5,355 | 161,058 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 6,246,620 | (152,155 | ) | 844,520 | (4,892 | ) | (1,305 | ) | (82,466 | ) | 6,850,322 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Investments in joint ventures: | ||||||||||||||||||||||||||||
Dogus Planet, Inc. | 11,441 | 16,419 | (16,357 | ) | 3,615 | — | — | 15,118 | ||||||||||||||||||||
PT. Melon Indonesia | 3,564 | — | 908 | (133 | ) | — | — | 4,339 | ||||||||||||||||||||
Television Media Korea Ltd. | 6,944 | (6,712 | ) | (232 | ) | — | — | — | — | |||||||||||||||||||
Celcom Planet | 16,605 | — | (13,199 | ) | — | — | — | 3,406 | ||||||||||||||||||||
PT XL Planet Digital | 12,914 | 20,884 | (10,690 | ) | — | — | — | 23,108 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Sub-total | 51,468 | 30,591 | (39,570 | ) | 3,482 | — | — | 45,971 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | ₩ | 6,298,088 | (121,564 | ) | 804,950 | (1,410 | ) | (1,305 | ) | (82,466 | ) | 6,896,293 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won) | Unrealized loss | Unrealized change in equity | ||||||||||||||
Year ended December 31, 2014 | Accumulated | Year ended December 31, 2014 | Accumulated | |||||||||||||
ULand Company Limited | ₩ | 178 | 1,731 | 34 | 31 | |||||||||||
Wave City Development Co., Ltd. and others | 1,508 | 5,229 | — | 334 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 1,686 | 6,960 | 34 | 365 | ||||||||||||
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||
December 31, 2014 | ||||||||||||||||
Acquisition cost | Accumulated depreciation | Accumulated impairment loss | Carrying amount | |||||||||||||
Land | ₩ | 766,780 | — | — | 766,780 | |||||||||||
Buildings | 1,537,042 | (603,175 | ) | — | 933,867 | |||||||||||
Structures | 737,494 | (384,705 | ) | — | 352,789 | |||||||||||
Machinery | 27,088,067 | (19,775,784 | ) | (1,468 | ) | 7,310,815 | ||||||||||
Other | 1,461,201 | (960,450 | ) | (1,701 | ) | 499,050 | ||||||||||
Construction in progress | 704,400 | — | — | 704,400 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 32,294,984 | (21,724,114 | ) | (3,169 | ) | 10,567,701 | ||||||||||
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||
December 31, 2013 | ||||||||||||||||
Acquisition cost | Accumulated depreciation | Accumulated impairment loss | Carrying amount | |||||||||||||
Land | ₩ | 732,206 | — | — | 732,206 | |||||||||||
Buildings | 1,510,846 | (554,155 | ) | — | 956,691 | |||||||||||
Structures | 716,724 | (351,773 | ) | — | 364,951 | |||||||||||
Machinery | 24,994,337 | (18,145,580 | ) | (1,698 | ) | 6,847,059 | ||||||||||
Other | 1,428,159 | (894,217 | ) | (761 | ) | 533,181 | ||||||||||
Construction in progress | 762,519 | — | — | 762,519 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 30,144,791 | (19,945,725 | ) | (2,459 | ) | 10,196,607 | ||||||||||
|
|
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||
Beginning balance | Acquisition | Disposal | Transfer | Depreciation | Impair- ment | Classified as held for sale | Business combination | Ending balance | ||||||||||||||||||||||||||||
Land | ₩ | 732,206 | 8,306 | (12 | ) | 24,178 | — | — | — | 2,102 | 766,780 | |||||||||||||||||||||||||
Buildings | 956,691 | 5,862 | (451 | ) | 16,885 | (48,745 | ) | — | — | 3,625 | 933,867 | |||||||||||||||||||||||||
Structures | 364,951 | 8,909 | (39 | ) | 11,919 | (32,951 | ) | — | — | — | 352,789 | |||||||||||||||||||||||||
Machinery | 6,847,059 | 572,764 | (28,101 | ) | 1,979,590 | (2,065,368 | ) | (2,879 | ) | (6 | ) | 7,756 | 7,310,815 | |||||||||||||||||||||||
Other | 533,181 | 1,124,067 | (6,188 | ) | (1,022,999 | ) | (135,213 | ) | (49 | ) | (245 | ) | 6,496 | 499,050 | ||||||||||||||||||||||
Construction in progress | 762,519 | 1,101,691 | (11,277 | ) | (1,147,666 | ) | — | (691 | ) | (176 | ) | — | 704,400 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
₩ | 10,196,607 | 2,821,599 | (46,068 | ) | (138,093 | ) | (2,282,277 | ) | (3,619 | ) | (427 | ) | 19,979 | 10,567,701 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||
Beginning balance | Acquisition | Disposal | Transfer | Depreciation | Impairment | Change of consolidation scope | Ending balance | |||||||||||||||||||||||||
Land | ₩ | 704,908 | 6,865 | (200 | ) | 15,545 | — | — | 5,088 | 732,206 | ||||||||||||||||||||||
Buildings | 886,371 | 1,128 | (177 | ) | 112,827 | (47,429 | ) | — | 3,971 | 956,691 | ||||||||||||||||||||||
Structures | 363,484 | 17,850 | (18 | ) | 17,001 | (33,366 | ) | — | — | 364,951 | ||||||||||||||||||||||
Machinery | 6,316,192 | 582,593 | (13,183 | ) | 1,951,267 | (1,990,850 | ) | — | 1,040 | 6,847,059 | ||||||||||||||||||||||
Other | 637,212 | 1,190,739 | (7,032 | ) | (1,157,150 | ) | (133,682 | ) | — | 3,094 | 533,181 | |||||||||||||||||||||
Construction in progress | 804,552 | 1,113,576 | (31,146 | ) | (1,131,703 | ) | — | (1,275 | ) | 8,515 | 762,519 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
₩ | 9,712,719 | 2,912,751 | (51,756 | ) | (192,213 | ) | (2,205,327 | ) | (1,275 | ) | 21,708 | 10,196,607 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||
Unrecognized loss(profit) | Unrecognized change in equity | |||||||||||||||
Year ended December 31, 2016 | Cumulative loss | Year ended December 31, 2016 | Cumulative loss | |||||||||||||
Wave City Development Co., Ltd. | ₩ | (1,248 | ) | 3,290 | — | — | ||||||||||
Daehan Kanggun BcN Co., Ltd. and others | 4,281 | 10,791 | — | 365 | ||||||||||||
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| |||||||||
₩ | 3,033 | 14,081 | — | 365 | ||||||||||||
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(1) |
(In millions of won) | ||||||||||||||||||||||||||||
December 31, 2014 | December 31, 2016 | |||||||||||||||||||||||||||
Acquisition cost | Accumulated depreciation | Carrying amount | Acquisition cost | Accumulated depreciation | Accumulated impairment loss | Carrying amount | ||||||||||||||||||||||
Land | ₩ | 10,418 | — | 10,418 | ₩ | 835,909 | — | — | 835,909 | |||||||||||||||||||
Buildings | 7,379 | (2,800 | ) | 4,579 | 1,604,863 | (704,891 | ) | — | 899,972 | |||||||||||||||||||
Structures | 812,010 | (453,055 | ) | — | 358,955 | |||||||||||||||||||||||
Machinery | 29,705,088 | (22,667,047 | ) | (1,991 | ) | 7,036,050 | ||||||||||||||||||||||
Other | 1,701,794 | (1,138,303 | ) | (457 | ) | 563,034 | ||||||||||||||||||||||
Construction in progress | 680,292 | — | — | 680,292 | ||||||||||||||||||||||||
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| ||||||||||||||||||||||
₩ | 17,797 | (2,800 | ) | 14,997 | ₩ | 35,339,956 | (24,963,296 | ) | (2,448 | ) | 10,374,212 | |||||||||||||||||
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(In millions of won) | ||||||||||||||||||||||||||||
December 31, 2013 | December 31, 2015 | |||||||||||||||||||||||||||
Acquisition cost | Accumulated depreciation | Carrying amount | Acquisition cost | Accumulated depreciation | Accumulated impairment loss | Carrying amount | ||||||||||||||||||||||
Land | ₩ | 10,822 | — | 10,822 | ₩ | 812,947 | — | — | 812,947 | |||||||||||||||||||
Buildings | 7,657 | (2,668 | ) | 4,989 | 1,563,069 | (651,940 | ) | — | 911,129 | |||||||||||||||||||
Structures | 763,122 | (418,901 | ) | — | 344,221 | |||||||||||||||||||||||
Machinery | 28,624,842 | (21,281,400 | ) | (1,433 | ) | 7,342,009 | ||||||||||||||||||||||
Other | 1,511,304 | (1,036,780 | ) | (1,086 | ) | 473,438 | ||||||||||||||||||||||
Construction in progress | 487,512 | — | — | 487,512 | ||||||||||||||||||||||||
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₩ | 18,479 | (2,668 | ) | 15,811 | ₩ | 33,762,796 | (23,389,021 | ) | (2,519 | ) | 10,371,256 | |||||||||||||||||
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(2) | Changes in |
(In millions of won) | (In millions of won) | (In millions of won) | ||||||||||||||||||||||||||||||||||||||||||
2014 | 2016 | |||||||||||||||||||||||||||||||||||||||||||
Beginning balance | Transfer | Depreciation | Ending balance | Beginning balance | Acquisition | Disposal | Reclassification(*) | Depreciation | Impairment | Ending balance | ||||||||||||||||||||||||||||||||||
Land | ₩ | 10,822 | (404 | ) | — | 10,418 | ₩ | 812,947 | 2,464 | (3,514 | ) | 24,012 | — | — | 835,909 | |||||||||||||||||||||||||||||
Buildings | 4,989 | (172 | ) | (238 | ) | 4,579 | 911,129 | 4,637 | (9,176 | ) | 43,910 | (50,528 | ) | — | 899,972 | |||||||||||||||||||||||||||||
Structures | 344,221 | 33,802 | (33 | ) | 15,145 | (34,180 | ) | — | 358,955 | |||||||||||||||||||||||||||||||||||
Machinery | 7,342,009 | 660,629 | (45,672 | ) | 1,234,737 | (2,152,725 | ) | (2,928 | ) | 7,036,050 | ||||||||||||||||||||||||||||||||||
Other | 473,438 | 807,047 | (6,052 | ) | (568,644 | ) | (142,700 | ) | (55 | ) | 563,034 | |||||||||||||||||||||||||||||||||
Construction in progress | 487,512 | 1,154,424 | (9,710 | ) | (951,934 | ) | — | — | 680,292 | |||||||||||||||||||||||||||||||||||
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₩ | 15,811 | (576 | ) | (238 | ) | 14,997 | ₩ | 10,371,256 | 2,663,003 | (74,157 | ) | (202,774 | ) | (2,380,133 | ) | (2,983 | ) | 10,374,212 | ||||||||||||||||||||||||||
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(In millions of won) | ||||||||||||||||
2013 | ||||||||||||||||
Beginning balance | Transfer | Depreciation | Ending balance | |||||||||||||
Land | ₩ | 12,638 | (1,816 | ) | — | 10,822 | ||||||||||
Buildings | 14,841 | (8,737 | ) | (1,115 | ) | 4,989 | ||||||||||
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₩ | 27,479 | (10,553 | ) | (1,115 | ) | 15,811 | ||||||||||
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(In millions of won) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | |||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||
Land | ₩ | 10,418 | 6,056 | 10,822 | 6,595 | |||||||||||
Buildings | 4,579 | 4,288 | 4,989 | 4,737 | ||||||||||||
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| |||||||||
₩ | 14,997 | 10,344 | 15,811 | 11,332 | ||||||||||||
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The fair value of investment property was appraised on the basis of market price by an independent appraisal company.
(In millions of won) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Rent revenue | ₩ | 896 | 1,373 | 73,755 | ||||||||
Operating expense | (239 | ) | (476 | ) | (57,049 | ) |
(In millions of won) | ||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||
Beginning balance | Acquisition | Disposal | Reclassifi- cation | Depreciation | Impairment | Business combination | Change of consolidation scope | Ending balance | ||||||||||||||||||||||||||||
Land | ₩ | 766,780 | 6,629 | (2,031 | ) | 41,569 | — | — | — | — | 812,947 | |||||||||||||||||||||||||
Buildings | 933,867 | 6,042 | (6,839 | ) | 27,500 | (49,441 | ) | — | — | — | 911,129 | |||||||||||||||||||||||||
Structures | 352,789 | 9,776 | (57 | ) | 16,104 | (34,391 | ) | — | — | — | 344,221 | |||||||||||||||||||||||||
Machinery | 7,310,815 | 645,986 | (22,518 | ) | 1,538,235 | (2,133,193 | ) | (524 | ) | 3,208 | — | 7,342,009 | ||||||||||||||||||||||||
Other | 499,050 | 786,531 | (16,721 | ) | (652,022 | ) | (143,288 | ) | (4 | ) | — | (108 | ) | 473,438 | ||||||||||||||||||||||
Construction in progress | 704,400 | 1,063,169 | (1,522 | ) | (1,271,762 | ) | — | (6,773 | ) | — | — | 487,512 | ||||||||||||||||||||||||
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₩ | 10,567,701 | 2,518,133 | (49,688 | ) | (300,376 | ) | (2,360,313 | ) | (7,301 | ) | 3,208 | (108 | ) | 10,371,256 | ||||||||||||||||||||||
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(1) |
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Goodwill related to acquisition of Shinsegi Telecom, Inc. | ₩ | 1,306,236 | 1,306,236 | |||||
Goodwill related to acquisition of SK Broadband Co., Ltd. | 358,443 | 358,443 | ||||||
Other goodwill | 252,916 | 68,582 | ||||||
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| |||||
₩ | 1,917,595 | 1,733,261 | ||||||
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(In millions of won) | ||||||||||||
December 31, 2015 | ||||||||||||
Acquisition cost | Accumulated depreciation | Carrying amount | ||||||||||
Land | ₩ | 10,634 | — | 10,634 | ||||||||
Buildings | 7,531 | (3,094 | ) | 4,437 | ||||||||
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₩ | 18,165 | (3,094 | ) | 15,071 | ||||||||
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(2) | Changes in investment properties for the years ended December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||||||||||
2016 | ||||||||||||||||
Beginning balance | Reclassification(*) | Depreciation | Ending balance | |||||||||||||
Land | ₩ | 10,634 | (10,634 | ) | — | — | ||||||||||
Buildings | 4,437 | (4,334 | ) | (103 | ) | — | ||||||||||
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₩ | 15,071 | (14,968 | ) | (103 | ) | — | ||||||||||
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(*) | Includes reclassification to property and equipment. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||
2015 | ||||||||||||||||
Beginning balance | Reclassification | Depreciation | Ending balance | |||||||||||||
Land | ₩ | 10,418 | 216 | — | 10,634 | |||||||||||
Buildings | 4,579 | 98 | (240 | ) | 4,437 | |||||||||||
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₩ | 14,997 | 314 | (240 | ) | 15,071 | |||||||||||
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(3) | Fair value of investment properties as of December 31, 2015 are as follows: |
(In millions of won) | ||||||||
December 31, 2015 | ||||||||
Carrying amount | Fair value | |||||||
Land | ₩ | 10,634 | 6,009 | |||||
Buildings | 4,437 | 4,261 | ||||||
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₩ | 15,071 | 10,270 | ||||||
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The fair value of investment properties was determined on the comparative market analysis by an independent appraisal company.
(4) | Income and expenses from investment property for the years ended December 31, 2016, 2015 and 2014 are as follows: |
(In millions of won) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Rent revenue | ₩ | 386 | 850 | 896 | ||||||||
Operating expense | (114 | ) | (240 | ) | (239 | ) |
14. | Goodwill |
(1) | Goodwill as of December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Goodwill related to acquisition of Shinsegi Telecom, Inc. | ₩ | 1,306,236 | 1,306,236 | |||||
Goodwill related to acquisition of SK Broadband Co., Ltd. | 358,443 | 358,443 | ||||||
Other goodwill | 267,773 | 243,911 | ||||||
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₩ | 1,932,452 | 1,908,590 | ||||||
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Goodwill is allocated to the following CGUs for the purpose of the impairment testing.
goodwill related to Shinsegi Telecom, Inc.(*1): cellular servicesservices;
goodwill related to SK Broadband Co., Ltd.(*2): fixed-line telecommunication servicesservices; and
Other: other goodwill: other.
(*1) | Goodwill related to acquisition of Shinsegi Telecom, Inc. |
The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 6.2%4.9% to the estimated future cash flows based on financial budgets for the next five years. An annual growth
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
rate of 1.8%0.3% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless telecommunication business growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to the reasonably possible changes from the major assumptions used to estimate the recoverable amount. Management believes that a reasonably possible change in a key assumption would not cause the CGU’s carrying amount to exceed its recoverable amount.
(*2) | Goodwill related to acquisition of SK Broadband Co., Ltd. |
The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 5.2%5.0% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 2.2%1.0%, the Group’s long-term fixed-line telecommunication business growth rate, was applied for the cash flows expected to be incurred after five years. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to the reasonably possible changes from the major assumptions used to estimate the recoverable amount. Management believes that a reasonably possible change in a key assumption would not cause the CGU’s carrying amount to exceed its recoverable amount.
(2) | Details of the changes in goodwill for the years ended December 31, |
(In millions of won) | ||||||||
2014 | 2013 | |||||||
Beginning balance | ₩ | 1,733,261 | 1,744,483 | |||||
Goodwill increase due to acquisitions | 193,202 | 1,252 | ||||||
Impairment loss | (8,868 | ) | (9,981 | ) | ||||
Other decrease(*) | — | (2,493 | ) | |||||
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₩ | 1,917,595 | 1,733,261 | ||||||
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(In millions of won) | ||||||||
2016 | 2015 | |||||||
Beginning balance | ₩ | 1,908,590 | 1,917,595 | |||||
Acquisition | 19,974 | 1,758 | ||||||
Impairment loss | — | (19,245 | ) | |||||
Other | 3,888 | 8,482 | ||||||
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| |||||
₩ | 1,932,452 | 1,908,590 | ||||||
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Accumulated impairment losses as of December 31, 20142016 and 20132015 are ₩18,849 million and ₩9,981 million, respectively.₩17,269 million.
15. | Intangible Assets |
(1) | Intangible assets as of December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||||||||||
December 31, 2016 | ||||||||||||||||
Acquisition cost | Accumulated amortization | Accumulated impairment | Carrying amount | |||||||||||||
Frequency usage rights | ₩ | 4,843,955 | (2,263,127 | ) | — | 2,580,828 | ||||||||||
Land usage rights | 65,148 | (44,314 | ) | — | 20,834 | |||||||||||
Industrial rights | 160,897 | (39,697 | ) | — | 121,200 | |||||||||||
Development costs | 141,727 | (136,446 | ) | (410 | ) | 4,871 | ||||||||||
Facility usage rights | 151,906 | (110,118 | ) | — | 41,788 | |||||||||||
Customer relations | 19,742 | (13,090 | ) | — | 6,652 | |||||||||||
Club memberships(*1) | 113,161 | — | (39,122 | ) | 74,039 | |||||||||||
Other(*2) | 3,315,921 | (2,386,992 | ) | (2,787 | ) | 926,142 | ||||||||||
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₩ | 8,812,457 | (4,993,784 | ) | (42,319 | ) | 3,776,354 | ||||||||||
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | 2014 | |||||||||||||||
Acquisition cost | Accumulated depreciation | Accumulated impairment | Carrying amount | |||||||||||||
Frequency use rights | ₩ | 3,033,879 | (1,649,835 | ) | — | 1,384,044 | ||||||||||
Land use rights | 64,136 | (38,783 | ) | — | 25,353 | |||||||||||
Industrial rights | 144,497 | (36,737 | ) | — | 107,760 | |||||||||||
Development costs | 162,493 | (144,215 | ) | (9,947 | ) | 8,331 | ||||||||||
Facility usage rights | 146,112 | (93,476 | ) | — | 52,636 | |||||||||||
Customer relations | 17,147 | (10,743 | ) | — | 6,404 | |||||||||||
Memberships(*1) | 128,274 | — | (34,155 | ) | 94,119 | |||||||||||
Other(*2) | 3,029,590 | (2,223,627 | ) | (616 | ) | 805,347 | ||||||||||
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₩ | 6,726,128 | (4,197,416 | ) | (44,718 | ) | 2,483,994 | ||||||||||
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(In millions of won) | 2013 | |||||||||||||||||||||||||||||||
Acquisition cost | Accumulated depreciation | Accumulated impairment | Carrying amount | December 31, 2015 | ||||||||||||||||||||||||||||
Frequency use rights | ₩ | 3,033,879 | (1,369,308 | ) | — | 1,664,571 | ||||||||||||||||||||||||||
Land use rights | 48,031 | (31,441 | ) | — | 16,590 | |||||||||||||||||||||||||||
Acquisition cost | Accumulated amortization | Accumulated impairment | Carrying amount | |||||||||||||||||||||||||||||
Frequency usage rights | ₩ | 3,033,879 | (1,930,362 | ) | — | 1,103,517 | ||||||||||||||||||||||||||
Land usage rights | 74,217 | (47,641 | ) | — | 26,576 | |||||||||||||||||||||||||||
Industrial rights | 91,027 | (32,264 | ) | — | 58,763 | 159,926 | (43,384 | ) | — | 116,542 | ||||||||||||||||||||||
Development costs | 148,714 | (126,912 | ) | (11,675 | ) | 10,127 | 140,226 | (132,754 | ) | — | 7,472 | |||||||||||||||||||||
Facility usage rights | 143,937 | (85,109 | ) | — | 58,828 | 149,841 | (101,822 | ) | — | 48,019 | ||||||||||||||||||||||
Customer relations | 14,222 | (7,889 | ) | — | 6,333 | 16,528 | (9,353 | ) | — | 7,175 | ||||||||||||||||||||||
Memberships(*1) | 128,452 | — | — | 128,452 | ||||||||||||||||||||||||||||
Club memberships(*1) | 126,622 | — | (35,115 | ) | 91,507 | |||||||||||||||||||||||||||
Other(*2) | 2,747,121 | (1,938,936 | ) | (1,067 | ) | 807,118 | 3,101,622 | (2,197,646 | ) | — | 903,976 | |||||||||||||||||||||
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₩ | 6,355,383 | (3,591,859 | ) | (12,742 | ) | 2,750,782 | ₩ | 6,802,861 | (4,462,962 | ) | (35,115 | ) | 2,304,784 | |||||||||||||||||||
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(*1) |
(*2) | Other intangible assets primarily consist of computer software and usage rights to a research facility which the Group built and donated, |
(2) | Details of the changes in intangible assets for the years ended December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||
Beginning balance | Acquisition | Disposal | Reclassifi- cation(*2) | Amortization | Impairment(*3) | Business combination | Ending balance | |||||||||||||||||||||||||
Frequency usage rights(*1) | ₩ | 1,103,517 | 1,810,076 | — | — | (332,765 | ) | — | — | 2,580,828 | ||||||||||||||||||||||
Land usage rights | 26,576 | 5,338 | (1,921 | ) | — | (9,159 | ) | — | — | 20,834 | ||||||||||||||||||||||
Industrial rights | 116,542 | 6,226 | (148 | ) | 5,004 | (6,424 | ) | — | — | 121,200 | ||||||||||||||||||||||
Development costs | 7,472 | 1,404 | — | 338 | (3,933 | ) | (410 | ) | — | 4,871 | ||||||||||||||||||||||
Facility usage rights | 48,019 | 2,181 | (50 | ) | 231 | (8,593 | ) | — | — | 41,788 | ||||||||||||||||||||||
Customer relations | 7,175 | 499 | — | — | (4,051 | ) | — | 3,029 | 6,652 | |||||||||||||||||||||||
Club memberships | 91,507 | 7,983 | (7,624 | ) | — | — | (17,827 | ) | — | 74,039 | ||||||||||||||||||||||
Other | 903,976 | 141,045 | (20,306 | ) | 228,110 | (323,397 | ) | (3,286 | ) | — | 926,142 | |||||||||||||||||||||
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₩ | 2,304,784 | 1,974,752 | (30,049 | ) | 233,683 | (688,322 | ) | (21,523 | ) | 3,029 | 3,776,354 | |||||||||||||||||||||
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(*1) | During the year ended December 31, 2016, the Parent Company acquired the frequency right for bandwidth blocs in the 2.6 GHz band for ₩1,330,100 million at the spectrum auction held by the Ministry of Science, ICT and Future Planning (MSIP) of Korea and made the initial payment in accordance with the terms of the agreement in August 2016. The remaining consideration will be paid on an annual installment basis for 10 years from August 2016. In addition, the Parent Company extended frequency usage rights for 2.1 GHz band for ₩568,500 million with the initial payment made to MSIP during the year ended December 31, 2016. The remaining consideration will be paid on an annual installment basis for 5 years from December 2016. |
(*2) | Includes reclassification from advance payments and property and equipment. |
(*3) | The Group recognized the difference between recoverable amount and the carrying amount of intangible assets, amounting to ₩21,523 million as impairment loss for the year ended December 31, 2016. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | Acquisition | Disposal | Transfer | Amortization | Impairment | Change of consolidation scope | Ending balance | Beginning balance | Acquisition | Disposal | Reclassifi- cation | Amortization | Impairment(*) | Business combination | Change of consolidation scope | Ending balance | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Frequency use rights | ₩ | 1,664,571 | — | — | — | (280,527 | ) | — | — | 1,384,044 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land use rights | 16,590 | 15,560 | (573 | ) | — | (8,483 | ) | — | 2,259 | 25,353 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Frequency usage rights | ₩ | 1,384,044 | — | — | — | (280,527 | ) | — | — | — | 1,103,517 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land usage rights | 25,353 | 11,956 | (1,314 | ) | — | (9,419 | ) | — | — | — | 26,576 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Industrial rights | 58,763 | 5,048 | (180 | ) | — | (4,584 | ) | — | 48,713 | 107,760 | 107,760 | 5,878 | (22 | ) | 8,935 | (6,009 | ) | — | — | — | 116,542 | |||||||||||||||||||||||||||||||||||||||||||||||
Development costs | 10,127 | 1,253 | (25 | ) | 63 | (4,048 | ) | (398 | ) | 1,359 | 8,331 | 8,331 | 3,737 | — | 23 | (4,563 | ) | (56 | ) | — | — | 7,472 | ||||||||||||||||||||||||||||||||||||||||||||||
Facility usage rights | 58,828 | 1,890 | (30 | ) | 382 | (8,434 | ) | — | — | 52,636 | 52,636 | 2,721 | (23 | ) | 1,177 | (8,492 | ) | — | — | — | 48,019 | |||||||||||||||||||||||||||||||||||||||||||||||
Customer relations | 6,333 | 779 | — | (39 | ) | (3,063 | ) | — | 2,394 | 6,404 | 6,404 | — | — | — | (4,689 | ) | — | 8,486 | (3,026 | ) | 7,175 | |||||||||||||||||||||||||||||||||||||||||||||||
Memberships(*) | 128,452 | 5,629 | (5,810 | ) | (264 | ) | — | (34,155 | ) | 267 | 94,119 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Club memberships | 94,119 | 1,137 | (1,802 | ) | 68 | — | (2,015 | ) | — | — | 91,507 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 807,118 | 102,322 | (9,919 | ) | 171,858 | (300,216 | ) | (449 | ) | 34,633 | 805,347 | 805,347 | 103,137 | (1,772 | ) | 323,933 | (319,234 | ) | (7,228 | ) | — | (207 | ) | 903,976 | ||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||||||
₩ | 2,750,782 | 132,481 | (16,537 | ) | 172,000 | (609,355 | ) | (35,002 | ) | 89,625 | 2,483,994 | ₩ | 2,483,994 | 128,566 | (4,933 | ) | 334,136 | (632,933 | ) | (9,299 | ) | 8,486 | (3,233 | ) | 2,304,784 | |||||||||||||||||||||||||||||||||||||||||||
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(*) | The Group recognized the difference between recoverable amount and the carrying amount of |
(In millions of won) | ||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||
Beginning balance | Acquisition | Disposal | Transfer | Amortization | Impairment | Change of consolidation scope | Ending balance | |||||||||||||||||||||||||
Frequency use rights(*) | ₩ | 1,693,868 | 1,046,833 | (814,213 | ) | — | (261,917 | ) | — | — | 1,664,571 | |||||||||||||||||||||
Land use rights | 16,062 | 7,378 | (279 | ) | — | (6,571 | ) | — | — | 16,590 | ||||||||||||||||||||||
Industrial rights | 60,104 | 2,045 | (75 | ) | 485 | (3,674 | ) | — | (122 | ) | 58,763 | |||||||||||||||||||||
Development costs | 13,420 | 594 | — | 650 | (5,230 | ) | (1,448 | ) | 2,141 | 10,127 | ||||||||||||||||||||||
Facility usage rights | 65,340 | 1,930 | (75 | ) | 9 | (8,376 | ) | — | — | 58,828 | ||||||||||||||||||||||
Customer relations | 48,886 | 1,293 | — | 1,856 | (45,702 | ) | — | — | 6,333 | |||||||||||||||||||||||
Memberships | 118,954 | 2,828 | (997 | ) | — | — | — | 7,667 | 128,452 | |||||||||||||||||||||||
Other | 673,024 | 111,972 | (21,751 | ) | 325,529 | (291,870 | ) | (1,695 | ) | 11,909 | 807,118 | |||||||||||||||||||||
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| |||||||||||||||||
₩ | 2,689,658 | 1,174,873 | (837,390 | ) | 328,529 | (623,340 | ) | (3,143 | ) | 21,595 | 2,750,782 | |||||||||||||||||||||
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(3) | Research and development |
2014 | 2013 | 2012 | ||||||||||
Research and development costs expensed | ₩ | 390,943 | 352,385 | 304,557 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
2016 | 2015 | 2014 | ||||||||||
Research and development costs expensed as incurred | ₩ | 344,787 | 315,790 | 390,943 |
(4) | The carrying amount and residual useful lives of |
(In millions of won) | ||||||||||||||
Amount | Description | Commencement of amortization | Completion of amortization | |||||||||||
| ||||||||||||||
| ||||||||||||||
800MHz license | ₩ | Frequency | Jul. 2011 | Jun. 2021 | ||||||||||
1.8GHz license | Frequency | Sept. 2013 | Dec. 2021 | |||||||||||
WiBro license | WiBro service | Mar. 2012 | Mar. 2019 | |||||||||||
2.6GHz license | 1,214,190 | Frequency usage rights relating to LTE service | Sept. 2016 | Dec. 2026 | ||||||||||
2.1GHz license | 550,784 | Frequency usage rights relating toW-CDMA and LTE service | Dec. 2016 | Dec. 2021 | ||||||||||
|
| |||||||||||||
₩ | ||||||||||||||
|
|
(In millions of won) | ||||||||||||||
Lender | Annual interest rate (%) | December 31, 2014 | December 31, 2013 | |||||||||||
Commercial Paper | Samsung Securities Co., Ltd., etc. | 2.16~3.09 | ₩ | 206,000 | 200,000 | |||||||||
Short-term borrowings | Korea Development Bank, etc. | 2.48~4.28 | 160,600 | 60,000 | ||||||||||
|
|
|
| |||||||||||
₩ | 366,600 | 260,000 | ||||||||||||
|
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|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won and thousands of U.S. dollars) | ||||||||||||
Lender | Annual interest rate (%) | Maturity | December 31, 2014 | December 31, 2013 | ||||||||
Korea Development Bank | 3.19 | Jun. 16, 2014 | ₩ | — | 1,648 | |||||||
Shinhan Bank | 2.77 | Jun. 15, 2015 | 1,712 | 5,136 | ||||||||
Kookmin Bank | 2.77 | Jun. 15, 2016 | 4,874 | 8,124 | ||||||||
Kookmin Bank | 2.77 | Mar. 15, 2017 | 4,496 | 5,996 | ||||||||
Kookmin Bank | 2.77 | Mar. 15, 2018 | 8,600 | 8,600 | ||||||||
Shinhan Bank(*1) | 6M bank debenture rate+1.58 | Apr. 30, 2016 | 10,000 | — | ||||||||
Korea Finance Corporation | 3.32 | Jul. 30, 2019 | 39,000 | — | ||||||||
Korea Finance Corporation | 2.94 | Jul. 30, 2019 | 10,000 | — | ||||||||
Export Kreditnamnden(*2) | 1.70 | Apr. 29, 2022 | 94,903 | 99,975 | ||||||||
(USD 86,338 | ) | (USD 94,736 | ) | |||||||||
|
|
|
| |||||||||
Sub-total | 173,585 | 129,479 | ||||||||||
Less present value discount on long-term borrowings | (2,623 | ) | (3,287 | ) | ||||||||
|
|
|
| |||||||||
170,962 | 126,192 | |||||||||||
Less current installments of long-term borrowings | (21,242 | ) | (21,384 | ) | ||||||||
|
|
|
| |||||||||
Long-term borrowings | ₩ | 149,720 | 104,808 | |||||||||
|
|
|
|
(In millions of won, thousands of U.S. dollars and thousands of other currencies) | ||||||||||||||
Purpose | Maturity | Annual interest rate (%) | December 31, 2014 | December 31, 2013 | ||||||||||
Unsecured private bonds | Refinancing fund | 2016 | 5.00 | ₩ | 200,000 | 200,000 | ||||||||
Unsecured private bonds | 2014 | 5.00 | — | 200,000 | ||||||||||
Unsecured private bonds | Other fund | 2015 | 5.00 | 200,000 | 200,000 | |||||||||
Unsecured private bonds | 2018 | 5.00 | 200,000 | 200,000 | ||||||||||
Unsecured private bonds | 2016 | 5.54 | 40,000 | 40,000 | ||||||||||
Unsecured private bonds | 2016 | 5.92 | 230,000 | 230,000 | ||||||||||
Unsecured private bonds | Operating fund | 2016 | 3.95 | 110,000 | 110,000 | |||||||||
Unsecured private bonds | 2021 | 4.22 | 190,000 | 190,000 | ||||||||||
Unsecured private bonds | Operating and refinancing fund | 2019 | 3.24 | 170,000 | 170,000 | |||||||||
Unsecured private bonds | 2022 | 3.30 | 140,000 | 140,000 | ||||||||||
Unsecured private bonds | 2032 | 3.45 | 90,000 | 90,000 | ||||||||||
Unsecured private bonds | Operating fund | 2023 | 3.03 | 230,000 | 230,000 | |||||||||
Unsecured private bonds | 2033 | 3.22 | 130,000 | 130,000 | ||||||||||
Unsecured private bonds | 2019 | 3.30 | 50,000 | — | ||||||||||
Unsecured private bonds | 2024 | 3.64 | 150,000 | — |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won, thousands of U.S. dollars and thousands of other currencies) | ||||||||||||||
Purpose | Maturity | Annual interest rate (%) | December 31, 2014 | December 31, 2013 | ||||||||||
Unsecured private bonds(*6) | 2029 | 4.73 | 55,188 | — | ||||||||||
Unsecured private bonds(*6) | 2029 | 4.72 | 55,177 | — | ||||||||||
Unsecured private bonds | Refinancing fund | 2019 | 2.53 | 160,000 | — | |||||||||
Unsecured private bonds | 2021 | 2.66 | 150,000 | — | ||||||||||
Unsecured private bonds | 2024 | 2.82 | 190,000 | — | ||||||||||
Unsecured private bonds(*1) | Operating fund | 2014 | 4.86 | — | 20,000 | |||||||||
Unsecured private bonds(*1) | 2015 | 4.62 | 10,000 | 10,000 | ||||||||||
Unsecured private bonds(*2) | 2014 | 4.53 | — | 290,000 | ||||||||||
Unsecured private bonds(*2) | 2014 | 4.40 | — | 100,000 | ||||||||||
Unsecured private bonds(*2) | 2015 | 4.09 | 110,000 | 110,000 | ||||||||||
Unsecured private bonds(*2) | 2015 | 4.14 | 110,000 | 110,000 | ||||||||||
Unsecured private bonds(*2) | 2017 | 4.28 | 100,000 | 100,000 | ||||||||||
Unsecured private bonds(*2) | 2015 | 3.14 | 130,000 | 130,000 | ||||||||||
Unsecured private bonds(*2) | 2017 | 3.27 | 120,000 | 120,000 | ||||||||||
Unsecured private bonds(*2) | 2016 | 3.05 | 80,000 | — | ||||||||||
Unsecured private bonds(*2) | 2019 | 3.49 | 210,000 | — | ||||||||||
Unsecured private bonds(*2) | 2019 | 2.76 | 130,000 | — | ||||||||||
Unsecured private bonds(*3) | 2015 | 3.12 | 10,000 | — | ||||||||||
Unsecured private bonds(*3) | 2016 | 3.24 | 10,000 | — | ||||||||||
Unsecured private bonds(*3) | 2017 | 3.48 | 20,000 | — | ||||||||||
Foreign global bonds | 2027 | 6.63 | 439,680 | 422,120 | ||||||||||
(USD 400,000 | ) | (USD 400,000 | ) | |||||||||||
Exchangeable bonds(*5) | Refinancing fund | 2014 | 1.75 | 96,147 | ||||||||||
— | (USD 91,109 | ) | ||||||||||||
Floating rate notes | Operating fund | 2014 | 3M Libor + 1.60 | 263,825 | ||||||||||
— | (USD 250,000 | ) | ||||||||||||
Floating rate notes | 2014 | SOR rate + 1.20 | 54,129 | |||||||||||
— | (SGD 65,000 | ) | ||||||||||||
Swiss unsecured private bonds | 2017 | 1.75 | 333,429 | 356,601 | ||||||||||
(CHF 300,000 | ) | (CHF 300,000 | ) | |||||||||||
Foreign global bonds | 2018 | 2.13 | 769,440 | 738,710 | ||||||||||
(USD 700,000 | ) | (USD 700,000 | ) | |||||||||||
Australia unsecured private bonds | 2017 | 4.75 | 269,727 | 281,988 | ||||||||||
(AUD 300,000 | ) | (AUD 300,000 | ) | |||||||||||
Floating rate notes(*4) | Operating fund | 2020 | 3M Libor + 0.88 | 329,760 | 316,590 | |||||||||
(USD 300,000 | ) | (USD 300,000 | ) | |||||||||||
Foreign global bonds(*2) | 2018 | 2.88 | 329,760 | 316,590 | ||||||||||
(USD 300,000 | ) | (USD 300,000 | ) | |||||||||||
|
|
|
| |||||||||||
Sub-total | 6,252,161 | 5,966,700 | ||||||||||||
Less discounts on bonds | (33,531 | ) | (40,228 | ) | ||||||||||
|
|
|
| |||||||||||
6,218,630 | 5,926,472 | |||||||||||||
Less current installments of bonds | (569,472 | ) | (1,020,893 | ) | ||||||||||
|
|
|
| |||||||||||
₩ | 5,649,158 | 4,905,579 | ||||||||||||
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
The Group may redeem the principal amount after three years from the issuance date if the market price exceeds 130% of the exchange price during a predetermined period. The exchange right may be exercised during the period from May 18, 2009 to March 24, 2014.
Exchanges of notes for common shares may be prohibited under the Telecommunications Law or other legal restrictions which restrains foreign governments, individuals and entities from owning more than 49% of the Group’s voting stock. If such 49% ownership limitation is violated due to the exercise of exchange rights, the Group will pay the bond holder a cash settlement which will be determined at the average price of one day after a holder exercises its exchange right or the weighted average price for the following five or twenty business days. Unless either previously redeemed or exchanged, the notes are redeemable at 100% of the principal amount at maturity.
As of December 31, 2013, the principal amount and the fair value of the remaining exchangeable bonds were USD 57,046,000 and USD 91,108,508, respectively. Exchange for the remaining entire bonds was claimed during 2013 and redeemed by cash during the year ended December 31, 2014.
The difference between the carrying amount of the designated financial liabilities at fair value through profit or loss and the amount required to pay at maturity is ₩10,365 million as of December 31, 2014.
(1) |
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Payables related to acquisition of W-CDMA licenses | ₩ | 657,001 | 828,721 | |||||
Other(*) | 27,566 | 9,864 | ||||||
|
|
|
| |||||
₩ | 684,567 | 838,585 | ||||||
|
|
|
|
(In millions of won) | ||||||||||||||||
Lender | Annual interest rate (%) | December 31, 2016 | December 31, 2015 | |||||||||||||
Commercial Papers | | KTB Investment and Securities Co., Ltd., etc. | | 1.76~1.84 | ₩ | — | 220,000 | |||||||||
Short-term borrowings | Woori Bank | 2.88 | 2,614 | 40,000 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 2,614 | 260,000 | ||||||||||||||
|
|
|
|
(2) | Long-term borrowings as of December 31, 2016 and 2015 are as follows: |
(In millions of won and thousands of U.S. dollars) | ||||||||||||||||
Lender | Annual interest rate (%) | Maturity | December 31, 2016 | December 31, 2015 | ||||||||||||
Kookmin Bank | 1.98 | Jun. 15, 2016 | ₩ | — | 1,625 | |||||||||||
Shinhan Bank | | 6M bank debenture rate+1.58 | | Apr. 30, 2016 | — | 10,000 | ||||||||||
Kookmin Bank | 1.29 | Mar. 15, 2017 | 500 | 2,498 | ||||||||||||
Kookmin Bank | 1.29 | Mar. 15, 2018 | 3,583 | 6,450 | ||||||||||||
Korea Development Bank(*1) | 3.32 | Jul. 30, 2019 | 35,750 | 39,000 | ||||||||||||
Korea Development Bank(*1) | 2.94 | Jul. 30, 2019 | 9,167 | 10,000 | ||||||||||||
Korea Development Bank | 2.32 | Dec. 20, 2021 | 49,000 | — | ||||||||||||
Export Kreditnamnden(*2,3) | 1.70 | Apr. 29, 2022 | 76,493 | 87,685 | ||||||||||||
(USD 63,296 | ) | (USD 74,817 | ) | |||||||||||||
|
|
|
| |||||||||||||
Sub-total | 174,493 | 157,258 | ||||||||||||||
Less present value discount | (1,586 | ) | (2,124 | ) | ||||||||||||
|
|
|
| |||||||||||||
172,907 | 155,134 | |||||||||||||||
Less current installments | (33,191 | ) | (33,581 | ) | ||||||||||||
|
|
|
| |||||||||||||
₩ | 139,716 | 121,553 | ||||||||||||||
|
|
|
|
(* |
(*2) | Prior to 2015, the Group obtained long-term |
(*3) | Convenient translation was provided for the borrowings repayable in foreign currencies. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(3) | Debentures as of December 31, 2016 and 2015 are as follows: |
(In millions of won, thousands of U.S. dollars and thousands of other currencies) | ||||||||||||||
Purpose | Maturity | Annual interest rate (%) | December 31, 2016 | December 31, 2015 | ||||||||||
Unsecured private bonds | Refinancing fund | 2016 | 5.00 | ₩ | — | 200,000 | ||||||||
Unsecured private bonds | Other fund | 2018 | 5.00 | 200,000 | 200,000 | |||||||||
Unsecured private bonds | 2016 | 5.54 | — | 40,000 | ||||||||||
Unsecured private bonds | 2016 | 5.92 | — | 230,000 | ||||||||||
Unsecured private bonds | Operating fund | 2016 | 3.95 | — | 110,000 | |||||||||
Unsecured private bonds | 2021 | 4.22 | 190,000 | 190,000 | ||||||||||
Unsecured private bonds | Operating and | 2019 | 3.24 | 170,000 | 170,000 | |||||||||
Unsecured private bonds | refinancing fund | 2022 | 3.30 | 140,000 | 140,000 | |||||||||
Unsecured private bonds | 2032 | 3.45 | 90,000 | 90,000 | ||||||||||
Unsecured private bonds | Operating fund | 2023 | 3.03 | 230,000 | 230,000 | |||||||||
Unsecured private bonds | 2033 | 3.22 | 130,000 | 130,000 | ||||||||||
Unsecured private bonds | 2019 | 3.30 | 50,000 | 50,000 | ||||||||||
Unsecured private bonds | 2024 | 3.64 | 150,000 | 150,000 | ||||||||||
Unsecured private bonds(*1) | 2029 | 4.72 | 59,600 | 54,695 | ||||||||||
Unsecured private bonds | Refinancing fund | 2019 | 2.53 | 160,000 | 160,000 | |||||||||
Unsecured private bonds | 2021 | 2.66 | 150,000 | 150,000 | ||||||||||
Unsecured private bonds | 2024 | 2.82 | 190,000 | 190,000 | ||||||||||
Unsecured private bonds | Operating and | 2022 | 2.40 | 100,000 | 100,000 | |||||||||
Unsecured private bonds | refinancing fund | 2025 | 2.49 | 150,000 | 150,000 | |||||||||
Unsecured private bonds | 2030 | 2.61 | 50,000 | 50,000 | ||||||||||
Unsecured private bonds | Operating fund | 2018 | 1.89 | 90,000 | 90,000 | |||||||||
Unsecured private bonds | 2025 | 2.66 | 70,000 | 70,000 | ||||||||||
Unsecured private bonds | 2030 | 2.82 | 90,000 | 90,000 | ||||||||||
Unsecured private bonds(*1,2) | 2030 | 3.40 | — | 50,485 | ||||||||||
Unsecured private bonds | Operating and | 2018 | 2.07 | 80,000 | 80,000 | |||||||||
Unsecured private bonds | refinancing fund | 2025 | 2.55 | 100,000 | 100,000 | |||||||||
Unsecured private bonds | 2035 | 2.75 | 70,000 | 70,000 | ||||||||||
Unsecured private bonds(*1,2) | 2030 | 3.10 | — | 50,524 | ||||||||||
Unsecured private bonds | Operating fund | 2019 | 1.65 | 70,000 | — | |||||||||
Unsecured private bonds | 2021 | 1.80 | 100,000 | — | ||||||||||
Unsecured private bonds | 2026 | 2.08 | 90,000 | — | ||||||||||
Unsecured private bonds | 2036 | 2.24 | 80,000 | — | ||||||||||
Unsecured private bonds | 2019 | 1.62 | 50,000 | — | ||||||||||
Unsecured private bonds | 2021 | 1.71 | 50,000 | — | ||||||||||
Unsecured private bonds | 2026 | 1.97 | 120,000 | — | ||||||||||
Unsecured private bonds | 2031 | 2.17 | 50,000 | — | ||||||||||
Unsecured private bonds(*3) | 2017 | 4.28 | 100,000 | 100,000 | ||||||||||
Unsecured private bonds(*3) | 2017 | 3.27 | 120,000 | 120,000 | ||||||||||
Unsecured private bonds(*3) | 2016 | 3.05 | — | 80,000 | ||||||||||
Unsecured private bonds(*3) | 2019 | 3.49 | 210,000 | 210,000 | ||||||||||
Unsecured private bonds(*3) | 2019 | 2.76 | 130,000 | 130,000 | ||||||||||
Unsecured private bonds(*3) | 2018 | 2.23 | 50,000 | 50,000 | ||||||||||
Unsecured private bonds(*3) | 2020 | 2.49 | 160,000 | 160,000 | ||||||||||
Unsecured private bonds(*3) | 2020 | 2.43 | 140,000 | 140,000 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(In millions of won, thousands of U.S. dollars and thousands of other currencies) | ||||||||||||||
Purpose | Maturity | Annual interest rate (%) | December 31, 2016 | December 31, 2015 | ||||||||||
Unsecured private bonds(*3) | 2020 | 2.18 | 130,000 | 130,000 | ||||||||||
Unsecured private bonds(*3) | 2019 | 1.58 | 50,000 | — | ||||||||||
Unsecured private bonds(*3) | Operating and | 2021 | 1.77 | 120,000 | — | |||||||||
Refinancing fund | ||||||||||||||
Unsecured private bonds(*4) | Operating fund | 2016 | 3.24 | — | 10,000 | |||||||||
Unsecured private bonds(*4) | 2017 | 3.48 | 20,000 | 20,000 | ||||||||||
Unsecured global bonds | 2027 | 6.63 | 483,400 | 468,800 | ||||||||||
(USD 400,000 | ) | (USD 400,000 | ) | |||||||||||
Unsecured private Swiss | 2017 | 1.75 | 354,399 | 355,617 | ||||||||||
(CHF 300,000 | ) | (CHF 300,000 | ) | |||||||||||
Unsecured global bonds | 2018 | 2.13 | 845,950 | 820,400 | ||||||||||
(USD 700,000 | ) | (USD 700,000 | ) | |||||||||||
Unsecured private Australian | 2017 | 4.75 | 261,615 | 255,930 | ||||||||||
(AUD 300,000 | ) | (AUD 300,000 | ) | |||||||||||
Floating rate notes(*5) | 2020 | 3M Libor + 0.88 | 362,550 | 351,600 | ||||||||||
(USD 300,000 | ) | (USD 300,000 | ) | |||||||||||
Foreign global bonds(*3) | 2018 | 2.88 | 362,550 | 351,600 | ||||||||||
(USD 300,000 | ) | (USD 300,000 | ) | |||||||||||
|
|
|
| |||||||||||
Sub-total | 7,220,064 | 7,139,651 | ||||||||||||
Less discounts on bonds | (25,858 | ) | (30,998 | ) | ||||||||||
|
|
|
| |||||||||||
7,194,206 | 7,108,653 | |||||||||||||
Less current installments of bonds | (855,276 | ) | (669,506 | ) | ||||||||||
|
|
|
| |||||||||||
₩ | 6,338,930 | 6,439,147 | ||||||||||||
|
|
|
|
(*1) | The Group eliminated a measurement inconsistency of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss. |
The carrying amount of financial liabilities designated at fair value through profit or loss exceeds the principal amount required to pay at maturity by ₩9,600 million as of December 31, 2016. |
(*2) | The principal amount and the fair value of the structured bonds that were designated as financial liabilities at fair value through profit or loss as of December 31, 2015 were ₩100,000 million and ₩101,009 million, respectively. The bonds were early redeemed during the year ended December 31, 2016. |
(*3) | Unsecured private bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company. |
(*4) | Unsecured private bonds were issued by PS&Marketing Corporation, a subsidiary of the Parent Company. |
(*5) | As of December 31, 2016, 3M LIBOR rate is 1.00%. |
(*6) | Convenient translation was provided for the bonds repayable in other foreign currencies. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
17. | Long-term Payables — Other |
(1) | Long-term payables — other as of December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Payables related to acquisition of frequency usage rights | ₩ | 1,602,943 | 550,964 | |||||
Other(*) | 21,647 | 30,733 | ||||||
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₩ | 1,624,590 | 581,697 | ||||||
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(*) | Other includes other long-term employee compensation liabilities. |
(2) | As of December 31, |
(In millions of won) | ||||||||||||||||
Period of repayment | Coupon rate(*1) | Annual effective interest rate(*2) | December 31, 2014 | December 31, 2013 | ||||||||||||
2.1GHz | 2012~2014 | 3.58% | 5.89% | ₩ | — | 17,533 | ||||||||||
800MHz | 2013~2015 | 3.51% | 5.69% | 69,416 | 138,833 | |||||||||||
2.3GHz | 2014~2016 | 3.00% | 5.80% | 5,766 | 8,650 | |||||||||||
1.8GHz | 2012~2021 | 2.43~3.00% | 4.84~5.25% | 824,841 | 942,675 | |||||||||||
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900,023 | 1,107,691 | |||||||||||||||
Present value discount on long-term payables — other | (53,633 | ) | (72,170 | ) | ||||||||||||
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846,390 | 1,035,521 | |||||||||||||||
Current installments of long-term payables — other | (189,389 | ) | (206,800 | ) | ||||||||||||
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Carrying amount at December 31 | ₩ | 657,001 | 828,721 | |||||||||||||
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(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Long-term payables — other | ₩ | 2,013,122 | 709,888 | |||||
Present value discount on long-term payables — other | (108,406 | ) | (38,739 | ) | ||||
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1,904,716 | 671,149 | |||||||
Less current installments of long-term payables — other | (301,773 | ) | (120,185 | ) | ||||
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Carrying amount at December 31 | ₩ | 1,602,943 | 550,964 | |||||
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(3) | The repayment schedule of the principal amount of long-term payables — other related to acquisition of |
(In millions of won) | ||||
Amount | ||||
Less than 1 year | ₩ | |||
1~3 years | ||||
3~5 years | ||||
More than 5 years | ||||
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₩ | ||||
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Provisions |
(1) | Changes in provisions for the years ended December 31, |
(In millions of won) | (In millions of won) | (In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended December 31, 2014 | As of December 31, 2014 | For the year ended December 31, 2016 | As of December 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | Increase | Utilization | Reversal | Other | Ending balance | Current | Non-current | Beginning balance | Increase | Utilization | Reversal | Other | Ending balance | Current | Non-current | |||||||||||||||||||||||||||||||||||||||||||||||||
Provision for handset subsidy(*1) | ₩ | 53,923 | 41,802 | (68,926 | ) | — | — | 26,799 | 14,844 | 11,955 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for installment of handset subsidy(*1) | ₩ | 5,670 | 37,530 | (18,490 | ) | — | — | 24,710 | 19,939 | 4,771 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for restoration(*2) | 40,507 | 20,098 | (702 | ) | (34 | ) | (142 | ) | 59,727 | 35,865 | 23,862 | 59,954 | 6,677 | (1,082 | ) | (913 | ) | 43 | 64,679 | 37,760 | 26,919 | |||||||||||||||||||||||||||||||||||||||||||
Emission allowance(*3) | 1,477 | 1,480 | (169 | ) | — | — | 2,788 | 2,788 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other provisions | 451 | 155 | (225 | ) | — | 181 | 562 | 366 | 196 | 3,104 | 3,237 | (601 | ) | — | — | 5,740 | 5,740 | — | ||||||||||||||||||||||||||||||||||||||||||||||
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₩ | 94,881 | 62,055 | (69,853 | ) | (34 | ) | 39 | 87,088 | 51,075 | 36,013 | ₩ | 70,205 | 48,924 | (20,342 | ) | (913 | ) | 43 | 97,917 | 66,227 | 31,690 | |||||||||||||||||||||||||||||||||||||||||||
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | (In millions of won) | (In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the year ended December 31, 2013 | As of December 31, 2013 | For the year ended December 31, 2015 | As of December 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | Increase | Utilization | Reversal | Other | Ending balance | Current | Non-current | Beginning balance | Increase | Utilization | Reversal | Other | Change of consolida- tion scope | Ending balance | Current | Non-current | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for handset subsidy(*1) | ₩ | 353,383 | 9,416 | (308,876 | ) | — | — | 53,923 | 53,334 | 589 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for installment of handset subsidy(*1) | ₩ | 26,799 | 1,641 | (5,004 | ) | (17,766 | ) | — | — | 5,670 | 2,232 | 3,438 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for restoration(*2) | 39,895 | 5,679 | (712 | ) | (4,211 | ) | (144 | ) | 40,507 | 13,441 | 27,066 | 59,727 | 4,983 | (1,135 | ) | (5,433 | ) | 1,812 | — | 59,954 | 34,336 | 25,618 | ||||||||||||||||||||||||||||||||||||||||||||||
Emission allowance(*3) | — | 1,477 | — | — | — | — | 1,477 | 1,477 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other provisions | 590 | — | (85 | ) | (17 | ) | (37 | ) | 451 | — | 451 | 562 | 3,795 | (510 | ) | (472 | ) | — | (271 | ) | 3,104 | 2,943 | 161 | |||||||||||||||||||||||||||||||||||||||||||||
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₩ | 393,868 | 15,095 | (309,673 | ) | (4,228 | ) | (181 | ) | 94,881 | 66,775 | 28,106 | ₩ | 87,088 | 11,896 | (6,649 | ) | (23,671 | ) | 1,812 | (271 | ) | 70,205 | 40,988 | 29,217 | ||||||||||||||||||||||||||||||||||||||||||||
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(*1) | The Group recognizes a provision for handset subsidies given to the subscribers who purchase handsets on an installment basis. |
The amount recognized as a provision for handset subsidies is the Group’s best estimate of the expenditure required to settle the current obligations to the relevant subscribers at the end of the reporting period, which is calculated as the sum of the present values of the monthly balances for handset subsidies over the relevant service periods, taking into account the customer retention rate for the relevant subscribers. The discount rate used in calculating the present values is based on AAA-rated corporate bonds with a two-year maturity. The customer retention rate is based on the Group’s historical retention rate.
(*2) | In the course of the Group’s activities, base station and other assets are |
(*3) | The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits. |
(2) | The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period. |
Key assumptions | ||
Provision for handset subsidy | estimation based on historical service retention period data | |
Provision for restoration | estimation based on cost of demolition and inflation |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Lease |
(1) Finance Leases
The Group has leased telecommunication equipment under finance lease agreements with Cisco Systems Capital Korea Ltd. Finance lease liabilities as of December 31, 2014 and 2013 are as follows:
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Finance Lease Liabilities | ||||||||
Current installments of long-term finance lease liabilities | ₩ | 3,804 | 19,351 | |||||
Long-term finance lease liabilities | 26 | 3,867 | ||||||
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| |||||
₩ | 3,830 | 23,218 | ||||||
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The Group’s related interest and principal as of December 31, 2014 and 2013 are as follows:
(In millions of won) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | |||||||||||||||
Minimum lease payment | Present value | Minimum lease payment | Present value | |||||||||||||
Less than 1 year | ₩ | 3,909 | 3,804 | 20,039 | 19,351 | |||||||||||
1~5 years | 26 | 26 | 3,974 | 3,867 | ||||||||||||
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Sub-total | 3,935 | 3,830 | 24,013 | 23,218 | ||||||||||||
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Current installments of long-term finance lease liabilities | (3,804 | ) | (19,351 | ) | ||||||||||||
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Long-term finance lease liabilities | ₩ | 26 | 3,867 | |||||||||||||
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(2) Operating Leases
The Group entered into operating leases and sublease agreements in relation to rented office space and the expected future lease payments and lease revenues as of December 31, 2014 and 2013 (included in other non-operating income in the accompanying consolidated statements of income) are as follows:
(In millions of won) | ||||||||||||||||
2014 | 2013 | |||||||||||||||
Lease payments | Lease revenues | Lease payments | Lease revenues | |||||||||||||
Less than 1 year | ₩ | 29,233 | 3,496 | 32,842 | 2,422 | |||||||||||
1~5 years | 76,306 | 1,390 | 72,236 | 1,074 | ||||||||||||
More than 5 years | 49,582 | 1,043 | 65,013 | 1,026 | ||||||||||||
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₩ | 155,121 | 5,929 | 170,091 | 4,522 | ||||||||||||
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(3) Sale and Leaseback Transaction
For the year ended December 31,In 2012, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. ThisThese sale and leaseback transaction istransactions were accounted for as anoperating leases. The Group entered into operating lease agreements and the gain on disposal of the property and equipment is recognized in profit or loss. The Group recognized ₩14,075 million and ₩13,703 million of lease paymentssublease agreements in relation to this lease agreementrented office space and ₩2,469 million and ₩269 million of lease revenues in relation to the sublease agreement for the years ended December 31, 2014 and 2013, respectively. Expectedexpected future lease payments and lease revenues as of December 31, 2016 are included in Note 21-(2).as follows:
(In millions of won) | ||||||||
Minimum lease payments | Revenues | |||||||
Less than 1 year | ₩ | 35,684 | 1,882 | |||||
1~5 years | 70,766 | 896 | ||||||
More than 5 years | 17,075 | 224 | ||||||
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₩ | 123,525 | 3,002 | ||||||
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20. | Defined Benefit Liabilities(Assets) |
(1) | Details of defined benefit liabilities(assets) as of December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Present value of defined benefit obligations | ₩ | 595,667 | 525,269 | |||||
Fair value of plan assets | (555,175 | ) | (426,413 | ) | ||||
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| |||||
Defined benefit assets(*) | (30,247 | ) | — | |||||
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| |||||
Defined benefit liabilities | 70,739 | 98,856 | ||||||
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(*) | Since the Group entities neither have legally enforceable right nor intention to settle the defined benefit obligations of Group entities with defined benefit assets of other Group entities, defined benefit assets of Group entities have been separately presented from defined benefit liabilities. |
(2) | Principal actuarial assumptions as of December 31, 2016 and 2015 are as follows: |
December 31, 2016 | December 31, 2015 | |||
Discount rate for defined benefit obligations | 1.90~2.96% | 1.90~2.93% | ||
Expected rate of salary increase | 2.49~6.09% | 2.51~7.04% |
Discount rate for defined benefit obligation is determined based on yield rate of high-quality corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 2012
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Present value of defined benefit obligations | ₩ | 437,844 | 312,494 | |||||
Fair value of plan assets | (346,257 | ) | (238,293 | ) | ||||
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₩ | 91,587 | 74,201 | ||||||
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Discount rate for defined benefit obligations is determined based on the Group’s credit ratings and yield rate of corporate bonds with similar maturities for estimated payment term of defined benefit obligations. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio in accordance with salary agreement.
(3) | Changes in defined benefit obligations for the years ended December 31, |
(In millions of won) | ||||||||||||||||
2014 | 2013 | 2016 | 2015 | |||||||||||||
Beginning balance | ₩ | 312,494 | 244,866 | ₩ | 525,269 | 437,844 | ||||||||||
Current service cost | 109,625 | 89,802 | 114,528 | 106,764 | ||||||||||||
Interest cost | 12,630 | 9,370 | 13,441 | 12,292 | ||||||||||||
Remeasurement | ||||||||||||||||
- Demographic assumption | 2,859 | (394 | ) | 677 | 732 | |||||||||||
- Financial assumption | 28,287 | (12,371 | ) | (2,462 | ) | 5,900 | ||||||||||
- Adjustment based on experience | 9,932 | 6,475 | 6,229 | 15,100 | ||||||||||||
Benefit paid | (46,531 | ) | (42,948 | ) | (55,350 | ) | (58,513 | ) | ||||||||
Others(*) | 8,548 | 17,694 | ||||||||||||||
Others | (6,665 | ) | 5,150 | |||||||||||||
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| |||||||||||||
Ending balance | ₩ | 437,844 | 312,494 | ₩ | 595,667 | 525,269 | ||||||||||
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|
(4) | Changes in plan assets for the years ended December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||
2016 | 2015 | |||||||
Beginning balance | ₩ | 426,413 | 346,257 | |||||
Interest income | 9,826 | 9,035 | ||||||
Remeasurement | (6,320 | ) | 3,146 | |||||
Contributions | 159,687 | 115,640 | ||||||
Benefit paid | (34,247 | ) | (47,809 | ) | ||||
Others | (184 | ) | 144 | |||||
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| |||||
Ending balance | ₩ | 555,175 | 426,413 | |||||
|
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The Group expects to make a contribution of ₩121,727 million to the defined benefit plans in 2017.
(In millions of won) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Current service cost | ₩ | 114,528 | 106,764 | 109,625 | ||||||||
Net interest cost | 3,615 | 3,257 | 3,092 | |||||||||
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₩ | 118,143 | 110,021 | 112,717 | |||||||||
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The above costs are recognized in labor, research and development, or capitalized intoconstruction-in-progress.
(6) | Details of |
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Equity instruments | ₩ | 13,640 | 1,086 | |||||
Debt instruments | 95,359 | 81,867 | ||||||
Short-term financial instruments, etc. | 446,176 | 343,460 | ||||||
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| |||||
₩ | 555,175 | 426,413 | ||||||
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||
2014 | 2013 | |||||||
Beginning balance | ₩ | 238,293 | 158,345 | |||||
Interest income | 9,538 | 6,332 | ||||||
Actuarial gain | 50 | 122 | ||||||
Contributions by employer directly to plan assets | 117,558 | 85,683 | ||||||
Benefits paid | (20,711 | ) | (23,827 | ) | ||||
Others(*) | 1,529 | 11,638 | ||||||
|
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| |||||
Ending balance | ₩ | 346,257 | 238,293 | |||||
|
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|
The Group expects to make a contribution of ₩82,062 million to the defined benefit plans during the next financial year.
(In millions of won) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Current service cost | ₩ | 109,625 | 89,802 | 77,060 | ||||||||
Net interest cost | 3,092 | 3,038 | 3,805 | |||||||||
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| |||||||
₩ | 112,717 | 92,840 | 80,865 | |||||||||
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The above costs are recognized in labor cost, research and development, or capitalized into construction-in-progress.
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Equity instruments | ₩ | 1,746 | 713 | |||||
Debt instruments | 70,778 | 48,901 | ||||||
Short-term financial instruments, etc. | 273,733 | 188,679 | ||||||
|
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| |||||
₩ | 346,257 | 238,293 | ||||||
|
|
|
|
Actual return on plan assets for the years ended December 31, 2014 and 2013 amounted to ₩9,588 million and ₩6,472million, respectively.
(7) | As of December 31, |
(In millions of won) | ||||||||
Increase | Decrease | |||||||
Discount rate (if changed by 0.5%) | ₩ | (17,290 | ) | 17,988 | ||||
Expected salary increase rate (if changed by 0.5%) | 18,064 | (17,431 | ) |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | ||||||||
Increase | Decrease | |||||||
Discount rate (if changed by 0.5%) | ₩ | (24,168 | ) | 26,443 | ||||
Expected salary increase rate (if changed by 0.5%) | 26,410 | (24,408 | ) |
The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.
Weighted average durations of defined benefit obligations as of December 31, 20142016 and 20132015 are 9.10 years and 9.129.35 years, respectively.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
Derivative Instruments |
(1) | Currency and interest rate swap contracts under cash flow hedge accounting as of December 31, |
Borrowing | Hedging Instrument(Hedged | Hedged risk |
| Financial | Duration of | |||||
Jul. 20, 2007 | Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000) | Foreign currency risk | Morgan Stanley and five other banks | Jul. 20, 2007 ~
| ||||||
Jun. 12, 2012 | Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000) | Foreign currency risk | Citibank and | Jun. 12, 2012 ~ Jun.12, 2017 | ||||||
Nov. 1, 2012 | Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000) | Foreign currency risk | Nov. 1,
| |||||||
Jan. 17, 2013 | Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000) | Foreign currency risk | BNP Paribas and | Jan. 17, 2013 ~ Nov. 17, 2017 | ||||||
Mar. 7, 2013 | Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000) | Foreign currency risk and | Mar. 7, 2013 ~ Mar. 7, 2020 | |||||||
Oct. 29, 2013 | Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000) | Foreign currency risk | Korea Development Bank and others |
Oct. 26, 2018 | ||||||
Dec. 16, 2013 | Fixed-to-fixed cross currency swap (U.S. dollar | Foreign currency risk | Deutsche bank | Dec.16, 2013 ~ Apr. 29, 2022 | ||||||
Dec. 20, 2016 | Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 49,000) | Interest rate risk | Korea Development Bank | Dec. 20, 2016~ Dec. 20, 2021 | ||||||
Jan. 30, 2017 | Floating-to-fixed interest rate swap(*) (Korean won borrowing amounting to KRW 44,917) | Interest rate risk | Korea Development Bank | Nov. 10, 2016~ Jul. 30, 2019 |
(*) | In November 2016, SK Broadband Co., Ltd. agreed to refinance these fixed rate borrowings with floating-rate borrowings on January 30, 2017 and entered into afloating-to-fixed interest rate swap agreement to mitigate the interest rate risk that will arise from floating-rate borrowings. SK Broadband Co., Ltd. designated interest rate swap as hedging instrument for a highly probable forecasted transaction. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(2) | As of December 31, |
(In millions of won and thousands of foreign currencies) | (In millions of won and thousands of foreign currencies) | (In millions of won and thousands of foreign currencies) | ||||||||||||||||||||||||||||||||||||||||||||||
Fair value | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||
Cash flow hedge | Held for trading purpose | Total | Cash flow hedge | Held for trading | Total | |||||||||||||||||||||||||||||||||||||||||||
Hedged item | Accumulated gain (loss) on valuation of derivatives | Tax effect | Accumulated foreign currency translation (gain) loss | Others (*) | ||||||||||||||||||||||||||||||||||||||||||||
Hedging instrument | Accumulated gain (loss) on valuation of derivatives | Tax effect | Accumulated foreign currency translations (gain) loss | Others (*) | Held for trading | Total | ||||||||||||||||||||||||||||||||||||||||||
Non-current assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
Structured bond(face value of KRW 100,000) | ₩ | — | — | — | — | 8,713 | 8,713 | |||||||||||||||||||||||||||||||||||||||||
Structured bond(face value of KRW 50,000) | ₩ | — | — | — | — | 7,368 | 7,368 | |||||||||||||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000) | (40,360 | ) | (12,886 | ) | (17,545 | ) | 129,806 | — | 59,015 | (61,846 | ) | (19,745 | ) | 25,594 | 129,806 | — | 73,809 | |||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000) | (16,070 | ) | (5,132 | ) | 82,207 | — | — | 61,005 | ||||||||||||||||||||||||||||||||||||||||
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000) | (5,714 | ) | (1,824 | ) | 37,363 | — | — | 29,825 | ||||||||||||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000) | 8,895 | — | (6,588 | ) | — | — | 2,307 | (5,458 | ) | — | 43,763 | — | — | 38,305 | ||||||||||||||||||||||||||||||||||
Fixed-to-fixed long-term borrowings (U.S. dollar borrowing amounting to USD 63,296) | (3,859 | ) | (1,232 | ) | 9,549 | — | — | 4,458 | ||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total assets | ₩ | 70,035 | ₩ | 214,770 | ||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000) | ₩ | (4,376 | ) | (1,397 | ) | (9,068 | ) | — | — | (14,841 | ) | |||||||||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of AUD 300,000) | 1,109 | 354 | (73,572 | ) | — | — | (72,109 | ) | ||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Non-current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000) | (8,725 | ) | (2,786 | ) | (29,993 | ) | — | — | (41,504 | ) | ||||||||||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000) | (22,903 | ) | (7,312 | ) | 6,058 | — | — | (24,157 | ) | |||||||||||||||||||||||||||||||||||||||
Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000) | 2,588 | 826 | (65,496 | ) | — | — | (62,082 | ) | ||||||||||||||||||||||||||||||||||||||||
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000) | (4,369 | ) | (1,395 | ) | 4,668 | — | — | (1,096 | ) | |||||||||||||||||||||||||||||||||||||||
Fixed-to-fixed long-term borrowings (U.S. dollar denominated bonds face value of USD 86,338) | (4,439 | ) | (1,417 | ) | 3,806 | — | — | (2,050 | ) | |||||||||||||||||||||||||||||||||||||||
Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 49,000) | (203 | ) | — | — | — | — | (203 | ) | ||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities | ₩ | (130,889 | ) | ₩ | (87,153 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
|
(*) | Cash flow hedge accounting has been applied to the relevant |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Share Capital and Capital Surplus (Deficit) and |
The Parent Company’s outstanding share capital consists entirely of common stock with a par value of ₩500. The number of authorized, issued and outstanding common shares and the details of capital surplus and other capital adjustmentsothers as of December 31, 20142016 and 20132015 are as follows:
(In millions of won, except for share data) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Authorized shares | 220,000,000 | 220,000,000 | ||||||
Issued shares(*1) | 80,745,711 | 80,745,711 | ||||||
Share capital | ||||||||
Common stock | ₩ | 44,639 | 44,639 | |||||
Capital surplus and other capital adjustments: | ||||||||
Paid-in surplus | 2,915,887 | 2,915,887 | ||||||
Treasury stock (Note 25) | (2,139,683 | ) | (2,139,683 | ) | ||||
Loss on disposal of treasury stock | (18,087 | ) | (18,087 | ) | ||||
Others(*2) | (878,637 | ) | (839,127 | ) | ||||
|
|
|
| |||||
₩ | (120,520 | ) | (81,010 | ) | ||||
|
|
|
|
(In millions of won, except for share data) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Number of authorized shares | 220,000,000 | 220,000,000 | ||||||
Number of issued shares(*1) | 80,745,711 | 80,745,711 | ||||||
Share capital: | ||||||||
Common stock | ₩ | 44,639 | 44,639 | |||||
Capital surplus and others: | ||||||||
Paid-in surplus | 2,915,887 | 2,915,887 | ||||||
Treasury shares(Note 23) | (2,260,626 | ) | (2,260,626 | ) | ||||
Others(*2) | (854,000 | ) | (864,269 | ) | ||||
|
|
|
| |||||
₩ | (198,739 | ) | (209,008 | ) | ||||
|
|
|
|
(*1) |
There were no changes in share capital for years ended December 31, 2014 and 2013. Changes in number of shares outstanding for the years ended December 31, 2014 and 2013 are follows:
(In shares) | 2014 | 2013 | ||||||||||||||||||||||
Issued shares | Treasury stock | Outstanding shares | Issued shares | Treasury stock | Outstanding shares | |||||||||||||||||||
Beginning issued shares | 80,745,711 | 9,809,375 | 70,936,336 | 80,745,711 | 11,050,712 | 69,694,999 | ||||||||||||||||||
Disposal of treasury stock | — | — | — | — | (1,241,337 | ) | 1,241,337 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending issued shares | 80,745,711 | 9,809,375 | 70,936,336 | 80,745,711 | 9,809,375 | 70,936,336 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*2) | Others primarily consist of the excess of the consideration paid by the Group over the carrying values of net assets acquired from entities under common |
There were no changes in share capital during the years ended December 31, 2016 and 2015 and details of shares outstanding as of December 31, 2016 and 2015 are as follows:
(In shares) | ||||||||||||||||||||||||
2016 | 2015 | |||||||||||||||||||||||
Issued shares | Treasury shares | Outstanding shares | Issued shares | Treasury shares | Outstanding shares | |||||||||||||||||||
Beginning | 80,745,711 | 10,136,551 | 70,609,160 | 80,745,711 | 9,809,375 | 70,936,336 | ||||||||||||||||||
Disposal of treasury shares | — | — | — | — | (1,692,824 | ) | 1,692,824 | |||||||||||||||||
Acquisition of treasury shares | — | — | — | — | 2,020,000 | (2,020,000 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Ending | 80,745,711 | 10,136,551 | 70,609,160 | 80,745,711 | 10,136,551 | 70,609,160 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Treasury |
The Parent Company acquired treasury stockshares to provide stock dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices when needed.prices.
Treasury stockshares as of December 31, 20142016 and 20132015 are as follows:
(In millions of won, shares) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||
Number of shares | 9,809,375 | 9,809,375 | 10,136,551 | 10,136,551 | ||||||||||||
Amount | ₩ | 2,139,683 | 2,139,683 | |||||||||||||
Acquisition cost | ₩ | 2,260,626 | 2,260,626 |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Hybrid Bonds |
Hybrid bonds classified as equity as of December 31, 2014 is2016 are as follows:
|
|
| ||||||||||
| ||||||||||||
| ||||||||||||
(In millions of won) | ||||||||||||||
Type | Issuance date | Maturity(*1) | Annual interest rate(%)(*2) | Amount | ||||||||||
Private hybrid bonds | Unsecured subordinated bearer bond | June 7, 2013 | June 7, 2073 | 4.21 | ₩ | 400,000 | ||||||||
Issuance costs | (1,482 | ) | ||||||||||||
|
| |||||||||||||
₩ | 398,518 | |||||||||||||
|
|
Hybrid bonds issued by the Parent Company are classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common shareholdersstocks in the event of a liquidation or reorganization of the Parent Company.
(*1) | The Parent Company has a right to extend the maturity under the same terms at issuance |
(*2) | Annual interest rate is |
Retained Earnings |
(1) | Retained earnings as of December 31, |
(In millions of won) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||
Appropriated: | ||||||||||||||||
Legal reserve | ₩ | 22,320 | 22,320 | ₩ | 22,320 | 22,320 | ||||||||||
Reserve for research & manpower development | 151,533 | 155,767 | 60,001 | 87,301 | ||||||||||||
Reserve for business expansion | 9,476,138 | 9,376,138 | 9,871,138 | 9,671,138 | ||||||||||||
Reserve for technology development | 2,416,300 | 2,271,300 | 2,826,300 | 2,616,300 | ||||||||||||
|
|
|
| |||||||||||||
12,066,291 | 11,825,525 | 12,779,759 | 12,397,059 | |||||||||||||
Unappropriated | 2,122,300 | 1,276,970 | 3,173,405 | 2,610,568 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 14,188,591 | 13,102,495 | ₩ | 15,953,164 | 15,007,627 | |||||||||||
|
|
|
|
(2) | Legal reserve |
The Korean Commercial Act requires the Parent Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. The legal reserve may not be utilized for cash dividends, but may only be used to offset a future deficit, if any, or may be transferred to share capital.
The reserve for research and manpower development was appropriated in order to recognize certain tax deductible benefits through the early recognition of future expenditures for tax purposes. These reserves will be reversed from appropriated and retained earnings in accordance with the relevant tax laws. Such reversal will be included in taxable income in the year of reversal.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Reserves |
(1) | Details of reserves, net of taxes, as of December 31, |
(In millions of won) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||
Unrealized fair value of available-for-sale financial assets | ₩ | 235,385 | 208,529 | |||||||||||||
Valuation gain onavailable-for-sale financial assets | ₩ | 12,534 | 232,316 | |||||||||||||
Other comprehensive loss of investments in associates | (163,808 | ) | (172,117 | ) | (179,167 | ) | (169,520 | ) | ||||||||
Unrealized fair value of derivatives | (77,531 | ) | (35,429 | ) | ||||||||||||
Valuation loss on derivatives | (96,418 | ) | (83,200 | ) | ||||||||||||
Foreign currency translation differences for foreign operations | 1,465 | (13,253 | ) | 36,868 | 29,707 | |||||||||||
|
|
|
| |||||||||||||
₩ | (4,489 | ) | (12,270 | ) | ₩ | (226,183 | ) | 9,303 | ||||||||
|
|
|
|
(2) | Changes in reserves for the years ended December 31, |
(In millions of won) | 2014 | |||||||||||||||||||
Unrealized fair value of available-for- sale financial assets | Other compre- hensive loss of investments in associates | Unrealized fair value of derivatives | Foreign currency translation differences for foreign operations | Total | ||||||||||||||||
Balance at January 1, 2014 | ₩ | 208,529 | (172,117 | ) | (35,429 | ) | (13,253 | ) | (12,270 | ) | ||||||||||
Changes | 30,945 | 8,381 | (54,290 | ) | 14,718 | (246 | ) | |||||||||||||
Tax effect | (4,089 | ) | (72 | ) | 12,188 | — | 8,027 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2014 | ₩ | 235,385 | (163,808 | ) | (77,531 | ) | 1,465 | (4,489 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||
2016 | ||||||||||||||||||||
Valuation gain (loss) on available-for- sale financial assets | Other compre- hensive loss of investments in associates | Valuation loss on derivatives | Foreign currency translation differences for foreign operations | Total | ||||||||||||||||
Balance at January 1, 2016 | ₩ | 232,316 | (169,520 | ) | (83,200 | ) | 29,707 | 9,303 | ||||||||||||
Changes, net of taxes | (219,782 | ) | (9,647 | ) | (13,218 | ) | 7,161 | (235,486 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2016 | ₩ | 12,534 | (179,167 | ) | (96,418 | ) | 36,868 | (226,183 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of won) | 2013 | |||||||||||||||||||
Unrealized fair value of available-for- sale financial assets | Other compre- hensive loss of investments in associates | Unrealized fair value of derivatives | Foreign currency translation differences for foreign operations | Total | ||||||||||||||||
Balance at January 1, 2013 | ₩ | 207,063 | (175,044 | ) | (46,652 | ) | (11,003 | ) | (25,636 | ) | ||||||||||
Changes | 2,747 | 1,254 | 14,488 | (2,250 | ) | 16,239 | ||||||||||||||
Tax effect | (1,281 | ) | 1,673 | (3,265 | ) | — | (2,873 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2013 | ₩ | 208,529 | (172,117 | ) | (35,429 | ) | (13,253 | ) | (12,270 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||
2015 | ||||||||||||||||||||
Valuation gain (loss) on available-for- sale financial assets | Other compre- hensive loss of investments in associates | Valuation loss on derivatives | Foreign currency translation differences for foreign operations | Total | ||||||||||||||||
Balance at January 1, 2015 | ₩ | 235,385 | (163,808 | ) | (77,531 | ) | 1,465 | (4,489 | ) | |||||||||||
Changes, net of taxes | (3,069 | ) | (5,712 | ) | (5,669 | ) | 28,242 | 13,792 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at December 31, 2015 | ₩ | 232,316 | (169,520 | ) | (83,200 | ) | 29,707 | 9,303 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
(3) |
(In millions of won) | 2014 | |||||||||||
Before taxes | Income tax effect | After taxes | ||||||||||
Balance at January 1, 2014 | ₩ | 275,663 | (67,134 | ) | 208,529 | |||||||
Amount recognized as other comprehensive loss during the year | 40,785 | (6,470 | ) | 34,315 | ||||||||
Amount reclassified to profit or loss | (9,840 | ) | 2,381 | (7,459 | ) | |||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2014 | ₩ | 306,608 | (71,223 | ) | 235,385 | |||||||
|
|
|
|
|
|
(In millions of won) | 2013 | |||||||||||
Before taxes | Income tax effect | After taxes | ||||||||||
Balance at January 1, 2013 | ₩ | 272,917 | (65,854 | ) | 207,063 | |||||||
Amount recognized as other comprehensive income during the year | 3,879 | (1,529 | ) | 2,350 | ||||||||
Amount reclassified to profit or loss | (1,133 | ) | 249 | (884 | ) | |||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2013 | ₩ | 275,663 | (67,134 | ) | 208,529 | |||||||
|
|
|
|
|
|
(In millions of won) | ||||||||
2016 | 2015 | |||||||
Balance at January 1 | ₩ | 232,316 | 235,385 | |||||
Amount recognized as other comprehensive income (loss) during the year, net of taxes | 4,606 | (1,835 | ) | |||||
Amount reclassified through profit or loss, net of taxes | (224,388 | ) | (1,234 | ) | ||||
|
|
|
| |||||
Balance at December 31 | ₩ | 12,534 | 232,316 | |||||
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(4) |
(In millions of won) | 2014 | |||||||||||
Before taxes | Income tax effect | After taxes | ||||||||||
Balance at January 1, 2014 | ₩ | (48,211 | ) | 12,782 | (35,429 | ) | ||||||
Amount recognized as other comprehensive loss during the year | (46,535 | ) | 10,311 | (36,224 | ) | |||||||
Amount reclassified through profit or loss | (7,755 | ) | 1,877 | (5,878 | ) | |||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2014 | ₩ | (102,501 | ) | 24,970 | (77,531 | ) | ||||||
|
|
|
|
|
|
(In millions of won) | 2013 | |||||||||||
Before taxes | Income tax effect | After taxes | ||||||||||
Balance at January 1, 2013 | ₩ | (62,698 | ) | 16,046 | (46,652 | ) | ||||||
Amount recognized as other comprehensive income during the year | 11,833 | (3,001 | ) | 8,832 | ||||||||
Amount reclassified through profit or loss | 2,654 | (263 | ) | 2,391 | ||||||||
|
|
|
|
|
| |||||||
Balance at December 31, 2013 | ₩ | (48,211 | ) | 12,782 | (35,429 | ) | ||||||
|
|
|
|
|
|
(In millions of won) | ||||||||
2016 | 2015 | |||||||
Balance at January 1 | ₩ | (83,200 | ) | (77,531 | ) | |||
Amount recognized as other comprehensive loss during the year, net of taxes | (12,213 | ) | (5,284 | ) | ||||
Amount reclassified through profit or loss, net of taxes | (1,005 | ) | (385 | ) | ||||
|
|
|
| |||||
Balance at December 31 | ₩ | (96,418 | ) | (83,200 | ) | |||
|
|
|
|
Other Operating Income and Expenses |
Details of other operating income and expensesandexpenses for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Other Operating Income: | ||||||||||||||||||||||||
Reversal of allowance for doubtful accounts | ₩ | — | 359 | 5,902 | ||||||||||||||||||||
Gain on disposal of property and equipment and intangible assets | 8,792 | 7,991 | 162,590 | ₩ | 6,908 | 7,140 | 8,792 | |||||||||||||||||
Others(*1) | 47,679 | 66,604 | 33,352 | 59,640 | 23,795 | 47,679 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 56,471 | 74,954 | 201,844 | ₩ | 66,548 | 30,935 | 56,471 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Other Operating Expenses: | ||||||||||||||||||||||||
Communication expenses | ₩ | 58,622 | 62,193 | 69,585 | ₩ | 31,196 | 43,979 | 58,622 | ||||||||||||||||
Utilities | 247,919 | 227,593 | 197,559 | 277,497 | 270,621 | 247,919 | ||||||||||||||||||
Taxes and dues(*2) | 33,500 | 29,873 | 91,745 | |||||||||||||||||||||
Taxes and dues | 35,020 | 36,118 | 33,500 | |||||||||||||||||||||
Repair | 260,533 | 252,344 | 223,247 | 326,076 | 312,517 | 260,533 | ||||||||||||||||||
Research and development | 390,943 | 352,385 | 304,557 | 344,787 | 315,790 | 390,943 | ||||||||||||||||||
Training | 42,781 | 40,446 | 39,407 | 33,303 | 37,278 | 42,781 | ||||||||||||||||||
Bad debt for accounts receivables — trade | 45,754 | 53,344 | 52,393 | 37,820 | 60,450 | 45,754 | ||||||||||||||||||
Travel | 28,912 | 31,762 | 31,380 | 25,263 | 27,860 | 28,912 | ||||||||||||||||||
Supplies and other | 209,933 | 189,224 | 143,882 | 113,930 | 176,248 | 209,933 | ||||||||||||||||||
Loss on disposal of property and equipment and intangible assets | 32,950 | 267,468 | 15,117 | 63,797 | 21,392 | 32,950 | ||||||||||||||||||
Impairment loss on other investment securities | 22,749 | 6,137 | 1,307 | 24,033 | 42,966 | 22,749 | ||||||||||||||||||
Impairment loss on property and equipment and intangible assets | 47,489 | 13,770 | 37,007 | 24,506 | 35,845 | 47,489 | ||||||||||||||||||
Donations | 67,823 | 82,057 | 81,330 | 96,633 | 72,454 | 67,823 | ||||||||||||||||||
Bad debt for accounts receivable — other | 17,943 | 22,155 | 30,107 | 40,312 | 15,323 | 17,943 | ||||||||||||||||||
Other(*2) | 84,796 | 115,532 | 23,402 | |||||||||||||||||||||
Others(*2) | 49,593 | 55,536 | 84,796 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 1,592,647 | 1,746,283 | 1,342,025 | ₩ | 1,523,766 | 1,524,377 | 1,592,647 | |||||||||||||||||
|
|
|
|
|
|
(*1) | Others for the year ended December 31, 2016 include ₩0.9 billion and ₩25 billion of V.A.T refund and penalty refund, respectively, and Others for the years ended December 31, 2015 and 2014 |
(*2) | Others for the years ended December 31, 2016, 2015 and 2014 primarily consist of |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Finance Income and Costs |
(1) | Details of finance income and costs for the years ended December 31, |
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Finance Income: | ||||||||||||||||||||||||
Interest income | ₩ | 60,006 | 65,560 | 97,318 | ₩ | 54,353 | 45,884 | 60,006 | ||||||||||||||||
Gain on sale of accounts receivable — trade | 18,638 | — | — | |||||||||||||||||||||
Dividends | 13,048 | 10,197 | 27,732 | 19,161 | 16,102 | 13,048 | ||||||||||||||||||
Gain on foreign currency transactions | 16,301 | 11,041 | 6,735 | 14,186 | 18,923 | 16,301 | ||||||||||||||||||
Gain on foreign currency translation | 6,277 | 4,401 | 4,065 | |||||||||||||||||||||
Gain on foreign currency translations | 5,085 | 5,090 | 6,277 | |||||||||||||||||||||
Gain on disposal of long-term investment securities | 13,994 | 9,300 | 282,605 | 459,349 | 10,786 | 13,994 | ||||||||||||||||||
Gain on valuation of derivatives | 8,713 | — | — | 4,132 | 1,927 | 8,713 | ||||||||||||||||||
Gain on settlement of derivatives | 7,998 | 7,716 | 26,103 | — | — | 7,998 | ||||||||||||||||||
Gain relating to financial asset at fair value through profit or loss | — | 5,177 | — | |||||||||||||||||||||
Gain relating to financial assets at fair value through profit or loss | 25 | — | — | |||||||||||||||||||||
Gain relating to financial liability at fair value through profit or loss | 121 | 5,188 | — | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 126,337 | 113,392 | 444,558 | ₩ | 575,050 | 103,900 | 126,337 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Finance Costs: | ||||||||||||||||||||||||
Interest expense | ₩ | 323,910 | 331,834 | 412,379 | ₩ | 290,454 | 297,662 | 323,910 | ||||||||||||||||
Loss on foreign currency transactions | 18,053 | 16,430 | 7,204 | 16,765 | 17,931 | 18,053 | ||||||||||||||||||
Loss on foreign currency translation | 5,079 | 2,634 | 4,608 | |||||||||||||||||||||
Loss on foreign currency translations | 3,991 | 4,750 | 5,079 | |||||||||||||||||||||
Loss on disposal of long-term investment securities | 2,694 | 31,909 | 10,802 | 2,919 | 2,599 | 2,694 | ||||||||||||||||||
Loss on valuation of derivatives | 10 | 2,106 | 286 | — | — | 10 | ||||||||||||||||||
Loss on settlement of derivatives | 672 | — | 1,232 | 3,428 | 4,845 | 672 | ||||||||||||||||||
Loss relating to financial asset at fair value through profit or loss | 1,352 | — | 1,262 | |||||||||||||||||||||
Loss relating to financial liability at fair value through profit or loss(*1) | 10,370 | 134,232 | 7,793 | |||||||||||||||||||||
Loss on redemption of debentures | — | — | 2,099 | |||||||||||||||||||||
Other finance costs(*2) | 24,533 | 52,058 | 190,620 | |||||||||||||||||||||
Loss relating to financial assets at fair value through profit or loss | — | — | 1,352 | |||||||||||||||||||||
Loss relating to financial liability at fair value through profit or loss | 4,018 | 526 | 10,370 | |||||||||||||||||||||
Other finance costs(*) | 5,255 | 21,787 | 24,533 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 386,673 | 571,203 | 638,285 | ₩ | 326,830 | 350,100 | 386,673 | |||||||||||||||||
|
|
|
|
|
|
(* |
See Note |
(2) | Details of interest income included in finance income for the years ended December 31, |
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Interest income on cash equivalents and deposits | ₩ | 33,417 | 41,907 | 57,029 | ₩ | 20,203 | 20,009 | 33,417 | ||||||||||||||||
Interest income on installment receivables and others | 26,589 | 23,653 | 40,289 | 34,150 | 25,875 | 26,589 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 60,006 | 65,560 | 97,318 | ₩ | 54,353 | 45,884 | 60,006 | |||||||||||||||||
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(3) | Details of interest |
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Interest expense on bank overdrafts and borrowings | ₩ | 26,360 | 28,600 | 147,741 | ₩ | 7,962 | 19,577 | 26,360 | ||||||||||||||||
Interest expense on debentures | 247,972 | 258,962 | 209,545 | 239,560 | 238,450 | 247,972 | ||||||||||||||||||
Interest on finance lease liabilities | 504 | 1,333 | 2,621 | — | 58 | 504 | ||||||||||||||||||
Others | 49,074 | 42,939 | 52,472 | 42,932 | 39,577 | 49,074 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 323,910 | 331,834 | 412,379 | ₩ | 290,454 | 297,662 | 323,910 | |||||||||||||||||
|
|
|
|
|
|
(4) | Finance income and costs by |
(i) Finance income
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 8,713 | 5,177 | — | ₩ | 4,157 | 1,927 | 8,713 | ||||||||||||||||
Available-for-sale financial assets | 32,227 | 23,311 | 317,915 | 484,300 | 31,220 | 32,227 | ||||||||||||||||||
Loans and receivables | 57,685 | 62,211 | 90,177 | 86,256 | 64,749 | 57,685 | ||||||||||||||||||
Derivative financial instruments designated as hedged item | 7,998 | 7,716 | 26,103 | |||||||||||||||||||||
Derivatives designated as hedging instruments | — | — | 7,998 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Sub-total | 574,713 | 97,896 | 106,623 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss | 121 | 5,188 | — | |||||||||||||||||||||
Financial liabilities measured at amortized cost | 216 | 816 | 19,714 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Sub-total | 337 | 6,004 | 19,714 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
106,623 | 98,415 | 434,195 | ₩ | 575,050 | 103,900 | 126,337 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||
Financial liabilities measured at amortized cost | 19,714 | 14,977 | 10,363 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
19,714 | 14,977 | 10,363 | ||||||||||||||||||||||
|
|
| ||||||||||||||||||||||
₩ | 126,337 | 113,392 | 444,558 | |||||||||||||||||||||
|
|
|
(ii) Finance costs
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 1,361 | 276 | 1,262 | ₩ | 2,791 | 4,188 | 1,361 | ||||||||||||||||
Available-for-sale financial assets | 27,227 | 83,967 | 201,423 | 8,174 | 24,386 | 27,227 | ||||||||||||||||||
Loans and receivables | 18,182 | 16,479 | 1,789 | 15,810 | 15,861 | 18,182 | ||||||||||||||||||
Derivative financial instruments designated as hedged item | 672 | 1,830 | 1,516 | |||||||||||||||||||||
Derivatives designated as hedging instruments | 637 | 657 | 672 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
47,442 | 102,552 | 205,990 | ||||||||||||||||||||||
Sub-total | 27,412 | 45,092 | 47,442 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss | 10,370 | 134,232 | 7,793 | 4,018 | 526 | 10,370 | ||||||||||||||||||
Financial liabilities measured at amortized cost | 328,861 | 334,419 | 424,502 | 295,400 | 304,482 | 328,861 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Sub-total | 299,418 | 305,008 | 339,231 | |||||||||||||||||||||
339,231 | 468,651 | 432,295 |
|
|
| |||||||||||||||||||
|
|
| ₩ | 326,830 | 350,100 | 386,673 | ||||||||||||||||||
₩ | 386,673 | 571,203 | 638,285 |
|
|
| ||||||||||||||||||
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(iii) Other comprehensive income (loss)
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Financial Assets: | ||||||||||||||||||||||||
Available-for-sale financial assets | ₩ | 26,856 | 2,009 | (149,082 | ) | ₩ | (223,981 | ) | (3,661 | ) | 26,856 | |||||||||||||
Derivative financial instruments designated as hedged item | (20,301 | ) | 12,240 | (23,527 | ) | |||||||||||||||||||
Derivatives designated as hedging instruments | (172 | ) | (3,248 | ) | (20,301 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
6,555 | 14,249 | (172,609 | ) | (224,153 | ) | (6,909 | ) | 6,555 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||
Derivative financial instruments designated as hedged item | (21,801 | ) | (1,018 | ) | 166 | |||||||||||||||||||
Derivatives designated as hedging instruments | (13,046 | ) | 1,977 | (21,801 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
(21,801 | ) | (1,018 | ) | 166 | (13,046 | ) | 1,977 | (21,801 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | (15,246 | ) | 13,231 | (172,443 | ) | ₩ | (237,199 | ) | (4,932 | ) | (15,246 | ) | ||||||||||||
|
|
|
|
|
|
(5) | Details of impairment losses for financial assets for the years ended December 31, |
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Available-for-sale financial assets(*) | ₩ | 24,533 | 52,058 | 190,620 | ₩ | 5,255 | 21,787 | 24,533 | ||||||||||||||||
Bad debt for accounts receivable — trade | 45,754 | 53,344 | 52,393 | |||||||||||||||||||||
Bad debt for accounts receivable — other | 17,943 | 22,167 | 30,107 | |||||||||||||||||||||
Accounts receivable — trade | 37,820 | 60,450 | 45,754 | |||||||||||||||||||||
Other receivables | 40,312 | 15,323 | 17,943 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 88,230 | 127,569 | 273,120 | ₩ | 83,387 | 97,560 | 88,230 | |||||||||||||||||
|
|
|
|
|
|
(*) | This is included in other finance costs (See Note |
Income Tax Expense |
(1) | Income tax expenses for |
(In millions of won) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Current tax expense | ||||||||||||
Current tax payable | ₩ | 181,273 | 145,457 | 200,836 | ||||||||
Adjustments recognized in the period for current tax of prior periods | (19,938 | ) | (16,696 | ) | (69,634 | ) | ||||||
|
|
|
|
|
| |||||||
161,335 | 128,761 | 131,202 | ||||||||||
|
|
|
|
|
| |||||||
Deferred tax expense | ||||||||||||
Changes in net deferred tax assets | 276,049 | 266,601 | 103,480 | |||||||||
Tax directly charged to equity | 16,929 | (3,584 | ) | 50,053 | ||||||||
Changes in scope of consolidation | — | 8,919 | (3,611 | ) | ||||||||
Others | 195 | 100 | 7,083 | |||||||||
|
|
|
|
|
| |||||||
293,173 | 272,036 | 157,005 | ||||||||||
|
|
|
|
|
| |||||||
Income tax for continuing operation | ₩ | 454,508 | 400,797 | 288,207 | ||||||||
|
|
|
|
|
|
(In millions of won) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Current tax expense | ||||||||||||
Current year | ₩ | 473,543 | 417,022 | 181,273 | ||||||||
Current tax of prior years | (11,925 | ) | (4,124 | ) | (19,938 | ) | ||||||
|
|
|
|
|
| |||||||
461,618 | 412,898 | 161,335 | ||||||||||
|
|
|
|
|
| |||||||
Deferred tax expense | ||||||||||||
Changes in net deferred tax assets | (25,580 | ) | 106,399 | 292,978 | ||||||||
Others (tax rate differences, etc.) | — | 183 | 195 | |||||||||
|
|
|
|
|
| |||||||
Income tax expense | ₩ | 436,038 | 519,480 | 454,508 | ||||||||
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(2) | The difference between income taxes computed using the statutory corporate income tax rates and the |
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Income taxes at statutory income tax rate | ₩ | 544,964 | 441,697 | 367,661 | ₩ | 506,804 | 492,096 | 544,964 | ||||||||||||||||
Non-taxable income | (32,277 | ) | (35,632 | ) | (5,039 | ) | (38,989 | ) | (85,589 | ) | (32,277 | ) | ||||||||||||
Non-deductible expenses | 61,580 | 74,311 | 19,410 | 52,648 | 44,770 | 61,580 | ||||||||||||||||||
Tax credit and tax reduction | (33,581 | ) | (37,893 | ) | (72,947 | ) | (29,484 | ) | (25,756 | ) | (33,581 | ) | ||||||||||||
Changes in unrealizable deferred taxes | (43,820 | ) | (13,285 | ) | 5,723 | |||||||||||||||||||
Additional income tax refund for prior periods | (44,459 | ) | (23,162 | ) | (32,071 | ) | ||||||||||||||||||
Deferred tax effect from statutory tax rate change for future periods | 2,101 | (5,239 | ) | 5,470 | ||||||||||||||||||||
Changes in unrecognized deferred taxes | (84,276 | ) | 83,623 | (43,820 | ) | |||||||||||||||||||
Others (income tax refund, etc.) | 29,335 | 10,336 | (42,358 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Income tax for continuing operation | ₩ | 454,508 | 400,797 | 288,207 | ||||||||||||||||||||
Income tax expense | ₩ | 436,038 | 519,480 | 454,508 | ||||||||||||||||||||
|
|
|
|
|
|
(3) | Deferred taxes directly charged to (credited |
(In millions of won) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Net change in fair value of available-for-sale financial assets | ₩ | (4,089 | ) | (1,281 | ) | 47,041 | ||||||
Share of other comprehensive income of associates | (72 | ) | 1,673 | (5,997 | ) | |||||||
Gain or loss on valuation of derivatives | 12,188 | (3,265 | ) | 4,562 | ||||||||
Remeasurement of defined benefit liabilities | 8,902 | (466 | ) | 4,447 | ||||||||
Loss on disposal of treasury stock | — | (245 | ) | — | ||||||||
|
|
|
|
|
| |||||||
₩ | 16,929 | (3,584 | ) | 50,053 | ||||||||
|
|
|
|
|
|
(In millions of won) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Valuation gain (loss) onavailable-for-sale financial assets | ₩ | 82,993 | 2,461 | (4,089 | ) | |||||||
Share of other comprehensive income (loss) of associates | 2 | (63 | ) | (72 | ) | |||||||
Valuation gain (loss) on derivatives | 4,454 | (448 | ) | 12,188 | ||||||||
Remeasurement of defined benefit liabilities | 3,174 | 2,719 | 8,902 | |||||||||
|
|
|
|
|
| |||||||
₩ | 90,623 | 4,669 | 16,929 | |||||||||
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(4) | Details of the changes in deferred tax assets (liabilities) for the years ended December 31, |
(In millions of won) | 2014 | |||||||||||||||||||||||||||||||||||
Beginning | Deferred tax expense (benefit) | Directly added to (deducted from) equity | Other | Ending | 2016 | |||||||||||||||||||||||||||||||
Deferred tax assets (liabilities) related to temporary differences | ||||||||||||||||||||||||||||||||||||
Beginning | Deferred tax expense (income) | Directly charged to (credited from) equity | Ending | |||||||||||||||||||||||||||||||||
Deferred tax assets (liabilities) related to temporary differences: | ||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ₩ | 56,427 | (2,700 | ) | — | (149 | ) | 53,578 | ₩ | 59,957 | 1,954 | — | 61,911 | |||||||||||||||||||||||
Accrued interest income | (2,831 | ) | 381 | — | — | (2,450 | ) | (2,567 | ) | 1,951 | — | (616 | ) | |||||||||||||||||||||||
Available-for-sale financial assets | (589 | ) | (146 | ) | (4,089 | ) | — | (4,824 | ) | 30,365 | (11,886 | ) | 82,993 | 101,472 | ||||||||||||||||||||||
Investments in subsidiaries and associates | (44,844 | ) | (165,663 | ) | (72 | ) | (464 | ) | (211,043 | ) | ||||||||||||||||||||||||||
Investments in subsidiaries, associates and joint ventures | (355,273 | ) | (120,827 | ) | 2 | (476,098 | ) | |||||||||||||||||||||||||||||
Property and equipment (depreciation) | (333,633 | ) | (38,690 | ) | — | (9 | ) | (372,332 | ) | (327,572 | ) | 74,249 | — | (253,323 | ) | |||||||||||||||||||||
Provisions | 14,303 | (6,699 | ) | — | (17 | ) | 7,587 | 2,485 | 4,963 | — | 7,448 | |||||||||||||||||||||||||
Retirement benefit obligation | 16,089 | 2,390 | 8,902 | (20 | ) | 27,361 | 28,327 | 4,004 | 3,174 | 35,505 | ||||||||||||||||||||||||||
Gain or loss on valuation of derivatives | 12,779 | 2 | 12,188 | — | 24,969 | |||||||||||||||||||||||||||||||
Valuation gain on derivatives | 24,521 | — | 4,454 | 28,975 | ||||||||||||||||||||||||||||||||
Gain or loss on foreign currency translation | 19,572 | (248 | ) | — | — | 19,324 | 19,517 | (148 | ) | — | 19,369 | |||||||||||||||||||||||||
Tax free reserve for research and manpower development | (40,011 | ) | 32,849 | — | — | (7,162 | ) | |||||||||||||||||||||||||||||
Goodwill relevant to leased line | 31,025 | (26,592 | ) | — | — | 4,433 | ||||||||||||||||||||||||||||||
Reserve for research and manpower development | (7,162 | ) | 2,387 | — | (4,775 | ) | ||||||||||||||||||||||||||||||
Goodwill | 3,713 | (608 | ) | — | 3,105 | |||||||||||||||||||||||||||||||
Unearned revenue (activation fees) | 53,412 | (27,435 | ) | — | — | 25,977 | 2,065 | (2,065 | ) | — | — | |||||||||||||||||||||||||
Others | 44,738 | (61,274 | ) | — | 854 | (15,682 | ) | (23,782 | ) | 58,693 | — | 34,911 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
(173,563 | ) | (293,825 | ) | 16,929 | 195 | (450,264 | ) | (545,406 | ) | 12,667 | 90,623 | (442,116 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards | ||||||||||||||||||||||||||||||||||||
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards | ||||||||||||||||||||||||||||||||||||
Tax loss carryforwards | 31,060 | 652 | — | — | 31,712 | 24,549 | 12,913 | — | 37,462 | |||||||||||||||||||||||||||
Tax credit carryforwards | — | — | — | — | — | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
31,060 | 652 | — | — | 31,712 | ₩ | (520,857 | ) | 25,580 | 90,623 | (404,654 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
₩ | (142,503 | ) | (293,173 | ) | 16,929 | 195 | (418,552 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||
Beginning | Changes in scope of consolidation | Deferred tax expense (benefit) | Directly added to (deducted from) equity | Other | Ending | 2015 | ||||||||||||||||||||||||||||||||||||||||||
Deferred tax assets (liabilities) related to temporary differences | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning | Changes in scope of consolidation | Deferred tax expense (income) | Directly charged to (credited from) equity | Other | Ending | |||||||||||||||||||||||||||||||||||||||||||
Deferred tax assets (liabilities) related to temporary differences: | ||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for doubtful accounts | ₩ | 51,972 | (2,323 | ) | 6,773 | — | 5 | 56,427 | ₩ | 53,578 | — | 6,379 | — | — | 59,957 | |||||||||||||||||||||||||||||||||
Accrued interest income | (1,782 | ) | (756 | ) | (293 | ) | — | — | (2,831 | ) | (2,450 | ) | — | (117 | ) | — | — | (2,567 | ) | |||||||||||||||||||||||||||||
Available-for-sale financial assets | 13,419 | (45 | ) | (12,682 | ) | (1,281 | ) | — | (589 | ) | (4,824 | ) | — | 32,728 | 2,461 | — | 30,365 | |||||||||||||||||||||||||||||||
Investments in subsidiaries and associates | 66,969 | 51 | (113,541 | ) | 1,673 | 4 | (44,844 | ) | ||||||||||||||||||||||||||||||||||||||||
Investments in subsidiaries, associates and joint ventures | (211,043 | ) | — | (144,167 | ) | (63 | ) | — | (355,273 | ) | ||||||||||||||||||||||||||||||||||||||
Property and equipment (depreciation) | (272,940 | ) | 4,940 | (65,633 | ) | — | — | (333,633 | ) | (372,332 | ) | — | 44,760 | — | — | (327,572 | ) | |||||||||||||||||||||||||||||||
Provisions | 86,567 | 206 | (72,470 | ) | — | — | 14,303 | 7,587 | — | (5,102 | ) | — | — | 2,485 | ||||||||||||||||||||||||||||||||||
Retirement benefit obligation | 16,849 | 151 | (445 | ) | (466 | ) | �� | 16,089 | 27,361 | — | (1,753 | ) | 2,719 | — | 28,327 | |||||||||||||||||||||||||||||||||
Gain or loss on valuation of derivatives | 15,894 | — | 150 | (3,265 | ) | — | 12,779 | |||||||||||||||||||||||||||||||||||||||||
Valuation gain (loss) on derivatives | 24,969 | — | — | (448 | ) | — | 24,521 | |||||||||||||||||||||||||||||||||||||||||
Gain or loss on foreign currency translation | 19,652 | — | (80 | ) | — | — | 19,572 | 19,324 | — | 193 | — | — | 19,517 | |||||||||||||||||||||||||||||||||||
Tax free reserve for research and manpower development | (31,093 | ) | — | (8,918 | ) | — | — | (40,011 | ) | |||||||||||||||||||||||||||||||||||||||
Goodwill relevant to leased line | 68,675 | — | (37,650 | ) | — | — | 31,025 | |||||||||||||||||||||||||||||||||||||||||
Reserve for research and manpower development | (7,162 | ) | — | — | — | — | (7,162 | ) | ||||||||||||||||||||||||||||||||||||||||
Goodwill | 4,433 | — | (720 | ) | — | — | 3,713 | |||||||||||||||||||||||||||||||||||||||||
Unearned revenue (activation fees) | 97,110 | — | (43,698 | ) | — | — | 53,412 | 25,977 | — | (23,912 | ) | — | — | 2,065 | ||||||||||||||||||||||||||||||||||
Others | (23,804 | ) | (11,654 | ) | 80,350 | (245 | ) | 91 | 44,738 | (15,682 | ) | (575 | ) | (7,708 | ) | — | 183 | (23,782 | ) | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
107,488 | (9,430 | ) | (268,137 | ) | (3,584 | ) | 100 | (173,563 | ) | (450,264 | ) | (575 | ) | (99,419 | ) | 4,669 | 183 | (545,406 | ) | |||||||||||||||||||||||||||||
|
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|
|
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| |||||||||||||||||||||||||||||||||||||
Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards | ||||||||||||||||||||||||||||||||||||||||||||||||
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards | ||||||||||||||||||||||||||||||||||||||||||||||||
Tax loss carryforwards | 16,609 | 18,350 | (3,899 | ) | — | — | 31,060 | 31,712 | — | (7,163 | ) | — | — | 24,549 | ||||||||||||||||||||||||||||||||||
Tax credit carryforwards | 1 | (1 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
16,610 | 18,349 | (3,899 | ) | — | — | 31,060 | ₩ | (418,552 | ) | (575 | ) | (106,582 | ) | 4,669 | 183 | (520,857 | ) | |||||||||||||||||||||||||||||||
|
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| |||||||||||||||||||||||||||||||||||||
₩ | 124,098 | 8,919 | (272,036 | ) | (3,584 | ) | 100 | (142,503 | ) | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
(5) | Details of temporary differences, unused tax loss carryforwards and unused tax credits carryforwards |
(In millions of won) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||
Allowance for doubtful accounts | ₩ | 155,634 | 152,341 | ₩ | 165,935 | 182,266 | ||||||||||
Investments in subsidiaries and associates | 422,033 | 719,974 | ||||||||||||||
Investments in subsidiaries, associates and joint ventures | 228,025 | 281,719 | ||||||||||||||
Other temporary differences | 314,188 | 221,264 | 320,260 | 285,845 | ||||||||||||
Unused tax loss carryforwards | 729,570 | 669,890 | 755,050 | 1,034,070 | ||||||||||||
Unused tax credit carryforwards | 2,438 | — | 1,211 | 2,271 | ||||||||||||
|
| |||||||||||||||
₩ | 1,623,863 | 1,763,469 | ||||||||||||||
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(6) | The |
(In millions of won) | ||||||||||||||||
Unused tax loss carryforwards | Unused tax credit carryforwards | Unused tax loss carryforwards | Unused tax credit carryforwards | |||||||||||||
Less than 1 year | ₩ | 1,087 | 270 | ₩ | 12,647 | 154 | ||||||||||
1 ~ 2 years | 4,894 | 1,041 | 33,658 | 870 | ||||||||||||
2 ~ 3 years | — | 155 | 320,630 | 101 | ||||||||||||
More than 3 years | 723,589 | 972 | 388,115 | 86 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 729,570 | 2,438 | ₩ | 755,050 | 1,211 | |||||||||||
|
|
|
|
Earnings per Share |
(1) Basic earnings per share
1) | Basic earnings per share for the years ended December 31, |
(In millions of won, shares) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Basic earnings per share attributable to owners of the Parent Company from continuing operation: | ||||||||||||||||||||||||
Profit attributable to owners of the Parent Company from continuing operations | ₩ | 1,801,178 | 1,463,097 | 1,255,526 | ||||||||||||||||||||
Interest on hybrid bonds | (16,840 | ) | (8,420 | ) | — | |||||||||||||||||||
|
|
| ||||||||||||||||||||||
Profit attributable to owners of the Parent Company from continuing operations on common shares | 1,784,338 | 1,454,677 | 1,255,526 | |||||||||||||||||||||
Weighted average number of common shares outstanding | 70,936,336 | 70,247,592 | 69,694,999 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Basic earnings per share from continuing operations (In won) | ₩ | 25,154 | 20,708 | 18,015 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Basic earnings per share attributable to owners of the Parent Company: | ||||||||||||||||||||||||
Profit attributable to owners of the Parent Company | ₩ | 1,801,178 | 1,638,964 | 1,151,705 | ₩ | 1,675,967 | 1,518,604 | 1,801,178 | ||||||||||||||||
Interest on hybrid bond | (16,840 | ) | (8,420 | ) | — | |||||||||||||||||||
Interest on hybrid bonds | (16,840 | ) | (16,840 | ) | (16,840 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Profit attributable to owners of the Parent Company on common shares | 1,784,338 | 1,630,544 | 1,151,705 | 1,659,127 | 1,501,764 | 1,784,338 | ||||||||||||||||||
Weighted average number of common shares outstanding | 70,936,336 | 70,247,592 | 69,694,999 | 70,609,160 | 71,551,966 | 70,936,336 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Basic earnings per share (In won) | ₩ | 25,154 | 23,211 | 16,525 | ||||||||||||||||||||
Basic earnings per share (in won) | ₩ | 23,497 | 20,988 | 25,154 | ||||||||||||||||||||
|
|
|
|
|
|
2) |
(In millions of won) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Profit attributable to owners of the Parent Company | ₩ | 1,801,178 | 1,638,964 | 1,151,705 | ||||||||
Results of discontinued operation attributable to owners of the Parent Company | — | (175,867 | ) | 103,821 | ||||||||
|
|
|
|
|
| |||||||
Profit attributable to owners of the Parent Company from continuing operation | ₩ | 1,801,178 | 1,463,097 | 1,255,526 | ||||||||
|
|
|
|
|
|
(In shares) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Issued common shares at January 1 | 80,745,711 | 80,745,711 | 80,745,711 | |||||||||
Effect of treasury shares | (10,136,551 | ) | (9,193,745 | ) | (9,809,375 | ) | ||||||
|
|
|
|
|
| |||||||
Weighted average number of common shares outstanding at December 31 | 70,609,160 | 71,551,966 | 70,936,336 | |||||||||
|
|
|
|
|
|
(2) Diluted earnings per share
For the years ended December 31, 2016, 2015 and 2014, there were no potentially dilutive shares. Therefore, diluted earnings per share for the years ended December 31, 2016, 2015 and 2014 are the same as basic earnings per share.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(1) Details of dividends declared
Details of dividend declared for the years ended December 31, 2016, 2015 and 2014 are as follows:
(In millions of won, except for face value and share data) | ||||||||||||||||||
Year | Dividend type | Number of shares outstanding | Face value (In won) | Dividend ratio | Dividends | |||||||||||||
2016 | Cash dividends (Interim) | 70,609,160 | 500 | 200 | % | ₩ | 70,609 | |||||||||||
Cash dividends(Year-end) | 70,609,160 | 500 | 1,800 | % | 635,482 | |||||||||||||
|
| |||||||||||||||||
₩ | 706,091 | |||||||||||||||||
|
| |||||||||||||||||
2015 | Cash dividends (Interim) | 72,629,160 | 500 | 200 | % | ₩ | 72,629 | |||||||||||
Cash dividends(Year-end) | 70,609,160 | 500 | 1,800 | % | 635,482 | |||||||||||||
|
| |||||||||||||||||
₩ | 708,111 | |||||||||||||||||
|
| |||||||||||||||||
2014 | Cash dividends (Interim) | 70,936,336 | 500 | 200 | % | ₩ | 70,937 | |||||||||||
Cash dividends(Year-end) | 70,936,336 | 500 | 1,680 | % | 595,865 | |||||||||||||
|
| |||||||||||||||||
₩ | 666,802 | |||||||||||||||||
|
|
(2) Dividends yield ratio
Dividends yield ratios for the years ended December 31, 2016, 2015 and 2014 are as follows:
(In won) | ||||||||
Year | Dividend type | Dividend per share | Closing price at settlement | Dividend yield ratio | ||||
2016 | Cash dividend | 10,000 | 224,000 | 4.46% | ||||
2015 | Cash dividend | 10,000 | 215,500 | 4.64% | ||||
2014 | Cash dividend | 9,400 | 268,000 | 3.51% |
32. | Categories of Financial Instruments |
(1) | Financial assets by category as of December 31, |
(In shares) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Outstanding common shares | 80,745,711 | 80,745,711 | 80,745,711 | |||||||||
Weighted number of treasury stocks | (9,809,375 | ) | (10,498,119 | ) | (11,050,712 | ) | ||||||
|
|
|
|
|
| |||||||
Weighted average number of common shares outstanding | 70,936,336 | 70,247,592 | 69,694,999 | |||||||||
|
|
|
|
|
|
(2) Diluted earnings per share
(In millions of won, shares) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Diluted earnings per share from continuing operations: |
| |||||||||||
Profit attributable to owners of the Parent Company from continuing operations on common shares | ₩ | 1,801,178 | 1,454,677 | 1,255,526 | ||||||||
Gain relating to exchangeable bonds(*) | — | — | 10,799 | |||||||||
Diluted profit attributable to owners of the Parent Company from continuing operations on common shares | — | 1,454,677 | 1,266,325 | |||||||||
Weighted average number of common shares outstanding | 70,936,336 | 70,247,592 | 72,021,148 | |||||||||
|
|
|
|
|
| |||||||
Diluted earnings per share from continuing operations (In won) | ₩ | 25,154 | 20,708 | 17,583 | ||||||||
|
|
|
|
|
| |||||||
Diluted earnings per share: | ||||||||||||
Diluted profit attributable to owners of the Parent Company | ₩ | 1,784,338 | 1,630,544 | 1,151,705 | ||||||||
Gain relating to exchangeable bonds(*) | — | — | 10,799 | |||||||||
Diluted profit attributable to owners of the Parent Company on common shares | 1,784,338 | 1,630,544 | 1,162,504 | |||||||||
Weighted average number of common shares outstanding | 70,936,336 | 70,247,592 | 72,021,148 | |||||||||
|
|
|
|
|
| |||||||
Diluted earnings per share (In won) | ₩ | 25,154 | 23,211 | 16,141 | ||||||||
|
|
|
|
|
|
(In shares) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Weighted average number of common shares outstanding | 70,247,592 | 70,247,592 | 69,694,999 | |||||||||
Effect of exchangeable bonds(*) | — | — | 2,326,149 | |||||||||
|
|
|
|
|
| |||||||
Adjusted weighted average number of common shares outstanding | 70,247,592 | 70,247,592 | 72,021,148 | |||||||||
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Loans and receivables | Derivatives hedging instrument | Total | ||||||||||||||||
Cash and cash equivalents | ₩ | — | — | 1,505,242 | — | 1,505,242 | ||||||||||||||
Financial instruments | — | — | 469,705 | — | 469,705 | |||||||||||||||
Short-term investment securities | — | 107,364 | — | — | 107,364 | |||||||||||||||
Long-term investment securities | — | 828,521 | — | — | 828,521 | |||||||||||||||
Accounts receivable — trade | — | — | 2,261,311 | — | 2,261,311 | |||||||||||||||
Loans and other receivables(*) | — | — | 1,701,249 | — | 1,701,249 | |||||||||||||||
Derivative financial assets | 7,368 | — | — | 207,402 | 214,770 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 7,368 | 935,885 | 5,937,507 | 207,402 | 7,088,162 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Loans and receivables | Derivatives hedging instrument | Total | ||||||||||||||||
Cash and cash equivalents | ₩ | — | — | 768,922 | — | 768,922 | ||||||||||||||
Financial instruments | — | — | 701,713 | — | 701,713 | |||||||||||||||
Short-term investment securities | — | 92,262 | — | — | 92,262 | |||||||||||||||
Long-term investment securities | — | 1,207,226 | — | — | 1,207,226 | |||||||||||||||
Accounts receivable — trade | — | — | 2,390,110 | — | 2,390,110 | |||||||||||||||
Loans and other receivables(*) | — | — | 1,102,403 | — | 1,102,403 | |||||||||||||||
Derivative financial assets | 6,277 | — | — | 160,122 | 166,399 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 6,277 | 1,299,488 | 4,963,148 | 160,122 | 6,429,035 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of won, shares) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Results of discontinued operation attributable to owners of the Parent Company | ₩ | — | 175,867 | (103,821 | ) | |||||||
Weighted average number of common shares outstanding | 70,936,336 | 70,247,592 | 69,694,999 | |||||||||
|
|
|
|
|
| |||||||
Basic earnings (loss) per share (In won) | ₩ | — | 2,503 | (1,490 | ) | |||||||
|
|
|
|
|
|
Diluted earnings (loss) per share from discontinued operation is the same as basic loss per share from discontinued operation.
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Short-term loans | ₩ | 58,979 | 53,895 | |||||
Accounts receivable — other | 1,121,444 | 673,739 | ||||||
Accrued income | 2,780 | 10,753 | ||||||
Other current assets | 3,937 | 1,861 | ||||||
Long-term loans | 65,476 | 62,454 | ||||||
Long-term accounts receivable — other | 149,669 | 2,420 | ||||||
Guarantee deposits | 298,964 | 297,281 | ||||||
|
|
|
| |||||
₩ | 1,701,249 | 1,102,403 | ||||||
|
|
|
|
(1) Details of dividends declared
Details of dividend declared for the years ended December 31, 2014, 2013 and 2012 are as follows:
(In millions of won, except for face value and share data) | ||||||||||||||||||
Year | Dividend type | Number of shares outstanding | Face value (In won) | Dividend ratio | Dividends | |||||||||||||
2014 | Cash dividends (Interim) | 70,936,336 | 500 | 200 | % | ₩ | 70,937 | |||||||||||
Cash dividends (Year-end) | 70,936,336 | 500 | 1,680 | % | 595,865 | |||||||||||||
|
| |||||||||||||||||
₩ | 666,802 | |||||||||||||||||
|
| |||||||||||||||||
2013 | Cash dividends (Interim) | 70,508,482 | 500 | 200 | % | ₩ | 70,508 | |||||||||||
Cash dividends (Year-end) | 70,936,336 | 500 | 1,680 | % | 595,865 | |||||||||||||
|
| |||||||||||||||||
₩ | 666,373 | |||||||||||||||||
|
| |||||||||||||||||
2012 | Cash dividends (Interim) | 69,694,999 | 500 | 200 | % | ₩ | 69,695 | |||||||||||
Cash dividends (Year-end) | 69,694,999 | 500 | 1,680 | % | 585,438 | |||||||||||||
|
| |||||||||||||||||
₩ | 655,133 | |||||||||||||||||
|
|
(2) Dividends payout ratio
Dividends payout ratios for the years ended December 31, 2014, 2013 and 2012 are as follows:
(In millions of won) | ||||||||||||
Year | Dividends calculated | Profit | Dividends payout ratio | |||||||||
2014 | ₩ | 666,802 | 1,801,178 | 37.02 | % | |||||||
2013 | ₩ | 666,373 | 1,638,964 | 40.66 | % | |||||||
2012 | ₩ | 655,133 | 1,151,705 | 56.88 | % |
(3) Dividends yield ratio
Dividends yield ratios for the years ended December 31, 2014, 2013 and 2012 are as follows:
(In won) | ||||||||
Year | Dividend type | Dividend per share | Closing price at settlement | Dividend yield ratio | ||||
2014 | Cash dividend | 9,400 | 268,000 | 3.51% | ||||
2013 | Cash dividend | 9,400 | 230,000 | 4.09% | ||||
2012 | Cash dividend | 9,400 | 152,500 | 6.16% |
(In millions of won) | ||||||||||||||||
December 31, 2016 | ||||||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Derivatives hedging instrument | Total | |||||||||||||
Accounts payable — trade | ₩ | — | 402,445 | — | 402,445 | |||||||||||
Derivative financial liabilities | — | — | 87,153 | 87,153 | ||||||||||||
Borrowings | — | 175,521 | — | 175,521 | ||||||||||||
Debentures(*1) | 59,600 | 7,134,606 | — | 7,194,206 | ||||||||||||
Accounts payable — other and others(*2) | — | 4,842,734 | — | 4,842,734 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 59,600 | 12,555,306 | 87,153 | 12,702,059 | ||||||||||||
|
|
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||
December 31, 2015 | ||||||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Derivatives hedging instrument | Total | |||||||||||||
Accounts payable — trade | ₩ | — | 279,782 | — | 279,782 | |||||||||||
Derivative financial liabilities | — | — | 89,296 | 89,296 | ||||||||||||
Borrowings | — | 415,134 | — | 415,134 | ||||||||||||
Debentures(*1) | 155,704 | 6,952,949 | — | 7,108,653 | ||||||||||||
Accounts payable — other and others(*2) | — | 2,970,801 | — | 2,970,801 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 155,704 | 10,618,666 | 89,296 | 10,863,666 | ||||||||||||
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||
December 31, 2014 | ||||||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Loans and receivables | Derivative financial instruments designated as hedged item | Total | ||||||||||||||||
Cash and cash equivalents | ₩ | — | — | 834,429 | — | 834,429 | ||||||||||||||
Financial instruments | — | — | 313,699 | — | 313,699 | |||||||||||||||
Short-term investment securities | — | 280,161 | — | — | 280,161 | |||||||||||||||
Long-term investment securities(*1) | 7,817 | 948,463 | — | — | 956,280 | |||||||||||||||
Accounts receivable — trade | — | — | 2,460,686 | — | 2,460,686 | |||||||||||||||
Loans and other receivables(*2) | — | — | 1,123,507 | — | 1,123,507 | |||||||||||||||
Derivative financial assets | 8,713 | — | — | 61,322 | 70,035 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 16,530 | 1,228,624 | 4,732,321 | 61,322 | 6,038,797 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||
December 31, 2013 | ||||||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Loans and receivables | Derivative financial instruments designated as hedged item | Total | ||||||||||||||||
Cash and cash equivalents | ₩ | — | — | 1,398,639 | — | 1,398,639 | ||||||||||||||
Financial instruments | — | — | 319,616 | — | 319,616 | |||||||||||||||
Short-term investment securities | — | 106,068 | — | — | 106,068 | |||||||||||||||
Long-term investment securities(*1) | 20,532 | 947,995 | — | — | 968,527 | |||||||||||||||
Accounts receivable — trade | — | — | 2,270,471 | — | 2,270,471 | |||||||||||||||
Loans and other receivables(*2) | — | — | 1,044,529 | — | 1,044,529 | |||||||||||||||
Derivative financial assets(*3) | 10 | — | — | 41,712 | 41,722 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 20,542 | 1,054,063 | 5,033,255 | 41,712 | 6,149,572 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Short-term loans | ₩ | 74,512 | 79,395 | |||||
Accounts receivable — other | 690,527 | 643,603 | ||||||
Accrued income | 10,134 | 11,941 | ||||||
Other current assets | 3,866 | 2,548 | ||||||
Long-term loans | 55,728 | 57,442 | ||||||
Long-term accounts receivable — other | 3,596 | — | ||||||
Guarantee deposits | 285,144 | 249,600 | ||||||
|
|
|
| |||||
₩ | 1,123,507 | 1,044,529 | ||||||
|
|
|
|
(In millions of won) | December 31, 2014 | |||||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Derivative financial instruments designated as hedged item | Total | |||||||||||||
Accounts payable — trade | ₩ | — | 275,495 | — | 275,495 | |||||||||||
Derivative financial liabilities | — | — | 130,889 | 130,889 | ||||||||||||
Borrowings | — | 537,562 | — | 537,562 | ||||||||||||
Debentures(*1) | 110,365 | 6,108,265 | — | 6,218,630 | ||||||||||||
Accounts payable — other and others(*3) | — | 3,241,615 | — | 3,241,615 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 110,365 | 10,162,937 | 130,889 | 10,404,191 | ||||||||||||
|
|
|
|
|
|
|
|
(In millions of won) | December 31, 2013 | |||||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Derivative financial instruments designated as hedged item | Total | |||||||||||||
Accounts payable — trade | ₩ | — | 214,716 | — | 214,716 | |||||||||||
Derivative financial liabilities | — | — | 124,339 | 124,339 | ||||||||||||
Borrowings | — | 386,192 | — | 386,192 | ||||||||||||
Debentures(*2) | 96,147 | 5,830,324 | — | 5,927,471 | ||||||||||||
Accounts payable — other and others(*3) | — | 3,949,794 | — | 3,949,794 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 96,147 | 10,381,026 | 124,339 | 10,601,512 | ||||||||||||
|
|
|
|
|
|
|
|
(*1) | Bonds classified as financial liabilities at fair value through profit or loss as of December 31, |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(*2) |
(In millions of won) | ||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2016 | December 31, 2015 | |||||||||||||
Accounts payable — other | ₩ | 1,381,850 | 1,864,024 | ₩ | 1,767,799 | 1,323,434 | ||||||||||
Withholdings | 1,760 | 1,549 | 1,525 | 1,178 | ||||||||||||
Accrued expenses | 952,418 | 988,193 | 1,125,816 | 920,739 | ||||||||||||
Current installments of long-term payables — other | 193,193 | 226,151 | ||||||||||||||
Current portion of long-term payables — other | 301,773 | 120,185 | ||||||||||||||
Finance lease liabilities | — | 26 | ||||||||||||||
Long-term payables — other | 684,567 | 838,585 | 1,624,590 | 581,697 | ||||||||||||
Finance lease liabilities | 26 | 3,867 | ||||||||||||||
Other non-current liabilities | 27,801 | 27,425 | 21,231 | 23,542 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 3,241,615 | 3,949,794 | ₩ | 4,842,734 | 2,970,801 | |||||||||||
|
|
|
|
Financial Risk Management |
(1) | Financial risk management |
The Group is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Group implements a risk management system to monitor and manage these specific risks.
The Group’s financial assets under financial risk management consist of cash and cash equivalents, financial instruments,available-for-sale financial assets, accounts receivable — trade and other receivables.other. Financial liabilities consist of accounts payable — trade and other, payables, borrowings, and debentures.
1) | Market risk |
(i) Currency risk
The Group is exposedincurs exchange position due to revenue and expenses from its global operations. Major foreign currencies where the currency risk mainly on exchange fluctuations on recognized assetsoccur are USD, JPY and liabilities.EUR. The Group managesdetermines the currency risk by currency forward, etc. if needed to hedgemanagement policy after considering the nature of business and the presence of methods that mitigate the currency risk on business transactions.for each Group entities. Currency risk occurs on forecasted transactiontransactions and recognized assets and liabilities which are denominated in a currency other than the functional currency of the Group.
Monetary foreign currency assets and liabilities as of December 31, 2014 are as follows:
(In millions of won, thousands of U.S. dollars, thousands of Euros, thousands of Japanese Yen, thousands of other currencies) | ||||||||||||||||
Assets | Liabilities | |||||||||||||||
Foreign currencies | Won translation | Foreign currencies | Won translation | |||||||||||||
USD | 162,382 | ₩ | 178,323 | 1,877,566 | ₩ | 2,063,802 | ||||||||||
EUR | 5,259 | 7,059 | 2,352 | 3,143 | ||||||||||||
JPY | 29,184 | 268 | 5,174 | 48 | ||||||||||||
AUD | 79 | 66 | — | — | ||||||||||||
CHF | — | — | 298,536 | 268,411 | ||||||||||||
SGD | — | — | 298,956 | 332,269 | ||||||||||||
Others | 161,777 | 11,656 | 43,656 | 1,227 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 197,372 | ₩ | 2,668,900 | |||||||||||||
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
which are denominated in a currency other than the functional currency of each Group entity. The Group manages currency risk arising from business transactions by using currency forwards, etc.
Monetary assets and liabilities denominated in foreign currencies as of December 31, 2016 are as follows:
(In millions of won, thousands of foreign currencies) | ||||||||||||||||
Assets | Liabilities | |||||||||||||||
Foreign currencies | Won equivalent | Foreign currencies | Won equivalent | |||||||||||||
USD | 144,158 | ₩ | 174,210 | 1,842,559 | ₩ | 2,226,736 | ||||||||||
EUR | 14,650 | 18,570 | 24 | 29 | ||||||||||||
JPY | 68,014 | 705 | 320 | 3 | ||||||||||||
AUD | — | — | 299,532 | 261,207 | ||||||||||||
CHF | — | — | 299,806 | 354,170 | ||||||||||||
Others | — | 429 | — | 299 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 193,914 | ₩ | 2,842,444 | |||||||||||||
|
|
|
|
In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (See(Refer to Note 23)21)
As of December 31, 2014, effects on2016, a hypothetical change in exchange rates by 10% would have increase (reduce) the Group’s income (loss) before income tax as a result of change in exchange rate by 10% are as follows:
(In millions of won) | ||||||||||||||||
If increased by 10% | If decreased by 10% | If increased by 10% | If decreased by 10% | |||||||||||||
USD | ₩ | 5,913 | (5,913 | ) | ₩ | 6,711 | (6,711 | ) | ||||||||
EUR | 356 | (356 | ) | 1,854 | (1,854 | ) | ||||||||||
JPY | 22 | (22 | ) | 70 | (70 | ) | ||||||||||
Others | 1,050 | (1,050 | ) | 13 | (13 | ) | ||||||||||
|
|
|
| |||||||||||||
₩ | 7,341 | (7,341 | ) | ₩ | 8,648 | (8,648 | ) | |||||||||
|
|
|
|
(ii) Equity price risk
The Group has equity securities which include listed andnon-listed equity securities for its liquidity management and operating purpose. As of December 31, 2014, 2016,available-for-sale equity instruments measured at fair value amount to ₩846,614₩741,285 million.
(iii) Interest rate risk
The interest rate risk of the Group arises from borrowings and debenture. Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, as such, the Group’s revenue and operating cash flowflows are not influenced by the changes in market interest rates. However, the Group still has interest rate risk arising from borrowings and debentures.
Accordingly, the Group performs various analysis of interest rate risk which includes refinancing, renewal, alternative financing and hedging instrument option, to reduce interest rate risk and to optimize its financing. To minimize risks arising from changes in interest rates, the Group takes various measures such as refinancing, renewal, alternative financing and hedging.
The interest rate risk arises from the Group’s floating-rate borrowings and bonds agreements. As of the year ended December 31, 2014,2016, the floating-rate borrowings and bonds of the Group are ₩49,800₩53,083 million and ₩329,760₩362,550 million, respectively, and the Group has entered into interest rate swap agreements, as described in Note 23,21, for all floating-rate bonds to hedge the interest rate risk of floating-rate bonds. On the other hand, ifrisk.
If the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes as offor the end ofyear ended December 31, 2014, fluctuates as much as ₩4982016, would change by ₩41 million due to the interest expense on floating-rate borrowings that have not entered into anare exposed to interest rate swap agreement.risk.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
2) | Credit risk |
The maximum credit exposure as of December 31, 2016 and 2015 are as follows:
(In millions of won) | ||||||||
2016 | 2015 | |||||||
Cash and cash equivalents | ₩ | 1,505,082 | 768,794 | |||||
Financial instruments | 469,705 | 701,713 | ||||||
Available-for-sale financial assets | 6,755 | 3,430 | ||||||
Accounts receivable — trade | 2,261,311 | 2,390,110 | ||||||
Loans and other receivables | 1,701,249 | 1,102,403 | ||||||
Derivative financial assets | 214,770 | 166,399 | ||||||
|
|
|
| |||||
₩ | 6,158,872 | 5,132,849 | ||||||
|
|
|
|
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of December 31, 2014 and 2013 are as follows:
(In millions of won) | ||||||||
2014 | 2013 | |||||||
Cash and cash equivalents | ₩ | 833,129 | 1,398,548 | |||||
Financial instruments | 313,699 | 319,616 | ||||||
Available-for-sale financial assets | 15,498 | 35,174 | ||||||
Accounts receivable — trade | 2,460,686 | 2,270,471 | ||||||
Loans and receivables | 1,123,507 | 1,044,529 | ||||||
Derivative financial assets | 70,035 | 41,712 | ||||||
Financial assets at fair value through profit or loss | 7,817 | 20,532 | ||||||
|
|
|
| |||||
₩ | 4,824,371 | 5,130,582 | ||||||
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors; basedfactors. Based on such information, the Group establishes credit limits for each customer or counterparty.
For the year ended December 31, 2014, theThe Group has noestablishes an allowance for doubtful account that represents its estimate of incurred losses in respect of trade and other receivables or loans whichreceivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have indicationsbeen incurred but not yet identified. The collective loss allowance is determined based on historical data of significant impairment loss or are overduepayment statistics for a prolonged period. As a result, the Group believes that the possibility of default is remote.similar financial assets. Also, the Group’s credit risk can risearise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal only with financial institutions with high credit worthy financial institutions.ratings. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of December 31, 2014.
In addition, the aging of trade and other receivables that are overdue at the end of the reporting period but not impaired is stated in Note 7 and the analysis of financial assets that are individually determined to be impaired at the end of the reporting period is stated in Note 30.2016.
3) | Liquidity risk |
The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group managesmaintains enough liquidity risks by maintainingwithin credit lines in case of insufficient liquidity generated bythrough active operating activities.
Contractual maturities of financial liabilities as of December 31, 20142016 are as follows:
(In millions of won) | ||||||||||||||||||||
Carrying amount | Contractual cash flows | Less than 1 year | 1 - 5 years | More than 5 years | ||||||||||||||||
Accounts payable — trade | ₩ | 275,495 | 275,495 | 275,494 | — | — | ||||||||||||||
Borrowings(*1) | 537,562 | 555,407 | 386,814 | 129,047 | 39,546 | |||||||||||||||
Debentures(*1) | 6,218,630 | 7,516,339 | 770,663 | 4,082,384 | 2,663,292 | |||||||||||||||
Accounts payable — other and others(*2) | 3,241,615 | 3,271,633 | 2,421,297 | 598,447 | 251,889 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 10,273,302 | 11,618,874 | 3,854,268 | 4,809,878 | 2,954,727 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||
Carrying amount | Contractual cash flows | Less than 1 year | 1- 5 years | More than 5 years | ||||||||||||||||
Accounts payable — trade | ₩ | 402,445 | 402,446 | 402,446 | — | — | ||||||||||||||
Borrowings(*) | 175,521 | 190,107 | 42,658 | 140,453 | 6,996 | |||||||||||||||
Debentures(*) | 7,194,206 | 8,484,345 | 1,083,877 | 4,437,037 | 2,963,431 | |||||||||||||||
Accounts payable — other and others | 4,842,734 | 4,993,086 | 3,121,127 | 1,348,069 | 523,890 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 12,614,906 | 14,069,984 | 4,650,108 | 5,925,559 | 3,494,317 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.
(* | Includes |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
As of December 31, 2014,2016, periods in which cash flows from cash flow hedge derivatives isare expected to be incurredoccur are as follows:
(In millions of won) | (In millions of won) | (In millions of won) | ||||||||||||||||||||||||||||||||||||||
Carrying amount | Contractual cash flows | Less than 1 year | 1 - 5 years | More than 5 years | Carrying amount | Contractual cash flows | Less than 1 year | 1- 5 years | More than 5 years | |||||||||||||||||||||||||||||||
Assets | ₩ | 61,322 | 64,440 | 6,288 | 42,448 | 15,704 | ₩ | 207,402 | 217,982 | 5,154 | 187,287 | 25,541 | ||||||||||||||||||||||||||||
Liabilities | (130,889 | ) | (137,344 | ) | (15,145 | ) | (121,463 | ) | (736 | ) | (87,153 | ) | (88,381 | ) | (88,219 | ) | (162 | ) | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
₩ | (69,567 | ) | (72,904 | ) | (8,857 | ) | (79,015 | ) | 14,968 | ₩ | 120,249 | 129,601 | (83,065 | ) | 187,125 | 25,541 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(2) | Capital management |
The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity balance. The overall strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2013.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
structure.
The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total amount of liabilities divided by total amount of equity whichequity; both are extracted from the financial statements.
Debt-equity ratio as of December 31, 20142016 and 20132015 are as follows:
(In millions of won) | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
Liabilities | ₩ | 12,692,963 | 12,409,958 | |||||
Equity | 15,248,270 | 14,166,557 | ||||||
|
|
|
| |||||
Debt-equity ratio | 83.24 | % | 87.60 | % | ||||
|
|
|
|
(In millions of won) | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Total liabilities | ₩ | 15,181,233 | 13,207,291 | |||||
Total equity | 16,116,430 | 15,374,096 | ||||||
|
|
|
| |||||
Debt-equity ratios | 94.20 | % | 85.91 | % | ||||
|
|
|
|
(3) Fair value
1) | Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, |
(In millions of won) | ||||||||||||||||||||
Carrying amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets that can be measured at fair value | ||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 16,530 | — | 8,713 | 7,817 | 16,530 | ||||||||||||||
Derivative financial assets | 61,322 | — | 61,322 | — | 61,322 | |||||||||||||||
Available-for-sale financial assets | 846,614 | 657,286 | 47,002 | 142,326 | 846,614 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 924,466 | 657,286 | 117,037 | 150,143 | 924,466 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial assets that cannot be measured at fair value | ||||||||||||||||||||
Cash and cash equivalents(*1) | ₩ | 834,429 | — | — | — | — | ||||||||||||||
Available-for-sale financial assets(*1,2) | 382,010 | — | — | — | — | |||||||||||||||
Accounts receivable — trade and others(*1) | 3,584,193 | — | — | — | — | |||||||||||||||
Financial instruments(*1) | 313,699 | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 5,114,331 | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial liabilities that can be measured at fair value | ||||||||||||||||||||
Financial liabilities at fair value through profit or loss | ₩ | 110,365 | — | 110,365 | — | 110,365 | ||||||||||||||
Derivative financial liabilities | 130,889 | — | 130,889 | — | 130,889 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 241,254 | — | 241,254 | — | 241,254 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial liabilities that cannot be measured at fair value | ||||||||||||||||||||
Accounts payable — trade(*1) | ₩ | 275,495 | — | — | — | — | ||||||||||||||
Borrowings | 537,562 | — | 549,083 | — | 540,083 | |||||||||||||||
Debentures | 6,108,265 | — | 6,514,832 | — | 6,514,832 | |||||||||||||||
Accounts payable — other and others(*1) | 3,241,615 | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 10,162,937 | — | 7,063,915 | — | 7,063,915 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of won) | ||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||
Carrying amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets that are measured at fair value: | ||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 7,368 | — | 7,368 | — | 7,368 | ||||||||||||||
Derivative financial assets | 207,402 | — | 207,402 | — | 207,402 | |||||||||||||||
Available-for-sale financial assets | 741,285 | 526,363 | 107,364 | 107,558 | 741,285 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 956,055 | 526,363 | 322,134 | 107,558 | 956,055 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial liabilities that are measured at fair value: | ||||||||||||||||||||
Financial liabilities at fair value through profit or loss | ₩ | 59,600 | — | 59,600 | — | 59,600 | ||||||||||||||
Derivative financial liabilities | 87,153 | — | 87,153 | — | 87,153 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 146,753 | — | 146,753 | — | 146,753 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial liabilities that are not measured at fair value: | ||||||||||||||||||||
Borrowings | ₩ | 175,521 | — | 177,600 | — | 177,600 | ||||||||||||||
Debentures | 7,134,606 | — | 7,568,361 | — | 7,568,361 | |||||||||||||||
Long-term payables — other | 1,926,363 | — | 2,103,788 | — | 2,103,788 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 9,236,490 | — | 9,849,749 | — | 9,849,749 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
2) | Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, |
(In millions of won) | ||||||||||||||||||||
Carrying amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets that can be measured at fair value | ||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 20,542 | — | 20,532 | 10 | 20,542 | ||||||||||||||
Derivative financial assets | 41,712 | — | 41,712 | — | 41,712 | |||||||||||||||
Available-for-sale financial assets | 839,647 | 638,445 | 46,414 | 154,788 | 839,647 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 901,901 | 638,445 | 108,658 | 154,798 | 901,901 | |||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Financial assets that cannot be measured at fair value | ||||||||||||||||||||
Cash and cash equivalents(*1) | ₩ | 1,398,639 | — | — | — | — | ||||||||||||||
Available-for-sale financial assets(*1,2) | 214,416 | — | — | — | — | |||||||||||||||
Accounts receivable — trade and others(*1) | 3,314,999 | — | — | — | — | |||||||||||||||
Financial instruments(*1) | 319,616 | — | — | — | — | |||||||||||||||
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|
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|
|
|
| |||||||||||
₩ | 5,247,670 | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial liabilities that can be measured at fair value | ||||||||||||||||||||
Financial liabilities at fair value through profit or loss | ₩ | 96,147 | 96,147 | — | — | 96,147 | ||||||||||||||
Derivative financial liabilities | 124,339 | — | 124,339 | — | 124,339 | |||||||||||||||
|
|
|
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|
| |||||||||||
₩ | 220,486 | 96,147 | 124,339 | — | 220,486 | |||||||||||||||
|
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|
|
|
|
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| |||||||||||
Financial liabilities that cannot be measured at fair value | ||||||||||||||||||||
Accounts payable — trade(*1) | ₩ | 214,716 | — | — | — | — | ||||||||||||||
Borrowings | 386,192 | — | 399,247 | — | 399,247 | |||||||||||||||
Debentures | 5,830,324 | — | 5,946,586 | — | 5,946,586 | |||||||||||||||
Accounts payable — other and others(*1) | 3,949,794 | — | — | — | — | |||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
₩ | 10,381,026 | — | 6,345,833 | — | 6,345,833 | |||||||||||||||
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|
(In millions of won) | ||||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||
Carrying amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets that are measured at fair value: | ||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 6,277 | — | 6,277 | — | 6,277 | ||||||||||||||
Derivative financial assets | 160,122 | — | 160,122 | — | 160,122 | |||||||||||||||
Available-for-sale financial assets | 1,076,291 | 897,958 | 47,262 | 131,071 | 1,076,291 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 1,242,690 | 897,958 | 213,661 | 131,071 | 1,242,690 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial liabilities that are measured at fair value: | ||||||||||||||||||||
Financial liabilities at fair value through profit or loss | ₩ | 155,704 | — | 155,704 | — | 155,704 | ||||||||||||||
Derivative financial liabilities | 89,296 | — | 89,296 | — | 89,296 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 245,000 | — | 245,000 | — | 245,000 | |||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Financial liabilities that are not measured at fair value: | ||||||||||||||||||||
Borrowings | ₩ | 415,134 | — | 416,702 | — | 416,702 | ||||||||||||||
Debentures | 6,952,949 | — | 7,411,909 | — | 7,411,909 | |||||||||||||||
Long-term payables — other | 701,882 | — | 767,010 | — | 767,010 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 8,069,965 | — | 8,595,621 | — | 8,595,621 | |||||||||||||||
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|
|
The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are reasonable approximation of fair values.
Available-for-sale financial assets amounting to ₩194,600 million and ₩223,197 million as of December 31, 2016 and December 31, 2015, respectively, are measured at cost in accordance with IAS 39 since they are equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) and for which fair value cannot be reliably measured using other valuation methods.
Fair value of the financial instruments that are traded in an active market (available-for-sale(available-for-sale financial assets, financial liabilities at fair value through profit or loss, etc.) is measured based on the bid price at the end of the reporting date.
The managementGroup uses various valuation methods for valuationdetermination of fair value of financial instruments that are not traded in an active market. Fair value ofavailable-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the discounted present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities being evaluated.measured.
Interest rates used by the Group for the fair value measurement as of December 31, 2016 are as follows:
Interest rate | ||
Derivative instruments | 1.50 ~ 2.52% | |
Borrowings and debentures | 1.90 ~ 2.16% | |
Long-term payables — other | 1.79 ~ 2.27% |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Fair values of accounts receivable — trade, and accounts payable — trade are considered to be carrying amount less impairment and fair value of financial liabilities for the disclosure purpose is estimated by discounting contractual future cash flows using the current market interest rate used for the similar financial instruments by the Group.
Interest rates used by the Group for the fair value measurement as of December 31, 2014 are as follows:
| ||
|
3) | There have been no transfers from Level 2 to Level 1 in |
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||
Balance at Jan. 1 | Acquisition | Gain for the period | Other comprehensive loss | Disposal | Balance at Dec. 31 | Balance at beginning | Transfer | Other comprehensive loss | Disposal | Balance at ending | ||||||||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 9 | 5,000 | 2,817 | — | (10 | ) | 7,817 | ||||||||||||||||||||||||||||||||||||
Available-for-sale financial assets | 154,789 | 34,611 | — | (2,339 | ) | (44,734 | ) | 142,326 | ₩ | 131,071 | 4,591 | (2,490 | ) | (25,614 | ) | 107,558 |
(4) | Enforceable master netting agreement or similar agreement |
Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 20142016 and 2015 are as follows:
(In millions of won) | ||||||||||||||||||||||||
Gross financial instruments recognized | Gross offset financial instruments recognized | Net financial instruments presented on the statements of financial position | Relevant amount not offset on the statements of financial position | Net amount | ||||||||||||||||||||
Financial instruments | Cash collaterals received | |||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Derivatives(*) | ₩ | 48,057 | — | 48,057 | (45,892 | ) | — | 2,165 | ||||||||||||||||
Accounts receivable — trade and other | 128,794 | (117,568 | ) | 11,226 | — | — | 11,226 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
176,851 | (117,568 | ) | 59,283 | (45,892 | ) | — | 13,391 | |||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Derivatives(*) | 45,892 | — | 45,892 | (45,892 | ) | — | — | |||||||||||||||||
Accounts payable — trade and other | 117,568 | (117,568 | ) | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
₩ | 163,460 | (117,568 | ) | 45,892 | (45,892 | ) | — | — | ||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | 2016 | |||||||||||||||||||||||
Gross financial instruments recognized | Amount offset | Net financial instruments presented on the statements of financial position | Relevant amount not offset on the statements of financial position | Net amount | ||||||||||||||||||||
Financial instruments | Cash collaterals received | |||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Derivatives(*) | ₩ | 87,566 | — | 87,566 | (87,153 | ) | — | 413 | ||||||||||||||||
Accounts receivable — trade and others | 114,135 | (103,852 | ) | 10,283 | — | — | 10,283 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
₩ | 201,701 | (103,852 | ) | 97,849 | (87,153 | ) | — | 10,696 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Derivatives(*) | ₩ | 87,153 | — | 87,153 | (87,153 | ) | — | — | ||||||||||||||||
Accounts payable — other and others | 103,852 | (103,852 | ) | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
₩ | 191,005 | (103,852 | ) | 87,153 | (87,153 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2013 are as follows:
(In millions of won) | ||||||||||||||||||||||||
Gross financial instruments recognized | Gross offset financial instruments recognized | Net financial instruments presented on the statements of financial position | Relevant amount not offset on the statements of financial position | Net amount | ||||||||||||||||||||
Financial instruments | Cash collaterals received | |||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Derivatives(*) | ₩ | 28,870 | — | 28,870 | (28,870 | ) | — | — | ||||||||||||||||
Accounts receivable — trade and others | 138,897 | (127,055 | ) | 11,842 | — | — | 11,842 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
₩ | 167,767 | (127,055 | ) | 40,712 | (28,870 | ) | — | 11,842 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Derivatives(*) | ₩ | 43,536 | — | 43,536 | (28,870 | ) | — | 14,666 | ||||||||||||||||
Accounts payable — others | 127,055 | (127,055 | ) | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
₩ | 170,591 | (127,055 | ) | 43,536 | (28,870 | ) | — | 14,666 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of won) | 2015 | |||||||||||||||||||||||
Gross financial instruments recognized | Amount offset | Net financial instruments presented on the statements of financial position | Relevant amount not offset on the statements of financial position | Net amount | ||||||||||||||||||||
Financial instruments | Cash collaterals received | |||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Derivatives(*) | ₩ | 55,673 | — | 55,673 | (55,673 | ) | — | — | ||||||||||||||||
Accounts receivable — trade and others | 129,527 | (113,003 | ) | 16,524 | — | — | 16,524 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
₩ | 185,200 | (113,003 | ) | 72,197 | (55,673 | ) | — | 16,524 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Derivatives(*) | ₩ | 89,734 | — | 89,734 | (55,673 | ) | — | 34,061 | ||||||||||||||||
Accounts payable — other and others | 113,003 | (113,003 | ) | — | — | — | — | |||||||||||||||||
|
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|
|
|
|
|
|
|
|
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| |||||||||||||
₩ | 202,737 | (113,003 | ) | 89,734 | (55,673 | ) | — | 34,061 | ||||||||||||||||
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|
(*) | The Group entered into derivative contracts which include enforceable master netting arrangement in accordance with International Swap and Derivatives Association (ISDA). Generally, all contracts made with the |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
identical currencies are settled from one party to another by combining one net amount. In this case, all contracts are liquidated and paid off at net amount by evaluating liquidation value if credit events such as bankruptcy occur. |
ISDA agreements do not allow the Group to exercise rights ofset-off unless credit events such as bankruptcy occur. Therefore, assets and liabilities recognized in accordance with the agreements cannot be offset as the Group does not have enforceable rights ofset-off.
Transactions with Related Parties |
(1) List of related parties
Relationship | Company | |
Ultimate Controlling Entity | SK | |
Joint | Dogus Planet, Inc. and 4 others | |
Associates | SK hynix Inc. and | |
The Ultimate Controlling Entity’s |
(2) Compensation for the key management
The Parent Company considers registered directors who have substantial role and responsibility in planning, operations, and relevant controls of the business as key management. The compensation given to such key management for the years ended December 31, 2016, 2015 and 2014 are as follows:
(In millions of won) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Salaries | ₩ | 1,645 | 1,971 | 2,600 | ||||||||
Defined benefits plan expenses | 424 | 626 | 907 | |||||||||
|
|
|
|
|
| |||||||
₩ | 2,069 | 2,597 | 3,507 | |||||||||
|
|
|
|
|
|
Compensation for the key management includes salaries,non-monetary salaries and retirement benefits made in relation to the pension plan.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
(3) | Transactions with related parties for the years ended December 31, 2016, 2015 and 2014 are as follows: |
(In millions of won) | ||||||||||||||||||||||
2016 | ||||||||||||||||||||||
Scope | Company | Operating revenue and others | Operating expense and others | Acquisition of property and equipment | Loans | Collection of loans | ||||||||||||||||
Ultimate Controlling Entity | SK Holdings Co., Ltd.(*1) | ₩ | 23,104 | 652,855 | 235,502 | — | — | |||||||||||||||
Associates | F&U Credit information Co., Ltd. | 2,865 | 47,905 | — | — | — | ||||||||||||||||
HappyNarae Co., Ltd. | 304 | 15,506 | 38,984 | — | — | |||||||||||||||||
SK hynix Inc.(*2) | 100,861 | 306 | — | — | — | |||||||||||||||||
SK Wyverns Baseball Club., Ltd. | 1,934 | 17,878 | — | — | 204 | |||||||||||||||||
KEB HanaCard Co., Ltd. | 19,730 | 14,804 | — | — | — | |||||||||||||||||
Others(*3) | 6,084 | 3,975 | 1,573 | 1,100 | 2,990 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
131,778 | 100,374 | 40,557 | 1,100 | 3,194 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Others | SK Engineering & Construction Co., Ltd. | 5,916 | 1,739 | 10,694 | — | — | ||||||||||||||||
SK Networks Co., Ltd. | 13,756 | 1,131,567 | — | — | — | |||||||||||||||||
SK Networks Services Co., Ltd. | 1,248 | 94,906 | 6,793 | — | — | |||||||||||||||||
SK Telesys Co., Ltd. | 419 | 52,488 | 142,605 | — | — | |||||||||||||||||
SK TNS Co., Ltd. | 109 | 48,192 | 387,496 | — | — | |||||||||||||||||
SK Energy Co., Ltd. | 7,670 | 834 | — | — | — | |||||||||||||||||
SK Innovation Co., Ltd. | 9,757 | 915 | 1,080 | — | — | |||||||||||||||||
SK Shipping Co., Ltd. | 5,435 | — | — | — | — | |||||||||||||||||
Ko-one energy service Co., Ltd | 6,005 | 46 | — | — | — | |||||||||||||||||
Infosec Co.,Ltd. | 230 | 53,068 | 19,882 | — | — | |||||||||||||||||
SKC INFRA SERVICE Co., Ltd. | 43 | 30,663 | 32,141 | — | — | |||||||||||||||||
Others | 15,937 | 17,630 | 246 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
66,525 | 1,432,048 | 600,937 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | ₩ | 221,407 | 2,185,277 | 876,996 | 1,100 | 3,194 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(*1) | Operating expense and others include ₩203,635 million of dividends paid by the Parent Company. |
(*2) | Operating revenue and others include ₩73,050 million of dividends paid by the associate which was deducted from the investment in associates. |
(*3) | Operating revenue and others include ₩6,082 million of dividends received from the Korea IT Fund. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||||||||
2015 | ||||||||||||||||||||||
Scope | Company | Operating revenue and others | Operating expense and others | Acquisition of property and equipment | Loans | Collection of loans | ||||||||||||||||
Ultimate Controlling Entity | SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*1) | ₩ | 20,260 | 324,078 | 236,414 | — | — | |||||||||||||||
SK Holdings Co., Ltd. (formerly, SK Holdings Co., Ltd.)(*2,3) | 1,299 | 212,378 | 117 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
21,559 | 536,456 | 236,531 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Associates | F&U Credit information Co., Ltd. | 2,510 | 43,967 | — | — | — | ||||||||||||||||
HappyNarae Co., Ltd. | 297 | 6,886 | 13,495 | — | — | |||||||||||||||||
SK hynix Inc.(*4) | 55,949 | 2,384 | — | — | — | |||||||||||||||||
SK Wyverns Baseball Club., Ltd. | 3,849 | 18,544 | — | — | 204 | |||||||||||||||||
KEB HanaCard Co., Ltd. | 21,414 | 16,057 | — | — | — | |||||||||||||||||
Xian Tianlong Science and Technology Co., Ltd. | — | — | — | 8,287 | — | |||||||||||||||||
Others(*5) | 6,397 | 11,917 | 1,864 | 690 | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
90,416 | 99,755 | 15,359 | 8,977 | 204 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Other | SK Engineering & Construction Co., Ltd. | 15,598 | 27,243 | 240,701 | — | — | ||||||||||||||||
SK Networks Co., Ltd. | 11,923 | 1,257,975 | 2 | — | — | |||||||||||||||||
SK Networks Services Co., Ltd. | 10,491 | 94,097 | 6,472 | — | — | |||||||||||||||||
SK Telesys Co., Ltd. | 397 | 48,900 | 141,870 | — | — | |||||||||||||||||
SK Energy Co., Ltd. | 9,930 | 978 | — | — | — | |||||||||||||||||
SK Gas Co., Ltd. | 3,561 | 2 | — | — | — | |||||||||||||||||
Others | 29,409 | 71,314 | 194,945 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
81,309 | 1,500,509 | 583,990 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | ₩ | 193,284 | 2,136,720 | 835,880 | 8,977 | 204 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(*1) | On August 1, 2015, SK C&C Co., Ltd., the ultimate controlling entity of the Parent Company merged with SK Holdings Co., Ltd., its equity method investee, and changed its name to SK Holdings Co., Ltd. |
(*2) | These relates to transactions occurred before July 31, 2015, the date of merger with SK C&C Co., Ltd. |
(*3) | Operating expense and others include ₩191,416 million of dividends paid by the Parent Company. |
(*4) | Operating revenue and others include ₩43,830 million of dividends paid by SK hynix Inc. and was deducted from the investment in associates. |
(*5) | Operating revenue and others include ₩2,103 million and ₩457 million of dividends paid by Korea IT Fund and UniSK, respectively, and was deducted from the investments in associates. |
(2) Compensation for the key managementSK TELECOM CO., LTD. and Subsidiaries
The Parent Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling ofNotes to the business as key management. The compensation given to such key management forConsolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 2012 are as follows:2014
(In millions of won) | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Salaries | ₩ | 2,600 | 2,263 | 8,893 | ||||||||
Provision for retirement benefits | 907 | 1,012 | 799 | |||||||||
|
|
|
|
|
| |||||||
3,507 | 3,275 | 9,692 | ||||||||||
|
|
|
|
|
|
Compensation for the key management includes salaries, non-monetary salaries and contributions made in relation to the pension plan.
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||
2014 | 2014 | |||||||||||||||||||||||||||||||||||||||||||
Scope | Company | Operating revenue and others | Operating expense and others | Acquisition of property and equipment | Loans | Loans collection | Company | Operating revenue and others | Operating expense and others | Acquisition of property and equipment | Loans | Collection of loans | ||||||||||||||||||||||||||||||||
Ultimate Controlling Entity | SK Holding Co., Ltd.(*1) | ₩ | 530 | 226,772 | — | — | — | SK Holding Co., Ltd.(*1) | ₩ | 530 | 226,772 | — | — | — | ||||||||||||||||||||||||||||||
Associates | F&U Credit information Co., Ltd. | 2,395 | 45,417 | — | — | — | F&U Credit information Co., Ltd. | 2,395 | 45,417 | — | — | — | ||||||||||||||||||||||||||||||||
HappyNarae Co., Ltd. | 253 | 6,492 | 10,418 | — | — | HappyNarae Co., Ltd. | 253 | 6,492 | 10,418 | — | — | |||||||||||||||||||||||||||||||||
SK hynix Inc. | 12,964 | 3,391 | — | — | — | SK hynix Inc. | 12,964 | 3,391 | — | — | — | |||||||||||||||||||||||||||||||||
SK USA, Inc. | — | 2,153 | — | — | — | SK USA, Inc. | — | 2,153 | — | — | — | |||||||||||||||||||||||||||||||||
SK Wyverns Baseball Club., Ltd. | 901 | 22,402 | — | — | 204 | SK Wyverns Baseball Club., Ltd. | 901 | 22,402 | — | — | 204 | |||||||||||||||||||||||||||||||||
KEB HanaCard Co., Ltd.(*2) | 39,828 | 5,416 | — | — | — | KEB HanaCard Co., Ltd.(*2) | 39,828 | 5,416 | — | — | — | |||||||||||||||||||||||||||||||||
Others | 5,852 | 15,150 | — | 45 | — | Others | 5,852 | 15,150 | — | 45 | — | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
62,193 | 100,421 | 10,418 | 45 | 204 | 62,193 | 100,421 | 10,418 | 45 | 204 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Other | SK Engineering & Construction Co., Ltd. | 3,385 | 42,964 | 460,783 | — | — | SK Engineering & Construction Co., Ltd. | 3,385 | 42,964 | 460,783 | — | — | ||||||||||||||||||||||||||||||||
SK C&C Co., Ltd. | 18,309 | 360,842 | 168,778 | — | — | SK C&C Co., Ltd. | 18,309 | 360,842 | 168,778 | — | — | |||||||||||||||||||||||||||||||||
SK Networks Co., Ltd. | 16,230 | 1,509,017 | 5,388 | — | — | SK Networks Co., Ltd. | 16,230 | 1,509,017 | 5,388 | — | — | |||||||||||||||||||||||||||||||||
SK Networks Services Co., Ltd. | 13,017 | 106,273 | 2,583 | — | — | SK Networks Services Co., Ltd. | 13,017 | 106,273 | 2,583 | — | — | |||||||||||||||||||||||||||||||||
SK Telesys Co., Ltd. | 494 | 64,038 | 205,538 | — | — | SK Telesys Co., Ltd. | 494 | 64,038 | 205,538 | — | — | |||||||||||||||||||||||||||||||||
SK Energy Co., Ltd. | 22,650 | 944 | — | — | — | SK Energy Co., Ltd. | 22,650 | 944 | — | — | — | |||||||||||||||||||||||||||||||||
SK Gas Co., Ltd. | 10,115 | — | — | — | — | SK Gas Co., Ltd. | 10,115 | — | — | — | — | |||||||||||||||||||||||||||||||||
Others | 25,537 | 38,868 | 12,628 | — | — | Others | 25,537 | 38,868 | 12,628 | — | — | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
109,737 | 2,122,946 | 855,698 | — | — | 109,737 | 2,122,946 | 855,698 | — | — | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Total | ₩ | 172,460 | 2,450,139 | 866,116 | 45 | 204 | ₩ | 172,460 | 2,450,139 | 866,116 | 45 | 204 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(*1) | Operating expense and others include ₩191,416 million of dividends paid by the Parent Company. |
(*2) | During the year ended December 31, 2014, due to merger between Hana SK Card Co., Ltd., the Parent Company’s associate and KEB Card Co., Ltd., the Group |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||||||||||
2013 | ||||||||||||||||||||||
Scope | Company | Operating revenue and others | Operating expense and others | Acquisition of property and equipment | Loans | Loans collection | ||||||||||||||||
Ultimate Controlling Entity | SK Holding Co., Ltd.(*) | ₩ | 1,912 | 226,023 | — | — | — | |||||||||||||||
Associates | F&U Credit information Co., Ltd. | 1,753 | 43,931 | — | — | — | ||||||||||||||||
HappyNarae Co., Ltd. | 281 | 6,217 | 10,542 | — | — | |||||||||||||||||
SK hynix Inc. | 3,178 | 1,160 | — | — | — | |||||||||||||||||
SK USA, Inc. | — | 2,086 | — | — | — | |||||||||||||||||
SK Wyverns Baseball Club., Ltd. | 363 | — | — | — | 204 | |||||||||||||||||
HanaSK Card Co., Ltd. | 11,129 | 14,342 | — | — | — | |||||||||||||||||
Others | 3,171 | 3,734 | 125 | 1,200 | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
19,875 | 71,470 | 10,667 | 1,200 | 204 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Other | SK Engineering & Construction Co., Ltd. | 5,564 | 37,978 | 484,006 | — | — | ||||||||||||||||
SK C&C Co., Ltd. | 4,041 | 357,945 | 206,298 | — | — | |||||||||||||||||
SK Networks Co., Ltd. | 51,996 | 1,463,341 | 6,241 | — | — | |||||||||||||||||
SK Networks Services Co., Ltd. | 6,165 | 108,972 | 3,057 | — | — | |||||||||||||||||
SK Telesys Co., Ltd. | 1,554 | 99,381 | 234,319 | — | — | |||||||||||||||||
SK Energy Co., Ltd. | 20,831 | 2,422 | — | — | — | |||||||||||||||||
SK Gas Co., Ltd. | 6,656 | — | — | — | — | |||||||||||||||||
Others | 30,905 | 43,759 | 11,724 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
127,712 | 2,113,798 | 945,645 | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | ₩ | 149,499 | 2,411,291 | 956,312 | 1,200 | 204 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(4) | Account balances with related parties as of December 31, 2016 and 2015 are as follows: |
(In millions of won) | ||||||||||||||
December 31, 2016 | ||||||||||||||
Accounts receivable | Accounts payable | |||||||||||||
Scope | Company | Loans | Accounts receivable-trade and others | Accounts payable-other and others | ||||||||||
Ultimate Controlling Entity | SK Holdings Co., Ltd. | ₩ | — | 3,519 | 149,574 | |||||||||
Associates | HappyNarae Co., Ltd. | — | 18 | 21,063 | ||||||||||
F&U Credit information Co., Ltd. | — | 34 | 1,328 | |||||||||||
SK hynix Inc. | — | 22,379 | 92 | |||||||||||
SK Wyverns Baseball Club Co., Ltd. | 813 | 4,184 | — | |||||||||||
Wave City Development Co., Ltd. | — | 38,412 | — | |||||||||||
Daehan Kanggun BcN Co., Ltd.(*) | 22,147 | — | — | |||||||||||
KEB HanaCard Co., Ltd. | — | 1,619 | 7,676 | |||||||||||
Xian Tianlong Science and Technology Co., Ltd. | 8,287 | — | — | |||||||||||
Others | — | 7 | 945 | |||||||||||
|
|
|
|
|
| |||||||||
31,247 | 66,653 | 31,104 | ||||||||||||
|
|
|
|
|
| |||||||||
Other | SK Engineering & Construction Co., Ltd. | — | 1,808 | 4,975 | ||||||||||
SK Networks. Co., Ltd. | — | 3,254 | 247,728 | |||||||||||
SK Networks Services Co., Ltd. | — | 13 | 13,913 | |||||||||||
SK Telesys Co., Ltd. | — | 20 | 24,918 | |||||||||||
SK TNS Co., Ltd. | — | 3 | 68,276 | |||||||||||
SK Innovation Co., Ltd. | — | 1,350 | 892 | |||||||||||
SK Energy Co., Ltd. | — | 1,213 | 113 | |||||||||||
Others | — | 4,552 | 30,218 | |||||||||||
|
|
|
|
|
| |||||||||
— | 12,213 | 391,033 | ||||||||||||
|
|
|
|
|
| |||||||||
Total | ₩ | 31,247 | 82,385 | 571,711 | ||||||||||
|
|
|
|
|
|
(*) |
(In millions of won) | 2012 | |||||||||||||
Scope | Company | Operating revenue and others | Operating expense and others | Acquisition of property and equipment | ||||||||||
Controlling Entity | SK Holding Co., Ltd.(*1) | ₩ | 1,339 | 224,667 | — | |||||||||
Associates | F&U Credit information Co., Ltd. | 1,516 | 49,518 | — | ||||||||||
SK M&C | 11,874 | 155,397 | 9,051 | |||||||||||
HanaSK Card Co., Ltd.(*2) | 672,202 | 201,533 | 66 | |||||||||||
Others | 743 | 96,971 | 11,374 | |||||||||||
|
|
|
|
|
| |||||||||
686,335 | 503,419 | 20,491 | ||||||||||||
|
|
|
|
|
| |||||||||
Other | SK C&C Co., Ltd. | 4,441 | 324,171 | 304,102 | ||||||||||
SK Engineering & Construction Co., Ltd. | 5,384 | 55,007 | 687,059 | |||||||||||
SK Networks Co., Ltd. | 20,477 | 1,747,130 | 8,048 | |||||||||||
Others | 40,251 | 246,218 | 300,410 | |||||||||||
|
|
|
|
|
| |||||||||
70,553 | 2,372,526 | 1,299,619 | ||||||||||||
|
|
|
|
|
| |||||||||
Total | ₩ | 758,227 | 3,100,612 | 1,320,110 | ||||||||||
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | ||||||||||||||
2014 | ||||||||||||||
Accounts receivable | Accounts payable | |||||||||||||
Scope | Company | Loans | Accounts receivable-trade, and others | Accounts payable-trade, and others | ||||||||||
Ultimate Controlling Entity | SK Holding Co., Ltd. | ₩ | — | 90 | — | |||||||||
Associates | HappyNarae Co., Ltd. | — | 13 | 2,650 | ||||||||||
F&U Credit information Co., Ltd. | — | 148 | 797 | |||||||||||
SK hynix Inc. | — | 2,800 | 2,840 | |||||||||||
SK Wyverns Baseball Club Co., Ltd. | 1,221 | — | — | |||||||||||
Wave City Development Co., Ltd. | 1,200 | 38,412 | — | |||||||||||
Daehan Kanggun BcN Co., Ltd. | 22,148 | — | — | |||||||||||
KEB HanaCard Co., Ltd. | — | 1,998 | 59 | |||||||||||
Others | — | 543 | 1,285 | |||||||||||
|
|
|
|
|
| |||||||||
24,569 | 43,914 | 7,631 | ||||||||||||
|
|
|
|
|
| |||||||||
Other | SK Engineering & Construction Co., Ltd. | — | 897 | 27,282 | ||||||||||
SK C&C Co., Ltd. | — | 1,393 | 121,145 | |||||||||||
SK Networks. Co., Ltd. | — | 2,608 | 238,351 | |||||||||||
SK Networks Services Co., Ltd. | — | 16 | 2,922 | |||||||||||
SK Telesys Co., Ltd. | — | 321 | 3,037 | |||||||||||
SK innovation co., ltd. | — | 1,641 | 271 | |||||||||||
SK Energy Co., Ltd. | — | 4,781 | 79 | |||||||||||
SK Gas Co., Ltd. | — | 2,143 | 47 | |||||||||||
Others | — | 2,813 | 9,342 | |||||||||||
|
|
|
|
|
| |||||||||
— | 16,613 | 402,476 | ||||||||||||
|
|
|
|
|
| |||||||||
Total | ₩ | 24,569 | 60,617 | 410,107 | ||||||||||
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
(In millions of won) | 2013 | |||||||||||||
Accounts receivable | Accounts payable | |||||||||||||
Scope | Company | Loans | Accounts receivable-trade, and others | Accounts payable -trade, and others | ||||||||||
Ultimate Controlling Entity | SK Holding Co., Ltd. | ₩ | — | 334 | — | |||||||||
Associates | HappyNarae Co., Ltd. | — | 27 | 16,317 | ||||||||||
F&U Credit information Co., Ltd. | — | 258 | 585 | |||||||||||
SK hynix Inc. | — | 392 | — | |||||||||||
SK Wyverns Baseball Club Co., Ltd. | 1,425 | — | — | |||||||||||
Wave City Development Co., Ltd. | 1,200 | 38,412 | — | |||||||||||
Daehan Kanggun BcN Co., Ltd. | 22,102 | — | — | |||||||||||
SK USA, Inc. | — | — | 436 | |||||||||||
HanaSK Card Co., Ltd. | — | 3,723 | 468 | |||||||||||
Others | — | 10 | 947 | |||||||||||
|
|
|
|
|
| |||||||||
24,727 | 42,822 | 18,753 | ||||||||||||
|
|
|
|
|
| |||||||||
Other | SK Engineering & Construction Co., Ltd. | — | 988 | 92,058 | ||||||||||
SK C&C Co., Ltd. | — | 182 | 127,571 | |||||||||||
SK Networks. Co., Ltd. | — | 5,930 | 118,759 | |||||||||||
SK Networks Services Co., Ltd. | — | 3 | 5,048 | |||||||||||
SK Telesys Co., Ltd. | — | 412 | 70,467 | |||||||||||
SK innovation co., ltd. | — | 1,480 | 286 | |||||||||||
SK Energy Co., Ltd. | — | 5,457 | 7,438 | |||||||||||
SK Gas Co., Ltd. | — | 1,469 | 47 | |||||||||||
Others | — | 3,223 | 31,592 | |||||||||||
|
|
|
|
|
| |||||||||
— | 19,144 | 453,266 | ||||||||||||
|
|
|
|
|
| |||||||||
Total | ₩ | 24,727 | 62,300 | 472,019 | ||||||||||
|
|
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(In millions of won) | ||||||||||||||
December 31, 2015 | ||||||||||||||
Accounts receivable | Accounts payable | |||||||||||||
Scope | Company | Loans | Accounts receivable-trade and others | Accounts payable-other and others | ||||||||||
Ultimate Controlling Entity | SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.) (*) | ₩ | — | 1,836 | 160,133 | |||||||||
Associates | HappyNarae Co., Ltd. | — | 12 | 6,162 | ||||||||||
F&U Credit information Co., Ltd. | — | 66 | 934 | |||||||||||
SK hynix Inc. | — | 4,360 | 155 | |||||||||||
SK Wyverns Baseball Club Co., Ltd. | 1,017 | 4,502 | — | |||||||||||
Wave City Development Co., Ltd. | 1,890 | 38,412 | — | |||||||||||
Daehan Kanggun BcN Co., Ltd. | 22,147 | — | — | |||||||||||
KEB HanaCard Co., Ltd. | — | 1,771 | 9,042 | |||||||||||
Xian Tianlong Science and Technology Co., Ltd. | 8,287 | — | — | |||||||||||
Others | — | 299 | 964 | |||||||||||
|
|
|
|
|
| |||||||||
33,341 | 49,422 | 17,257 | ||||||||||||
|
|
|
|
|
| |||||||||
Other | SK Engineering & Construction Co., Ltd. | — | 1,005 | 14,877 | ||||||||||
SK Networks. Co., Ltd. | — | 1,569 | 208,291 | |||||||||||
SK Networks Services Co., Ltd. | — | — | 9,414 | |||||||||||
SK Telesys Co., Ltd. | — | 140 | 37,491 | |||||||||||
SK TNS Co., Ltd | — | — | 43,585 | |||||||||||
SK Innovation Co., Ltd. | — | 2,159 | 1,424 | |||||||||||
SK Energy Co., Ltd. | — | 1,681 | 173 | |||||||||||
Others | — | 4,716 | 14,512 | |||||||||||
|
|
|
|
|
| |||||||||
— | 11,270 | 329,767 | ||||||||||||
|
|
|
|
|
| |||||||||
Total | ₩ | 33,341 | 62,528 | 507,157 | ||||||||||
|
|
|
|
|
|
(*) | On August 1, 2015, SK C&C Co., Ltd., the ultimate controlling entity of the Parent Company merged with SK Holdings Co., Ltd., its equity method investee, and changed its name to SK Holdings Co., Ltd. |
(5) | M&Service Co., Ltd., a subsidiary of the Parent Company, has entered into performance agreement with SK Energy Co., Ltd. and provided a blank note to SK Energy Co., Ltd., with regard to this transaction. |
(6) | There were additional investments in associates and joint ventures during the years ended December 31, 2016 and 2015 as presented in Note 11. |
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2016, 2015 and 2014
Commitments and |
(1) Collateral assets and commitments
SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of ₩14,230₩6,674 million as of December 31, 2014.2016.
SK Broadband Co., Ltd., has guaranteed forprovided guarantees in connection with its employees’ borrowings relating to employee stock ownership and provided short-term financial instruments amounting to ₩2,071₩728 million as collateral as of December 31, 2014.
In addition, Neosnetworks Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for facility funds borrowings in the amount of ₩2,071 million as of December 31, 2014.2016.
(2) Legal claims and litigations
As of December 31, 2014,2016, the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. ForIn connection with those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation, for these matters, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.
(3) Guarantee providedAccounts receivables from sale of handsets
PS&Marketing Corporation, a subsidiaryThe sales agents of the Parent Company obtained ₩3,000 million of payment guarantees relatedsell handsets to handsets purchased from the Apple Computer Korea Ltd.
(1) Discontinued operations
Parent Company’s subscribers on an installment basis. During the year ended December 31, 2013, SK Planet Co., Ltd., a subsidiary of2016, the Parent Company sold 52.6%entered into a comprehensive agreement to purchase the accounts receivables from handset sales with agents and to transfer the accounts receivables from handset sales to special purpose companies which were established with the purpose of its ownership interests (13,294,369 shares) in Loen Entertainment, Inc.,liquidating receivables, respectively.
The accounts receivables from sale of handsets amounting to Star Invest Holdings Limited. Consideration for the sale amounted to ₩265,887 million. Loen Entertainment was a subsidiary of SK Planet Co., Ltd. and is engaged in the release of music discs as its primary business, The Group’s ownership interests after the disposition is 15.0% and Loen Entertainment, Inc. was excluded from the Group’s consolidated financial statements₩681,466 million as of December 31, 2016, which the date of the sale. The results of operations of Loen Entertainment, Inc. priorParent Company purchased according to the date of disposal of the Group’s controlling interest is presentedrelevant comprehensive agreement are recognized as a discontinued operation. The comparative information in the consolidated financial statements for the years ended December 31, 2012 has been restated to present Loen Entertainment, Inc. as a discontinued operation.accounts receivable- other and long-term accounts receivable- other.
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 2012
(2) Results of discontinued operations
Results of discontinued operations included in the consolidated statements of income for the years ended December 31, 2013 and 2012 are as follows. The consolidated statements of income presented for comparative purposes was restated in order to present discontinued operation segregated from the continuing operations.
(In millions of won) | ||||||||
2013 | 2012 | |||||||
Results of discontinued operations: | ||||||||
Operating revenue and other income | ₩ | 167,448 | 162,400 | |||||
Operating expense | (140,203 | ) | (291,809 | ) | ||||
|
|
|
| |||||
Operating income (loss) generated by discontinued operations | 27,245 | (129,409 | ) | |||||
Finance income and costs | 1,773 | 2,640 | ||||||
Gain related to investments in associates, net | 1,000 | 281 | ||||||
Gain on disposal relating to discontinued operations | 214,352 | — | ||||||
Income tax benefit (expense) | (61,125 | ) | 10,990 | |||||
|
|
|
| |||||
Profit (loss) generated by discontinued operations | ₩ | 183,245 | (115,498 | ) | ||||
|
|
|
| |||||
Attributable to : | ||||||||
Owners of the Parent Company | 175,867 | (103,821 | ) | |||||
Non-controlling interests | 7,378 | (11,677 | ) |
(3) Cash flows from (used in) discontinued operations
Cash flows from (used in) discontinued operations for the years ended December 31, 2013 and 2012 are as follows:
(In millions of won) | 2013 | 2012 | ||||||
Cash flow from discontinued operations: | ||||||||
Net cash provided by operating activities | ₩ | 40,884 | 22,937 | |||||
Net cash provided by (used in) investing activities | 179,490 | (19,931 | ) | |||||
Net cash used in financing activities | (4,780 | ) | (13,774 | ) | ||||
|
|
|
| |||||
₩ | 215,594 | (10,768 | ) | |||||
|
|
|
|
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014 2013 and 2012
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 2013 and 2012
Statements of Cash Flows |
(1) | Adjustments for income and expenses from operating activities for the years ended December 31, |
(In millions of won) | ||||||||||||||||||||||||
2014 | 2013 | 2012 | 2016 | 2015 | 2014 | |||||||||||||||||||
Interest income | ₩ | (60,006 | ) | (67,359 | ) | (99,967 | ) | ₩ | (54,353 | ) | (45,884 | ) | (60,006 | ) | ||||||||||
Dividend | (13,048 | ) | (10,197 | ) | (27,732 | ) | (19,161 | ) | (16,102 | ) | (13,048 | ) | ||||||||||||
Gain on foreign currency translation | (6,277 | ) | (4,401 | ) | (4,065 | ) | (5,085 | ) | (5,090 | ) | (6,277 | ) | ||||||||||||
Gain on disposal of long-term investment securities | (13,994 | ) | (9,300 | ) | (282,605 | ) | (459,349 | ) | (10,786 | ) | (13,994 | ) | ||||||||||||
Gain on valuation of derivatives | (8,713 | ) | — | — | (4,132 | ) | (1,927 | ) | (8,713 | ) | ||||||||||||||
Gain on settlement of derivatives | (7,998 | ) | (7,716 | ) | (26,103 | ) | — | — | (7,998 | ) | ||||||||||||||
Loss (gain) related to investments in subsidiaries and associates, net | (906,338 | ) | (921,861 | ) | 24,279 | |||||||||||||||||||
Gain on disposal of property, equipment and intangible assets | (8,792 | ) | (7,991 | ) | (162,590 | ) | ||||||||||||||||||
Reversal of allowance for doubtful accounts | — | (359 | ) | (5,902 | ) | |||||||||||||||||||
Gain on valuation of financial assets at fair value through profit or loss | — | (5,177 | ) | — | ||||||||||||||||||||
Gain relating to investments in associates and joint ventures, net | (544,501 | ) | (786,140 | ) | (906,338 | ) | ||||||||||||||||||
Gain on sale of accounts receivable — trade | (18,638 | ) | — | — | ||||||||||||||||||||
Gain on disposal of property and equipment and intangible assets | (6,908 | ) | (7,140 | ) | (8,792 | ) | ||||||||||||||||||
Gain relating to financial assets at fair value through profit or loss | (25 | ) | — | — | ||||||||||||||||||||
Gain related to financial liabilities at fair value through profit or loss | (121 | ) | (5,188 | ) | — | |||||||||||||||||||
Other income | (608 | ) | (3,951 | ) | (2,558 | ) | (2,123 | ) | (7,577 | ) | (608 | ) | ||||||||||||
Interest expenses | 323,910 | 331,834 | 412,379 | 290,454 | 297,662 | 323,910 | ||||||||||||||||||
Loss on foreign currency translation | 5,079 | 2,634 | 4,608 | 3,991 | 4,750 | 5,079 | ||||||||||||||||||
Loss on disposal of long-term investment securities | 2,694 | 31,909 | 10,802 | 2,919 | 2,599 | 2,694 | ||||||||||||||||||
Impairment loss on long-term investment securities | 24,533 | 52,058 | 190,621 | |||||||||||||||||||||
Other finance costs | 5,255 | 21,787 | 24,533 | |||||||||||||||||||||
Loss on valuation of derivatives | 10 | 2,106 | 286 | — | — | 10 | ||||||||||||||||||
Loss on settlement of derivatives | 672 | — | 1,232 | 3,428 | 4,845 | 672 | ||||||||||||||||||
Income tax expense | 454,508 | 461,922 | 277,217 | 436,038 | 519,480 | 454,508 | ||||||||||||||||||
Expense related to defined benefit plan | 112,717 | 92,840 | 80,865 | 118,143 | 110,021 | 112,717 | ||||||||||||||||||
Depreciation and amortization | 2,891,870 | 2,829,784 | 2,613,018 | 3,068,558 | 2,993,486 | 2,891,870 | ||||||||||||||||||
Bad debt expenses | 45,754 | 57,163 | 52,393 | |||||||||||||||||||||
Bad debt expense | 37,820 | 60,450 | 45,754 | |||||||||||||||||||||
Loss on disposal of property and equipment and intangible assets | 32,950 | 267,702 | 15,117 | 63,797 | 21,392 | 32,950 | ||||||||||||||||||
Impairment loss on property and equipment and intangible assets | 47,489 | 14,399 | 160,210 | 24,506 | 35,845 | 47,489 | ||||||||||||||||||
Loss relating to financial assets at fair value through profit or loss | 1,352 | — | 1,262 | — | — | 1,352 | ||||||||||||||||||
Loss relating to financial liabilities at fair value through profit or loss | 10,370 | 134,232 | 7,793 | 4,018 | 526 | 10,370 | ||||||||||||||||||
Loss on redemption of debentures | — | — | 2,099 | |||||||||||||||||||||
Bad debt for accounts receivable—other | 17,943 | 22,167 | 30,107 | |||||||||||||||||||||
Impairment loss on other investment securities | 22,749 | 6,136 | 1,307 | |||||||||||||||||||||
Bad debt for accounts receivable — other | 40,312 | 15,323 | 17,943 | |||||||||||||||||||||
Loss on impairment of investment assets | 24,033 | 42,966 | 22,749 | |||||||||||||||||||||
Other expenses | 10,169 | 6,802 | 15,788 | 30,685 | 4,845 | 10,169 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 2,978,995 | 3,275,376 | 3,289,861 | ₩ | 3,039,561 | 3,250,143 | 2,978,995 | |||||||||||||||||
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
(2) | Changes in assets and liabilities from operating activities for the years ended December 31, |
(In millions of won) | 2014 | 2013 | 2012 | |||||||||||||||||||||
Accounts receivable—trade | ₩ | (168,839 | ) | (267,754 | ) | (183,238 | ) | |||||||||||||||||
Accounts receivable—other | (52,137 | ) | (41,243 | ) | 288,739 | |||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||||||
Accounts receivable — trade | ₩ | 88,549 | 7,554 | (168,839 | ) | |||||||||||||||||||
Accounts receivable — other | (446,286 | ) | (11,108 | ) | (52,137 | ) | ||||||||||||||||||
Accrued income | 14 | (502 | ) | 9,530 | 445 | 116 | 14 | |||||||||||||||||
Advance payments | (62,873 | ) | (26,064 | ) | 40,664 | 47,615 | (35,906 | ) | (62,873 | ) | ||||||||||||||
Prepaid expenses | (36,808 | ) | (1,583 | ) | 18,525 | (30,311 | ) | (40,464 | ) | (36,808 | ) | |||||||||||||
V.A.T. refund receivable | 7,200 | (5,442 | ) | (963 | ) | |||||||||||||||||||
Value-Added Tax refundable | (4,587 | ) | 1,385 | 7,200 | ||||||||||||||||||||
Inventories | (171 | ) | (39,610 | ) | (108,904 | ) | 798 | (7,814 | ) | (171 | ) | |||||||||||||
Long-term accounts receivables—other | 80 | — | 5,393 | |||||||||||||||||||||
Long-term accounts receivable — other | (147,117 | ) | — | 80 | ||||||||||||||||||||
Guarantee deposits | (12,699 | ) | 59,431 | 19,460 | 4,844 | (11,238 | ) | (12,699 | ) | |||||||||||||||
Accounts payable—trade | (37,790 | ) | (4,708 | ) | 74,923 | |||||||||||||||||||
Accounts payable—other | (296,875 | ) | (131,142 | ) | 260,158 | |||||||||||||||||||
Advanced receipts | 20,701 | (2,916 | ) | (7,977 | ) | |||||||||||||||||||
Accounts payable — trade | 75,585 | 12,442 | (37,790 | ) | ||||||||||||||||||||
Accounts payable — other | 316,464 | (107,114 | ) | (296,875 | ) | |||||||||||||||||||
Receipts in advance | 37,429 | 6,421 | 20,701 | |||||||||||||||||||||
Withholdings | 306,515 | 22,025 | 234,048 | 107,516 | (191,209 | ) | 306,515 | |||||||||||||||||
Deposits received | (4,395 | ) | (1,745 | ) | (6,089 | ) | (2,153 | ) | (9,661 | ) | (4,395 | ) | ||||||||||||
Accrued expenses | (79,831 | ) | 98,081 | 153,641 | 173,072 | (28,845 | ) | (79,831 | ) | |||||||||||||||
V.A.T. payable | 2,711 | (3,901 | ) | (3,955 | ) | |||||||||||||||||||
Value-Added Tax payable | (4,072 | ) | 3,494 | 2,711 | ||||||||||||||||||||
Unearned revenue | (140,295 | ) | (188,589 | ) | (83,436 | ) | (36,209 | ) | (115,187 | ) | (140,295 | ) | ||||||||||||
Provisions | (38,469 | ) | (226,644 | ) | (373,213 | ) | 20,235 | (30,562 | ) | (38,469 | ) | |||||||||||||
Long-term provisions | 29,532 | (72,398 | ) | (33,254 | ) | 4,115 | (4,447 | ) | 29,532 | |||||||||||||||
Plan assets | (96,847 | ) | (61,856 | ) | (51,422 | ) | (125,440 | ) | (67,831 | ) | (96,847 | ) | ||||||||||||
Retirement benefit payment | (46,531 | ) | (42,948 | ) | (46,066 | ) | (55,350 | ) | (58,513 | ) | (46,531 | ) | ||||||||||||
Others | 474 | (30,362 | ) | (2,256 | ) | (11,378 | ) | 2,753 | 474 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | (707,333 | ) | (969,870 | ) | 204,308 | ₩ | 13,764 | (685,734 | ) | (707,333 | ) | |||||||||||||
|
|
|
|
|
|
(3) | Significantnon-cash transactions for the years ended December 31, |
(In millions of won) | 2014 | 2013 | 2012 | |||||||||
Transfer of construction in progress to property and equipment, and intangible assets | ₩ | 2,238,620 | 2,320,528 | 2,700,054 | ||||||||
Transfer of other property and equipment and others to construction in progress | 1,090,954 | 1,188,826 | 1,437,476 | |||||||||
Increase(decrease) of accounts payable—other related to acquisition of property and equipment and intangible assets | (184,614 | ) | 350,735 | 8,010 | ||||||||
Return of the existing 1.8GHz frequency use rights | — | 614,600 | — |
(In millions of won) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Increase of accounts payable — other related to acquisition of property and equipment and intangible assets | ₩ | 1,511,913 | 39,973 | (184,614 | ) |
Cash Dividends paid to the Parent Company |
Cash dividends paid to the Parent Company for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
(In millions of won) | 2014 | 2013 | 2012 | |||||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||||||
Cash dividends received from consolidated subsidiaries | ₩ | — | 13,657 | 5,739 | ₩ | 15,693 | — | — | ||||||||||||||||
Cash dividends received from associates | 939 | — | — | 79,132 | 46,390 | 939 | ||||||||||||||||||
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|
|
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| |||||||||||||||||||
₩ 939 | 13,657 | 5,739 | ₩94,825 | 46,390 | 939 | |||||||||||||||||||
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
SK hynix, Inc.:
We have audited the accompanying consolidated statements of financial position of SK hynix, Inc. and subsidiaries as of December 31, 20142016 and 2013,2015, and the related consolidated statements of comprehensive income, (loss), changes in equity and cash flows for each of the years then ended.in thethree-year period ended December 31, 2016. These consolidated financial statements are the responsibility of SK hynix, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SK hynix, Inc. and subsidiaries as of December 31, 20142016 and 20132015 and the results of their operations and their cash flows for each of the years thenin the three-year period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ KPMG Samjong Accounting Corp.
Seoul, Korea
April 23, 201524, 2017
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 20142016 and 20132015
Note | 2014 | 2013 | Note | 2016 | 2015 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||
Cash and cash equivalents | 6,7 | ₩ | 436,761 | 631,867 | 5,6 | ₩ | 613,786 | 1,175,719 | ||||||||||||||||
Short-term financial instruments | 6,7,8 | 3,618,014 | 2,154,532 | 5,6,7 | 3,521,893 | 3,615,554 | ||||||||||||||||||
Trade receivables, net | 6,7,9,33 | 3,732,926 | 1,941,675 | 5,6,8,32 | 3,251,652 | 2,628,448 | ||||||||||||||||||
Loans and other receivables, net | 6,7,9,33 | 881,885 | 323,759 | 5,6,8,32 | 25,611 | 61,613 | ||||||||||||||||||
Other financial assets | 6,7,23 | — | 245,808 | |||||||||||||||||||||
Inventories, net | 10 | 1,497,563 | 1,178,300 | 9 | 2,026,198 | 1,923,376 | ||||||||||||||||||
Current tax assets | 1,629 | 9,242 | 489 | 1,394 | ||||||||||||||||||||
Assets held for sale | 11 | 27,661 | 26,557 | |||||||||||||||||||||
Other current assets | 12 | 167,075 | 141,384 | 11 | 399,353 | 353,926 | ||||||||||||||||||
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|
| |||||||||||||||||||||
10,363,514 | 6,653,124 | 9,838,982 | 9,760,030 | |||||||||||||||||||||
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|
| |||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||
Equity-accounted investees | 13 | 97,090 | 107,097 | 12 | 131,016 | 122,609 | ||||||||||||||||||
Available-for-sale financial assets | 14 | 127,314 | 158,770 | 5,6,13 | 147,779 | 131,354 | ||||||||||||||||||
Loans and other receivables, net | 6,7,9,33 | 58,989 | 43,090 | 5,6,8,32 | 39,490 | 62,919 | ||||||||||||||||||
Other financial assets | 6,7,8,23 | 323 | 2,017 | 5,6,7 | 423 | 430 | ||||||||||||||||||
Property, plant and equipment, net | 15,34 | 14,090,334 | 12,129,797 | 14,33 | 18,777,402 | 16,966,252 | ||||||||||||||||||
Intangible assets, net | 16 | 1,336,680 | 1,110,403 | 15,29 | 1,915,591 | 1,704,896 | ||||||||||||||||||
Investment property, net | 17 | 28,456 | 28,609 | 14,16 | 2,573 | 2,679 | ||||||||||||||||||
Deferred tax assets | 23 | 272,102 | 198,570 | 21,30 | 792,368 | 361,204 | ||||||||||||||||||
Other non-current assets | 12 | 508,476 | 365,821 | 11 | 570,402 | 565,533 | ||||||||||||||||||
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| |||||||||||||||||||||
16,519,764 | 14,144,174 | 22,377,044 | 19,917,876 | |||||||||||||||||||||
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|
|
| |||||||||||||||||||||
Total assets | ₩ | 26,883,278 | 20,797,298 | ₩ | 32,216,026 | 29,677,906 | ||||||||||||||||||
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|
|
See accompanying notes to the consolidated financial statements.
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Financial Position, continued
As of December 31, 20142016 and 20132015
Note | 2014 | 2013 | Note | 2016 | 2015 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Trade payables | 6,7,33 | ₩ | 787,822 | 648,793 | 5,6 | ₩ | 696,144 | 791,373 | ||||||||||||||||
Other payables | 6,7,33 | 1,358,816 | 788,304 | 5,6,32 | 1,606,417 | 1,337,803 | ||||||||||||||||||
Other non-trade payables | 6,7,33 | 1,182,956 | 677,120 | 5,6 | 685,154 | 1,001,171 | ||||||||||||||||||
Borrowings | 6,7,18,33 | 1,755,020 | 870,320 | 5,6,17,32 | 704,860 | 1,013,372 | ||||||||||||||||||
Other financial liabilities | 6,7,23 | 30 | 2,194 | 5,6,22 | 288 | — | ||||||||||||||||||
Provisions | 20,34 | 25,932 | 52,584 | 19,33 | 42,822 | 25,276 | ||||||||||||||||||
Current tax liabilities | 583,529 | 12,084 | 374,666 | 627,260 | ||||||||||||||||||||
Other current liabilities | 19 | 71,199 | 26,840 | 18 | 50,498 | 44,443 | ||||||||||||||||||
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| |||||||||||||||||||||
5,765,304 | 3,078,239 | 4,160,849 | 4,840,698 | |||||||||||||||||||||
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| |||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||
Other non-trade payables | 6,7,33 | 132,947 | 177,101 | 5,6 | 27,426 | 89,891 | ||||||||||||||||||
Borrowings | 6,7,18,33 | 2,419,739 | 3,679,895 | 5,6,17,32 | 3,631,118 | 2,805,223 | ||||||||||||||||||
Other financial liabilities | 6,7,23 | 708 | 107,094 | 5,6,22 | — | 683 | ||||||||||||||||||
Defined benefit liabilities, net | 21 | 465,350 | 635,740 | 20 | 306,488 | 484,977 | ||||||||||||||||||
Deferred tax liabilities | 22 | 3,463 | — | 21 | 4,732 | 7,582 | ||||||||||||||||||
Other non-current liabilities | 19 | 59,464 | 52,370 | 18 | 61,883 | 61,149 | ||||||||||||||||||
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| |||||||||||||||||||||
3,081,671 | 4,652,200 | 4,031,647 | 3,449,505 | |||||||||||||||||||||
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|
| |||||||||||||||||||||
Total liabilities | 8,846,975 | 7,730,439 | 8,192,496 | 8,290,203 | ||||||||||||||||||||
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|
| |||||||||||||||||||||
Equity | ||||||||||||||||||||||||
Equity attributable to owners of the Parent Company | ||||||||||||||||||||||||
Capital stock | 1,24 | 3,657,652 | 3,568,645 | 1,23 | 3,657,652 | 3,657,652 | ||||||||||||||||||
Capital surplus | 24 | 4,143,736 | 3,406,083 | 23 | 4,143,736 | 4,143,736 | ||||||||||||||||||
Other equity | 24 | (24 | ) | — | 23 | (771,913 | ) | (771,913 | ) | |||||||||||||||
Accumulated other comprehensive loss | 25 | (41,815 | ) | (108,807 | ) | 24 | (79,103 | ) | (1,600 | ) | ||||||||||||||
Retained earnings | 26 | 10,276,904 | 6,201,322 | 25 | 17,066,583 | 14,358,988 | ||||||||||||||||||
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| |||||||||||||||||||||
Total equity attributable to owners of the Parent Company | 18,036,453 | 13,067,243 | 24,016,955 | 21,386,863 | ||||||||||||||||||||
Non-controlling interests | (150 | ) | (384 | ) | 6,575 | 840 | ||||||||||||||||||
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| |||||||||||||||||||||
Total equity | 18,036,303 | 13,066,859 | 24,023,530 | 21,387,703 | ||||||||||||||||||||
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|
| |||||||||||||||||||||
Total liabilities and equity | ₩ | 26,883,278 | 20,797,298 | ₩ | 32,216,026 | 29,677,906 | ||||||||||||||||||
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|
See accompanying notes to the consolidated financial statements.
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Note | 2014 | 2013 | 2012 (Unaudited) | Note | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(In millions of won, except per share information) | (In millions of won, except per share information) | |||||||||||||||||||||||||||||||
Revenue | 5,33 | ₩ | 17,125,566 | 14,165,102 | 10,162,210 | 4,32 | ₩ | 17,197,975 | 18,797,998 | 17,125,566 | ||||||||||||||||||||||
Cost of sales | 28,33 | 9,461,725 | 8,864,587 | (8,550,989 | ) | 27,32 | 10,787,139 | 10,515,353 | 9,461,725 | |||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Gross profit | 7,663,841 | 5,300,515 | 1,611,221 | 6,410,836 | 8,282,645 | 7,663,841 | ||||||||||||||||||||||||||
Selling and administrative expense | 27,28 | (2,554,375 | ) | (1,920,730 | ) | (1,838,570 | ) | 26,27 | (3,134,090 | ) | (2,946,545 | ) | (2,554,375 | ) | ||||||||||||||||||
Finance income | 29 | 678,570 | 560,570 | 689,709 | 28 | 814,892 | 846,752 | 678,570 | ||||||||||||||||||||||||
Finance expenses | 29 | (799,771 | ) | (747,329 | ) | (682,594 | ) | 28 | (846,328 | ) | (829,913 | ) | (799,771 | ) | ||||||||||||||||||
Share of profit of equity-accounted investees | 13 | 23,145 | 19,256 | 16,713 | 12 | 22,752 | 24,642 | 23,145 | ||||||||||||||||||||||||
Other income | 30 | 618,684 | 368,513 | 67,130 | 29 | 52,371 | 40,479 | 618,684 | ||||||||||||||||||||||||
Other expenses | 30 | (582,424 | ) | (505,870 | ) | (62,910 | ) | 29 | (103,979 | ) | (148,939 | ) | (582,424 | ) | ||||||||||||||||||
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| |||||||||||||||||||||||||||
Profit (loss) before income tax | 5,047,670 | 3,074,925 | (199,301 | ) | ||||||||||||||||||||||||||||
Income tax expense (benefit) | 31 | 852,501 | 202,068 | (40,506 | ) | |||||||||||||||||||||||||||
Profit before income tax | 3,216,454 | 5,269,121 | 5,047,670 | |||||||||||||||||||||||||||||
Income tax expense | 30 | 255,971 | 945,526 | 852,501 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Profit (loss) for the year | 4,195,169 | 2,872,857 | (158,795 | ) | ||||||||||||||||||||||||||||
Profit for the year | 2,960,483 | 4,323,595 | 4,195,169 | |||||||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||
Item that will never be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||
Remeasurements of defined benefit liability, net of tax | 21 | (119,874 | ) | 15,587 | (82,872 | ) | 20 | 106,822 | (21,871 | ) | (119,874 | ) | ||||||||||||||||||||
Items that are or may be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||
Available-for-sale financial assets — unrealized net change in fair value, net of tax | 14,25 | (7,824 | ) | (655 | ) | (1,896 | ) | |||||||||||||||||||||||||
Foreign operations — foreign currency translation differences, net of tax | 25 | 71,631 | 8,419 | (216,490 | ) | |||||||||||||||||||||||||||
Equity-accounted investees — share of other comprehensive income (loss), net of tax | 13,25 | 3,706 | (1,226 | ) | (4,343 | ) | ||||||||||||||||||||||||||
Available-for-sale financial assets – unrealized net change in fair value, net of tax | 13,24 | — | — | (7,824 | ) | |||||||||||||||||||||||||||
Foreign operations – foreign currency translation differences, net of tax | 24 | (82,066 | ) | 33,479 | 71,631 | |||||||||||||||||||||||||||
Equity-accounted investees – share of other comprehensive income, net of tax | 12,24 | 4,088 | 6,487 | 3,706 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||
Other comprehensive income (loss) for the year, net of tax | (52,361 | ) | 22,125 | (305,601 | ) | 28,844 | 18,095 | (52,361 | ) | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total comprehensive income (loss) for the year | ₩ | 4,142,808 | 2,894,982 | (464,396 | ) | |||||||||||||||||||||||||||
Total comprehensive income for the year | ₩ | 2,989,327 | 4,341,690 | 4,142,808 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Profit (loss) attributable to: | ||||||||||||||||||||||||||||||||
Owners of the Parent Company | ₩ | 4,195,456 | 2,872,470 | (158,886 | ) | ₩ | 2,953,774 | 4,322,356 | 4,195,456 | |||||||||||||||||||||||
Non-controlling interests | (287 | ) | 387 | 91 | 6,709 | 1,239 | (287 | ) | ||||||||||||||||||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||||||||||||||||||
Total comprehensive income attributable to: | ||||||||||||||||||||||||||||||||
Owners of the Parent Company | 4,142,574 | 2,894,652 | (464,267 | ) | 2,982,703 | 4,340,700 | 4,142,574 | |||||||||||||||||||||||||
Non-controlling interests | 234 | 330 | (129 | ) | 6,624 | 990 | 234 | |||||||||||||||||||||||||
Earnings (loss) per share | ||||||||||||||||||||||||||||||||
Basic and diluted earnings (loss) per share (in won) | 32 | 5,842 | 4,045 | (233 | ) | |||||||||||||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||||||
Basic and diluted earnings per share (in won) | 31 | 4,184 | 6,002 | 5,842 |
See accompanying notes to the consolidated financial statements.
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Changes in Equity (Unaudited)
For the year ended December 31, 20122014
Attributable to owners of the Parent Company | ||||||||||||||||||||||||||||||||
Capital stock | Capital surplus | Other components of equity | Accumulated other comprehensive income (loss) | Retained earnings | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||||||||||
Balance at January 1, 2012 | ₩ | 2,978,498 | 1,229,052 | 5,762 | 107,107 | 3,555,323 | 7,875,742 | (471 | ) | 7,875,271 | ||||||||||||||||||||||
Total comprehensive loss | ||||||||||||||||||||||||||||||||
Income (loss) for the year | — | — | — | — | (158,886 | ) | (158,886 | ) | 91 | (158,795 | ) | |||||||||||||||||||||
Other comprehensive loss | — | — | — | (222,509 | ) | (82,872 | ) | (305,381 | ) | (220 | ) | (305,601 | ) | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total comprehensive loss | — | — | — | (222,509 | ) | (241,758 | ) | (464,267 | ) | (129 | ) | (464,396 | ) | |||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Transactions with owners of the Parent Company | ||||||||||||||||||||||||||||||||
Issuance of common stock | 509,250 | 1,816,726 | — | — | — | 2,325,976 | — | 2,325,976 | ||||||||||||||||||||||||
Exercise of conversion rights | 52 | 210 | — | — | — | 262 | — | 262 | ||||||||||||||||||||||||
Exercise of stock options | 619 | 4,400 | (2,200 | ) | — | — | 2,819 | — | 2,819 | |||||||||||||||||||||||
Expiration of stock options | — | 3,562 | (3,562 | ) | — | — | — | — | — | |||||||||||||||||||||||
Changes in the Parent Company’s ownership interest in subsidiaries | — | (76 | ) | — | — | — | (76 | ) | (105 | ) | (181 | ) | ||||||||||||||||||||
Others | — | — | — | — | (300 | ) | (300 | ) | (9 | ) | (309 | ) | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total transactions with owners of the Parent Company | 509,921 | 1,824,822 | (5,762 | ) | — | (300 | ) | 2,328,681 | (114 | ) | 2,328,567 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at December 31, 2012 | ₩ | 3,488,419 | 3,053,874 | — | (115,402 | ) | 3,313,265 | 9,740,156 | (714 | ) | 9,739,442 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owners of the Parent Company | ||||||||||||||||||||||||||||||||
Capital stock | Capital surplus | Other components of equity | Accumulated other comprehensive income (loss) | Retained earnings | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||||||||||
Balance at January 1, 2014 | ₩ | 3,568,645 | 3,406,083 | — | (108,807 | ) | 6,201,322 | 13,067,243 | (384 | ) | 13,066,859 | |||||||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | 4,195,456 | 4,195,456 | (287 | ) | 4,195,169 | |||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | 66,992 | (119,874 | ) | (52,882 | ) | 521 | (52,361 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total comprehensive income | — | — | — | 66,992 | 4,075,582 | 4,142,574 | 234 | 4,142,808 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Transactions with owners of the Parent Company | ||||||||||||||||||||||||||||||||
Issue of ordinary shares related to acquisition of a subsidiary | 6,793 | 47,277 | — | — | — | 54,070 | — | 54,070 | ||||||||||||||||||||||||
Exercise of conversion rights | 82,214 | 690,376 | — | — | — | 772,590 | — | 772,590 | ||||||||||||||||||||||||
Acquisition of treasury shares | — | — | (24 | ) | — | — | (24 | ) | — | (24 | ) | |||||||||||||||||||||
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|
|
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|
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|
|
|
|
|
| |||||||||||||||||
Total transactions with owners of the Parent Company | 89,007 | 737,653 | (24 | ) | — | — | 826,636 | — | 826,636 | |||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at December 31, 2014 | ₩ | 3,657,652 | 4,143,736 | (24 | ) | (41,815 | ) | 10,276,904 | 18,036,453 | (150 | ) | 18,036,303 | ||||||||||||||||||||
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|
|
|
|
See accompanying notes to the consolidated financial statements.
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 20142016 and 20132015
Attributable to owners of the Parent Company | Attributable to owners of the Parent Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital stock | Capital surplus | Other components of equity | Accumulated other comprehensive income (loss) | Retained earnings | Total | Non- controlling interests | Total equity | Capital stock | Capital surplus | Other components of equity | Accumulated other comprehensive income (loss) | Retained earnings | Total | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2013 | ₩ | 3,488,419 | 3,053,874 | — | (115,402 | ) | 3,313,265 | 9,740,156 | (714 | ) | 9,739,442 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2015 | ₩ | 3,657,652 | 4,143,736 | (24 | ) | (41,815 | ) | 10,276,904 | 18,036,453 | (150 | ) | 18,036,303 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | 2,872,470 | 2,872,470 | 387 | 2,872,857 | — | — | — | — | 4,322,356 | 4,322,356 | 1,239 | 4,323,595 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | 6,595 | 15,587 | 22,182 | (57 | ) | 22,125 | — | — | — | 40,215 | (21,871 | ) | 18,344 | (249 | ) | 18,095 | |||||||||||||||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | 6,595 | 2,888,057 | 2,894,652 | 330 | 2,894,982 | — | — | — | 40,215 | 4,300,485 | 4,340,700 | 990 | 4,341,690 | ||||||||||||||||||||||||||||||||||||||||||||||||
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|
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|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with owners of the Parent Company | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of conversion rights | 80,226 | 352,209 | — | — | — | 432,435 | — | 432,435 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | — | — | — | — | (218,401 | ) | (218,401 | ) | — | (218,401 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury shares | — | — | (771,889 | ) | — | — | (771,889 | ) | — | (771,889 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Total transactions with owners of the Parent Company | 80,226 | 352,209 | — | — | — | 432,435 | — | 432,435 | — | — | (771,889 | ) | — | (218,401 | ) | (990,290 | ) | — | (990,290 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2013 | ₩ | 3,568,645 | 3,406,083 | — | (108,807 | ) | 6,201,322 | 13,067,243 | (384 | ) | 13,066,859 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2015 | 3,657,652 | 4,143,736 | (771,913 | ) | (1,600 | ) | 14,358,988 | 21,386,863 | 840 | 21,387,703 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2014 | ₩ | 3,568,645 | 3,406,083 | — | (108,807 | ) | 6,201,322 | 13,067,243 | (384 | ) | 13,066,859 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2016 | 3,657,652 | 4,143,736 | (771,913 | ) | (1,600 | ) | 14,358,988 | 21,386,863 | 840 | 21,387,703 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Profit for the year | — | — | — | — | 4,195,456 | 4,195,456 | (287 | ) | 4,195,169 | — | — | — | — | 2,953,774 | 2,953,774 | 6,709 | 2,960,483 | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | 66,992 | (119,874 | ) | (52,882 | ) | 521 | (52,361 | ) | — | — | — | (77,893 | ) | 106,822 | 28,929 | (85 | ) | 28,844 | |||||||||||||||||||||||||||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | — | — | — | 66,992 | 4,075,582 | 4,142,574 | 234 | 4,142,808 | — | — | — | (77,893 | ) | 3,060,596 | 2,982,703 | 6,624 | 2,989,327 | |||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Transactions with owners of the Parent Company | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issue of ordinary shares related to acquisition of a subsidiary | 6,793 | 47,277 | — | — | — | 54,070 | — | 54,070 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of conversion rights | 82,214 | 690,376 | — | — | — | 772,590 | — | 772,590 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury shares | — | — | (24 | ) | — | — | (24 | ) | — | (24 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | — | — | — | — | (353,001 | ) | (353,001 | ) | — | (353,001 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal of a subsidiary | — | — | — | 390 | — | 390 | (889 | ) | (499 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Total transactions with owners of the Parent Company | 89,007 | 737,653 | (24 | ) | — | — | 826,636 | — | 826,636 | — | — | — | 390 | (353,001 | ) | (352,611 | ) | (889 | ) | (353,500 | ) | |||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
|
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|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2014 | ₩ | 3,657,652 | 4,143,736 | (24 | ) | (41,815 | ) | 10,276,904 | 18,036,453 | (150 | ) | 18,036,303 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2016 | ₩ | 3,657,652 | 4,143,736 | (771,913 | ) | (79,103 | ) | 17,066,583 | 24,016,955 | 6,575 | 24,023,530 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
See accompanying notes to the consolidated financial statements.
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2014, 20132016, 2015 and 20122014
Note | 2014 | 2013 | 2012 (Unaudited) | Note | 2016 | 2015 | 2014 | |||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||||||||||
Cash generated from operating activities | 35 | ₩ | 6,305,229 | 6,521,553 | 2,420,894 | 34 | ₩ | 6,486,781 | 10,357,267 | 6,305,229 | ||||||||||||||||||||||
Interest received | 35,658 | 58,888 | 81,931 | 42,895 | 51,610 | 35,658 | ||||||||||||||||||||||||||
Interest paid | (151,551 | ) | (199,553 | ) | (275,169 | ) | (125,818 | ) | (124,304 | ) | (151,551 | ) | ||||||||||||||||||||
Dividends received | 17,134 | 17,414 | 12,098 | 20,744 | 17,045 | 17,134 | ||||||||||||||||||||||||||
Income tax paid | (339,779 | ) | (26,246 | ) | (28,103 | ) | (875,680 | ) | (982,098 | ) | (339,779 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Net cash provided by operating activities | 5,866,691 | 6,372,056 | 2,211,651 | 5,548,922 | 9,319,520 | 5,866,691 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Cash flows from investing activities | ||||||||||||||||||||||||||||||||
Decrease in short-term financial instruments | 21,059,587 | 3,927,831 | 2,754,789 | |||||||||||||||||||||||||||||
Increase in short-term financial instruments | (22,467,339 | ) | (4,956,446 | ) | (3,252,006 | ) | ||||||||||||||||||||||||||
Decrease (increase) in short-term financial instruments, net | 109,803 | 39,533 | (1,407,752 | ) | ||||||||||||||||||||||||||||
Collection of loans and other receivables | 3,501 | 2,728 | 11,640 | 15,422 | 10,692 | 3,501 | ||||||||||||||||||||||||||
Increase in loans and other receivables | (15,735 | ) | (5,969 | ) | (8,661 | ) | (13,613 | ) | (14,134 | ) | (15,735 | ) | ||||||||||||||||||||
Proceeds from disposal of available-for-sale financial assets | 28,602 | 331 | 11,190 | 2,651 | 1,319 | 28,602 | ||||||||||||||||||||||||||
Acquisition of available-for-sale financial assets | (1,415 | ) | (115,564 | ) | (3,618 | ) | (19,085 | ) | (5,359 | ) | (1,415 | ) | ||||||||||||||||||||
Decrease in other financial assets | 275,422 | 29,681 | — | 5 | — | 275,422 | ||||||||||||||||||||||||||
Increase in other financial assets | (29,611 | ) | (276,591 | ) | — | (2 | ) | — | (29,611 | ) | ||||||||||||||||||||||
Cash inflows from derivative transactions | 2,371 | 3,656 | 2,419 | 1,077 | 1,672 | 2,371 | ||||||||||||||||||||||||||
Cash outflows from derivative transactions | (4,534 | ) | (6,550 | ) | (44,507 | ) | (1,525 | ) | (2,088 | ) | (4,534 | ) | ||||||||||||||||||||
Proceeds from disposal of assets classified as held for sale | — | — | 23 | |||||||||||||||||||||||||||||
Proceeds from disposal of property, plant and equipment | 198,959 | 15,509 | 35,809 | 162,120 | 220,097 | 198,959 | ||||||||||||||||||||||||||
Acquisition of property, plant and equipment | (4,800,722 | ) | (3,205,797 | ) | (3,772,879 | ) | (5,956,354 | ) | (6,774,625 | ) | (4,800,722 | ) | ||||||||||||||||||||
Proceeds from disposal of intangible assets | 286 | 200 | 1,226 | 1,585 | 7,963 | 286 | ||||||||||||||||||||||||||
Acquisition of intangible assets | (336,291 | ) | (301,496 | ) | (159,072 | ) | (530,375 | ) | (623,743 | ) | (336,291 | ) | ||||||||||||||||||||
Proceeds from disposal of assets held for sale | — | 22,630 | — | |||||||||||||||||||||||||||||
Receipt of government grants | 20,241 | — | — | 133 | 406 | 20,241 | ||||||||||||||||||||||||||
Cash outflows from business combinations | (19,682 | ) | (3,648 | ) | (274,732 | ) | — | — | (19,682 | ) | ||||||||||||||||||||||
Cash outflows from disposal of investments in a subsidiary | (1,467 | ) | — | — | — | — | (1,467 | ) | ||||||||||||||||||||||||
Investments in associates | (2,293 | ) | (9,893 | ) | — | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Net cash used in investing activities | ₩ | (6,087,827 | ) | (4,892,125 | ) | (4,698,379 | ) | (6,230,451 | ) | (7,125,530 | ) | (6,087,827 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||||||||||
Proceeds from borrowings | ₩ | 3,848,816 | 3,528,687 | 6,966,003 | 2,080,343 | 3,933,056 | 3,848,816 | |||||||||||||||||||||||||
Repayments of borrowings | (3,820,449 | ) | (5,028,676 | ) | (7,377,491 | ) | (1,610,466 | ) | (4,405,023 | ) | (3,820,449 | ) | ||||||||||||||||||||
Acquisition of treasury shares | (24 | ) | — | — | — | (771,889 | ) | (24 | ) | |||||||||||||||||||||||
Proceeds from issuance of common stock | — | — | 2,328,791 | |||||||||||||||||||||||||||||
Acquisition of investments in subsidiaries | — | — | (181 | ) | ||||||||||||||||||||||||||||
Dividends paid | (353,001 | ) | (218,401 | ) | — | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Net cash provided by (used in) financing activities | 28,343 | (1,499,989 | ) | 1,917,122 | 116,876 | (1,462,257 | ) | 28,343 | ||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
Effect of movements in exchange rates on cash and cash equivalents | (2,313 | ) | (6,462 | ) | (15,795 | ) | 2,720 | 7,225 | (2,313 | ) | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Net decrease in cash and cash equivalents | (195,106 | ) | (26,520 | ) | (585,401 | ) | ||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (561,933 | ) | 738,958 | (195,106 | ) | |||||||||||||||||||||||||||
Cash and cash equivalents at beginning of the year | 631,867 | 658,387 | 1,243,788 | 1,175,719 | 436,761 | 631,867 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Cash and cash equivalents at end of the year | ₩ | 436,761 | 631,867 | 658,387 | ₩ | 613,786 | 1,175,719 | 436,761 | ||||||||||||||||||||||||
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|
|
|
|
|
See accompanying notes to the consolidated financial statements.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
1. Reporting Entity
(1) General information about SK hynix, Inc. (the “Parent Company” or the “Company”) and its subsidiaries (collectively the “Group”) is as follows:
The Parent Company is engaged in the manufacture, distribution and sales of semiconductor products and its shares have been listed on the Korea Exchange since 1996. The Parent Company’s headquarters is located at 2091 Gyeongchung-daero,Bubal-eup,Icheon-si,Gyeonggi-do, South Korea, and the Group has manufacturing facilities inIcheon-si andCheongju-si, South Korea, and Wuxi and Chongqing, China.
As of December 31, 2014,2016, the shareholders of the Parent Company are as follows:
Shareholder | Number of shares | Percentage of ownership (%) | Number of shares | Percentage of ownership (%) | ||||||||||||
SK Telecom Co., Ltd. | 146,100,000 | 20.07 | 146,100,000 | 20.07 | ||||||||||||
National Pension Service | 70,243,518 | 9.65 | 72,338,677 | 9.94 | ||||||||||||
Share Management Council1 | 7,452,667 | 1.02 | 5,097,667 | 0.70 | ||||||||||||
Other investors | 504,206,180 | 69.26 | 482,465,451 | 66.27 | ||||||||||||
Treasury shares | 22,000,570 | 3.02 | ||||||||||||||
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728,002,365 | 100.00 | 728,002,365 | 100.00 | |||||||||||||
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1 | As of December 31, |
Shareholder | Number of shares | Percentage of ownership (%) | Number of shares | Percentage of ownership (%) | ||||||||||||
Korea Exchange Bank | 7,092,500 | 0.97 | ||||||||||||||
Shinhan Bank | 355,000 | 0.05 | ||||||||||||||
KEB Hana Bank | 5,092,500 | 0.70 | ||||||||||||||
Other financial institutions | 5,167 | 0.00 | 5,167 | 0.00 | ||||||||||||
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7,452,667 | 1.02 | 5,097,667 | 0.70 | |||||||||||||
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According to the share purchase agreement dated November 14, 2011, between SK Telecom Co., Ltd. and the Share Management Council, the Share Management Council should exercise its voting right on its shares following SK Telecom Co., Ltd.’s decision in designating officers of the Company or other matters unless this conflicts with the Share Management Council’s interest.
Accordingly, in substance, SK Telecom Co., Ltd. has the voting rights over the Share Management Council’s shares as of December 31, 2014.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
1. Reporting Entity, continued
(2) Details of the Group’s consolidated subsidiaries as of December 31, 20142016 and 20132015 are as follows:
Ownership (%) | Ownership(%) | |||||||||||||||||||||||
Company | Location | Business | 2014 | 2013 | Location | Business | 2016 | 2015 | ||||||||||||||||
SK hyeng Inc.1 | Korea | Domestic subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
SK hyeng Inc. | Korea | Domestic subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
SK hystec Inc. | Korea | Domestic subsidiary | 100.00 | 100.00 | Korea | Domestic subsidiary | 100.00 | 100.00 | ||||||||||||||||
Siliconfile Technologies Inc.2 | Korea | Development and manufacturing of electronic component | 100.00 | — | ||||||||||||||||||||
Siliconfile Technologies Inc. | Korea | Development and manufacturing of electronic component | 100.00 | 100.00 | ||||||||||||||||||||
Happymore Inc.1 | Korea | Domestic subsidiary | 100.00 | — | ||||||||||||||||||||
SK hynix America Inc. (SKHYA) | U.S.A. | Overseas sales subsidiary | 97.74 | 97.74 | U.S.A. | Overseas sales subsidiary | 97.74 | 97.74 | ||||||||||||||||
Hynix Semiconductor Manufacturing America Inc. (HSMA)3 | U.S.A. | Discontinued subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
Hynix Semiconductor Manufacturing America Inc. (HSMA)2 | U.S.A. | Overseas manufacturing subsidiary | — | 100.00 | ||||||||||||||||||||
SK hynix Deutschland GmbH (SKHYD) | Germany | Overseas sales subsidiary | 100.00 | 100.00 | Germany | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Europe Holding Ltd. (SKHYE)4 | U.K. | Holding company | — | 100.00 | ||||||||||||||||||||
SK hynix U.K. Ltd. (SKHYU) | U.K. | Overseas sales subsidiary | 100.00 | 100.00 | U.K. | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Asia Pte. Ltd. (SKHYS) | Singapore | Overseas sales subsidiary | 100.00 | 100.00 | Singapore | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Semiconductor India Pvt. Ltd. (SKHYIS)5 | India | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Semiconductor India Pvt. Ltd. (SKHYIS)3 | India | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Semiconductor Hong Kong Ltd. (SKHYH) | Hong Kong | Overseas sales subsidiary | 100.00 | 100.00 | Hong Kong | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) | China | Overseas sales subsidiary | 100.00 | 100.00 | China | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Japan Inc. (SKHYJ) | Japan | Overseas sales subsidiary | 100.00 | 100.00 | Japan | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Semiconductor Taiwan Inc. (SKHYT) | Taiwan | Overseas sales subsidiary | 100.00 | 100.00 | Taiwan | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Semiconductor (China) Ltd. (SKHYCL)6 | China | Overseas manufacturing subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Semiconductor (China) Ltd. (SKHYCL) | China | Overseas manufacturing subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Semiconductor (Wuxi) Ltd. (SKHYMC) | China | Overseas manufacturing subsidiary | 100.00 | 100.00 | China | Overseas manufacturing subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix (Wuxi) Semiconductor Sales Ltd. (SKHYCW) | China | Overseas sales subsidiary | 100.00 | 100.00 | China | Overseas sales subsidiary | 100.00 | 100.00 | ||||||||||||||||
SK hynix Italy S.r.l (SKHYIT) | Italy | Overseas R&D center | 100.00 | 100.00 | Italy | Overseas R&D center | 100.00 | 100.00 | ||||||||||||||||
SK hynix memory solutions Inc. (SKHMS)7 | U.S.A. | Overseas R&D center | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix memory solutions Inc. (SKHMS) | U.S.A. | Overseas R&D center | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Flash Solution Taiwan (SKHYFST) | Taiwan | Overseas R&D center | 100.00 | 100.00 | Taiwan | Overseas R&D center | 100.00 | 100.00 | ||||||||||||||||
SK APTECH Ltd. (SKAPTECH)8 | Hong Kong | Holding company | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)9 | China | Overseas manufacturing subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
Softeq Flash Solutions LLC. (SOFTEQ)10 | Belarus | Overseas R&D center | 100.00 | — | ||||||||||||||||||||
MMT (Money Market Trust)11 | Korea | Money Market Trust | 100.00 | — | ||||||||||||||||||||
SK APTECH Ltd. (SKAPTECH) | Hong Kong | Holding company | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)4 | China | Overseas manufacturing subsidiary | 100.00 | 100.00 | ||||||||||||||||||||
Softeq Flash Solutions LLC.(SOFTEQ) | Belarus | Overseas R&D center | 100.00 | 100.00 | ||||||||||||||||||||
SK hynix Ventures Hong Kong Ltd. (SKH Ventures)5 | Hong Kong | Overseas investing subsidiary | 100.00 | — | ||||||||||||||||||||
MMT (Money Market Trust) | Korea | Money Market Trust | 100.00 | 100.00 |
1 |
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2 |
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3 | Subsidiary of SK hynix |
4 |
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5 | The Group acquired SK hynix |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
1. Reporting Entity, continued
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(3) Changes in the consolidated subsidiaries forduring the year ended December 31, 20142016 are as follows:
Company |
| |||
| ||||
| SK hynix
| Included in Subsidiary by establishment | ||
Acquisition | Happymore Inc. | Included in Subsidiary by establishment | ||
Excluded from | Hynix Semiconductor Manufacturing America Inc. (HSMA) | Excluded from subsidiary upon liquidation |
(4) Major subsidiaries’ summarized separate statements of financial position as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||
Assets | Liabilities | Equity | Assets | Liabilities | Equity | Assets | Liabilities | Equity | Assets | Liabilities | Equity | |||||||||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||||||||||
SK hynix America Inc. (SKHYA) | ₩ | 1,711,746 | 1,634,047 | 77,699 | 964,682 | 911,513 | 53,169 | ₩ | 1,584,043 | 1,279,493 | 304,550 | 1,504,882 | 1,333,291 | 171,591 | ||||||||||||||||||||||||||||||||||
SK hynix Asia Pte. Ltd. (SKHYS) | 386,135 | 313,152 | 72,983 | 231,649 | 164,390 | 67,259 | 337,506 | 253,918 | 83,588 | 269,286 | 190,155 | 79,131 | ||||||||||||||||||||||||||||||||||||
SK hynix Semiconductor Hong Kong Ltd. (SKHYH) | 563,598 | 478,449 | 85,149 | 353,248 | 284,438 | 68,810 | 932,437 | 810,556 | 121,881 | 529,095 | 431,074 | 98,021 | ||||||||||||||||||||||||||||||||||||
SK hynix Japan Inc.(SKHYJ) | 285,122 | 227,860 | 57,262 | 302,971 | 250,962 | 52,009 | ||||||||||||||||||||||||||||||||||||||||||
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) | 46,177 | 18,595 | 27,582 | 68,196 | 45,998 | 22,198 | ||||||||||||||||||||||||||||||||||||||||||
SK hynix Japan Inc. (SKHYJ) | 251,274 | 184,504 | 66,770 | 245,142 | 183,277 | 61,865 | ||||||||||||||||||||||||||||||||||||||||||
SK hynix Semiconductor Taiwan Inc. (SKHYT) | 628,791 | 605,861 | 22,930 | 240,489 | 197,975 | 42,514 | 310,933 | 290,174 | 20,759 | 299,834 | 277,520 | 22,314 | ||||||||||||||||||||||||||||||||||||
SK hynix Semiconductor (China) Ltd. (SKHYCL) | 4,179,186 | 1,197,588 | 2,981,598 | 3,652,044 | 1,212,007 | 2,440,037 | 3,476,086 | 232,117 | 3,243,969 | 3,718,832 | 503,776 | 3,215,056 | ||||||||||||||||||||||||||||||||||||
SK hynix Deutschland GmbH (SKHYD) | 135,384 | 98,477 | 36,907 | 98,150 | 63,706 | 34,444 | 83,388 | 45,575 | 37,813 | 75,152 | 38,697 | 36,455 | ||||||||||||||||||||||||||||||||||||
SK hynix U.K. Ltd. (SKHYU) | 194,318 | 179,990 | 14,328 | 78,020 | 66,080 | 11,940 | 146,327 | 128,807 | 17,520 | 155,531 | 138,918 | 16,613 | ||||||||||||||||||||||||||||||||||||
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) | 341,984 | 174,936 | 167,048 | 52,857 | 2,287 | 50,570 | 350,305 | 171,088 | 179,217 | 406,552 | 224,672 | 181,880 |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
1. Reporting Entity, continued
(5) Major subsidiaries’ summarized separate statements of comprehensive income for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2016 | |||||||||||||||||||||||
Revenue | Profit | Total comprehensive income | Revenue | Profit | Total comprehensive income | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
SK hynix America Inc. (SKHYA) | ₩ | 6,360,992 | 21,385 | 21,385 | ₩ | 5,398,193 | 117,848 | 117,848 | ||||||||||||||||
SK hynix Asia Pte. Ltd. (SKHYS) | 1,638,396 | 2,773 | 2,773 | 1,497,869 | 1,929 | 1,929 | ||||||||||||||||||
SK hynix Semiconductor Hong Kong Ltd. (SKHYH) | 3,714,085 | 12,941 | 12,941 | 5,655,093 | 20,019 | 20,019 | ||||||||||||||||||
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) | 345,863 | 6,073 | 6,073 | |||||||||||||||||||||
SK hynix Japan Inc. (SKHYJ) | 843,383 | 9,890 | 10,478 | 673,127 | 867 | 804 | ||||||||||||||||||
SK hynix Semiconductor Taiwan Inc. (SKHYT) | 2,176,739 | 7,599 | 7,599 | 1,742,632 | 2,676 | 2,676 | ||||||||||||||||||
SK hynix Semiconductor (China) Ltd. (SKHYCL) | 1,914,452 | 381,729 | 381,729 | 2,137,576 | 123,753 | 123,753 | ||||||||||||||||||
SK hynix Deutschland GmbH (SKHYD) | 551,528 | 6,197 | 6,197 | 321,309 | 1,747 | 1,747 | ||||||||||||||||||
SK hynix U.K. Ltd. (SKHYU) | 575,959 | 1,813 | 1,813 | 532,661 | 374 | 374 | ||||||||||||||||||
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) | 109,769 | 6,813 | 6,813 | 296,121 | 2,674 | 2,674 |
2013 | 2015 | |||||||||||||||||||||||
Revenue | Profit | Total comprehensive income | Revenue | Profit | Total comprehensive income | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
SK hynix America Inc. (SKHYA) | ₩ | 5,187,848 | 23,547 | 23,547 | ₩ | 7,599,679 | 89,716 | 89,716 | ||||||||||||||||
SK hynix Asia Pte. Ltd. (SKHYS) | 1,203,290 | 2,385 | 2,385 | 1,612,550 | 1,303 | 1,303 | ||||||||||||||||||
SK hynix Semiconductor Hong Kong Ltd. (SKHYH) | 3,022,397 | 19,471 | 19,471 | 4,181,208 | 6,909 | 6,909 | ||||||||||||||||||
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) | 528,670 | 8,150 | 8,150 | |||||||||||||||||||||
SK hynix Japan Inc. (SKHYJ) | 790,736 | 10,335 | 10,447 | 934,001 | 1,116 | 1,322 | ||||||||||||||||||
SK hynix Semiconductor Taiwan Inc. (SKHYT) | 1,769,055 | 6,680 | 6,680 | 1,915,465 | 5,852 | 5,852 | ||||||||||||||||||
SK hynix Semiconductor (China) Ltd. (SKHYCL) | 1,718,074 | 23,611 | 23,611 | 2,273,536 | 206,446 | 206,446 | ||||||||||||||||||
SK hynix Deutschland GmbH (SKHYD) | 594,166 | 2,440 | 2,440 | 414,489 | 1,072 | 1,072 | ||||||||||||||||||
SK hynix U.K. Ltd. (SKHYU) | 494,305 | 1,743 | 1,743 | 702,329 | 1,289 | 1,289 | ||||||||||||||||||
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) | 350,110 | 13,328 | 13,328 |
2012 (Unaudited) | ||||||||||||
Revenue | Profit | Total comprehensive income | ||||||||||
(In millions of won) | ||||||||||||
SK hynix America Inc. (SKHYA) | ₩ | 3,848,368 | 10,498 | 10,498 | ||||||||
SK hynix Asia Pte. Ltd. (SKHYS) | 693,598 | 4,619 | 4,619 | |||||||||
SK hynix Semiconductor Hong Kong Ltd. (SKHYH) | 1,889,126 | 3,548 | 3,548 | |||||||||
SK hynix Japan Inc. (SKHYJ) | 736,702 | 13,410 | 13,416 | |||||||||
SK hynix Semiconductor Taiwan Inc. (SKHYT) | 1,428,484 | 3,815 | 3,815 | |||||||||
SK hynix Semiconductor (China) Ltd. (SKHYCL) | 2,400,043 | 244,995 | 244,995 | |||||||||
SK hynix Deutschland GmbH (SKHYD) | 415,572 | 2,534 | 2,534 | |||||||||
SK hynix U.K. Ltd. (SKHYU) | 399,810 | 3,260 | 3,260 |
(6) There are no significant non-controlling interests to the Group as of December 31, 2014, 2013 and 2012.
2014 | ||||||||||||
Revenue | Profit | Total comprehensive income | ||||||||||
(In millions of won) | ||||||||||||
SK hynix America Inc. (SKHYA) | ₩ | 6,360,992 | 21,385 | 21,385 | ||||||||
SK hynix Asia Pte. Ltd. (SKHYS) | 1,638,396 | 2,773 | 2,773 | |||||||||
SK hynix Semiconductor Hong Kong Ltd. (SKHYH) | 3,714,085 | 12,941 | 12,941 | |||||||||
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) | 271,950 | 5,112 | 5,112 | |||||||||
SK hynix Japan Inc. (SKHYJ) | 843,383 | 9,890 | 10,478 | |||||||||
SK hynix Semiconductor Taiwan Inc. (SKHYT) | 2,176,739 | 7,599 | 7,599 | |||||||||
SK hynix Semiconductor (China) Ltd. (SKHYCL) | 1,914,452 | 381,729 | 381,729 | |||||||||
SK hynix Deutschland GmbH (SKHYD) | 551,528 | 6,197 | 6,197 | |||||||||
SK hynix U.K. Ltd. (SKHYU) | 575,959 | 1,813 | 1,813 | |||||||||
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) | 109,769 | 6,813 | 6,813 |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
1. Reporting Entity, continued
(6) There are no significantnon-controlling interests to the Group as of December 31, 2016, 2015 and 2014.
2. Basis of Preparation
(1) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements were authorized for issuance by the board of directors on January 28, 2015.25, 2017.
(2) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:
derivative financial instruments are measured at fair value
financial instruments at fair value through profit or loss are measured at fair value
available-for-sale financial assets are measured at fair value
liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets
(3) Functional and presentation currency
Financial statements of entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.
(4) Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
(a) Critical judgments
Information about critical judgments made in applying accounting policies that have the most significant effectseffect on the amounts recognized in the consolidatedseparate financial statements is included in the following notes:
Note 4: estimated useful lives of property, plant and equipment and intangible assets
Note 6:notes for financial instruments, classification of financial instrumentsleases, recognition of deferred tax assets (liabilities) and others.
(b) Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financialfiscal year isare included in the following notes:
Note 10:notes for reserves in accounts receivable, net realizable value of inventories,
Note 16: goodwill impairment, recognition and measurement of goodwillprovisions, measurement of defined benefit obligations, recognition of deferred tax assets (liabilities) and others.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
2. Basis of Preparation, continued
Note 20: recognition and measurement of provisions
Note 21: measurement of defined benefit obligations
Note 22: recognition of deferred tax assets and liabilities
(c) Fair value measurement
The Group establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for various financial andnon-financial assets and liabilities. Such policies and procedures are executed by the valuation department, which is responsible for the review of significant fair value measurements including fair values classified as level 3 in the fair value hierarchy.
The valuation department regularly reviews unobservable significant inputs and valuation adjustments. If third party information such as prices available from an exchange, dealer, broker, industry group, pricing service or regulatory agency is used for fair value measurements, the valuation department reviews whether the valuation based on third party information includes classifications by levels within the fair value hierarchy and meets the requirements for the relevant standards.
The Group uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation methods as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
If various inputs used to measure fair value of assets or liabilities fall into different levels of the fair value hierarchy, the Group classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value. The Group recognizes transfers between levels at the end of the reporting period of which such transfers occurred.
Information about assumptions used for fair value measurements are included in note 7.6.
3. Changes in Accounting Policies
Except as described below, the accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2013.
(1) Amendment to IAS 32, ‘Financial Instruments: Presentation’
The Group has applied the amendment to IAS 32, ‘Financial Instruments: Presentation’, since January 1, 2014. The amendment provides that a financial asset and a financial liability shall be offset and the net amount presented in the statement of financial position only when an entity currently has a legally enforceable right to set off the recognized amounts; and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
The legally enforceable right to offset must not be contingent on a future event and must be legally enforceable in all of circumstances including the normal course of business; the event of default; and the event of insolvency or bankruptcy of the entity and all of the counterparties.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
3. Changes in Accounting Policies, continued
The net settlement criteria can be met when the amounts are settled in a manner such that the outcome is, in effect, equivalent to net settlement, which includes case that the gross settlement mechanism has features that eliminate or result in insignificant credit and liquidity risk, and that will process receivables and payables in a single settlement process or cycle.
The amendment has no impact on the Group’s financial statements.
(2) Amendment to IAS 36, ‘Impairment of Assets’
The Group has applied the amendment to IAS 36, ‘Impairment of Assets’ since January 1, 2014. The amendment provides that the recoverable amount is required to be disclosed only when an impairment loss has been recognized or reversed.
The amendment has no impact on the Group’s financial statements.
(3) IFRIC 21, ‘Levies’
The Group adopted IFRIC 21, ‘Levies’ since January 1, 2014. The interpretation defines that an obligating event that gives rise to the recognition of a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation. If the obligating event occurs over a year of time, the liability to pay a levy is recognized progressively and if the obligating event is the reaching of a minimum activity threshold, the liability to pay a levy is recognized when that minimum activity threshold is reached. An entity shall recognize an asset if it has prepaid a levy but does not yet have a present obligation to pay that levy.
The interpretation clarifies that a levy is not recognized until the obligating event specified in the legislation occurs, even if there is no realistic opportunity to avoid the obligation.
The interpretation has no significant impact on the Group’s financial statements.
4. Significant Accounting Policies
The significant accounting policies applied by the Group in preparation of its consolidated financial statements are explained below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
(1) Operating Segments
An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the Group, 2) whose operating results are reviewed regularly by the Group’s chief operating decision maker (“CODM”) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. The Group’s CODM is the board of directors, who do not receive and therefore do not review discrete financial information for any component of the Group. Consequently, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic, product and customer information are provided in note 5.4.
(2) Basis of consolidation
(a) Business combination
A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
4.3. Significant Accounting Policies, continued
The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement ofpre-existing relationships. Such amounts are generally recognized in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate topre-combination service.
(b) Non-controlling interests
Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(c) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.
(d) Loss of control
If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.
(e) Interests in equity-accounted investees
The Group’s interest in equity-accounted investees comprise interests in an associate and a joint venture. An associate is an entity in which the Group has significant influence, but not control or joint control, over the entity’s financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in an associate and a joint venture are initially recognized at cost including transaction costs. Subsequent to initial recognition, their carrying amounts are increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture. Distributions from equity-accounted investees are accounted for as deduction from the carrying amounts.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
4.3. Significant Accounting Policies, continued
(f) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with equity-accounted investees are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.
(g) Business combinations under common control
The assets and liabilities acquired in the combination of entities or business under common control are recognized at the carrying amounts recognized previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is added to or deducted from other capital adjustments.
(3) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.
(4) Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average method (except for goodsin-transit that is based on the specific identification method), and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing inventories to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. In the case of manufactured inventories andwork-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.
(5) Non-derivative financial assets
The Group recognizes and measuresnon-derivative financial assets by the following four categories: financial assets at fair value through profit or loss,held-to-maturity investments, loans and receivables andavailable-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Upon initial recognition,non-derivative financial assets not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the asset’s acquisition.
(a) Financial assets at fair value through profit or loss
A financial asset is classified as financial assets at fair value through profit or loss if it is held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.
(b) Held-to-maturity investments
Anon-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, is classified asheld-to-maturity investments. Subsequent to initial recognition,held-to-maturity investments are measured at amortized cost using the effective interest rate method.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
4.3. Significant Accounting Policies, continued
(c) Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method.
(d) Available-for-sale financial assets
Available-for-sale financial assets are thosenon-derivative financial assets that are designated asavailable-for-sale or are not classified as financial assets at fair value through profit or loss,held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, and changes in their fair value, net of any tax effect, are recorded in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.
(e) De-recognition of financial assets
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group neither transfers nor retains substantially all of the risks and rewards of ownership of the financial assets, it derecognizes the financial assets when it does not retain control over the transferred financial assets. If the Group has retained control over the transferred financial assets, it continues to recognize the assets to the extent of its continuing involvement. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.
(f) Offsetting between financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.
(6) Derivative financial instruments
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
(a) Embedded derivatives
Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:
the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;
a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss.
Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
4.3. Significant Accounting Policies, continued
(b) Other derivative financial instruments
Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.
(7) Impairment of financial assets
A financial asset not carried at fair value through profit or loss is assessed at the end of each reporting period to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.
Objective evidence that a financial asset is impaired includes:
significant financial difficulty of the issuer or obligor;
a breach of contract, such as default or delinquency in interest or principal payments;
the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
it becoming probable that the borrower will enter bankruptcy or other financial reorganization;
the disappearance of an active market for that financial asset because of financial difficulties; or
observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot be identified with the individual financial assets in the group
In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.
(a) Financial assets measured at amortized cost
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the financial asset’s estimated future cash flows, impairment losses would be measured based on prices from any observable current market transactions. Impairment losses are deducted through an allowance account or directly from the carrying amount. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss either directly or by adjusting an allowance account.
(b) Financial assets carried at cost
The amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
4.3. Significant Accounting Policies, continued
(c) Available-for-sale financial assets
When a decline in the fair value of anavailable-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified asavailable-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified asavailable-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.
(8) Property, plant and equipment
Property, plant and equipment are initially measured at cost. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.
Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of theday-to-day repair and maintenance are recognized in profit or loss as incurred.
Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized as other income or expenses.
The estimated useful lives of the Group’s property, plant and equipment are as follows:
Useful lives (years) | ||||
Buildings | 10 - 50 | |||
Structures | 10 - 30 | |||
Machinery | 4 - 15 | |||
Vehicles | 4 - 10 | |||
Other | 3 - 15 |
Depreciation methods, useful lives, and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.
(9) Borrowing costs
The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
4. Significant Accounting Policies, continued
Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period does not exceed the amount of borrowing costs incurred during that period.
(10) Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.
Goodwill arising from business combinations is recognized as the excess of the consideration transferred in the acquisition over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.
Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, certain intangible assets are determined as having indefinite useful lives and not amortized as there is no foreseeable limit to the period over which the assets are expected to be available for use.
The estimated useful lives of the Group’s intangible assets are as follows:
Useful lives (years) | ||
Industrial rights | 5 - 10 | |
Development costs | ||
Software | 5 |
Useful lives and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.
Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
4. Significant Accounting Policies, continued
(11) Government grants
Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
(a) Grants related to assets
Government grants whose primary condition is that the Group purchases, constructs or otherwise acquiresnon-current assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the useful lives of depreciable assets.
(b) Grants related to income
Government grants which are intended to compensate the Group for expenses incurred are recognized in profit or loss by as deduction of the related expenses.
(12) Investment property
Property held for the purpose of earning rental income or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at cost less accumulated depreciation and impairment losses.
Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of theday-to-day repair and maintenance are recognized in profit or loss as incurred.
Investment property except for land, are depreciated on a straight-line basis over estimated useful lives.
Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.
(13) Impairment ofnon-financial assets
The carrying amounts of the Group’snon-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets andnon-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.
The Group estimates the recoverable amount of an individual asset; however if it is impossible to measure the individual recoverable amount of an asset, the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying apre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.
An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
4. Significant Accounting Policies, continued
Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from business combination. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(14) Leases
The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.
(a) Finance leases
At the commencement of the lease term, the Group recognizes as finance lease assets and finance lease liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.
Minimum lease payments are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.
The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews whether the leased asset is impaired.
(b) Operating leases
Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.
(c) Determining whether an arrangement contains a lease
Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.
At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance expense on the liability recognized using the purchaser’s incremental borrowing rate of interest.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
4. Significant Accounting Policies, continued
(15) Non-current assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified asnon-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized.
Anon-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).
(16) Non-derivative financial liabilities
The Group classifiesnon-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.
(a) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, any directly attributable transaction costs are recognized in profit or loss as incurred.
(b) Other financial liabilities
Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest rate method. The Group derecognizes a financial liability from the consolidated statements of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelledcanceled or expires).
(17) Employee benefits
(a) Short-term employee benefits
Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.
(b) Other long-term employee benefits
Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the reporting period in which the employees render the related service, and are calculated at the present value of
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
4. Significant Accounting Policies, continued
the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurements are recognized through profit or loss in the period in which they arise.
(c) Retirement benefits: defined benefit plans
As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations, net of fair value of plan assets.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.
Remeasurements of the net defined benefit liability comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability, and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability, and are recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.
When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.
(d) Retirement benefits: defined contribution plans
When an employee has provided service for a certain period of time in relation to the defined contribution plan, the contribution to the defined contribution plan is recognized in profit or loss except to be included in the cost of the asset. The contributions to be paid are recognized as liabilities (accrued expenses) less the contributions that have been already paid.
(e) Termination benefits
The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring. If benefits are not payable within 12 months after the end of the reporting period, then they are discounted to their present value.
(18) Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.
Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
A provision is used only for expenditures for which the provision was originally recognized.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
4.3. Significant Accounting Policies, continued
(19) Foreign currencies
(a) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate.Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on the settlement or retranslation of monetary items are recognized in profit or loss, except for differences arising on the retranslation of the net investment in a foreign operation, which are recognized in other comprehensive income. When a gain or loss on anon-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on anon-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.
(b) Foreign operations
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at exchange rates at the closing rate.reporting date.
When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed tonon-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.
(20) Equity capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares is recognized as a deduction from equity, net of any tax effects.
When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
4. Significant Accounting Policies, continued
(21) Revenue
Revenue from the sale of goods, rendering of services or use of assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
(a) Sale of goods
Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
(b) Sale of services
Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.
(22) Finance income and finance expenses
Finance income comprises interest and dividend income on funds invested (includingavailable-for-sale financial assets), dividend income, gains on the disposal ofavailable-for-sale financial assets, and changes in the fair value of financial instruments at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive paymentdividend is established.
Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, and changes in the fair value of financial instruments at fair value through profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.
(23) Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
(a) Current tax
Current tax is the expected tax payable or receivablerefundable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, andnon-taxable ornon-deductible items from the accounting profit. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.
(b) Deferred tax
Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures except to the extent that the Group is able to control the
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
4. Significant Accounting Policies, continued
timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes deferred tax assets for all deductible temporary differences including unused tax loss and tax credit to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis. If there are any additional income tax expense incurred in accordance with dividend payments, such income tax expense is recognized when liabilities relating to the dividend payments are recognized.
(24) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares including convertible notes.
(25) Discontinued operations
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as a discontinued operation, the comparative consolidated statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period.
(26) Standards issued but not yet adopted
A number ofThe following new standards, and amendments to standards and interpretations are effective for annual periods beginning after January 1, 2014. The2016 and earlier application is permitted; however, the Group has not early adopted the following new or amended standardsthem in preparing these consolidated financial statements.
(a) IFRS 9, ��‘Financial Instruments’
IFRS 9, published in July 2014, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces the existing guidance in IAS 39, ‘Financial‘Financial Instruments: Recognition and Measurement’. The Group plans to adopt IFRS 9 includes revised guidancefor the year beginning on January 1, 2018.
IFRS 9 will generally be applied retrospectively; however the Group plans to take advantage of the exemption allowing it not to restate the comparative information for prior periods with respect to classification and measurement including impairment changes. New hedge accounting requirements will generally be applied prospectively except for certain exemptions including the accounting for the time value of options.
Key features of the new standard, IFRS 9, are 1) classification and measurement of financial instruments, including a new expectedassets that reflects the business model in which the assets are managed and their cash flow characteristics, 2) impairment methodology that reflects ‘expected credit lossloss’ (ECL) model for calculating impairment on financial assets, and 3) expanded scope of hedged items and hedging instruments which qualify for hedge accounting and changes in assessment method for effect of hedging relationships.
IFRS 9 will require the newGroup to assess the financial impact from application of IFRS 9 and revise its accounting processes and internal controls related to financial instruments. Actual impact of adopting IFRS 9 will be dependent on the financial instruments the Group holds and economic conditions at that time as well as accounting policy elections and judgment that it will make in the future.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
4.3. Significant Accounting Policies, continued
general hedgeThe Group is preparing for changes in internal controls processes or accounting requirements. It also carries forwardprocessing systems, and analyzing an assessment of the guidancefinancial impact resulting from the application of IFRS 9. The Group expects to disclose additional quantitative information in the notes to the consolidated financial statements for the year ending December 31, 2017. Expected impacts on recognitionthe financial statements are generally categorized as follows:
(i) Classification and derecognitionmeasurement of financial instruments from IAS 39.assets
Under IFRS 9, financial assets are classified into three principal categories; measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) based on the business model in which assets are managed and their cash flow characteristics, as detailed in the below table.
Under IFRS 9, derivatives embedded in hybrid contracts where the host is a financial asset are not bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.
Business model | Contractual cash flows are | All other cases | ||
To collect contractual cash flows | At amortized cost1 | |||
Both to collect contractual cash flows and sell financial assets | At FVOCI1 | FVTPL2 | ||
For trading, and others | At FVOCI |
1 | The Group may irrevocably designate as at FVTPL to eliminate or significantly reduce an accounting mismatch. |
2 | The Group may irrevocably designate equity investments that is not held for trading as at FVOCI. |
As there are additional requirements for a financial asset to be classified as measured at amortized costs or FVOCI under IFRS 9 compared to the existing guidance in IAS 39, the adoption of IFRS 9 would potentially increase the proportion of financial assets that are measured at FVTPL, increasing volatility in the Group’s profit or loss.
As of December 31, 2016, the Group has loans and receivables amounting to ₩5,882,683 million,available-for-sale financial assets amounting to ₩147,779 million, and financial assets at fair value through profit or loss amounting to ₩1,570,172 million.
Under IFRS 9, a financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. As of December 31, 2016, the Group has loans and receivables which amount to ₩5,882,683 million, and measured them at amortized costs.
Under IFRS 9, a financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and 2) the contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding. As of December 31, 2016, the Group has debt instruments of ₩716 million classified asavailable-for-sale, where the host is a financial asset.
Under IFRS 9, on initial recognition of equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI, and will not reclassify(recycle) the those items in OCI to profit or loss subsequently. As of December 31, 2016, the Group has equity investment that is classified asavailable-for-sale which amounts to ₩147,063 million, and there was no accumulated fair value reserve related toavailable-to-sale financial assets.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
Under IFRS 9, a financial asset is measured at FVTPL if the contractual terms of the financial asset give rise to specified dates to cash flows that are not solely payments of principal and interest on the principal amount outstanding, the debt instrument is held within a business model whose objective is to sell the asset, or the equity instruments that are not elected to be designated as measured at FVOCI. As of December 31, 2016, the Group has debt instruments measured at FVTPL which amount to ₩1,570,172 million.
(ii) Classification and measurement of financial liabilities
Under IFRS 9, the amount of change in the fair value attributable to the changes in the credit risk of the financial liabilities is presented in OCI, not recognized in profit or loss, and the OCI amount will not be reclassified (recycled) to profit or loss. However, if doing so creates or increase an accounting mismatch, the amount of change in the fair value is recognized in profit or loss.
As a portion of fair value change which was recognized in profit or loss under the existing standard, IAS 39, will be presented in OCI under IFRS 9, profit or loss related to valuation of financial liabilities is likely to decrease. As of December 31, 2016, there was no financial liabilities measured at FVTPL.
(iii) Impairment: Financial assets and contract assets
IFRS 9 replaces the ‘incurred loss’ model in the existing standard with a forward-looking ‘expected credit loss’ (ECL) model for debt instruments, lease receivables, contractual assets, loan commitments, financial guarantee contracts.
Under IFRS 9, impairment losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in IAS 39 as loss allowances will be measured on either of the12-month or lifetime ECL based on the extent of increase in credit risk since inception as shown in the below table.
Classification1 | Loss allowances | |||
Stage 1 | Credit risk has not increased significantly since the initial recognition2 | 12-month ECL: ECLs that resulted from possible default events within the 12 months after the reporting date | ||
Stage 2 | Credit risk has increase significantly since the initial recognition | Lifetime ECL: ECL that resulted from all possible default events over the expected life of a financial instrument | ||
Stage 3 | Credit-impaired |
1 | Under IFRS 15, for trade receivables and contract assets arising with no significant credit risk, loss allowances are recognized at an amount equal to lifetime expected credit losses. However, for trade receivables and contract assets with a significant financing component arising under IFRS 15, the Group may choose as its accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses. In addition, for receivables under lease arrangement, the Group may choose to recognize loss allowances at an amount equal to lifetime expected credit losses. |
2 | The Group may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the end of reporting period. |
Under IFRS 9, financial assets of which the credit was impaired at the initial recognition, cumulative changes in lifetime ECL since the initial recognition are recognized as loss allowances.
As of December 31, 2016, the Group has debt instruments (loans and receivables) measured at amortized cost amounting to ₩5,887,367 million, debt instruments measured at FVOCI as they are classified as available for sale amounting to ₩716 million, and has recognized loss allowances of ₩4,684 million.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
IFRS 15 ‘Revenue from Contracts from Customers’, published in May 2014, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts SIC 31 Revenue- Barter transactions involving advertising services, IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements for the construction of real estate, IFRIC 18 Transfers of assets from customers. The Group plans to adopt IFRS 15 in its consolidated financial statements for the year ending December 31, 2018, and retrospectively adjust the comparative periods presented in the set of financial statements, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. However, the Group has not yet decided whether to apply the practical expedient and which method to use in applying the practical expedient.
Existing IFRS standards and interpretations including IAS 18 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue; however, under the new standard, IFRS 15, the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation) is applied for all types of contracts or agreements.
The new standard will require the Group to revise its internal controls and accounting processing systems related to reporting revenue. The Group is preparing for changes and analyzing an assessment of the impact resulting from the application of IFRS 15, and the Group expects to disclose additional quantitative information in the notes to the financial statements for the year ending December 31, 2017. Expected impacts on the consolidated financial statements are generally categorized as follows:
(i) Identifying the performance obligations in the contract
The Group is engaged in the research and development, manufacture, distribution and sales of semiconductor products (DRAM and NAND flash and others), and the most of revenue generated from these operation.
Under IFRS 15, the Group determines whether the goods and services per the contracts are distinct and identify separate performance obligations in the contracts such as (a) the software license; (b) an installation service; (c) software updates; and (d) technical support. Timing of revenue recognition would change depending on whether the each of the performance obligations are satisfied at a point of time or over time.
(ii) Variable consideration
As the contract allows a customer to return the products, the consideration received from the customer is variable. Under IFRS 15, the Group estimates an amount of variable consideration by using the method the Group expects to better predict the amount of consideration to which it will be entitled. The Group includes an amount of variable consideration in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the return period expires. The Group recognize the amounts received or receivable for which the Group does not expect to be entitled as a refund liability.
(iii) Allocating the transaction price to performance obligations
In applying the IFRS 15, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis. To estimate the stand-alone selling price, ‘adjusted market assessment approach’ will be used; however, for certain transactions, ‘expected cost plus a margin approach’ will be used exceptionally.
IFRS 16, published in January 2016, replaces the existing guidance in IAS 17, Leases. IFRS 16 eliminates the current dual accounting model for lessees, which distinguishes betweenon-balance sheet finance leases and
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
3. Significant Accounting Policies, continued
off-balance sheet operating leases. Instead, there is a single,on-balance sheet accounting model that is similar to current finance lease accounting. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2018,2019, with early adoptingadoption permitted.
The Group is preparing for changes in internal controls processes or accounting processing systems, and analyzing an assessment of the process of assessing the potentialfinancial impact on its consolidated financial statements resulting from the application of IFRS 9.16.
(b) IFRS 15, ‘Revenue from Contracts with Customers’
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18, ‘Revenue’, IAS 11, ‘Construction Contracts’ and IFRIC 13, ‘Customer Loyalty Programs’. IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2017, with early adoption permitted.
The Group is in the process of assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 15.
5.4. Geographic, Product and Customer Information
The Group has a single reportable segment that is engaged in the manufacture and sale of semiconductor products.
(1) Details of the Group’s revenue for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Sale of goods | ₩ | 17,013,599 | 14,088,421 | 10,129,725 | ₩ | 17,146,961 | 18,739,177 | 17,054,031 | ||||||||||||||||
Sale of services | 111,967 | 76,681 | 32,485 | 51,014 | 58,821 | 71,535 | ||||||||||||||||||
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₩ | 17,125,566 | 14,165,102 | 10,162,210 | ₩ | 17,197,975 | 18,797,998 | 17,125,566 | |||||||||||||||||
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(2) Details of the Group’s revenue by product and service types for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 20131 | 20121 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
DRAM | ₩ | 13,311,628 | 10,211,993 | 7,235,488 | ||||||||
NAND Flash | 3,320,658 | 3,391,561 | 2,535,012 | |||||||||
Other | 493,280 | 561,548 | 391,710 | |||||||||
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₩ | 17,125,566 | 14,165,102 | 10,162,210 | |||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
5. Geographic, Product and Customer Information, continued
2016 | 2015 | 2014 | ||||||||||
(In millions of won) | ||||||||||||
DRAM | ₩ | 12,340,767 | 14,045,339 | 13,311,628 | ||||||||
NAND Flash | 4,347,535 | 4,148,315 | 3,320,658 | |||||||||
Other | 509,673 | 604,344 | 493,280 | |||||||||
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₩ | 17,197,975 | 18,797,998 | 17,125,566 | |||||||||
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(3) The Group’s revenue information by region based on the location of selling entities for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Korea | ₩ | 1,179,949 | 1,105,083 | 771,396 | ₩ | 1,099,426 | 1,204,642 | 1,179,949 | ||||||||||||||||
China | 3,825,747 | 3,038,355 | 1,901,742 | 5,960,235 | 4,496,357 | 3,825,747 | ||||||||||||||||||
Taiwan | 2,155,005 | 1,765,343 | 1,434,775 | 1,732,573 | 1,899,649 | 2,155,005 | ||||||||||||||||||
Asia (other than China and Taiwan) | 2,482,716 | 1,986,394 | 1,417,804 | 2,165,201 | 2,536,009 | 2,482,716 | ||||||||||||||||||
U.S.A. | 6,359,461 | 5,191,619 | 3,827,725 | 5,397,944 | 7,549,622 | 6,359,461 | ||||||||||||||||||
Europe | 1,122,688 | 1,078,308 | 808,768 | 842,596 | 1,111,719 | 1,122,688 | ||||||||||||||||||
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₩ | 17,125,566 | 14,165,102 | 10,162,210 | ₩ | 17,197,975 | 18,797,998 | 17,125,566 | |||||||||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
4. Geographic, Product and Customer Information, continued
(4) The Group’snon-current assets (excluding financial assets, equity-accounted investees and deferred tax assets) information by region based on the location of subsidiaries as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Korea | ₩ | 12,356,735 | 10,424,568 | ₩ | 18,078,337 | 15,648,779 | ||||||||||
China | 3,255,550 | 2,912,948 | 2,805,712 | 3,208,908 | ||||||||||||
Taiwan | 5,831 | 5,036 | 6,835 | 7,007 | ||||||||||||
Asia (other than China and Taiwan) | 798 | 798 | 1,522 | 770 | ||||||||||||
U.S.A. | 333,908 | 289,682 | 364,188 | 365,024 | ||||||||||||
Europe | 11,124 | 1,598 | 9,374 | 8,874 | ||||||||||||
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₩ | 15,963,946 | 13,634,630 | ₩ | 21,265,968 | 19,239,362 | |||||||||||
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(5) Revenue from a customer that constitutesA constituting more than 10% of the Group’s consolidated revenue for the yearsyear ended December 31, 2014, 2013 and 20122016 amounts to ₩2,195,935 million (2015: ₩3,485,795 million, 2014: ₩2,959,663 million) and revenue from customer B constituting more than 10% of the Group’s consolidated revenue for the year ended December 31, 2015 amounted to ₩2,078,835 million ₩2,457,867(2016: ₩1,503,256 million, and ₩2,154,986 million (unaudited)2014: ₩1,710,833 million), respectively.
5. Categories of Financial Instruments
(1) Categories of financial assets as of December 31, 2016 and 2015 are as follows:
2016 | ||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Loans and receivables | Total | |||||||||||||
(In millions of won) | ||||||||||||||||
Cash and cash equivalents | ₩ | — | — | 613,786 | 613,786 | |||||||||||
Short-term financial instruments | 1,570,172 | — | 1,951,721 | 3,521,893 | ||||||||||||
Trade receivables | — | — | 3,251,652 | 3,251,652 | ||||||||||||
Loans and other receivables | — | — | 65,101 | 65,101 | ||||||||||||
Other financial assets | — | — | 423 | 423 | ||||||||||||
Available-for-sale financial assets | — | 147,779 | — | 147,779 | ||||||||||||
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₩ | 1,570,172 | 147,779 | 5,882,683 | 7,600,634 | ||||||||||||
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2015 | ||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Loans and receivables | Total | |||||||||||||
(In millions of won) | ||||||||||||||||
Cash and cash equivalents | ₩ | — | — | 1,175,719 | 1,175,719 | |||||||||||
Short-term financial instruments | 1,047,277 | — | 2,568,277 | 3,615,554 | ||||||||||||
Trade receivables | — | — | 2,628,448 | 2,628,448 | ||||||||||||
Loans and other receivables | — | — | 124,532 | 124,532 | ||||||||||||
Other financial assets | — | — | 430 | 430 | ||||||||||||
Available-for-sale financial assets | — | 131,354 | — | 131,354 | ||||||||||||
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₩ | 1,047,277 | 131,354 | 6,497,406 | 7,676,037 | ||||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
6.5. Categories of Financial Instruments, continued
(1)
(2) Categories of financial assetsliabilities as of December 31, 20142016 and 20132015 are as follows:
2014 | ||||||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Held-to- maturity financial assets | Loans and receivables | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Cash and cash equivalents | ₩ | — | — | — | 436,761 | 436,761 | ||||||||||||||
Short-term financial instruments | 1,842,020 | — | — | 1,775,994 | 3,618,014 | |||||||||||||||
Trade receivables | — | — | — | 3,732,926 | 3,732,926 | |||||||||||||||
Loans and other receivables | — | — | — | 940,874 | 940,874 | |||||||||||||||
Other financial assets1 | — | — | — | 323 | 323 | |||||||||||||||
Available-for-sale financial assets | — | 127,314 | — | — | 127,314 | |||||||||||||||
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₩ | 1,842,020 | 127,314 | — | 6,886,878 | 8,856,212 | |||||||||||||||
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2016 | ||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Total | ||||||||||
(In millions of won) | ||||||||||||
Trade payables | ₩ | — | 696,144 | 696,144 | ||||||||
Other payables | — | 1,606,417 | 1,606,417 | |||||||||
Othernon-trade payables1 | — | 712,580 | 712,580 | |||||||||
Borrowings | — | 4,335,978 | 4,335,978 | |||||||||
Other financial liabilities | 288 | — | 288 | |||||||||
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₩ | 288 | 7,351,119 | 7,351,407 | |||||||||
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2013 | ||||||||||||||||||||
Financial assets at fair value through profit or loss | Available- for-sale financial assets | Held-to- maturity financial assets | Loans and receivables | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Cash and cash equivalents | ₩ | — | — | — | 631,867 | 631,867 | ||||||||||||||
Short-term financial instruments | 1,045,974 | — | — | 1,108,558 | 2,154,532 | |||||||||||||||
Trade receivables | — | — | — | 1,941,675 | 1,941,675 | |||||||||||||||
Loans and other receivables | — | — | — | 366,849 | 366,849 | |||||||||||||||
Other financial assets1 | 272 | — | 245,808 | 1,745 | 247,825 | |||||||||||||||
Available-for-sale financial assets | — | 158,770 | — | — | 158,770 | |||||||||||||||
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₩ | 1,046,246 | 158,770 | 245,808 | 4,050,694 | 5,501,518 | |||||||||||||||
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2015 | ||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Total | ||||||||||
(In millions of won) | ||||||||||||
Trade payables | ₩ | — | 791,373 | 791,373 | ||||||||
Other payables | — | 1,337,803 | 1,337,803 | |||||||||
Othernon-trade payables1 | — | 1,091,062 | 1,091,062 | |||||||||
Borrowings | — | 3,818,595 | 3,818,595 | |||||||||
Other financial liabilities | 683 | — | 683 | |||||||||
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₩ | 683 | 7,038,833 | 7,039,516 | |||||||||
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1 | Details of other |
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Current | ||||||||
Held-to-maturity financial assets | ₩ | — | 245,808 | |||||
Non-current | ||||||||
Time deposit | 311 | 1,731 | ||||||
Bank overdraft guarantee deposits | 12 | 14 | ||||||
Derivatives | — | 272 | ||||||
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| |||||
323 | 2,017 | |||||||
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| |||||
₩ | 323 | 247,825 | ||||||
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2016 | 2015 | |||||||
(In millions of won) | ||||||||
Current | ||||||||
Accrued expenses | ₩ | 685,154 | 1,001,171 | |||||
Non-current | ||||||||
Long-term other payables | 24,872 | 87,036 | ||||||
Rent deposits payable | 2,554 | 2,855 | ||||||
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| |||||
27,426 | 89,891 | |||||||
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| |||||
₩ | 712,580 | 1,091,062 | ||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
6. Categories of Financial Instruments, continued
(2) Categories of financial liabilities as of December 31, 2014 and 2013 are as follows:
2014 | ||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Total | ||||||||||
(In millions of won) | ||||||||||||
Trade payables | ₩ | — | 787,822 | 787,822 | ||||||||
Other payables | — | 1,358,816 | 1,358,816 | |||||||||
Other non-trade payables1 | — | 1,315,903 | 1,315,903 | |||||||||
Borrowings | — | 4,174,759 | 4,174,759 | |||||||||
Other financial liabilities | 738 | — | 738 | |||||||||
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| |||||||
₩ | 738 | 7,637,300 | 7,638,038 | |||||||||
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2013 | ||||||||||||
Financial liabilities at fair value through profit or loss | Financial liabilities measured at amortized cost | Total | ||||||||||
(In millions of won) | ||||||||||||
Trade payables | ₩ | — | 648,793 | 648,793 | ||||||||
Other payables | — | 788,304 | 788,304 | |||||||||
Other non-trade payables1 | — | 854,221 | 854,221 | |||||||||
Borrowings | — | 4,550,215 | 4,550,215 | |||||||||
Other financial liabilities | 109,288 | — | 109,288 | |||||||||
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₩ | 109,288 | 6,841,533 | 6,950,821 | |||||||||
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2014 | 2013 | |||||||
(In millions of won) | ||||||||
Current | ||||||||
Accrued expenses | ₩ | 1,182,956 | 677,120 | |||||
Non-current | ||||||||
Long-term other payables | 130,566 | 166,641 | ||||||
Rent deposits payable | 2,357 | 9,844 | ||||||
Long-term accrued expenses | 24 | 616 | ||||||
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| |||||
132,947 | 177,101 | |||||||
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₩ | 1,315,903 | 854,221 | ||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
6.5. Categories of Financial Instruments, continued
(3) Finance incomeDetails of gain and expensesloss on financial assets and liabilities by categoriescategory for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Loans and receivables | ||||||||||||||||||||||||
Interest income | ₩ | 50,804 | 59,262 | 80,154 | ₩ | 34,174 | 40,715 | 50,804 | ||||||||||||||||
Foreign exchange differences | 200,390 | (61,819 | ) | (127,274 | ) | 167,736 | 300,163 | 200,390 | ||||||||||||||||
Reversal of impairment (loss) | (5,463 | ) | 2,250 | 460 | 5,617 | 82 | (5,463 | ) | ||||||||||||||||
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245,731 | (307 | ) | (46,660 | ) | 207,527 | 340,960 | 245,731 | |||||||||||||||||
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| |||||||||||||||||||
Available-for-sale financial assets | ||||||||||||||||||||||||
Other comprehensive loss | — | (966 | ) | (1,566 | ) | |||||||||||||||||||
Gain on disposal | 6,553 | 205 | 5,943 | — | — | 6,553 | ||||||||||||||||||
Dividend income | 1,233 | 2,381 | 216 | 18 | 1,265 | 1,233 | ||||||||||||||||||
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7,786 | 1,620 | 4,593 | 18 | 1,265 | 7,786 | |||||||||||||||||||
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Held-to-maturity financial assets | ||||||||||||||||||||||||
Interest income | 1,318 | 853 | — | — | — | 1,318 | ||||||||||||||||||
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| ||||||||||||||||||||||
1,318 | 853 | — | ||||||||||||||||||||||
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Financial assets at fair value through profit or loss | ||||||||||||||||||||||||
Interest income | — | 6,296 | — | |||||||||||||||||||||
Gain on valuation | 6,920 | — | — | 1,133 | 2,280 | 6,920 | ||||||||||||||||||
Gain from derivative instruments | — | 73 | 198 | |||||||||||||||||||||
Gain on disposal | 28,493 | — | — | 15,348 | 33,814 | 28,493 | ||||||||||||||||||
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35,413 | 6,369 | 198 | 16,481 | 36,094 | 35,413 | |||||||||||||||||||
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Financial liabilities measured at amortized cost | ||||||||||||||||||||||||
Interest expenses | (170,363 | ) | (256,623 | ) | (317,926 | ) | (120,122 | ) | (118,505 | ) | (170,363 | ) | ||||||||||||
Loss on redemption of debentures | (2,924 | ) | — | (10,470 | ) | — | — | (2,924 | ) | |||||||||||||||
Foreign exchange differences | (71,870 | ) | 169,509 | 381,687 | (129,670 | ) | (242,532 | ) | (71,870 | ) | ||||||||||||||
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| |||||||||||||||||||
(245,157 | ) | (87,114 | ) | 53,291 | (249,792 | ) | (361,037 | ) | (245,157 | ) | ||||||||||||||
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| |||||||||||||||||||
Financial liabilities at fair value through profit or loss | ||||||||||||||||||||||||
Loss from derivative instruments | (171,754 | ) | (93,546 | ) | (14,519 | ) | ||||||||||||||||||
Gain (Loss) on valuation from derivative instruments | 395 | 25 | (171,781 | ) | ||||||||||||||||||||
Gain (Loss) on transaction from derivative instruments | (448 | ) | (386 | ) | 27 | |||||||||||||||||||
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| |||||||||||||||||||
₩ | (126,663 | ) | (172,125 | ) | (3,097 | ) | (53 | ) | (361 | ) | (171,754 | ) | ||||||||||||
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| |||||||||||||||||||
₩ | (25,819 | ) | 16,921 | (126,663 | ) | |||||||||||||||||||
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7.6. Financial Risk Management
(1) Financial risk management
The Group’s activities are exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out by the Parent Company’s corporate finance division underin accordance with policies approved by the board of directors. The Parent Company’s corporate finance division identifies, evaluates and hedges
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
7. Financial Risk Management, continued
financial risks in close cooperation with the Group’s operating units. The board of directors provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, and credit risk,risk; use of derivative financial instruments andnon-derivative financial instruments,instruments; and the investment of excess liquidity.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
6. Financial Risk Management, continued
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, Euro and Japanese Yen. Foreign exchange risk arises from future commercial transactions; recognized assets and liabilities in foreign currencies; and net investments in foreign operations.
Monetary foreign currency assets and liabilities as of December 31, 20142016 are as follows:
Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||||||||||||
Foreign currencies | Korean won equivalent | Foreign currencies | Korean won equivalent | Foreign currencies | Korean won equivalent | Foreign currencies | Korean won equivalent | |||||||||||||||||||||||||
(In millions of won and millions of foreign currencies) | (In millions of won and millions of foreign currencies) | |||||||||||||||||||||||||||||||
USD | 4,729 | ₩ | 5,198,150 | 2,844 | ₩ | 3,126,097 | 4,392 | ₩ | 5,308,315 | 3,875 | ₩ | 4,682,724 | ||||||||||||||||||||
EUR | 3 | 4,508 | 50 | 67,141 | 1 | 11 | 85 | 108,342 | ||||||||||||||||||||||||
JPY | 11,558 | 106,347 | 26,580 | 244,575 | 1,894 | 19,638 | 33,601 | 348,380 |
As of December 31, 2014,2016, effects on profit before income tax as a result of change in exchange rate by 10% are as follows:
If increased by 10% | If decreased by 10% | If increased by 10% | If decreased by 10% | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
USD | ₩ | 207,205 | (207,205 | ) | ₩ | 62,559 | (62,559 | ) | ||||||||
EUR | (6,263 | ) | 6,263 | (10,833 | ) | 10,833 | ||||||||||
JPY | (13,823 | ) | 13,823 | (32,874 | ) | 32,874 |
(ii) Interest rate risk
Interest rate risk of the Group is defined as the risk that the interest expenses arising from borrowings will fluctuate because of changes in future market interest rate. The interest rate risk mainly arises through floating rate borrowings, and is partially offset by interests received from floating rate financial assets held at floating rates.assets.
The Group manages its interest rate risk by usingfloating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (primarily quarterly), the difference between interests of fixed rates and floating rates, which are calculated based on the agreed notional amounts.
As of December 31, 2014,2016, the Group is partially exposed to a risk of increase in interest rates. As of December 31, 2014, ifIf interest rates on borrowings were 100 basis points higher/lower with all other variables held constant, profit before income tax for the following year would be ₩15,267₩22,277 million (2015: ₩17,771 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and interest income on floating rate financial assets.
(iii) Price risk
As of December 31, 2014,2016, there are noavailable-for-sale equity securities measured at fair value held by the Group. Accordingly, the Group is not exposed to any equity securities price risk.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
7. Financial Risk Management, continued
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from operating and investing activities. In order to manage
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
6. Financial Risk Management, continued
credit risk, the Group periodically evaluates the creditworthiness of each customer or counterparty through the analysis of its financial information, historical transaction records and other factors, based on which the Group establishes credit limits for each customer or counterparty.
(i) Trade and other receivables
For each new customer, the Group individually analyzes its creditworthinesscredit worthiness before standard payment and delivery terms and conditions are offered. In addition, the Group is consistently managesmanaging trade and other receivables by reevaluating the customer’s creditworthinesscredit worthiness and securing collaterals in order to limit its credit risk exposure.
The Group reviews at the end of each reporting period whether trade and other receivables are impaired and maintains Global Credit Insurance Program with a credit insurance companiespolicies to manage credit risk exposure from oversea customers. The maximum exposure to credit risk as of December 31, 20142016 is the carrying amount of trade and other receivables.
(ii) Other financial assets
Credit risk also arises from other financial assets such as cash and cash equivalents; short-term financial instruments; and deposits with banks and financial institutions as well as short-term and long-term loans mainly due to the bankruptcy of each counterparty to those financial assets. The maximum exposure to credit risk as of December 31, 20142016 is the carrying amount of those financial assets. The Group transacts only with banks and financial institutions with high credit ratings including Shinhan Bank, and accordingly management does not expect any losses fromnon-performance by these counterparties.
(c) Liquidity risk
Liquidity risk is defined as the risk that the Group is unable to meet its short-term payment obligations on time due to deterioration of its business performance or inability to access financing. The Group forecasts its cash flow and liquidity status and sets action plans on a regular basis to manage liquidity risk proactively.
The Group invests surplus cash in interest-bearing current accounts, time deposits, demand deposits, marketableavailable-for-sale securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
7.6. Financial Risk Management, continued
Contractual maturities of financial liabilities as of December 31, 20142016 and 20132015 are as follows:
2014 | 2016 | |||||||||||||||||||||||||||||||||||||||
Less than 1 year | 1 - 2 years | 2 - 5 years | More than 5 years | Total | Less than 1 year | 1 - 2 years | 2 - 5 years | More than 5 years | Total | |||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||
Borrowings (other than finance lease liabilities) | ₩ | 1,765,674 | 795,191 | 1,675,663 | — | 4,236,528 | ₩ | 785,989 | 706,827 | 2,853,218 | 235,562 | 4,581,596 | ||||||||||||||||||||||||||||
Finance lease liabilities | 106,318 | 92,024 | 24,253 | — | 222,595 | 27,043 | 5,350 | 16,050 | 18,725 | 67,168 | ||||||||||||||||||||||||||||||
Trade payables | 787,822 | — | — | — | 787,822 | 696,144 | — | — | — | 696,144 | ||||||||||||||||||||||||||||||
Other payables | 1,369,959 | — | — | — | 1,369,959 | 1,610,757 | — | — | — | 1,610,757 | ||||||||||||||||||||||||||||||
Other non-trade payables | 1,182,957 | 78,625 | 54,297 | — | 1,315,879 | 667,485 | 25,224 | 2,554 | — | 695,263 | ||||||||||||||||||||||||||||||
Derivatives | 738 | — | — | — | 738 | 288 | — | — | — | 288 | ||||||||||||||||||||||||||||||
Financial guarantee contract | 27 | — | — | — | 27 | 8 | — | — | — | 8 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
₩ | 5,213,495 | 965,840 | 1,754,213 | — | 7,933,548 | ₩ | 3,787,714 | 737,401 | 2,871,822 | 254,287 | 7,651,224 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||
Less than 1 year | 1 - 2 years | 2 - 5 years | More than 5 years | Total | ||||||||||||||||||||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||
Borrowings (other than finance lease liabilities) | ₩ | 1,012,385 | 735,424 | 2,025,522 | 156,995 | 3,930,326 | ||||||||||||||||||||||||||||||||||
Finance lease liabilities | 98,927 | 26,654 | 16,050 | 24,075 | 165,706 | |||||||||||||||||||||||||||||||||||
Trade payables | 791,373 | — | — | — | 791,373 | |||||||||||||||||||||||||||||||||||
Other payables | 1,346,469 | — | — | — | 1,346,469 | |||||||||||||||||||||||||||||||||||
Othernon-trade payables | 1,001,077 | 83,536 | 10,877 | — | 1,095,490 | |||||||||||||||||||||||||||||||||||
Derivatives | 683 | — | — | — | 683 | |||||||||||||||||||||||||||||||||||
Financial guarantee contract | 8 | — | — | — | 8 | |||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||
₩ | 4,250,922 | 845,614 | 2,052,449 | 181,070 | 7,330,055 | |||||||||||||||||||||||||||||||||||
|
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|
|
2013 | ||||||||||||||||||||
Less than 1 year | 1 - 2 years | 2 - 5 years | More than 5 years | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Borrowings (other than finance lease liabilities) | ₩ | 940,422 | 1,721,781 | 844,633 | 1,228,487 | 4,735,323 | ||||||||||||||
Finance lease liabilities | 103,077 | 105,245 | 111,146 | — | 319,468 | |||||||||||||||
Trade payables | 648,793 | — | — | — | 648,793 | |||||||||||||||
Other payables | 801,425 | — | — | — | 801,425 | |||||||||||||||
Other non-trade payables | 658,733 | 66,180 | 131,565 | — | 856,478 | |||||||||||||||
Derivatives | 2,439 | — | — | — | 2,439 | |||||||||||||||
Financial guarantee contract | 28 | — | — | — | 28 | |||||||||||||||
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₩ | 3,154,917 | 1,893,206 | 1,087,344 | 1,228,487 | 7,363,954 | |||||||||||||||
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The table above analyzes the Group’snon-derivative financial liabilities andnet-settled derivative financial liabilities into relevant maturity groups based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and includes estimated interest payments. The Group’s derivative instruments have been included at their fair value of ₩738₩288 million (2013: ₩2,439(2015: ₩683 million) within the less thanone-year time bucket as of December 31, 2014.2016. These contracts are managed on anet-fair value basis rather than by maturity date. Net settled derivatives comprise interest rate swaps used by the Group to manage the Group’s interest rate risk.
(2) Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends to shareholders, return capital to shareholders,proceeds and repayments of borrowings, issue new shares or sell assets to reduce debt.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
7.6. Financial Risk Management, continued
Thedebt-to-equity ratio and net borrowing ratio as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Total liabilities (A) | ₩ | 8,846,975 | 7,730,439 | ₩ | 8,192,496 | 8,290,203 | ||||||||||
Total equity (B) | 18,036,303 | 13,066,859 | 24,023,530 | 21,387,703 | ||||||||||||
Cash and cash equivalents and short-term financial instruments (C) | 4,054,775 | 2,786,399 | 4,135,679 | 4,791,273 | ||||||||||||
Total borrowings (D) | 4,174,759 | 4,550,215 | 4,335,978 | 3,818,595 | ||||||||||||
Debt-to-equity ratio (A/B) | 49 | % | 59 | % | 34% | 39% | ||||||||||
Net borrowing ratio (D-C)/B | 1 | % | 13 | % | 1% | N/A |
(3) Fair value
(a) The following table presents the carrying amounts and fair values of financial instruments by categories, including their levels in the fair value hierarchy, as of December 31, 20142016 and 2013:2015:
2014 | 2016 | |||||||||||||||||||||||||||||||||||||||
Carrying amounts | Level 1 | Level 2 | Level 3 | Total | Carrying amounts | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||
Financial assets measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Short-term financial instruments | ₩ | 1,842,020 | — | 1,842,020 | — | 1,842,020 | ₩ | 1,570,172 | — | 1,570,172 | — | 1,570,172 | ||||||||||||||||||||||||||||
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1,842,020 | — | 1,842,020 | — | 1,842,020 | 1,570,172 | — | 1,570,172 | — | 1,570,172 | |||||||||||||||||||||||||||||||
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Financial assets not measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents1 | 436,761 | — | — | — | — | 613,786 | — | — | — | — | ||||||||||||||||||||||||||||||
Short-term financial instruments1 | 1,775,994 | — | — | — | — | 1,951,721 | — | — | — | — | ||||||||||||||||||||||||||||||
Trade receivables1 | 3,732,926 | — | — | — | — | 3,251,652 | — | — | — | — | ||||||||||||||||||||||||||||||
Loans and other receivables1 | 940,874 | — | — | — | — | 65,101 | — | — | — | — | ||||||||||||||||||||||||||||||
Other financial assets1 | 323 | — | — | — | — | 423 | — | — | — | — | ||||||||||||||||||||||||||||||
Available-for-sale financial assets1,2 | 127,314 | — | — | — | — | 147,779 | — | — | — | — | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
7,014,192 | — | — | — | — | 6,030,462 | — | — | — | — | |||||||||||||||||||||||||||||||
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Financial liabilities measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 738 | — | 738 | — | 738 | 288 | — | 288 | — | 288 | ||||||||||||||||||||||||||||||
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738 | — | 738 | — | 738 | 288 | — | 288 | — | 288 | |||||||||||||||||||||||||||||||
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Financial liabilities not measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Trade payables1 | 787,822 | — | — | — | — | 696,144 | — | — | — | — | ||||||||||||||||||||||||||||||
Other payables1 | 1,358,816 | — | — | — | — | 1,606,417 | — | — | — | — | ||||||||||||||||||||||||||||||
Other non-trade payables1 | 1,315,903 | — | — | — | — | 712,580 | — | — | — | — | ||||||||||||||||||||||||||||||
Borrowings | 4,174,759 | — | 4,243,974 | — | 4,243,974 | 4,335,978 | — | 4,366,234 | — | 4,366,234 | ||||||||||||||||||||||||||||||
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₩ | 7,637,300 | — | 4,243,974 | — | 4,243,974 | ₩ | 7,351,119 | — | 4,366,234 | — | 4,366,234 | |||||||||||||||||||||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
7.6. Financial Risk Management, continued
2013 | 2015 | |||||||||||||||||||||||||||||||||||||||
Carrying amounts | Level 1 | Level 2 | Level 3 | Total | Carrying amounts | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||
Financial assets measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Short-term financial instruments | ₩ | 1,045,974 | — | 1,045,974 | — | 1,045,974 | ₩ | 1,047,277 | — | 1,047,277 | — | 1,047,277 | ||||||||||||||||||||||||||||
Other financial assets | 272 | — | 272 | — | 272 | |||||||||||||||||||||||||||||||||||
Available-for-sale financial assets | 31,966 | 31,966 | — | — | 31,966 | |||||||||||||||||||||||||||||||||||
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1,078,212 | 31,966 | 1,046,246 | — | 1,078,212 | 1,047,277 | — | 1,047,277 | — | 1,047,277 | |||||||||||||||||||||||||||||||
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Financial assets not measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents1 | 631,867 | — | — | — | — | 1,175,719 | — | — | — | — | ||||||||||||||||||||||||||||||
Short-term financial instruments1 | 1,108,558 | — | — | — | — | 2,568,277 | — | — | — | — | ||||||||||||||||||||||||||||||
Trade receivables1 | 1,941,675 | — | — | — | — | 2,628,448 | — | — | — | — | ||||||||||||||||||||||||||||||
Loans and other receivables1 | 366,849 | — | — | — | — | 124,532 | — | — | — | — | ||||||||||||||||||||||||||||||
Other financial assets1 | 247,553 | — | — | — | — | 430 | — | — | — | — | ||||||||||||||||||||||||||||||
Available-for-sale financial assets1,2 | 126,804 | — | — | — | — | 131,354 | — | — | — | — | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
4,423,306 | — | — | — | — | 6,628,760 | — | — | — | — | |||||||||||||||||||||||||||||||
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Financial liabilities measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Other financial liabilities | 109,288 | — | 109,288 | — | 109,288 | 683 | — | 683 | — | 683 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
109,288 | — | 109,288 | — | 109,288 | 683 | — | 683 | — | 683 | |||||||||||||||||||||||||||||||
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Financial liabilities not measured at fair value | ||||||||||||||||||||||||||||||||||||||||
Trade payables1 | 648,793 | — | — | — | — | 791,373 | — | — | — | — | ||||||||||||||||||||||||||||||
Other payables1 | 788,304 | — | — | — | — | 1,337,803 | — | — | — | — | ||||||||||||||||||||||||||||||
Other non-trade payables1 | 854,221 | — | — | — | — | 1,091,062 | — | — | — | — | ||||||||||||||||||||||||||||||
Borrowings | 4,550,215 | — | 4,785,180 | — | 4,785,180 | 3,818,595 | — | 3,869,536 | — | 3,869,536 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
₩ | 6,841,533 | — | 4,785,180 | — | 4,785,180 | ₩ | 7,038,833 | — | 3,869,536 | — | 3,869,536 | |||||||||||||||||||||||||||||
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1 | Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are close to the reasonable approximate fair values. |
2 | Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with IAS 39, ‘Financial Instrument: Recognition and Measurement’ as fair values of such equity instruments cannot be reliably measured using other valuation methods. |
(b) Valuation Techniques
The valuation techniques of recurring andnon-recurring fair value measurements and quoted prices classified as level 2 are as follows:
Fair value | Level | Valuation Techniques | Fair value | Level | Valuation Techniques | |||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||
Short-term financial instruments: | ||||||||||||||||||||
Financial assets at fair value through profit or loss | ₩ | 1,842,020 | 2 | The present value method | ₩ | 1,570,172 | 2 | The present value method | ||||||||||||
Derivative financial Liabilities: | ||||||||||||||||||||
Interest swap | 738 | 2 | The present value method | 288 | 2 | The present value method |
(c) There was no transfer between fair value hierarchy levels for the year ended December 31, 2014.2016.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
8.7. Restricted Financial Instruments
Details of restricted financial instruments as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | Description | 2016 | 2015 | Description | |||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||
Short-term financial instruments | ₩ | 3 | 8 | Restricted for government grants | ₩ | 77,500 | 77,500 | Restricted for supporting small business | ||||||||||||
21,655 | 23,713 | Pledged for borrowings | ||||||||||||||||||
4,601 | 5,023 | Pledged for consumption tax | ||||||||||||||||||
46,000 | 34,600 | Restricted for supporting small business | — | 22,190 | Pledged for borrowings | |||||||||||||||
4,764 | — | Pledged for letter of credit | 6,220 | 5,832 | Pledged for consumption tax | |||||||||||||||
584 | — | Deposit for import duties | — | 2,843 | Deposit for import duties | |||||||||||||||
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| |||||||||||||||||
77,607 | 63,344 | 83,720 | 108,365 | |||||||||||||||||
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| |||||||||||||||||
Other financial assets | 308 | 308 | Pledged for borrowings | 308 | 308 | Pledged for borrowings | ||||||||||||||
12 | 14 | Bank overdraft guarantee deposit | 12 | 12 | Bank overdraft guarantee deposit | |||||||||||||||
— | 1,419 | Deposit for import duties | 104 | 110 | Others | |||||||||||||||
3 | 3 | Others |
|
| ||||||||||||||||
|
| 424 | 430 | |||||||||||||||||
323 | 1,744 |
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| |||||||||||||||||
|
| ₩ | 84,144 | 108,795 | ||||||||||||||||
₩ | 77,930 | 65,088 |
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| ||||||||||||||||
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9.8. Trade Receivables and Loans and Other Receivables
(1) Details of loans and other receivables as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Current | ||||||||||||||||
Other receivables | ₩ | 845,468 | 307,414 | ₩ | 11,571 | 37,427 | ||||||||||
Accrued income | 28,337 | 11,071 | 9,732 | 18,126 | ||||||||||||
Short-term loans | 3,504 | 2,665 | 3,145 | 3,786 | ||||||||||||
Short-term guarantee and other deposits | 4,576 | 2,609 | 1,163 | 2,274 | ||||||||||||
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| |||||||||||||
881,885 | 323,759 | 25,611 | 61,613 | |||||||||||||
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| |||||||||||||
Non-current | ||||||||||||||||
Long-term other receivables | 22,880 | 21,152 | 60 | 22,921 | ||||||||||||
Long-term loans | 7,199 | 6,659 | 6,008 | 6,104 | ||||||||||||
Guarantee deposits | 28,585 | 14,409 | 33,261 | 33,637 | ||||||||||||
Long-term deposits | 325 | 870 | 161 | 257 | ||||||||||||
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|
| |||||||||||||
58,989 | 43,090 | 39,490 | 62,919 | |||||||||||||
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| |||||||||||||
₩ | 940,874 | 366,849 | ₩ | 65,101 | 124,532 | |||||||||||
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|
(2) Trade receivables and loans and other receivables, net of provision for impairment, as of December 31, 2016 and 2015 are as follows:
2016 | ||||||||||||
Gross amount | Provision for impairment | Carrying amount | ||||||||||
(In millions of won) | ||||||||||||
Trade receivables | ₩ | 3,253,489 | (1,837 | ) | 3,251,652 | |||||||
Current loans and other receivables | 26,982 | (1,371 | ) | 25,611 | ||||||||
Non-current loans and other receivables | 40,966 | (1,476 | ) | 39,490 | ||||||||
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| |||||||
₩ | 3,321,437 | (4,684 | ) | 3,316,753 | ||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
9.8. Trade Receivables and Loans and Other Receivables, continued
(2) Trade receivables and loans and other receivables, net of provision for impairment, as of December 31, 2014 and 2013 are as follows:
2014 | ||||||||||||
Gross amount | Provision for impairment | Carrying amount | ||||||||||
(In millions of won) | ||||||||||||
Trade receivables | ₩ | 3,735,845 | (2,919 | ) | 3,732,926 | |||||||
Current loans and other receivables | 883,553 | (1,668 | ) | 881,885 | ||||||||
Non-current loans and other receivables | 65,023 | (6,034 | ) | 58,989 | ||||||||
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| |||||||
₩ | 4,684,421 | (10,621 | ) | 4,673,800 | ||||||||
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2013 | 2015 | |||||||||||||||||||||||
Gross amount | Provision for impairment | Carrying amount | Gross amount | Provision for impairment | Carrying amount | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Trade receivables | ₩ | 1,945,121 | (3,446 | ) | 1,941,675 | ₩ | 2,631,422 | (2,974 | ) | 2,628,448 | ||||||||||||||
Current loans and other receivables | 325,821 | (2,062 | ) | 323,759 | 63,046 | (1,433 | ) | 61,613 | ||||||||||||||||
Non-current loans and other receivables | �� | 55,600 | (12,510 | ) | 43,090 | 69,062 | (6,143 | ) | 62,919 | |||||||||||||||
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| |||||||||||||||||||
₩ | 2,326,542 | (18,018 | ) | 2,308,524 | ₩ | 2,763,530 | (10,550 | ) | 2,752,980 | |||||||||||||||
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(3) Details of provision for impairment
Movements in the provision for impairment of trade receivables for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Beginning balance | ₩ | 3,446 | 3,257 | ₩ | 2,974 | 2,919 | ||||||||||
Provision for receivables impairment | 525 | 174 | — | 88 | ||||||||||||
Unused amounts reversed | (836 | ) | — | |||||||||||||
Receivables written off during the year as uncollectible | (885 | ) | — | (306 | ) | — | ||||||||||
Foreign exchange difference | (167 | ) | 15 | 5 | (33 | ) | ||||||||||
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| |||||||||||||
Ending balance | ₩ | 2,919 | 3,446 | ₩ | 1,837 | 2,974 | ||||||||||
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Movements in the provision for impairment of current loans and other receivables for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Beginning balance | ₩ | 2,062 | 5,035 | ₩ | 1,433 | 1,668 | ||||||||||
Provision for receivables impairment | 302 | 47 | ||||||||||||||
Unused amounts reversed | (1 | ) | (2,685 | ) | (62 | ) | (234 | ) | ||||||||
Receivables written off during the year as uncollectible | (697 | ) | (293 | ) | ||||||||||||
Foreign exchange difference | 2 | (42 | ) | — | (1 | ) | ||||||||||
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| |||||||||||||
Ending balance | ₩ | 1,668 | 2,062 | ₩ | 1,371 | 1,433 | ||||||||||
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Movements in the provision for impairment ofnon-current loans and other receivables for the years ended December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Beginning balance | ₩ | 6,143 | 6,034 | |||||
Provision for receivables impairment | 34 | 68 | ||||||
Unused amounts reversed | (4,753 | ) | (4 | ) | ||||
Receivables written off during the year as uncollectible | — | (6 | ) | |||||
Foreign exchange difference | 52 | 51 | ||||||
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| |||||
Ending balance | ₩ | 1,476 | 6,143 | |||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
9.8. Trade Receivables and Loans and Other Receivables, continued
Movements in the provision for impairment of non-current loans and other receivables for the years ended December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Beginning balance | ₩ | 12,510 | 12,839 | |||||
Provision for receivables impairment | 4,636 | 225 | ||||||
Unused amounts reversed | — | (12 | ) | |||||
Receivables written off during the year as uncollectible | (10,891 | ) | (137 | ) | ||||
Foreign exchange difference | (221 | ) | (405 | ) | ||||
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| |||||
Ending balance | ₩ | 6,034 | 12,510 | |||||
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(4) The aging analysesanalysis of trade receivables and loans and other receivables as of December 31, 20142016 and 20132015 are as follows:
2014 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
Not impaired | Not impaired | |||||||||||||||||||||||||||||||||||||||||||||||
Overdue | Overdue | |||||||||||||||||||||||||||||||||||||||||||||||
Not Past due | Less than 3 months | Over 3 months and less than 6 months | Over 6 months | Impaired | Total | Not Past due | Less than 3 months | Over 3 months and less than 6 months | Over 6 months | Impaired | Total | |||||||||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||||||||||
Trade receivables | ₩ | 3,731,621 | 3,809 | 415 | — | — | 3,735,845 | ₩ | 3,252,891 | 598 | — | — | — | 3,253,489 | ||||||||||||||||||||||||||||||||||
Current loans and other receivables | 882,274 | — | — | — | 1,279 | 883,553 | 25,692 | — | — | — | 1,290 | 26,982 | ||||||||||||||||||||||||||||||||||||
Non-current loans and other receivables | 41,599 | — | — | — | 23,424 | 65,023 | 40,864 | — | — | — | 102 | 40,966 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
₩ | 4,655,494 | 3,809 | 415 | — | 24,703 | 4,684,421 | ₩ | 3,319,447 | 598 | — | — | 1,392 | 3,321,437 | |||||||||||||||||||||||||||||||||||
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2013 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||
Not impaired | Not impaired | |||||||||||||||||||||||||||||||||||||||||||||||
Overdue | Overdue | |||||||||||||||||||||||||||||||||||||||||||||||
Not Past due | Less than 3 months | Over 3 months and less than 6 months | Over 6 months | Impaired | Total | Not Past due | Less than 3 months | Over 3 months and less than 6 months | Over 6 months | Impaired | Total | |||||||||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||||||||||
Trade receivables | ₩ | 1,940,110 | 3,784 | 205 | 14 | 1,008 | 1,945,121 | ₩ | 2,606,603 | 24,819 | — | — | — | 2,631,422 | ||||||||||||||||||||||||||||||||||
Current loans and other receivables | 323,838 | — | — | — | 1,983 | 325,821 | 61,753 | — | — | — | 1,293 | 63,046 | ||||||||||||||||||||||||||||||||||||
Non-current loans and other receivables | 43,436 | — | — | — | 12,164 | 55,600 | 43,953 | — | — | — | 25,109 | 69,062 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
₩ | 2,307,384 | 3,784 | 205 | 14 | 15,155 | 2,326,542 | ₩ | 2,712,309 | 24,819 | — | — | 26,402 | 2,763,530 | |||||||||||||||||||||||||||||||||||
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9. Inventories
(1) Details of inventories as of December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Finished goods | ₩ | 613,382 | ||||||
Work-in-process | 1,130,493 | 848,199 | ||||||
Raw materials | 260,677 | 222,742 | ||||||
Supplies | 194,678 | 164,156 | ||||||
Goods in transit | 48,847 | 74,897 | ||||||
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| |||||
₩ | 1,923,376 | |||||||
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(2) The amount of the inventories recognized as cost of sales is as follows:
2016 | 2015 | 2014 | ||||||||||
(In millions of won) | ||||||||||||
Inventories recognized as cost of sales | ₩ | 10,787,034 | 10,514,640 | 9,460,486 |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
9. Inventories, continued
10. Inventories
(1) Details of inventories as of December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Finished goods | ₩ | 408,256 | 345,872 | |||||
Work-in-process | 762,421 | 608,402 | ||||||
Raw materials | 188,037 | 141,625 | ||||||
Supplies | 102,705 | 45,672 | ||||||
Goods in transit | 36,144 | 36,729 | ||||||
|
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|
| |||||
₩ | 1,497,563 | 1,178,300 | ||||||
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|
(2) The amount of the inventories recognized as cost of sales is as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
Inventories recognized as cost of sales | ₩ | 9,458,480 | 8,594,938 | 8,546,702 |
(3) The changes in inventory valuation allowance during the years ended December 31, 2014, 20132016 and 20122015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Beginning balance | ₩ | 73,116 | 124,889 | ₩ | 188,246 | 68,528 | ||||||||||
Charged to cost of sales | 20,924 | 5,388 | 13,192 | 119,764 | ||||||||||||
Write-off upon sales | (25,512 | ) | (57,161 | ) | ||||||||||||
Utilization upon sales | (137,238 | ) | (46 | ) | ||||||||||||
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|
| |||||||||||||
Ending balance | ₩ | 68,528 | 73,116 | ₩ | 64,200 | 188,246 | ||||||||||
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|
There were no significant reversals of inventory write-downs recognized during 20142016 and 2013.2015.
11.10. Non-current assets held for sale
Details of changes innon-current assets held for sale for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Beginning balance | ₩ | 26,557 | 26,958 | ₩ | — | 27,661 | ||||||||||
Disposal | — | (4 | ) | |||||||||||||
Disposal1 | — | (27,661 | ) | |||||||||||||
Other | 1,104 | (397 | ) | — | — | |||||||||||
|
|
|
| |||||||||||||
Ending balance | ₩ | 27,661 | 26,557 | ₩ | — | — | ||||||||||
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|
|
1 | The Group disposed assets held for sale during the year ended December 31, 2015 and recognized loss on disposal of assets held for sale as other expenses for the amount of ₩5,844 million. |
11. Other Current andNon-current Assets
Details of other current andnon-current assets as of December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Current | ||||||||
Advance payments | ₩ | 1,853 | 2,033 | |||||
Prepaid expenses | 238,831 | 212,766 | ||||||
Value added tax refundable | 148,756 | 131,673 | ||||||
Others | 9,913 | 7,454 | ||||||
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| |||||
399,353 | 353,926 | |||||||
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| |||||
Non-current | ||||||||
Long-term prepaid expenses | 568,907 | 558,058 | ||||||
Others | 1,495 | 7,475 | ||||||
|
|
|
| |||||
570,402 | 565,533 | |||||||
|
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|
| |||||
₩ | 969,755 | 919,459 | ||||||
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|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
12. Other Current and Non-current Assets
Details of other current and non-current assets as of December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Current | ||||||||
Advance payments | ₩ | 4,501 | 7,405 | |||||
Prepaid expenses | 156,590 | 128,125 | ||||||
Others | 5,984 | 5,854 | ||||||
|
|
|
| |||||
167,075 | 141,384 | |||||||
|
|
|
| |||||
Non-current | ||||||||
Long-term prepaid expenses1 | 494,908 | 346,795 | ||||||
Others | 13,568 | 19,026 | ||||||
|
|
|
| |||||
508,476 | 365,821 | |||||||
|
|
|
| |||||
₩ | 675,551 | 507,205 | ||||||
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|
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|
|
13. Investments in Associates and Joint Ventures
(1) Details of investments in associates and joint ventures as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||||||||||||||||||||||
Type | Investee | Ownership (%) | Net asset value | Carrying amount | Carrying amount | Investee | Ownership (%) | Net asset value | Carrying amount | Carrying amount | ||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||
Associate | Siliconfile Technologies Inc.1 | — | ₩ | — | — | 10,962 | Stratio, Inc.1 | 9.10 | ₩ | 151 | 2,151 | 2,171 | ||||||||||||||||||||||||
Gemini Partners Pte. Ltd.2 | 20.00 | 3,484 | 5,199 | 7,976 | ||||||||||||||||||||||||||||||||
TCL Fund3 | 11.06 | 2,219 | 2,219 | — | ||||||||||||||||||||||||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) | 45 | 97,090 | 97,090 | 96,135 | HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) | 45.00 | 121,447 | 112,462 | |||||||||||||||||||||||||||
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₩ | 97,090 | 97,090 | 107,097 | ₩ | 131,016 | 122,609 | ||||||||||||||||||||||||||||||
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1 |
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2 | In 2015, the Parent Company acquired 20% of shares of Gemini Partners Pte. Ltd. and classified it as an associate because the Parent Company has significant influence over Gemini Partners Pte. Ltd. |
3 | In 2016, the Parent Company acquired 11.06% of shares of TCL Fund and classified it as an associate because the Parent Company has significant influence over TCL Fund’s financial and operating policies through its right to appoint a member of the board of directors. |
(2) Changes in investments in associates and joint ventures for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | ||||||||||||||||||||||||
Beginning balance | Acquisition (disposal)1 | Share of profit (loss) | Other equity movement | Dividend | Ending balance | |||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||
Siliconfile Technologies Inc. | ₩ | 10,962 | (10,319 | ) | (579 | ) | 171 | (235 | ) | — | ||||||||||||||
HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) | 96,135 | — | 13,084 | 3,535 | (15,664 | ) | 97,090 | |||||||||||||||||
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₩ | 107,097 | (10,319 | ) | 12,505 | 3,706 | (15,899 | ) | 97,090 | ||||||||||||||||
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2016 | ||||||||||||||||||||||||
Beginning balance | Acquisition | Share of profit (loss) | Other equity movement | Dividend | Ending balance | |||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||
Stratio, Inc. | ₩ | 2,171 | — | (24 | ) | 4 | — | 2,151 | ||||||||||||||||
Gemini Partners Pte. Ltd. | 7,976 | — | (2,909 | ) | 132 | — | 5,199 | |||||||||||||||||
TCL Fund | — | 2,293 | 50 | (124 | ) | — | 2,219 | |||||||||||||||||
HITECH | 112,462 | — | 25,635 | 4,076 | (20,726 | ) | 121,447 | |||||||||||||||||
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₩ | 122,609 | 2,293 | 22,752 | 4,088 | (20,726 | ) | 131,016 | |||||||||||||||||
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2015 | ||||||||||||||||||||||||
Beginning balance | Acquisition | Share of profit (loss) | Other equity movement | Dividend | Ending balance | |||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||
Stratio, Inc. | ₩ | — | 2,194 | (35 | ) | 12 | — | 2,171 | ||||||||||||||||
Gemini Partners Pte. Ltd. | — | 7,976 | — | — | — | 7,976 | ||||||||||||||||||
HITECH | 97,090 | — | 24,677 | 6,475 | (15,780 | ) | 112,462 | |||||||||||||||||
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₩ | 97,090 | 10,170 | 24,642 | 6,487 | (15,780 | ) | 122,609 | |||||||||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
13.12. Investments in Associates and Joint Ventures, continued
2013 | ||||||||||||||||||||||||
Beginning balance | Acquisition (disposal) | Share of profit | Other equity movement | Dividend | Ending balance | |||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||
Siliconfile Technologies Inc. | ₩ | 8,909 | — | 2,153 | (99 | ) | — | 10,963 | ||||||||||||||||
HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) | 95,191 | — | 17,103 | (1,127 | ) | (15,033 | ) | 96,134 | ||||||||||||||||
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₩ | 104,100 | — | 19,256 | (1,226 | ) | (15,033 | ) | 107,097 | ||||||||||||||||
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(3) Associate and joint venture’s summary of statements of financial position as of December 31, 20142016 and 2013 is2015 are as follows:
2014 | ||||||||||||||||
Current assets | Non-current assets | Current liabilities | Non-current liabilities | |||||||||||||
(In millions of won) | ||||||||||||||||
HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) | ₩ | 251,443 | 306,344 | 289,990 | 52,042 |
2016 | ||||||||||||||||
Current assets | Non-current assets | Current liabilities | Non-current liabilities | |||||||||||||
(In millions of won) | ||||||||||||||||
Stratio, Inc. | ₩ | 998 | 686 | 27 | — | |||||||||||
Gemini Partners Pte. Ltd. | 13,047 | 4,467 | 93 | — | ||||||||||||
TCL Fund | 16,388 | 3,993 | 329 | — | ||||||||||||
HITECH | 184,048 | 350,094 | 82,581 | 181,679 |
2013 | ||||||||||||||||
Current assets | Non-current assets | Current liabilities | Non-current liabilities | |||||||||||||
(In millions of won) | ||||||||||||||||
Siliconfile Technologies Inc. | ₩ | 44,042 | 19,644 | 26,034 | 1,860 | |||||||||||
HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) | 213,172 | 353,432 | 182,036 | 170,935 |
2015 | ||||||||||||||||
Current assets | Non-current assets | Current liabilities | Non-current liabilities | |||||||||||||
(In millions of won) | ||||||||||||||||
Stratio, Inc. | ₩ | 962 | 921 | — | 1 | |||||||||||
Gemini Partners Pte. Ltd. | 27,762 | 14,694 | 3,444 | 7,867 | ||||||||||||
HITECH. | 270,959 | 314,464 | 89,034 | 246,478 |
(4) AssociateSummary of associate and joint venture’s summary statements of comprehensive income (loss) for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||||||||||||||||||||||||||
Revenue | Profit (loss) for the year | Revenue | Profit for the year | Revenue | Profit for the year | Revenue | Profit (loss) for the year | Revenue | Profit (loss) for the year | Revenue | Profit (loss) for the year | |||||||||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||||||||||
Stratio, Inc. | ₩ | 4 | (198 | ) | — | (385 | ) | — | — | |||||||||||||||||||||||||||||||||||||||
Gemini Partners Pte. Ltd. | — | (5,848 | ) | — | (747 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||
TCL Fund | — | (4 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
HITECH | 566,893 | 55,346 | 677,284 | 54,835 | 608,300 | 29,077 | ||||||||||||||||||||||||||||||||||||||||||
Siliconfile Technologies Inc.1 | ₩ | 40,339 | (2,072 | ) | 131,914 | 7,708 | 131,126 | 3,083 | — | — | — | — | 40,339 | (2,072 | ) | |||||||||||||||||||||||||||||||||
HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) | 608,300 | 29,077 | 566,065 | 38,008 | 597,091 | 37,892 |
1 | Siliconfile Technologies Inc. |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
14.13. Available-for-sale Financial Assets
(1) Details ofavailable-for-sale financial assets as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | |||||||||||||||||||
Number of stock | Ownership (%) | Acquisition cost | Book value | Book value | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Hyundai Information Technology Co, Ltd. | — | — | ₩ | — | — | 1,885 | ||||||||||||||
HYUNDAI LOGISTICS CO., LTD. | — | — | — | — | 98 | |||||||||||||||
EQ bestech Co., Ltd. | — | — | — | — | 10 | |||||||||||||||
Itest Co., Ltd. | — | — | — | — | 768 | |||||||||||||||
Hyundai IBT Co., Ltd. | — | — | — | — | 4 | |||||||||||||||
Fidelix Co., Ltd. | — | — | — | — | 3,870 | |||||||||||||||
iA, Inc. (formerly, C&S Technology Co., Ltd.) | — | — | — | — | 3,389 | |||||||||||||||
Phison Electronics Corp. | — | — | — | — | 22,050 | |||||||||||||||
ProMos | 201,600,000 | 7.93 | 21,847 | — | — | |||||||||||||||
JNT Frontier Private Equity Unit | Certificate | — | 1,307 | 1,307 | 1,307 | |||||||||||||||
SV M&A No.1 Equity Unit | Certificate | — | 1,196 | 1,196 | 1,196 | |||||||||||||||
Daishin Aju IB Investment Co., Ltd. | Certificate | — | 1,265 | 1,265 | 1,518 | |||||||||||||||
Seoul Investment Early & Green Venture Fund | Certificate | — | 1,760 | 1,760 | 1,867 | |||||||||||||||
TS 2011-4 Technology Transfer & Business | Certificate | — | 1,262 | 1,262 | 1,600 | |||||||||||||||
IMM Investment | Certificate | — | 1,040 | 1,040 | 786 | |||||||||||||||
L&S Venture Capital | Certificate | — | 1,899 | 1,899 | 1,124 | |||||||||||||||
KTC-NP-Growth | Certificate | — | 516 | 516 | 540 | |||||||||||||||
Intellectual Discovery, Ltd. | 800,000 | 8.94 | 4,000 | 4,000 | 4,000 | |||||||||||||||
SKY Property Mgmt. Ltd. | 5,745 | 15 | 112,360 | 112,360 | 112,360 | |||||||||||||||
Equity investment in a construction guarantee association | 526 | 0.01 | 709 | 709 | 396 | |||||||||||||||
Others | 199 | — | 2 | |||||||||||||||||
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₩ | 149,360 | 127,314 | 158,770 | |||||||||||||||||
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2016 | 2015 | |||||||||||||||
Ownership (%)/ Type | Acquisition cost | Book value | Book value | |||||||||||||
(In millions of won) | ||||||||||||||||
ProMOS | 7.93 | ₩ | 21,847 | — | — | |||||||||||
JNT Frontier Private Equity Unit | Certificate | 971 | 971 | 1,213 | ||||||||||||
SV M&A No.1 Equity Unit | Certificate | 805 | 805 | 1,120 | ||||||||||||
Daishin Aju IB Investment Co., Ltd. Equity Unit | Certificate | 483 | 483 | 699 | ||||||||||||
Seoul Investment Early & Green Venture Fund | Certificate | 1,648 | 1,648 | 1,678 | ||||||||||||
TS2011-4 Technology Transfer & Business Equity Unit | Certificate | 566 | 566 | 1,262 | ||||||||||||
IMM Investment Equity Unit | Certificate | 224 | 224 | 620 | ||||||||||||
L&S Venture Capital Equity Unit | Certificate | 1,170 | 1,170 | 1,849 | ||||||||||||
KTC-NP-Growth Equity Unit | Certificate | 2,956 | 2,956 | 2,271 | ||||||||||||
Intellectual Discovery, Ltd. | 7.05 | 4,000 | 4,000 | 4,000 | ||||||||||||
SKY Property Mgmt. Ltd. | 15.00 | 112,360 | 112,360 | 112,360 | ||||||||||||
China Walden Venture Investments II | Certificate | 6,188 | 6,188 | 3,573 | ||||||||||||
Exnodes Inc. | Convertible Bond | 716 | 716 | — | ||||||||||||
Netspeed | 6.07 | 3,083 | 3,083 | — | ||||||||||||
Keyssa, Inc. | 2.29 | 6,174 | 6,174 | — | ||||||||||||
MEMS DRIVE, INC. | 2.94 | 2,246 | 2,246 | — | ||||||||||||
Equity investment in a construction guarantee association | 0.01 | 709 | 709 | 709 | ||||||||||||
Information and communication guarantee association | 0.01 | 15 | 15 | — | ||||||||||||
Starblaze | 6.51 | 3,465 | 3,465 | — | ||||||||||||
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₩ | 169,626 | 147,779 | 131,354 | |||||||||||||
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(2) Changes in the carrying amount ofavailable-for-sale financial assets for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Beginning balance | ₩ | 158,770 | 44,297 | ₩ | 131,354 | 127,314 | ||||||||||
Acquisition | 1,414 | 115,564 | 19,085 | 5,359 | ||||||||||||
Disposal | (32,870 | ) | (125 | ) | (2,652 | ) | (1,319 | ) | ||||||||
Change in fair value | — | (966 | ) | |||||||||||||
Foreign exchange difference | (8 | ) | — | |||||||||||||
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Ending balance | ₩ | 127,314 | 158,770 | ₩ | 147,779 | 131,354 | ||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
15.14. Property, Plant and Equipment
(1)Changes in property, plant and equipment for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land | Buildings | Structures | Machinery | Vehicles | Others | Construction -in-progress | Total | Land | Buildings | Structures | Machinery | Vehicles | Others | Construction -in-progress | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning net book amount | ₩ | 504,398 | 1,309,816 | 207,299 | 9,222,376 | 227 | 209,111 | 676,570 | 12,129,797 | 2,525,041 | 424,609 | 11,639,208 | 1,369 | 395,938 | 1,412,473 | 16,966,252 | ||||||||||||||||||||||||||||||||||||||||||||||||
Changes during 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes during 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additions | — | 59,216 | 12,454 | 160,039 | 71 | 26,552 | 5,160,807 | 5,419,139 | 567 | 35,972 | 116,419 | 4,690,241 | 54 | 131,975 | 1,221,974 | 6,197,202 | ||||||||||||||||||||||||||||||||||||||||||||||||
Receipt of government grants | — | — | — | (502 | ) | — | — | — | (502 | ) | — | — | — | (133 | ) | — | — | — | (133 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Business combination and disposal of a subsidiary | — | — | (468 | ) | (5,945 | ) | 27 | 1,462 | (242 | ) | (5,166 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals | — | (1,114 | ) | (1,437 | ) | (197,242 | ) | (14 | ) | (734 | ) | (5,231 | ) | (205,772 | ) | (2,824 | ) | (53 | ) | (45 | ) | (147,960 | ) | — | (396 | ) | (7,063 | ) | (158,341 | ) | ||||||||||||||||||||||||||||||||||
Depreciation | — | (55,986 | ) | (21,260 | ) | (3,117,150 | ) | (177 | ) | (73,893 | ) | — | (3,268,466 | ) | — | (100,250 | ) | (34,907 | ) | (3,866,582 | ) | (381 | ) | (131,660 | ) | — | (4,133,780 | ) | ||||||||||||||||||||||||||||||||||||
Transfers | 38,097 | 139,858 | 83,673 | 3,874,433 | 730 | 90,310 | 4,228,187 | (1,086 | ) | 10,018 | 61,213 | 18,264 | 957,016 | — | 40,771 | (1,087,282 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||
Impairments | — | (23,620 | ) | (1,777 | ) | (4,139 | ) | — | — | — | (29,536 | ) | — | (264 | ) | (2,814 | ) | (668 | ) | — | — | — | (3,746 | ) | ||||||||||||||||||||||||||||||||||||||||
Exchange differences | 457 | 5,371 | 3,707 | 42,431 | (1 | ) | 1,321 | (1,360 | ) | 51,926 | 380 | (7,283 | ) | (5,381 | ) | (74,614 | ) | (1 | ) | (985 | ) | (2,168 | ) | (90,052 | ) | |||||||||||||||||||||||||||||||||||||||
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Ending net book amount | ₩ | 542,952 | 1,433,541 | 282,191 | 9,974,301 | 863 | 254,129 | 1,602,357 | 14,090,334 | ₩ | 575,755 | 2,514,376 | 516,145 | 13,196,508 | 1,041 | 435,643 | 1,537,934 | 18,777,402 | ||||||||||||||||||||||||||||||||||||||||||||||
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Acquisition cost | 542,952 | 2,020,429 | 621,345 | 34,956,922 | 3,037 | 772,844 | 1,602,357 | 40,519,886 | 575,755 | 3,287,424 | 909,991 | 43,439,176 | 3,555 | 1,085,379 | 1,537,934 | 50,839,214 | ||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation | — | (562,724 | ) | (319,991 | ) | (24,721,171 | ) | (2,174 | ) | (516,775 | ) | — | (26,122,835 | ) | — | (749,076 | ) | (374,742 | ) | (29,993,593 | ) | (2,514 | ) | (649,669 | ) | — | (31,769,594 | ) | ||||||||||||||||||||||||||||||||||||
Accumulated impairment | — | (23,847 | ) | (19,163 | ) | (254,597 | ) | — | (1,646 | ) | — | (299,253 | ) | — | (23,698 | ) | (19,104 | ) | (243,540 | ) | — | (59 | ) | — | (286,401 | ) | ||||||||||||||||||||||||||||||||||||||
Government grants | — | (317 | ) | — | (6,853 | ) | — | (294 | ) | — | (7,464 | ) | — | (274 | ) | — | (5,535 | ) | — | (8 | ) | — | (5,817 | ) | ||||||||||||||||||||||||||||||||||||||||
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₩ | 542,952 | 1,433,541 | 282,191 | 9,974,301 | 863 | 254,129 | 1,602,357 | 14,090,334 | ₩ | 575,755 | 2,514,376 | 516,145 | 13,196,508 | 1,041 | 435,643 | 1,537,934 | 18,777,402 | |||||||||||||||||||||||||||||||||||||||||||||||
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2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Land | Buildings | Structures | Machinery | Vehicles | Others | Construction -in-progress | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Beginning net book amount | ₩ | 542,952 | 1,433,541 | 282,191 | 9,974,301 | 863 | 254,129 | 1,602,357 | 14,090,334 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes during 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additions | — | — | 907 | 48,005 | 94 | 11,030 | 6,699,838 | 6,759,874 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receipt of government grants | — | — | — | (378 | ) | — | — | — | (378 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposals | (4 | ) | (71 | ) | (271 | ) | (204,220 | ) | — | (12,759 | ) | (7,665 | ) | (224,990 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | — | (88,013 | ) | (27,851 | ) | (3,476,825 | ) | (371 | ) | (101,385 | ) | — | (3,694,445 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers1 | 23,908 | 1,198,576 | 167,970 | 5,271,980 | 783 | 243,497 | (6,881,650 | ) | 25,064 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairments | — | (22,050 | ) | — | — | — | (5 | ) | — | (22,055 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange differences | 758 | 3,058 | 1,663 | 26,345 | — | 1,431 | (407 | ) | 32,848 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Ending net book amount | ₩ | 567,614 | 2,525,041 | 424,609 | 11,639,208 | 1,369 | 395,938 | 1,412,473 | 16,966,252 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Acquisition cost | 567,614 | 3,243,654 | 792,270 | 39,376,245 | 3,659 | 966,111 | 1,412,473 | 46,362,026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation | — | (672,563 | ) | (348,493 | ) | (27,479,837 | ) | (2,290 | ) | (568,466 | ) | — | (29,071,649 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated impairment | — | (45,749 | ) | (19,168 | ) | (250,883 | ) | — | (1,509 | ) | — | (317,309 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Government grants | — | (301 | ) | — | (6,317 | ) | — | (198 | ) | — | (6,816 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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₩ | 567,614 | 2,525,041 | 424,609 | 11,639,208 | 1,369 | 395,938 | 1,412,473 | 16,966,252 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2013 | ||||||||||||||||||||||||||||||||
Land | Buildings | Structures | Machinery | Vehicles | Others | Construction -in-progress | Total | |||||||||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||||||||||
Beginning net book amount | ₩ | 462,067 | 1,301,330 | 181,615 | 9,033,566 | 340 | 188,021 | 419,253 | 11,586,192 | |||||||||||||||||||||||
Changes during 2013 | ||||||||||||||||||||||||||||||||
Additions | 226 | 125 | 82 | 14,682 | 34 | 6,486 | 3,528,676 | 3,550,311 | ||||||||||||||||||||||||
Business combination | — | — | — | 47 | — | 12 | — | 59 | ||||||||||||||||||||||||
Disposals | (33 | ) | (3,347 | ) | (690 | ) | (7,423 | ) | — | (565 | ) | (336 | ) | (12,394 | ) | |||||||||||||||||
Depreciation | — | (52,154 | ) | (19,600 | ) | (2,788,978 | ) | (148 | ) | (60,086 | ) | — | (2,920,966 | ) | ||||||||||||||||||
Transfers | 42,302 | 62,012 | 46,149 | 3,031,495 | 13 | 75,393 | (3,257,364 | ) | — | |||||||||||||||||||||||
Impairments | — | (985 | ) | (1,507 | ) | (88,407 | ) | — | — | (10,633 | ) | (101,532 | ) | |||||||||||||||||||
Exchange differences | (164 | ) | 2,835 | 1,250 | 27,394 | (12 | ) | (150 | ) | (3,026 | ) | 28,127 | ||||||||||||||||||||
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| |||||||||||||||||
Ending net book amount | 504,398 | 1,309,816 | 207,299 | 9,222,376 | 227 | 209,111 | 676,570 | 12,129,797 | ||||||||||||||||||||||||
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| |||||||||||||||||
Acquisition cost | 504,398 | 1,853,434 | 533,333 | 31,885,948 | 2,412 | 741,869 | 676,570 | 36,197,964 | ||||||||||||||||||||||||
Accumulated depreciation | — | (518,446 | ) | (304,622 | ) | (22,299,425 | ) | (2,185 | ) | (530,357 | ) | — | (23,655,035 | ) | ||||||||||||||||||
Accumulated impairment | — | (24,841 | ) | (21,412 | ) | (356,843 | ) | — | (2,289 | ) | — | (405,385 | ) | |||||||||||||||||||
Government grants | — | (331 | ) | — | (7,304 | ) | — | (112 | ) | — | (7,747 | ) | ||||||||||||||||||||
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₩ | 504,398 | 1,309,816 | 207,299 | 9,222,376 | 227 | 209,111 | 676,570 | 12,129,797 | ||||||||||||||||||||||||
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1 | ₩25,064 million was transferred from investment property during the year ended December 31, 2015. |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
15.14. Property, Plant and Equipment, continued
(2) Details of depreciation expense allocation for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
Cost of sales | ₩ | 3,040,674 | 2,616,341 | 2,859,445 | ||||||||
Selling and administrative expenses | 197,196 | 154,673 | 179,425 | |||||||||
Other expenses1 | 4,902 | 122,471 | — | |||||||||
Development costs | 25,694 | 27,481 | 17,706 | |||||||||
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| |||||||
₩ | 3,268,466 | 2,920,966 | 3,056,576 | |||||||||
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|
2016 | 2015 | 2014 | ||||||||||
(In millions of won) | ||||||||||||
Cost of sales | ₩ | 3,797,210 | 3,365,460 | 3,040,674 | ||||||||
Selling and administrative expenses | 276,969 | 263,938 | 197,196 | |||||||||
Other expenses | 5,307 | 8,050 | 4,902 | |||||||||
Development costs and other | 54,294 | 56,997 | 25,694 | |||||||||
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| |||||||
₩ | 4,133,780 | 3,694,445 | 3,268,466 | |||||||||
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(3) Impairment of ₩4,139 million (2013: ₩101,532 million and 2012: ₩nil - unaudited) has been charged to casualty losses caused by a fire on the manufacturing facilities in Wuxi, China, which is included in other expenses (Note 30).
(4) Certain property, plant and equipment are pledged as collaterals for borrowings as of December 31, 2014 (Note 34)2016 (note 33).
(5)(4) During 2014,2016, the Group capitalized borrowing costs amounting to ₩20,762₩14,663 million (2013: ₩7,687(2015: ₩18,892 million and 2012: ₩5,859 million - unaudited)2014: ₩20,762 million) on qualifying assets. Borrowing costs were calculated using a capitalization rate of 5.08% (2013: 3.87%3.59% (2015: 4.83% and 2012: 2.96% - unaudited)2014: 5.08%) for the year ended December 31, 2014.2016.
(6)(5) The Group leases certain machinery and others from ME Semiconductor Rental First L.L.C. and other under finance lease agreements.
The book value of the machinery and others subject to finance lease agreement amounted to ₩165,414to: ₩67,245 million as of December 31, 20142016 (as of December 31, 2013: ₩242,1872015: ₩138,514 million). The machinery and others are pledged as collateral for the finance lease liabilities.
The Group leases certain machinery and others from Macquarie Capital and others under operating lease agreements. The payment schedule of minimum lease payments under operating lease agreements as of December 31, 20142016 is as follows:
Minimum lease payments | ||||
(In millions of won) | ||||
No later than 1 year | ₩ | |||
Later than 1 year | ||||
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₩ | ||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
15. Property, Plant and Equipment, continued
(7)(6) As of December 31, 2014,2016, certain inventories; property, plant and equipment; and investment properties are insured and details of insured assets is as follows:
Insured assets | Insured amount | Insurance Company | ||||||
(In millions of won) | ||||||||
Package insurance | Property, plant and equipment, investment property, inventories and others Business interruption | ₩ | Hyundai Marine & Fire Insurance Co., Ltd. and others | |||||
Fire insurance | Property, plant and equipment, investment property | 88,960 | ||||||
Erection all risks insurance | Property, plant and equipment | |||||||
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₩ | ||||||||
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16. Intangible Assets
(1) Changes in intangible assets for the years ended December 31, 2014 and 2013 are as follows:
2014 | ||||||||||||||||||||
Goodwill | Industrial property rights | Development costs | Others1 | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Beginning net book amount | ₩ | 632,311 | 73,860 | 276,930 | 127,302 | 1,110,403 | ||||||||||||||
Changes during 2014 | ||||||||||||||||||||
Additions | — | 32,229 | 181,287 | 122,775 | 336,291 | |||||||||||||||
Receipt of government grants | — | — | — | (19,739 | ) | (19,739 | ) | |||||||||||||
Business combinations | 62,618 | — | — | 21,858 | 84,476 | |||||||||||||||
Disposals | — | (9,428 | ) | — | (380 | ) | (9,808 | ) | ||||||||||||
Impairment | — | — | — | (529 | ) | (529 | ) | |||||||||||||
Amortization | — | (13,374 | ) | (138,389 | ) | (22,512 | ) | (174,275 | ) | |||||||||||
Other | 9,256 | 463 | (4 | ) | 146 | 9,861 | ||||||||||||||
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| |||||||||||
Ending net book amount | 704,185 | 83,750 | 319,824 | 228,921 | 1,336,680 | |||||||||||||||
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| |||||||||||
Acquisition cost | 704,185 | 173,828 | 777,226 | 301,252 | 1,956,491 | |||||||||||||||
Accumulated amortization and impairment | — | (90,078 | ) | (457,402 | ) | (34,987 | ) | (582,467 | ) | |||||||||||
Government grants | — | — | — | (37,344 | ) | (37,344 | ) | |||||||||||||
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₩ | 704,185 | 83,750 | 319,824 | 228,921 | 1,336,680 | |||||||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
16.14. Property, Plant and Equipment, continued
In addition to the assets stated above, vehicle and delivery equipment are insured by vehicle comprehensive insurance and liability insurance.
15. Intangible Assets
(1) Changes in intangible assets for the years ended December 31, 2016 and 2015 are as follows:
2016 | ||||||||||||||||||||
Goodwill | Industrial property rights | Development costs | Others1 | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Beginning net book amount | ₩ | 720,755 | 89,787 | 483,330 | 411,024 | 1,704,896 | ||||||||||||||
Changes during 2016 | ||||||||||||||||||||
Internal development | — | — | 352,022 | — | 352,022 | |||||||||||||||
Separate acquisition | — | 28,269 | — | 150,352 | 178,621 | |||||||||||||||
Disposals | — | (5,208 | ) | — | (1,595 | ) | (6,803 | ) | ||||||||||||
Impairment | — | — | (272 | ) | (98 | ) | (370 | ) | ||||||||||||
Amortization | — | (14,299 | ) | (205,198 | ) | (103,072 | ) | (322,569 | ) | |||||||||||
Others | 9,449 | 414 | — | (69 | ) | 9,794 | ||||||||||||||
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| |||||||||||
Ending net book amount | 730,204 | 98,963 | 629,882 | 456,542 | 1,915,591 | |||||||||||||||
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| |||||||||||
Acquisition cost | 730,204 | 171,873 | 1,797,606 | 718,765 | 3,418,448 | |||||||||||||||
Accumulated amortization and impairment | — | (72,910 | ) | (1,167,724 | ) | (227,262 | ) | (1,467,896 | ) | |||||||||||
Government grants | — | — | — | (34,961 | ) | (34,961 | ) | |||||||||||||
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| |||||||||||
₩ | 730,204 | 98,963 | 629,882 | 456,542 | 1,915,591 | |||||||||||||||
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2015 | ||||||||||||||||||||
Goodwill | Industrial property rights | Development costs | Others1 | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Beginning net book amount | ₩ | 704,185 | 83,750 | 319,824 | 228,921 | 1,336,680 | ||||||||||||||
Changes during 2015 | ||||||||||||||||||||
Internal development | — | — | 349,264 | — | 349,264 | |||||||||||||||
Separate acquisition | — | 31,604 | — | 242,875 | 274,479 | |||||||||||||||
Disposals | — | (12,859 | ) | — | (597 | ) | (13,456 | ) | ||||||||||||
Impairment | — | (2 | ) | (1,606 | ) | (163 | ) | (1,771 | ) | |||||||||||
Amortization | — | (12,800 | ) | (184,167 | ) | (61,111 | ) | (258,078 | ) | |||||||||||
Others | 16,570 | 94 | 15 | 1,099 | 17,778 | |||||||||||||||
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| |||||||||||
Ending net book amount | 720,755 | 89,787 | 483,330 | 411,024 | 1,704,896 | |||||||||||||||
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| |||||||||||
Acquisition cost | 720,755 | 160,180 | 1,126,505 | 585,500 | 2,592,940 | |||||||||||||||
Accumulated amortization and impairment | — | (70,393 | ) | (643,175 | ) | (137,621 | ) | (851,189 | ) | |||||||||||
Government grants | — | — | — | (36,855 | ) | (36,855 | ) | |||||||||||||
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| |||||||||||
₩ | 720,755 | 89,787 | 483,330 | 411,024 | 1,704,896 | |||||||||||||||
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1 | Others include software and club memberships. |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
15. Intangible Assets, continued
2013 | ||||||||||||||||||||
Goodwill | Industrial property rights | Development costs | Others1 | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Beginning net book amount | ₩ | 633,170 | 92,188 | 223,188 | 35,084 | 983,630 | ||||||||||||||
Changes during 2013 | ||||||||||||||||||||
Additions | — | 13,187 | 190,271 | 98,038 | 301,496 | |||||||||||||||
Business combinations | 2,905 | — | — | 684 | 3,589 | |||||||||||||||
Disposals | — | (17,288 | ) | — | — | (17,288 | ) | |||||||||||||
Impairment | — | — | — | (183 | ) | (183 | ) | |||||||||||||
Amortization | — | (14,227 | ) | (136,534 | ) | (5,515 | ) | (156,276 | ) | |||||||||||
Other | (3,764 | ) | — | 5 | (806 | ) | (4,565 | ) | ||||||||||||
|
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|
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|
| |||||||||||
Ending net book amount | 632,311 | 73,860 | 276,930 | 127,302 | 1,110,403 | |||||||||||||||
|
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|
|
|
|
|
|
| |||||||||||
Acquisition cost | 632,311 | 164,125 | 595,943 | 161,329 | 1,553,708 | |||||||||||||||
Accumulated amortization and impairment | — | (90,265 | ) | (319,013 | ) | (16,813 | ) | (426,091 | ) | |||||||||||
Government grants | — | — | — | (17,214 | ) | (17,214 | ) | |||||||||||||
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| |||||||||||
₩ | 632,311 | 73,860 | 276,930 | 127,302 | 1,110,403 | |||||||||||||||
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(2) Amortization of ₩3,106₩28,877 million (2013: ₩501(2015: ₩12,811 million and 2012: ₩54 million - unaudited)2014: ₩3,106 million) is included in the cost of sales and ₩171,169₩293,316 million (2013: ₩155,775(2015: ₩244,978 million and 2012: ₩145,644 million - unaudited)2014: ₩171,169 million) in selling and administrative expenses in the statements of comprehensive income for the year ended December 31, 2014.2016. Amortization of ₩376 million (2015: ₩289 and 2014 : nil) is capitalized as development cost.
(3) Among costs associated with development activities, ₩181,287₩352,022 million (2013: ₩190,271(2015: ₩349,264 million and 2012: ₩130,576 million unaudited)2014:₩181,287 million) that met capitalization criteria, were capitalized as development cost for the year ended December 31, 2014.2016. In addition, costs associated with research activities and other development expenditures that did not meet the criteria and amounted to ₩1,409,530₩1,744,711 million (2013: ₩968,804(2015: ₩1,620,324 million and 2012: ₩975,057 million unaudited)2014: ₩1,409,530 million) were recognized as expenses for the year ended December 31, 2014.2016.
(4) Goodwill impairment tests
Goodwill impairment tests are undertaken annually. As the Group has only one CGU, goodwill was allocated to one CGU. Recoverable amount of the CGU was determined based on fair value less costs to sell, which was determined using the current stock price as of December 31, 2014.2016. No impairment loss of goodwill was recognized since the recoverable amount is higher than carrying value of the CGU as of December 31, 2014.2016.
16. Investment Property
Changes in investment property during the years ended December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Beginning net book amount | ₩ | 2,679 | 28,456 | |||||
Changes for the year | ||||||||
Depreciation | (106 | ) | (713 | ) | ||||
Transfer1 | — | (25,064 | ) | |||||
|
|
|
| |||||
Ending net book amount | 2,573 | 2,679 | ||||||
|
|
|
| |||||
Acquisition cost | 5,170 | — | ||||||
Accumulated depreciation | (2,597 | ) | — | |||||
|
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|
| |||||
₩ | 2,573 | 2,679 | ||||||
|
|
|
|
1 | Transfer to property, plant and equipment by ₩25,604 million during the year ended December 31, 2015 |
The depreciation expense of ₩106 million was charged to cost of sales for the year ended December 31, 2016 (2015: ₩713 million and 2014: ₩1,239 million).
Rental income from investment property during the year ended December 31, 2016 was ₩500 million
(2015: ₩2,627 million and 2014: ₩4,534 million).
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
17. Investment Property
Changes in investment property during the years ended December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Beginning net book amount | ₩ | 28,609 | 29,888 | |||||
Changes for the year | ||||||||
Depreciation | (1,239 | ) | (1,279 | ) | ||||
Transfer1 | 1,086 | — | ||||||
|
|
|
| |||||
Ending net book amount | 28,456 | 28,609 | ||||||
|
|
|
| |||||
Acquisition cost | 50,839 | 48,390 | ||||||
Accumulated depreciation | (22,383 | ) | (19,781 | ) | ||||
|
|
|
| |||||
₩ | 28,456 | 28,609 | ||||||
|
|
|
|
|
The depreciation expense of ₩1,239 million was charged to cost of sales for the year ended December 31, 2014 (2013: ₩1,279 million and 2012: ₩1,280 million unaudited).
Rental income from investment property during the year ended December 31, 2014 was ₩4,534 million (2013: ₩4,283 million and 2012: ₩4,666 million unaudited).
18. Borrowings
(1) Details of borrowings as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Current | ||||||||||||||||
Short-term borrowings | ₩ | 734,165 | 137,979 | ₩ | — | 147,948 | ||||||||||
Current installments of debentures | 200,000 | — | ||||||||||||||
Current installments of long-term borrowings | 820,855 | 732,341 | ||||||||||||||
Current portion of long-term borrowings | 384,124 | 465,561 | ||||||||||||||
Current portion of debentures | 320,736 | 399,863 | ||||||||||||||
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| |||||||||||||
1,755,020 | 870,320 | 704,860 | 1,013,372 | |||||||||||||
|
|
|
| |||||||||||||
Non-current | ||||||||||||||||
Long-term borrowings | 2,095,737 | 1,512,003 | ||||||||||||||
Debentures | 1,156,967 | 1,450,777 | 1,535,381 | 1,293,220 | ||||||||||||
Convertible bonds | — | 498,935 | ||||||||||||||
Long-term borrowings | 1,262,772 | 1,730,183 | ||||||||||||||
|
|
|
| |||||||||||||
2,419,739 | 3,679,895 | 3,631,118 | 2,805,223 | |||||||||||||
|
|
|
| |||||||||||||
₩ | 4,174,759 | 4,550,215 | ₩ | 4,335,978 | 3,818,595 | |||||||||||
|
|
|
|
(2) Details of short-term borrowings as of December 31, 20142016 and 20132015 are as follows:
Financial Institutions | Annual interest rate in 2014 (%) | 2014 | 2013 | |||||||||
(In millions of won) | ||||||||||||
Import finance | Woori Bank | 0.58 | ₩ | 22,060 | 10,610 | |||||||
Borrowings on trade receivables collateral | NH NongHyup Bank and others | 3M LIBOR + 0.47 ~ 0.55 | 220,663 | — | ||||||||
Refinancing and others | China Construction Bank and others | 1.23 ~ 3.20 | 491,442 | 127,369 | ||||||||
|
|
|
| |||||||||
₩ | 734,165 | 137,979 | ||||||||||
|
|
|
|
Financial Institutions | Interest rate per annum in 2016 (%) | 2016 | 2015 | |||||||||||
(In millions of won) | ||||||||||||||
Borrowings on trade | Shinhan Bank and others | — | ₩ | — | 1,160 | |||||||||
NongHyup Bank | — | — | 1,916 | |||||||||||
Refinancing and others | China Construction Bank and others | — | — | 144,872 | ||||||||||
|
|
|
| |||||||||||
₩ | — | 147,948 | ||||||||||||
|
|
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
18.17. Borrowings, continued
(3) Details of long-term borrowings as of December 31, 20142016 and 20132015 are as follows:
Financial institutions | Annual interest rate in 2014 (%) | 2014 | 2013 | |||||||||
(In millions of won) | ||||||||||||
Local currency borrowings: | ||||||||||||
Borrowing for housing | Kookmin Bank | 3.5 | ₩ | 10 | 24 | |||||||
Borrowings for childcare facilities | NongHyup Bank | 2 | 185 | 246 | ||||||||
Funds for equipment | Korea Finance Corporation | Industrial financial debentures (4 years)2 + 1.31 | 250,000 | 250,000 | ||||||||
Funds for equipment | Korea Exchange Bank | CD (91days)3 +1.31 | 50,000 | 50,000 | ||||||||
Commercial paper | Korea Exchange Bank | 3.9 | 200,000 | 370,000 | ||||||||
Finance lease liabilities | ME Semiconductor Rental First L.L.C. | 5 | 147,870 | 212,442 | ||||||||
|
|
|
| |||||||||
648,065 | 882,712 | |||||||||||
Foreign currency borrowings: | ||||||||||||
General borrowings | Export-Import Bank of Korea | 3M LIBOR4 + 3.15 | 274,800 | 105,530 | ||||||||
General borrowings1 | Standard Chartered Bank Korea Ltd. | 3M LIBOR4 + 3.00 | 12,366 | 86,271 | ||||||||
General borrowings | Hana Bank | — | — | 23,744 | ||||||||
General borrowings | Korea Development Bank | Exchange equalization fund rate5 + 0.60 | 109,920 | 316,590 | ||||||||
General borrowings | Comerica Bank | — | — | 32,954 | ||||||||
General borrowings | NongHyup Bank and others | Exchange equalization fund rate5 + 0.63 | 175,872 | — | ||||||||
General borrowings | NongHyup Bank and others | 3M LIBOR4 + 3.19 ~ 3.79 | 274,800 | 263,825 | ||||||||
General borrowings | Agricultural Bank of China and other | 3M LIBOR4 + 2.65 | 182,841 | 280,212 | ||||||||
Syndicated loans | Development Bank of China and others | 3M LIBOR4 + 2.95 | 209,348 | 298,787 | ||||||||
Funds for equipment | Standard Chartered Bank Korea Ltd. | 3M LIBOR4 + 3.45 | 118,653 | — | ||||||||
Mortgage loans | HITECH | 7.16 | 18,162 | 96,236 | ||||||||
Finance lease liabilities | HITECH and others | 4.70 ~ 7.16 | 59,415 | 81,615 | ||||||||
|
|
|
| |||||||||
1,436,177 | 1,585,764 | |||||||||||
|
|
|
| |||||||||
2,084,242 | 2,468,476 | |||||||||||
|
|
|
| |||||||||
Less: Discount on present value | (615 | ) | (5,952 | ) | ||||||||
Current maturities | (820,855 | ) | (732,341 | ) | ||||||||
|
|
|
| |||||||||
₩ | 1,262,772 | 1,730,183 | ||||||||||
|
|
|
|
|
Financial institutions | Interest rate per annum in 2016 (%)1 | 2016 | 2015 | |||||||||||
(In millions of won) | ||||||||||||||
Local currency borrowings: | ||||||||||||||
Borrowings for childcare facilities | NongHyup Bank | 2.00 | ₩ | 62 | 123 | |||||||||
Funds for equipment | Korea Development Bank (formerly Korea Finance Corporation) | 3.98 | 83,333 | 166,667 | ||||||||||
Funds for equipment2 | KEB Hana Bank | CD (91 days) +1.31 | 30,000 | 40,000 | ||||||||||
Funds for equipment | Korea Development Bank | 2.02 | 200,000 | — | ||||||||||
Finance lease liabilities | Hansu Technical Service Ltd. | 3.70 | 38,948 | 42,775 | ||||||||||
Finance lease liabilities | ME Semiconductor Rental First L.L.C. | 5.00 | 8,688 | 74,898 | ||||||||||
|
|
|
| |||||||||||
361,031 | 324,463 | |||||||||||||
|
|
|
| |||||||||||
Foreign currency borrowings: | ||||||||||||||
General borrowings | Export-Import Bank of Korea | 3M LIBOR + 1.00 ~ 3.15 | 825,808 | 488,333 | ||||||||||
General borrowings | Woori Bank | 3M LIBOR + 1.25 | 120,850 | — | ||||||||||
3M LIBOR + 0.98 | 181,275 | 175,800 | ||||||||||||
Funds for equipment | Korea Development Bank | | Exchange equalization fund rate + 0.60 | | 120,850 | 117,200 | ||||||||
3M LIBOR + 0.95 | 181,275 | 175,800 | ||||||||||||
3M LIBOR + 1.25 | 241,700 | — | ||||||||||||
Funds for equipment | KEB Hana Bank | | Exchange equalization fund rate + 0.63 | | 96,680 | 93,760 | ||||||||
Funds for equipment | NongHyup Bank | | Exchange equalization fund rate + 0.63 | | 96,680 | 93,760 | ||||||||
3M LIBOR + 3.19 | 120,850 | 234,400 | ||||||||||||
Finance lease liabilities | Goodmemory First L.L.C. | 4.70 | 12,671 | 36,020 | ||||||||||
Funds for equipment | Standard Chartered Bank Korea Ltd. | 3M LIBOR + 3.45 | 120,191 | 172,688 | ||||||||||
Syndicated loans | Development Bank of China and others | — | — | 65,340 | ||||||||||
|
|
|
| |||||||||||
2,118,830 | 1,653,101 | |||||||||||||
|
|
|
| |||||||||||
2,479,861 | 1,977,564 | |||||||||||||
|
|
|
| |||||||||||
Less: | ||||||||||||||
Current maturities | (384,124 | ) | (465,561 | ) | ||||||||||
₩ | 2,095,737 | 1,512,003 | ||||||||||||
|
|
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
18.17. Borrowings, continued
|
As of December 31, |
Type | Interest rate per annum as of December 31, 2016 (%) | |||
Exchange equalization fund rate | 1.33 | |||
CD (91 days) | 1.52 | |||
3M LIBOR | 1.00 |
|
|
(4) Details of debentures as of December 31, 20142016 and 20132015 are as follows:
Maturity date | Annual interest rate in 2014 (%) | 2014 | 2013 | Maturity date | Interest rate per annum in 2016 (%) | 2016 | 2015 | |||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||
Unsecured notes in local currency: | ||||||||||||||||||||||||||||
210th | Jan. 14, 2015 | 6.35 | ₩ | 200,000 | 200,000 | |||||||||||||||||||||||
211th | May 6, 2016 | 6.20 | 400,000 | 400,000 | May 6, 2016 | 6.20 | ₩ | — | 400,000 | |||||||||||||||||||
212th | May 30, 2019 | 5.35 | 450,000 | 550,000 | May 30, 2019 | 5.35 | 450,000 | 450,000 | ||||||||||||||||||||
213th | Sep. 4, 2017 | 3.72 | 200,000 | 200,000 | Sep. 4, 2017 | 3.72 | 200,000 | 200,000 | ||||||||||||||||||||
214-1st | Aug. 26, 2020 | 2.27 | 210,000 | 210,000 | ||||||||||||||||||||||||
214-2nd | Aug. 26, 2022 | 2.63 | 140,000 | 140,000 | ||||||||||||||||||||||||
215-1st | Nov. 25, 2018 | 2.26 | 70,000 | 70,000 | ||||||||||||||||||||||||
215-2nd | Nov. 25, 2020 | 2.56 | 100,000 | 100,000 | ||||||||||||||||||||||||
215-3rd | Nov. 25, 2022 | 2.75 | 10,000 | 10,000 | ||||||||||||||||||||||||
216-1st | Feb. 19, 2018 | 1.74 | 70,000 | — | ||||||||||||||||||||||||
216-2nd | Feb. 19, 2021 | 2.22 | 180,000 | — | ||||||||||||||||||||||||
216-3rd | Feb. 19, 2023 | 2.53 | 80,000 | — | ||||||||||||||||||||||||
217-1st | May 27, 2018 | 1.73 | 80,000 | — | ||||||||||||||||||||||||
217-2nd | May 27, 2021 | 2.30 | 150,000 | — | ||||||||||||||||||||||||
Secured notes in foreign currency | ||||||||||||||||||||||||||||
Foreign 8th1 | Jun. 20, 2017 | 3M Libor + 2.85 | 109,920 | 105,530 | Jun. 20, 2017 | 3M LIBOR + 2.85 | 120,850 | 117,200 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
1,359,920 | 1,455,530 | 1,860,850 | 1,697,200 | |||||||||||||||||||||||||
Less: Discounts on debentures | (2,953 | ) | (4,753 | ) | (4,733 | ) | (4,117 | ) | ||||||||||||||||||||
Current portion | (200,000 | ) | — | (320,736 | ) | (399,863 | ) | |||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
₩ | 1,156,967 | 1,450,777 | ₩ | 1,535,381 | 1,293,220 | |||||||||||||||||||||||
|
|
|
|
1 | The Group is provided with USD100 million of payment guarantee from Shinhan Bank as of December 31, |
(5) Details of convertible bonds as of December 31, 2014 and 2013 are as follows:
Maturity date | Annual interest rate in 2014 (%) | 2014 | 2013 | |||||||||||
(In millions of won) | ||||||||||||||
Convertible bond in foreign currency: |
| |||||||||||||
Foreign 7th1 | May 14, 2015 | — | ₩ | — | 527,650 | |||||||||
|
|
|
| |||||||||||
— | 527,650 | |||||||||||||
Less: Conversion rights adjustment | — | (26,434 | ) | |||||||||||
Discount on bonds | — | (2,281 | ) | |||||||||||
|
|
|
| |||||||||||
₩ | — | 498,935 | ||||||||||||
|
|
|
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
18.17. Borrowings, continued
(6)(5) Finance lease liability
Lease liabilities are effectively secured as the rights to the leased asset belong to the lessor.
Details of future minimum lease payments to the lessor as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Total minimum lease payment | ||||||||
No later than 1 year | ₩ | 106,318 | 103,077 | |||||
Between 1 and 5 years | 116,277 | 216,391 | ||||||
|
|
|
| |||||
222,595 | 319,468 | |||||||
|
|
|
| |||||
Discount on present value | (16,346 | ) | (25,410 | ) | ||||
Net minimum lease payment | ||||||||
No later than 1 year | 97,567 | 90,139 | ||||||
Between 1 and 5 years | 108,682 | 203,919 | ||||||
|
|
|
| |||||
₩ | 206,249 | 294,058 | ||||||
|
|
|
|
(7) Details of book value and fair value of non-current borrowings as of December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||||||||||
Book value | Fair value | Book value | Fair value | |||||||||||||
(In millions of won) | ||||||||||||||||
Long-term borrowings | ₩ | 1,262,772 | 1,271,718 | 1,730,183 | 1,759,397 | |||||||||||
Debentures | 1,156,967 | 1,217,236 | 1,450,777 | 1,501,810 | ||||||||||||
Convertible bond | — | — | 498,935 | 653,653 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 2,419,739 | 2,488,954 | 3,679,895 | 3,914,860 | ||||||||||||
|
|
|
|
|
|
|
|
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Total minimum lease payment | ||||||||
No later than 1 year | ₩ | 27,043 | 98,927 | |||||
Between 1 and 5 years | 21,400 | 42,704 | ||||||
Later than 5 years | 18,725 | 24,075 | ||||||
|
|
|
| |||||
67,168 | 165,706 | |||||||
|
|
|
| |||||
Discount on present value | (6,861 | ) | (12,013 | ) | ||||
Net minimum lease payment | ||||||||
No later than 1 year | 26,603 | 96,116 | ||||||
Between 1 and 5 years | 19,136 | 39,182 | ||||||
Later than 5 years | 14,568 | 18,395 | ||||||
|
|
|
| |||||
₩ | 60,307 | 153,693 | ||||||
|
|
|
|
19.18. Other Current andNon-current Liabilities
Details of other current andnon-current liabilities as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Current | ||||||||||||||||
Advance receipts | ₩ | 2,682 | 2,616 | ₩ | 3,781 | 2,867 | ||||||||||
Unearned income | 322 | 2,403 | 228 | 374 | ||||||||||||
Withholdings | 67,174 | 21,180 | 42,622 | 35,938 | ||||||||||||
Deposits received | 858 | 531 | 1,539 | 1,256 | ||||||||||||
Others | 163 | 110 | 2,328 | 4,008 | ||||||||||||
|
|
|
| |||||||||||||
71,199 | 26,840 | 50,498 | 44,443 | |||||||||||||
|
| |||||||||||||||
Non-current | ||||||||||||||||
Long-term advance receipts | — | 155 | ||||||||||||||
Long-term withholdings | — | 935 | ||||||||||||||
Other long-term employee benefits | 59,464 | 51,280 | 61,883 | 61,149 | ||||||||||||
|
|
|
| |||||||||||||
59,464 | 52,370 | ₩ | 112,381 | 105,592 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 130,663 | 79,210 | ||||||||||||||
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
20.19. Provisions
(1) Details of changes in provisions for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | ||||||||||||||||||||
Beginning balance | Increase | Utilization | Reversal | Ending balance | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Warranty | ₩ | 13,914 | 10,862 | (17,890 | ) | — | 6,886 | |||||||||||||
Sales returns | 12,564 | 51,148 | (49,066 | ) | — | 14,646 | ||||||||||||||
Legal claims | 26,106 | — | (21,031 | ) | (675 | ) | 4,400 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
₩ | 52,584 | 62,010 | (87,987 | ) | (675 | ) | 25,932 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
2013 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | Increase | Utilization | Reversal | Other1 | Ending balance | Beginning balance | Increase | Utilization | Reversal | Other | Ending balance | |||||||||||||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||||||||||||||
Warranty | ₩ | 2,949 | 13,656 | (2,691 | ) | — | — | 13,914 | ₩ | 2,936 | 38,584 | (38,523 | ) | — | — | 2,997 | ||||||||||||||||||||||||||||||||
Sales returns | 5,305 | 12,564 | (5,305 | ) | — | — | 12,564 | 14,736 | 33,284 | (34,703 | ) | — | — | 13,317 | ||||||||||||||||||||||||||||||||||
Legal claims | 322,361 | 58,959 | (158,762 | ) | (211,152 | ) | 14,700 | 26,106 | 1,523 | 400 | (1,097 | ) | (426 | ) | — | 400 | ||||||||||||||||||||||||||||||||
Emission allowances | 6,081 | 21,366 | (1,339 | ) | — | — | 26,108 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
₩ | 330,615 | 85,179 | (166,758 | ) | (211,152 | ) | 14,700 | 52,584 | ₩ | 25,276 | 93,634 | (75,662 | ) | (426 | ) | — | 42,822 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | Increase | Utilization | Reversal | Other1 | Ending balance | |||||||||||||||||||||||||||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||||||||||
Warranty | ₩ | 6,886 | 2,910 | (4,346 | ) | (2,514 | ) | — | 2,936 | |||||||||||||||||||||||||||||||||||||||
Sales returns | 14,646 | 53,642 | (53,552 | ) | — | — | 14,736 | |||||||||||||||||||||||||||||||||||||||||
Legal claims | 4,400 | 1,440 | (4,370 | ) | (30 | ) | 83 | 1,523 | ||||||||||||||||||||||||||||||||||||||||
Emission allowances | — | 6,081 | — | — | — | 6,081 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
₩ | 25,932 | 64,073 | (62,268 | ) | (2,544 | ) | 83 | 25,276 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
1 | Others include foreign exchange rate differences. |
(2) Provisions for warranty
The Group estimates the expected warranty costs based on historical results and accrues provisions for warranty.
(3) Provisions for sales returns
The Group estimates the expected sales returns based on historical results and adjusts sales and cost of sales, respectively. Accordingly, related gross profit and estimated expenses related to the return (such as transportation costs) are recorded as provisions for sales returns.
(4) Provisions for legal claims
The Group recognizes provisions for legal claims when the Group has a present legal or constructive obligation as a result of past events and an outflow of resources required to settle the obligation is probable and the amount can be reliably estimated.
21. Defined Benefit Liabilities(5) Provision for emission allowances
(1) DetailsThe Group recognizes estimated future payment for the number of defined benefit liabilitiesemission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of December 31, 2014 and 2013 are as follows:Greenhouse Gas Emission Permits.
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Present value of defined benefit obligations | ₩ | 887,277 | 656,080 | |||||
Fair value of plan assets | (421,927 | ) | (20,340 | ) | ||||
|
|
|
| |||||
₩ | 465,350 | 635,740 | ||||||
|
|
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
21.20. Defined Benefit Liabilities continued
Under the defined benefit plan, the Group pays employee benefits to retired employees in the form of a lump sum that are based on their salaries and years of service at the time of their retirement. Accordingly, the Group is exposed to a variety of actuarial assumption risks such as risk associated with expected years of service, interest risk, and market (investment) risk.
(1) Details of defined benefit liabilities as of December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Present value of defined benefit obligations | ₩ | 1,195,047 | 1,055,340 | |||||
Fair value of plan assets | (888,559 | ) | (570,363 | ) | ||||
|
|
|
| |||||
₩ | 306,488 | 484,977 | ||||||
|
|
|
|
(2) Principal actuarial assumptions as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 (%) | 2015 (%) | |||||
Discount rate for defined benefit obligations1 | 3.19% ~ 4.50% | 1.11% ~ 5.85% | 3.09 ~ 4.10 | 2.89 ~ 4.10 | ||||
Expected rate of salary increase | 4.92% ~ 5.81% | 4.92% ~ 6.18% | 2.20 ~ 5.48 | 2.20 ~ 5.52 |
1 | As of December 31, |
(3) Weighted average durations of defined benefit obligations as of December 31, 20142016 and 20132015 are 12.6712.10 and 13.0712.39 years, respectively.
(4) Changes in defined benefit obligations for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Beginning balance | ₩ | 656,080 | 592,171 | |||||
Current service cost | 109,403 | 98,095 | ||||||
Interest cost | 35,442 | 28,079 | ||||||
Benefits paid | (35,529 | ) | (46,538 | ) | ||||
Remeasurements: | ||||||||
Demographic assumption | 7 | — | ||||||
Financial assumption | 119,206 | (18,324 | ) | |||||
Adjustment based on experience | 262 | 2,559 | ||||||
Business combinations and disposal of a subsidiary | 1,711 | — | ||||||
Transfer from associates | 552 | 344 | ||||||
Others | 143 | (306 | ) | |||||
|
|
|
| |||||
Ending balance | ₩ | 887,277 | 656,080 | |||||
|
|
|
|
(5) Changes in plan assets for the years ended December 31, 2014 and 2013 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Beginning balance | ₩ | 20,340 | 17,075 | ₩ | 1,055,340 | 887,277 | ||||||||||
Interest income | 1,413 | 679 | ||||||||||||||
Contributions | 402,894 | 4,131 | ||||||||||||||
Current service cost | 159,190 | 139,486 | ||||||||||||||
Past service cost | 33,198 | — | ||||||||||||||
Interest cost | 41,148 | 39,243 | ||||||||||||||
Business combinations and disposal of a subsidiary | (2,440 | ) | 576 | |||||||||||||
Remeasurements: | ||||||||||||||||
Demographic assumption | — | (1,860 | ) | |||||||||||||
Financial assumption | 5,792 | 33,632 | ||||||||||||||
Adjustment based on experience | (53,609 | ) | (18,561 | ) | ||||||||||||
Benefits paid | (1,385 | ) | (1,367 | ) | (43,602 | ) | (24,459 | ) | ||||||||
Remeasurements | (399 | ) | (178 | ) | ||||||||||||
Business combinations and disposal of a subsidiary | (1,133 | ) | — | |||||||||||||
Others | 197 | — | ||||||||||||||
Effect of movements in exchange rates | 30 | 6 | ||||||||||||||
|
|
|
| |||||||||||||
Ending balance | ₩ | 421,927 | 20,340 | ₩ | 1,195,047 | 1,055,340 | ||||||||||
|
|
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
21.20. Defined Benefit Liabilities, continued
(5) Changes in plan assets for the years ended December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Beginning balance | ₩ | 570,363 | 421,927 | |||||
Contributions | 327,640 | 153,566 | ||||||
Interest income | 20,204 | 18,545 | ||||||
Benefits paid | (19,151 | ) | (15,137 | ) | ||||
Remeasurements | (9,166 | ) | (8,661 | ) | ||||
Transfer from associates | (1,331 | ) | 123 | |||||
|
|
|
| |||||
Ending balance | 570,363 | |||||||
|
|
|
|
(6) The amounts recognized in profit or loss for the years ended December 31, 20142016, 2015 and 20132014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Current service cost | ₩ | 109,403 | 98,095 | 81,034 | 139,486 | 109,403 | ||||||||||||||||||
Past service cost | 33,198 | — | — | |||||||||||||||||||||
Net interest expense | 34,029 | 27,400 | 26,696 | 20,944 | 20,698 | 34,029 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 143,432 | 125,495 | 107,730 | 160,184 | 143,432 | |||||||||||||||||||
|
|
|
|
|
|
(7) The amounts in which defined benefit plan related expenses are included for the years ended December 31, 20142016, 2015 and 20132014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Cost of sales (manufacturing costs) | ₩ | 82,922 | 73,950 | 68,462 | 88,415 | 82,922 | ||||||||||||||||||
Selling and administrative expenses | 60,510 | 51,545 | 39,268 | 76,588 | 71,769 | 60,510 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
₩ | 143,432 | 125,495 | 107,730 | 160,184 | 143,432 | |||||||||||||||||||
|
|
|
|
|
|
(8) Details of plan assets as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Deposits | ₩ | 420,300 | 18,485 | 568,790 | ||||||||||||
Other | 1,627 | 1,855 | 1,485 | 1,573 | ||||||||||||
|
|
|
| |||||||||||||
₩ | 421,927 | 20,340 | 570,363 | |||||||||||||
|
|
|
|
Actual return on plan assets for the year ended December 31, 20142016 amounted to ₩1,014₩11,038 million (2013: ₩492(2015: ₩9,884 million and 2012: ₩274 million - unaudited)2014: ₩1,014 million).
(9) As of December 31, 2014,2016, the Group funded defined benefit obligations through insurance plans with Mirae Asset Life Insurance Co., Ltd. and other insurance companies. The Group’s reasonable estimation of contribution to the plan assets for the year ending December 31, 2017 is ₩306,722 million under the assumption that the Group maintains the defined benefit plan.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
20. Defined Benefit Liabilities, continued
(10) The sensitivity analysis of the defined benefit obligations as of December 31, 20142016 to changes in the principal assumptions is as follows:
Effects on defined benefit obligation | Effects on defined benefit obligation | |||||||||||||||
Increase of rate | Decrease of rate | Increase of rate | Decrease of rate | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Discount rate (if changed by 1%) | ₩ | (100,702 | ) | 119,599 | ₩ | (127,551 | ) | 149,704 | ||||||||
Expected rate of salary increase (if changed by 1%) | 120,284 | (103,002 | ) | 149,789 | (129,905 | ) |
The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.
(11) Information about the maturity profile of the defined benefit obligation as of December 31, 2016 is as follows:
2016 | ||||||||||||||||||||
Less than 1 year | 1 - 5 years | 5 - 10 years | 10 - 20 years | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Benefits paid | 250,323 | 660,051 | 2,703,924 | 3,649,730 |
Information about the maturity profile is based on undiscounted amount of defined benefit obligation and classified to employee’s expected years of remaining services.
(12) The Group adopted defined contribution retirement pension for the employees subject to peak wage system. Contributions to defined contribution plans amounting to ₩12 million was recognized as cost of sales for the year ended December 31, 2016.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
22.21. Deferred Income Tax Assets and Liabilities
(1) Changes in deferred taxes for the years ended December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
At January 1 | ₩ | 198,570 | 378,366 | |||||
Recorded in profit or loss | 69,176 | (180,928 | ) | |||||
Tax charge relating to components of other comprehensive income | — | 311 | ||||||
Exchange differences | 893 | 821 | ||||||
|
|
|
| |||||
At December 31 | ₩ | 268,639 | 198,570 | |||||
|
|
|
|
(2) Changes in deferred income tax assets and liabilities for the years ended December 31, 20142016 and 20132015 without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:
2014 | ||||||||||||||||||||
January 1, 2014 | Profit or loss | Other comprehensive income | Currency translation differences | December 31, 2014 | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Deferred tax liabilities: | ||||||||||||||||||||
Advanced depreciation provision | ₩ | (55,666 | ) | — | — | — | (55,666 | ) | ||||||||||||
Valuation of derivatives | (5,452 | ) | 5,244 | — | — | (208 | ) | |||||||||||||
Gains on foreign currency translation | (2,597 | ) | 261 | — | 11 | (2,325 | ) | |||||||||||||
Conversion rights adjustment | (6,827 | ) | 6,827 | — | — | — | ||||||||||||||
Plan assets | (725 | ) | (96,177 | ) | — | — | (96,902 | ) | ||||||||||||
Others | (13,897 | ) | (2,996 | ) | — | (74 | ) | (16,967 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(85,164 | ) | (86,841 | ) | — | (63 | ) | (172,068 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets: | ||||||||||||||||||||
Loss on valuation of inventories | 18,876 | (873 | ) | — | (2 | ) | 18,001 | |||||||||||||
Valuation of equity-method investments | 216,334 | 35,920 | — | (1,572 | ) | 250,682 | ||||||||||||||
Accumulated depreciation | 92,829 | (41,917 | ) | — | 776 | 51,688 | ||||||||||||||
Net defined benefits | 137,578 | 49,091 | — | (42 | ) | 186,627 | ||||||||||||||
Deemed investments and others | 162,390 | (395 | ) | — | — | 161,995 | ||||||||||||||
Provisions and others | 5,816 | (4,750 | ) | — | — | 1,066 | ||||||||||||||
Impairment of available-for-sale financial assets | 40,134 | (2,896 | ) | — | — | 37,238 | ||||||||||||||
Losses on foreign currency translation | 2,546 | (24 | ) | — | — | 2,522 | ||||||||||||||
Property, plant and equipment | 15,217 | (11,836 | ) | — | — | 3,381 | ||||||||||||||
Losses on valuation of derivative | 31,367 | (30,981 | ) | — | — | 386 | ||||||||||||||
Tax loss carryforwards | 72,736 | (50,412 | ) | — | 1,257 | 23,581 | ||||||||||||||
Tax credit carryforwards | 642,121 | (76,048 | ) | — | 131 | 566,204 | ||||||||||||||
Others | 209,967 | 30,701 | — | 5,938 | 246,606 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
1,647,911 | (104,420 | ) | — | 6,486 | 1,549,977 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets, net | 1,562,747 | (191,261 | ) | — | 6,423 | 1,377,909 | ||||||||||||||
Deferred tax assets not recognized | (1,364,177 | ) | 260,437 | — | (5,530 | ) | (1,109,270 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets recognized | ₩ | 198,570 | 69,176 | — | 893 | 268,639 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
22. Deferred Income Tax, continued
2016 | ||||||||||||||||||||
January 1, 2016 | Profit or loss | Equity | Currency translation differences | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Loss on valuation of inventories | ₩ | 40,335 | (23,388 | ) | — | 23 | 16,970 | |||||||||||||
Valuation of equity-method investments | 237,609 | (23,641 | ) | — | — | 213,968 | ||||||||||||||
Accumulated depreciation | 78,899 | 5,557 | — | (1,262 | ) | 83,194 | ||||||||||||||
Defined benefits liabilities | 92,709 | (100,485 | ) | 68,171 | — | 60,395 | ||||||||||||||
Deemed investments and others | 161,995 | (4,547 | ) | — | — | 157,448 | ||||||||||||||
Available-for-sale financial assets | 42,247 | 14 | — | — | 42,261 | |||||||||||||||
Employee benefits | 24,660 | 3,138 | — | — | 27,798 | |||||||||||||||
Provisions | 21,702 | 14,607 | — | — | 36,309 | |||||||||||||||
Advanced depreciation provision | (55,666 | ) | — | — | — | (55,666 | ) | |||||||||||||
Others | 144,472 | (95,648 | ) | — | (5,096 | ) | 43,728 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets for temporary differences, net | 788,962 | (224,393 | ) | 68,171 | (6,335 | ) | 626,405 | |||||||||||||
Deferred tax assets not recognized | (597,648 | ) | 218,508 | — | — | (379,140 | ) | |||||||||||||
Tax credit carryforwards recognized | 129,888 | 231,881 | — | 105 | 361,874 | |||||||||||||||
Tax loss carryforwards recognized | 32,420 | 139,323 | — | 6,754 | 178,497 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets recognized | 365,319 | 68,171 | 524 | 787,636 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
2013 | ||||||||||||||||||||
January 1, 2013 | Profit or loss | Other comprehensive income | Currency translation differences | December 31, 2013 | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Deferred tax liabilities: | ||||||||||||||||||||
Advanced depreciation provision | ₩ | (55,666 | ) | — | — | — | (55,666 | ) | ||||||||||||
Valuation of derivatives | (5,356 | ) | (96 | ) | — | — | (5,452 | ) | ||||||||||||
Gains on foreign currency translation | (30,398 | ) | 27,801 | — | — | (2,597 | ) | |||||||||||||
Conversion rights adjustment | (14,944 | ) | 8,117 | — | — | (6,827 | ) | |||||||||||||
Others | (19,676 | ) | 4,720 | 311 | 23 | (14,622 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(126,040 | ) | 40,542 | 311 | 23 | (85,164 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets: | ||||||||||||||||||||
Loss on valuation of inventories | 27,804 | (8,915 | ) | — | (13 | ) | 18,876 | |||||||||||||
Valuation of equity-method investments | 322,919 | (111,402 | ) | — | 4,817 | 216,334 | ||||||||||||||
Accumulated depreciation | 98,499 | (6,214 | ) | — | 544 | 92,829 | ||||||||||||||
Net defined benefits | 107,219 | 30,414 | — | (55 | ) | 137,578 | ||||||||||||||
Deemed investments and others | 162,507 | (117 | ) | — | — | 162,390 | ||||||||||||||
Provisions and others | 104,468 | (98,652 | ) | — | — | 5,816 | ||||||||||||||
Impairment of available-for-sale financial assets | 36,964 | 3,170 | — | — | 40,134 | |||||||||||||||
Losses on foreign currency translation | 29,906 | (27,360 | ) | — | — | 2,546 | ||||||||||||||
Property, plant and equipment | 24,439 | (9,222 | ) | — | — | 15,217 | ||||||||||||||
Losses on valuation of derivative | 9,182 | 22,185 | — | — | 31,367 | |||||||||||||||
Tax loss carryforwards | 612,111 | (538,748 | ) | — | (627 | ) | 72,736 | |||||||||||||
Tax credit carryforwards | 658,899 | (16,732 | ) | — | (46 | ) | 642,121 | |||||||||||||
Others | 230,455 | (18,423 | ) | — | (2,065 | ) | 209,967 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
2,425,372 | (780,016 | ) | — | 2,555 | 1,647,911 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets, net | 2,299,332 | (739,474 | ) | 311 | 2,578 | 1,562,747 | ||||||||||||||
Deferred tax assets not recognized | (1,920,966 | ) | 558,546 | — | (1,757 | ) | (1,364,177 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets recognized | ₩ | 378,366 | (180,928 | ) | 311 | 821 | 198,570 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
2015 | ||||||||||||||||||||
January 1, 2015 | Profit or loss | Equity | Currency translation differences | Total | ||||||||||||||||
(In millions of won) | ||||||||||||||||||||
Loss on valuation of inventories | ₩ | 18,001 | 22,329 | — | 5 | 40,335 | ||||||||||||||
Valuation of equity-method investments | 250,682 | (17,550 | ) | — | 4,477 | 237,609 | ||||||||||||||
Accumulated depreciation | 79,819 | (757 | ) | — | 416 | 79,478 | ||||||||||||||
Defined benefits liabilities | 89,725 | 2,968 | — | 16 | 92,709 | |||||||||||||||
Deemed investments and others | 161,995 | — | — | — | 161,995 | |||||||||||||||
Available-for-sale financial assets | 42,985 | (738 | ) | — | — | 42,247 | ||||||||||||||
Employee benefits | 23,801 | 859 | — | — | 24,660 | |||||||||||||||
Provisions | 64,885 | (43,183 | ) | — | — | 21,702 | ||||||||||||||
Advanced depreciation provision | (55,666 | ) | — | — | — | (55,666 | ) | |||||||||||||
Others | 140,028 | (5,953 | ) | — | 9,818 | 143,893 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets for temporary differences, net | 816,255 | (42,025 | ) | — | 14,732 | 788,962 | ||||||||||||||
Deferred tax assets not recognized | (750,313 | ) | 165,453 | — | (12,788 | ) | (597,648 | ) | ||||||||||||
Tax credit carryforwards recognized | 179,116 | (49,440 | ) | — | 212 | 129,888 | ||||||||||||||
Tax loss carryforwards recognized | 23,581 | 7,277 | — | 1,562 | 32,420 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Deferred tax assets recognized | ₩ | 268,639 | 81,265 | — | 3,718 | 353,622 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
(3)(2) Deferred tax assets are recognized for deductible temporary differences, tax loss carryforwards and tax credit carryforwards to the extent that the realization of the related tax benefit through future taxable profits is probable.
As of December 31, 2014 and 2013 the Group recognized the entire deferred tax assets for tax loss carryforwards which are deductible from future taxable income.
In addition, the Group did not recognize deferred tax assets of ₩722,182 million (2013: ₩799,182 million) associated with deductible temporary differences amounting to ₩2,984,230 million (2013: ₩3,302,398 million).
For the year ended December 31, 2014, ₩148,052 million (2013: ₩108,433) of tax credit incurred which can be utilized in the future period. The unused tax credit and others that were not recognized as deferred tax assets amounted to ₩387,088 million (2013: ₩564,995 million) as of December 31, 2014.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
22.21. Deferred Income Tax Assets and Liabilities, continued
(4) Expiration schedule of tax loss carryforwards and tax credit carryforwards asprobable. As of December 31, 2014 is2016 the Group did not recognize deferred tax assets associated with deductible temporary differences amounting to ₩1,567,088 million (2015: ₩2,469,626 million). As of December 31, 2016, there were no unused tax credits carry- forwarded that were not recognized as follows:deferred tax assets. (₩234,632 million in 2015).
Tax loss carryforwards | Tax credit carryforwards | |||||||
(In millions of won) | ||||||||
2015 | ₩ | — | 22,231 | |||||
2016 | — | 140,030 | ||||||
2017 | — | 144,840 | ||||||
2018 | — | 107,851 | ||||||
Thereafter | 62,878 | 151,252 | ||||||
|
|
|
| |||||
₩ | 62,878 | 566,204 | ||||||
|
|
|
|
23.22. Derivative Financial Instruments
(1) The Group has managed financial risk including interest rate risk and foreign exchange risk through interest rate swaps and other derivative instruments. In addition, the Group bifurcated convertible options and separately accounted for them as derivative instruments which were embedded in the foreign-currency convertible bond. These convertible options were measured at fair value and changes in therein were recognized in profit or loss.
(2) Details of derivative financial assets and liabilities as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | |||||||||||||||||||
Liabilities | Assets | Liabilities | 2016 | 2015 | ||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||
Current | ||||||||||||||||||||
Interest rates swap | ₩ | 30 | — | 2,194 | ₩ | 288 | — | |||||||||||||
Non-current | ||||||||||||||||||||
Interest rates swap | — | 683 | ||||||||||||||||||
|
|
|
|
| ||||||||||||||||
30 | — | 2,194 | ₩ | 288 | 683 | |||||||||||||||
|
|
|
|
| ||||||||||||||||
Non-current | ||||||||||||||||||||
Interest rates swap | 708 | 272 | 245 | |||||||||||||||||
Embedded derivative instruments | — | — | 106,849 | |||||||||||||||||
|
|
| ||||||||||||||||||
708 | 272 | 107,094 | ||||||||||||||||||
|
|
| ||||||||||||||||||
₩ | 738 | 272 | 109,288 | |||||||||||||||||
|
|
|
(3)(2) Details of gains and losses from derivative instruments for the years ended December 31, 2014, 20132016, 2015 and 20122014 are follows:
2014 | ||||||||||||||||
Gain on valuation | Loss on valuation | Gain on transaction | Loss on transaction | |||||||||||||
(In millions of won) | ||||||||||||||||
Interest rates swap | ₩ | 215 | 980 | 2,955 | 237 | |||||||||||
Embedded derivative instruments | — | 171,016 | — | 2,691 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 215 | 171,996 | 2,955 | 2,928 | ||||||||||||
|
|
|
|
|
|
|
|
2016 | ||||||||||||||||
Gain on valuation | Loss on valuation | Gain on transaction | Loss on transaction | |||||||||||||
(In millions of won) | ||||||||||||||||
Interest rates swap | ₩ | 395 | — | 1,077 | 1,525 |
2015 | ||||||||||||||||
Gain on valuation | Loss on valuation | Gain on transaction | Loss on transaction | |||||||||||||
(In millions of won) | ||||||||||||||||
Interest rates swap | ₩ | 25 | — | 1,672 | 2,058 |
2014 | ||||||||||||||||
Gain on valuation | Loss on valuation | Gain on transaction | Loss on transaction | |||||||||||||
(In millions of won) | ||||||||||||||||
Interest rates swap | ₩ | 215 | 980 | 2,955 | 237 | |||||||||||
Embedded derivative instruments1 | — | 171,016 | — | 2,691 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 215 | 171,996 | 2,955 | 2,928 | ||||||||||||
|
|
|
|
|
|
|
|
1 | The Group bifurcated convertible options and separately accounted for them as derivative instruments which were embedded in the foreign-currency convertible bond. These convertible options were measured at fair value and changes in therein were recognized in profit or loss. |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 2012
23. Derivative Financial Instruments, continued2014
2013 | ||||||||||||||||
Gain on valuation | Loss on valuation | Gain on transaction | Loss on transaction | |||||||||||||
(In millions of won) | ||||||||||||||||
Foreign currency forward contract | ₩ | — | — | 3,630 | 5,308 | |||||||||||
Interest rates swap | 2,507 | — | 26 | 1,242 | ||||||||||||
Embedded derivative instruments | — | 93,085 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 2,507 | 93,085 | 3,656 | 6,550 | ||||||||||||
|
|
|
|
|
|
|
|
2012 (Unaudited) | ||||||||||||||||
Gain on valuation | Loss on valuation | Gain on transaction | Loss on transaction | |||||||||||||
(In millions of won) | ||||||||||||||||
Foreign currency forward contract | ₩ | — | — | 913 | 4,924 | |||||||||||
Interest and principal swap | — | — | 1,450 | 4,030 | ||||||||||||
Interest rates swap | 1,359 | 613 | 675 | 1,858 | ||||||||||||
Embedded derivative instruments | — | 7,305 | 12 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
₩ | 1,359 | 7,918 | 3,050 | 10,812 | ||||||||||||
|
|
|
|
|
|
|
|
24.23. Capital Stock, Capital Surplus and Other Equity
(1) Details of capital stock, capital surplus and other equity as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won, thousands of shares) | (In millions of won, thousands of shares) | |||||||||||||||
Authorized shares | 9,000,000 | 9,000,000 | 9,000,000 | 9,000,000 | ||||||||||||
Issued shares1 | 731,530 | 713,729 | 731,530 | 731,530 | ||||||||||||
Capital stock: | ||||||||||||||||
Common stock | ₩ | 3,657,652 | 3,568,645 | ₩ | 3,657,652 | 3,657,652 | ||||||||||
Capital surplus: | ||||||||||||||||
Additional paid in capital | 3,625,797 | 2,888,144 | 3,625,797 | 3,625,797 | ||||||||||||
Consideration for conversion rights | 42,928 | 42,928 | 42,928 | 42,928 | ||||||||||||
Others | 475,011 | 475,011 | 475,011 | 475,011 | ||||||||||||
|
|
|
| |||||||||||||
4,143,736 | 3,406,083 | 4,143,736 | 4,143,736 | |||||||||||||
Other equity | ||||||||||||||||
Acquisition cost of treasury shares | ₩ | (24 | ) | — | ₩ | (771,913 | ) | (771,913 | ) | |||||||
Number of treasury shares | 1 | — | 22,001 | 22,001 |
1 | As of December 31, |
(2) Changes in number of outstanding shares as of December 31, 2016 and December 31, 2015 are as follows:
2016 | 2015 | |||||||
(In thousands of shares) | ||||||||
Beginning | 706,002 | 728,002 | ||||||
Acquisition of treasury shares | — | (22,000 | ) | |||||
|
|
|
| |||||
Ending | 706,002 | 706,002 | ||||||
|
|
|
|
24. Accumulated Other Comprehensive Loss
(1) Details of accumulated other comprehensive loss as of December 31, 2016 and 2015 are as follows:
2016 | 2015 | |||||||
(In millions of won) | ||||||||
Equity-accounted investees — share of other comprehensive income | ₩ | 5,944 | 1,856 | |||||
Foreign operations — foreign currency translation differences | (85,047 | ) | (3,456 | ) | ||||
|
|
|
| |||||
₩ | (79,103 | ) | (1,600 | ) | ||||
|
|
|
|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
24. Capital Stock, Capital Surplus and Other Equity, continued
(2) Issue of ordinary shares related to the acquisition of a subsidiary and exercise of conversion rights resulted in increase in both capital stock and capital surplus during the year ended December 31, 2014. Changes in number of outstanding shares as of December 31, 2014 and December 31, 2013 are as follows:
2014 | 2013 | |||||||
(In thousands of shares) | ||||||||
Beginning | 710,201 | 694,156 | ||||||
Issue of ordinary shares related to the acquisition of a subsidiary | 1,358 | — | ||||||
Exercise of conversion rights | 16,443 | 16,045 | ||||||
|
|
|
| |||||
Ending | 728,002 | 710,201 | ||||||
|
|
|
|
25. Accumulated Other Comprehensive Loss, continued
(1) Details of accumulated other comprehensive loss as of December 31, 2014 and 2013 are as follows:
2014 | 2013 | |||||||
(In millions of won) | ||||||||
Available-for-sale financial assets — unrealized net change in fair value | ₩ | — | 7,824 | |||||
Equity-accounted investees — share of other comprehensive loss | (4,631 | ) | (8,337 | ) | ||||
Foreign operations — foreign currency translation differences | (37,184 | ) | (108,294 | ) | ||||
|
|
|
| |||||
₩ | (41,815 | ) | (108,807 | ) | ||||
|
|
|
|
(2) Changes in accumulated other comprehensive income (loss) for the years ended December 31, 20142016 and 20132015 are as follows:
2014 | ||||||||||||||||
Beginning | Change | Reclassification to profit or loss | Ending | |||||||||||||
(In millions of won) | ||||||||||||||||
Available-for-sale financial assets — unrealized net change in fair value | ₩ | 7,824 | (7,824 | ) | — | — | ||||||||||
Equity-accounted investees — share of other comprehensive loss | (8,337 | ) | 3,706 | — | (4,631 | ) | ||||||||||
Foreign operations — foreign currency translation differences | (108,294 | ) | 71,110 | — | (37,184 | ) | ||||||||||
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|
|
|
|
|
|
| |||||||||
₩ | (108,807 | ) | 66,992 | — | (41,815 | ) | ||||||||||
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|
|
2013 | ||||||||||||||||
Beginning | Change | Reclassification to profit or loss | Ending | |||||||||||||
(In millions of won) | ||||||||||||||||
Available-for-sale financial assets — unrealized net change in fair value | ₩ | 8,479 | (655 | ) | — | 7,824 | ||||||||||
Equity-accounted investees — share of other comprehensive loss | (7,111 | ) | (1,226 | ) | — | (8,337 | ) | |||||||||
Foreign operations — foreign currency translation differences | (116,770 | ) | 8,476 | — | (108,294 | ) | ||||||||||
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| |||||||||
₩ | (115,402 | ) | 6,595 | — | (108,807 | ) | ||||||||||
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|
|
Equity-accounted investees — share of other comprehensive income Foreign operations — foreign currency translation differences Equity-accounted investees — share of other comprehensive income (loss) Foreign operations — foreign currency translation differences 2016 Beginning Change Ending (In millions of won) ₩ 1,856 4,088 5,944 (3,456 ) (81,591 ) (85,047 ) ₩ (1,600 ) (77,503 ) (79,103 ) 2015 Beginning Change Ending (In millions of won) ₩ (4,631 ) 6,487 1,856 (37,184 ) 33,728 (3,456 ) ₩ (41,815 ) 40,215 (1,600 )
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
26.25. Retained Earnings and Dividends
(1) RetainedDetails of retained earnings as of December 31, 20142016 and 20132015 are as follows:
2014 | 2013 | 2016 | 2015 | |||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||
Legal reserve1 | ₩ | 8,854 | 8,854 | ₩ | 65,994 | 30,694 | ||||||||||
Discretionary reserve2 | 235,506 | 235,506 | 235,506 | 235,506 | ||||||||||||
Unappropriated retained earnings | 10,032,544 | 5,956,962 | 16,765,083 | 14,092,788 | ||||||||||||
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|
|
| |||||||||||||
₩ | 10,276,904 | 6,201,322 | ₩ | 17,066,583 | 14,358,988 | |||||||||||
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|
|
1 | The Commercial Code of the Republic of Korea requires the Company to appropriate for each financial year, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit. |
2 | Discretionary reserve is a reserve for technology development. |
(2) Dividends of the Parent Company for the years ended December 31, 2014, 2013 and 2012 are as follows:
(a) Details of dividends for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won and In thousands of shares) | ||||||||||||
Type of dividends | Cash Dividends | — | — | |||||||||
Outstanding ordinary shares | ₩728,002 | 710,201 | 694,156 | |||||||||
Par value (in won) | 5,000 | 5,000 | 5,000 | |||||||||
Dividend rate | 6 | % | — | — | ||||||||
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|
|
|
| |||||||
Total dividends | ₩218,401 | — | — | |||||||||
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|
(b) Dividend payout ratio for the years ended December 31, 2014, 2013 and 2012 is as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
Dividends | ₩ | 218,401 | — | — | ||||||||
Profit (loss) attributable to owners of the Parent Company | 4,195,456 | 2,872,470 | (158,886 | ) | ||||||||
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| |||||||
Dividend payout ratio | 5.21 | % | — | — | ||||||||
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(c) Dividend yield ratio for the years ended December 31, 2014, 2013 and 2012 is as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In won) | ||||||||||||
Dividends per share | ₩ | 300 | — | — | ||||||||
Closing price | 47,750 | 36,800 | 25,750 | |||||||||
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| |||||||
Dividend yield ratio | 0.63 | % | — | — | ||||||||
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|
2016 | 2015 | 2014 | ||||||||||
(In millions of won and In thousands of shares) | ||||||||||||
Type of dividends | Cash Dividends | Cash Dividends | Cash Dividends | |||||||||
Outstanding ordinary shares | 706,002 | 706,002 | 728,002 | |||||||||
Par value (in won) | ₩ | 5,000 | 5,000 | 5,000 | ||||||||
Dividend rate | 12% | 10% | 6% | |||||||||
Total dividends | ₩ | 423,601 | 353,001 | 218,401 |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
25. Retained Earnings and Dividends, continued
(b) Dividend payout ratio for the years ended December 31, 2016, 2015 and 2014 is as follows:
2016 | 2015 | 2014 | ||||||||||
(In millions of won) | ||||||||||||
Dividends | ₩ | 423,601 | 353,001 | 218,401 | ||||||||
Profit attributable to owners of the Parent Company | 2,953,774 | 4,322,356 | 4,195,456 | |||||||||
Dividend payout ratio | 14.34% | 8.17% | 5.21% |
(c) Dividend yield ratio for the years ended December 31, 2016, 2015 and 2014 is as follows:
2016 | 2015 | 2014 | ||||||||||
(In won) | ||||||||||||
Dividends per share | ₩ | 600 | 500 | 300 | ||||||||
Closing stock price | 44,700 | 30,750 | 47,750 | |||||||||
Dividend yield ratio | 1.34% | 1.63% | 0.63% |
27.26. Selling and Administrative Expenses
Selling and administrative expenses for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 20131 | 20121 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Sellingandadministrativeexpenses: | ||||||||||||||||||||||||
Salaries | ₩ | 351,318 | 265,137 | 211,210 | ₩ | 348,571 | 385,281 | 351,318 | ||||||||||||||||
Defined benefit plan related expenses | 22,801 | 19,132 | 16,702 | |||||||||||||||||||||
Defined benefit plan related | 30,135 | 25,499 | 22,801 | |||||||||||||||||||||
Employee benefits | 60,277 | 60,459 | 57,502 | 86,721 | 81,606 | 60,277 | ||||||||||||||||||
Commission expense | 211,111 | 158,107 | 161,783 | |||||||||||||||||||||
Commission | 230,903 | 212,129 | 211,111 | |||||||||||||||||||||
Depreciation | 58,608 | 51,240 | 55,602 | 82,461 | 89,879 | 58,608 | ||||||||||||||||||
Amortization | 169,844 | 155,313 | 145,154 | 282,392 | 239,227 | 169,844 | ||||||||||||||||||
Research and development | 1,409,530 | 968,804 | 975,057 | |||||||||||||||||||||
Freight and custody charge | 37,453 | 33,201 | 13,812 | 31,821 | 41,999 | 37,453 | ||||||||||||||||||
Legal cost | 7,210 | 11,374 | 34,204 | 9,286 | 7,722 | 7,210 | ||||||||||||||||||
Rental expense | 11,521 | 14,650 | 15,257 | |||||||||||||||||||||
Rental | 14,571 | 18,698 | 11,521 | |||||||||||||||||||||
Taxes and dues | 15,145 | 17,912 | 10,231 | 18,160 | 18,436 | 15,145 | ||||||||||||||||||
Training expense | 42,737 | 26,863 | 15,660 | |||||||||||||||||||||
Sales promotional expenses | 31,018 | 28,414 | 22,788 | |||||||||||||||||||||
Utility expense | 5,673 | 10,804 | 10,924 | |||||||||||||||||||||
Training | 19,503 | 20,314 | 17,810 | |||||||||||||||||||||
Advertising | 47,055 | 43,411 | 26,393 | |||||||||||||||||||||
Utility | 14,204 | 13,595 | 5,673 | |||||||||||||||||||||
Supplies | 42,737 | 26,863 | 16,859 | 56,067 | 51,630 | 42,737 | ||||||||||||||||||
Repair expense | 9,994 | 19,890 | 11,649 | |||||||||||||||||||||
Repair | 6,185 | 9,629 | 9,994 | |||||||||||||||||||||
Travel and transportation | 10,459 | 12,854 | 13,102 | |||||||||||||||||||||
Sales promotion cost | 42,170 | 46,169 | 31,018 | |||||||||||||||||||||
Product warranties | 38,584 | 396 | 10,861 | |||||||||||||||||||||
Other | 67,398 | 52,567 | 64,176 | 20,131 | 7,747 | 41,969 | ||||||||||||||||||
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|
| |||||||||||||||||||
₩ | 2,554,375 | 1,920,730 | 1,838,570 | 1,389,379 | 1,326,221 | 1,144,845 | ||||||||||||||||||
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| |||||||||||||||||||
Research and development: | ||||||||||||||||||||||||
Expenditure on research and development | 2,096,733 | 1,969,588 | 1,590,817 | |||||||||||||||||||||
Development cost capitalized | (352,022 | ) | (349,264 | ) | (181,287 | ) | ||||||||||||||||||
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| ||||||||||||||||||||||
1,744,711 | 1,620,324 | 1,409,530 | ||||||||||||||||||||||
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| ||||||||||||||||||||||
₩ | 3,134,090 | 2,946,545 | 2,554,375 | |||||||||||||||||||||
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|
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
|
28.27. Expenses by Nature
Nature of expenses for the years ended December 31, 2014, 20132016, 2015 and 20122014 is as follows:
2014 | 20132 | 20122 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
Changes in finished goods and work-in-process | ₩ | (216,403 | ) | 292,330 | (332,250 | ) | ||||||
Raw materials and consumables | 2,595,972 | 2,328,140 | 2,677,328 | |||||||||
Employee benefit expenses | 2,429,533 | 1,969,650 | 1,551,700 | |||||||||
Depreciation and amortization | 3,439,078 | 2,956,040 | 3,193,513 | |||||||||
Royalty expense | 167,167 | 14,597 | 167,352 | |||||||||
Commission expense | 723,946 | 445,231 | 371,975 | |||||||||
Utilities expense | 616,422 | 552,413 | 496,753 | |||||||||
Repair expense | 1,032,816 | 1,031,023 | 911,792 | |||||||||
Outsourcing expense | 1,018,075 | 952,457 | 1,015,512 | |||||||||
Other | 209,494 | 243,436 | 335,884 | |||||||||
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|
| |||||||
Total1 | ₩ | 12,016,100 | 10,785,317 | 10,389,559 | ||||||||
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|
|
2016 | 20152 | 20142 | ||||||||||
(In millions of won) | ||||||||||||
Changes in finished goods andwork-in-process | ₩ | (60,415 | ) | (290,904 | ) | (216,403 | ) | |||||
Raw materials and consumables | 3,386,007 | 3,503,378 | 2,733,745 | |||||||||
Employee benefit | 2,333,622 | 2,562,340 | 2,413,097 | |||||||||
Depreciation and amortization | 4,396,478 | 3,887,900 | 3,413,384 | |||||||||
Royalty | 229,422 | 210,902 | 167,167 | |||||||||
Commission | 985,869 | 895,991 | 705,661 | |||||||||
Utility | 840,129 | 742,000 | 699,103 | |||||||||
Repair | 605,682 | 614,342 | 748,658 | |||||||||
Outsourcing | 785,755 | 982,457 | 1,018,057 | |||||||||
Other | 418,680 | 353,492 | 333,631 | |||||||||
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| |||||||
Total1 | ₩ | 13,921,229 | 13,461,898 | 12,016,100 | ||||||||
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1 | Total expenses consist of cost of sales and selling and administrative expenses. |
2 | Expenses for the years ended December 31, |
28. Finance Income and Expenses
Finance income and expenses for the years ended December 31, 2016, 2015 and 2014 are as follows:
2016 | 2015 | 2014 | ||||||||||
(In millions of won) | ||||||||||||
Finance income: | ||||||||||||
Interest income | ₩ | 34,174 | 40,715 | 52,122 | ||||||||
Dividend income | 18 | 1,265 | 1,233 | |||||||||
Gain on disposal ofavailable-for-sale financial assets | — | — | 10,054 | |||||||||
Gain on disposal of financial assets at fair value through profit or loss | 15,348 | 33,814 | 28,493 | |||||||||
Foreign exchange differences | 762,747 | 766,981 | 576,577 | |||||||||
Gain from derivative instruments | 1,472 | 1,697 | 3,170 | |||||||||
Gain on valuation of financial assets at fair value through profit or loss | 1,133 | 2,280 | 6,921 | |||||||||
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| |||||||
814,892 | 846,752 | 678,570 | ||||||||||
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| |||||||
Finance expenses: | ||||||||||||
Interest expenses | 120,122 | 118,505 | 170,363 | |||||||||
Loss on disposal ofavailable-for-sale financial assets | — | — | 3,500 | |||||||||
Foreign exchange differences | 724,681 | 709,350 | 448,060 | |||||||||
Loss on redemption of debentures | — | — | 2,924 | |||||||||
Loss from derivative instruments | 1,525 | 2,058 | 174,924 | |||||||||
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| |||||||
846,328 | 829,913 | 799,771 | ||||||||||
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| |||||||
Net finance income (expense) | ₩ | (31,436 | ) | 16,839 | (121,201 | ) | ||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
29. Finance Income and Expenses
Finance income and expenses for the years ended December 31, 2014, 2013 and 2012 are as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
Finance income: | ||||||||||||
Interest income | ₩ | 52,122 | 66,410 | 80,154 | ||||||||
Dividend income | 1,233 | 2,381 | 216 | |||||||||
Gain on disposal of financial assets | 38,547 | 205 | 5,944 | |||||||||
Foreign exchange differences | 576,577 | 485,411 | 598,986 | |||||||||
Gain from derivative instruments | 3,170 | 6,163 | 4,409 | |||||||||
Gain on valuation of financial assets at fair value through profit or loss | 6,921 | — | — | |||||||||
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| |||||||
678,570 | 560,570 | 689,709 | ||||||||||
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| |||||||
Finance expenses: | ||||||||||||
Interest expenses | 170,363 | 256,623 | 317,926 | |||||||||
Loss on disposal of financial assets | 3,500 | — | — | |||||||||
Foreign exchange differences | 448,060 | 391,071 | 335,468 | |||||||||
Loss on redemption of debentures | 2,924 | — | 10,470 | |||||||||
Loss from derivative instruments | 174,924 | 99,635 | 18,730 | |||||||||
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| |||||||
799,771 | 747,329 | 682,594 | ||||||||||
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| |||||||
Net finance income (expense) | ₩ | (121,201 | ) | (186,759 | ) | 7,115 | ||||||
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30. Other Income and Expenses
Other income for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
Rental income | ₩ | — | — | 17,425 | ||||||||
Gain on disposal of assets held-for-sale | — | — | 18 | |||||||||
Gain on disposal of property, plant and equipment | 5,611 | 9,560 | 3,231 | |||||||||
Gain on disposal of intangible assets | — | 191 | 298 | |||||||||
Insurance compensation1 | 587,429 | 327,659 | — | |||||||||
Other | 25,644 | 31,103 | 46,158 | |||||||||
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| |||||||
₩ | 618,684 | 368,513 | 67,130 | |||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
30. Other Income and Expenses, continued
2016 | 2015 | 2014 | ||||||||||
(In millions of won) | ||||||||||||
Gain on disposal of property, plant and equipment | ₩ | 13,167 | 16,554 | 5,611 | ||||||||
Insurance compensation1 | — | — | 587,429 | |||||||||
Other | 39,204 | 23,925 | 25,644 | |||||||||
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|
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| |||||||
₩ | 52,371 | 40,479 | 618,684 | |||||||||
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|
|
Other expenses for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Loss on disposal of property, plant and equipment | ₩ | 11,522 | 7,952 | 1,369 | ₩ | 6,566 | 19,540 | 11,522 | ||||||||||||||||
Loss on disposal of intangible assets | 9,522 | 17,278 | 5,672 | 5,218 | 5,493 | 9,522 | ||||||||||||||||||
Donation | 16,111 | 3,222 | 2,614 | 51,629 | 55,131 | 16,111 | ||||||||||||||||||
Loss on disposal of trade receivables | 3,756 | 3,317 | 1,031 | 3,137 | 1,413 | 3,756 | ||||||||||||||||||
Loss on impairment of property, plant and equipment | 25,397 | — | — | 3,746 | 22,055 | 25,397 | ||||||||||||||||||
Loss on impairment of intangible assets | 529 | 183 | 265 | 98 | 1,771 | 529 | ||||||||||||||||||
Amortization of suspended assets | 4,902 | 3,254 | 10,041 | |||||||||||||||||||||
Casualty losses1 | 123,957 | 450,752 | — | — | — | 123,957 | ||||||||||||||||||
Other2 | 386,728 | 19,912 | 41,918 | 33,585 | 43,536 | 391,630 | ||||||||||||||||||
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| |||||||||||||||||||
₩ | 582,424 | 505,870 | 62,910 | ₩ | 103,979 | 148,939 | 582,424 | |||||||||||||||||
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1 | For the year ended December 31, 2014, the Group recognized casualty losses of ₩123,957 million |
2 |
|
31.30. Income Tax Expense
(1) Income tax expense for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Current tax: | ||||||||||||||||||||||||
Current tax on profits for the year | ₩ | 922,228 | 22,728 | 29,555 | ₩ | 543,594 | 1,026,791 | 922,228 | ||||||||||||||||
Adjustments in respect of prior years | (551 | ) | (1,588 | ) | (657 | ) | 77,696 | — | (551 | ) | ||||||||||||||
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| |||||||||||||||||||
921,677 | 21,140 | 28,898 | 621,290 | 1,026,791 | 921,677 | |||||||||||||||||||
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Deferred tax: | ||||||||||||||||||||||||
Origination and reversal of temporary differences | (69,176 | ) | 180,928 | (69,404 | ) | (365,319 | ) | (81,265 | ) | (69,176 | ) | |||||||||||||
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(69,176 | ) | 180,928 | (69,404 | ) | ||||||||||||||||||||
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| ||||||||||||||||||||||
Income tax expense | ₩ | 852,501 | 202,068 | (40,506 | ) | ₩ | 255,971 | 945,526 | 852,501 | |||||||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
31.30. Income Tax Expense, continued
(2) The relationship between income tax expense and accounting profit for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Profit (loss) before tax | ₩ | 5,047,670 | 3,074,925 | (199,301 | ) | |||||||||||||||||||
Profit before tax | ₩ | 3,216,454 | 5,269,121 | 5,047,670 | ||||||||||||||||||||
Tax calculated at domestic tax rates applicable to profits in the respective countries | 1,181,621 | 744,847 | (89,590 | ) | 777,920 | 1,266,293 | 1,181,621 | |||||||||||||||||
Tax effects of: | ||||||||||||||||||||||||
Tax-exempt income | (13 | ) | 76 | (469 | ) | (2,669 | ) | (24 | ) | (13 | ) | |||||||||||||
Non-deductible expenses | 71,531 | 13,545 | 4,123 | 3,981 | 6,614 | 71,531 | ||||||||||||||||||
Tax credit | (148,052 | ) | (108,433 | ) | (140,711 | ) | (101,843 | ) | (104,425 | ) | (148,052 | ) | ||||||||||||
Changes in unrecognized deferred tax assets | (260,437 | ) | (450,113 | ) | 183,314 | (453,140 | ) | (252,088 | ) | (260,437 | ) | |||||||||||||
Adjustments for prior years’ tax liabilities due to changes in estimates | 77,696 | — | — | |||||||||||||||||||||
Others | 7,851 | 2,146 | 2,827 | (45,974 | ) | 29,156 | 7,851 | |||||||||||||||||
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|
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| |||||||||||||||||||
Income tax expense | ₩ | 852,501 | 202,068 | (40,506 | ) | ₩ | 255,971 | 945,526 | 852,501 | |||||||||||||||
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|
(3) The income taxes recorded directly in equity for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won) | ||||||||||||
Recognized in other comprehensive income: Gains (loss) on valuation of available-for-sale financial assets | ₩ | — | 311 | (330 | ) |
(4) The income taxes charged directly to equity as of December 31, 2014, 2013 and 2012 are as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||||||||||||||||||||||||||
Before Tax | Tax Charge | After Tax | Before Tax | Tax Charge | After Tax | Before Tax | Tax Charge | After Tax | ||||||||||||||||||||||||||||
(In millions of won) | ||||||||||||||||||||||||||||||||||||
Gain on valuation of available-for-sale financial assets | ₩ | — | — | — | 11,447 | (3,623 | ) | 7,824 | 11,791 | (3,312 | ) | 8,479 | ||||||||||||||||||||||||
Remeasurements of the net defined benefit liability | (305,551 | ) | — | (305,551 | ) | (185,677 | ) | — | (185,677 | ) | (202,090 | ) | — | (202,090 | ) | |||||||||||||||||||||
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₩ | (305,551 | ) | — | (305,551 | ) | (174,230 | ) | (3,623 | ) | (177,853 | ) | (190,299 | ) | (3,312 | ) | (193,611 | ) | |||||||||||||||||||
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Recognized in other comprehensive income: Gains on valuation ofavailable-for-sale financial assets 2016 2015 2014 (In millions of won) ₩ 68,171 — —
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
32.31. Earnings (Loss) Per Share
(1) Basic earnings (loss) per share for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won, except for shares and per share amounts) | ||||||||||||
Profit (loss) attributable to ordinary shareholders | ₩ | 4,195,456 | 2,872,470 | (158,886 | ) | |||||||
Weighted average number of outstanding ordinary shares1 | 718,197,377 | 710,200,891 | 681,854,577 | |||||||||
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Basic earnings (loss) per share | ₩ | 5,842 | 4,045 | (233 | ) | |||||||
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2016 | 2015 | 2014 | ||||||||||
(In millions of won, except for shares and per share amounts) | ||||||||||||
Profit attributable to ordinary shareholders | ₩ | 2,953,774 | 4,322,356 | 4,195,456 | ||||||||
Weighted average number of outstanding ordinary shares1 | 706,001,795 | 720,143,294 | 718,197,377 | |||||||||
Basic earnings per share (in Won) | 4,184 | 6,002 | 5,842 |
1 | Weighted average number of outstanding ordinary shares is calculated as follows: |
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In shares) | (In shares) | |||||||||||||||||||||||
Outstanding ordinary shares | 710,200,891 | 694,155,767 | 592,171,582 | 728,002,365 | 728,002,365 | 710,200,891 | ||||||||||||||||||
Exercise of conversion rights | 7,051,443 | 16,045,124 | 10,385 | — | — | 7,051,443 | �� | |||||||||||||||||
Exercise of stock options | — | — | 66,872 | |||||||||||||||||||||
Issue of ordinary shares | — | — | 89,605,738 | |||||||||||||||||||||
Issue of ordinary shares related to the acquisition of a subsidiary | 945,393 | — | — | — | — | 945,393 | ||||||||||||||||||
Acquisition of treasury shares | (350 | ) | — | — | (22,000,570 | ) | (7,859,071 | ) | (350 | ) | ||||||||||||||
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Weighted average number of outstanding ordinary shares | 718,197,377 | 710,200,891 | 681,854,577 | 706,001,795 | 720,143,294 | 718,197,377 | ||||||||||||||||||
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(2) DilutedThere is no potential ordinary shares with dilutive effect during the years ended December 31, 2016, 2015 and 2014. Accordingly, diluted earnings (loss) per share for the years ended December 31, 2016, 2015 and 2014 2013 and 2012 are the same as follows:basic earnings per share.
2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In millions of won, except for shares and per share amounts) | ||||||||||||
Profit (loss) attributable to ordinary shareholders | ₩ | 4,195,456 | 2,872,470 | (158,886 | ) | |||||||
Add : Convertible bond related benefits | — | — | (438 | ) | ||||||||
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Adjusted profit attributable to ordinary shares | 4,195,456 | 2,872,470 | (159,324 | ) | ||||||||
Adjusted weighted average number of ordinary shares outstanding1 | 718,197,377 | 710,200,891 | 682,727,787 | |||||||||
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Diluted earnings (loss) per share | ₩ | 5,842 | 4,045 | (233 | ) | |||||||
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2014 | 2013 | 2012 (Unaudited) | ||||||||||
(In shares) | ||||||||||||
Weighted average number of ordinary shares outstanding | 718,197,377 | 710,200,891 | 681,854,577 | |||||||||
Convertible bond | — | — | 873,210 | |||||||||
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Adjusted weighted average number of outstanding ordinary shares outstanding | 718,197,377 | 710,200,891 | 682,727,787 | |||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
33.32. Transactions with Related Party TransactionsParties
(1) Details of joint venture and other related parties as of December 31, 20142016 are as follows:
Type | Name of related parties | |
Associates | Stratio, Inc., Gemini Partners Pte. Ltd. TCL Fund | |
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd. | |
Other related parties | SK Telecom Co., Ltd., which has significant influence over the |
(2) Significant transactions for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2016 | |||||||||||||||||||||||||||||||||||
Company | Operating revenue and others | Operating expense and others | Dividend income | Asset acquisition | Company | Operating revenue and others | Operating expense and others | Asset acquisition | Dividend income | |||||||||||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||||||||||||||
Associate | Siliconfile Technologies Inc.1 | ₩ | 25,109 | 411 | 236 | — | ||||||||||||||||||||||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd.(HITECH) | 1,734 | 612,890 | 15,664 | — | HITECH Semiconductor (Wuxi) Co., Ltd. | ₩ | 1,171 | 568,526 | 17,678 | 20,726 | |||||||||||||||||||||||||
Other related parties | SK Telecom Co., Ltd. | 3,391 | 7,493 | — | 2,685 | SK Telecom Co., Ltd.1 | 375 | 81,125 | 12,181 | — | ||||||||||||||||||||||||||
SK Holdings Co., Ltd.2 | — | 33,273 | — | — | SK Holdings Co., Ltd.2 | 907 | 133,441 | 146,823 | — | |||||||||||||||||||||||||||
SK C&C Co., Ltd.3 | 70 | 5,879 | — | 12,225 | ESSENCORE Limited | 571,639 | — | — | — | |||||||||||||||||||||||||||
SK Engineering & Construction Co., Ltd. | 481 | 44,928 | — | 959,985 | SK Engineering & Construction Co., Ltd. | 2,512 | 21,838 | 659,312 | — | |||||||||||||||||||||||||||
SK Energy Co., Ltd. | 5,121 | 44,664 | — | — | SK Energy Co., Ltd. | 4,683 | 47,768 | — | — | |||||||||||||||||||||||||||
SK Networks Co., Ltd. | — | 2,777 | — | 2,772 | SK Networks Co., Ltd. | — | 4,747 | — | — | |||||||||||||||||||||||||||
Ko-one energy service Co., Ltd. | — | 3,074 | — | — | SK Materials Co., Ltd. | — | 43,213 | — | — | |||||||||||||||||||||||||||
SKC solmics Co., Ltd. | — | 28,023 | — | 718 | SKC Solmics Co., Ltd. | — | 34,433 | 432 | — | |||||||||||||||||||||||||||
Chungcheong energy service Co., Ltd. | — | 27,496 | — | — | Chungcheong energy service Co., Ltd. | 10 | 16,460 | — | — | |||||||||||||||||||||||||||
HAPPYNARAE Co., Ltd. | 53 | 63,398 | — | 10,187 | HAPPYNARAE Co., Ltd. | 30 | 173,948 | 13,595 | — | |||||||||||||||||||||||||||
Others | 427 | 19,837 | — | 1,548 | Others | 432 | 125,662 | 17,528 | — | |||||||||||||||||||||||||||
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₩ | 36,386 | 894,143 | 15,900 | 990,120 | ₩ | 581,759 | 1,251,161 | 867,549 | 20,726 | |||||||||||||||||||||||||||
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1 | Operating expense and others include dividend payments of ₩73,050 million. |
2 | The Group entered into a contract with SK Holdings Co., Ltd. under which the Group pays royalty for the use of SK brand in proportion to sales amount. For the year ended December 31, 2016, royalty paid for the use of the SK brand amounted to ₩37,887 million. |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
32. Transactions with Related Parties, continued
2015 | ||||||||||||||||||
Company | Operating revenue and others | Operating expense and others | Asset acquisition | Dividend income | ||||||||||||||
(In millions of won) | ||||||||||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd. | ₩ | 1,364 | 675,112 | — | 15,780 | ||||||||||||
Other related parties | SK Telecom Co., Ltd.1 | 2,384 | 52,944 | 3,984 | — | |||||||||||||
SK Holdings Co., Ltd.2,3 | 199 | 81,997 | 76,398 | — | ||||||||||||||
ESSENCORE Limited | 147,992 | — | — | — | ||||||||||||||
SK Engineering & Construction Co., Ltd. | 1,923 | 1,378 | 1,084,554 | — | ||||||||||||||
SK Energy Co., Ltd. | 5,245 | 44,893 | — | — | ||||||||||||||
SK Networks Co., Ltd. | — | 3,627 | — | — | ||||||||||||||
Ko-one energy service Co., Ltd. | — | 2,685 | 7 | — | ||||||||||||||
SKC Solmics Co., Ltd. | — | 36,055 | 269 | — | ||||||||||||||
Chungcheong energy service Co., Ltd. | — | 24,292 | — | — | ||||||||||||||
HAPPYNARAE Co., Ltd. | 3,176 | 83,258 | 21,448 | — | ||||||||||||||
Others | 493 | 63,845 | 14,516 | — | ||||||||||||||
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₩ | 162,776 | 1,070,086 | 1,201,176 | 15,780 | ||||||||||||||
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1 | Operating expense and others include dividend payments of ₩43,830 million. |
2 | The Group entered into a contract with SK Holdings Co., Ltd. under which the Group pays royalty for the use of SK brand in proportion to sales amount. For the year ended December 31, 2015, royalty paid for the use of the SK brand amounted to ₩34,597 million. |
3 | Meanwhile, on August 1, 2015, SK C&C Co., Ltd. merged with SK Holdings Co., Ltd. and changed its name to SK Holdings Co., Ltd. |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
32. Transactions with Related Parties, continued
2014 | ||||||||||||||||||
Company | Operating revenue and others | Operating expense and others | Dividend Income | Asset acquisition | ||||||||||||||
(In millions of won) | ||||||||||||||||||
Associate | Siliconfile Technologies Inc. 1 | ₩ | 25,109 | 411 | 236 | — | ||||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd. | 1,734 | 612,890 | 15,664 | — | |||||||||||||
Other related parties | SK Telecom Co., Ltd. | 3,391 | 7,493 | — | 2,685 | |||||||||||||
SK Holdings Co., Ltd.2 | — | 33,273 | — | — | ||||||||||||||
SK C&C Co., Ltd. 3 | 70 | 5,879 | — | 12,225 | ||||||||||||||
SK Engineering & Construction Co., Ltd. | 481 | 44,928 | — | 959,985 | ||||||||||||||
SK Energy Co., Ltd. | 5,121 | 44,664 | — | — | ||||||||||||||
SK Networks Co., Ltd. | — | 2,777 | — | 2,772 | ||||||||||||||
Ko-one energy service Co., Ltd. | — | 3,074 | — | — | ||||||||||||||
SKC Solmics Co., Ltd. | — | 28,023 | — | 718 | ||||||||||||||
Chungcheong energy service Co., Ltd. | — | 27,496 | — | — | ||||||||||||||
HAPPYNARAE Co., Ltd. | 53 | 63,398 | — | 10,187 | ||||||||||||||
Others | 427 | 19,837 | — | 1,548 | ||||||||||||||
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₩ | 36,386 | 894,143 | 15,900 | 990,120 | ||||||||||||||
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1 | Siliconfile Technologies Inc. became a subsidiary through the Parent Company’s additional acquisition of the remaining interest on April 22, 2014. |
2 | The Group entered into a contract with SK Holdings Co., Ltd. under which the Group |
3 | SK C&C Co., Ltd. was excluded from related party after April 2014 due to |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
33.32. Transactions with Related Party Transactions,Parties, continued
2013 | ||||||||||||||||||
Company | Operating revenue and others | Operating expense and others | Dividend Income | Asset acquisition | ||||||||||||||
Associate | Siliconfile Technologies Inc. | ₩ | 100,975 | 1,585 | — | — | ||||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd.(HITECH) | 61,368 | 581,374 | 15,033 | — | |||||||||||||
Other related parties | SK Telecom Co., Ltd. | 954 | 2,811 | — | 230 | |||||||||||||
SK Holdings Co., Ltd. | — | 20,583 | — | — | ||||||||||||||
SK C&C Co., Ltd. | 150 | 22,374 | — | 30,522 | ||||||||||||||
SK Engineering & Construction Co., Ltd. | 637 | 12,056 | — | 166,423 | ||||||||||||||
SK Energy Co., Ltd. | 13,103 | 28,258 | — | — | ||||||||||||||
SK Networks Co., Ltd.1 | — | 927 | — | 112,360 | ||||||||||||||
Ko-one energy service Co., Ltd. | — | 20,452 | — | — | ||||||||||||||
SKC solmics Co., Ltd. | — | 24,041 | — | 300 | ||||||||||||||
Chungcheong energy service Co., Ltd. | — | 28,231 | — | — | ||||||||||||||
HAPPYNARAE Co., Ltd. | 62 | 59,624 | — | 7,763 | ||||||||||||||
Others | 261 | 9,095 | — | 332 | ||||||||||||||
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₩ | 177,510 | 811,411 | 15,033 | 317,930 | ||||||||||||||
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(3) The balances of significant transactions as of December 31, 2016 and December 31,2015 are as follows:
2016 | ||||||||||
Company | Trade receivables and others | Other payables and others | ||||||||
(In millions of won) | ||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd. | ₩ | — | 99,328 | ||||||
Other related parties | SK Telecom Co., Ltd. | 92 | 4,281 | |||||||
SK Holdings Co., Ltd. | 6,343 | 98,396 | ||||||||
ESSENCORE Limited | 72,507 | — | ||||||||
SK Engineering & Construction Co., Ltd. | 2,016 | 530,940 | ||||||||
SK Energy Co., Ltd. | 417 | 6,544 | ||||||||
SK Materials Co., Ltd. | — | 9,205 | ||||||||
SK Networks Co., Ltd. | — | 1,143 | ||||||||
SKC Solmics Co., Ltd. | — | 10,067 | ||||||||
Chungcheong energy service Co., Ltd. | — | 1,804 | ||||||||
HAPPYNARAE Co., Ltd. | 3 | 23,046 | ||||||||
Others | 5 | 45,656 | ||||||||
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₩ | 81,383 | 830,410 | ||||||||
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2015 | ||||||||||
Company | Trade receivables and others | Other payables and others | ||||||||
(In millions of won) | ||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd.1 | ₩ | 15,628 | 108,519 | ||||||
Other related parties | SK Telecom Co., Ltd. | 155 | 2,797 | |||||||
SK Holdings Co., Ltd. | 103 | 98,798 | ||||||||
ESSENCORE Limited | 142 | — | ||||||||
SK Engineering & Construction Co., Ltd. | 1,049 | 236,875 | ||||||||
SK Energy Co., Ltd. | 474 | 5,962 | ||||||||
SK Networks Co., Ltd. | — | 954 | ||||||||
SKC Solmics Co., Ltd. | — | 9,544 | ||||||||
Chungcheong energy service Co., Ltd. | — | 1,425 | ||||||||
HAPPYNARAE Co., Ltd. | 275 | 24,148 | ||||||||
Others | 102 | 29,339 | ||||||||
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₩ | 17,928 | 518,361 | ||||||||
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1 | The |
2012 (Unaudited) | ||||||||||||||||||
Company | Operating revenue and others | Operating expense and others | Dividend Income | Asset acquisition | ||||||||||||||
Associate | Siliconfile Technologies Inc. | ₩ | 107,132 | 931 | — | — | ||||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd.(HITECH) | 67,662 | 625,657 | 11,882 | 17,168 | |||||||||||||
Other related parties1 | SK Telecom Co., Ltd. | 1,196 | 812 | — | — | |||||||||||||
SK Holdings Co., Ltd. | — | 7,860 | — | — | ||||||||||||||
SK C&C Co., Ltd. | 43 | 3,240 | — | 15,825 | ||||||||||||||
SK Engineering & Construction Co., Ltd. | — | — | — | 1,817 | ||||||||||||||
Ko-one energy service Co., Ltd. | — | 34,286 | — | — | ||||||||||||||
SKC solmics Co., Ltd. | — | 8,967 | — | 387 | ||||||||||||||
Chungcheong energy service Co., Ltd. | — | 18,381 | — | — | ||||||||||||||
HAPPYNARAE Co., Ltd. | 36 | 24,271 | — | 563 | ||||||||||||||
Others | 135 | 4,128 | — | 1,015 | ||||||||||||||
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₩ | 176,204 | 728,533 | 11,882 | 36,775 | ||||||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
33.32. Transactions with Related Party Transactions, continued
(3) The balances of significant transactions as of December 31, 2014 and December 31, 2013 are as follows:
2014 | ||||||||||||||
Company | Trade receivables and others | Other payables and others | Borrowings1 | |||||||||||
(In millions of won) | ||||||||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd.(HITECH) | ₩ | 18,393 | 113,257 | 22,552 | |||||||||
Other related parties | SK Telecom Co., Ltd. | 2,763 | 2,622 | — | ||||||||||
SK Holdings Co., Ltd. | — | 3,080 | — | |||||||||||
SK Engineering & Construction Co., Ltd. | 23 | 561,004 | — | |||||||||||
SK Energy Co., Ltd. | 462 | 5,961 | — | |||||||||||
SK Networks Co., Ltd. | — | 479 | — | |||||||||||
SKC solmics Co., Ltd. | — | 9,258 | — | |||||||||||
Chungcheong energy service Co., Ltd. | — | 3,295 | — | |||||||||||
HAPPYNARAE Co., Ltd. | 1 | 14,606 | — | |||||||||||
Others | 32 | 14,455 | — | |||||||||||
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₩ | 21,674 | 728,017 | 22,552 | |||||||||||
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2013 | ||||||||||||||
Company | Trade receivables and others | Other payables and others | Borrowings | |||||||||||
(In millions of won) | ||||||||||||||
Associate | Siliconfile Technologies Inc. | ₩ | 18,102 | — | — | |||||||||
Joint venture | HITECH Semiconductor (Wuxi) Co., Ltd.(HITECH) | 11,356 | 2,828 | 101,093 | ||||||||||
Other related parties | SK Telecom Co., Ltd. | — | 419 | — | ||||||||||
SK Holdings Co., Ltd. | — | 2,332 | — | |||||||||||
SK C&C Co., Ltd. | 11 | 25,388 | — | |||||||||||
SK Engineering & Construction Co., Ltd. | 234 | 82,238 | — | |||||||||||
SK Energy Co., Ltd. | 76 | 5,802 | — | |||||||||||
SK Networks Co., Ltd. | — | 78 | — | |||||||||||
SKC solmics Co., Ltd. | — | 3,116 | — | |||||||||||
Chungcheong energy service Co., Ltd. | — | 3,102 | — | |||||||||||
HAPPYNARAE Co., Ltd. | 22 | 13,670 | — | |||||||||||
Others | — | 1,579 | — | |||||||||||
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₩ | 29,801 | 140,552 | 101,093 | |||||||||||
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
33. Related Party Transactions,Parties, continued
(4) Key management compensation
Key management includes the Parent Company’s directors, members of the board of directors, chief financial officer, subsidiary’s executives and internal auditors. The compensation paid to key management for employee services for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
Details | 2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | ||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Salaries | ₩ | 74,599 | 30,909 | 23,157 | ₩ | 68,504 | 60,024 | 65,057 | ||||||||||||||||
Defined benefit plan related expenses | 7,061 | 4,546 | 2,859 | 8,184 | 7,025 | 5,381 | ||||||||||||||||||
Others | 19 | 6 | 1 | 21 | 15 | 18 | ||||||||||||||||||
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₩ | 81,679 | 35,461 | 26,017 | ₩ | 76,709 | 67,064 | 70,456 | |||||||||||||||||
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34.33. Commitments and Contingencies
(1) Significant pending litigations and claims of the Group as of December 31, 20142016 are as follows:
(a) Lawsuit from Toshiba Corporation (“Toshiba”) and SanDisk Corporation (“SanDisk”)Netlist, Inc.
ToshibaNetlist, Inc. filed a lawsuit againstalleging infringement of multiple patents to the Parent Company in TokyoUS District Court alleging misappropriation of trade secrets, on March 13, 2014, in which it is seeking damages of JPY 109,151 million (“Toshiba lawsuit”). The Parent Company’s response against the petition was submitted, and oral proceedings began. On December 19, 2014, Toshiba agreed with the Parent Company to withdraw the lawsuit filed against the Parent Company in return for settlement fee amounting to USD278 million (₩306,101 million equivalent). This settlement fee was recorded as other expenses in the Company’s financial statements for the year ended DecemberCentral District of California, USA, on August 31, 2014.
SanDisk filed a lawsuit2016 and to the US lnternational Trade Commission on September 1, 2016 against SK hynix, the Parent Company, and its subsidiaries (SKSK hynix America Inc. and, SK hynix memory solutions Inc.) in Santa Clara Superior Court of the United States of America, alleging misappropriation of trade secrets jointly owned by SanDisk and Toshiba, on March 13, 2014 (“SanDisk lawsuit”). The litigation value of the SanDisk lawsuit has not been determined. Meanwhile, on November 6, 2014, the Parent Company requested transfer of the lawsuit to the United States District Court for California (the federal courts), for which SanDisk filed opposition. A hearing on this case is scheduled in the near future. As of December 31, 2014, above lawsuits are at an early stage and the final outcome of these matters cannot be predicted.
(b) Lawsuit regarding ordinary wages
On August 1, 2014, somesubsidiaries of the Parent Company’s employees filed a lawsuit against the Parent Company to the Suwon District Court, seeking additional payment of overtime allowance in relation to ordinary wages. In this regard, the Parent Company submitted a written response on September 5, 2014, and oral pleading is planned in the near future. As of December 31, 2014, the Group did not recognize any provision as the likelihood of defending this case appears probable. However, the final outcome of this contingency cannot be predicted as of December 31, 2014.
(c) Other patent infringement claims and litigation
The Group is involved in various alleged patent infringement claims and litigation.Company. No provisions have been made as management believes it not likely an outflow of the Group’s resources will be required to settle these matters. As of December 31, 2014, the final outcome of these mattersthis matter cannot be determined but could have a material effect onor predicted given that the Group’s consolidated financial statements.
SK HYNIX, INC.(b) Other patent infringement claims and Subsidiarieslitigations
NotesIn addition to the Consolidated Financial Statements
December 31, 2014, 2013above litigations, the Group has responded to various disputes related to intellectual property rights and 2012
34. Commitmentshas recognized a liability when it is probable that an outflow of resources will arise and Contingencies, continued
a loss can be reliably estimated.
(2) Technology and patent license agreements
The Group has entered into a number of patent license agreements with several companies. The related royalties are paid inon a lump sumlump-sum or running basis in accordance with the respective agreements. Lump-sumThelump-sum royalties are expensed over the contract period using the straight-line method.
(3) Contract for supply of industrial water
In March 2001, theThe Group andhas entered into a contract with Veolia Water Industrial Development Co., Ltd. (“VWID”) entered into a contract forunder which the purpose of purchasingGroup purchases industrial water from VWID for 12 years fromthrough March 2001 to March 2013. In December 2006, the contract was extended to March 2018, and subsequently amended due to the establishment of additional plants.2018. According to the amended contract, the Group is obligated to pay base service charges which are predetermined and additional service charges which are variable according to the amount of water used.
(4) Post-process service contract with HITECH
In 2009, theThe Group has entered into an agreement with HITECH to be provided with post-process service by HITECH. In addition, HITECH entered into agreements to purchase corresponding machinery fromThe conditions of the Parent Companyservice provided includes package, package test, modules and its subsidiary, SKHYMC. According to the contracts, HITECH should use the machinery only for the purpose of providing the post-process service to the Group exclusively until September 2015. In 2011, the Parent Company entered into an additional contract for the purpose of module processing service and HITECH purchased corresponding machinery from the Parent Company.others. According to the agreement, the Group is liable to guaranteeguarantees a certain level of margin to HITECH.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2016, 2015 and 2014
33. Commitments and Contingencies, continued
(5) Assets provided as collateral
Details of assets provided as collateral as of December 31, 20142016 are as follows:
Book value | Pledged amount | Remark | Book value | Pledged amount | Remark | |||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||
Land | ₩ | 25,202 | ₩ | 44,561 | ||||||||||||||||
Buildings | 119,622 | 1,236,513 | Borrowings for equipment and others | 103,977 | 1,609,053 | Borrowings for equipment and others | ||||||||||||||
Machinery | 868,487 | 1,232,762 | ||||||||||||||||||
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₩ | 1,013,311 | 1,236,513 | ₩ | 1,381,300 | 1,609,053 | |||||||||||||||
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Other than the above assets provided as collateral, the finance lease assets of the Group are pledged as collateral for the finance lease liabilities in accordance with the finance lease contracts.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
34. Commitments and Contingencies, continued
(6) Financing agreements
Details of credit lines with financial institutions as of December 31, 20142016 are as follows:
Financial | Commitment | Currency | Amount | |||||||
(In millions of won and millions of foreign currencies) | ||||||||||
The Parent Company | Import finance including usance | USD | ||||||||
Bank and others | Export finance including bills bought | USD | ||||||||
Comprehensive limit contract for import and export | USD | |||||||||
SK | Agricultural Bank of China and others | Import finance including usance | RMB | |||||||
USD | ||||||||||
SK | Citibank and others | Accounts receivable factoring contracts which have no right to recourse | USD | |||||||
Domestic subsidiaries | Export finance including bills bought | KRW | ||||||||
Guarantee | KRW | |||||||||
payment | KRW |
The Group has entered into trade receivables discounting agreements with several financial institutions. There arewere no outstanding discounted trade receivables discounted corresponding to ₩220,663 million as of December 31, 20142016 (as of December 31, 2013: nil)2015: ₩3,076 million). The Group is obliged to redeem discounted receivables to financial institutions in case of the default of the counterparties and accordingly, accounted for the above transactions as collateralized borrowings.
(7) Details of guarantees provided to others as of December 31, 20142016 are as follows:
Amount | Remark | |||||
(In millions of won) | ||||||
Employees | ₩ | Guarantees for employees’ borrowings relating to employee stock ownership |
(8) Capital commitments
As of December 31, 2014, the Group has ₩348,802 million (as of December 31, 2013: ₩385,106 million) of commitments in relation to the capital expenditures on fixed assets.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 20132016, 2015 and 20122014
33. Commitments and Contingencies, continued
35.(8) Capital commitments
As of December 31, 2016, the Group has ₩293,730 million (as of December 31, 2015: ₩300,041 million) of commitments in relation to the capital expenditures on property, plant and equipment.
34. Cash Generated from Operating Activities
(1) Reconciliations between profit for the year and net cash inflow from operating activities for the years ended December 31, 2014, 20132016, 2015 and 20122014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Profit for the year | ₩4,195,169 | 2,872,857 | (158,795 | ) | ₩2,960,483 | 4,323,595 | 4,195,169 | |||||||||||||||||
Adjustment | ||||||||||||||||||||||||
Income tax expense (benefit) | 852,501 | 202,068 | (40,506 | ) | ||||||||||||||||||||
Income tax expense | 255,971 | 945,526 | 852,501 | |||||||||||||||||||||
Defined benefit plan related expenses | 143,432 | 125,495 | 107,730 | 213,332 | 160,184 | 143,432 | ||||||||||||||||||
Depreciation of property, plant and equipment and investment property | 3,269,705 | 2,922,245 | 3,057,856 | 4,133,886 | 3,695,158 | 3,269,705 | ||||||||||||||||||
Amortization | 174,275 | 156,276 | 145,698 | 322,569 | 258,078 | 174,275 | ||||||||||||||||||
Loss on impairment of property, plant and equipment | 3,746 | 22,055 | — | |||||||||||||||||||||
Loss on foreign currency translation | 116,726 | 24,415 | 24,597 | 116,500 | 143,768 | 116,726 | ||||||||||||||||||
Interest expense | 170,363 | 256,623 | 317,926 | 120,122 | 118,505 | 170,363 | ||||||||||||||||||
Gain on foreign currency translation | (79,678 | ) | (94,175 | ) | (211,345 | ) | (106,840 | ) | (58,658 | ) | (79,678 | ) | ||||||||||||
Interest income | (52,122 | ) | (66,410 | ) | (80,154 | ) | (34,174 | ) | (40,715 | ) | (52,122 | ) | ||||||||||||
Loss on derivative instruments, net | 171,754 | 93,473 | 14,321 | 53 | 361 | 171,754 | ||||||||||||||||||
Gain on equity method investments, net | (12,506 | ) | (19,256 | ) | (16,713 | ) | (22,752 | ) | (24,642 | ) | (12,506 | ) | ||||||||||||
Others, net | 13,072 | 116,735 | 22,050 | (17,069 | ) | (18,231 | ) | 13,072 | ||||||||||||||||
Changes in operating assets and liabilities | ||||||||||||||||||||||||
Increase in trade receivables | (1,628,665 | ) | (278,141 | ) | (322,127 | ) | ||||||||||||||||||
Decrease (increase) in trade receivables | (470,792 | ) | 1,260,172 | (1,628,665 | ) | |||||||||||||||||||
Decrease (increase) in loans and other receivables | (579,225 | ) | (249,778 | ) | 69,539 | 62,758 | 724,149 | (753,278 | ) | |||||||||||||||
Decrease (increase) in inventories | (314,547 | ) | 333,179 | (335,580 | ) | |||||||||||||||||||
Increase in inventories | (110,769 | ) | (414,830 | ) | (314,547 | ) | ||||||||||||||||||
Increase in other assets | (55,760 | ) | (177,316 | ) | (10,210 | ) | ||||||||||||||||||
Increase (decrease) in trade payables | 69,290 | 113,552 | (374 | ) | (208,439 | ) | (156,074 | ) | 69,290 | |||||||||||||||
Increase (decrease) in other payables | (105,971 | ) | 74,666 | (56,749 | ) | |||||||||||||||||||
Increase in other non-trade payables | 498,152 | 309,974 | 26,604 | |||||||||||||||||||||
Decrease in other payables | (23,558 | ) | (60,252 | ) | (105,971 | ) | ||||||||||||||||||
Increase (decrease) in othernon-trade payables | (328,871 | ) | (147,392 | ) | 498,152 | |||||||||||||||||||
Increase (decrease) in provisions | (26,793 | ) | (127,052 | ) | 1,446 | 17,521 | (6,889 | ) | (26,793 | ) | ||||||||||||||
Increase (decrease) in other liabilities | 5,018 | (29,327 | ) | 51,598 | ||||||||||||||||||||
Payment of defined benefit liabilities | (34,144 | ) | (45,171 | ) | (69,161 | ) | (18,514 | ) | (6,392 | ) | (34,144 | ) | ||||||||||||
Contribution to plan assets | (402,894 | ) | (4,113 | ) | (5,994 | ) | (327,640 | ) | (153,566 | ) | (402,894 | ) | ||||||||||||
Others, net | (132,665 | ) | (195,909 | ) | (69,375 | ) | ||||||||||||||||||
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Cash generated from operating activities | ₩ | 6,305,229 | 6,521,553 | 2,420,894 | ₩ | 6,486,781 | 10,357,267 | 6,305,229 | ||||||||||||||||
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(2) Details of significant transactions without inflows and outflows of cash for the years ended December 31, 20142016, 2015 and 20132014 are as follows:
2014 | 2013 | 2012 (Unaudited) | 2016 | 2015 | 2014 | |||||||||||||||||||
(In millions of won) | (In millions of won) | |||||||||||||||||||||||
Other payables related to acquisition of property, plant and equipment | ₩ | 588,435 | 190,667 | (78,585 | ) | ₩ | 224,412 | — | 588,435 | |||||||||||||||
Issue of ordinary shares related to the acquisition of a subsidiary | 54,070 | — | — | — | — | 54,070 | ||||||||||||||||||
Exercise of conversion rights | 772,590 | 432,434 | 266 | — | — | 772,590 | ||||||||||||||||||
Transferred to non-current convertible bond due to expiration of early redemption rights | — | 486,569 | — | |||||||||||||||||||||
Acquisition of property, plant and equipment subject to finance lease agreements | — | — | 216,682 |
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
36. Business Combination
(1) In April 2014, the Parent Company acquired all remaining interest in Siliconfile Technologies Inc., which is CMOS image sensor developer, located in Korea, in exchange for the Parent Company’s newly issued ordinary shares and obtained control over Siliconfile Technologies Inc. The fair value of the identifiable net assets acquired at acquisition date was ₩42,432 million and the excess of the consideration transferred amounting to ₩75,028 million over the identifiable net assets acquired was accounted for as goodwill.
The following table summarizes the consideration transferred for Siliconfile Technologies Inc., the fair value of assets acquired and liabilities assumed at the acquisition date:
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The revenue of Siliconfile Technologies Inc. included in the consolidated statement of comprehensive income after acquisition date was ₩71,014 million. Siliconfile Technologies Inc. also contributed a profit of ₩3,239 million over the same year.
(2) In June 2014, the Parent Company acquired Softeq Flash Solutions LLC., which is NAND solution developer, located in Belarus, for ₩10,236 million. The fair value of the identifiable net asset acquired was ₩1,546 million and the excess of the consideration transferred over the identifiable net assets acquired was recognized as goodwill.
(3) In September 2014, the Group acquired PCle card operation division of Violin Memory, Inc., which is memory solution developer, located in United states, for USD23 million. The fair value of the identifiable net asset acquired was USD3 million and the excess of the consideration transferred over the identifiable net assets acquired was recognized as goodwill.
(4) In August 2012, the Group acquired 100% of the share capital of SK hynix memory solutions Inc. (SKHMS) (formerly, Link_A_Media Devices Corporation (“LAMD”)), which is a Nand Flash controller developer, located in United States for ₩282,293 million and obtained control over SKHMS.
The goodwill amounting to ₩261,047 million arising from the acquisition is attributable to the synergy benefits from reduction of R&D expenses and expected increase in sales as a result of acquisition of SKHMS.
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2014, 2013 and 2012
36. Business Combination, continued
The following table summarizes the consideration paid for SKHMS, the fair value of assets acquired and liabilities assumed at the acquisition date:
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The acquisition-related costs amounting to ₩5,669 million were all expensed for the year ended December 31, 2012.
The revenue of SKHMS included in the consolidated statement of comprehensive income after acquisition date was ₩4,289 million. SKHMS also contributed a net loss of ₩5,802 million over the same period.
Had SKHMS been consolidated from January 1, 2012, the sales of ₩13,490 million and net loss of ₩27,240 million would have been included in the consolidated statement of comprehensive income.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
SK TELECOM CO., LTD. (Registrant) | ||
/s/ | ||
Name: | ||
Title: | ||
Financial |
Date: April 30, 201527, 2017