REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Woongjin Energy CO., Ltd.
We have audited the accompanying statements of financial position of Woongjin Energy Co., Ltd. (the “Company”) as of December 31, 2009, and the related statements of income, appropriations of retained earnings, changes in shareholders’ equity and cash flows for the year then ended, expressed in Korean won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 estim ates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Woongjin Energy Co., Ltd. as of December 31, 2009, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the Republic of Korea.
Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 23 to the financial statements.
We have not audited the accompanying financial statements of the Company as of December 31, 2008 and for the years ended December 31, 2008 and 2007 which are presented only for comparative purposes.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
June 21, 2010
Woongjin Energy Co., Ltd.
Statements of Financial Position
December 31, 2009 and 2008 (unaudited)
Thousands of Korean won | Thousands of U.S. Dollars (Note 1) | |||||||||||
2009 | 2008 (unaudited) | 2009 | ||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | ₩ | 9,215,103 | ₩ | 3,651,497 | $ | 7,892 | ||||||
(Government grants) (Notes 5, 21 and 23) | (773,871 | ) | - | (662 | ) | |||||||
Short-term financial instruments | 25,500,000 | 11,000,000 | 21,840 | |||||||||
Accounts receivable, less allowance for doubtful accounts of ₩ 192,238 thousand (2008: ₩ 141,219 thousand) (Notes 17 and 18) | 19,031,586 | 13,980,635 | 16,300 | |||||||||
Other receivables, less allowance for doubtful accounts of ₩ 154,749 thousand (2008: ₩ 120,776 thousand) (Notes 17 and 18) | 15,849,220 | 15,485,497 | 13,574 | |||||||||
Advanced payments | 1,623,014 | 464,357 | 1,389 | |||||||||
Short-term deposits (Notes 14 and 17) | 14,182,606 | 9,910,869 | 12,147 | |||||||||
Deferred income tax assets (Note 13) | 338,765 | 1,464,266 | 290 | |||||||||
Inventories, net (Notes 3 and 5) | 8,990,458 | 8,694,307 | 7,700 | |||||||||
Other current assets | 472,751 | 332,935 | 405 | |||||||||
Total current assets | 94,429,632 | 64,984,363 | 80,875 | |||||||||
Available-for-sale securities (Note 4) | 625,630 | 607,602 | 536 | |||||||||
Property, plant and equipment, net (Notes 2, 5 and 7) | 122,221,272 | 109,698,607 | 104,677 | |||||||||
Intangible assets, net (Notes 6 and 9) | 574,179 | 653,386 | 492 | |||||||||
Guarantee deposits | 194,881 | 190,000 | 167 | |||||||||
Deferred income tax assets (Note 13) | 162,460 | 344,277 | 139 | |||||||||
Total assets | ₩ | 218,208,054 | ₩ | 176,478,235 | $ | 186,886 |
The accompanying notes are an integral part of these financial statements
2
Woongjin Energy Co., Ltd.
Statements of Financial Position
December 31, 2009 and 2008 (unaudited)
Thousands of Korean won | Thousands of U.S. Dollars (Note 1) | |||||||||||
2009 | 2008 (unaudited) | 2009 | ||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable (Notes 17 and 18) | ₩ | 996,002 | ₩ | 817,572 | $ | 853 | ||||||
Other payables (Notes 17 and 18) | 23,492,005 | 31,193,612 | 20,120 | |||||||||
Short-term borrowings (Note 18) | - | 1,341,254 | - | |||||||||
Income tax payables (Note 13) | 6,362,095 | 4,200,697 | 5,449 | |||||||||
Current portion of derivatives liability (Note 10) | 805,357 | 978,499 | 690 | |||||||||
Current portion of long-term borrowings (Note 7) | 10,312,500 | - | 8,832 | |||||||||
Other current liabilities | 643,765 | 562,541 | 551 | |||||||||
Total current liabilities | 42,611,724 | 39,094,175 | 36,495 | |||||||||
Long-term borrowings (Notes 5, 7 and 9) | 78,245,479 | 82,821,457 | 67,014 | |||||||||
Other long-term payables | - | 134,780 | - | |||||||||
Derivatives liability (Note 10) | 170,150 | 1,388,189 | 146 | |||||||||
Accrued severance benefits, net (Note 8) | 285,277 | 118,713 | 244 | |||||||||
Total liabilities | 121,312,630 | 123,557,314 | 103,899 | |||||||||
Commitments and contingencies (Note 9) | ||||||||||||
Shareholders’ equity | ||||||||||||
Capital stock | ||||||||||||
Common stock (Note 11) | 23,060,000 | 23,060,000 | 19,750 | |||||||||
Capital surplus (Notes 11 and 12) | 1,500,665 | - | 1,286 | |||||||||
Capital adjustments, net (Note 12) | 343,083 | (146,410 | ) | 294 | ||||||||
Accumulated other comprehensive income (loss) (Notes 4, 10 and 16) | (683,756 | ) | (1,781,256 | ) | (586 | ) | ||||||
Retained earnings | 72,675,432 | 31,788,587 | 62,243 | |||||||||
Total shareholders’ equity | 96,895,424 | 52,920,921 | 82,987 | |||||||||
Total liabilities and shareholders’ equity | ₩ | 218,208,054 | ₩ | 176,478,235 | $ | 186,886 |
The accompanying notes are an integral part of these financial statements
3
Woongjin Energy Co., Ltd.
Statements of Income
Years Ended December 31, 2009, 2008 (unaudited) and 2007(unaudited)
Thousands of Korean won | Thousands of U.S. Dollars (Note 1) | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Sales (Notes 14 and 17) | ₩ | 118,893,615 | ₩ | 67,679,189 | ₩ | 2,834,471 | $ | 101,827 | ||||||||
Cost of sales (Notes 15 and 17) | 54,554,240 | 25,643,265 | 2,265,735 | 46,723 | ||||||||||||
Gross profit | 64,339,375 | 42,035,924 | 568,736 | 55,104 | ||||||||||||
Selling and administrative expenses (Notes 12, 19 and 20) | 7,855,920 | 4,654,013 | 3,070,086 | 6,728 | ||||||||||||
Operating income | 56,483,455 | 37,381,911 | (2,501,350) | 48,376 | ||||||||||||
Non-operating income | ||||||||||||||||
Interest income | 569,179 | 492,164 | 197,453 | 487 | ||||||||||||
Gain on foreign exchange transactions | 12,128,949 | 8,391,133 | 135,380 | 10,388 | ||||||||||||
Gain on foreign currency translation (Note 18) | 13,237 | 2,277,335 | 94,508 | 11 | ||||||||||||
Gain on disposal of property, plant and equipment | - | 5,100 | - | - | ||||||||||||
Gain on derivative transactions (Note 10) | - | 925,801 | 34,598 | - | ||||||||||||
Others | 129,733 | 32,509 | 826,223 | 112 | ||||||||||||
12,841,098 | 12,124,042 | 1,288,162 | 10,998 | |||||||||||||
Non-operating expenses | ||||||||||||||||
Interest expense (Note 10) | 5,560,557 | 4,414,148 | 715,321 | 4,762 | ||||||||||||
Loss on foreign exchange transactions | 13,223,142 | 3,336,693 | 79,081 | 11,326 | ||||||||||||
Loss on foreign currency translation (Note 18) | 63,531 | 2,644,194 | 3,140 | 54 | ||||||||||||
Other bad debt expense | - | 120,776 | 19,053 | - | ||||||||||||
Loss on disposal of property, plant and equipment | - | 17,500 | - | - | ||||||||||||
Loss on derivative transactions (Note 10) | - | 949 | - | - | ||||||||||||
Loss on valuation of derivative instruments (Note 10) | - | 258,227 | - | - | ||||||||||||
Donations | 1,000 | 100 | - | 1 | ||||||||||||
Others | 321 | 1 | 20 | - | ||||||||||||
18,848,551 | 10,792,588 | 816,615 | 16,143 | |||||||||||||
Income before income taxes | 50,476,002 | 38,713,365 | (2,029,803 | ) | 43,231 | |||||||||||
Income tax expenses (Note 13) | 9,442,747 | 4,941,541 | (120,451 | ) | 8,088 | |||||||||||
Net income | ₩ | 41,033,255 | ₩ | 33,771,824 | ₩ | (1,909,352) | $ | 35,143 |
The accompanying notes are an integral part of these financial statements
4
Woongjin Energy Co., Ltd.
Statements of Appropriations of Retained Earnings
Years Ended December 31, 2009 and 2008 (unaudited)
(Dates of appropriations: February 26, 2010, March 24, 2009 and March 25, 2008
for the years ended December 31, 2009, 2008 and 2007, respectively)
Thousands of Korean won | Thousands of U.S. Dollars (Note 1) | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Retained earnings before appropriations | ||||||||||||||||
Unappropriated retained earnings (deficit) carried over from prior year | ₩ | 31,642,177 | ₩ | (1,983,236 | ) | ₩ | (73,884 | ) | $ | 27,100 | ||||||
Net income (loss) | 41,033,255 | 33,771,824 | (1,909,352 | ) | 35,143 | |||||||||||
72,675,432 | 31,788,588 | (1,983,236 | ) | 62,243 | ||||||||||||
Appropriation of retained earnings | ||||||||||||||||
Amortization of discounts on stock issuances | - | 146,410 | - | - | ||||||||||||
- | 146,410 | - | - | |||||||||||||
Unappropriated retained earnings (deficit) carried forward to subsequent year | ₩ | 72,675,432 | ₩ | 31,642,177 | ₩ | (1,983,236 | ) | $ | 62,243 |
The accompanying notes are an integral part of these financial statements
5
Woongjin Energy Co., Ltd.
Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Thousands of Korean won | ||||||||||||||||||||||||
Capital stock | Capital surplus | Capital adjustments | Accumulated other comprehensive income (loss) | Retained earnings (deficit) | Total | |||||||||||||||||||
Balances at January 1, 2007 (unaudited) | ₩ | 8,000,000 | ₩ | 317,553 | ₩ | - | ₩ | - | ₩ | (73,885 | ) | ₩ | 8,243,668 | |||||||||||
Net loss | - | - | - | - | (1,909,352 | ) | (1,909,352 | ) | ||||||||||||||||
Balances at December 31, 2007 (unaudited) | 8,000,000 | 317,553 | - | - | (1,983,237 | ) | 6,334,316 | |||||||||||||||||
Balances at January 1, 2008 (unaudited) | 8,000,000 | 317,553 | - | - | (1,983,237 | ) | 6,334,316 | |||||||||||||||||
Issuance of common stock | 12,000,000 | - | (72,403 | ) | - | - | 11,927,597 | |||||||||||||||||
Conversion of convertible bonds | 3,060,000 | (317,553 | ) | (74,007 | ) | - | - | 2,668,440 | ||||||||||||||||
Gain on valuation of available-for sale securities | - | - | - | 43,233 | - | 43,233 | ||||||||||||||||||
Gain on valuation of derivatives | - | - | - | (1,824,489 | ) | - | (1,824,489 | ) | ||||||||||||||||
Net income | - | - | - | - | 33,771,824 | 33,771,824 | ||||||||||||||||||
Balances at December 31, 2008 (unaudited) | 23,060,000 | - | (146,410 | ) | (1,781,256 | ) | 31,788,587 | 52,920,921 | ||||||||||||||||
Balances at January 1, 2009 | 23,060,000 | - | (146,410 | ) | (1,781,256 | ) | 31,788,587 | 52,920,921 | ||||||||||||||||
Amortization of discounts on stock issuances | - | - | 146,410 | - | (146,410 | ) | - | |||||||||||||||||
Stock based compensation | - | 1,500,665 | 343,083 | - | - | 1,843,748 | ||||||||||||||||||
Gain on valuation of available-for sale securities | - | - | - | 12,446 | - | 12,446 | ||||||||||||||||||
Gain on valuation of derivatives | - | - | - | 1,085,054 | - | 1,085,054 | ||||||||||||||||||
Net income | - | - | - | - | 41,033,255 | 41,033,255 | ||||||||||||||||||
Balances at December 31, 2009 | ₩ | 23,060,000 | ₩ | 1,500,665 | ₩ | 343,083 | ₩ | (683,756) | ₩ | 72,675,432 | ₩ | 96,895,424 |
Thousands of U.S. Dollars (Note 1) | ||||||||||||||||||||||||
Capital stock | Capital surplus | Capital adjustments | Accumulated other comprehensive income (loss) | Retained earnings | Total | |||||||||||||||||||
Balances at January 1, 2009 | $ | 19,750 | $ | - | $ | (125 | ) | $ | (1,526 | ) | $ | 27,225 | $ | 45,324 | ||||||||||
Amortization of discounts on stock issuances | - | - | 125 | - | (125 | ) | - | |||||||||||||||||
Stock based compensation | - | 1,286 | 294 | - | - | 1,580 | ||||||||||||||||||
Gain on valuation of available-for-sale securities | - | - | - | 11 | - | 11 | ||||||||||||||||||
Gain on valuation of derivatives | - | - | - | 929 | - | 929 | ||||||||||||||||||
Net income | - | - | - | - | 35,143 | 35,143 | ||||||||||||||||||
Balances at December 31, 2009 | $ | 19,750 | $ | 1,286 | $ | 294 | $ | (586 | ) | $ | 62,243 | $ | 82,987 |
The accompanying notes are an integral part of these financial statements
6
Woongjin Energy Co., Ltd.
Statements of Cash Flows
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Thousands of Korean won | Thousands of U.S. Dollars (Note 1) | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net income (loss) | ₩ | 41,033,255 | ₩ | 33,771,824 | ₩ | (1,909,352 | ) | $ | 35,143 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||||||
Depreciation | 12,434,892 | 5,954,193 | 621,644 | 10,650 | ||||||||||||
Amortization of intangible assets | 180,132 | 155,696 | 30,225 | 154 | ||||||||||||
Provision for severance benefits | 675,779 | 330,870 | 56,933 | 579 | ||||||||||||
Bad debt expenses | 84,992 | 105,525 | 16,641 | 73 | ||||||||||||
Fees and commissions | 2,592 | 76,800 | - | 2 | ||||||||||||
Other bad debt expense | - | 120,776 | 19,053 | - | ||||||||||||
Loss(gain) on foreign currency translation, net | 50,294 | 120,709 | (91,994 | ) | 43 | |||||||||||
Loss on disposal of property, plant and equipment, net | - | 12,400 | - | - | ||||||||||||
Non-cash interest expenses | - | 30,124 | 44,412 | - | ||||||||||||
Loss(gain) on valuation of derivative instruments | - | 258,227 | (814,006 | ) | - | |||||||||||
Loss on valuation of inventories | 50,015 | - | - | 43 | ||||||||||||
Stock based compensation expenses | 1,843,747 | - | - | 1,579 | ||||||||||||
15,322,443 | 7,165,320 | (117,092 | ) | 13,123 | ||||||||||||
Changes in operating assets and liabilities | ||||||||||||||||
Increase in accounts receivable | (5,130,645 | ) | (13,468,988 | ) | (1,664,096 | ) | (4,394 | ) | ||||||||
Increase in other receivable | (432,553 | ) | (14,647,067 | ) | (1,886,407 | ) | (371 | ) | ||||||||
Increase in advanced payments | (1,158,657 | ) | (316,692 | ) | (147,665 | ) | (993 | ) | ||||||||
Increase in short-term deposits | (4,271,737 | ) | (9,102,522 | ) | (808,347 | ) | (3,659 | ) | ||||||||
Decrease (increase) in other current assets | (146,482 | ) | 358,919 | (27,190 | ) | (125 | ) | |||||||||
Increase in inventories | (346,166 | ) | (6,890,834 | ) | (1,803,473 | ) | (296 | ) | ||||||||
Increase (decrease) in deferred tax assets | 995,611 | (1,278,538 | ) | - | (853 | ) | ||||||||||
Increase in accounts payable | 186,784 | 474,424 | 389,265 | 160 | ||||||||||||
Increase (decrease) in other payables | (9,079,644 | ) | 30,523,502 | 2,881,013 | (7,776 | ) | ||||||||||
Increase (decrease) in accrued expenses | 374,428 | (23,533 | ) | 208,616 | 321 | |||||||||||
Increase in income tax payables | 2,161,398 | 4,200,698 | - | 1,851 | ||||||||||||
Increase (decrease) in other current liabilities | (293,205 | ) | 102,871 | 271,017 | (251 | ) | ||||||||||
Increase in other long-term payables | (134,780 | ) | - | 57,980 | (116 | ) | ||||||||||
Decrease in deferred tax liabilities | - | - | (120,451 | ) | - | |||||||||||
Increase(decrease) in accrued severance benefits | (509,215 | ) | (292,830 | ) | 7,343 | (436 | ) | |||||||||
(17,784,863 | ) | (10,360,586 | ) | (2,642,395 | ) | (15,232 | ) | |||||||||
Net cash provided by (used in) operating activities | 38,570,835 | 30,576,558 | (4,668,839 | ) | 33,034 |
The accompanying notes are an integral part of these financial statements
7
Woongjin Energy Co., Ltd.
Statements of Cash Flows
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Thousands of Korean won | Thousands of U.S. Dollars (Note 1) | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Cash flows from investing activities | ||||||||||||||||
Increase in short-term financial instruments, net | ₩ | (14,500,000 | ) | ₩ | (10,900,000 | ) | ₩ | (100,000 | ) | $ | (12,419 | ) | ||||
Decrease (increase) in short-term loans, net | 6,666 | 6,667 | (111,556 | ) | 6 | |||||||||||
Proceeds from disposal of property, plant and equipment | 16,863 | 5,100 | - | 14 | ||||||||||||
Decrease (increase) in guarantee deposits, net | (4,881 | ) | 20,000 | (210,000 | ) | (4 | ) | |||||||||
Acquisition of available-for-sale securities | - | (495,818 | ) | (56,358 | ) | - | ||||||||||
Acquisition of property, plant and equipment | (23,867,628 | ) | (69,974,270 | ) | (45,461,896 | ) | (20,441 | ) | ||||||||
Acquisition of intangible assets | (103,517 | ) | (107,499 | ) | (697,808 | ) | (89 | ) | ||||||||
Net cash used in investing activities | (38,452,497 | ) | (81,445,820 | ) | (46,637,618 | ) | (32,933 | ) | ||||||||
Cash flows from financing activities | ||||||||||||||||
Increase in short-term borrowings | 7,444,140 | 7,828,871 | 42,942,981 | 6,376 | ||||||||||||
Increase in long-term borrowings | 8,203,543 | 39,878,477 | - | 7,026 | ||||||||||||
Payment of short-term borrowings | (8,785,394 | ) | (6,836,772 | ) | - | (7,524 | ) | |||||||||
Payment of long-term borrowings | (2,467,021 | ) | - | - | (2,113 | ) | ||||||||||
Proceeds from stock issuances | - | 11,927,597 | - | - | ||||||||||||
Receipts of government grants | 1,050,000 | 235,300 | - | 899 | ||||||||||||
Net cash provided by financing activities | 5,445,268 | 53,033,473 | 42,942,981 | 4,664 | ||||||||||||
Net increase in cash and cash equivalents | 5,563,606 | 2,164,211 | (8,363,476 | ) | 4,765 | |||||||||||
Cash and cash equivalents | ||||||||||||||||
Beginning of the year | 3,651,497 | 1,487,286 | 9,850,762 | 3,127 | ||||||||||||
End of the year | ₩ | 9,215,103 | ₩ | 3,651,497 | ₩ | 1,487,286 | $ | 7,892 |
The accompanying notes are an integral part of these financial statements
8
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
1. | NATURE OF OPERATIONS AND BASIS OF PRESENTING FINANCIAL STATEMENTS |
Woongjin Energy Co., Ltd. (the “Company”) was established on November 17, 2006, under the joint venture agreement dated September 29, 2006 between Woongjin Coway Co., Ltd. and SunPower Corporation (together with its subsidiaries, “SunPower”). The Company is mainly engaged in manufacture, sales and distribution of silicon ingots. In 2007, Woongjin Holdings Co., Ltd. acquired shares of the Company held by Woongjin Coway Co., Ltd.
As of December 31, 2009, the Company’s headquarter and manufacturing facilities are located in Dae-jeon, South Korea.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Financial Statement Presentation
The Company maintains its accounting records in Korean won and prepares statutory financial statements in Korean language in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices.
The accompanying financial statements have been condensed, restructured and translated into English from the Korean language financial statements. The translations of Korean Won amounts into U.S. dollar amounts are included solely for the convenience of readers and have been made at the rate of ₩ 1167.6 to $1, the approximate rate of exchange at December 31, 2009. Such translations should not be construed as representations that the Korean Won amounts could be converted into U.S. dollars at that or any other rate.
The following is a summary of significant accounting policies followed by the Company in the preparation of its financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.
In 2009, the Company adopted the following new Statements of Korea Accounting Standards (SKAS) issued by the Korea Accounting Standards Board:
• | SKAS No. 5, Property, Plant and Equipment (As Revised) |
• | Interpretation on financial accounting standard [53-70], Accounting for Derivatives (As Revised) |
9
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Revenue Recognition
Revenues from the sale of goods are recognized when the significant risks and rewards of ownership of goods are transferred to the buyer, usually upon the shipment of the product. At the time revenue is recognized, the Company provides for future returns of potentially defective product based on historical experience.
In those cases where the Company is not the primary obligor or merchant of record and/or does not credit risk, or where it earns a fixed manufacturing service fee, the Company records revenue under the net method. When the Company records revenues at net, revenue is recorded at the net amount received and retained by the Company.
Cash and Cash Equivalents and Short-Term Financial Instruments
Cash and cash equivalents include cash on hand and in banks, and financial instruments with maturity of three months or less at the time of purchase. Investments which are usually convertible into cash within four to 12 months of purchases are classified in the statements of financial position as short-term financial instruments. The carrying amount of these investments approximates fair value.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts receivable. Allowances are calculated based on the estimates made through a reasonable and objective method.
Inventories
The quantities of inventories are determined using the perpetual method and periodic inventory count, while the costs of inventories are determined using the weighted average method. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expense. Replacement cost is used for the estimate of net realizable value of raw materials. If, however, the circumstances which caused the valuation loss cease to exist, the valuation loss is reversed, but not exceeding the original carrying amount before valuation. The said reversal is deducted from cost of sales.
Investments in Securities
Costs of securities are determined using the moving-weighted average method.
Investments in equity securities or debt securities are classified into trading securities, available-for-sale securities and held-to-maturity securities, depending on the acquisition and holding purpose. Investments in equity securities of companies, over which the Company exercises a significant control or influence, are recorded using the equity method of accounting. Trading securities are classified as current assets while available-for-sale securities and held-to-maturity securities are classified as long-term investments, excluding those securities that mature or are certain to be disposed of within one year, which are then classified as current assets.
Held-to-maturity securities are measured at amortized cost while available-for-sale and trading securities are measured at fair value. However, non-marketable securities, classified as available-for-sale securities, are carried at cost when the fair values are not readily determinable.
Gains and losses related to trading securities are recognized in the income statement, while unrealized gains and losses of available-for-sale securities are recognized under other comprehensive income and expense. Realized gains and losses on available-for-sale securities are recognized in the income statement.
10
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Property, Plant and Equipment
Property, plant and equipment are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. It also includes the present value of the estimated cost of dismantling and removing the asset, and restoring the site after the termination of the asset's useful life, provided it meets the criteria for recognition of provisions.
Property, plant and equipment are stated net of accumulated depreciation calculated and computed using a straight-line method, based on the following estimated useful lives:
Estimated Useful Lives | |
Building | 25 years |
Structures | 20 years |
Machinery and equipment | 8 years |
Others | 3~5 years |
Expenditures incurred after the acquisition or completion of assets are capitalized if they enhance the value of the related assets over their recently appraised value or extend the useful life of the related assets. Routine maintenance and repairs are charged to expense as incurred.
The Company capitalizes the interest it incurs on borrowings used to finance the cost of manufacturing, acquisition, and construction of inventory and property, plant, and equipment that require more than one year to complete from the initial date of manufacture, acquisition, and construction. Interest expenses of
₩ nil, ₩ 64 million and ₩ 753 million were capitalized in 2009, 2008 (unaudited) and 2007 (unaudited), respectively.
In case the capitalized financial costs are expensed as incurred, the effects to financial statements would be as follows:
Thousands of Korean won | ||||||||||||
When capitalized | When expensed | Variance | ||||||||||
Buildings | ₩ | 34,520,661 | ₩ | 33,704,035 | ₩ | 816,626 | ||||||
Accumulated depreciation | 2,776,590 | 2,704,797 | 71,793 | |||||||||
Depreciation (*1) | 12,434,891 | 12,402,226 | 32,665 | |||||||||
Interest | 5,560,557 | 5,560,557 | - | |||||||||
Net income (*2) | 41,033,255 | 41,008,494 | 24,761 | |||||||||
Thousands of U.S. Dollars | ||||||||||||
When capitalized | When expensed | Variance | ||||||||||
Buildings | $ | 29,565 | $ | 28,866 | $ | 699 | ||||||
Accumulated depreciation | 2,378 | 2,317 | 61 | |||||||||
Depreciation expense (*1) | 10,650 | 10,622 | 28 | |||||||||
Interest expense | 4,762 | 4,762 | - | |||||||||
Net income (*2) | 35,143 | 35,122 | 21 |
(*1) Includes depreciation allocated to cost of goods sold.
(*2) Marginal tax rate was assumed for the tax effect.
11
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Intangible Assets
Intangible assets are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization which is determined on a straight-line method over the estimated economic useful lives of five years.
The Company recognizes the costs associated with the research and development of intellectual property rights as expense when incurred.
Impairment of Assets
When the book value of an asset is significantly greater than its recoverable value due to obsolescence, physical damage or an abrupt decline in the market value of the asset, the said decline in value is deducted from the book value to agree with recoverable amount and is recognized as an asset impairment loss for the period. When the recoverable value subsequently exceeds the book value, the impairment amount is recognized as gain for the period to the extent that the revised book value does not exceed the book value that would have been recorded without the impairment. Reversal of impairment of goodwill is not allowed.
Translation of Assets and Liabilities Denominated in Foreign Currencies
Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the rates of exchange in effect at the date of the statement of financial position and the resulting translation gains and losses are recognized in current operations.
Accrued Severance Benefits
Employees and directors with at least one year of service are entitled to receive a lump-sum payment upon termination of their employment with the Company based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the date of statement of financial position.
The Company has a defined benefit pension plan, and accrues severance benefits for current employees and pension payables for retired employees. Pension plan assets are presented as a deduction from the total accrued severance benefits and pension payables. The excess of pension plan assets over pension plan liabilities is recorded as investment assets.
Derivatives
All derivative instruments are accounted for at their fair value according to the rights and obligations associated with the derivative contracts. The resulting changes in fair value of derivative instruments are recognized either under the income statement or shareholders’ equity, depending on whether the derivative instruments qualify as a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument purchased with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment that is attributable to a particular risk. The resulting changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized under the shareholders’ equity under accumulated other comprehensive income and expense.
12
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Government Grants
Government grants received, which are to be repaid, are recorded as liability, while grants without obligation to be repaid are offset against cost of assets purchased with such grants. Grants received for a specific purpose are offset against the specific expense for which it was granted, and other grants are recorded as a gain for the period.
Share-based Compensation
In accordance with SKAS No. 22, Share-based payment, for equity-settled share-based payment transactions, the Company shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Company cannot estimate reliably the fair value of the goods or services received, the Company shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
For cash-settled share-based payment transactions, the Company shall measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Company shall remeasure the fair value of the liability at each reporting date and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.
Share-based payment transactions with an option for the parties to choose between cash and equity settlement are accounted for based on the substance of the transaction.
Income Tax and Deferred Income Tax
Income tax expense includes the current income tax under the relevant income tax law and the changes in deferred tax assets or liabilities. Deferred tax assets and liabilities represent temporary differences between financial reporting and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary differences which will decrease future taxable income or operating loss to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. Deferred tax effects applicable to items in the shareholders’ equity are directly reflected in the shareholders’ equity.
Provisions and Contingent Liabilities
When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting from a past event, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the financial statements. However, when such outflow is dependent upon a future event, is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financial statements.
13
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
3. Inventories
Inventories as of December 31, 2009 and 2008 consist of the following:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||
2009 | 2008 (unaudited) | 2009 | ||||||||||
Finished goods | ₩ | 1,937,846 | ₩ | 227,875 | $ | 1,660 | ||||||
Work-in-process | 150,466 | 160,308 | 129 | |||||||||
Raw materials | 21,150 | - | 18 | |||||||||
Stored goods | 6,544,440 | 8,219,033 | 5,605 | |||||||||
Materials in transit | 386,571 | 87,091 | 331 | |||||||||
₩ | 9,040,473 | ₩ | 8,694,307 | $ | 7,743 | |||||||
Less: Valuation allowance | (50,015 | ) | - | (43 | ) | |||||||
₩ | 8,990,458 | ₩ | 8,694,307 | $ | 7,700 |
4. Available-For-Sale Securities
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||
2009 | 2008 (unaudited) | 2009 | ||||||||||
Non-marketable equity securities | ₩ | 59,608 | ₩ | 56,358 | $ | 51 | ||||||
Marketable government bonds | 566,022 | 551,244 | 485 | |||||||||
₩ | 625,630 | ₩ | 607,602 | $ | 536 |
Unrealized gain from of available-for-sale securities as of December 31, 2009 was ₩ 55,679 thousand (net of tax effect), recorded as accumulated other comprehensive income.
14
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
5. Property, Plant and Equipment
Changes in property, plant and equipment for the years ended December 31, 2009 and 2008 consist of the following:
Thousands of Korean won | ||||||||||||||||||||||||||||
Land | Buildings | Structures | Machinery | Others | Construction-in-progress | Total | ||||||||||||||||||||||
Balances as of January1, 2009 | ₩ | 11,568,415 | ₩ | 32,863,732 | ₩ | 2,182,533 | ₩ | 59,386,696 | ₩ | 3,091,553 | ₩ | 605,678 | ₩ | 109,698,607 | ||||||||||||||
Acquisition | - | 267,440 | - | 15,151,487 | 1,630,321 | 8,201,301 | 25,250,549 | |||||||||||||||||||||
Disposal | - | (1,921 | ) | - | (14,942 | ) | - | - | (16,863 | ) | ||||||||||||||||||
Depreciation | - | (1,385,179 | ) | (123,090 | ) | (9,912,039 | ) | (1,014,584 | ) | - | (12,434,892 | ) | ||||||||||||||||
Transfer | - | - | 269,759 | 4,191,589 | (74,779 | ) | (4,386,569 | ) | - | |||||||||||||||||||
Others1 | - | - | - | (276,129 | ) | - | - | (276,129 | ) | |||||||||||||||||||
Balances as of December 31, 2009 | ₩ | 11,568,415 | ₩ | 31,744,072 | ₩ | 2,329,202 | ₩ | 68,526,662 | ₩ | 3,632,511 | ₩ | 4,420,410 | ₩ | 122,221,272 |
Thousands of U.S. Dollars | ||||||||||||||||||||||||||||
Land | Buildings | Structures | Machinery | Others | Construction-in-progress | Total | ||||||||||||||||||||||
Balances as of January 1, 2009 | $ | 9,908 | $ | 28,146 | $ | 1,869 | $ | 50,862 | $ | 2,648 | $ | 519 | $ | 93,952 | ||||||||||||||
Acquisition | - | 229 | - | 12,977 | 1,396 | 7,024 | 21,626 | |||||||||||||||||||||
Disposal | - | (2 | ) | - | (13 | ) | - | - | (14 | ) | ||||||||||||||||||
Depreciation | - | (1,186 | ) | (105 | ) | (8,489 | ) | (869 | ) | - | (10,650 | ) | ||||||||||||||||
Transfer | - | - | 231 | 3,590 | (64 | ) | (3,757 | ) | - | |||||||||||||||||||
Others1 | - | - | - | (237 | ) | - | - | (237 | ) | |||||||||||||||||||
Balances as of December 31, 2009 | $ | 9,908 | $ | 27,187 | $ | 1,995 | $ | 58,690 | $ | 3,111 | $ | 3,786 | $ | 104,677 |
Thousands of Korean won | ||||||||||||||||||||||||||||
Land | Buildings | Structures | Machinery | Others | Construction-in-progress | Total | ||||||||||||||||||||||
Balances as of January 1, 2008 (unaudited) | ₩ | 11,323,898 | ₩ | 21,988,447 | ₩ | 60,732 | ₩ | 9,886,120 | ₩ | 1,319,502 | ₩ | 1,386,631 | ₩ | 45,965,330 | ||||||||||||||
Acquisition | 244,517 | 2,023,765 | 2,111,559 | 52,258,319 | 1,279,966 | 12,056,144 | 69,974,270 | |||||||||||||||||||||
Disposal | - | (17,500 | ) | - | - | - | - | (17,500 | ) | |||||||||||||||||||
Depreciation | - | (1,169,884 | ) | (29,148 | ) | (4,362,311 | ) | (392,850 | ) | - | (5,954,193 | ) | ||||||||||||||||
Transfer | - | 10,038,904 | 274,690 | 1,604,568 | 884,935 | (12,837,097 | ) | (34,000 | ) | |||||||||||||||||||
Others1 | - | - | (235,300 | ) | - | - | - | (235,300 | ) | |||||||||||||||||||
Balances as of December 31, 2008 (unaudited) | ₩ | 11,568,415 | ₩ | 32,863,732 | ₩ | 2,182,533 | ₩ | 59,386,696 | ₩ | 3,091,553 | ₩ | 605,678 | ₩ | 109,698,607 |
1 Related to the variance of government grants.
15
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
As of December 31, 2009, certain portions of the Company’s land, buildings, and machinery are pledged as collateral for the long-term borrowings to Shinhan Bank up to a maximum of ₩ 123,760 million.
As of December 31, 2009, the value of the Company’s land, as determined by the local government in Korea for property tax assessment purposes, amounts to approximately ₩ 11,627,975 thousand.
In 2009, the Company received government grants amounting to ₩ 1,050,000 thousand from Ministry of Knowledge Economy. As of December 31, 2009, this grant was accounted for as a reduction from cash and machinery for ₩ 773,871 thousand and ₩ 264,494 thousand (net of accumulated amortization), respectively. In 2008 the Company received ₩ 235,300 thousand of a grant from Korea Electric Power Corporation as a reward for installing energy-saving equipment, and the Company recorded this grant as a reduction from structures (₩ 216,681 thousand as of December 31, 2009).
As of December 31, 2009, plant, equipment and inventories are insured against general property losses for up to ₩ 119,988 million. In addition, the Company is insured against machinery breakages, business interruption and so forth.
16
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
6. Intangible Assets
Intangible assets as of December 31, 2009 and 2008 are as follows:
Thousands of Korean won | ||||||||||||
Computer software | Other intangibles | Total | ||||||||||
Balances as of January 1, 2009 | ₩ | 418,719 | ₩ | 234,667 | ₩ | 653,386 | ||||||
Acquisition | 98,093 | 5,424 | 103,517 | |||||||||
Disposal | (2,592 | ) | - | (2,592 | ) | |||||||
Amortization | (116,132 | ) | (64,000 | ) | (180,132 | ) | ||||||
Balances as of December 31, 2009 | ₩ | 398,088 | ₩ | 176,091 | ₩ | 574,179 |
Thousands of U.S. Dollars | ||||||||||||
Computer software | Other intangibles | Total | ||||||||||
Balances as of January 1, 2009 | $ | 358 | $ | 201 | $ | 559 | ||||||
Acquisition | 84 | 5 | 89 | |||||||||
Disposal | (2 | ) | - | (2 | ) | |||||||
Amortization | (99 | ) | (55 | ) | (154 | ) | ||||||
Balances as of December 31, 2009 | $ | 341 | $ | 151 | $ | 492 |
Thousands of Korean won | ||||||||||||
Computer Software | Other Intangibles | Total | ||||||||||
Balances as of January 1, 2008 (unaudited) | ₩ | 368,917 | ₩ | 298,667 | ₩ | 667,584 | ||||||
Acquisition | 107,498 | - | 107,498 | |||||||||
Disposal | 34,000 | - | 34,000 | |||||||||
Amortization | (91,696 | ) | (64,000 | ) | (155,696 | ) | ||||||
Balances as of December 31, 2008 (unaudited) | ₩ | 418,719 | ₩ | 234,667 | ₩ | 653,386 |
17
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
The Company’s significant individual intangible assets include following items:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||
2009 | 2008 (unaudited) | Remaining Amortization Period | 2009 | |||||||||||
(Computer Software) | ||||||||||||||
Production Information System | ₩ | 193,083 | ₩ | 259,283 | 3 years | $ | 165 | |||||||
(Other Intangibles) | ||||||||||||||
Ingot IP License | 170,667 | 234,667 | 2.75 years | 146 |
The Company recognized general development costs amounting to ₩ 667,941 thousand (2008: ₩ 15,469 thousand (unaudited)) as expenses in 2009.
7. Long-term borrowings
Thousands of Korean won | Thousands of U.S. Dollars | ||||||||||||||||
Bank | Interest rate | 2009 | 2008 (Unaudited) | 2009 | |||||||||||||
General | Shinhan | CD+1.35% | ₩ | 57,000,000 | ₩ | 57,000,000 | $ | 48,818 | |||||||||
loans | Bank | CD+2.1% | 24,432,979 | 19,521,457 | 20,926 | ||||||||||||
Development | Shinhan | 4.25% | 6,300,000 | 6,300,000 | 5,396 | ||||||||||||
loans | Bank | Variable | 825,000 | - | 706 | ||||||||||||
₩ | 88,557,979 | ₩ | 82,821,457 | $ | 75,846 | ||||||||||||
Less: Current portion of long-term borrowings | (10,312,500 | ) | - | (8,832 | ) | ||||||||||||
₩ | 78,245,479 | ₩ | 82,821,457 | $ | 67,014 |
As of December 31, 2009, the payment schedule of long-term borrowings is as follows:
Long-term borrowings | ||||||||
Thousands of Korean won | Thousands of U.S. Dollars | |||||||
2011 | ₩ | 18,831,184 | $ | 16,128 | ||||
2012 | 20,358,245 | 17,436 | ||||||
2013 | 20,358,245 | 17,436 | ||||||
Thereafter | 18,697,805 | 16,014 | ||||||
₩ | 78,245,479 | $ | 67,014 |
The long-term borrowings above are collateralized by property, plant and equipment (Note 5). In addition, Woongjin Holdings Co., Ltd., the Company’s controlling entity has guaranteed ₩ 41,600 million in principal plus interest of the Company’s obligation under the loan agreement (Note 17).
18
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
8. Accrued Severance Benefits
2009 | ||||||||
Thousands of Korean won | Thousands of U.S. Dollars | |||||||
Balance at the beginning of the year | ₩ | 405,578 | $ | 347 | ||||
Provision | 675,779 | 579 | ||||||
Payment | (10,530 | ) | (9 | ) | ||||
1,070,827 | 917 | |||||||
Less: Pension plan assets | (758,103 | ) | (649 | ) | ||||
Severance insurance deposits | (27,447 | ) | (24 | ) | ||||
Balance at the end of year | ₩ | 285,277 | $ | 244 |
As of December 31, 2009, Shinhan Bank manages and administers the Company’s pension plan assets, which consist of time deposits only.
9. | Commitments and Contingencies |
As of December 31, 2009, the Company has loan facilities for up to ₩ 88,558 million with Shinhan Bank. The Company also has a credit agreement with Korea Exchange Bank which provides for a ₩ 5,000 million credit facility.
As of December 22, 2006, the Company entered into Polysilicon Supply Agreement with SunPower Philippines Manufacturing, Ltd. and Ingot Supply Agreement with SunPower Corporation, under which SunPower delivers polysilicon to the Company for its manufacturing of ingots, which in turn are sold back to SunPower. On August 1, 2009, the Company and SunPower amended said agreements by which the term of the agreements has extended until July, 2016.
As of December 22, 2006, the Company entered into Ingot IP License Agreement with SunPower Corporation, under which SunPower granted to the Company certain rights under its intellectual property relating to the manufacture and supply of ingots. As a consideration for this agreement, the Company paid ₩ 320 million and recorded the payment as other intangible assets then has amortized it on a straight line method over five years.
19
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
10. Derivative Instruments
As of December 31, 2009, the Company has interest rate swap contracts to manage the exposures to fluctuations in cash flows incurred by variable-interest borrowings. As the Company expects these derivatives to be highly effective in achieving offsetting changes in cash flows, it applied the hedge accounting method designated as cash-flow hedges. The outstanding interest swap contracts as of December 31, 2009 are as follows:
Contract date | Maturity | Related borrowings | Interest rate- Pay | Interest rate- Receive | Fair value | ||||||||||||||||||||
Thousands of Korean won | Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||||||||||
Shinhan | 2007.5.7 | 2010.5.24 | ₩ | 15,700,000 | 5.08 | % | CD | ₩ | (130,959 | ) | $ | (112 | ) | ||||||||||||
Bank | 2007.11.30 | 2010.11.22 | 14,300,000 | 6.70 | % | CD+1.35% | (234,173 | ) | (201 | ) | |||||||||||||||
2008.4.30 | 2011.5.20 | 20,000,000 | 5.09 | % | CD | (341,924 | ) | (293 | ) | ||||||||||||||||
2008.10.29 | 2011.10.17 | 19,500,000 | 6.93 | % | CD+2.10% | (268,451 | ) | (230 | ) | ||||||||||||||||
₩ | (975,507 | ) | $ | (836 | ) |
The Company’s derivative contracts above hedge the risk of cash flows incurred by variable interests on the related borrowings for the period from May 2007 until October 2011. As of December 31, 2009, the Company has recorded ₩ 739,435 thousand of unrealized loss on valuation of the derivatives, less the income tax effect of ₩ 236,072.
The Company expects ₩ 805,357 thousand out of its total swap fair value would be realized within twelve months since December 31, 2009. In 2009, the Company recognized ₩ 1,414,089 thousand of loss on derivative transactions represented as interest expenses.
Gains (losses) on valuation of derivative instruments for the years ended December 31, 2009 and 2008 are as follows:
Loss on valuation of derivatives | Other cumulative comprehensive loss(*) | |||||||||||||||||||||||
Thousands of Korean won | Thousands of U.S. Dollars | Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||||||||
Interest rate Swap | 2009 | 2008 (unaudited) | 2009 | 2009 | 2008 (unaudited) | 2009 | ||||||||||||||||||
₩ | - | ₩ | (258,227 | ) | $ | - | ₩ | (975,507 | ) | ₩ | (2,366,688 | ) | $ | (836 | ) |
(*) before deducting income tax effect
20
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
11. Shareholder’s Equity
The Company is authorized to issue 8 million shares with the par value per share of ₩ 5,000. As of December 31, 2009, the Company has issued 4,612 thousand shares (2008: 4,612 thousand shares) of common stock.
As of December 31, 2009, the Company’s capital surplus represents the share-based compensation for the stock grants to its employees by Woongjin Holdings Co., Ltd, the Company’s controlling entity.
12. Share-based compensation
As of December 31, 2009, the Company has five share-based compensation agreements as follows:
Stock options (1st) | Stock options (2nd) | Restricted stock (1st) | Restricted stock (2nd) | Restricted stock (CEO) | ||||||||||||||||
Grant date | March 20, 2007 | March 24, 2009 | May 31, 2008 | May 31, 2009 | December 2, 2008 | |||||||||||||||
Grantee | Executives | Executives | ESPP | ESPP | CEO | |||||||||||||||
Settlement method | Issuance of shares | Issuance of shares | Transfer of shares | Transfer of shares | Transfer of shares | |||||||||||||||
Number of Shares (Common stock) | 9,312 shares | 24,000 shares | 115,293 shares | 115,307 shares | 76,000 shares | |||||||||||||||
Exercise Price | ₩ | 5,000 | ₩ | 25,200 | ₩ | 5,850 | ₩ | 25,800 | ₩ | - | ||||||||||
(per share) | $ | ( 4 | ) | $ | ( 22 | ) | $ | ( 5 | ) | $ | ( 22 | ) | $ | ( - | ) | |||||
Authority | Shareholders’ meeting | Shareholders’ meeting | Woongjin Holdings Co., Ltd. | Woongjin Holdings Co., Ltd. | Woongjin Holdings Co., Ltd. |
(*) Restricted shares were granted by transfer of the Company’s shares that the controlling company, Woongjin Holdings Co., Ltd. had owned.
(**) The numbers and exercise prices above are subject to change by the Company’s stock issuance, stock dividends, stock split or reverse split.
The Exercisable periods for the stock options granted by the Company are as follows:
Exercisable period | ||
1st Stock Option | From March 20, 2010 to March 19, 2014 | |
2nd Stock Option | From March 24, 2012 to March 23, 2016 |
21
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Vesting conditions for the Company’s share-based compensations are as follows:
Vesting condition | ||
1st Stock Option | 2 years of service from the grant date | |
2nd Stock Option | 3 years of service from the grant date | |
1st and 2nd restricted shares to the ESPP | Continuous service from the grant date and achievement of market performance (a share price target) | |
The restricted shares to CEO | Upon the grant |
The assumptions used to measure fair value of stock options granted by the Company are as follows:
Estimate method: Black-Scholes option pricing model
1st Stock Option | 2nd Stock Option | |||||||
Fair value of underlying common stocks | ₩ | 34,243 ($ 29) per share | ₩ | 20,326 ($ 17) per share | ||||
Risk-free interest rate (yield of Korean treasury bonds with 5-year maturity) | 4.80% | 4.43% | ||||||
Expected exercise period | 5 years | 5 years | ||||||
Volatility | 50.58% | 58.61% | ||||||
Expected dividend yield ratio | - | - | ||||||
Fair value of stock options | ₩ | 30,434 ($ 26) per unit | ₩ | 9,948 ($ 9) per unit |
(*) Fair value of underlying stocks was measured using commonly adopted fair valuation models such as discounted cash flow method.
(**) Volatility of stock price was calculated and based on the historical stock price records (for the same length of time as the expected term) of the domestic listed companies similar to the Company.
Changes in stock options for the year ended December 31, 2009 and 2008 are as follows:
2009 | 2008 (unaudited) | |||||||||||||||
Stock options | Weighted-Avg. Exercise Price | Stock options | Weighted-Avg. Exercise Price | |||||||||||||
Beginning | 9,312 | ₩ | 5,000 ($ 4 | ) | 9,312 | ₩ | 5,000 | |||||||||
Granted | 24,000 | ₩ | 25,200 ($ 22 | ) | - | - | ||||||||||
Forfeited | - | - | - | - | ||||||||||||
Exercised | - | - | - | - | ||||||||||||
Outstanding | 33,312 | ₩ | 19,553 ($ 17 | ) | 9,312 | ₩ | 5,000 | |||||||||
Exercisable | - | - | - | - |
As of December 31, 2009, the accumulated expenses related to the Company’s share-based compensation is ₩ 1,843,747 thousand with prior year’s portion amounting to ₩ 1,697,916 thousand (manufacturing costs: ₩ 256,611 thousand and selling and administrative expenses: ₩ 1,587,136 thousand). The total unrecognized share-based compensation cost as of December 31, 2009 is ₩ 269,779 thousand.
22
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
13. Income taxes
Income tax expense for the years ended December 31, 2009 and 2008 consists of the following:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Current income taxes | ₩ | 8,447,137 | ₩ | 6,220,080 | ₩ | - | $ | 7,235 | ||||||||
Changes in deferred income taxes related to temporary differences | 140,110 | (641,336 | ) | (120,451 | ) | 120 | ||||||||||
Changes in deferred income taxes related to tax credit carry forward | 1,167,207 | (1,167,207 | ) | - | 1,000 | |||||||||||
Total income tax effect | ₩ | 9,754,454 | ₩ | 4,411,537 | ₩ | (120,451) | $ | 8,355 | ||||||||
Deferred income taxes added to or deducted from capital | (311,707 | ) | 530,004 | - | (267 | ) | ||||||||||
Income tax expenses | ₩ | 9,442,747 | ₩ | 4,941,541 | ₩ | (120,451) | $ | 8,088 |
The reconciliations between net income before income taxes and income tax expenses for the years ended December 31, 2009 and 2008 are as follows:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Net income before income taxes | ₩ | 50,476,003 | ₩ | 38,713,365 | ₩ | (2,029,803 | ) | $ | 43,231 | |||||||
Income tax based on statutory tax rate (2009: 24.15%) | ₩ | 12,190,993 | ₩ | 10,615,375 | ₩ | - | $ | 10,441 | ||||||||
Adjustments: | ||||||||||||||||
Non-taxable income of ₩ 0 (2008: ₩ 2,728,798 thousand) | - | (748,248 | ) | - | - | |||||||||||
Non-deductible expense of ₩ 3,312,297 thousand (2008: ₩ 2,124,231 thousand, 2007: ₩ 454,641 thousand) | 460,792 | 42,937 | 125,026 | 395 | ||||||||||||
Loss carry forward | - | (652,650 | ) | (125,026 | ) | - | ||||||||||
Tax credit | (3,204,846 | ) | (4,445,542 | ) | - | (2,745 | ) | |||||||||
Changes in the unrecognized deferred tax | - | 120,451 | (120,451 | ) | - | |||||||||||
Others (Tax rate changes, etc.) | (4,192 | ) | 9,218 | - | (3 | ) | ||||||||||
Income tax expenses | ₩ | 9,442,747 | ₩ | 4,941,541 | ₩ | (120,451 | ) | $ | 8,088 | |||||||
Effective tax rate | 18.71 | % | 12.76 | % | - | 18.71 | % |
23
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Changes in the temporary differences and related deferred tax assets and liabilities for the year ended December 31, 2009 are as follows:
Thousands of Korean won | ||||||||||||||||||||||||
Temporary differences | Deferred tax assets (liabilities) | |||||||||||||||||||||||
Beginning | Increase | Decrease | Ending | Beginning | Ending | |||||||||||||||||||
Accrued Severance benefits | ₩ | 263,628 | ₩ | 485,951 | ₩ | - | ₩ | 749,579 | ₩ | 57,998 | ₩ | 181,398 | ||||||||||||
Severance insurance | (263,628 | ) | (485,951 | ) | - | (749,579 | ) | (57,998 | ) | (181,398 | ) | |||||||||||||
Depreciation | 232,132 | 395,376 | 52,858 | 574,650 | 51,069 | 139,065 | ||||||||||||||||||
Government grants | 228,446 | 1,050,000 | 23,400 | 1,255,046 | 50,258 | 303,721 | ||||||||||||||||||
Temporary allowance for grants | (228,446 | ) | (1,050,000 | ) | (23,400 | ) | (1,255,046 | ) | (50,258 | ) | (303,721 | ) | ||||||||||||
Loss on foreign exchange translation | 2,644,194 | 63,531 | 2,644,194 | 63,531 | 639,895 | 15,374 | ||||||||||||||||||
Gain on foreign exchange translation | (2,277,335 | ) | (13,237 | ) | (2,277,335 | ) | (13,237 | ) | (551,115 | ) | (3,203 | ) | ||||||||||||
Gain on valuation of available-for-sale securities | (55,427 | ) | (18,028 | ) | - | (73,455 | ) | (12,194 | ) | (17,776 | ) | |||||||||||||
Derivatives liability | 2,366,687 | - | 1,391,180 | 975,507 | 542,198 | 236,073 | ||||||||||||||||||
Accrued income | (117,840 | ) | (232,329 | ) | (117,840 | ) | (232,329 | ) | (28,517 | ) | (56,224 | ) | ||||||||||||
Loss on valuation of inventories | - | 422,467 | - | 422,467 | - | 102,237 | ||||||||||||||||||
Allowance for sales return | - | 354,042 | - | 354,042 | - | 85,679 | ||||||||||||||||||
Subtotal | ₩ | 2,792,411 | ₩ | 971,822 | ₩ | 1,693,057 | ₩ | 2,071,176 | ₩ | 641,336 | ₩ | 501,225 | ||||||||||||
Tax credit carry forward | ₩ | 1,459,009 | ₩ | - | ₩ | 1,459,009 | ₩ | - | ₩ | 1,167,207 | ₩ | - | ||||||||||||
₩ | 1,808,543 | ₩ | 501,225 |
24
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007(unaudited)
Thousands of U.S. Dollars | ||||||||||||||||||||||||
Temporary differences | Deferred tax assets (liabilities) | |||||||||||||||||||||||
Beginning | Increase | Decrease | Ending | Beginning | Ending | |||||||||||||||||||
Accrued Severance benefits | $ | 226 | $ | 416 | $ | - | $ | 642 | $ | 50 | $ | 155 | ||||||||||||
Severance insurance | (226 | ) | (416 | ) | - | (642 | ) | (50 | ) | (155 | ) | |||||||||||||
Depreciation | 199 | 339 | 45 | 492 | 44 | 119 | ||||||||||||||||||
Government grants | 196 | 899 | 20 | 1,075 | 43 | 260 | ||||||||||||||||||
Temporary allowance for grants | (196 | ) | (899 | ) | (20 | ) | (1,075 | ) | (43 | ) | (260 | ) | ||||||||||||
Loss on foreign exchange translation | 2,265 | 54 | 2,265 | 54 | 548 | 13 | ||||||||||||||||||
Gain on foreign exchange translation | (1,950 | ) | (11 | ) | (1,950 | ) | (11 | ) | (472 | ) | (3 | ) | ||||||||||||
Gain on valuation of available-for-sale securities | (47 | ) | (15 | ) | - | (63 | ) | (10 | ) | (15 | ) | |||||||||||||
Derivatives liability | 2,027 | - | 1,191 | 835 | 464 | 202 | ||||||||||||||||||
Accrued income | (101 | ) | (199 | ) | (101 | ) | (199 | ) | (24 | ) | (48 | ) | ||||||||||||
Loss on valuation of inventories | - | 362 | - | 362 | - | 88 | ||||||||||||||||||
Allowance for sales return | - | 303 | - | 303 | - | 73 | ||||||||||||||||||
Subtotal | $ | 2,392 | $ | 832 | $ | 1,450 | $ | 1,774 | $ | 549 | $ | 429 | ||||||||||||
Tax credit carry forward | $ | 1,250 | $ | - | $ | 1,250 | $ | - | $ | 1,000 | $ | - | ||||||||||||
$ | 1,549 | $ | 429 |
25
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
The gross balances of deferred tax assets and liabilities are as follows:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||||||||||
2009 | 2008 (unaudited) | 2009 | ||||||||||||||||||||||
Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | Deferred tax assets | Deferred tax liabilities | |||||||||||||||||||
Current | ₩ | 398,192 | ₩ | (59,427 | ) | ₩ | 2,043,898 | ₩ | (579,632 | ) | $ | 341 | $ | (51 | ) | |||||||||
Non-current | 665,355 | (502,895 | ) | 464,727 | (120,450 | ) | 570 | (431 | ) |
Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the period during which the temporary differences reverse, the outlook of the Korean economic environment, and the overall future industry outlook. Management periodically considers these factors in reaching its conclusion and recognized the deferred income tax asset since all the future (deductible) tax benefits are determined to be realizable as of December 31, 2009.
14. Sales
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Sales – finished goods (including manufacturing service) | ₩ | 113,016,015 | ₩ | 50,772,609 | ₩ | 2,297,975 | $ | 96,793 | ||||||||
Sales – others | 5,877,600 | 16,906,580 | 536,496 | 5,034 | ||||||||||||
Total sales | ₩ | 118,893,615 | ₩ | 67,679,189 | ₩ | 2,834,471 | $ | 101,827 |
Sales related to outsourced manufacturing services (manufacture of ingots using customer- procured polycrystalline silicon) is as follows:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Gross amount | ₩ | 200,456,805 | ₩ | 95,662,845 | ₩ | 4,791,802 | $ | 171,683 | ||||||||
Net revenue | 112,854,662 | 50,772,609 | 2,297,975 | 96,655 |
Related to above, the Company accounted for ₩ 14,167,192 thousand of the unprocessed raw materials (poly-silicon) provided by customer as short-term deposits (2008: ₩ 9,900,640 thousand (unaudited)).
26
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
15. Cost of Sales
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Inventory beginning | ₩ | 227,875 | ₩ | 10,131 | ₩ | - | $ | 195 | ||||||||
Manufacturing cost for the year | 50,792,057 | 22,254,229 | 2,107,389 | 43,501 | ||||||||||||
Transfer from other accounts | 4,680,834 | 1,800,531 | 58,860 | 4,009 | ||||||||||||
Transfer to other accounts | (3,021,787 | ) | (233,072 | ) | - | (2,588 | ) | |||||||||
Inventory, ending | (1,887,830 | ) | (227,875 | ) | (10,130 | ) | (1,617 | ) | ||||||||
Cost of finished goods sold | ₩ | 50,791,149 | ₩ | 23,603,944 | ₩ | 2,156,119 | $ | 43,500 | ||||||||
Cost of other sales | 3,763,091 | 2,039,321 | 109,616 | 3,223 | ||||||||||||
Cost of sales | ₩ | 54,554,240 | ₩ | 25,643,265 | ₩ | 2,265,735 | $ | 46,723 |
16. Comprehensive Income
The Company’s comprehensive income for the years ended December 31, 2009 and 2008 consists of the following:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Net income | ₩ | 41,033,255 | ₩ | 33,771,824 | ₩ | (1,909,352) | $ | 35,143 | ||||||||
Other comprehensive income and expense | ||||||||||||||||
Gain on valuation of available-for-sale securities, net of tax effect of ₩ 5,582 thousand in 2009, ₩ 12,194 thousand in 2008 and ₩ nil in 2007 | 12,445 | 43,233 | - | 11 | ||||||||||||
Loss on valuation of derivatives instruments, net of tax effect of ₩ 306,125 thousand in 2009, ₩ 542,199 thousand in 2008 and ₩ nil in 2007 | 1,085,055 | (1,824,489 | ) | - | 929 | |||||||||||
Comprehensive income | ₩ | 42,130,755 | ₩ | 31, 990, 568 | ₩ | (1,909,352) | $ | 36,083 |
27
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
17. Related Party Transactions
Details of the parents and subsidiaries are as follows:
Description | Related Party | Reference |
Controlling company | Woongjin Holdings Co., Ltd. | Shareholder |
Other related parties | SunPower (*) | Shareholder |
Other related parties | Woongjin Coway Co., Ltd. | An affiliate |
Other related parties | Woongjin Happyall Co., Ltd. | An affiliate |
Other related parties | Woongjin Foods Co., Ltd. | An affiliate |
Other related parties | Kukdong Engineering & Construction Co., Ltd. | An affiliate |
Other related parties | Woongjin Thinkbig Co., Ltd. | An affiliate |
Other related parties | Booxen Co., Ltd. | An affiliate |
(*) SunPower indicates SunPower Corporation in U.S.A., a shareholder of the Company, and its subsidiaries.
Significant transactions, which occurred in the normal course of business between the Company and its related parties in 2009, 2008 and 2007 are as follows:
Sales | ||||||||||||||||
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Woongjin Holdings Co., Ltd. | ₩ | - | ₩ | - | ₩ | - | $ | - | ||||||||
SunPower | 113,383,024 | 50,772,609 | 2,217,273 | 97,108 | ||||||||||||
Others (*) | 14,151 | - | - | 12 | ||||||||||||
₩ | 113,397,175 | ₩ | 50,772,609 | ₩ | 2,217,273 | $ | 97,120 |
Purchase | ||||||||||||||||
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Woongjin Holdings Co., Ltd. | ₩ | 3,040,057 | ₩ | 372,670 | ₩ | 9,143 | $ | 2,604 | ||||||||
SunPower | 376,633 | 590,495 | 546,089 | 323 | ||||||||||||
Others (*) | 4,101,168 | 9,096,094 | 22,955,101 | 3,512 | ||||||||||||
₩ | 7,517,858 | ₩ | 10,059,259 | ₩ | 23,510,333 | $ | 6,439 |
(*) Others include Kukdong Engineering & Construction Co., Ltd. to which the Company has paid ₩ 2,370,720 thousand in 2009 (2008: ₩ 7,950,690 thousand (unaudited) and 2007: ₩22,330,000 thousand (unaudited)) for the construction of the Company’s plants.
28
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
Significant balances with related parties as of December 31, 2009 and 2008 are summarized as follows:
Receivables | Payables | |||||||||||||||||||||||
Thousands of Korean won | Thousands of U.S. Dollars | Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||||||||
2009 | 2008 (unaudited) | 2009 | 2009 | 2008 (unaudited) | 2009 | |||||||||||||||||||
Woongjin Holdings Co., Ltd. | ₩ | 8,881 | ₩ | - | $ | 8 | ₩ | 291,058 | ₩ | 35,904 | $ | 249 | ||||||||||||
SunPower | 48,656,177 | 35,638,505 | 41,672 | 19,333,440 | 22,930,253 | 16,558 | ||||||||||||||||||
Others | - | - | - | 1,390,031 | 283,095 | 1,191 | ||||||||||||||||||
₩ | 48,665,058 | ₩ | 35,638,505 | $ | 41,680 | ₩ | 21,014,529 | ₩ | 23,249,252 | $ | 17,998 |
As of December 31 2009, Woongjin Holdings Co., Ltd., the Company’s controlling entity has guaranteed ₩ 41,600 million in relation to the Company’s long-term obligation under the loan agreement (Note 7).
18. Assets and Liabilities Denominated in Foreign Currencies
As of December 31, 2009 and 2008, assets and liabilities denominated in foreign currencies are as follows:
2009 | 2008 (unaudited) | ||||||||||||||||||
(in thousands of Korean won) | Foreign Currency | Korean Won Equivalent | Foreign Currency | Korean Won Equivalent | |||||||||||||||
Assets | |||||||||||||||||||
Cash and cash equivalents | USD | 888,191 | ₩ | 1,037,052 | USD | 2,041,745 | ₩ | 2,567,494 | |||||||||||
Accounts receivable | USD | 16,459,382 | 19,217,974 | USD | 11,157,284 | 14,030,285 | |||||||||||||
Other receivables | USD | 13,253,632 | 15,474,941 | USD | 9,604,464 | 12,077,613 | |||||||||||||
Liabilities | |||||||||||||||||||
Short-term borrowings | - | - | JPY | 96,223,789 | 1,341,254 | ||||||||||||||
Accounts payable | USD | 562,117 | 656,328 | USD | 345,600 | 434,592 | |||||||||||||
JPY | 10,396,500 | 131,308 | - | - | |||||||||||||||
Other payables | USD | 16,484,007 | 19,246,727 | USD | 18,181,693 | 22,863,479 | |||||||||||||
JPY | 4,150,000 | 52,414 | JPY | 275,113,480 | 3,834,779 | ||||||||||||||
- | - | CHF | 52,668 | 62,726 |
Gains on foreign currency translation for the years ended December 31, 2009, 2008 and 2007 are ₩ 13 million, ₩ 2,277 million (unaudited) and ₩ 95 million (unaudited), respectively, and losses on foreign currency translation for the years ended December 31, 2009, 2008 and 2007 are ₩ 64 million, ₩ 2,644 million (unaudited) and ₩ 3 million (unaudited), respectively.
29
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
19. Selling and Administrative Expenses
Details of selling and administrative expenses for the years ended December 31, 2009, 2008 and 2007 are as follows:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Salaries | ₩ | 1,361,133 | ₩ | 1,503,842 | ₩ | 995,047 | $ | 1,166 | ||||||||
Severance benefits | 183,728 | 78,483 | 56,934 | 157 | ||||||||||||
Other salaries | 1,728 | 684 | 278 | 2 | ||||||||||||
Stock-based compensation expenses | 1,587,136 | - | 1,359 | |||||||||||||
Employee benefits | 827,803 | 589,405 | 219,719 | 709 | ||||||||||||
Travel | 80,841 | 99,103 | 138,535 | 69 | ||||||||||||
Communication | 19,887 | 39,891 | 18,611 | 17 | ||||||||||||
Printing | 7,226 | 19,372 | 5,578 | 6 | ||||||||||||
Training expenses | 104,148 | 101,808 | 48,349 | 89 | ||||||||||||
Supplies | 31,754 | 73,944 | 106,449 | 27 | ||||||||||||
Taxes and dues | 145,581 | 139,942 | 192,876 | 125 | ||||||||||||
Lease payment | 17,706 | 15,727 | 38,764 | 15 | ||||||||||||
Commission | 863,161 | 1,278,998 | 716,424 | 739 | ||||||||||||
Service fees | 883,782 | 87,070 | 56,499 | 757 | ||||||||||||
Vehicle maintenance expenses | 67,921 | 60,446 | 54,809 | 58 | ||||||||||||
Insurance expenses | 44,531 | 49,307 | 29,790 | 38 | ||||||||||||
Entertainment | 17,589 | 15,677 | 25,161 | 15 | ||||||||||||
Sample expenses | 22,782 | - | 1,772 | 20 | ||||||||||||
Advertising | 550,010 | 186,976 | 107,247 | 471 | ||||||||||||
Transportation | 14,617 | 8,288 | 104,834 | 13 | ||||||||||||
Depreciation | 239,929 | 168,078 | 59,882 | 205 | ||||||||||||
Amortization | 29,976 | 15,958 | 12,568 | 26 | ||||||||||||
Development expenses | 667,941 | 15,469 | 572 | |||||||||||||
Bad debt expenses | 84,992 | 105,525 | 16,641 | 73 | ||||||||||||
Others | 18 | 20 | 63,319 | - | ||||||||||||
₩ | 7,855,920 | ₩ | 4,654,013 | ₩ | 3,070,086 | $ | 6,728 |
30
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
20. Supplementary Information for Computation of Value Added
The Company’s details of accounts included in the computation of value added for the years ended December 31, 2009, 2008 and 2007 are as follows:
Thousands of Korean won | ||||||||||||||||||||||||
Manufacturing Costs | Selling and Administrative Expenses | |||||||||||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | 2008 (unaudited) | 2007 (unaudited) | |||||||||||||||||||
Wages and Salaries | ₩ | 5,598,897 | ₩ | 3,387,852 | ₩ | 424,027 | ₩ | 1,361,133 | ₩ | 1,504,526 | ₩ | 995,325 | ||||||||||||
Severance Benefits | 492,051 | 252,387 | - | 183,728 | 78,483 | 56,934 | ||||||||||||||||||
Employee Benefits | 413,429 | 248,910 | 47,689 | 827,803 | 589,405 | 219,719 | ||||||||||||||||||
Depreciation | 11,855,883 | 5,786,115 | 561,762 | 579,008 | 168,078 | 59,882 | ||||||||||||||||||
Taxes and Dues | 1,663 | 1,019 | 2,915 | 145,581 | 139,942 | 192,876 | ||||||||||||||||||
₩ | 18,361,923 | ₩ | 9,676,283 | ₩ | 1,036,393 | ₩ | 3,097,253 | ₩ | 2,480,434 | ₩ | 1,524,736 |
Thousands of U.S. Dollars | ||||||||||||
Manufacturing Costs | Selling and Administrative Expenses | Total | ||||||||||
2009 | 2009 | 2009 | ||||||||||
Wages and Salaries | $ | 4,795 | $ | 1,166 | $ | 5,961 | ||||||
Severance Benefits | 421 | 157 | 579 | |||||||||
Employee Benefits | 354 | 709 | 1,063 | |||||||||
Depreciation | 10,154 | 496 | 10,650 | |||||||||
Taxes and Dues | 1 | 125 | 126 | |||||||||
$ | 15,725 | $ | 2,653 | $ | 18,379 |
31
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
21. Supplementary Cash Flow Information
Significant transactions not affecting cash flows are as follows:
Thousands of Korean won | Thousands of U.S. Dollars | |||||||||||||||
2009 | 2008 (unaudited) | 2007 (unaudited) | 2009 | |||||||||||||
Reclassification of construction in progress | ₩ | 4,386,569 | ₩ | 12,837,097 | ₩ | 1,125,853 | $ | 3,757 | ||||||||
Conversion of convertible bonds to capital stock | - | 3,060,000 | - | - | ||||||||||||
Reclassification of current maturities of long-term borrowings | 10,312,500 | - | - | 8,832 |
22. Approval of Financial Statements
The financial statements as of and for the year ended December 31, 2009, were approved by the Board of Directors on February 8, 2010.
23. Summary of Certain Significant Differences Between Korean GAAP and Accounting Principles Generally Accepted in The United States of America (“U.S. GAAP”) |
The accompanying consolidated financial statements of the Company have been prepared in conformity with Korean GAAP, which differs from U.S. GAAP in certain significant respects. Such differences are discussed below and address only those differences related to the non-consolidated financial statements. In addition, no attempt has been made to identify disclosure, presentation or classification differences that would affect the manner in which transactions and events are presented in the financial statements.
Information relating to the nature of such differences is presented below.
a. | Foreign Currency Translation |
Under U.S. GAAP, an entity’s functional currency is defined as the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. FASB Codification 830 “Foreign Currency Matters” provides guidance on the determination of a reporting entity's functional currency. It also states that, if an entity's books of record are not maintained in its functional currency, re-measurement into the functional currency is required before translation into the reporting currency.
Under Korean GAAP, the concept of a functional currency did not exist until the release of revision of Korea Financial Accounting Standards Article 68 “Translation of Assets and Liabilities Denominated in Foreign Currencies” which shall be effective from December 31, 2010. While early adoption of this revision is permitted from the financial period including December 31, 2008, the Company has not applied it for the financial statements presented herein. As such, Korean won is used as the base currency for the measurement and presentation as described in Note 2.
32
Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
b. | Correction of Errors |
Under U.S. GAAP, any error in the financial statements of a prior period discovered after the financial statements are issued or are available to be issued shall be reported as an error correction, by restating the prior-period financial statements. Such restatement requires all of the following:
a. The cumulative effect of the error on periods prior to those presented shall be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented.
b. An offsetting adjustment, if any, shall be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period.
c. Financial statements for each individual prior period presented shall be adjusted to reflect correction of the period-specific effects of the error.
Under Korean GAAP, only the correction of fundamental errors is required the restatement of the prior period figures. Corrections of errors other than fundamental errors are included in the profit or loss for the current period.
c. | Accrued Severance Benefits |
Under the Korean labor law, employees and directors with more than one year of service are entitled to receive a lump-sum payment upon voluntary or involuntary termination of their employment. The amount of the benefit is based on the length of service and rate of pay at the time of termination. Under Korean GAAP, the full amount of accrued severance benefit as of the end of the reporting period should be provided for. Severance expense is calculated based on the net change in the accrued severance benefit liability assuming the termination of all eligible employees as of the beginning and end of the accounting period. Accrued severance benefits funded outside the company are presented as a deduction from accrued retirement and severance benefit liability.
U.S. GAAP generally requires the use of actuarial methods for measuring annual employee benefit costs including the use of assumptions as to the rate of salary progression and discount rate, the amortization of prior service costs over the remaining service period of active employees and the immediate recognition of a liability when the accumulated benefit obligation exceeds the fair market value of plan assets. U.S. GAAP also requires employers to recognize the obligation to provide postemployment benefits if the obligation is attributable to employees’ services already rendered, employees’ rights to those benefits accumulate or vest, payment of the benefits is probable, and the amount of the benefits can be reasonably estimated. Also, U.S. GAAP requires certain additional disclosures not required under Korean GAAP.
Under U.S. GAAP, for employee benefit plans with the characteristics of the Korean plans, if the vested benefits obligation is larger than the present value of the projected benefit obligation, a company may record a pension liability equal to the vested benefit obligation at the balance sheet date. Under these circumstances, the periodic pension expense is equal to the change in the vested benefits obligation during the year and there is no significant difference between Korean GAAP and U.S. GAAP.
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Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007 (unaudited)
d. | Accounting for Income Tax |
Under Korean GAAP, deferred income taxes for anticipated future tax consequences result from temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are computed on such temporary differences, including available net operating loss carry-forwards and tax credits, by applying enacted statutory tax rates applicable to the years when such differences are expected to be reversed. Deferred income tax assets are recognized to the extent that it is almost certain that such deferred income tax assets will be realized.
U.S. GAAP requires the recognition of deferred income taxes for all temporary differences between the carrying value of assets and liabilities for financial statement purposes, and their respective tax bases. Deferred tax assets are reduced by a valuation allowance if, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Additional payments or reversals of previously provided liabilities arising from finalization of income tax returns, filing amended tax returns or examinations of prior year tax returns by tax authorities are normally reported as part of the current tax charge.
Under U.S. GAAP, for fiscal years beginning after December 15, 2006, an uncertain tax position must be recognized when it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The uncertain tax position, which can be recognized, is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
e. | Derivatives |
Under Korean GAAP, derivative financial instruments, regardless of whether they are entered into for trading or hedging purposes, are valued at fair value. Derivative contracts not meeting the requirements for hedge accounting treatment are classified as trading contracts with the changes in fair value included in current operations. For the derivative contracts qualifying for cash flow hedge accounting treatment, the effective portion of the hedge instrument is recorded as capital adjustments and later transfers out of equity when either:
l | results in a recognized asset or liability, in which case the amount accumulated in equity is recognized as an adjustment to the carrying amount of that asset or liability; or |
l | otherwise impacts the statement of income. |
Under Korean GAAP, a fair value hedge is used to hedge changes in the fair value of a recognized asset or liability, or firm commitment. The hedging instrument is stated at fair value with changes therein flowing through the statement of income as other income or expenses in current operations. Under Korean GAAP, the definition of an embedded derivative is broadly defined without detailed guidance.
Under U.S. GAAP, an entity is required to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, a hedge of the exposure to variable cash flows of a forecasted transaction, or a hedge of the foreign currency exposure of a net investment in foreign operations, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.
For a fair value hedge, the gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item attributable to the risk being hedged. The effect of that accounting is to reflect in earnings the extent to which the hedge is not effective in achieving offsetting changes in fair value.
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Woongjin Energy Co., Ltd.
Notes to Financial Statements
Years Ended December 31, 2009, 2008 (unaudited) and 2007(unaudited)
For a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. For a derivative designated as hedging the foreign currency exposure of a net investment in foreign operations, the gain or loss is reported in other comprehensive income as part of the cumulative translation adjustment. The accounting for a fair value hedge applies to a derivative designated as a hedge of foreign currency exposure of an unrecognized firm commitment or an available-for-sale security. Similarly, the accounting for a cash flow hedge applies to a derivative designated as a hedge of the foreign currency e xposure of a foreign-currency-denominated forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in earnings in the period of change.
Under U.S. GAAP, there are strict requirements to apply hedge accounting and there are detailed rules for derivative accounting. In general, the accounting for derivatives under Korean GAAP is conceptually similar to that under U.S. GAAP; however, there could be certain significant differences in application. In addition, U.S. GAAP also defines the concept of an embedded derivative, which may need to be recognized and accounted for separately.
f. | Government Grants |
Korean GAAP provides specific guidance on the account treatments of government grants which are not obliged to repayments. Such government grants are distinguished between ones to be used for acquisition of specific assets and the others which are related to income. Until the acquisition of related asset, government grants received for asset acquisition are presented in the statement of financial position either by deducting cash (i.e. contra-cash) or deducting the temporary investments operated with the grants. When the acquisition of related asset is completed, the grants are deducted in arriving at the carrying amount of the asset.
Government grants related to income are recorded on the current period’s income statement only to the extent that specific conditions for the use of the grants, if any, have been met; otherwise are recorded as deferred income.
Under U.S GAAP, if conditions are attached to the grant, recognition of the grants is delayed until such conditions have been fulfilled. Contributions of long-lived assets or for the purchase of long-lived assets are to be credited to income over the expected useful life of the asset for which the grant was received.
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