Form 6-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF FEBRUARY 2015

Commission File Number: 333-04906

 

 

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

 

 

Euljiro 65(Euljiro2-ga), Jung-gu

Seoul 100-999, Korea

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

 

 

 


RESOLUTION TO CALL

THE ANNUAL GENERAL MEETING OF SHAREHOLDERS

The Board of Directors of SK Telecom Co., Ltd. (the “Company”) has resolved to call the Annual General Meeting of Shareholders, to be held at the following time and place and the agenda of which shall be as follows:

 

1. Date / Time March 20, 2015 10:00 AM (Seoul time)
2. Place 4th Floor, SK Telecom Boramae Building, Boramae-ro 5-Gil 1, Gwanak-gu, Seoul, Korea
3. Agenda

1.      Approval of Financial Statements for the 31st Fiscal Year (2014)

 

2.      Approval of Amendment to the Articles of Incorporation

 

3.      Approval of the Election of Director

(Candidate : Jang, Dong-Hyun)

 

4.      Approval of the Election of a Member of the Audit Committee

(Candidate : Lee, Jae-Hoon)

 

5.      Approval of Ceiling Amount of the Remuneration for Directors

4. Date of the resolution by the Board of Directors February 24, 2015

•       Attendance of external directors

Present 5
Absent 0
5. Other Noteworthy Matters -

 

2


Documents relating to the Annual Meeting of Shareholders

 

1. Approval of Financial Statements for the 31st Fiscal Year

 

SK TELECOM CO., LTD. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2014

 

3


(In millions of won)    Note      December 31,
2014
     December 31,
2013
 

Assets

        

Current Assets:

        

Cash and cash equivalents

     31,35,36       834,429         1,398,639   

Short-term financial instruments

     6,31,35,36,37,38         313,068         311,474   

Short-term investment securities

     9,35,36         280,161         106,068   

Accounts receivable - trade, net

     7,31,35,36,37         2,392,150         2,257,316   

Short-term loans, net

     7, 35,36,37         74,512         79,395   

Accounts receivable - other, net

     7, 35,36,37         690,527         643,603   

Prepaid expenses

        134,404         108,909   

Derivative financial assets

     23, 35,36         —           10   

Inventories, net

     8,38         267,667         177,120   

Assets classified as held for sale

     10         10,510         3,667   

Advanced payments and other

     7,9, 35,36,37         85,720         37,214   
     

 

 

    

 

 

 

Total Current Assets

  5,083,148      5,123,415   
     

 

 

    

 

 

 

Non-Current Assets:

Long-term financial instruments

  6, 35,36,38      631      8,142   

Long-term investment securities

  9, 35,36      956,280      968,527   

Investments in associates and joint ventures

  13      6,298,088      5,325,297   

Property and equipment, net

  14,37,38      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, 35,36,37      55,728      57,442   

Long-term accounts receivable - other

  7,35,36      3,596      —     

Long-term prepaid expenses

  38      51,961      32,008   

Guarantee deposits

  6,7, 35,36,37      285,144      249,600   

Long-term derivative financial assets

  23,35,36      70,035      41,712   

Deferred tax assets

  2,32      25,083      26,322   

Other non-current assets

  7, 35,36      127,252      47,589   
     

 

 

    

 

 

 

Total Non-Current Assets

  22,858,085      21,453,100   
     

 

 

    

 

 

 

Total Assets

  27,941,233      26,576,515   
     

 

 

    

 

 

 

 

4


(In millions of won)    Note      December 31,
2014
    December 31,
2013
 

Liabilities and Equity

       

Current Liabilities:

       

Short-term borrowings

     18,31,35,36       366,600        260,000   

Current portion of long-term debt, net

     18,31,35,36         590,714        1,042,276   

Current portion of finance lease liabilities

     21,31,35,36         3,804        19,351   

Current portion of long-term payables – other

     19,35,36         189,389        206,800   

Accounts payable - trade

     35,36,37         275,495        214,716   

Accounts payable - other

     35,36,37         1,381,850        1,864,024   

Withholdings

     35,36,37         1,053,063        728,936   

Accrued expenses

     35,36         952,418        988,193   

Income tax payable

     32         99,236        112,316   

Unearned revenue

        327,003        441,731   

Derivative financial liabilities

     23, 35,36         —          21,171   

Provisions

     20         51,075        66,775   

Advanced receipts

     34,35         129,255        102,931   

Liabilities classified as held for sale

     10         408        —     
     

 

 

   

 

 

 

Total Current Liabilities

  5,420,310      6,069,220   
     

 

 

   

 

 

 

Non-Current Liabilities:

Debentures, excluding current portion, net

  18,31,35,36      5,649,158      4,905,579   

Long-term borrowings, excluding current portion

  18,31,35,36      149,720      104,808   

Long-term payables - other

  19, 35,36      684,567      838,585   

Long-term unearned revenue

  19,659      50,894   

Finance lease liabilities

  21,31,35,36      26      3,867   

Defined benefit liabilities

  22      91,587      74,201   

Long-term derivative financial liabilities

  23, 35,36      130,889      103,168   

Long-term provisions

  20      36,013      28,106   

Deferred tax liabilities

  2,32      444,211      168,825   

Other non-current liabilities

  35,36      66,823      62,705   
     

 

 

   

 

 

 

Total Non-Current Liabilities

  7,272,653      6,340,738   
     

 

 

   

 

 

 

Total Liabilities

  12,692,963      12,409,958   
     

 

 

   

 

 

 

Equity

Share capital

  1,24      44,639      44,639   

Capital surplus and other capital adjustments

  24,25,26      277,998      317,508   

Retained earnings

  27      14,188,591      13,102,495   

Reserves

  28      (4,489   (12,270
     

 

 

   

 

 

 

Equity attributable to owners of the Parent Company

  14,506,739      13,452,372   

Non-controlling interests

  741,531      714,185   
     

 

 

   

 

 

 

Total Equity

  15,248,270      14,166,557   
     

 

 

   

 

 

 

Total Liabilities and Equity

  27,941,233      26,576,515   
     

 

 

   

 

 

 

 

5


(In millions of won except for per share data)    Note      2014     2013  

Continuing operations

       

Operating revenue:

     5,37        

Revenue

        17,163,798        16,602,054   
     

 

 

   

 

 

 

Operating expense:

  37   

Labor cost

  22      1,659,777      1,561,358   

Commissions paid

  5,692,680      5,498,695   

Depreciation and amortization

  5      2,714,730      2,661,623   

Network interconnection

  997,319      1,043,733   

Leased line

  399,014      448,833   

Advertising

  415,857      394,066   

Rent

  460,309      443,639   

Cost of products that have been resold

  1,680,110      1,300,375   

Other operating expenses

  29      1,318,897      1,238,623   
     

 

 

   

 

 

 
  15,338,693      14,590,945   
     

 

 

   

 

 

 

Operating income

  5      1,825,105      2,011,109   

Finance income

  5,31      126,337      113,392   

Finance costs

  5,31      (386,673   (571,203

Gain related to investments in subsidiaries, associates and joint ventures, net

  1,5,13      906,338      706,509   

Other non-operating income

  30      56,279      74,467   

Other non-operating expenses

  30      (273,558   (507,173
     

 

 

   

 

 

 

Profit before income tax

  5      2,253,828      1,827,101   

Income tax expense from continuing operations

  32      454,508      400,797   
     

 

 

   

 

 

 

Profit from continuing operations

  1,799,320      1,426,304   

Discontinued operations

Profit from discontinued operations, net of income taxes

  39      —        183,245   
     

 

 

   

 

 

 

Profit for the year

  5    1,799,320      1,609,549   
     

 

 

   

 

 

 

Attributable to :

Owners of the Parent Company

1,801,178      1,638,964   

Non-controlling interests

  (1,858   (29,415

Earnings per share

  33   

Basic earnings per share (in won)

25,154      23,211   
     

 

 

   

 

 

 

Diluted earnings per share (in won)

25,154      23,211   
     

 

 

   

 

 

 

Earnings per share - Continuing operations

  33   

Basic earnings per share (in won)

25,154      20,708   
     

 

 

   

 

 

 

Diluted earnings per share (in won)

25,154      20,708   
     

 

 

   

 

 

 

 

6


(In millions of won)    Note      2014     2013  

Profit for the year

      1,799,320        1,609,549   

Other comprehensive income (loss)

       

Items that will not be reclassified to profit or loss:

       

Remeasurement of defined benefit liabilities

     22         (32,942     5,946   

Items that may be reclassified subsequently to profit or loss:

       

Net change in unrealized fair value of available-for-sale financial assets

     28,31         27,267        2,009   

Net change in other comprehensive income of investments in associates and joint ventures

     13,28         8,187        3,034   

Net change in unrealized fair value of derivatives

     23,28,31         (45,942     11,222   

Foreign currency translation differences for foreign operations

     28         14,944        (3,714
     

 

 

   

 

 

 
  (28,486   18,497   
     

 

 

   

 

 

 

Total comprehensive income

  1,770,834      1,628,046   
     

 

 

   

 

 

 

Total comprehensive income attributable to:

Owners of the Parent Company

1,777,519      1,655,570   

Non-controlling interests

  (6,685   (27,524

 

7


(In millions of won)    Controlling interest              
     Share capital      Capital deficit
and other
capital
adjustments
    Retained
earnings
    Reserves     Sub-total     Non-controlling
interests
    Total equity  

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 bond

  —        398,518      —        —        398,518      —        398,518   

Interest on hybrid bond

  —        —        (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, 2014

44,639      317,508      13,102,495      (12,270   13,452,372      714,185      14,166,557   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2014

44,639      317,508      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 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 bond

  —        —        (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      277,998      14,188,591      (4,489   14,506,739      741,531      15,248,270   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

8


(In millions of won)    Note      2014     2013  

Cash flows from operating activities:

       

Cash generated from operating activities

       

Profit for the year

      1,799,320        1,609,549   

Adjustments for income and expenses

     40         2,978,995        3,275,376   

Changes in assets and liabilities related to operating activities

     40         (707,333     (969,870
     

 

 

   

 

 

 

Sub-total

  4,070,982      3,915,055   

Interest received

  56,706      64,078   

Dividends received

  13,048      10,197   

Interest paid

  (280,847   (300,104

Income tax paid

  (182,504   (130,656
     

 

 

   

 

 

 

Net cash provided by operating activities

  3,677,385      3,558,570   
     

 

 

   

 

 

 

Cash flows from investing activities:

Cash inflows from investing activities:

Decrease in short-term financial instruments, net

  5,627      186,425   

Collection of short-term loans

  207,439      290,856   

Decrease in long-term financial instruments

  2,535      16   

Proceeds from disposal of long-term investment securities

  65,287      287,777   

Proceeds from disposal of investments in associates and joint ventures

  7,333      43,249   

Proceeds from disposal of property and equipment

  25,143      12,579   

Proceeds from disposal of intangible assets

  10,917      2,256   

Proceeds from disposal of assets held for sale

  3,667      190,393   

Collection of long-term loans

  4,454      13,104   

Decrease in deposits

  8,891      8,509   

Proceeds from disposal of other non-current assets

  94      683   

Proceeds from disposal of subsidiaries

  —        215,939   
     

 

 

   

 

 

 

Sub-total

  341,387      1,251,786   

Cash outflows for investing activities:

Increase in short-term investment securities, net

  (174,209   (45,032

Increase in short-term loans

  (202,501   (279,926

Increase in long-term loans

  (4,341   (4,050

Increase in long-term financial instruments

  (2,522   (7,510

Acquisition of long-term investment securities

  (41,305   (22,141

Acquisition of investments in associates and joint ventures

  (60,020   (97,366

Acquisition of property and equipment

  (3,008,026   (2,879,126

Acquisition of intangible assets

  (130,667   (243,163

Increase in assets held for sale

  (552   —     

Increase in deposits

  (6,903   (83,314

Increase in other non-current assets

  (18,233   (1,830

Acquisition of business, net of cash acquired

  (124,486   —     

Decrease in cash due to disposal of a subsidiary

  (250,787   (94,805
     

 

 

   

 

 

 

Sub-total

  (4,024,552   (3,758,263
     

 

 

   

 

 

 

Net cash used in investing activities

  (3,683,165   (2,506,477
     

 

 

   

 

 

 

 

9


(In millions of won)    Note    2014     2013  

Cash flows from financing activities:

       

Cash inflows from financing activities:

       

Increase in short-term borrowings, net

      102,868        —     

Issuance of debentures

        1,255,468        1,328,694   

Proceeds from long-term borrowings

        62,552        105,055   

Issuance of hybrid bond

        —          398,518   

Cash inflows from settlement of derivatives

        200        19,970   
     

 

 

   

 

 

 

Sub-total

  1,421,088      1,852,237   

Cash outflows for financing activities:

Decrease in short-term borrowings, net

  —        (340,245

Repayment of current portion of long-term debt

  (207,791   (161,575

Repayment of debentures

  (1,039,938   (771,976

Repayment of long-term borrowings

  (23,284   (467,217

Cash outflows from settlement of derivatives

  (6,444   —     

Payment of finance lease liabilities

  (19,388   (20,342

Payment of dividends

  (666,802   (655,946

Payment of interest on hybrid bond

  (16,840   —     

Decrease in cash from the consolidated capital transaction

  —        (8,093
     

 

 

   

 

 

 

Sub-total

  (1,980,487   (2,425,394
     

 

 

   

 

 

 

Net cash used in financing activities

  (559,399   (573,157
     

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  (565,179   478,936   

Cash and cash equivalents at beginning of the year

  1,398,639      920,125   

Effects of exchange rate changes on cash and cash equivalents

  969      (422
     

 

 

   

 

 

 

Cash and cash equivalents at end of the year

834,429      1,398,639   
     

 

 

   

 

 

 

 

10


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 providing cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications in 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, the Parent Company’s total issued shares are held by the following:

 

     Number of
shares
     Percentage of
total shares
issued (%)
 

SK Holdings Co., Ltd.

     20,363,452         25.22   

National Pension Service

     5,722,692         7.09   

Institutional investors and other minority stockholders

     44,850,192         55.54   

Treasury stock

     9,809,375         12.15   
  

 

 

    

 

 

 

Total number of shares

  80,745,711      100.00   
  

 

 

    

 

 

 

These consolidated financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). SK Holdings Co, Ltd. is the ultimate controlling entity of the Parent Company.

 

  (2) List of subsidiaries

The list of subsidiaries as of December 31, 2014 and 2013 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         —     

Iconecube, 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         —     

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         —     

 

11


1. Reporting Entity, Continued

 

  (2) List of subsidiaries, Continued

 

               Ownership (%)  

Subsidiary

  

Location

  

Primary business

   Dec. 31,
2014
     Dec. 31,
2013
 

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, LP.

   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         —     

npnf, Inc.(*1)

   USA   

Game development and publishing

     100.0         —     

 

(*1) Changes in subsidiaries are explained in note 1-(4).
(*2) Due to the shareholders’ agreement which grants put option to the non-controlling shareholders, this entity is consolidated as a wholly owned subsidiary in the consolidated financial statements. (Refer to Note 11)
(*3) Although the Group has less than 50% of the voting rights of IRIVER LIMITED, it is considered to have de facto control since the Group holds significantly more voting rights than any other vote holder or organised group of vote holders, and the other shareholdings are widely dispersed. (Refer to Note 11)

In accordance 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 subsidiaries as the effects on the Group’s consolidated financial statements are not material considering both individual and overall quantitative and qualitative effects.

 

12


1. Reporting Entity, Continued

 

  (3) Condensed financial information of subsidiaries

Condensed financial information of 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        —           —     

npnf, Inc.

     9,860         —           9,860        1         (2,465

 

(*1) The condensed financial information of Iconcube Holdings, Inc. includes financial information of Icon-Cube Co., Ltd., a subsidiary of Icon Cube Holdings.
(*2) 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.
(*3) The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

 

13


1. Reporting Entity, Continued

 

  (3) Condensed financial information of subsidiaries, Continued

 

Condensed financial information of subsidiaries as of and for the year ended December 31, 2013 is as follows:

 

(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

 

(*) The financial information of Atlas Investment includes financial information of Technology Innovation Partners, L.P. and SK Telecom China Fund I L.P., subsidiaries of Atlas Investment.

 

14


1. Reporting Entity, Continued

 

  (4) Changes in subsidiaries

The list of subsidiaries that were newly included from consolidation during the year ended December 31, 2014 is as follows:

 

Subsidiary

  

Reason

Neosnetworks Co., Ltd.

   The Parent Company acquired ownership interests during the year ended December 31, 2014. (See note 11)

IRIVER LIMITED

  

Iriver CS Co., Ltd.

iriver Enterprise Ltd.

iriver America Inc.

iriver Inc.

iriver China Co., Ltd.

  

Dongguan iriver Electronics Co., Ltd.

  

Iconcube Holdings, Inc.

 

  

Established by spinoff from BNCP Co., Ltd. during the year ended December 31, 2014.

Iconcube, Inc.

  

shopkick Management Company, Inc.

   Established by SKP America LLC. during the year ended December 31, 2014.

npnf, Inc.

  

shopkick, Inc.

   Shopkick Management Company, Inc. acquired ownership interests during the year ended December 31, 2014. (See note 11)

 

15


1. Reporting Entity, Continued

 

  (5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2014 and 2013 are as follows. There were no dividends paid during the years ended December 31, 2014 and 2013 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 adjustment for fair value

     —           (1,916

Profit (loss) of the consolidated entities

     (18,386      2,391   

Total comprehensive profit (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

 

16


1. Reporting Entity, Continued

 

  (5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2014 and 2013 are as follows. There were no dividends paid during the years ended December 31, 2014 and 2013 by subsidiaries of which non-controlling interests are significant, Continued

 

(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 adjustment for fair value

     —           (30,977

Loss of the consolidated entities

     (41,893      (18,671

Total comprehensive loss

     (43,318      (13,059

Loss attribute 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

 

17


2. Basis of Presentation

 

  (1) Statement of compliance

These consolidated financial statements were prepared in accordance with K-IFRS, as prescribed in the Act on External Audits of Corporations in the Republic of Korea.

The consolidated financial statements were authorized for issuance by the Board of Directors on February 5, 2015, which will be submitted for approval at the shareholders’ meeting to be held on March 20, 2015.

 

  (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 Group 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 K-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 the following notes: revenue, consolidation: whether the Group has de facto control over an investee: and classification of lease.

 

18


2. Basis of Presentation. Continued

 

  (4) Use of estimates and judgments, Continued

 

  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 equipments and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities, recognition of deferred tax assets (liabilities), and commitments and contingencies.

 

  3) Fair value measurement

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework 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.

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 K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Group’s Audit Committee.

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.

 

    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).

 

    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 categorised in its entirety in the same level of the fair value hierarchy 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 36.

 

  (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.

 

19


3. Changes in Accounting Policies

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 and new interpretation with a date of initial application of January 1, 2014.

 

    Offsetting Financial Assets and Financial Liabilities (Amendments to K-IFRS 1032 ‘Financial Instruments: Presentation’.

The nature of the changes are explained below.

 

  (1) Offsetting Financial Assets and Financial Liabilities (Amendments to K-IFRS 1032)

The Group has adopted amendments to K-IFRS 1032, ‘Offsetting Financial Assets and Financial Liabilities’ since January 1, 2014. The amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’. 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.

 

20


4. Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements in accordance with K-IFRSs 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.

 

  (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 three reportable segments which consist of cellular services, fixed-line telecommunication services and others, as described in note 5. 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.

 

  (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. If goodwill incurs as a result of business combination, the Group performs impairment test on an annual basis and recognizes gain from bargain purchases through profit or loss. 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 K-IFRS No. 1032 and 1039.

Consideration transferred does not include the amount settled in relation to the pre-existing relationship and the amount settled in relation to the pre-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.

 

21


4. Significant Accounting Policies, Continued

 

  (2) Basis of consolidation, Continued

 

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.

 

  (ii) Non-controlling interests

The Group measure 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 net assets.

Changes in a Controlling Group’s ownership interest in a subsidiary that do not result in the Controlling Group 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 have 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.

 

22


4. Significant Accounting Policies, Continued

 

  (2) Basis of consolidation, Continued

 

  (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

The assets and liabilities acquired from the 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.

 

  (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 stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to value inventories, 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 measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-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, transaction costs that are directly attributable to the asset’s acquisition or issuance.

 

23


4. Significant Accounting Policies, Continued

 

  (5) Non-derivative financial assets, Continued

 

  (i) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified 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

A non-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 as held-to-maturity investments. 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 those non-derivative financial assets that are designated as available-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, which changes in fair value, net of any tax effect, recorded in other comprehensive income 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 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.

 

  (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.

 

24


4. Significant Accounting Policies, Continued

 

  (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 designated 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.

 

25


4. Significant Accounting Policies, Continued

 

  (6) Derivative financial instruments, including hedge accounting, Continued

 

  (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;

 

  (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

 

  (c) 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.

 

  (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 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.

 

26


4. Significant Accounting Policies, Continued

 

  (7) Impairment of financial assets, Continued

 

If financial assets have objective evidence that they are impaired, impairment losses should be 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. 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 (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

 

  (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 shall not be reversed.

 

  (iii) Available-for-sale financial assets

When a decline in the fair value of an available-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 be 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 as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-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 be 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. 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.

 

27


4. Significant Accounting Policies, Continued

 

  (8) Property, plant and equipment, Continued

 

Subsequent to initial recognition, an item of property, plant and equipment shall be 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 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 the day-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 other non-operating income (loss).

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, plant and equipment (“Other PP&E”)

   4 ~ 10

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 determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be 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 shall not exceed the amount of borrowing costs incurred during that period.

 

28


4. Significant Accounting Policies, Continued

 

  (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, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

The estimated useful lives of the Group’s intangible assets are as follows:

 

     Useful lives (years)

Frequency use rights

   6.3 ~ 13.1

Land use rights

   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.

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.

 

29


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.

 

  (i) Grants related to assets

Government grants whose primary condition is that the Group purchase, construct or otherwise acquire long-term assets 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 separate items 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 the day-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 of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-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.

 

30


4. Significant Accounting Policies, Continued

 

  (13) Impairment of non-financial assets, Continued

 

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 a pre-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.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill 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 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 to determine whether the leased asset may be impaired.

 

31


4. Significant Accounting Policies, Continued

 

  (14) Leases, Continued

 

  (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 be 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 shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

 

  (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 as non-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 K-IFRS No. 1036, ‘Impairment of Assets’.

A non-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).

 

32


4. Significant Accounting Policies, Continued

 

  (16) Non-derivative financial liabilities

The Group classifies non-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.

 

  (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 acquisition 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. 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.

 

  (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 value of 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.

 

33


4. Significant Accounting Policies, Continued

 

  (17) Employee benefits, Continued

 

  (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 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.

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 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.

 

  (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. If benefits are payable more than 12 months after the reporting period, then they are discounted to their present value.

 

34


4. Significant Accounting Policies, Continued

 

  (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 shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be 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 shall be used only for expenditures for which the provision was originally recognized.

 

  (19) 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 of available-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.

 

  (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.

 

35


4. Significant Accounting Policies, Continued

 

  (19) Foreign currencies, Continued

 

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.

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 to non-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 and share options are 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.

 

  (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.

 

  (i) Services

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 charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed.

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.

 

36


4. Significant Accounting Policies, Continued

 

  (22) Revenue, Continued

 

  (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 programmes

For customer loyalty programmes, 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 programmes 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

When the Group sells both handsets and wireless services to subscribers, the Group recognizes these transactions separately as sales for handset sales and wireless telecommunication services.

 

  (23) Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-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.

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.

 

  (24) 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.

 

 

37


4. Significant Accounting Policies, Continued

 

  (24) Income taxes, Continued

 

  (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, and non-taxable or non-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 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 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.

 

38


4. Significant Accounting Policies, Continued

 

  (25) 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.

 

  (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) New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and but not effective for the Group for annual periods beginning on or after January 1, 2014 are as follows. The Group has not early adopted them.

As of December 31, 2014, management is not able to evaluate the impact, if any, of applying these standards on its financial position and results of operations.

 

  (i) K-IFRS 1019 ‘Employee Benefits’ – Employee contributions

Amendments to K-IFRS 1019 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.

 

39


 

SK TELECOM CO., LTD.
Separate Financial Statements
December 31, 2014

 

40


(In millions of won)    Note      December 31,
2014
     December 31,
2013
 

Assets

        

Current Assets:

        

Cash and cash equivalents

     30,31       248,311         448,459   

Short-term financial instruments

     5,30,31         143,000         166,000   

Short-term investment securities

     7,30,31         197,161         102,042   

Accounts receivable - trade, net

     6,30,31,32         1,559,281         1,513,138   

Short-term loans, net

     6,30,31,32         67,989         72,198   

Accounts receivable - other, net

     6,30,31,32         305,990         388,475   

Prepaid expenses

        86,070         82,837   

Inventories, net

        23,694         24,596   

Non-current assets held for sale

     8         —           3,667   

Advanced payments and other

     6,30,31         58,417         16,370   
     

 

 

    

 

 

 

Total Current Assets

  2,689,913      2,817,782   
     

 

 

    

 

 

 

Non-Current Assets:

Long-term financial instruments

  5,30,31      69      7,569   

Long-term investment securities

  7,30,31      608,797      729,703   

Investments in subsidiaries and associates

  9      8,181,769      8,010,121   

Property and equipment, net

  10,32      7,705,906      7,459,986   

Goodwill

  11      1,306,236      1,306,236   

Intangible assets, net

  12      1,928,169      2,239,167   

Long-term loans, net

  6,30,31,32      38,457      39,925   

Long-term prepaid expenses

  28,551      23,007   

Guarantee deposits

  5,6,30,31,32      156,807      152,057   

Long-term derivative financial assets

  17,30,31      67,728      41,712   

Other non-current assets

  60      154   
     

 

 

    

 

 

 

Total Non-Current Assets

  20,022,549      20,009,637   
     

 

 

    

 

 

 

Total Assets

  22,712,462      22,827,419   
     

 

 

    

 

 

 

 

41


(In millions of won)    Note      December 31,
2014
     December 31,
2013
 

Liabilities and Equity

        

Current Liabilities:

        

Short-term borrowings

     13,30,31       200,000         260,000   

Current portion of debentures and long-term borrowings, net

     13,30,31         211,863         622,703   

Current portion of long-term payables – other

     14,30,31         189,389         206,800   

Accounts payable – other

     30,31,32         1,086,485         1,556,201   

Withholdings

     30,31         801,119         574,166   

Accrued expenses

     30,31         615,488         653,742   

Income tax payable

     27         91,315         104,564   

Unearned revenue

        92,783         178,569   

Derivative financial liabilities

     17,30,31         —           21,170   

Provisions

     15         50,456         66,559   

Advanced receipts

        39,148         43,599   
     

 

 

    

 

 

 

Total Current Liabilities

  3,378,046      4,288,073   
     

 

 

    

 

 

 

Non-Current Liabilities:

Debentures, excluding current portion, net

  13,30,31      4,655,137      4,014,777   

Long-term borrowings, excluding current portion

  13,30,31      80,147      85,125   

Long-term payables - other

  14,30,31      657,001      828,721   

Long-term unearned revenue

  19,544      50,894   

Defined benefit liabilities

  16      15,555      22,886   

Long-term derivative financial liabilities

  17,30,31      130,889      100,210   

Long-term provisions

  15      27,676      19,537   

Deferred tax liabilities

  27      144,876      44,601   

Other non-current liabilities

  30,31      61,370      57,187   
     

 

 

    

 

 

 

Total Non-Current Liabilities

  5,792,195      5,223,938   
     

 

 

    

 

 

 

Total Liabilities

  9,170,241      9,512,011   
     

 

 

    

 

 

 

Equity

Share capital

  1,18      44,639      44,639   

Capital surplus (deficit) and other capital adjustments

  18,19,20      433,894      433,894   

Retained earnings

  21,22      12,996,790      12,665,699   

Reserves

  23      66,898      171,176   
     

 

 

    

 

 

 

Total Equity

  13,542,221      13,315,408   
     

 

 

    

 

 

 

Total Liabilities and Equity

  22,712,462      22,827,419   
     

 

 

    

 

 

 

 

42


(In millions of won except for per share data)    Note      2014     2013  

Operating revenue:

     4,32        

Revenue

      13,012,644        12,860,379   
     

 

 

   

 

 

 

Operating expense:

  32   

Labor cost

  588,635      598,885   

Commissions paid

  5,591,245      5,333,869   

Depreciation and amortization

  2,095,702      2,006,896   

Network interconnection

  771,786      770,125   

Leased line

  370,549      412,217   

Advertising

  213,605      237,291   

Rent

  377,112      362,659   

Cost of products that have been resold

  457,049      399,810   

Other operating expenses

  24      809,801      768,943   
     

 

 

   

 

 

 
    11,275,484      10,890,695   
     

 

 

   

 

 

 

Operating income

  1,737,160      1,969,684   

Finance income

  26      82,276      81,196   

Finance costs

  26      (293,338   (422,764

Other non-operating income

  25      37,422      47,618   

Other non-operating expenses

  25      (184,177   (417,252

Loss relating to investments in subsidiaries and associates

  9      (57,593   (37,685
     

 

 

   

 

 

 

Profit before income tax

  1,321,750      1,220,797   

Income tax expense

  27      293,209      310,640   
     

 

 

   

 

 

 

Profit for the year

1,028,541      910,157   
     

 

 

   

 

 

 

Earnings per share

  28   

Basic earnings per share (in won)

14,262      12,837   
     

 

 

   

 

 

 

Diluted earnings per share (in won)

14,262      12,837   
     

 

 

   

 

 

 

 

43


(In millions of won)    Note      2014     2013  

Profit for the year

        1,028,541        910,157   

Other comprehensive income (loss)

       

Items that will not be reclassified to profit or loss:

       

Remeasurement of defined benefit liabilities

     16         (13,808     5,927   

Items that may be reclassified subsequently to profit or loss:

       

Net change in unrealized fair value of available-for-sale financial assets

     23         (66,103     4,795   

Net change in unrealized fair value of derivatives

     17,23         (38,175     11,793   
     

 

 

   

 

 

 
  (118,086   22,515   
     

 

 

   

 

 

 

Total comprehensive income

910,455      932,672   
     

 

 

   

 

 

 

 

44


(In millions of won)                                                      
    Share
capital
    Capital surplus (deficit) and other capital adjustments     Retained
earnings
    Reserves     Total equity  
      Paid-in
surplus
    Treasury
stock
    Loss on disposal
of treasury stock
    Hybrid
bond
    Other        

Balance, January 1, 2013

  44,639        2,915,887        (2,410,451     (18,855     —          (722,741     12,413,981        154,588        12,377,048   

Cash dividends

    —          —          —          —          —          —          (655,946     —          (655,946

Issuance of hybrid bond

    —          —          —          —          398,518        —          —          —          398,518   

Interest on hybrid bond

    —          —          —          —          —          —          (8,420     —          (8,420

Treasury stock

    —          —          270,768        768        —          —          —          —          271,536   

Total comprehensive income

                 

Profit for the year

    —          —          —          —          —          —          910,157        —          910,157   

Other comprehensive income

    —          —          —          —          —          —          5,927        16,588        22,515   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  —        —        —        —        —        —        916,084      16,588      932,672   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

44,639      2,915,887      (2,139,683   (18,087   398,518      (722,741   12,665,699      171,176      13,315,408   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2014

44,639      2,915,887      (2,139,683   (18,087   398,518      (722,741   12,665,699      171,176      13,315,408   

Cash dividends

  —        —        —        —        —        —        (666,802   —        (666,802

Interest on hybrid bond

  —        —        —        —        —        —        (16,840   —        (16,840

Total comprehensive income

Profit for the year

  —        —        —        —        —        —        1,028,541      —        1,028,541   

Other comprehensive income

  —        —        —        —        —        —        (13,808   (104,278   (118,086
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  —        —        —        —        —        —        1,014,733      (104,278   910,455   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2014

  44,639      2,915,887      (2,139,683   (18,087   398,518      (722,741   12,996,790      66,898      13,542,221   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

45


(In millions of won)    Note      2014     2013  

Cash flows from operating activities:

       

Cash generated from operating activities

       

Profit for the year

      1,028,541        910,157   

Adjustments for income and expenses

     34         2,886,389        3,120,427   

Changes in assets and liabilities related to operating activities

     34         (334,898     (714,862
     

 

 

   

 

 

 

Sub-total

  3,580,032      3,315,722   

Interest received

  20,954      29,695   

Dividends received

  13,048      20,641   

Interest paid

  (224,119   (246,632

Income tax paid

  (168,482   (96,953
     

 

 

   

 

 

 

Net cash provided by operating activities

  3,221,433      3,022,473   
     

 

 

   

 

 

 

Cash flows from investing activities:

Cash inflows from investing activities:

Decrease in short-term financial instruments, net

  30,500      13,300   

Collection of short-term loans

  197,925      279,815   

Decrease in long-term financial instruments

  2,522      —     

Proceeds from disposal of long-term investment securities

  54,218      29,762   

Proceeds from disposal of investments in subsidiaries and associates

  —        1,808   

Proceeds from disposal of property and equipment

  25,677      3,148   

Proceeds from disposal of intangible assets

  1,127      965   

Proceeds from disposal of assets held for sale

  3,667      190,393   

Collection of long-term loans

  3,660      11,727   

Proceeds from disposal of other non-current assets

  93      290   
     

 

 

   

 

 

 

Sub-total

  319,389      531,208   

Cash outflows for investing activities:

Increase in short-term investment securities, net

  (94,802   (45,031

Increase in short-term loans

  (195,700   (275,913

Increase in long-term financial instruments

  (2,522   (7,500

Acquisition of long-term investment securities

  (28,801   (9,313

Acquisition of investments in subsidiaries and associates

  (210,060   (206,791

Acquisition of property and equipment

  (2,319,016   (2,201,354

Acquisition of intangible assets

  (91,060   (179,069

Increase in long-term loans

  (45   —     
     

 

 

   

 

 

 

Sub-total

  (2,942,006   (2,924,971
     

 

 

   

 

 

 

Net cash used in investing activities

  (2,622,617   (2,393,763
     

 

 

   

 

 

 

 

46


(In millions of won)    2014     2013  

Cash flows from financing activities:

    

Cash inflows from financing activities:

    

Proceeds from long-term borrowings

   3,552        96,455   

Issuance of hybrid bond

     —          398,518   

Issuance of debentures

     797,364        1,014,859   

Cash inflows from settlement of derivatives

     119        20,026   
  

 

 

   

 

 

 

Sub-total

  801,035      1,529,858   

Cash outflows for financing activities:

Decrease in short-term borrowings, net

  (60,000   (70,000

Repayment of long-term borrowings

  (12,814   (457,110

Repayment of long-term account payables-other

  (207,668   (161,575

Repayment of debentures

  (629,940   (621,976

Payment of cash dividends

  (666,802   (655,946

Payment of interest on hybrid bond

  (16,840   —     

Cash outflows from settlement of derivatives

  (5,882   —     
  

 

 

   

 

 

 

Sub-total

  (1,599,946   (1,966,607
  

 

 

   

 

 

 

Net cash used in financing activities

  (798,911   (436,749
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  (200,095   191,961   

Cash and cash equivalents at beginning of the year

  448,459      256,577   

Effects of exchange rate changes on cash and cash equivalents

  (53   (79
  

 

 

   

 

 

 

Cash and cash equivalents at end of the year

248,311      448,459   
  

 

 

   

 

 

 

.

 

47


Date of appropriation for 2014: March 20, 2015
Date of appropriation for 2013: March 21, 2014
(In millions of won)             
     2014     2013  

Unappropriated retained earnings:

    

Unappropriated retained earnings

   3,542        3,018   

Remeasurement of defined benefit liabilities

     (13,808     5,927   

Interim dividends - ₩1,000 per share,

                                 200% on par value

     (70,937     (70,508

Interest on hybrid bond

     (16,840     (8,420

Profit

     1,028,541        910,157   
  

 

 

   

 

 

 
  930,498      840,174   
  

 

 

   

 

 

 

Transfer from voluntary reserves:

Reserve for research and manpower development

  64,233      64,233   
  

 

 

   

 

 

 

Appropriation of retained earnings:

Reserve for research and manpower development

  —        60,000   

Reserve for business expansion

  195,000      100,000   

Reserve for technology development

  200,000      145,000   

Cash dividends – ₩8,400 per share,

                             1,680% on par value

  595,865      595,865   
  

 

 

   

 

 

 
  990,865      900,865   
  

 

 

   

 

 

 

Unappropriated retained earnings to be carried over to subsequent year

3,866      3,542   
  

 

 

   

 

 

 

 

48


1. Reporting Entity

SK Telecom Co., Ltd. (“the Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to engage in providing cellular telephone communication services in Korea. The Company mainly provides wireless telecommunications in Korea. The 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, the Company’s total issued shares are held by the following:

 

     Number of
shares
     Percentage of
total shares issued (%)
 

SK Holdings Co., Ltd.

     20,363,452         25.22   

National Pension Service

     5,722,692         7.09   

Institutional investors and other minority stockholders

     44,850,192         55.54   

Treasury stock

     9,809,375         12.15   
  

 

 

    

 

 

 

Total number of shares

  80,745,711      100.00   
  

 

 

    

 

 

 

 

2. Basis of Presentation

 

  (1) Statement of compliance

These separate financial statements were prepared in accordance with K-IFRS, as prescribed in the Act on External Audits of Corporations in the Republic of Korea.

These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027, ‘Separate Financial Statements’ presented by a parent, an investor with joint control of, of significant influence over, an investee, in which the investments are accounted for at cost.

The separate financial statements were authorized for issuance by the Board of Directors on February 5, 2015, which will be submitted for approval at the shareholders’ meeting to be held on March 20, 2015.

 

  (2) Basis of measurement

The separate financial statements have been prepared on the historical cost basis, except for the following material items in the separate statement 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

These separate financial statements are presented in Korean won, which is the Company’s functional currency and the currency of the primary economic environment in which the Company operates.

 

49


2. Basis of Presentation, Continued

 

  (4) Use of estimates and judgments

The preparation of the separate financial statements in conformity with K-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 financial statements is included in the following notes: revenue, classification of 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 equipments and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities and recognition of deferred tax assets (liabilities).

 

  3) Fair value measurement

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework 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.

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 K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Company’s Audit Committee.

When measuring the fair value of an asset or a liability, the Company 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.

 

    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).

 

    Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

50


2. Basis of Presentation, Continued

 

  (4) Use of estimates and judgments, continued

 

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 categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company 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 31.

 

  (5) Common control transactions

SK Holdings Co., Ltd. (“the Ultimate Controlling Entity”) is the Ultimate Controlling Entity of the Company because it controls the 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.

 

3. Changes in Accounting Policies

Except for the changes below, the Company has consistently applied the accounting policies set out in Note 4 to all periods presented in these financial statements.

The Company has adopted the following amendments to standards and new interpretation with a date of initial application of January 1, 2014.

 

    Offsetting Financial Assets and Financial Liabilities

(Amendments to K-IFRS 1032 ‘Financial Instruments: Presentation’)

The nature of the changes are explained below.

 

  (1) Offsetting Financial Assets and Financial Liabilities (Amendments to K-IFRS 1032)

The Company has adopted amendments to K-IFRS 1032, ‘Offsetting Financial Assets and Financial Liabilities’ since January 1, 2014. The amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’. 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 Company’s financial statements.

 

51


4. Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its separate financial statements in accordance with K-IFRSs are included below. The accounting policies set out below have been applied consistently to all periods presented in these separate financial statements except for those as described in note 3.

 

  (1) Operating segments

The Company presents disclosures relating to operating segments on its separate financial statements in accordance with K-IFRS No. 1108, ‘Operating Segments’ and such disclosures are not separately disclosed on these separate financial statements.

 

  (2) Investments in subsidiaries and associates

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027, ‘Separate Financial Statements’. The Company applied the cost method to investments in subsidiaries and associates in accordance with K-IFRS No. 1027. Dividends from a subsidiary or associate are recognized in profit or loss when the right to receive the dividend is established.

 

  (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 Company in the management of its short-term commitments.

 

  (4) Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory systems is used to value inventories, 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.

 

52


4. Significant Accounting Policies, Continued

 

  (5) Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the separate statement of financial position when the Company 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, transaction costs that are directly attributable to the asset’s acquisition or issuance.

 

  (i) Financial assets at fair value through profit or loss

A financial asset is classified as financial assets are classified 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

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. 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 those non-derivative financial assets that are designated as available-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, which changes in fair value, net of any tax effect, recorded in other comprehensive income 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.

 

53


4. Significant Accounting Policies, Continued

 

  (5) Non-derivative financial assets, Continued

 

  (v) De-recognition of financial assets

The Company 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 financial assets that is created or retained by the Company is recognized as a separate asset or liability. If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

 

  (vi) Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position only when the Company 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 Company holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Company designated 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 Company 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 statement of income. The Company 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.

 

54


4. Significant Accounting Policies, Continued

 

  (6) Derivative financial instruments, including hedge accounting, Continued

 

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.

 

  (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;

 

  (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

 

  (c) 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.

 

  (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.

 

55


4. Significant Accounting Policies, Continued

 

  (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 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 financial assets have objective evidence that they are impaired, impairment losses should be 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 Company can recognize impairment losses directly or establish a provision to cover impairment losses. 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 (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

 

56


4. Significant Accounting Policies, Continued

 

  (7) Impairment of financial assets, Continued

 

  (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 shall not be reversed.

 

  (iii) Available-for-sale financial assets

When a decline in the fair value of an available-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 be 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 as available-for-sale shall not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-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 be 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. 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 shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

 

57


4. Significant Accounting Policies, Continued

 

  (8) Property, plant and equipment, Continued

 

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 item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-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 other non-operating income (loss).

The estimated useful lives of the Company’s property, plant and equipment are as follows:

 

    

Useful lives (years)

Buildings and structures

   15, 30

Machinery

   3 ~ 6

Other property, plant and equipment (“Other PP&E”)

   4 ~ 10

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 Company 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 Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company 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 Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company 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 Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

 

58


4. Significant Accounting Policies, Continued

 

  (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, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having indefinite useful lives and not amortized.

The estimated useful lives of the Company’s intangible assets are as follows:

 

    

Useful lives (years)

Frequency use rights

   6.3 ~ 13.1

Land use rights

   5

Industrial rights

   5, 10

Development costs

   5

Facility usage rights

   10, 20

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.

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 Company 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.

 

59


4. Significant Accounting Policies, Continued

 

  (11) Government grants

Government grants are not recognized unless there is reasonable assurance that the Company 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 Company purchase, construct or otherwise acquire long-term assets 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 Company for expenses incurred are deducted from the related expenses.

 

  (12) Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-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 Company estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Company 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 a pre-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.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill 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.

 

60


4. Significant Accounting Policies, Continued

 

  (13) Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company 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 Company recognizes as finance assets and finance liabilities in its separate 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 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 Company reviews to determine whether the leased asset may be 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 be 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 Company 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 Company concludes for a financial lease that it is impracticable to separate the payments reliably, the Company 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 be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

 

61


4. Significant Accounting Policies, Continued

 

  (14) 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 as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Company 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 K-IFRS No. 1036, ‘Impairment of Assets’.

A non-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).

 

  (15) Non-derivative financial liabilities

The Company classifies non-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 Company recognizes financial liabilities in the separate statement of financial position when the Company 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 acquisition 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. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Company derecognizes a financial liability from the separate statements of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

 

62


4. Significant Accounting Policies, Continued

 

  (16) 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 Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

 

  (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 value of 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.

 

  (iii) Retirement benefits: defined contribution plans

When an employee has rendered service to the Company during a period, the Company 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 Company 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 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.

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 Company 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 recognized in other comprehensive income. The Company 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 Company recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

 

63


4. Significant Accounting Policies, Continued

 

  (17) Provisions

Provisions are recognized when the Company 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 shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be 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 shall be used only for expenditures for which the provision was originally recognized.

 

  (18) Foreign currencies

Transactions in foreign currencies are translated to the respective functional currencies of Company 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 of available-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.

 

  (19) Equity 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 Company 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 Company acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

 

64


4. Significant Accounting Policies, Continued

 

  (20) Hybrid bond

The Company recognizes a financial instrument issued by the Company as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

 

  (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. Returns, trade discounts and volume rebates, and are recognized as a reduction of revenue.

 

  (i) Services

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 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.

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 values of each unit.

 

  (iii) Customer loyalty programmes

For customer loyalty programmes, 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 programmes 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 Company 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.

 

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4. Significant Accounting Policies, Continued

 

  (22) Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-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 method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

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.

 

  (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 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, and non-taxable or non-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 Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Company 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 Company 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 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.

 

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4. Significant Accounting Policies, Continued

 

  (23) Income taxes, Continued

 

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 Company 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 Company 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 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.

 

  (25) New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Company for annual periods beginning on or after January 1, 2014, and the Company has not early adopted them.

As of December 31, 2014, management is not able to evaluate the impact, if any, of applying these standards on its financial position and results of operations.

 

  1) K-IFRS 1019 ‘Employee Benefits’ – Employee contributions

Amendments to K-IFRS 1019 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.

 

  2) K-IFRS 1027 ‘Separate Financial Statements’

Amendments to K-IFRS 1027 introduced equity accounting as a third option in the entity’s separate financial statements, in addition to the existing cost and fair value options. This amendment is effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.

 

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Disclaimer:

The consolidated and separate financial statements included above have not yet been audited and remain subject to the audit process of the Company’s independent auditors. For the Company’s audited consolidated and separate financial statements as of and for the years ended December 31, 2013 and 2014 and the respective accompanying notes, please refer to the Company’s future filings with the U.S. Securities and Exchange Commission, including its annual report to be filed on Form 20-F and the Company’s annual business report to be furnished on Form 6-K.

 

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2. Approval of Amendments to the Articles of Incorporation

The proposed amendments are as follows:

 

Current

  

Proposed Amendment

  

Remarks

Article 2. Objectives

 

 (Text omitted)

 

In order to achieve the above objectives, the Company carries on the following businesses:

 

1.~18. (Text omitted)

 

19. Any other incidental businesses relating to the foregoing activities (amended on March 22, 2013).

 

ƒ (Text omitted)

  

Article 2. Objectives

 

 (Same as the present text)

 

(Same as the present text)

 

1.~18. (Same as the present text)

 

19. Import/export business, import/export brokerage and/or agency business (newly established on March 20, 2015); and

 

20. Any other incidental businesses relating to the foregoing activities (amended on March 20, 2015).

 

ƒ (Same as the present text)

   Addition of related businesses due to the promotion of new business opportunities
  

Addendum No. 24 (as of March 20, 2015)

 

Article 1. Date of Effectiveness

 

These Articles of Incorporation shall take effect as of March 20, 2015.

  

 

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3. Approval of the Election of an Inside Director

 

  (1) Candidate for Inside Director

 

Name

  

Term

 

Profile

  

Remarks

Jang,

Dong-Hyun

   3 Years  

 

¨

   Education   

New

Appointment

       

 

Master in Industrial Engineering, Seoul National University

  
       

 

Bachelor in Industrial Engineering, Seoul National University

  
    

 

¨

   Career   
       

 

CEO of SK Telecom (current)

  
       

 

COO of SK Planet (2013 – 2014)

  
       

 

CMO of SK Telecom (2011 – 2013)

  
    

 

  

 

CFO and Executive Vice President of the Strategy and Planning Division of SK Telecom (2010 – 2011)

  

 

4. Approval of the Election of a Member of the Audit Committee

 

  (1) Candidate for Audit Committee Member

 

Name

  

Term

  

Profile

  

Remarks

Lee,

Jae-Hoon

   3 Years   

 

¨

   Education   

Current

Director

        

 

Ph.D. in Public Administration, Sung Kyun Kwan University

  
        

 

Master in Applied Economics, University of Michigan at Ann Arbor

  
        

 

Bachelor in Economics, Seoul National University

  
     

 

¨

   Career   
        

 

President, Korea Polytechnic University (Current)

  
        

 

Vice Minister, Ministry of Knowledge Economy (2008 – 2009)

  
        

 

Vice Minister, Ministry of Commerce, Industry and Energy (2007 – 2008)

  
        

 

Assistant Minister, Ministry of Commerce, Industry and Energy (2006 – 2007)

  
        

 

Head of the Trade-Investment Department, Ministry of Commerce, Industry and Energy (2005 – 2006)

  

 

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5. Approval of Ceiling Amount of the Remuneration of Directors

The number of directors and total amount and maximum authorized amount of compensation of directors are as follows:

 

Classification

  

Fiscal year 2014

  

Fiscal year 2015

Number of directors

(Number of independent non-executive directors)

   8 persons (5 persons)    6 persons (4 persons)
Total amount and maximum authorized amount of compensation of directors    Won 12 billion    Won 12 billion

 

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Forward-Looking Statement Disclaimer

The material above contains forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results or performance to be materially different from any future results or performance expressed or implied by such forward-looking statements. We do not make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events. Additional information concerning these and other risk factors are contained in our latest annual report on Form 20-F and in our other filings with the U.S. Securities and Exchange Commission.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SK TELECOM CO., LTD.
(Registrant)
By:

/s/ Soo Cheol Hwang

(Signature)
Name: Soo Cheol Hwang
Title: Senior Vice President

Date: February 25, 2015

 

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