Form 6-K
Table of Contents

 

 

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF APRIL 2014

COMMISSION FILE NUMBER 333-04906

 

 

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

 

 

Euljiro65(Euljiro2-ga), Jung-gu

Seoul 100-999, Korea

(Address of principal executive offices)

 

 

(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):  ¨

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

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):  ¨

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes  ¨    No  x

If “Yes” is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b): 82-            

 

 

 

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ANNUAL BUSINESS REPORT

(From January 1, 2013 to December 31, 2013)

THIS IS A SUMMARY OF THE ANNUAL BUSINESS REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SERVICES COMMISSION.

IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED FOR THE CONVENIENCE OF READERS.

ALL REFERENCES TO THE “COMPANY,” “WE,” “US,” OR “OUR” SHALL MEAN SK TELECOM CO., LTD. AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS CONSOLIDATED SUBSIDIARIES. REFERENCES TO “SK TELECOM” SHALL MEAN SK TELECOM CO., LTD., BUT SHALL NOT INCLUDE ITS CONSOLIDATED SUBSIDIARIES.

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTED FOR USE IN KOREA (“K-IFRS”) WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES.

IN ADDITION TO PREPARING FINANCIAL STATEMENTS IN ACCORDANCE WITH K-IFRS AS ADOPTED BY THE KOREAN ACCOUNTING STANDARDS BOARD (THE “KASB”) INCLUDED HEREIN, WE ALSO PREPARE FINANCIAL STATEMENTS IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) AS ADOPTED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD (THE “IASB”) WHICH WE FILE WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 20-F.

BEGINNING WITH OUR FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH K-IFRS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2012, WE ARE REQUIRED TO ADOPT CERTAIN AMENDMENTS TO K-IFRS NO. 1001, PRESENTATION OF FINANCIAL STATEMENTS, AS ADOPTED BY THE KASB IN 2012. THE AMENDMENTS REQUIRE OPERATING INCOME, WHICH IS CALCULATED AS OPERATING REVENUE LESS OPERATING EXPENSE, TO BE SEPARATELY PRESENTED IN THE CONSOLIDATED STATEMENT OF INCOME. OPERATING EXPENSE REPRESENTS EXPENSES INCURRED IN OUR MAIN OPERATING ACTIVITIES AND INCLUDES COST OF PRODUCTS THAT HAVE BEEN RESOLD AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.

IN OUR CONSOLIDATED STATEMENTS OF INCOME PREPARED IN ACCORDANCE WITH IFRS AS ISSUED BY THE IASB, SUCH CHANGES IN PRESENTATION WERE NOT ADOPTED. AS A RESULT, THE PRESENTATION OF OPERATING INCOME IN OUR CONSOLIDATED STATEMENTS OF INCOME PREPARED IN ACCORDANCE WITH
K-IFRS INCLUDED HEREIN DIFFERS FROM THE PRESENTATION OF OPERATING INCOME FROM CONTINUING OPERATIONS IN THE CONSOLIDATED STATEMENTS OF INCOME PREPARED IN ACCORDANCE WITH IFRS AS ISSUED BY THE IASB FOR THE CORRESPONDING PERIODS.

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I. COMPANY OVERVIEW

 

1. Company Overview

Starting in the first quarter of 2011, the Company prepares and reports its financial statements under K-IFRS. The transition date of the Company and its consolidated subsidiaries to K-IFRS is January 1, 2010 and the adoption date is January 1, 2011. The Company’s annual business report for the year ended December 31, 2013 includes the following consolidated subsidiaries:

 

Name

    Date of
Establishment		   

Principal Business

    Total Assets as
of Dec. 31, 2013
(millions of
Won)		      Material
Subsidiary*		  

SK Telink Co., Ltd.

    Apr. 9, 1998    Telecommunication services and satellite broadcasting services      241,977         Material   

M&Service Co., Ltd.

    Feb. 10, 2000    Online information services      48,493      

SK Communications Co., Ltd.

    Sep. 19, 1996    Internet portal and other Internet information services      265,819         Material   

Stonebridge Cinema Fund

    Sep. 30, 2005    Investment partnership      10,965      

Commerce Planet Co., Ltd.

    Jul. 1, 1997    Online shopping mall operation services      34,007      

SK Broadband Co., Ltd.

    Sep. 26, 1997    Fixed-line telecommunication services, multimedia and IPTV services      3,035,657         Material   

K-net Culture and Contents Venture Fund

    Nov. 24, 2008    Investment partnership      43,779      

Hwaitec Focus Investment Partnership 2

    Dec. 12, 2008    Investment partnership      22,547      

Open Innovation Fund

    Dec. 22, 2008    Investment partnership      43,394      

PS&Marketing Co., Ltd.

    Apr. 3, 2009    Sale of telecommunication devices      317,613         Material   

Service Ace Co., Ltd.

    Jul. 1, 2010    Customer center management services      48,956      

Service Top Co., Ltd.

    Jul 1, 2010    Customer center management services      43,332      

Network O&S Co., Ltd.

    Jul. 1, 2010    Network maintenance services      165,818         Material   

BNCP Co., Ltd.

    Dec. 7, 2009    Internet services      24,000      

SK Planet Co., Ltd.

    Oct. 1,2011    Telecommunication and platform services      1,647,965         Material   

SK Planet Japan, K.K.

    Mar. 14, 2012    Digital contents sourcing services      47      

SK Planet Global PTE, LTD.

    Aug. 10, 2012    Digital contents sourcing services      636      

SK Planet America LLC

    Jan. 27, 2012    Digital contents sourcing services      6,669      

SKP Global Holdings PTE, LTD.

    Aug. 10 , 2012    Holding company for overseas commerce      —        

SK Global Healthcare Business Group, Ltd.

    Sep. 14, 2012    Investment      25,784      

Technology Innovation Partners, L.P.

    Jun. 24, 2011    Investment      27,975      

SK Telecom China Fund I L.P.

    Sep. 14, 2011    Investment      3,213      

SK Telecom China Holdings Co., Ltd.

    Jul. 12, 2007    Investment      35,233      

Shenzhen E-eye High Tech Co., Ltd.

    Apr. 1, 2000    Telematics manufacturing      18,915      

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Name

    Date of
Establishment		   

Principal Business

    Total Assets as
of Dec. 31, 2013
(millions of
Won)		    Material
Subsidiary*

SKT Vietnam PTE., Ltd.

    Apr. 5, 2000    Telecommunication services    38,331   

SKT Americas, Inc.

    Dec. 29, 1995    Information collection and management consulting services    36,378   

YTK Investment Ltd.

    Jul. 1, 2010    Investment    64,036    Material

Atlas Investment

    Jun. 24, 2011    Investment    50,723    Material

 

* Material Subsidiary means a subsidiary with total assets of Won 50 billion or more as of the end of the latest fiscal year.

 

A. Corporate Legal Business Name: SK Telecom Co., Ltd.

 

B. Date of Incorporation: March 29, 1984

 

C. Location of Headquarters

 

  (1) Address: 65 Euljiro, Jung-gu, Seoul, Korea

 

  (2) Phone: +82-2-6100-2114

 

  (3) Website: http://www.sktelecom.com

 

D. Major Businesses

 

  (1) Wireless business

The Company provides wireless telecommunications services, characterized by its competitive strengths in handheld devices, affordable pricing, network coverage and an extensive contents library. Since the introduction of services employing LTE technology in July 2011, the telecommunications market for such services has grown as demand for fast data transfer speeds and differentiated services has increased. Having reached one million subscribers by January 2012 and over 10 million subscribers by April 2013, the Company has solidified its leadership position in LTE services as it has done with its 3G services. In June 2013, the Company became the first telecommunications service provider in the world to provide commercial LTE-Advanced (“LTE-A”) services using carrier aggregation technology. In September 2013, beginning with the Seoul area, the Company also began offering wideband LTE service, which utilizes the 1.8 GHz band to enhance the customer experience of new and existing LTE customers. The Company is also improving the profitability of its wireless business through efficient capital expenditures and marketing and enhancement of marketing network and products.

In the business-to-business area, the Company is strengthening its solutions business through the implementation of five main solution products: Smart Store, Smart Work, Smart Cloud, Green & Safety and M–Ad & Payment. Since the commercial launch of its mobile IPTV services, “B tv Mobile,” in October 2012, the Company has gained over one million paying subscribers as of March 2014. The Company is the first telecommunications services provider in the world to provide full high definition streaming services using its LTE-A network. With increasing video on demand usage and the potential to expand into other business areas such as advertising and shopping, the Company expects that the mobile IPTV services business will grow in the mid- to long-term.

In addition, in order to strengthen our sales channels, the Company has been offering a variety of fixed-line and wireless telecommunication convergence products to its customers through PS&Marketing Co., Ltd. (“PS&Marketing”), one of its subsidiaries. Furthermore, Network O&S Co., Ltd., the Company’s subsidiary responsible for the operation of the Company’s 2G to 4G networks (including its CDMA, WCDMA and LTE networks), provides customers with quality network services and provides the Company with technological know-how in network operations.

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  (2) Fixed-line business

SK Broadband Co., Ltd. (“SK Broadband”) is engaged in providing telecommunications, broadcasting and new media services and various other services that are permitted to be carried out by SK Broadband under relevant regulations, as well as business activities that are directly or indirectly related to providing those services. With the adoption of K-IFRS in 2011, our broadband and fixed-line services segment also includes multimedia services and IPTV services.

 

  (3) Other businesses

With respect to the Company’s commerce business, 11th Street, continues to gain market share, is a platform service that connects various sellers and purchasers online. In the loyalty marketing business area, the Company provides an increasing number of products involving OK Cashbag points in order to attract new customers and retain existing customers. Since its inception in 1999, OK Cashbag, owned by SK Planet Co., Ltd. (“SK Planet”) continues to be Korea’s largest loyalty mileage program with 37 million members. In the location-based services business area, users of the Company’s T-Map Navigation service reached 19.2 million as of December 31, 2013. T-Map Navigation provides real time traffic information and various local information. Utilizing location-based service technology in other services, including leisure, logistics and travel services, the Company provides increased convenience and added value to customers. In the digital contents business area, the Company provides high-quality digital contents in its leading mobile contents marketplace, T Store, which had 21.8 million subscribers as of December 31, 2013 and which the Company plans to expand globally. In the media business area, the Company provides “Hoppin” service that enables subscribers to access various multimedia contents through personal computers, mobile devices and other digital devices. In the advertising business area, the Company is engaged in advertisement production, promotion services and research and consulting services to substantively help businesses increase their value in a rapidly evolving business environment.

SK Communications Co., Ltd. (“SK Communications”) provides integrated Internet portal services through NATE and instant messaging services through NATE-ON. Key sources of revenue for SK Communications are display advertising, search engine-based advertising, and contents and other services. Display advertising consists of image, video and Flash-based multimedia advertising carried on NATE and NATE-ON and aims to give greater exposure to the advertiser’s brand name to the public. The increased effectiveness of online media as an advertising outlet has resulted in a greatly expanded advertiser base, and the increasing variety in the format of advertising has contributed to the growth of display advertising. Search engine-based advertising refers to the type of advertising that embeds advertisements within search results produced by searches of certain keywords on the NATE portal site. Search engine-based advertising has a certain appeal to small and medium-sized advertisers. Contents and other services include contents sales and providing certain types of services. Revenues from contents and other services are generated through revenues from NATE-ON instant messaging, custom decorations for mobile phones, cartoon strips, fortunetelling, movies and other contents services. In addition, SK Planet receives revenue from its services agreement with the Company in connection with operation of WAP wireless NATE services and application development.

In order to find future growth engines and strengthen the Company’s competitiveness, the Company has made strategic investments in YTK Investment Ltd. and Atlas Investment, both investment fund companies.

See “II-1. Business Overview” for more information.

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E. Credit Ratings

 

  (1) Corporate bonds

 

Credit rating date

  

Subject of rating

    Credit rating   

Credit rating entity
(Credit rating range)

   

Rating classification

May 27, 2011   Corporate bond    AAA    Korea Ratings    Regular rating
June 13, 2011   Corporate bond    AAA    NICE Investors Service Co., Ltd.    Regular rating
June 23, 2011   Corporate bond    AAA    Korea Investors Service, Inc.    Regular rating
December 12, 2011   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating
December 13, 2011   Corporate bond    AAA    NICE Investors Service Co., Ltd.    Current rating
December 16, 2011   Corporate bond    AAA    Korea Ratings    Current rating
June 21, 2012   Corporate bond    AAA    Korea Ratings    Regular rating
June 22, 2012   Corporate bond    AAA    Korea Investors Service, Inc.    Regular rating
June 29, 2012   Corporate bond    AAA    NICE Investors Service Co., Ltd.    Regular rating
August 10, 2012   Corporate bond    AAA    Korea Ratings    Current rating
August 14, 2012   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating
August 14, 2012   Corporate bond    AAA    NICE Investors Service Co., Ltd.    Current rating
April 11, 2013   Corporate bond    AAA    Korea Ratings    Current rating
April 11, 2013   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating
April 11, 2013   Corporate bond    AAA    NICE Investors Service Co., Ltd.    Current rating
April 11, 2013   Corporate bond    AAA    Korea Ratings    Regular rating
April 11, 2013   Corporate bond    AAA    Korea Investors Service, Inc.    Regular rating
April 11, 2013   Corporate bond    AAA    NICE Investors Service Co., Ltd.    Regular rating

 

* Rating definition: “AAA”—The certainty of principal and interest payment is at the highest level with extremely low investment risk and is stable such that it will not be influenced by reasonably foreseeable changes in external factors.

 

  (2) Commercial paper (“CP”)

 

Credit rating date

  

Subject of rating

    Credit rating  

Credit rating entity
(Credit rating range)

    Rating classification
May 27, 2011   CP    A1   Korea Ratings    Current rating
June 13, 2011   CP    A1   Korea Information Evaluation Association    Current rating
June 23, 2011   CP    A1   Korea Investors Service, Inc.    Current rating
December 12, 2011   CP    A1   Korea Investors Service, Inc.    Regular rating
December 13, 2011   CP    A1   NICE Investors Service Co., Ltd.    Regular rating
December 16, 2011   CP    A1   Korea Ratings    Regular rating
June 21, 2012   CP    A1   Korea Ratings    Current rating
June 22, 2012   CP    A1   Korea Investors Service, Inc.    Current rating
June 29, 2012   CP    A1   NICE Investors Service Co., Ltd.    Current rating
December 14, 2012   CP    A1   Korea Investors Service, Inc.    Regular rating
December 18, 2012   CP    A1   Korea Ratings    Regular rating
December 18, 2012   CP    A1   NICE Investors Service Co., Ltd.    Regular rating
April 11, 2013   CP    A1   Korea Ratings    Current rating
April 11, 2013   CP    A1   Korea Investors Service, Inc.    Current rating
April 11, 2013   CP    A1   NICE Investors Service Co., Ltd.    Current rating
November 29, 2013   CP    A1   Korea Ratings    Regular rating
December 18, 2013   CP    A1   Korea Investors Service, Inc.    Regular rating
December 20, 2013   CP    A1   NICE Investors Service Co., Ltd.    Regular rating

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* Rating definition: “A1”—Timely repayment capability is at the highest level with extremely low investment risk and is stable such that it will not be influenced by reasonably foreseeable changes in external factors.

 

  (3) International credit ratings

 

Date of credit rating

   

Subject of rating

   

Credit rating of
securities

   

Credit rating company

    Rating type

June 6, 2012

    Bonds denominated in Swiss Franc    A-    Fitch Inc.    Current rating

June 4, 2012

    Bonds denominated in Swiss Franc    A3    Moody’s Investors Service    Current rating

June 7, 2012

    Bonds denominated in Swiss Franc    A-    Standard & Poor’s Rating Services    Current rating

October 24, 2012

    Bonds denominated in U.S. dollars    A-    Fitch Inc.    Current rating

October 24, 2012

    Bonds denominated in U.S. dollars    A3    Moody’s Investors Service    Current rating

October 24, 2012

    Bonds denominated in U.S. dollars    A-    Standard & Poor’s Rating Services    Current rating

 

2. Company History

March 2008: Purchased shares of SK Broadband Co., Ltd. (formerly Hanaro Telecom)

May 2009: Participated in the public share offering of SK Broadband Co., Ltd.

September 2009: Acquired leased line and related other business of SK Networks Co., Ltd.

February 2010: Purchased shares of Hana Card Co., Ltd.

October 2011: SK Planet Co., Ltd. was spun off from the Company.

February 2012: Purchased shares of SK hynix Inc. (formerly, Hynix Semiconductor Inc.)

 

A. Location of Headquarters

 

  - 22 Dohwa-dong, Mapo-gu, Seoul (July 11, 1988)

 

  - 16-49 Hangang-ro 3-ga, Yongsan-gu, Seoul (November 19, 1991)

 

  - 267 Namdaemun-ro 5-ga, Jung-gu, Seoul (June 14, 1995)

 

  - 99 Seorin-dong, Jongro-gu, Seoul (December 20, 1999)

 

  - 65 Euljiro, Jung-gu, Seoul (December 13, 2004)

 

B. Significant Changes in Management

At the Extraordinary General Meeting of Shareholders held on August 31, 2011, Jun Ho Kim was elected as an inside director and Jin Woo So resigned from the Company’s board of directors to transfer to an affiliate of the Company. At the 28th General Meeting of Shareholders held on March 23, 2012, (1) Young Tae Kim and Dong Seob Jee were elected as inside directors, (2) Hyun Chin Lim was re-elected as an independent director, and (3) Hyun Chin Lim was re-elected as a member of the audit committee of the Company’s board of directors. At the 29th General Meeting of Shareholders held on March 22, 2013, Dae Sik Cho was elected as an inside director and Dae Shick Oh was elected as an independent director and member of the audit committee of the Company’s board of directors. At the 30th General Meeting of Shareholders held on March 21, 2014, Jae Hoon Lee was elected as an independent director and Jae Hyeon Ahn was elected as an independent director and member of the audit committee of the Company’s board of directors.

 

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C. Change in Company Name

On March 23, 2012, SK hynix Inc., which became our subsidiary in February 2012, changed its name to SK hynix Inc. from Hynix Semiconductor Inc. in accordance with a resolution at its annual general meeting of shareholders.

 

D. Mergers, Acquisitions and Restructuring

[SK Telecom]

 

  (1) Spin-off

In accordance with the resolution of the Company’s board of directors on July 19, 2011 and the resolution of the shareholders’ meeting on August 31, 2011, the Company spun off its platform business and established SK Planet Co., Ltd. effective as of October 1, 2011. The registration of the spin-off was completed on October 5, 2011. Set forth below are important details of the spin-off.

 

Description

   

Detail

Method of Spin-off    Simple vertical spin-off
Resulting Companies   

SK Telecom Co., Ltd. (Surviving Company)

SK Planet Co., Ltd. (Spin-off Company)

Effective Date    October 1, 2011

Set forth below is a summary of the Company’s financial position before and after the spin-off.

 

            (in millions of Won)  

Description

    Before the spin-off
(As of September 30, 2011)		      After the spin-off
(As of October 1, 2011)		  
   SK Telecom Co., Ltd.      SK Telecom Co., Ltd.      SK Planet Co., Ltd.  

Total Assets

      19,400,114         19,084,651         1,545,537   

Total Liabilities

      7,673,828         7,358,365         315,463   

Total Shareholders’ Equity

      11,726,286         11,726,286         1,230,074   

The schedule of the spin-off is set forth below.

 

Category

        

Date

Board resolution on spin-off    July 19, 2011
Record Date for Determination of Shareholders for the Shareholders’ Meeting for Spin-off    August 4, 2011
Shareholders’ Meeting for Approval of Spin-off Plan    August 31, 2011
Date of Spin-off    October 1, 2011
Shareholders’ Meeting for Report of Spin-off and Inaugural Meeting of Shareholders    October 4, 2011
Registration of Spin-off    October 5, 2011
Others   

Notice of closure of shareholders register

Period of closure of shareholders register

Public notice of shareholders’ meeting

Dispatch of notice of shareholders’ meeting

   

July 20, 2011

August 5, 2011 ~ August 8, 2011

August 10, 2011 and August 12, 2011

August 12, 2011

 

  - Changes in shareholding, including majority shareholder

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Not applicable because the spin-off is a simple vertical spin-off.

 

  - Appraisal rights of shareholders

Not applicable because the spin-off is a simple vertical spin-off.

 

  - Protection of creditors

In accordance with Article 530-1 Paragraph 1, both SK Telecom and SK Planet will be jointly and severally liable for the payment of all obligations of SK Telecom incurred prior to the spin-off.

 

  - Allocation of new shares

In accordance with Articles 530-2 through 530-12, the spin-off is a simple vertical spin-off and all shares of SK Planet were allocated to SK Telecom.

 

  (2) Acquisition of shares of SK hynix Inc. (formerly, Hynix Semiconductor Inc.)

In accordance with the resolution of the Company’s board of directors on November 14, 2011, the Company purchased 146,100,000 shares of SK hynix Inc. (formerly, Hynix Semiconductor Inc.) (“SK Hynix”) (aggregate purchase price of Won 3,374,726 million) on February 14, 2012 in order to acquire control of SK Hynix. The Company had a 21.05% equity interest in SK Hynix after the purchase. The Company’s equity interest in SK Hynix decreased to 20.6% after certain convertible bonds issued by SK Hynix were converted into shares upon the exercise of conversion rights by their holders during the three months ended September 30, 2013.

 

  (3) Merger of SK Planet and SK Marketing & Company Co., Ltd.

On January 11, 2013, the Company acquired the remaining 50% equity stake in SK Marketing & Company Co., Ltd. (“SK Marketing & Company”), a company providing e-commerce and advertising services, from SK Innovation Co., Ltd. and gained control of both SK Marketing & Company and its subsidiary, SK M&Service Co., Ltd. The Company thereafter contributed the 100% equity stake in SK Marketing & Company to SK Planet and merged SK Marketing & Company into SK Planet as of February 1, 2013.

[SK Broadband]

 

  (1) Merger

On July 26, 2012, the board of directors of SK Broadband resolved to merge Broadband D&M Co., Ltd., its wholly-owned subsidiary, into SK Broadband after transferring Broadband D&M Co., Ltd.’s network maintenance business to Network O&S Co., Ltd. The merger was effective as of September 26, 2012. In connection with this merger, SK Broadband did not issue any new shares.

On October 25, 2012, the board of directors of SK Broadband resolved to merge Broadband CS Co., Ltd., its wholly-owned subsidiary, into SK Broadband after transferring Broadband CS Co., Ltd.’s customer service business to Service Ace Co., Ltd. The merger was effective as of December 26, 2012. In connection with this merger, SK Broadband did not issue any new shares.

On January 3, 2013, the board of directors of SK Broadband approved the merger of Broadband Media Co., Ltd., its wholly-owned subsidiary, into SK Broadband. The merger was effective as of March 22, 2013 and was recorded as of March 25, 2013. Please refer to the “Merger Completion Report” filed with the Financial Services Commission on March 25, 2013. In connection with this merger, SK Broadband did not issue any new shares.

[SK Planet]

 

  (1) Merger

On January 11, 2013, the Company acquired the remaining 50% equity stake in SK Marketing & Company, a company providing e-commerce and advertising services, from SK Innovation Co., Ltd. and gained control of both SK Marketing & Company and its subsidiary, SK M&Service Co., Ltd. The Company thereafter contributed the 100% equity stake in SK Marketing & Company to SK Planet and merged SK Marketing & Company into SK Planet as of February 1, 2013. In connection with this merger, the merger ratio between SK Planet and SK Marketing & Company was 1.2927317:1 and SK Planet issued 12,927,317 of its common stock.

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On April 22, 2013, the board of directors of SK Planet resolved to merge Madsmart, Inc., its wholly-owned subsidiary, into SK Planet to enhance the competitiveness of its platform business and provide faster service to customers by merging the information and communication technology (“ICT”) capabilities of the two companies. The merger was effective as of June 1, 2013 and SK Planet did not issue any new shares in connection with the merger.

 

  (2) Disposition of shares of Loen Entertainment

During the year ended December 31, 2013, SK Planet sold 13,294,369 shares (52.6% ownership interest) of Loen Entertainment, a company engaged in the publishing of music and provision of online music services, to Star Invest Holdings Limited. Consideration for the sale amounted to Won 265,887 million, and following the disposition of shares, SK Planet’s ownership interests in Loen Entertainment decreased to 15.0%. As a result of the transaction, Loen Entertainment was excluded from scope of consolidation.

[SK Telink]

 

  (1) Merger

On July 22, 2010, the board of directors of SK Telink Co., Ltd. (“SK Telink”) approved the merger of TU Media Corp. into SK Telink effective as of November 1, 2010. In connection with this merger, SK Telink issued 256,763 shares of its common stock.

[SK Communications]

 

  (1) Disposition and acquisition of businesses

 

  1. Disposition of publishing business division

On April 10, 2009, SK Communications sold its publishing business division to Etoos for Won 4,785 million in accordance with the resolution of its board of directors of March 5, 2009.

 

  2. Acquisition of the “KUKU” division

On July 1, 2009, SK Communications purchased the “KUKU” division from SK I-Media Co., Ltd. for a purchase price of
Won 1,157 million, in accordance with the June 25, 2009 resolution of its board of directors.

 

  3. Disposition of the Spicus division

Pursuant to the July 23, 2009 resolution of its board of directors, SK Communications sold the Spicus division, its telephone English education division, to Spicus Inc., a subsidiary of Altos Ventures on August 1, 2009 for a purchase price of Won 1,493 million.

 

  (2) Disposition of shares

 

  1. Disposition of shares of Etoos

SK Communications sold all of its shares in Etoos to Cheong Sol pursuant to a resolution of its board of directors of October 19, 2009 and, as consideration, received Won 50 billion principal amount of convertible bonds. Pursuant to a resolution of its board of directors of July 23, 2010, SK Communications converted Won 25 billion principal amount, out of a total of Won 50 billion principal amount, of convertible bonds of Etoos into 701,000 shares of Etoos (15.58%). Pursuant to a resolution of its board of directors of January 13, 2012, SK Communications sold Won 20 billion principal amount, out of the remaining Won 25 billion principal amount, of convertible bonds of Etoos Education Co., Ltd. to Shinhan Private Equity Fund No. 2 at a price of Won 19 billion.

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  2. Disposition of shares of SK i-Media

Pursuant to a resolution of its board of directors of October 17, 2011, SK Communications sold all shares of SK i-Media Co., Ltd. held by it to LK Media Tech Co., Ltd. at a price of Won 1 million.

 

  3. Disposition of shares of U-Land, an overseas entity

Pursuant to a resolution of its board of directors of December 21, 2011, SK Communications sold all of its 29.85% interest in U-Land, an overseas entity, to SK Planet at a price of Won 10 million.

 

  4. Disposition of shares of Service-In

On November 19, 2012, SK Communications sold all of its shares (80,000 common shares) in Service-In Co., Ltd., its subsidiary, to the chief executive officer of Service-In Co., Ltd., pursuant to a resolution of its board of directors of October 31, 2012.

E. Other Important Matters related to Management Activities

[SK Telecom]

 

  (1) Issuance of bonds

On April 23, 2013, the Company issued two tranches of fixed-rate unsecured bonds in the principal amounts of Won 230 billion (with an annual interest rate of 3.03% and a maturity date of April 23, 2023) and Won 130 billion (with an annual interest rate of 3.22% and a maturity date of April, 23, 2033).

 

  (2) Issuance of hybrid securities

On June 7, 2013, the Company issued Won 400 billion principal amount of hybrid securities in the form of unguaranteed subordinated bonds with an annual interest rate of 4.21%, which interest rate is adjusted five years after the date of issuance. The Company classified the hybrid securities as equity as there is no contractual obligation to deliver financial assets to the bondholders. The maturity date of the hybrid securities is June 7, 2073, which can be extended by the Company without any notice or announcement.

 

  (3) Conversion of convertible notes

On April 7, 2009, the Company issued convertible notes with a maturity of five years in the principal amount of US$332,528,000 with an annual interest rate of 1.75%. In 2013, holders exercised their conversion rights with respect to an aggregate principal amount of US$326,023,000 of the convertible notes. The Company delivered 1,241,337 treasury shares in respect of US$170,223,000 of the exercised aggregate principal amount and delivered cash in respect of the remainder due to the limit on foreign ownership. In connection with such conversion, the Company recognized Won 135,108 million in financial costs in 2013. On November 13, 2013, the Company exercised its early redemption right and on December 13, 2013, redeemed the US$6,505,000 principal amount of convertible notes not exercised for conversion by noteholders. A 20-day volume weighted average pricing formula was used for the delivery of cash made in place of treasury shares. Due to such calculation, the Company still had US$91,108,507 outstanding in payables as of December 31, 2013. The amount was delivered in full as of January 6, 2014.

[SK Broadband]

SK Broadband acquired subscriberships of regional cable and other service providers on several different occasions. Such acquisitions were intended to secure a stable subscriber base for its broadband Internet service and, at the same time, increase the service coverage area. Because such acquisitions were conducted on a relatively small scale and involved purchase of subscriberships, SK Broadband did not believe such acquisitions rose to the level of purchasing an entire business line from another company or were likely to have a material impact on its business, and therefore decided that such acquisitions did not require resolutions of its shareholders.

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[SK Communications]

In July 2011, there was a leak of personal information of subscribers of NATE and Cyworld websites operated by SK Communications. As of December 31, 2013, twenty lawsuits were filed against SK Communications, alleging that the leak was caused by its poor management of subscribers’ personal information and seeking damages of approximately Won 5.5 billion. With respect to a few of the lawsuits, the relevant district courts have rendered judgments for the relevant plaintiffs’ claims in part and SK Communications has appealed such judgments to the applicable high courts, where the cases are currently pending. Other cases remain pending at various district courts in Korea.

 

3. Total Number of Shares

 

A. Total Number of Shares

 

(As of December 31, 2013)    (Unit: in shares)  

Classification

    Share type      Remarks  
   Common shares             Total     

I. Total number of authorized shares

      220,000,000         —           220,000,000         —     

II. Total number of shares issued to date

      89,278,946         —           89,278,946         —     

III. Total number of shares retired to date

      8,533,235         —           8,533,235         —     

a. reduction of capital

      —           —           —           —     

b. retirement with profit

      8,533,235         —           8,533,235         —     

c. redemption of redeemable shares

      —           —           —           —     

d. others

      —           —           —           —     

IV. Total number of shares (II-III)

      80,745,711         —           80,745,711         —     

V. Number of treasury shares

      9,809,375         —           9,809,375         —     

VI. Number of shares outstanding (IV-V)

      70,936,336         —           70,936,336         —     

On July 20, 2011, the Company publicly disclosed its plan to repurchase treasury shares. The Company repurchased 1.4 million shares of treasury shares from July 25, 2011 to September 30, 2011 through the Korea Exchange. For more information on the repurchase of treasury shares, please see public disclosures made on July 20, 2011 and October 5, 2011.

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B. Treasury Shares

 

  (1) Acquisitions and dispositions of treasury shares

 

(As of December 31, 2013)                                     (Unit: in shares)  
     Type of shares    At the
beginning
of period		      Changes      At the end of
period		  

Acquisition methods

          Acquired
(+)		      Disposed
(–)		      Retired
(–)		     

Acquisition pursuant to the Financial Investment Services and Capital Markets Act of Korea (“FSCMA”)

    Direct
acquisition		    Direct acquisition
from market		    Common shares      7,086,028         —           —           —           7,086,028   
         Preferred shares      —           —           —           —           —     
      Direct over-the-
counter acquisition		    Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
      Tender offer    Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
         Common shares      7,086,028         —           —           —           7,086,028   
      Sub-total    Preferred shares      —           —           —           —           —     
   Acquisition
through
trust and
other
agreements		    Held by trustee    Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
      Held in actual
stock		    Common shares      3,886,710         —           —           —           3,886,710   
         Preferred shares      —           —           —           —           —     
      Sub-total    Common shares      3,886,710         —           —           —           3,886,710   
         Preferred shares      —           —           —           —           —     

Other acquisition

    Common shares      77,974         —           1,241,337         —           (1,163,363 ) 
   Preferred shares      —           —           —           —           —     

Total

    Common shares      11,050,712         —           —           —           9,809,375   
   Preferred shares      —           —           —           —           —     

 

* Due to the Company’s exercise of its early redemption right with respect to its convertible notes on November 13, 2013, the conversion right exercise period had expired by December 31, 2013 and there are no more treasury shares deposited with the Korea Securities Depository.

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4. Status of Voting Rights

 

(As of December 31, 2013)           (Unit: in shares)

Classification

    Number of shares      Remarks

Total shares (A)

    Common share      80,745,711       —  
   Preferred share      —         —  

Number of shares without voting rights (B)

    Common share      9,809,375       Treasury shares
   Preferred share      —         —  

Shares without voting rights pursuant to the Company’s articles of incorporation (the “Articles of Incorporation”) (C)

    Common share      —         —  
   Preferred share      —         —  

Shares with restricted voting rights pursuant to Korean law (D)

    Common share      —         —  
   Preferred share      —         —  

Shares with reestablished voting rights (E)

    Common share      —         —  
   Preferred share      —         —  

The number of shares with exercisable voting right s (F = A – B – C – D + E)

    Common share      70,936,336       —  
   Preferred share      —         —  

 

5. Dividends and Others

 

A. Dividends

 

  (1) Distribution of cash dividends was approved during the 27th General Meeting of Shareholders held on March 11, 2011.

 

  - Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

 

  (2) Distribution of interim dividends of Won 1,000 was approved during the 330th Board of Directors’ Meeting on July 28, 2011.

 

  (3) Distribution of cash dividends was approved during the 28th General Meeting of Shareholders held on March 23, 2012.

 

  - Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

 

  (4) Distribution of interim dividends of Won 1,000 was approved during the 344th Board of Directors’ Meeting on July 25, 2012.

 

  (5) Distribution of cash dividends was approved during the 29th General Meeting of Shareholders held on March 22, 2013.

 

  - Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

 

  (6) Distribution of interim dividends of Won 1,000 was approved during the 357th Board of Directors’ Meeting on July 25, 2013.

 

  (7) Distribution of cash dividends was approved during the 30th General Meeting of Shareholders held on March 21, 2014.

 

  - Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

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B. Dividends for the Last Three Fiscal Years

 

(Unit: in millions of Won, except per share values and percentages)  

Classification

    As of and for the
year ended
December 31, 2013		      As of and for the
year ended
December 31, 2012		      As of and for the
year ended
December 31, 2011		  

Par value per share (Won)

      500         500         500   

Net income

      910,157         1,242,767         1,694,363   

Net income per share (Won)

      12,837         17,832         24,002   

Total cash dividend

      666,374         655,133         656,533   

Total stock dividends

      —           —           —     

Percentage of cash dividend to available income (%)

      73.2         52.7         38.7   

Cash dividend yield ratio (%)

    Common share      4.1         6.2         6.6   
   Preferred share      —           —           —     

Stock dividend yield ratio (%)

    Common share      —           —           —     
   Preferred share      —           —           —     

Cash dividend per share (Won)

    Common share      9,400         9,400         9,400   
   Preferred share      —           —           —     

Stock dividend per share (share)

    Common share      —           —           —     
   Preferred share      —           —           —     

 

* The above figures were prepared based on separate financial statements. Net income per share means basic net income per share.
* The total cash dividend of Won 656,533 million for the year ended December 31, 2011 includes the total interim dividend amount of Won 71,095 million, and the cash dividend amount per share of Won 9,400 includes the interim cash dividend amount per share of Won 1,000.
* The total cash dividend of Won 655,133 million for the year ended December 31, 2012 includes the total interim dividend amount of Won 69,695 million, and the cash dividend amount per share of Won 9,400 includes the interim cash dividend amount per share of Won 1,000.
* The total cash dividend of Won 666,374 million for the year ended December 31, 2013 includes the total interim dividend amount of Won 70,508 million, and the cash dividend amount per share of Won 9,400 includes the interim cash dividend amount per share of Won 1,000.

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II. BUSINESS

Each company in the consolidated entity is a separate legal entity providing independent services and products. The business is primarily separated into (1) the wireless business consisting of cellular voice, wireless data and wireless Internet services, (2) the fixed-line business consisting of fixed-line telephone, high speed Internet, data and network lease services, among others, and (3) other businesses consisting of platform services and Internet portal services, among others.

 

1. Business Overview

Set forth below is a summary business description of material consolidated subsidiaries.

 

Classification

   

Company name

   

Description of business

Wireless    SK Telecom Co., Ltd.    Wireless voice and data telecommunications services via digital wireless networks
   PS&Marketing Co., Ltd.    Sale of fixed-line and wireless telecommunications products through wholesale, retail and online distribution channels
   Network O&S Co., Ltd.    Network maintenance services such as the operation of the Company’s base stations and related transmission and power facilities
Fixed-line    SK Broadband Co., Ltd.   

High-speed Internet, TV, telephone, commercial data and other fixed-line services and management of the transmission system for online digital contents

Various media-related services, such as channel management, including video on demand, and mobile IPTV services

   SK Telink Co., Ltd.    International wireless direct-dial “00700” services, pre-paid international card calling services, voice services using Internet protocol and Mobile Virtual Network Operator (“MVNO”) services
Other business    SK Planet Co., Ltd.    Various platform services such as 11th Street, T Store, T-Map Navigation and Hoppin in the application, commerce and new media areas, among others
   SK Communications Co., Ltd.    Integrated portal services through NATE and instant messaging services through NATE-ON
   YTK Investment Ltd.    Established to strategically invest in funds in order to find future growth opportunities and strengthen the Company’s competitiveness
   Atlas Investment   

[Wireless Business]

 

A. Industry Characteristics

As of December 31, 2013, the Korean mobile communication market can be considered to have reached its maturation stage with more than a 100% penetration rate. However, the Korean mobile communications market continues to improve in the quality of services with the help of advances in network-related technology and the development of highly advanced LTE-A, LTE and 3G smartphones which enable the provision of convergence services for multimedia contents, mobile commerce, telematics, new media and other related services. In addition, through the commercialization of LTE network in July 2011 and LTE-A network in June 2013, B2B businesses, such as the corporate “connected workforce” business which can directly contribute to an enhancement in productivity, are expected to grow rapidly.

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B. Growth Potential

 

                        (Unit: in 1,000 persons)  

Classification

         As of December 31,  
          2013      2012      2011      2010      2009  

Number of subscribers

   

SK Telecom

      27,352         26,961         26,553         25,750         24,270   
  

Others (KT, LGU+)

      27,328         26,663         25,954         25,062         23,675   
  

Total

      54,680         53,624         52,507         50,767         47,944   

 

* Source: Ministry of Science, ICT and Future Planning (“MSIP”) website and each Korean telecommunications company’s respective earnings releases (including MVNOs).

 

C. Domestic and Overseas Market Conditions

The Korean mobile communication market includes the entire population of Korea with mobile communication service needs, and almost every Korean is considered a potential user. Sales revenue related to data services is expected to increase due to the increasing popularity of smartphones and high-speed wireless networks. The importance of the business-to-business segment, which creates added value by selling and developing various solutions, is also growing. Seasonal and economic fluctuations have much less impact on the Korean mobile communication market compared to other industries.

Set forth below is the historical market share of the Company.

 

                          (Unit: in percentages)  

Classification

    As of December 31,  
     2013      2012      2011      2010      2009  

Mobile communication services

      50.0         50.3         50.6         50.6         50.6   

 

* Source: MSIP website and each Korean telecommunications company’s respective earnings releases (including MVNOs).

 

D. Business Overview and Competitive Strengths

The Company is seeking to transform itself from a telecommunications service provider into a comprehensive ICT service provider. It has continued to innovate the scope of its services and achieved strong growth in subscribers amid fierce competition and rate cuts. As of December 31, 2013, the Company recorded Won 16.6 trillion in revenue and Won 2.0 trillion in operating income on a consolidated basis and Won 12.9 trillion in revenue and Won 2.0 trillion in operating income on a separate basis.

The number of subscribers (including MVNO subscribers) as of December 31, 2013 was 27.35 million, an increase of approximately 390,000 from the previous year. In particular, the number of smartphone subscribers as of December 31, 2013 was 18.29 million, an increase of approximately 2.31 million from the previous year, including 13.5 million LTE subscribers, solidifying the Company’s market leadership. Following the launch of commercial LTE services in July 2011, the Company became the first telecommunications service provider in the world to launch commercial LTE-A services in June 2013. In September 2013, the Company launched commercial wideband LTE services utilizing its newly acquired 1.8 GHz band. Following provision of such services throughout Seoul and other metropolitan cities, the Company plans to expand coverage nationwide by July 2014. By launching various high quality services utilizing the LTE-A and wideband LTE networks such as group video conference call services, full high definition mobile IPTV streaming services, and ‘T Baseball Multiview,’ which allows users to watch multiple baseball games on one screen, the Company plans to provide an innovative user experience, enhance customer satisfaction and increase profitability.

The Company has proved that it has superior network quality compared to its competitors according to the Korea Communications Commission quality evaluations. The Company has also proved to be the leader in Korea’s top three customer satisfaction indices: according to the National Customer Satisfaction Index, Korean Customer Satisfaction Index and Korean Standard Service Quality Index, the Company has continued to hold the leading position for 16 years, 16 years and 14 years, respectively.

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SK Telink, a consolidated subsidiary of the Company, expanded its operations to the MVNO business based on its technical expertise and know-how obtained in its international telecommunications business and launched its MVNO service, 7Mobile, which is offered at reasonable rates and provides excellent quality. SK Telink is increasing its efforts to develop low-cost distribution channels and create niche markets through targeted marketing towards customers with lower average revenue per user. An MVNO leases the networks of a mobile network operator (“MNO”) and provides wireless telecommunication services under its own brand and fee structure, without owning telecommunication networks or frequencies.

Network O&S, a subsidiary of the Company responsible for the operation of the Company’s base stations and related transmission and power facilities, offers quality fixed-line and wireless network services to customers, including mobile office products to business customers.

PS&Marketing, a subsidiary of the Company, provides a sales platform for products of the Company and SK Broadband including fixed-line and wireless telecommunication products which address customers’ needs for various convergence products. PS&Marketing provides differentiated service to clients through the establishment of new sales channels and product development.

[Fixed-line Business]

 

A. Industry Characteristics

Mergers among fixed-line operators and wireless operators have accelerated the convergence within the Korean telecommunications industry, and with the advent in the wireless telecommunications industry of a market for wideband LTE services utilizing LTE frequencies allocated to wireless operators following the completion of frequency auctions in August 2013, a market structure has evolved in which groups with both fixed-line and wireless capabilities compete for greater market share to secure a more solid footing in the market by offering superior services. As subscribers to various bundled wireless and fixed-line products are continuing to increase, the IPTV business is evolving to satisfy diverse customer needs for media services through differentiated service offerings including mobile IPTV, bundled wireless and IPTV products and “smart” set-top box services for smart televisions. The market for our corporate business is also growing with cloud computing, mobile offices and other new information and communications technologies being commercialized. The increased usage of smartphones and tablet computers, the pilot programming of commercial ultra-high definition television broadcasting services and competition for wideband LTE services has greatly increased data traffic, thereby further emphasizing the importance of fixed-line network infrastructure that is capable of handling large capacities of data traffic with stability and efficiency.

 

B. Growth Potential

 

(Unit: in 1,000 persons)  

Classification

    As of December 31,  
   2013      2012      2011  

Fixed-line Subscribers

   

High-speed Internet

      18,738         18,253         17,860   
  

Fixed-line telephone

      17,620         18,261         18,633   
  

IPTV (real-time)

      8,522         6,310         4,570   

 

* Source: MSIP website and Korea Communications Commission website.

 

C. Cyclical Nature and Seasonality

High-speed Internet, fixed-line telephone and IPTV services are mature markets that are generally not sensitive to cyclical economic changes due to the easing of competition resulting from the decrease in differentiation between service providers and the nature of the respective services. The telecommunications services market overall is not expected to be particularly affected by economic downturns due to the low income elasticity of demand for telecommunication services.

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Set forth below is the historical market share of the Company.

 

     (Unit: in percentages)  

Classification

    As of December 31,  
   2013      2012      2011  

High-speed Internet (include resales)

      24.4         24.1         23.4   

Fixed-line telephone (include Voice over Internet Protocol)

      16.9         16.7         15.7   

IPTV (real-time)

      24.4         22.2         19.3   

 

* Source: MSIP website, Korea Communications Commission website and each Korean telecommunications company’s respective earnings releases.

 

D. Business Overview and Competitive Strengths

SK Broadband, which in 1999 became the first company in the world to commence commercial ADSL services, has strengthened its co-marketing efforts with SK Telecom. The co-marketing efforts and the enhanced competitiveness of the bundled products have resulted in an expanded subscriber base across all of our businesses, including broadband Internet, telephone and IPTV. In particular, SK Broadband has positioned itself to focus on corporate customer services and IPTV services as key strategic areas for mid- to long-term growth, exploiting opportunities in new ICT-based businesses that have led to revenue growth, and providing differentiated contents in its IPTV business by securing popular programming which includes exclusive children’s channels and live broadcasts of Major League Baseball games. In addition, SK Broadband intends to generate revenue in the mid- to long-term by strengthening the competitiveness of its IPTV business through efforts that include the first fully high-definition live broadcast on mobile television in Korea, its collaboration with Samsung Electronics in developing set-top box-free smart television services and development of ultra-high definition broadcast technology.

SK Telink provides international telecommunications service. SK Telink has been able to establish itself as a market leader as a result of its affordable pricing, proactive marketing and the quality of its services. It launched a mobile phone-based international calling service under the brand name “00700” in 1998, creating a new niche market within the long-distance telephony market that was otherwise dominated by existing service providers. In 2003, SK Telink was designated a common carrier for international calling services, which allowed us to expand our international calling services to fixed-line international calling services. SK Telink plans to strategically target the convergence of wireless and fixed-line telecommunications and strengthen its existing business, including international and long-distance calling services, value-added services for local calling and B2B services, and video conference call services while aiming to satisfy the diverse needs of customers through the provision of quality solutions at reasonable prices.

[Other Business]

 

A. Industry Characteristics

As the number of smartphones distributed in Korea exceeds 30 million, the growth in various mobile devices has spurred the rise of the service provider with a strong platform business as the leader in the ICT market. It is becoming increasingly important to enhance competitiveness by building a platform with large data capacity to handle the increase in data transmission.

A platform business acts as an intermediary by promoting interactions among various customer groups, thereby generating new values. It is important for a platform business to continually attract subscribers and users and to create an ecosystem with certain lock-in effects. A platform can exist in various forms, including as a technological standard (iOS, Android OS), a subscriber-based service platform (Facebook, Twitter) or a marketplace (Amazon, T Store). Platform businesses are evolving and expanding globally.

A platform business has strong growth potential due to its connectivity with related services and ease of global expansion. Apple became a world-leading smartphone producer based on its innovative design and the competitive strength of its App Store platform. Google has created a new ecosystem of long-tail advertising by attracting millions of third parties to its advertising platform, as well as showing strong growth in mobile markets with its competitive platform based on Android OS. It is becoming increasingly important to enhance competitiveness through a database that can register and analyze purchase patterns of customers across all areas and a platform with large data capacity to utilize this database and provide differentiated services to customers.

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B. Growth Potential

The scope and value generated by the platform business, including application and content marketplaces and N-screen services, continues to increase, as smartphones and tablet computers become more popular and the bandwidth and speed of network infrastructure improve. As the wireless network evolves to LTE, business opportunities for the platform business exist, including multimedia streaming, N-screen service based on cloud technology and high-definition location-based services. Since the platform business realizes profit by connecting with advertisements or commerce sites after building a critical mass of subscribers and traffic, the recent growth in the advertising and commerce markets is expected to present an opportunity for platform businesses. The importance of building a platform with large data capacity that is connected to various digital contents and commerce is expected to increase in the future.

 

C. Domestic and Overseas Market Conditions

 

  (1) Commerce markets

The Company expects that online commerce markets will continue to grow due to the growth potential of the Internet shopping population and the strengthening of online business models by off-line operators.

 

  (2) Digital contents

The growth of application marketplaces, which started with Apple’s App Store, provides the platform business with new opportunities for revenue generation. The competitive paradigm is shifting from a competition among platform operators toward a competition among eco-systems that include application developers as well as platform operators.

Due to an increase in the number of devices owned by each user and an increase in network speed, each user can now enjoy music or video files anywhere and anytime by storing them in cloud servers, which is called N-screen service. Users can recommend music to other users through social networking services and this is expected to become a distribution model for digital media contents. Various service providers are competing in this market expecting a strong growth in the online and mobile video market.

 

D. Business Overview and Competitive Strengths

SK Planet plans to expand its platform ecosystem focusing on its “Open & Collaboration” motto in operating its commerce business such as 11th Street and OK Cashbag, its digital contents business such as T Store and Hoppin, and its location-based service business such as T-Map Navigation, thereby ultimately increasing its enterprise value.

 

  (1) Commerce

11th Street, an online marketplace, has continued its growth through effective marketing and customer satisfaction. Despite its later entry into the online commerce market (launched in 2008) which was already divided between Auction and G-Market, it is leading the domestic e-commerce market and is also firmly establishing its position as the leader in the mobile commerce market. Growth plans involving overseas joint ventures based on 11th Street’s business expertise have resulted in the successful launch of an open online commerce market in Turkey in partnership with Doğuş Group in March 2013. Progress is also being made in the collaborated development of an open market platform in Indonesia with the wireless telecommunications company PT XL Axiata Tbk. through a joint venture established in July 2013.

OK Cashbag is a point-based loyalty marketing program which has grown to become a global top-tier loyalty marketing program since its inception in 1999. Customers have access to increased benefits through accumulation of loyalty reward points and partner companies use OK Cashbag as a marketing resource. With 37 million subscribers, OK Cashbag maintains a leading position in the industry and plans to continue strengthening its position by providing customized services befitting customers’ needs and market conditions.

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  (2) Location-based services

T-Map Navigation provides map, local information, real-time traffic information and navigation services. With cumulative subscribers of 19.21 million as of December 31, 2013, T-Map Navigation is one of the leading location-based service platforms in Korea. The Company is broadening the range of its location-based services by also providing “infotainment” systems to commercial vehicle businesses as well as providing localized content on its products, such as region-specific information and advertisements. The Company plans to further develop the T-Map Navigation platform by initiating open application programming interface-based services, providing services to more diverse types of devices and providing local area-based services.

 

  (3) Digital contents

T Store, launched in September 2009, reached 21.79 million subscribers and cumulative downloads of 1.6 billion as of December 2013, solidifying its leadership position in the Korean application market and plans to widen its services to tablets and navigation devices. The Company intends to further develop T Store into a global service platform by evolving it into a personalized gateway and mobile playground through expansion of the scope of serviceable devices, reinforcement of digital content offerings and enhancement of search services, among other things.

The Company’s “Hoppin” service enables subscribers to enjoy wide-ranging video on demand contents. Through continual service improvements and stable service provision, Hoppin has become the leading mobile video on demand service.

 

  (4) Social networking services (“SNS”) and Internet portal services

The Company’s instant messenger service, “Nate-On,” had the largest market share of 44.1% in the instant messenger market in Korea with 6 million net users in 2013. The Company’s Internet search portal service, “Nate,” had a page-view market share of 5.5% as of December 31, 2013. (Source: Korean Click, based on fixed-line access)

 

  LOGO Satellite DMB service

The Company launched its Hanbyul satellite in 2004 and received government approval in December 30, 2004 to provide satellite DMB services. Broadcasting through satellite DMB commenced in May 2005 and satellite DMB services expanded nationwide thereafter. On August 23, 2012, the board of directors of SK Telink resolved to discontinue operation of its satellite DMB services due to the rapid decrease in satellite DMB subscribers and the continued burden of fixed costs.

 

2. Major Products & Services

 

A. Updates on Major Products and Services

 

(Unit: in millions of Won and percentages)  

Business

   

Major Companies

   

Item

   

Major Trademarks

    Consolidated Sales Amount
(ratio)		  

Wireless

   

SK Telecom Co., Ltd.,

PS&Marketing Co., Ltd.,

Service Ace Co., Ltd.,

Service Top Co. Ltd.,

Network O&S Co., Ltd.

    Mobile communication service, wireless data service, ICT service    T and others      13,315,532 (80.2%) 

Fixed-line

    SK Broadband Co., Ltd., SK Telink Co., Ltd.    Fixed-line phone, high speed Internet, data and network lease service    B tv , 00700 international call, 7Mobile and others      2,324,389 (14.0%) 

Table of Contents
(Unit: in millions of Won and percentages)

Business

   

Major Companies

   

Item

   

Major Trademarks

    Consolidated
Sales Amount
(ratio)

Other

   

SK Planet Co., Ltd ,

Commerce Planet Co., Ltd,

SK Communications Co., Ltd.,

M&Service Co., Ltd.,

YTK Investment Ltd.,

Atlas Investment

    Internet portal service and investment    OK Cashbag, NATE, 11th Street, T Store, T-Map Navigation and others    962,133 (5.8%)
           

 

Total

    16,602,054
(100.0%)
           

 

[Wireless Business]

In the past, based on the Company’s basic monthly subscription plan, the basic service fee was Won 13,000 per month and the usage fee was Won 20 per 10 seconds (daytime calls) and based on the Company’s standard monthly subscription plan, the basic service fee was Won 12,000 per month and the usage fee was Won 18 per 10 seconds. As of December 31, 2013, based on the Company’s standard monthly subscription plan, the basic service fee was Won 11,000 per month and the usage fee was Won 1.8 per second.

[Fixed-line Business]

SK Broadband provides broadband Internet access service, telephony, TV, corporate data services and other services for both individual and corporate customers. As of December 31, 2013, broadband Internet and TV services comprised 49.4% of SK Broadband’s revenue, telephony service 23.0%, corporate data services 25.3% and other telecommunications services 2.3%. Price fluctuations in the different services provided by SK Broadband are due to discounts provided for long-term contracts, changes in equipment costs and competition between companies.

Table of Contents

[Other Business]

Set forth below are major products and services of the Company’s material consolidated subsidiaries.

 

Business

   

Item

   

Major Trademarks

Platform

    ICT services, new media services, advertisement services, telecommunications sales, e-commerce and others    T Store, 11th Street, T Map, Hoppin, OK Cashbag and others

Display advertisement

    Online advertisement services    Nate, Nate-On

Search advertisement

    Online advertisement services    Nate, Nate-On

Contents and others

    Pay content sales and other services    Nate, Nate-On

 

3. Investment Status

[Wireless Business]

 

A. Investment in Progress

 

(Unit: in 100 millions of Won)

Business

  

Classification

   Investment
period		  

Subject of investment

  

Investment effect

   Expected
investment
amount		     Amount
already
invested		    

Future
investment

Network/Common

   Upgrade/New installation   2013   Network, systems and others   Capacity increase and quality improvement; systems improvement     21,000        23,165      —
         

 

 

    

 

 

    

 

Total

       21,000        23,165      —
         

 

 

    

 

 

    

 

 

B. Future Investment Plan

 

(Unit: in 100 millions of Won)

Business

   

Expected investment amount

      Expected investment for each year   

Investment effect

  

Asset type

    Amount      2014     

2015

   

2016

   

Network/Common

    Network, systems and others      21,000         21,000       To be determined    To be determined    Upgrades to the existing services and expanded provision of services including wideband LTE-A
     

 

 

     

 

 

           

Total

      21,000         21,000       To be determined    To be determined   
     

 

 

     

 

 

           

[Fixed-line Business]

 

A. Investment in Progress

 

(Unit: in 100 millions of Won)

Business

   

Classification

    Investment
period		   

Subject of
investment

   

Investment effect

    Total
investments		      Amount
already
invested		     

Future investment

High-speed Internet

    Upgrade/New installation    For the
year
ended
December
31, 2013		    Backbone and subscriber network / others    Expand subscriber networks and facilities      5,762         1,501       To be determined

Telephone

                     124      

Television

                     909      

Corporate Data

             Increase leased-line and integrated information system         2,144      

Others

             Expand networks and required space         1,084      
                 

 

 

     

Total

      5,762         5,762      
                 

 

 

     

Table of Contents
4. Revenues

 

(Unit: in millions of Won)  

Business

      Sales
type		     

Item

      For the year
ended
December 31, 2013		        For the year
ended
December 31, 2012*		        For the year
ended
December 31, 2011*		  

Wireless

      Services      Mobile
communication		      Export        2,526           14,202           1,331   
               Domestic        13,313,006           13,204,702           13,100,614   
                   

 

 

       

 

 

       

 

 

  
               Subtotal        13,315,532           13,218,904           13,101,945   
                   

 

 

       

 

 

       

 

 

  

Fixed-line

      Services      Fixed-line,
B2B data, High-speed Internet, TV		      Export        28,002           29,883           28,070   
               Domestic        2,296,387           2,163,978           2,134,498   
                   

 

 

       

 

 

       

 

 

  
               Subtotal        2,324,389           2,193,861           2,162,568   
                   

 

 

       

 

 

       

 

 

  

Other

      Services      Display and
Search ad.,
Content		      Export        14,049           4,698           12,036   
               Domestic        948,084           723,946           526,625   
                   

 

 

       

 

 

       

 

 

  
               Subtotal        962,133           728,644           538,661   
                   

 

 

       

 

 

       

 

 

  

Total

      Export        44,577           48,783           41,437   
     Domestic        16,557,477           16,092,626           15,761,737   
                   

 

 

       

 

 

       

 

 

  
               Total        16,602,054           16,141,409           15,803,174   
                   

 

 

       

 

 

       

 

 

  

 

* Revenues for the years ended December 31, 2011 and 2012 have been retroactively revised to reflect the effect of discontinued operations resulting from the sale of Loen Entertainment.

 

(Unit: in millions of Won)  

For the year ended December 31, 2013

    Wireless      Fixed      Other      Sub total      Internal
transaction		      After
consolidation		  

Total sales

      14,501,829         2,972,642         1,741,599         19,216,070         2,614,016         16,602,054   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Internal sales

      1,186,297         648,253         779,466         2,614,016         2,614,016         —     

External sales

      13,315,532         2,324,389         962,133         16,602,054         —           16,602,054   

Operating income (loss)

      1,986,106         55,625         -30,622         2,011,109         —           2,011,109   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total assets

      23,263,268         3,288,275         3,075,321         29,626,864         3,050,349         26,576,515   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total liabilities

      9,744,248         2,033,978         901,563         12,679,789         269,831         12,409,958   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Table of Contents
5. Derivative Transactions

 

A. Current Swap Contract Applying Cash Flow Risk Hedge Accounting

Currency swap contracts under cash flow hedge accounting as of December 31, 2013 are as follows.

 

Borrowing
date

   

Hedged item

   

Hedged risk

   

Contract type

   

Financial institution

   

Duration of
contract

Jul. 20, 2007

    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$400,000,000)    Foreign currency risk    Cross currency swap    Morgan Stanley and five other banks    Jul. 20, 2007 – Jul. 20, 2027

Dec. 15, 2011

    Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$250,000,000)    Foreign currency risk and interest rate risk    Cross currency interest rate swap    DBS Bank and Citibank    Dec. 15, 2011 – Dec. 12, 2014

Dec. 15, 2011

    Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000,000)    Foreign currency risk and interest rate risk    Cross currency interest rate swap    United Overseas Bank    Dec. 15, 2011 – Dec. 12, 2014

Jun. 12, 2012

    Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000,000)    Foreign currency risk    Cross currency swap    Citibank and five other banks    Jun. 12, 2012 – Jun.12, 2017

Nov. 1, 2012

    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$700,000,000)    Foreign currency risk    Cross currency swap    Barclays and nine other banks    Nov. 1, 2012 – May. 1, 2018

Jan. 17, 2013

    Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000,000)    Foreign currency risk    Cross currency swap    BNP Paribas and three other banks    Jan. 17, 2013 – Nov. 17, 2017

Mar. 7, 2013

    Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$300,000,000)    Foreign currency risk and interest rate risk    Cross currency interest rate swap    DBS Bank    Mar. 7, 2013 – Mar. 7, 2020

Dec. 16, 2013

    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$94,735,627)    Foreign currency risk    Cross currency swap    Deutsche Bank    Dec. 16, 2013 – Apr. 29, 2022

Table of Contents
B. Treatment of Derivative Instruments on the Balance Sheet

As of December 31, 2013, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows.

 

(Unit: in millions of Won and thousands of foreign currencies)  

Hedged item

    Fair value  
   Cash flow hedge      Trading
purposes		      Total  
   Accumulated gain
(loss) on valuation
of derivatives		     Tax effect     Foreign currency
translation gain
(loss)		     Others(*1)        

Current assets:

               

Convertible option(*2)
(face amounts of Won 1,500 million)

      —          —          —          —           9,828         9,828   

Non-current assets:

               

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds face value of US$400,000,000)

      (42,772 )      (13,656 )      (34,853 )      129,806         —           38,525   

Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$300,000,000)

      8,822        2,816        (8,451 )      —           —           3,187   
              

 

 

  

Total assets

                  41,722   
              

 

 

  

Non-current liabilities:

               

Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$250,000,000)

      5,871        1,875        (25,602 )      —           —           (17,856 ) 

Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000,000)

      7        2        (3,324 )      —           —           (3,315 ) 

Fixed-to-fixed cross currency swap

(Swiss Franc denominated bonds face value of CHF 300,000,000)

      (5,275 )      (1,684 )      (6,902 )      —           —           (13,861 ) 

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds face value of US$700,000,000)

      (8,400 )      (2,682 )      (24,435 )      —           —           (35,517 ) 

Fixed-to-fixed cross currency swap

(Australia dollar denominated bonds face value of AUD 300,000,000)

      4,262        1,361        (53,295 )      —           —           (47,672 ) 

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds face value of US$300,000,000)

      (1,128 )      —          (1,830 )      —           —           (2,958 ) 

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds face value of US$94,735,627)

      (2,548 )      (813 )      202        —           —           (3,160 ) 
              

 

 

  

Total liabilities

                  (124,339 ) 
              

 

 

  

 

(*1) Cash flow hedge accounting has been applied to the relevant contract from May 12, 2010. Others represent gain on valuation of currency swap incurred prior to the application of hedge accounting and was recognized through profit or loss prior to the year ended December 31, 2012.
(*2) Fair value of the conversion option of convertible bonds held by SK Communications Co., Ltd. amounting to Won 10 million was accounted for as derivative financial assets.

Table of Contents
6. Major Contracts

[SK Telecom]

(Unit: in 100 millions of Won)

Category

   

Vendor

   

Start Date

   

Completion Date

   

Contract Title

    Contract
Amount		  

Service

    SK Planet Co., Ltd.    February 25, 2013    December 31, 2013    B2B contents purchase contract for ‘Smart Safe’ and ‘Phone Safe 40’      206   

Service

    SK Planet Co., Ltd.    February 1, 2013    January 1, 2014    Partnership agreement for OK Cashbag services      168   

Service

    SK Planet Co., Ltd.    February 25, 2013    March 31, 2013    Contract for 2012 production of above-the-line advertisements (former SK Marketing & Company)      58   

Service

    M&Service Co., Ltd.    January 1, 2013    December 31, 2013    Contract for 2013 operation of virtual learning center      10   

Service

    Happy Ecophone Foundation    April 1, 2013    December 31, 2013    Contract for 2013 operation of T ecophone center      21   

Construction

    Dongwon Construction Industry Corporation    March 1, 2013    May 20, 2014    Construction of SK Dream Park      146   

Real Estate

    Woori Bank*    —    December 26, 2012    Disposal of Namsan Green Building      1,972   

Real Estate

    Woori Bank*    —    December 26, 2012    Disposal of Guro Offices      400   

Real Estate

    Individual    January 1, 2013    June 30, 2013    Purchase of regional centers (23 centers)      180   
              

 

 

  

Subtotal

                  3,161   
              

 

 

  

 

* The manager of the 18th IGIS KORIF private real estate investment fund.

[SK Broadband]

SK Broadband enters into contracts to use telecommunications facilities, including the use of line conduits and interconnection among telecommunication service providers.

 

Counterparty

   

Contract Contents

   

Contract Period

   

Note

Telecommunication service providers    Interconnection among telecommunication service providers    —    Interconnection among telecommunication service providers
KEPCO    Provision of electric facilities    From Dec. 2012 to Nov.
2013		    Use of electricity poles
Seoul City Railway    Use of telecommunication line conduits    From Jan. 2009 to Dec.
2011 (Renewal in progress)		    Use of railway telecommunication conduit (Serviced areas to expand)
Seoul Metro    Use of telecommunication line conduits    From May 2010 to May
2013 (Renewal in progress)		    Use of railway telecommunication conduit (Serviced areas to expand)
Busan Transportation Corporation    Use of telecommunication line conduits    From July 2009 to July
2012 (Renewal in progress)		    Use of railway telecommunication conduit (Serviced areas to expand)
Gwangju City Railway    Use of telecommunication line conduits    From Sep. 2010 to Dec.
2012 (Renewal in progress)		    Use of railway telecommunication conduit (Service lease)

[SK Planet]

 

Counterparty

   

Contract Contents

   

Contract Period

   

Amount

SK Communications    Operation of shopping business at Nate.com website    From Jul. 1, 2011 to Dec. 31, 2013    Variable depending on the NATE shopping revenues and other factors

Table of Contents

[SK Communications]

 

Counterparty

   

Purpose

   

Contract Period

   

Contract Amount

Daum Communications

    Cost-per-click Internet search advertisement    —      Amount determined based on the number of clicks

SK Planet Co., Ltd.

    Sale of asset in construction (Pangyo office building)    —      Sold for Won 69.5 billion on June 11, 2013

SK Planet Co., Ltd.

    Operation of shopping business at nate.com website    From Jul. 1, 2011 to
Dec. 31, 2013		    Minimum guarantee of Won 18.4 billion for the period from Jul. 1, 2011 to Dec. 31, 2011; Amounts for 2012 and 2013 are to be determined depending on the NATE shopping revenues and other factors

 

* SK Communications and Daum Communications have agreed not to publicly disclose the contract period with respect to the contract with Daum Communications.

 

7. R&D Investments

Set forth below are the Company’s R&D expenditures.

 

(Unit: in millions of Won except percentages)  

Category

    For the year ended December 31,     Remarks  
   2013     2012     2011    

Raw material

      38        42        45        —     

Labor

      79,865        59,050        48,656        —     

Depreciation

      158,158        163,295        149,850        —     

Commissioned service

      22,923        62,399        40,257        —     

Others

      102,668        61,546        57,118        —     

Total R&D costs

      363,652        346,332        295,927        —     

Accounting

    Sales and administrative expenses      352,385        304,557        289,979        —     
  

Development expenses (Intangible assets)

      11,267        41,775        5,948        —     

R&D cost / sales amount ratio (Total R&D costs / Current sales amount×100)

      2.19 %      2.12 %      1.85 %      —     

 

8. Other information relating to investment decisions

 

A. Trademark Policies

The Company manages its corporate brand and other product brands in a comprehensive way to protect and increase their value. The Company’s Brand Strategy Council in charge of overseeing its systematic corporate branding operates full-time to execute decisions involving major brands and operates “Brandnet,” an intranet system to manage corporate brands which provides solutions including registering and licensing of the brands.

 

B. Business-related Intellectual Property

[SK Telecom]

The Company holds 5,099 Korean-registered patents, 302 U.S.-registered patents, 209 Chinese-registered patents (all including patents held jointly with other companies) and more patents with other countries. The Company holds 883 Korean-registered trademarks and owns intellectual property rights to the design of the alphabet “T.” The designed alphabet “T” is registered in all business categories for trademarks (total of 45) and is being used as the primary brand of the Company.

Table of Contents

[SK Broadband]

SK Broadband holds 352 Korean-registered patents relating to high-speed Internet, telephone and IPTV service. In addition, SK Broadband has applied for a patent relating to two-way broadcasting system. SK Broadband also holds a number of trademarks and service marks relating to its service and brand.

[SK Planet]

As of December 31, 2013, SK Planet held 2,287 registered patents, 101 registered design marks, 1,168 registered trademarks and one copyright (including those held jointly with other companies) in Korea. It also holds 71 U.S.-registered patents, 73 Chinese-registered patents, 36 Japanese-registered patents, 20 E.U.-registered patents (all including patents held jointly with other companies) and 191 registered trademarks, along with a number of other intellectual property rights, in other countries.

[SK Communications]

As of December 31, 2013, SK Communications held 72 registered patents, 26 registered design rights and 721 registered trademarks in Korea.

 

C. Business-related Pollutants and Environmental Protection

The Company does not engage in any manufacturing and therefore does not undertake any industrial processes that emit pollutants into the air or industrial processes in which hazardous materials are used.

Table of Contents
III. FINANCIAL INFORMATION

 

1. Summary Financial Information (Consolidated)

 

A. Summary Financial Information (Consolidated)

 

     (Unit: in thousands of Won except number of companies)  
     As of
December 31, 2013		     As of
December 31, 2012		     As of
December 31, 2011		     As of
December 31, 2010		  

Current Assets

      5,123,415,405        5,294,420,978        6,117,478,958        6,653,991,923   

•    Cash and Cash Equivalents

      1,398,638,926        920,124,810        1,650,793,876        659,404,935   

•    Accounts Receivable – Trade, net

      2,257,316,402        1,954,920,332        1,823,169,889        1,949,397,279   

•    Accounts Receivable – Other, net

      643,602,730        582,098,398        908,836,454        2,531,847,155   

•    Others

      823,857,347        1,837,277,438        1,734,678,739        1,513,342,554   

Non-Current Assets

      21,453,099,834        20,301,138,645        18,248,557,471        16,478,397,157   

•    Long-Term Investment Securities

      968,527,332        953,712,512        1,537,945,216        1,680,582,091   

•    Investments in Associates and Joint Ventures

      5,325,296,741        4,632,477,315        1,384,605,401        1,204,691,805   

•    Property and Equipment, net

      10,196,607,229        9,712,718,716        9,030,998,201        8,153,412,683   

•    Intangible Assets, net

      2,750,781,769        2,689,657,645        2,995,803,300        1,884,955,652   

•    Goodwill

      1,733,260,574        1,744,483,009        1,749,932,878        1,736,649,137   

•    Others

      478,626,189        568,089,448        1,549,272,475        1,818,105,789   

Total Assets

      26,576,515,239        25,595,559,623        24,366,036,429        23,132,389,080   

Current Liabilities

      6,069,219,582        6,174,895,434        6,673,589,809        6,202,170,452   

Non-Current Liabilities

      6,340,738,309        6,565,881,872        4,959,737,573        4,522,219,358   

Total Liabilities

      12,409,957,891        12,740,777,306        11,633,327,382        10,724,389,810   

Equity Attributable to Owners of the Parent Company

      13,452,372,339        11,854,777,781        11,661,880,863        11,329,990,900   

Share Capital

      44,639,473        44,639,473        44,639,473        44,639,473   

Capital Surplus (Deficit) and Other Capital Adjustments

      317,508,426        (288,882,796 )      (285,347,419 )      (78,952,875 ) 

Retained Earnings

      13,102,495,264        12,124,657,526        11,642,525,267        10,721,249,327   

Reserves

      (12,270,824 )      (25,636,422 )      260,063,542        643,054,975   

Non-controlling Interests

      714,185,009        1,000,004,536        1,070,828,184        1,078,008,370   

Total Equity

      14,166,557,348        12,854,782,317        12,732,709,047        12,407,999,270   

Number of Companies Consolidated

      28        32        31        32   

 

     (Unit: in thousands of Won except per share amounts)  
     For the year ended
December 31, 2013		     For the year ended
December 31, 2012*		     For the year ended
December 31, 2011*		     For the year ended
December 31, 2010		  

Operating Revenue

      16,602,053,960        16,141,409,477        15,926,468,674        15,489,373,747   

Operating Income

      2,011,108,750        1,730,049,433        2,295,613,330        2,555,781,816   

Profit Before Income Tax

      1,827,101,517        1,519,368,041        2,240,689,573        2,373,223,839   

Profit for the Period

      1,609,549,453        1,115,662,553        1,582,073,280        1,766,834,754   

Profit for the Period Attributable to Owners of the Parent Company

      1,638,964,318        1,151,704,905        1,612,889,086        1,841,612,790   

Profit for the Period Attributable to Non-controlling Interests

      (29,414,865 )      (36,042,352 )      (30,815,806 )      (74,778,036 ) 

Basic Earnings Per Share (Won)

      23,211        16,525        22,848        25,598   

Diluted Earnings Per Share (Won)

      23,211        16,141        22,223        24,942   

 

* Financial information for the years ended December 31, 2011 and 2012 have been retroactively revised to reflect the effect of discontinued operations resulting from the sale of Loen Entertainment.

Table of Contents
B. Changes to Accounting Standards Adopted During 2012

 

  (1) Financial Instruments: Disclosures

The Company has applied the amendments to K-IFRS No.1107, ‘Financial Instruments: Disclosures’ since January 1, 2012. The amendments require disclosing the nature of transferred assets, their carrying amount, and the description of risks and rewards for each class of transferred financial assets that are not derecognized in their entirety. If the Company derecognizes transferred financial assets but still retains their specific risks and rewards, the amendments require additional disclosures of their risks.

 

  (2) Presentation of Financial Statements

The Company adopted the amendments pursuant to the amended K-IFRS No. 1001, ‘Presentation of Financial Statements’ starting with the year ended December 31, 2012. The Company’s operating income is calculated as operating revenue less operating expense. Operating expense represents expense incurred from the Company’s main operating activities and includes cost of products that have been resold and selling, general and administrative expenses.

 

C. Changes to Accounting Standards Adopted During 2013

 

  (1) Presentation of Financial Statements

The Company has applied the amendments to K-IFRS No. 1001, ‘Presentation of Financial Statements’ since January 1, 2013, classified items within other comprehensive income by nature and presented “items that are not subsequently recycled through profit or loss” and “items that are subsequently reclassified if certain conditions are met” as a group.

 

  (2) Consolidated Financial Statements

The Company has applied the amendments to K-IFRS No. 1110, ‘Consolidated Financial Statements’ since January 1, 2013. The standard introduces a single control model to determine whether an investee should be consolidated. Subsidiary is an entity that is controlled by a controlling entity or a subsidiary of a controlling company. A controlling entity or a subsidiary of a controlling company controls a subsidiary when the controlling entity or the subsidiary of the controlling company is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

 

  (3) Joint Arrangements

The Company has applied the amendments to K-IFRS No. 1111, ‘Joint Arrangements’ since January 1, 2013. The standard classifies joint arrangements into two types—joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the arrangement. The standard requires a joint operator to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the particular assets, liabilities, revenues and expenses. The standard requires a joint venture to recognize an investment and to account for that investment using the equity method.

 

  (4) Disclosure of Interests in Other Entities

The Company has applied the amendments to K-IFRS No. 1112, ‘Disclosure of Interests in Other Entities’ since January 1, 2013. The standard brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company is currently assessing the disclosure requirements for interests in subsidiaries, interests in joint arrangements and associates and unconsolidated structured entities in comparison with the existing disclosures. The standard requires the disclosure of information about the nature, risks and financial effects of these interests.

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  (5) Employee Benefits

The Company has applied the amendments to K-IFRS No. 1019, ‘Employee Benefits’ since January 1, 2013. The standard requires recognition of actuarial gains and losses immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation.

 

  (6) Fair Value Measurement

The Company has applied the amendments to K-IFRS No. 1113, ‘Fair Value Measurement’ since January 1, 2013. The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements.

 

D. Impact of Changes in Accounting Policies

 

  (1) Consolidated Financial Statements

In accordance with the transitional provision on K-IFRS No. 1110, the Company assessed control on investees as of January 1, 2013, the initial adoption date of the standard, and there have been no changes in subsidiaries upon adoption of the standard.

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2. Summary Financial Information (Separate)

 

A. Summary Financial Information (Separate)

 

(Unit: in thousands of Won)  
     As of
December 31, 2013		      As of
December 31, 2012		     As of
December 31, 2011		     As of
December 31, 2010		  

Current Assets

      2,817,782,116         2,589,699,186        3,948,077,706        5,316,976,799   

•    Cash and Cash Equivalents

      448,458,844         256,576,827        895,557,654        357,469,908   

•    Accounts Receivable – Trade, net

      1,513,138,337         1,407,205,772        1,282,233,900        1,453,060,673   

•    Accounts Receivable – Other, net

      388,475,438         383,048,424        774,221,266        2,499,969,010   

•    Others

      467,709,497         542,868,163        996,064,886        1,006,477,208   

Non-Current Assets

      20,009,637,772         19,659,803,155        16,572,449,699        14,410,149,512   

•    Long-Term Investment Securities

      729,703,131         733,893,220        1,312,437,834        1,517,029,011   

•    Investments in Subsidiaries and Associates

      8,010,121,697         7,915,546,670        4,647,505,583        3,584,394,790   

•    Property and Equipment, net

      7,459,986,405         7,119,090,098        6,260,168,675        5,469,747,495   

•    Intangible Assets, net

      2,239,166,824         2,187,872,109        2,364,795,182        1,424,968,542   

•    Goodwill

      1,306,236,299         1,306,236,299        1,306,236,299        1,308,422,097   

•    Others

      264,423,416         397,164,759        681,306,126        1,105,587,577   

Total Assets

      22,827,419,888         22,249,502,341        20,520,527,405        19,727,126,311   

Current Liabilities

      4,288,073,368         4,343,086,486        4,467,005,877        4,561,013,611   

Non-Current Liabilities

      5,223,938,268         5,529,367,602        4,087,219,816        3,585,155,050   

Total Liabilities

      9,512,011,636         9,872,454,088        8,554,225,693        8,146,168,661   

Share Capital

      44,639,473         44,639,473        44,639,473        44,639,473   

Capital Surplus and Other Capital Adjustments

      433,893,129         (236,160,479 )      (236,016,201 )      (24,643,471 ) 

Retained Earnings

      12,665,699,496         12,413,981,340        11,837,184,788        10,824,355,758   

Reserves

      171,176,154         154,587,919        320,493,652        736,605,890   

Total Equity

      13,315,408,252         12,377,048,253        11,966,301,712        11,580,957,650   

 

(Unit: in thousands of Won except per share amounts)  
     For the year ended
December 31, 2013		      For the year ended
December 31, 2012		      For the year ended
December 31, 2011		      For the year ended
December 31, 2010		  

Operating Revenue

      12,860,379,475         12,332,719,444         12,551,255,630         12,514,520,922   

Operating Income

      1,969,684,335         1,675,388,351         2,184,498,641         2,530,954,768   

Profit Before Income Tax

      1,220,797,234         1,546,719,635         2,274,421,558         2,503,637,367   

Profit for the Period

      910,156,661         1,242,767,480         1,694,363,093         1,947,007,919   

Basic Earnings Per Share (Won)

      12,837         17,832         24,002         27,063   

Diluted Earnings Per Share (Won)

      12,837         17,406         23,343         26,366   

 

B. Changes to Accounting Standards Adopted During 2012

 

  (1) Financial Instruments: Disclosures

The Company has applied the amendments to K-IFRS No.1107, ‘Financial Instruments: Disclosures’ since January 1, 2012. The amendments require disclosing the nature of transferred assets, their carrying amount, and the description of risks and rewards for each class of transferred financial assets that are not derecognized in their entirety. If the Company derecognizes transferred financial assets but still retains their specific risks and rewards, the amendments require additional disclosures of their risks.

 

  (2) Presentation of Financial Statements

The Company adopted the amendments pursuant to the amended K-IFRS No. 1001, ‘Presentation of Financial Statements’ starting with the year ended December 31, 2012. The Company’s operating income is calculated as operating revenue less operating expense. Operating expense represents expense incurred from the Company’s main operating activities and includes cost of products that have been resold and selling, general and administrative expenses.

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C. Changes to Accounting Standards Adopted During 2013

 

  (1) Presentation of Financial Statements

The Company has applied the amendments to K-IFRS No. 1001, ‘Presentation of Financial Statements’ since January 1, 2013, classified items within other comprehensive income by nature and presented “items that are not subsequently recycled through profit or loss” and “items that are subsequently reclassified if certain conditions are met” as a group.

 

  (2) Consolidated Financial Statements

The Company has applied the amendments to K-IFRS No. 1110, ‘Consolidated Financial Statements’ since January 1, 2013. The standard introduces a single control model to determine whether an investee should be consolidated. Subsidiary is an entity that is controlled by a controlling entity or a subsidiary of a controlling company. A controlling entity or a subsidiary of a controlling company controls a subsidiary when the controlling entity or the subsidiary of the controlling company is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

 

  (3) Joint Arrangements

The Company has applied the amendments to K-IFRS No. 1111, ‘Joint Arrangements’ since January 1, 2013. The standard classifies joint arrangements into two types—joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. The standard requires a joint operator to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the particular assets, liabilities, revenues and expenses. The standard requires a joint venturer to recognize an investment and to account for that investment using the equity method.

 

  (4) Disclosure of Interests in Other Entities

The Company has applied the amendments to K-IFRS No. 1112, ‘Disclosure of Interests in Other Entities’ since January 1, 2013. The standard brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Company is currently assessing the disclosure requirements for interests in subsidiaries, interests in joint arrangements and associates and unconsolidated structured entities in comparison with the existing disclosures. The standard requires the disclosure of information about the nature, risks and financial effects of these interests.

 

  (5) Employee Benefits

The Company has applied the amendments to K-IFRS No. 1019, ‘Employee Benefits’ since January 1, 2013. The standard requires recognition of actuarial gains and losses immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation.

 

  (6) Fair Value Measurement

The Company has applied the amendments to K-IFRS No. 1113, ‘Fair Value Measurement’ since January 1, 2013. The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements.

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D. Impact of Changes in Accounting Policies

 

  (1) Consolidated Financial Statements

In accordance with the transitional provision on K-IFRS No. 1110, the Company assessed control on investees as of January 1, 2013, the initial adoption date of the standard, and there have been no changes in subsidiaries upon adoption of the standard.

 

3. K-IFRS: Preparation, Impact to Financial Statements and Changes in the Accounting Principles Implemented

— Transition to K-IFRS

The Company prepares its financial statements in accordance with K-IFRS starting from fiscal year 2011 which commenced on January 1, 2011. The Company’s financial statements in previous periods were prepared in accordance with Korean GAAP. The Company’s financial statements for fiscal year 2010, which are presented for comparison, were prepared in accordance with K-IFRS with January 1, 2010 as the transition date and pursuant to K-IFRS No. 1101, “First-time Adoption of Korean International Financial Reporting Standards.”

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IV. AUDITOR’S OPINION

 

1. Auditor (Consolidated)

 

Year ended December 31, 2013

  

Year ended December 31, 2012

  

Year ended December 31, 2011

KPMG Samjong Accounting Corp.   KPMG Samjong Accounting Corp.   Deloitte Anjin LLC

 

2. Audit Opinion (Consolidated)

 

Period

   

Auditor’s opinion

   

Issues noted

Year ended December 31, 2013    Unqualified    —  
Year ended December 31, 2012    Unqualified    —  
Year ended December 31, 2011    Unqualified    —  

 

3. Auditor (Separate)

 

Year ended December 31, 2013

  

Year ended December 31, 2012

  

Year ended December 31, 2011

KPMG Samjong Accounting Corp.   KPMG Samjong Accounting Corp.   Deloitte Anjin LLC

 

4. Audit Opinion (Separate)

 

Period

   

Auditor’s opinion

   

Issues noted

Year ended December 31, 2013    Unqualified    —  
Year ended December 31, 2012    Unqualified    —  
Year ended December 31, 2011    Unqualified    —  

 

5. Remuneration for Independent Auditors for the Past Three Fiscal Years

 

A. Audit Contracts

 

(Unit: in thousands of Won except number of hours)  

Fiscal Year

   

Auditors

   

Contents

    Fee      Total number of
hours accumulated
for the fiscal year		  

Year ended

December 31, 2013

   

KPMG Samjong

Accounting Corp.

    Semi-annual review      1,250,000         17,796   
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

Year ended

December 31, 2012

   

KPMG Samjong

Accounting Corp.

    Semi-annual review      1,220,000         19,583   
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

Year ended

December 31, 2011

    Deloitte Anjin LLC    Semi-annual review      1,364,000         14,033   
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

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B. Non-Audit Services Contract with External Auditors

 

(Unit: in thousands of Won)

Period

   

Contract date

   

Service provided

    Service
duration		    Fee

Year ended December 31, 2013

    N/A    N/A    N/A    N/A

Year ended December 31, 2012

    N/A    N/A    N/A    N/A

Year ended December 31, 2011

    April 11, 2011    Tax consulting    30 days    45,000
   April 28, 2011    Tax consulting    30 days    45,000

 

6. Change of Independent Auditors

Starting from 2012, the Company changed its independent auditors to KPMG Samjong Accounting Corp. from Deloitte Anjin LLC due to the expiration of the audit contract with Deloitte Anjin LLC.

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V. MANAGEMENT’S DISCUSSION AND ANALYSIS

 

1. Forward-Looking Statements

This section contains forward-looking statements with respect to the financial condition, results of operations and business of the Company and plans and objectives of the management of the Company. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements.

The Company does not make any representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained in this section, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future. Such forward-looking statements were based on current plans, estimates and projections of the Company and the political and economic environment in which the Company will operate in the future, and therefore you should not place undue reliance on them.

Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events.

 

2. Overview

In the midst of an industry environment defined by fast-paced changes centered around LTE network-based data in the wireless telecommunications industry, the Company has strengthened the competitiveness of its telecommunications business based on a principle of aiming to deliver the highest level of quality to its customers. The Company has been a leader in shifting the competitive paradigm by introducing differentiated products and services including revolutionary pricing plans. The Company has also solidified its leadership position in the LTE market by the differentiated quality of its network as seen in its ability to become the first telecommunications service operator globally to commercialize LTE-A technology.

The Company has also prepared the groundwork for future growth, a meaningful achievement. The Company’s B2B solutions business achieved sizeable growth and the Company gained growth momentum through an expansion of its IPTV subscriber base as well as diversification through its healthcare business. The Company’s overall position as a leading information and communications technology company was strengthened through the expansion of SK Planet’s business and an improvement in SK Hynix’s competitive positioning.

The Company’s operating revenue, on a consolidated basis, was Won 16,602.1 billion for the year ended December 31, 2013, a 2.9% increase from 2012 due to an increase in the number of LTE subscribers and the resulting increase in average revenue per subscriber. The Company’s operating income, on a consolidated basis, was Won 2,011.1 billion for the year ended December 31, 2013, a 16.2% increase from 2012 due to the increase in revenue as well as a decrease in marketing expenses which reflected a shift in the competitive paradigm. For the year ended December 31, 2013, the Company’s EBITDA (as further explained below) and profit for the year were Won 4,830.9 billion and Won 1,609.5 billion, respectively.

In 2013, the Company’s capital expenditures, on a separate basis, were Won 2.3 trillion, which exceeded the capital expenditure budget set at the beginning of the year. The Company expects that the capital expenditure amount in the mid- to long-term future will decrease and stabilize due to better technology and its efforts to invest more efficiently.

Cash dividends for 2013 were Won 9,400 per common share, which include interim dividends of Won 1,000 per common share paid during the year.

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3. Analysis of Consolidated Financial Position

 

           (Unit: in billions of Won, except percentages)  
     As of December 31,
2013		     As of December 31,
2012		     Change from
2012 to 2013		     Percentage
Change from
2012 to 2013		  

Total Assets

      26,608        25,596        1,012        4.0 % 

Current Assets

      5,155        5,294        (139 )      -2.6 % 

•    Cash and Marketable Securities(1)

      1,765        1,445        320        22.1 % 

Non-Current Assets

      21,453        20,301        1,152        5.7 % 

•    Property and Equipment and Investment Property

      10,212        9,740        472        4.8 % 

•    Intangible Assets and Goodwill

      4,484        4,434        50        1.1 % 

•    Long-term Financial Instruments, Long-term Investment Securities and Investment in Associates

      6,302        5,586        716        12.8 % 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total Liabilities

      12,442        12,741        (299 )      -2.3 % 
  

 

 

    

 

 

    

 

 

    

 

 

  

Current Liabilities

      6,104        6,175        (71 )      -1.1 % 

•    Short-term Borrowings

      260        600        (340 )      -56.7 % 

•    Current Portion of Long-term Debt

      1,268        893        375        42.0 % 

Non-Current Liabilities

      6,338        6,566        (228 )      -3.5 % 

•    Debentures and Long-term Borrowings, Excluding Current Portion

      5,010        5,348        (338 )      -6.3 % 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total Equity

      14,167        12,855        1,312        10.2 % 
  

 

 

    

 

 

    

 

 

    

 

 

  

Interest-bearing Financial Debt(2)

      6,354        6,684        (330 )      -4.9 % 

Debt-to-Equity Ratio(3)

      44.8 %      52.0 %      -7.2 %p      —     

 

(1) Cash & marketable securities includes cash & cash equivalents, marketable securities and short-term financial instruments.
(2) Interest-bearing financial debt: Total of short-term borrowings, current portion of long-term debt and debentures and long-term borrowings
(3) Debt-to-equity ratio: Interest-bearing financial debt / Total Equity

 

A. Assets

As of December 31, 2013, SK Telecom’s assets comprised 86% of the Company’s assets, on a consolidated basis.

The Company’s current assets as of December 31, 2013 decreased 2.6% from the end of the previous year, primarily due to a decrease in the number of consolidated subsidiaries, including SKY Property among others, and a decrease in inventories. Non-current assets as of December 31, 2013 increased 5.7% from the end of the previous year, primarily due to the acquisition of additional network frequency and an increase in the value of SK Hynix shares.

 

B. Liabilities

As of December 31, 2013, SK Telecom’s liabilities comprised 74% of the Company’s liabilities, on a consolidated basis.

The Company’s current liabilities as of December 31, 2013 decreased 1.1% from the end of the previous year primarily due to the redemption of convertible notes and decreases in short-term borrowings of SK Telecom. Non-current liabilities as of December 31, 2013 decreased 3.5% from the end of the previous year mainly due to decreases in long-term borrowings of SK Telecom.

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4. Analysis of Consolidated Financial Information

 

(Unit: in billions of Won, except percentages)  
     For the year
ended
December 31,
2013		     For the year
ended
December 31,
2012		     Change from
2012 to 2013		     Percentage
Change from
2012 to 2013		  

Operating Revenue

      16,602        16,141        461        2.9 % 

Operating Expense

      14,591        14,411        180        1.2 % 

Operating Income

      2,011        1,730        281        16.2 % 

Operating Margin

      12.1 %      10.7 %      1.4 %p      —     

Net Other Income (Loss)

      (184 )      (211 )      27        -12.8 % 

Profit Before Income Tax

      1,827        1,519        308        20.3 % 

Profit for the Year

      1,610        1,116        494        44.3 % 

Profit for the Year Attributable to Owners of the Parent Company

      9.7 %      6.9 %      2.8 %p      —     

Profit for the Year Attributable to Non-controlling Interests

      (29 )      (36 )      7        19.4 % 

EBITDA(1)

      4,831        4,297        534        12.4 % 

EBITDA Margin

      29.1 %      26.6 %      2.5 %p      —     

 

(1) EBITDA: Sum of operating income and depreciation and amortization expenses (including depreciation and amortization expenses related to research and development)

 

A. Operating Revenue

The Company’s operating revenue for the year ended December 31, 2013 increased 2.9% from the previous year, primarily due to an increase in LTE subscribers, an increase in revenue from new business areas such as B2B solutions and the merger of SK Marketing & Company into SK Planet.

 

B. Operating Profit

The Company’s operating income for the year ended December 31, 2013 increased 16.2% from the previous year, primarily due to a decrease in commissions paid, which was partially attributable to decreased marketing competition.

 

C. Operating Expense

 

(Unit: in billions of Won, except percentages)  
     For the year
ended
December 31,
2013		      For the year
ended
December 31,
2012		      Change from
2012 to 2013		     Percentage
Change from
2012 to 2013		  

Labor Cost

      1,561         1,268         293        23.1 % 

Commissions Paid

      5,499         5,950         (451 )      -7.6 % 

Advertising

      394         384         10        2.6 % 

Depreciation and Amortization(1)

      2,820         2,567         253        9.9 % 

Network Interconnection

      1,044         1,057         (13 )      -1.2 % 

Leased Line Fees

      242         265         (23 )      -8.7 % 

Frequency License Fees

      207         204         3        1.5 % 

Cost of Products that have been Resold

      1,300         1,292         8        0.6 % 

Others

      1,524         1,424         100        7.0 % 

Total Operating Expense

      14,591         14,411         180        1.2 % 

 

(1) Includes depreciation and amortization expenses related to research and development.

Labor cost for the year ended December 31, 2013 increased 23.1% from the previous year primarily due to an increase in the number of employees resulting from the merger of SK Marketing & Company into SK Planet, as well as an increase in the number of employees of the Company and its other subsidiaries. Commissions paid for the year ended December 31, 2013 decreased 7.6% from the previous year primarily due to decreased marketing expenses in response to decreased marketing competition and a decrease in sales commissions by PS&Marketing. Depreciation and amortization expenses increased 9.9% from the previous year mainly due to an increase in capital expenditures by the Company and SK Broadband and an increase in amortization expenses in connection with the Company’s acquisition of an additional frequency license.

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5. Analysis of SK Telecom’s Non-consolidated Operating Information

 

A. Number of Subscribers

 

     For the year
ended
December 31,
2013		     For the year
ended
December 31,
2012		     Change from
2012 to 2013		     Percentage
Change from
2012 to 2013		  

Subscribers (thousands)

      27,352        26,961        391        1.5 % 

Net Increase

      391        409        (18 )      -4.4 % 

Activations

      7,755        8,644        (889 )      -10.3 % 

Deactivations

      7,364        8,235        (871 )      -10.6 % 

Monthly Churn Rate (%)

      2.3 %      2.6 %      -0.3 %p      —     

Average Subscribers (thousands)

      27,121        26,680        441        1.7 % 

Smartphone Subscribers

      18,286        15,979        2,308        14.4 % 

LTE Subscribers

      13,487        7,530        5,957        79.1 % 

The number of LTE subscribers as of December 31, 2013 was 13.49 million. The growth in LTE subscribers is expected to be the basis for long-term future growth. The Company expects LTE subscribers as a proportion of all SK Telecom subscribers will exceed 65% by the end of 2014. The number of smartphone subscribers as of December 31, 2013 was 18.29 million and constituted 66.9% of all SK Telecom subscribers.

 

B. Average Monthly Revenue per Subscriber

 

     For the year
ended
December 31,
2013		      For the year
ended
December 31,
2012		      Change from
2012 to 2013		      Percentage
Change from
2012 to 2013		  

Billing Average Monthly Revenue per Subscriber (Won)

      34,551         33,016         1,535         4.6 % 

 

* The billing average monthly revenue per subscriber (“ARPU”) is derived by dividing the sum of total SK Telecom and SK Planet revenues from voice service and data service (but excluding revenue from MVNO subscribers) for the period by the monthly average number of subscribers that are not MVNO subscribers for the period, then dividing that number by the number of months in the period. Although the definition of ARPU may vary by company, it is a measure that is widely used in the telecommunications industry for revenue comparison purposes.

In 2013, the increase in LTE subscribers led to an increase in average revenue per subscriber to Won 34,551, a 4.6% increase compared to the previous year.

 

6. Guidance for Fiscal Year 2014

The Company announced the following guidance for fiscal year 2014 during its earnings release conference call on January 28, 2014.

 

1. Operating revenue (consolidated): Won 17.4 trillion

 

2. SK Telecom’s capital expenditures (separate): Won 2.1 trillion

 

3. Cash dividends: Similar level as cash dividends paid for fiscal year 2013

Table of Contents
7. Liquidity

As of December 31, 2013, the Company’s debt-to-equity ratio (as calculated based on the interest-bearing financial debt) was 44.8% compared to 52.0% as of December 31, 2012. The net debt-to-equity ratio (as calculated based on the interest-bearing financial debt minus cash and marketable securities) was 32.4% and 40.8% at the end of 2013 and 2012, respectively. Interest coverage ratio (EBITDA / interest expense) was 15.3 and 11.3 at the end of 2013 and 2012, respectively. The Company continues to have sufficient liquidity.

 

8. Financing

As of December 31, 2013, the Company’s aggregate debt amounted to Won 6,353 billion, comprising long-term and short-term borrowings, debentures and current portion of long-term borrowings, which decreased by 5.3% from Won 6,709 billion as of December 31, 2012. The decrease was primarily due to holders exercising their conversion rights with respect to an aggregate principal amount of US$326,023,000 of convertible notes issued by the Company on April 7, 2009. The Company delivered 1,241,337 treasury shares in respect of US$170,223,000 of the exercised aggregate principal amount and delivered cash in respect of the remainder due to the limit on foreign ownership.

 

9. Investments

The Company did not make any significant investments in 2013.

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VI. CORPORATE ORGANIZATION INCLUDING BOARD OF DIRECTORS AND AFFILIATED COMPANIES

 

1. Board of Directors

 

A. Overview of the Composition of the Board of Directors

The Company’s board of directors (the “Board of Directors”) is composed of eight members: five independent directors and three inside directors. Within the Board, there are five committees: Independent Director Nomination Committee, Audit Committee, Compensation Committee, CapEx Review Committee, and Corporate Citizenship Committee.

 

Total number
of persons

         (As of March 25, 2014)
  

Inside directors

   

Independent directors

8

    Sung Min Ha, Dae Sik Cho, Dong Seob Jee    Jae Hyeon Ahn, Dae Shick Oh, Jae Hoon Lee, Hyun Chin Lim, Jay Young Chung

At the 30th General Meeting of Shareholders held on March 21, 2014, Jae Hoon Lee was elected as an inside director and Jae Hyeon Ahn was elected as an independent director and a member of the audit committee.

 

B. Significant Activities of the Board of Directors

 

Meeting

   

Date

   

Agenda

   

Approval

351th

(the 1st meeting of 2013)

    February 7, 2013   

-        Financial statement as of and for the year ended December 31, 2012

    Approved as proposed
     

-        Annual business report as of and for the year ended December 31, 2012

    Approved as proposed
     

-        Bond offering

    Approved as proposed
     

-        Report of internal accounting management

    —
     

-        Report for subsequent events following the fourth quarter of 2012

    —

352th

(the 2nd meeting of 2013)

    February 21, 2013   

 

-        2013 transaction of goods, services and assets with SK Planet

   

 

Approved as proposed

     

-        Convocation of the 29th General Meeting of Shareholders

    Approved as proposed
     

-        Evaluation results of internal accounting management system

    —

353th

(the 3rd meeting of 2013)

    March 22, 2013   

 

-        Election of the chairman of the Board of Directors

   

 

Approved as proposed

     

-        Election of committee members

    Approved as proposed
     

-        Financial transactions with affiliated company (SK Securities)

    Approved as proposed

354th

(the 4th meeting of 2013)

    April 25, 2013   

 

-        Sublease transaction of advisor offices

   

 

Approved as proposed

     

-        Budget and operation plans for 2013 SUPEX conferences

    Approved as proposed
     

-        Report for the period after the first quarter of 2013

    —

355th

(the 5th meeting of 2013)

    May 23, 2013   

 

-        Landscaping at Future Management Institute

   

 

Approved as proposed

     

-        Issuance of hybrid securities

    Approved as proposed
     

-        Issuance of asset-backed short-term bonds

    Approved as proposed
     

-        Report of compliance review and validity evaluation

    —

356th

(the 6th meeting of 2013)

    June 20, 2013   

 

-        Financial transactions with affiliated company (SK Securities)

   

 

Approved as proposed

     

-        Service transactions with SK Telecom China Holdings Co., Ltd.

    Approved as proposed

357th

(the 7th meeting of 2013)

    July 25, 2013   

 

-        Payment of interim dividends

   

 

Approved as proposed

     

-        Incurrence of long-term debt

    Approved as proposed
     

-        Additional procurement of LTE network frequency

    Approved as proposed
     

-        Financial results for the first six months of 2013

    —
     

-        Post-second quarter of 2013 report

    —

Table of Contents

Meeting

   

Date

       

Agenda

   

Approval

358th

(the 8th meeting of 2013)

    September 26, 2013     

-        Financial transactions with affiliated company (SK Securities)

    Approved as proposed
       

-        Additional investments in LTE network

   

Approved as proposed

359th

(the 9th meeting of 2013)

    November 28, 2013     

 

-        2014 transaction plan with SK Forest Co., Ltd.

   

 

Approved as proposed

       

-        Customer center management service contract for 2014

    Approved as proposed
       

-        Base station maintenance contract for 2014

    Approved as proposed
       

-        Report for the period after the third quarter of 2013

    —

360th

(the 10th meeting of 2013)

    December 18, 2013     

 

-        Management plan for 2014

   

 

Approved as proposed

       

-        Plan of resale of fixed-line services of SK Broadband in 2014

    Approved as proposed
       

-        Financial transactions with affiliated company (SK Securities)

    Approved as proposed

361th

(the 1st meeting of 2014)

    February 6, 2014     

 

-        Financial statements as of and for the year ended December 31, 2013

   

 

Approved as proposed

       

-        Annual business report as of and for the year ended December 31, 2013

    Approved as proposed
       

-        Report of internal accounting management

    —
       

-        Report for the period after the fourth quarter of 2013

    —

362th

(the 2nd meeting of 2014)

    February 20, 2014     

 

-        2014 transaction of goods, services and assets with SK Planet Co., Ltd.

   

 

Approved as proposed

       

-        Rights offering by PS&Marketing Co., Ltd.

    Approved as proposed
       

-        Convocation of the 30th General Meeting of Shareholders

    Approved as proposed
       

-        Evaluation results of internal accounting management system

    —

363th

(the 3rd meeting of 2014)

    March 21, 2014     

 

-        Election of the chief executive officer

   

 

Approved as proposed

       

-        Election of the chairman of the Board of Directors

    Approved as proposed
       

-        Election of committee members

    Approved as proposed
       

-        Financial transactions with affiliated company (SK Securities)

    Approved as proposed
       

-        Provision of funds for management of the 2014 SUPEX meetings

    Approved as proposed

 

* The line items that do not show approval are for reporting purposes only.

Table of Contents
C. Committees within Board of Directors

 

  (1) Committee structure (as of March 25, 2014)

 

  (a) Compensation Review Committee

 

Total number
of persons

   

Members

     
  

Inside Directors

   

Independent Directors

   

Task

3

    -    Jae Hoon Lee, Hyun Chin Lim, Jay Young Chung    Review CEO remuneration system and amount

 

* The Compensation Review Committee is a committee established by the resolution of the Board of Directors.

 

  (b) Capex Review Committee

 

Total number
of persons

   

Members

   

Task

  

Inside Directors

   

Independent Directors

   

5

    Dong Seob Jee    Jae Hyeon Ahn, Dae Shick Oh, Jae Hoon Lee, Jay Young Chung    Review major investment plans and changes thereto

 

* The Capex Review Committee is a committee established by the resolution of the Board of Directors.

 

  (c) Corporate Citizenship Committee

 

Total number
of persons

   

Members

   

Task

  

Inside Directors

   

Independent Directors

   

4

    Dong Seob Jee    Jae Hyeon Ahn, Hyun Chin Lim, Jay Young Chung    Review guidelines on corporate social responsibility (“CSR”) programs, etc.

 

* The Corporate Citizenship Committee is a committee established by the resolution of the Board of Directors.

 

  (d) Independent Director Nomination Committee

 

Total number
of persons

   

Members

   

Task

  

Inside Directors

   

Independent Directors

   

3

    Sung Min Ha    Dae Shick Oh, Jae Hoon Lee    Nomination of independent directors

 

* Under the Korean Commercial Code, a majority of the members of the Independent Director Nomination Committee should be independent directors.

 

  (e) Audit Committee

 

Total number
of persons

   

Members

   

Task

  

Inside Directors

   

Independent Directors

   

3

    —    Dae Shick Oh, Hyun Chin Lim, Jae Hyeon Ahn    Review financial statements and supervise independent audit process, etc.

 

* The Audit Committee is a committee established under the provisions of the Articles of Incorporation and the Korean Commercial Code.

 

2. Audit System

The Company’s Audit Committee consists of four independent directors, Dae Shick Oh, Hyun Chin Lim, Jae Hyeon Ahn.

Table of Contents

Major activities of the Audit Committee as of March 25, 2014 are set forth below.

 

Meeting

   

Date

   

Agenda

   

Approval

The 1st

meeting of 2013

    February 6, 2013   

-   Construction of mobile phone facilities for 2013

-   Construction of transmission network facilities for 2013

-   Evaluation of internal monitoring controls based on the opinion of the members of the Audit Committee

-   Review business and audit results for the second half of 2012 and business and audit plans for 2013

-   Report of internal accounting management system

   

Approved as proposed

Approved as proposed

Approved as proposed

 

—

 

—

The 2nd

meeting of 2013

    February 20, 2013   

 

-   Report on the IFRS audit of fiscal year 2012

-   Report on review of 2012 internal accounting management system

-   Evaluation of internal accounting management system operation

-   Agenda and document review for the 29th General Meeting of Shareholders

-   Auditor’s report for fiscal year 2012

-   IT service management contract for 2013

   

 

—

—

Approved as proposed

Approved as proposed

 

Approved as proposed

Approved as proposed

The 3rd

meeting of 2013

    March 21, 2013   

 

-   Transactions with SK C&C Co., Ltd. in the second quarter of 2013

-   Plans for financial transactions with affiliated company (SK Securities)

   

 

Approved as proposed

—

The 4th

meeting of 2013

    April 24, 2013   

 

-   Election of chairman

-   Purchase of maintenance, repair and operations items from Happynarae Co., Ltd.

-   Service contract for SK Telecom China Holdings Co., Ltd.

-   Remuneration for outside auditor for fiscal year 2013

-   Outside auditor service plan for fiscal year 2013

-   Audit plan for fiscal year 2013

   

 

Approved as proposed

Approved as proposed

 

Approved as proposed

Approved as proposed

Approved as proposed

—

The 5th

meeting of 2013

    June 19, 2013   

 

-   Transactions with SK C&C Co., Ltd. in the third quarter of 2013

-   Myshop solution supply agreement with the Company’s Thailand branch

-   Plans for financial transactions with affiliated company (SK Securities)

   

 

Approved as proposed

Approved as proposed

 

—

The 6th

meeting of 2013

    July 24, 2013   

 

-   Construction of mobile phone facilities for 2013

-   Construction of transmission network facilities for 2013

-   Report on the 2013 first half IFRS review

   

 

Approved as proposed

Approved as proposed —

The 7th

meeting of 2013

    September 25, 2013   

 

-   Transactions with SK C&C Co., Ltd. in the fourth quarter of 2013

    Approved as proposed
     

-   Review business and audit results and business and audit plan for 2013

    —

The 8th

meeting of 2013

    November 27, 2013   

-   Contract for maintenance of optical fiber cables in 2014

    Approved as proposed
     

-   Leases of electriciy and transmission facilities in 2014

    Approved as proposed
     

-   Service contract for fixed-line network services in 2014

    Approved as proposed
     

-   Construction of mobile phone facilities in 2014

    Approved as proposed
     

-   Construction of transmission network facilities in 2014

    Approved as proposed

The 9th

meeting of 2013

    December 17, 2013   

-   Transactions with SK C&C Co., Ltd. in the first quarter of 2014

    Approved as proposed
     

-   Transactions of goods and services with SK Planet Co., Ltd. in 2014

    Approved as proposed
     

-   Agency contract for collection of accounts receivable in 2014

    Approved as proposed

The 1st

meeting of 2014

    February 5, 2014   

-   Evaluation of internal monitoring controls based on the opinion of the members of the Audit Committee

    Approved as proposed
     

-   Review of business and audit results for the second half of 2013 and business and audit plans for 2014

    —
     

-   Report of internal accounting management system

    —

Table of Contents

Meeting

   

Date

   

Agenda

   

Approval

The 2nd

meeting of 2014

    February 19, 2014   

-   Report on the IFRS audit of fiscal year 2013

    —
     

-   Report on review of 2013 internal accounting management system

    —
     

-   Evaluation of internal accounting management system operation

    Approved as proposed
     

-   Agenda and document review for the 30th General Meeting of Shareholders

    Approved as proposed
     

-   Auditor’s report for fiscal year 2013

    Approved as proposed
     

-   IT service management contract for 2014

    Approved as proposed
     

-   Service contract with SK Wyverns for 2014

    Approved as proposed
     

-   Service contract with SKTCH

    Approved as proposed
     

-   Construction of fixed-line and wireless networks in 2014

    Approved as proposed

The 3rd

meeting of 2014

    March 20, 2014   

-   Transactions with SK C&C Co., Ltd. in the second quarter of 2014

    Approved as proposed

 

* The line items that do not show approval are for reporting purposes only.

 

3. Shareholders’ Exercise of Voting Rights

 

A. Voting System and Exercise of Minority Shareholders’ Rights

Pursuant to the Articles of Incorporation as shown below, the cumulative voting system was first introduced in the general meeting of shareholders held in 2003.

 

Articles of Incorporation

   

Description

Article 32(3) (Election of Directors)    Cumulative voting under Article 382-2 of the Korean Commercial Code will not be applied for the election of directors.
Article 4 of the 12th Supplement to the Articles of Incorporation (Interim Regulation)    Article 32(3) of the Articles of Incorporation shall remain effective until the day immediately preceding the date of the general meeting of shareholders held in 2003.

Also, neither written or electronic voting system nor minority shareholder rights is applicable.

 

4. Affiliated Companies

 

A. Capital Investments between Affiliated Companies

 

(As of December 31, 2013)                                            
     Invested companies  

Investing company

    SK
Corporation		     SK
Innovation		     SK
Energy		     SK
Global
Chemical		     SK
Telecom		     SK
Networks		     SKC     SK
E&C		     SK
Shipping		     SK
Securities		  

SK Holdings

        33.4 %          25.2 %      39.1 %      42.5 %      44.5 %      83.1 %   

SK Innovation

          100.0 %      100.0 %             

SK Energy

                     

SK Global Chemical

                     

SK Networks

                     

SK Telecom

                     

SK Chemicals

                0.02 %        28.2 %     

SKC

                     

SK E&C

                     

SK Gas

                     

SK C&C

      31.8 %                      10.0 % 

SK E&S

                     

SK Communications

                     

SK Broadband

                     

SK D&D

                     

SK Continental E-Motion

                     

SK Lubricants

                     

SK Shipping

                     

SK Planet

                     

SK Hynix

                     

Ko-one Energy

                     

SK Seentec

                     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

      31.8 %      33.4 %      100.0 %      100.0 %      25.2 %      39.2 %      42.5 %      72.7 %      83.1 %      10.0 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Table of Contents
     Invested companies  

Investing company

    SK E&S     SK Gas     DOPCO     CCE     YN Energy     Ko-one Energy
Service		     Entis     SK Telink     Busan City
Gas		     Jeonnam
City Gas		  

SK Holdings

      94.1 %                   

SK Innovation

          41.0 %               

SK Energy

                     

SK Global Chemical

                     

SK Networks

                     

SK Telecom

                    83.5 %     

SK Chemicals

        45.5 %              50.0 %       

SKC

                     

SK E&C

                     

SK Gas

                     

SK C&C

      5.9 %                   

SK E&S

            100.0 %      100.0 %      99.9 %          67.3 %      100.0 % 

SK Communications

                     

SK Broadband

                     

SK D&D

                     

SK Continental E-Motion

                     

SK Lubricants

                     

SK Shipping

                     

SK Planet

                     

SK Hynix

                     

Ko-one Energy Service

                     

SK Seentec

        10.0 %                 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

      100.0 %      55.5 %      41.0 %      100.0 %      100.0 %      99.9 %      50.0 %      83.5 %      67.3 %      100.0 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     Invested companies  

Investing company

    Gangwon
City Gas		     JBES     M & Service     SK Wyverns     Infosec     Happynarae     SK Telesys     Gimcheon
Energy
Services		     F&U Credit
Info		     Hanam
Energy
Service		  

SK Holdings

                     

SK Innovation

                42.5 %         

SK Energy

                     

SK Global Chemical

                     

SK Networks

                     

SK Telecom

            100.0 %        42.5 %          50.0 %   

SK Chemicals

                     

SKC

                  50.0 %       

SK E&C

                     

SK Gas

                5.0 %         

SK C&C

              100.0 %      5.0 %         

SK E&S

      100.0 %      100.0 %                80.0 %     

SK Communications

                     

SK Broadband

                     

SK D&D

                     

SK Continental E-Motion

                     

SK Lubricants

                     

SK Shipping

                     

SK Planet

          100.0 %               

SK Hynix

                     

Ko-one Energy Service

                        100.0 % 

SK Seentec

                     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

      100.0 %      100.0 %      100.0 %      100.0 %      100.0 %      95.0 %      50.0 %      80.0 %      50.0 %      100.0 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Table of Contents
    Invested companies  

Investing company

   SK D&D     Natruck     SK Hynix     Speed Motor     SK Mobile
Energy		     SK
Petrochemical		     SK
Communi
cations		     SK Planet     SKC Air
Gas		     SKN
service		  

SK Holdings

                    

SK Innovation

             100.0 %           

SK Energy

       100.0 %                 

SK Global Chemical

               100.0 %         

SK Networks

           100.0 %                86.5 % 

SK Telecom

         20.6 %              100.0 %     

SK Chemicals

                    

SKC

                     80.0 %   

SK E&C

     45.0 %                   

SK Gas

                    

SK C&C

                    

SK E&S

                    

SK Communications

                    

SK Broadband

                    

SK D&D

                    

SK Continental E-Motion

                    

SK Lubricants

                    

SK Shipping

                    

SK Planet

                 64.5 %       

SK Hynix

                    

Ko-one Energy Service

                    

SK Seentec

                    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

     45.0 %      100.0 %      20.6 %      100.0 %      100.0 %      100.0 %      64.5 %      100.0 %      80.0 %      86.5 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

    Invested companies  

Investing company

   Commerce
Planet		     Real Vest     SKC
Solmics Co.,
Ltd.		     SK
Broadband		     LC&C     PMP     PS&Marketing     UBcare     PyongTaek
Energy
Service		     Wirye
Energy
Service		  

SK Holdings

                    

SK Innovation

                    

SK Energy

                    

SK Global Chemical

                    

SK Networks

             79.6 %           

SK Telecom

           50.6 %          100.0 %       

SK Chemicals

                   44.0 %     

SKC

         41.4 %               

SK E&C

       100.0 %                 

SK Gas

                    

SK C&C

                    

SK E&S

               100.0 %          100.0 %      89.5 % 

SK Communications

                    

SK Broadband

                    

SK D&D

                    

SK Continental E-Motion

                    

SK Lubricants

                    

SK Shipping

                    

SK Planet

     100.0 %                   

SK Hynix

                    

Ko-one Energy Service

                    

SK Seentec

                    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

     100.0 %      100.0 %      41.4 %      50.6 %      79.6 %      100.0 %      100.0 %      44.0 %      100.0 %      89.5 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Table of Contents
    Invested companies  

Investing company

   Jeju United
FC		     MKS
Guarantee		     SK Forest     SK
Lubricants		     SKC
Lighting		     Bizen     SK HY ENG     HYSTEC     Silicon File     SK
Biopharma
ceuticals		  

SK Holdings

         100.0 %                  100.0 % 

SK Innovation

           100.0 %             

SK Energy

     100.0 %                   

SK Global Chemical

                    

SK Networks

                    

SK Telecom

                    

SK Chemicals

                    

SKC

             98.6 %           

SK E&C

                    

SK Gas

                    

SK C&C

               99.0 %         

SK E&S

                    

SK Communications

                    

SK Broadband

                    

SK D&D

       100.0 %                 

SK Continental E-Motion

                    

SK Lubricants

                    

SK Shipping

                    

SK Planet

                    

SK Hynix

                 100.0 %      100.0 %      27.9 %   

Ko-one Energy Service

                    

SK Seentec

                    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

     100.0 %      100.0 %      100.0 %      100.0 %      98.6 %      99.0 %      100.0 %      100.0 %      27.9 %      100.0 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Table of Contents
    Invested companies  

Investing company

   SK
Seentec		     Daejeon
Pure
Water		     Gwangju
Pure
Water		     SKW     Television
Media
Korea		     Network
O&S		     Service Ace     Service
Top		     SK Pinx     U base Manufacturing
Asia		  

SK Holdings

                    

SK Innovation

                    

SK Energy

                    

SK Global Chemical

                    

SK Networks

                     100.0 %   

SK Telecom

               100.0 %      100.0 %      100.0 %     

SK Chemicals

     100.0 %                   

SKC

           90.0 %             

SK E&C

       32.0 %      42.0 %               

SK Gas

                    

SK C&C

                    

SK E&S

                    

SK Communications

                    

SK Broadband

                    

SK D&D

                    

SK Continental E-Motion

                    

SK Lubricants

                       100.0 % 

SK Shipping

                    

SK Planet

             51.0 %           

SK Hynix

                    

Ko-one Energy Service

                    

SK Seentec

                    
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

     100.0 %      32.0 %      42.0 %      90.0 %      51.0 %      100.0 %      100.0 %      100.0 %      100.0 %      100.0 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Table of Contents
     Invested companies  

Investing company

    Ulsan
Aromatics		     SK
Continental
E-Motion
Korea		     G.Hub     SK Incheon
Petrochem		     SK Trading
International		     Boryeong
LNG
Terminal		     Initz  

SK Holdings

               

SK Innovation

            100.0 %      100.0 %     

SK Energy

               

SK Global Chemical

      50.0 %             

SK Networks

               

SK Telecom

               

SK Chemicals

                  66.0 % 

SKC

               

SK E&C

               

SK Gas

          100.0 %         

SK C&C

               

SK E&S

                50.0 %   

SK Communications

               

SK Broadband

               

SK D&D

               

SK Continental E-Motion

        100.0 %           

SK Lubricants

               

SK Shipping

               

SK Planet

               

SK Hynix

               

Ko-one Energy Service

               

SK Seentec

               
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total affiliated companies

      50.0 %      100.0 %      100.0 %      100.0 %      100.0 %      50.0 %      66.0 % 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

* Change in company names:

- Ulsan Aromatics changed its name from Arochemi

- Happynarae changed its name from MRO Korea

- Bizen changed its name from Telsk

- SK Hystec changed its name from Hystec

- SK HY ENG changed its name from Hynix Engineering

- Entis changed its name from SK Sci-tech

Table of Contents
VII. SHAREHOLDERS

 

1. Shareholdings of the Largest Shareholder and Related Persons

 

A. Shareholdings of the Largest Shareholder and Related Persons

 

(As of December 31, 2013)    (Unit: in shares and percentages)  

Name

    Relationship    Type of share      Number of shares owned and ownership ratio  
         Beginning of Period      End of Period  
         Number of
shares		      Ownership
ratio		      Number of
shares		      Ownership
ratio		  

SK Holdings Co., Ltd.

    Largest Shareholder      Common share         20,363,452         25.22         20,363,452         25.22   

Tae Won Chey

    Officer of affiliated company      Common share         100         0.00         100         0.00   

Shin Won Chey

    Officer of affiliated company      Common share         2,000         0.00         2,000         0.00   

Sung Min Ha

    Officer of affiliated company      Common share         738         0.00         738         0.00   
        

 

 

     

 

 

     

 

 

     

 

 

  

Total-

         Common share         20,366,290         25.22         20,366,290         25.22   
        

 

 

     

 

 

     

 

 

     

 

 

  

 

B. Overview of the Largest Shareholder

SK Holdings Co., Ltd. (“SK Holdings”) is a holding company and as of December 31, 2013, has nine subsidiaries: SK Innovation Co., Ltd., SK Telecom Co., Ltd., SK Networks Co., Ltd., SKC Co., Ltd., SK Shipping Co., Ltd., SK E&C Co., Ltd., SK E&S Co., Ltd., SK Biofarm Co., Ltd. and SK Forest Co., Ltd.

Details of the subsidiaries of SK Holdings are as follows:

 

(Unit: in millions of Won)

Affiliates

    Share
Holdings		     Book Value
(million Won)		      Industry    Description

SK Innovation Co., Ltd.

      33.4 %      3,944,657       Energy and Petrochemical    Publicly Listed

SK Telecom Co., Ltd.

      25.2 %      3,091,125       Telecommunication    Publicly Listed

SK Networks Co., Ltd.

      39.1 %      905,691       Trading, Energy Sale    Publicly Listed

SKC Co., Ltd.

      42.5 %      254,632       Synthetic Resin Manufacturing    Publicly Listed

SK E&C Co., Ltd.

      44.5 %      470,015       Construction    Privately Held

SK Shipping Co., Ltd.

      83.1 %      420,568       Ocean Freight    Privately Held

SK E&S Co., Ltd.

      94.1 %      1,026,307       Gas Company Holdings and Power Generation    Privately Held

SK Biofarm Co., Ltd.

      100.0 %      228,702       Biotechnology    Privately Held

SK Forest Co., Ltd.

      100.0 %      61,387       Forestry and landscaping    Privately Held

 

* The above shareholdings are based on common share holdings as of December 31, 2013.

SK Holdings is a publicly listed company and is required to submit a report of its significant business activities in accordance with Article 161 of the Financial Investment Services and Capital Markets Act. Also as a holding company, SK Holdings is required to report key management activities of its subsidiaries in accordance with Article 8 of KOSPI Market Disclosure Regulation.

Table of Contents

The rule is applicable to subsidiaries whose book value of the holding company’s shareholding exceeds 10% of its total assets based on the financial statements as of December 31, 2013. SK Innovation Co., Ltd. and SK Telecom Co., Ltd. are two such subsidiaries.

 

2. Changes in Shareholdings of the Largest Shareholder

Changes in shareholdings of the largest shareholder are as follows.

 

(As of December 31, 2013)             (Unit: in shares and percentages)

Largest
Shareholder

    Date of the change in the
largest shareholder/
Date of change in
shareholding		    Shares Held      Holding
Ratio		     

Remarks

SK Corporation    March 11, 2011      18,750,490         23.22      

Man Won Jung, SK Telecom’s CEO, resigned

Shin Bae Kim, SK C&C’s CEO, resigned

   April. 5, 2011      18,749,990         23.22       Dal Sup Shim, an Independent Director, disposed 500 shares
   July 8, 2011      18,749,990         23.22       Shin Won Chey, SKC’s Chairman, purchased 500 shares
   August 5, 2011      18,750,490         23.22       Shin Won Chey, SKC’s Chairman, purchased 500 shares
   August 23, 2011      18,751,490         23.22       Shin Won Chey, SKC’s Chairman, purchased 500 shares
   December 21, 2011      20,366,490         25.22       SK Holdings purchased 1,615,000 shares
   January 31, 2012      20,366,290         25.22       Retirement of Bang Hyung Lee, a former officer of an affiliated company

 

* Shares held are the sum of shares held by SK Holdings and its related parties.

 

3. Distribution of Shares

 

A. Shareholders with ownership of 5% or more and others

 

(As of December 31, 2013)    (Unit: in shares and percentages)  

Rank

   

Name (title)

    Common share  
      Number of shares      Ownership ratio     Remarks  
1    Citibank ADR      13,677,811         16.94 %      —     
2    SK Holdings      20,363,452         25.22        —     
3    SK Telecom      9,809,375         12.15        Treasury shares   
4    National Pension Service      4,760,489         5.90     

Shareholdings under the Employee Stock Ownership Program

      124,821         0.15     

 

B. Shareholder Distribution

 

(As of December 31, 2013)          (Unit: in shares and percentages)  

Classification

   

Number of shareholders

    Ratio (%)     Number of shares      Ratio (%)     Remarks  

Total minority shareholders*

    19,218      99.71 %      30,867,631         38.23 %      —     

 

* Defined as shareholders whose shareholding is less than a hundredth of the total issued and outstanding shares.

Table of Contents
4. Share Price and Trading Volume in the Last Six Months

 

A. Domestic Securities Market

 

(Unit: in Won and shares)  

Types

    December 2013      November 2013      October 2013      September 2013      August 2013      July 2013  

Common stock

    Highest      238,500         233,500         237,500         222,000         226,500         225,000   
   Lowest      222,000         211,500         224,000         213,000         208,000         202,000   

Monthly transaction volume

      3,318,332         3,879,537         4,949462         3,308,919         3,450,141         4,132,452   

 

B. Foreign Securities Market

 

New York Stock Exchange    (Unit: in US dollars and number of American Depositary Receipts)  

Types

    December 2013      November 2013      October 2013      September 2013      August 2013      July 2013  

Depository Receipt

    Highest      25.16         24.78         24.79         22.70         22.32         22.26   
  

Lowest

      23.55         22.16         23.35         21.64         20.47         19.47   

Monthly transaction volume

      26,263,646         31,228,383         19,620,914         16,420,048         14,577,017         24,407,441   

 

VIII. EMPLOYEES AND DIRECTORS

 

1. Employees

 

(As of December 31, 2013)    (Unit: in persons and millions of Won)  

Classification

    Number of employees      Average
service year		      Aggregate wage for
the year ended
December 31, 2013		      Average
wage per
person		      Remarks  
   Regular
employees		      Contract
employees		      Others      Total              

Male

      3,548         58         —           3,606         12.7         421,409         111         —     

Female

      523         63         —           586         10.7         50,029         74         —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

      4,071         121         —           4,192         12.4         471,438         105         —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

* Excludes retirement and severance payments to employees whose employment was terminated before the end of the respective employment periods. Average wage per person was calculated with respect to the total number of paid employees.

 

2. Compensation of Directors

 

A. Amount Approved at the Shareholders’ Meeting

 

(As of December 31, 2013)    (Unit: in millions of Won)  

Classification

    Number of Directors      Aggregate Amount Approved  

Directors

      8         12,000   

 

B. Amount Paid

 

(As of December 31, 2013)    (Unit: in millions of Won)  

Classification

    Number of Directors      Aggregate Amount Paid      Average Amount Paid Per Director  

Insider Directors

      3         2,872         957   

Independent Directors*

      1         83         83   

Audit Committee Members

      4         320         80   

Total

      8         3,275         —     

Table of Contents
3. Individual Compensation of Directors

 

(As of December 31, 2013)    (Unit: in millions of Won)  

Name

   

Title

    Aggregate Amount Paid  

Sung Min Ha

    Chief Executive Officer and President      1,266   

Dong Seob Jee

    Vice President, Head of Strategy Planning Department of SK Telecom      594   

 

IX. RELATED PARTY TRANSACTIONS

 

1. Loans to the Largest Shareholder and Related Persons

None.

 

2. Transfer of Assets to/from the Largest Shareholder and Other Transactions

 

A. Investment and Disposition of Investment

None.

 

B. Transfer of Assets

 

(Unit: in millions of Won)  

Name
(Corporate
name)

    Relationship      Details      Remarks  
      Transferred
Objects		    Purpose of
Transfer		    Date of Transfer      Amount
Transferred
from Largest
Shareholder		      Amount
Transferred
to Largest
Shareholder		     

SK Telesys

      Affiliated company       Machinery and
equipment		    Disposition of
idle assets		      October 21, 2013         —           160         —     

SK Networks

      Affiliated company       Distribution
network assets		    Disposition of
idle assets		      November 26, 2013         —           162         —     
              

 

 

     

 

 

     

 

 

  

Total

            —           322         —     
              

 

 

     

 

 

     

 

 

  

 

3. Related Party Transactions (excluding Transactions with the Largest Shareholder and Related Persons)

 

A. Provisional Payment and Loans (including loans on marketable securities)

 

(Unit: in millions of Won)  

Name
(Corporate
name)

    Relationship     Account
category		    Change details      Accrued
interest		      Remarks  
        Beginning      Increase      Decrease      Ending        

Seoul E&T and others

      Agency      Long-term and
short-term loans		      89,491         278,639         283,370         84,760         —           —     

 

(Unit: in millions of Won)

  

Name
(Corporate
name)

    Relationship      Account
category		    Change details      Accrued
interest		      Remarks  
         Beginning      Increase      Decrease      Ending        

Daehan Kanggun BcN Co., Ltd.

      Investee       Long-term loans      22,102         —           —           22,102         —           —     

Table of Contents
X. OTHER INFORMATION RELATING TO THE PROTECTION OF INVESTORS

 

1. Developments in the Items Mentioned in Prior Reports on Important Business Matters

 

A. Status and Progress of Major Management Events

None.

 

B. Summary Minutes of the General Meeting of Shareholders

 

Date

   

Agenda

  

Resolution

27th Fiscal Year Meeting of Shareholders

(March 11, 2011)

   

1.      Approval of the financial statements for the year ended December 31, 2010

2.      Approval of Remuneration Limit for Directors

3.      Amendment to Company Regulation on Executive Compensation

4.      Election of directors

-        Election of inside directors

-        Election of independent directors

 

-        Election of independent directors as Audit Committee members

  

Approved (Cash dividend, Won 8,400 per share)

 

Approved

Approved (Won 12 billion)

 

 

Approved (Sung Min Ha, Jin Woo So)

Approved (Rak Young Uhm, Jay Young Chung, Jae Ho Cho)

Approved (Jay Young Chung, Jae Ho Cho)

 

1st Extraordinary Meeting of Shareholders of 2011

(August 31, 2011)

   

1.      Approval of the Spin-off Plan

2.      Election of director

  

Approved (Spin-off of SK Planet)

Approved (Jun Ho Kim)

28th Fiscal Year Meeting of Shareholders

(March 23, 2012)

   

 

1.      Approval of the financial statements for the year ended December 31, 2011

2.      Amendment to Articles of Incorporation

3.      Election of directors

-        Election of an inside director

-        Election of an inside director

-        Election of an independent director

4.      Election of an independent director as Audit Committee member

5.      Approval of remuneration limit for directors

  

 

Approved (Cash dividend, Won 8,400 per share)

 

Approved

 

Approved (Young Tae Kim)

Approved (Dong Seob Jee)

Approved (Hyun Chin Lim)

Approved (Hyun Chin Lim)

 

Approved (Won 12 billion)

29th Fiscal Year Meeting of Shareholders

(March 22, 2013)

   

 

1.      Approval of the financial statements for the year ended December 31, 2012

2.      Amendments to Articles of Incorporation

3.      Election of directors

-        Election of an inside director

-        Election of an independent director

4.      Election of an independent director as Audit Committee member

5.      Approval of remuneration limit for directors

  

 

Approved (Cash dividend, Won 8,400 per share)

 

 

Approved

 

Approved (Dae Sik Cho)

Approved (Dae Shick Oh)

Approved (Dae Shick Oh)

 

Approved (Won 12 billion)

30th Fiscal Year Meeting of Shareholders

(March 21, 2014)

   

 

1.      Approval of the financial statements for the year ended December 31, 2013

2.      Amendments to Articles of Incorporation

3.      Election of directors

-        Election of an inside director

-        Election of an independent director

-        Election of an independent director

-        Election of an independent director

4.      Election of an independent director as Audit Committee member

5.      Approval of remuneration limit for directors

  

 

Approved (Cash dividend, Won 8,400 per share)

 

Approved

 

Approved (Sung Min Ha)

Approved (Jay Young Chung)

Approved (Jae Hoon Lee)

Approved (Jae Hyeon Ahn)

Approved (Jae Hyeon Ahn)

 

Approved (Won 12 billion)

Table of Contents
2. Contingent Liabilities

[SK Telecom]

 

A. Material Legal Proceedings

 

  (1) Claim for copyright license fees regarding “Coloring” services

On May 7, 2010, Korea Music Copyright Association (“KOMCA”) filed a lawsuit with the court demanding that the Company pay KOMCA license fees for the Company’s “Coloring” services. The court rendered a judgment against the Company ordering the Company to pay Won 570 million to KOMCA, which was affirmed by the appellate court on October 26, 2011. The Company filed an appeal at the Supreme Court of Korea and the judgment was overturned on July 11, 2013. The case was remanded down to the appellate court and the Company expects to successfully defend the suit, based on recent decisions in similar suits involving KT and LGU+. While the Company does not expect this litigation to have an immediate impact on the Company’s business or results of operation as the final outcome of this litigation has not been determined, the Company may be required to pay increased annual license fees to KOMCA if the final judgment is rendered against the Company.

 

* Actual impact on the Company’s business and financial condition from the litigation may be different from the Company’s expectation stated above.

 

B. Other Matters

 

  (1) Pledged assets and covenants

SK Broadband has provided “geun” mortgage amounting to Won 14.8 billion to others, including Ilsan Guksa, on a part of its buildings in connection with the leasing of the buildings.

In 2011, PS&Marketing, a consolidated subsidiary of the Company, entered into a loan agreement to borrow up to Won 30 billion of working capital from Shinhan Bank.

[SK Broadband]

 

A. Material Legal Proceedings

 

  (1) SK Broadband as the plaintiff

 

                 (Unit: in thousands of Won)

Description of Proceedings

    Date of Commencement
of Proceedings		    Amount of
Claim		      Status

Claim for cancellation of Korea Fair Trade Commission’s penalty reassessment

    September 2009      1,810,000       Pending before
Supreme Court

Damages claims against Golden Young and others

    April 2011      454,267       Pending before district
court

Other claims and proceedings

    —      52,074       —

Total

    —      2,316,341       —

Table of Contents
  (2) SK Broadband as the defendant

 

          (Unit: in thousands of Won)

Description of Proceedings

    Date of Commencement
of Proceedings		    Amount of
Claim		      Status

Damages claim by Sun Technology and one other

    October 2011      1,223,778       Pending before Supreme
Court

Damages claim by Haein Networks

    March 2013      101,000       Pending before district
court

Damages claim by On-nuri Co., Ltd.

    December 2011      101,000       Pending before district
court

Damages claim by Mac Telecom and five other companies

    January 2012      606,000       Pending before district
court

Other claims and proceedings

    —      245,352       —
  

 

   

 

 

     

 

Total

    —      2,277,130       —
  

 

   

 

 

     

 

In 2013, SK Broadband paid an aggregate of Won 5,599 million in damages in connection with the litigation relating to the leak of personal information at the district court with respect to the cases in which final judgments have been rendered (the total amount of which is Won 24,689 million and the total amount of damages ordered being Won 6,091 million). The Company has recorded a provision in the amount of Won 192 million for any potential remaining cases (the total amount of which is Won 3,000 million.)

[SK Communications]

 

A. Material Legal Proceedings

As of December 31, 2013, the aggregate amount of claims was Won 3.9 billion. The management cannot reasonably forecast the outcome of the pending cases.

 

B. Other Contingent Liabilities

The material payment guarantees provided by third parties to SK Communications as of December 31, 2013 are set forth in the table below.

 

(Unit: in thousands of Won)  

Financial Institution

   

Guarantee

    Amount  

Seoul Guarantee Insurance Company

    Prepaid coverage payment guarantee      700,000   

Seoul Guarantee Insurance Company

    Provisional deposit guarantee insurance for bonds      683,000   

[SK Planet]

 

A. Material Legal Proceedings

As of December 31, 2013, there were four pending proceedings with SK Planet as the defendant and the aggregate amount of the claims was Won 1.4 billion. The management cannot reasonably forecast the outcome of the pending cases and no amount in connection with these proceedings were recognized on the Company’s financial statements.

In addition, on July 4, 2012, SK Planet received a correctional order and a fine of Won 1,349 million from the Fair Trade Commission of Korea for alleged violation of Article 23 of the Fair Trade Act relating to the payment of system management and operation fees. SK Planet appealed the order and filed a suit with the administrative court, which is still pending.

 

3. Status of sanctions, etc.

[SK Telecom]

On September 19, 2011, the Korea Communications Commission imposed on the Company a fine of Won 6.86 billion and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures in consultation with the Korea Communications Commission by January 2012.

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On April 22, 2011, the Company received a correctional order from the Fair Trade Commission of Korea for violation of Article 21 of the Electronic Commerce Act and was imposed a fine of Won 5 million. The Company paid the fine and filed a suit disputing the order of the Fair Trade Commission. The suit is currently pending.

On November 11, 2011, the Company received a correctional order from the Fair Trade Commission of Korea for violation of Article 23 of the Fair Trade Act relating to the transfer of patented technology necessary for the supply of relay facilities. The Company corrected the procedures before receiving the correctional order.

On March 14, 2012, the Company received a correctional order from the Fair Trade Commission of Korea for an alleged violation of Article 23 of the Fair Trade Act relating to the handset subsidy practice and distribution of handsets and was imposed a fine of Won 21,928 million. The Company appealed the order and filed a suit with the administrative court. The suit is currently pending.

On February 6, 2012, the Company received three penalty points and was imposed a fine of Won 3 million from the Korea Exchange for a violation of Article 35 of Korea Exchange’s disclosure rules. The Company paid the fine and has been taking efforts to prevent a repetitive violation.

On June 21, 2012, the Company received a correctional order from the Korea Communications Commission in connection with its decision on whether the Company had violated regulations related to the safeguarding of location information. The Company completed the improvement of the procedures in consultation with the Korea Communications Commission by December 2012.

On July 4, 2012, the Company received a correctional order and a fine of Won 24,987 million from the Fair Trade Commission of Korea for alleged violation of Article 23 of the Fair Trade Act relating to the payment of system management and operation fees. The Company appealed the order and filed a suit with the administrative court. On September 12, 2012, the Company received a formal written letter from the Fair Trade Commission of Korea with a corrected fine of Won 25,042 million, which also includes the fine for transactions in the first half of 2012.

On December 24, 2012, the Korea Communications Commission imposed on the Company a fine of Won 6.89 billion, imposed a suspension on acquiring new subscribers from January 31, 2013 to February 21, 2013 and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures in consultation with the Korea Communications Commission by March 2013.

On January 11, 2013, the Company received a correctional order and a fine of Won 100 million from the Fair Trade Commission of Korea for alleged violation of Article 23 of the Fair Trade Act relating to the Company’s transactions with its distribution network. The Company paid the fine by May 10, 2013.

On March 14, 2013, the Korea Communications Commission imposed on the Company a fine of Won 3.14 billion and issued a correctional order in a case for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures in consultation with the Korea Communications Commission by April 2013.

On July 18, 2013, the Korea Communications Commission imposed on the Company a fine of Won 36.5 billion and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by August 2013.

On August 21, 2013, the Company received a correctional order from the Korea Communications Commission in connection with its decision on whether the Company had violated procedural regulations related to terms and conditions of usage. The Company completed the improvement of the procedures in consultation with the Korea Communications Commission by November 2013.

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On September 16, 2013, the Company received a correctional order from the Korea Communications Commission in connection with its decision on whether the Company had violated regulations related to wholesale provision of telecommunication services. The Company completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by October 2013.

On December 27, 2013, the Korea Communications Commission imposed on the Company a fine of Won 56.0 billion and issued a correctional order for providing discriminatory subsidies to subscribers. The Company paid the fine and completed the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by January 2014.

On March 7, 2014, the MSIP imposed a suspension of operations for 45 days for failure to observe the order of the Korea Communications Commission to cease providing discriminatory subsidies to subscribers. The Company expects to suspend its operations during the period beginning April 5, 2014 and ending May 19, 2014, and report to the MSIP on the implementation of actions pursuant to the suspension order by May 2014.

On March 13, 2014, the Korea Communications Commission imposed on the Company a fine of Won 16.65 billion, imposed a suspension on acquiring new customers for 7 days, and issued a correctional order for providing discriminatory subsidies to subscribers. The Company expects to pay the fine, suspend acquisition of new customers, complete the improvement of the procedures and report to the Korea Communications Commission on the implementation of actions pursuant to the correctional order.

On January 31, 2013, the Seoul Central District Court acquitted Mr. Jae Won Chey, our former director and vice chairman, on all charges against him. On September 27, 2013, the Seoul High Court reversed the acquittal of the above-mentioned former director, sentencing him to a prison term of three and a half years for violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes. On February 27, 2014, the Supreme Court of Korea affirmed the Seoul High Court’s decision. While the court’s final decision on the appealed case is not expected to have a material effect on the Company’s financial position, investors should note that it is difficult to predict, among others, the market’s assessment of such case.

[SK Broadband]

 

  (1) Violation of the Telecommunication Business Act

 

  - Date: August 21, 2013

 

  - Subject Company: SK Broadband

 

  - Sanction: SK Broadband received a correctional order from the Korea Communications Commission.

 

  - Reason and the Relevant Law: Violation of Article 50, Paragraph 1, Number 5 of the Telecommunications Business Act for use of subscription agreements that omitted certain material terms and conditions pertaining to high-speed Internet usage.

 

  - Status of Implementation: Completed revision of subscription agreements to include material terms and conditions pertaining to high-speed Internet usage. Planning to distribute information sheets on current terms and conditions to new subscribers.

 

  - Company’s Plan: Improve operations including through revision of subscription agreements.

 

  (2) Violation of the Telecommunication Business Act

 

  - Date: June 5, 2013

 

  - Subject Company: SK Broadband

 

  - Sanction: SK Broadband received a correctional order from the Korea Communications Commission.

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  - Reason and the Relevant Law: Improperly delayed cancellations of high-speed Internet subscribers and violated Articles 42 and 50 of the Telecommunication Business Act.

 

  - Status of Implementation: Improving operating procedures to stop the prohibited practice due for completion in August, completed amendment of the terms of service and published the sanction in newspapers.

 

  - Company’s Plan: Improve cancellation procedures to prevent recurrence of the cancellation delays.

 

  (3) Violation of accounting rules

 

  - Date: December 13, 2012

 

  - Subject Company: SK Broadband

 

  - Sanction: SK Broadband was imposed a fine of Won 39 million from the Korea Communications Commission.

 

  - Reason and the relevant law: Business report for 2011 violated accounting rules under Article 49 of the Telecommunication Business Act.

 

  - Status of Implementation: Paid the fine.

 

  - Company’s plan: Will improve accounting management system.

 

  (4) Violation of the Telecommunications Business Act

 

  - Date: May 18, 2012

 

  - Subject Company: SK Broadband

 

  - Sanction: SK Broadband received a correctional order and a fine of Won 253 million

 

  - Reason and relevant law: Violation of Article 50, Paragraph 1, Number 5 of the Telecommunications Business Act and Article 50, Paragraph 1 of the related Enforcement Decree for offering discounts outside the terms and conditions of the subscription agreement to certain subscribers and thereby discriminating against certain subscribers

 

  - Status of implementation: Paid the fine, ceased the prohibitive practice, disclosed receiving the correctional order in a newspaper advertisement and changed business practice to prevent reoccurrence.

 

  - Company’s plan: Continuous management of the company’s distribution network and improve the company’s distribution structure.

 

  (5) Violation of accounting rules

 

  - Date: January 20, 2012

 

  - Subject Company: SK Broadband

 

  - Sanction: SK Broadband was imposed a fine of Won 54 million from the Korea Communications Commission.

 

  - Reason and the Relevant Law: Business report for 2010 violated accounting rules under Article 49 of the Telecommunication Business Act.

 

  - Status of Implementation: Paid the fine.

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  - Company’s Plan: Will improve accounting management system.

 

  (6) Violation of the Telecommunication Business Act

 

  - Date: November 23, 2011

 

  - Subject Company: SK Broadband

 

  - Sanction: SK Broadband was imposed a fine of Won 30 million from the Korea Communications Commission.

 

  - Reason and the Relevant Law: Violated Telecommunication Business Act by allocating “060” number without prior review and charging fees for the service usage.

 

  - Status of Implementation: Paid the fine, stopped the prohibited practice, improved operating procedures and reported the results.

 

  - Company’s Plan: Will improve operating procedures.

 

  (7) Violation of the Act on Facilitation of the Use of Information Network and Protection of Information

 

  - Date: July 14, 2011

 

  - Subject: SK Broadband and a former officer of SK Broadband

 

  - Sanction: SK Broadband was imposed a fine of Won 15 million and the former officer was imposed a fine of Won 5 million.

 

  - Reason and the Relevant Law: Violated Articles 24 and 62 of the Act on Facilitation of the Use of Information Network and Protection of Information by providing subscribers’ personal information to telemarketers without subscribers’ consents.

 

  - Status of Implementation: Paid the fine.

 

  - Company’s Plan: Provide education to officers and employees and strengthen internal regulations.

 

  (8) Violation of the Telecommunication Business Act

 

  - Date: February 21, 2011

 

  - Subject Company: SK Broadband

 

  - Sanction: SK Broadband was imposed a correctional order and a fine of Won 3.2 billion from the Korea Communications Commission.

 

  - Reason and the Relevant Law: Improperly discriminated subscribers with respect to the fee reduction in the process of acquiring high-speed Internet subscribers. Violated Article 50 of the Telecommunication Business Act and Article 42 of the Enforcement Decree.

 

  - Status of Implementation: Paid the fine, stopped the prohibited practice, published the sanction in newspapers, improved operating procedures and amended the terms of services.

 

  - Company’s Plan: Continue to monitor marketing networks, improve marketing procedures, distribute incentive items directly and reduce incentive items.

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4. Important Matters That Occurred After December 31, 2013

[SK Telecom]

Of the convertibles notes issued by the Company on April 7, 2009, conversion rights with respect to the remaining balance in the principal amount of US$57,046,000 was claimed as of December 31, 2013 and the Company delivered cash as payment in full by January 6, 2014.

On February 20, 2014, the board of directors of the Company resolved to invest an additional Won 100 billion (20 million common shares) into PS&Marketing, an affiliated company, in order to increase its mid- to long-term competitiveness in distribution. The estimated date of investment is March 26, 2014 and the total investment amount including this new investment will be Won 330 billion.

On March 10, 2014, the Company disposed of 3,790,000 shares (its 9.4% equity share) of iHQ Inc. to rebalance its investment portfolio.

[PS&Marketing]

On February 20, 2014, the board of directors of PS&Marketing resolved to acquire the retail distribution business, including related assets, liabilities, contracts and human capital, of the information technology and mobile wing of SK Networks for Won 123.7 billion.

On the same day, the board of directors of PS&Marketing resolved to acquire 13 retail stores, including such stores’ assets and liabilities, of LCNC Co., Ltd. for Won 10.9 billion.

[SK Communications]

On March 6, 2014, the board of directors of SK Communications resolved to dispose of the Cyworld service and certain assets to Cyworld Co., Ltd.

 

5. Use of Proceeds

 

A. Use of Proceeds from Public Offerings

Not applicable.

 

B. Use of Proceeds from Private Offerings

 

(As of December 31, 2013)      (Unit: in millions of Won)  

Classification

    Closing Date      Proceeds     

Planned Use of Proceeds

   

Actual Use
of Proceeds

    Reasons
for Change		  

Convertible Bonds

      April 7, 2009         437,673       Refinancing of convertible bonds issued in May 2004    Refinancing and working capital      —     

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SK TELECOM CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2013 and 2012

(With Independent Auditors’ Report Thereon)

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Contents

 

     Page  

Independent Auditors’ Report

      1   

Consolidated Statements of Financial Position

      3   

Consolidated Statements of Income

      5   

Consolidated Statements of Comprehensive Income

      6   

Consolidated Statements of Changes in Equity

      7   

Consolidated Statements of Cash Flows

      8   

Notes to the Consolidated Financial Statements

      10   

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Independent Auditors’ Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

We have audited the accompanying consolidated statements of financial position of SK Telecom Co., Ltd. and its subsidiaries (the “Group”) as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended. Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of SK Broadband Co., Ltd., a domestic subsidiary, and an associate, whose financial statements constitute 21.2% of the Group’s consolidated total assets as of December 31, 2013, 11.7% of the Group’s consolidated operating revenue and 33.6% of the Group’s profit before income tax for the year ended December 31, 2013 and the financial statements of SK Broadband Co., Ltd., and two other domestic subsidiaries and an associate, whose financial statements constitute 26.6% of the Group’s consolidated total assets as of December 31, 2012 and 15.1% of the Group’s consolidated operating revenue for the year ended December 31, 2012. Other auditors audited those financial statements and our report, insofar as it relates to the amounts included for these entities, is based solely on the results of other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

In our opinion, based on our audits and reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2013 and 2012, and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

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Without qualifying our opinion, we draw attention to the following:

As discussed in note 38 to the consolidated financial statements, the Group disposed of its partial interests in Loen Entertainment, Inc., a subsidiary, which resulted in loss of control during the year ended December 31, 2013. The Group presented the results of operations of Loan Entertainment, Inc. as a discontinued operation in the consolidated statement of income for the year ended December 31, 2013 and accordingly restated the comparative information for the year ended December 31, 2012.

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those knowledgeable about Korean auditing standards and their application in practice.

KPMG Samjong Accounting Corp.

Seoul, Korea

February 21, 2014

 

This report is effective as of February 21, 2014, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

2

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SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2013 and 2012

 

(In millions of won)    Note      December 31,
2013		      December 31,
2012
(Restated)		  

Assets

         

Current Assets:

         

Cash and cash equivalents

      34,35       ￦ 1,398,639         920,125   

Short-term financial instruments

      6,34,35,36,37         311,474         514,417   

Short-term investment securities

      9,34,35         106,068         60,127   

Accounts receivable – trade, net

      7,34,35,36         2,257,316         1,954,920   

Short-term loans, net

      7,34,35,36         79,395         84,908   

Accounts receivable – other, net

      7,34,35,36         643,603         582,098   

Prepaid expenses

         108,909         102,572   

Derivative financial assets

      22,34,35         10         9,656   

Inventories, net

      8,37         177,120         242,146   

Assets classified as held for sale

      10         3,667         775,556   

Advanced payments and other

      7,9,34,35         37,214         47,896   
     

 

 

     

 

 

  

Total Current Assets

         5,123,415         5,294,421   
     

 

 

     

 

 

  

Non-Current Assets:

         

Long-term financial instruments

      6,34,35,37         8,142         144   

Long-term investment securities

      9,34,35         968,527         953,712   

Investments in associates and joint ventures

      12         5,325,297         4,632,477   

Property and equipment, net

      13,36,37         10,196,607         9,712,719   

Investment property, net

      14         15,811         27,479   

Goodwill

      15         1,733,261         1,744,483   

Intangible assets, net

      16         2,750,782         2,689,658   

Long-term loans, net

      7,34,35,36         57,442         69,299   

Long-term prepaid expenses

      37         32,008         31,341   

Guarantee deposits

      6,7,34,35,36         249,600         236,242   

Long-term derivative financial assets

      22,34,35         41,712         52,992   

Deferred tax assets

      31         26,322         124,098   

Other non-current assets

      7,34,35         47,589         26,494   
     

 

 

     

 

 

  

Total Non-Current Assets

         21,453,100         20,301,138   
     

 

 

     

 

 

  

Total Assets

       ￦ 26,576,515         25,595,559   
     

 

 

     

 

 

  

See accompanying notes to the consolidated financial statements.

 

3

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SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 2013 and 2012

 

 

(In millions of won)    Note      December 31,
2013		     December 31,
2012
(Restated)		  

Liabilities and Equity

        

Current Liabilities:

        

Short-term borrowings

      17,34,35       ￦ 260,000        600,245   

Current portion of long-term debt, net

      17,18,20,34,35         1,268,427        892,867   

Accounts payable – trade

      34,35,36         214,716        253,884   

Accounts payable – other

      34,35,36         1,864,024        1,811,038   

Withholdings

      34,35,36         728,936        717,170   

Accrued expenses

      34,35         988,193        890,863   

Income tax payable

      31         112,316        60,253   

Unearned revenue

         441,731        258,691   

Derivative financial liabilities

      22,34,35         21,171        —     

Provisions

      19         66,775        287,307   

Advanced receipts and other

      34,35         102,931        108,272   

Liabilities classified as held for sale

      10,37         —          294,305   
     

 

 

    

 

 

  

Total Current Liabilities

         6,069,220        6,174,895   
     

 

 

    

 

 

  

Non-Current Liabilities:

        

Debentures, net, excluding current portion

      17,34,35         4,905,579        4,979,220   

Long-term borrowings, excluding current portion

      17,34,35         104,808        369,237   

Long-term payables – other

      18,34,35         838,585        715,508   

Long-term unearned revenue

         50,894        160,821   

Finance lease liabilities

      20,34,35         3,867        22,036   

Defined benefit obligations

      21         74,201        86,521   

Long-term derivative financial liabilities

      22,34,35         103,168        63,599   

Long-term provisions

      19         28,106        106,561   

Deferred tax liabilities

      31         168,825        —     

Other non-current liabilities

      34,35         62,705        62,379   
     

 

 

    

 

 

  

Total Non-Current Liabilities

         6,340,738        6,565,882   
     

 

 

    

 

 

  

Total Liabilities

         12,409,958        12,740,777   
     

 

 

    

 

 

  

Equity

        

Share capital

      1,23         44,639        44,639   

Capital surplus (deficit) and other capital adjustments

      24,25         317,508        (288,883 ) 

Retained earnings

      26         13,102,495        12,124,657   

Reserves

      27         (12,270 )      (25,636 ) 
     

 

 

    

 

 

  

Equity attributable to owners of the Parent Company

         13,452,372        11,854,777   

Non-controlling interests

         714,185        1,000,005   
     

 

 

    

 

 

  

Total Equity

         14,166,557        12,854,782   
     

 

 

    

 

 

  

Total Liabilities and Equity

       ￦ 26,576,515        25,595,559   
     

 

 

    

 

 

  

See accompanying notes to the consolidated financial statements.

 

4

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SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 2013 and 2012

 

(In millions of won except for per share data)    Note      2013     2012
(Restated)		  

Continuing operations

        

Operating revenue:

      5,36        

Revenue

       ￦ 16,602,054        16,141,409   
     

 

 

    

 

 

  

Operating expense:

      36        

Labor cost

      21         1,561,358        1,267,928   

Commissions paid

         5,498,695        5,949,542   

Depreciation and amortization

      5         2,661,623        2,421,128   

Network interconnection

         1,043,733        1,057,145   

Leased line

         448,833        468,785   

Advertising

         394,066        384,353   

Rent

         443,639        422,388   

Cost of products that have been resold

         1,300,375        1,292,304   

Other operating expenses

      28         1,238,623        1,147,787   
     

 

 

    

 

 

  
        14,590,945        14,411,360   
     

 

 

    

 

 

  

Operating income

      5         2,011,109        1,730,049   

Finance income

      5,30         113,392        444,558   

Finance costs

      5,30         (571,203 )      (638,285 ) 

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

      5,12         706,509        (24,560 ) 

Other non-operating income

      20,29         74,467        195,910   

Other non-operating expenses

      29         (507,173 )      (188,304 ) 
     

 

 

    

 

 

  

Profit before income tax

         1,827,101        1,519,368   

Income tax expense from continuing operations

      5,31         400,797        288,207   
     

 

 

    

 

 

  

Profit from continuing operations

         1,426,304        1,231,161   

Discontinued operations

        

Profit (loss) from discontinued operations, net of income taxes

      38         183,245        (115,498 ) 
     

 

 

    

 

 

  

Profit for the year

      5       ￦ 1,609,549        1,115,663   
     

 

 

    

 

 

  

Attributable to :

        

Owners of the Parent Company

       ￦ 1,638,964        1,151,705   

Non-controlling interests

         (29,415 )      (36,042 ) 

Earnings per share

      32        

Basic earnings per share (in won)

       ￦ 23,211        16,525   
     

 

 

    

 

 

  

Diluted earnings per share (in won)

       ￦ 23,211        16,141   
     

 

 

    

 

 

  

Earnings per share - Continuing operations

      32        

Basic earnings per share (in won)

       ￦ 20,708        18,015   
     

 

 

    

 

 

  

Diluted earnings per share (in won)

       ￦ 20,708        17,583   
     

 

 

    

 

 

  

See accompanying notes to the consolidated financial statements.

 

5

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SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2013 and 2012

 

(In millions of won)    Note      2013     2012
(Restated)		  

Profit for the year

       ￦ 1,609,549        1,115,663   

Other comprehensive income (loss)

        

Items that will not be reclassified to profit or loss:

        

Remeasurement of defined benefit obligations

      3,21         5,946        (15,048 ) 

Items that may be reclassified subsequently to profit or loss:

        

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

      3,27,30         2,009        (149,082 ) 

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

      3,12,27         3,034        (82,513 ) 

Net change in unrealized fair value of derivatives

      3,22,27,30         11,222        (23,361 ) 

Foreign currency translation differences for foreign operations

      3,27         (3,714 )      (49,538 ) 
     

 

 

    

 

 

  
        18,497        (319,542 ) 
     

 

 

    

 

 

  

Total comprehensive income

       ￦ 1,628,046        796,121   
     

 

 

    

 

 

  

Total comprehensive income attributable to:

        

Owners of the Parent Company

       ￦ 1,655,570        851,565   

Non-controlling interests

         (27,524 )      (55,444 ) 

See accompanying notes to the consolidated financial statements.

 

6

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SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2013 and 2012

 

(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, 2012

    ￦ 44,639         (285,347 )      11,642,525        260,064        11,661,881        1,070,828        12,732,709   

Cash dividends

      —           —          (655,133 )      —          (655,133 )      (2,133 )      (657,266 ) 

Total comprehensive income

                

Profit (loss)

      —           —          1,151,705        —          1,151,705        (36,042 )      1,115,663   

Other comprehensive loss

      —           —          (14,440 )      (285,700 )      (300,140 )      (19,402 )      (319,542 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     —           —          1,137,265        (285,700 )      851,565        (55,444 )      796,121   

Changes in ownership in subsidiaries

      —           (3,536 )      —          —          (3,536 )      (13,246 )      (16,782 ) 
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, December 31, 2012

    ￦ 44,639         (288,883 )      12,124,657        (25,636 )      11,854,777        1,000,005        12,854,782   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance, January 1, 2013

    ￦ 44,639         (288,883 )      12,124,657        (25,636 )      11,854,777        1,000,005        12,854,782   

Cash dividends

      —           —          (655,946 )      —          (655,946 )      (2,242 )      (658,188 ) 

Total comprehensive income

                

Profit (loss)

      —           —          1,638,964        —          1,638,964        (29,415 )      1,609,549   

Other comprehensive loss

      —           —          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, 2013

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

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

See accompanying notes to the consolidated financial statements.

 

7

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SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2013 and 2012

 

(In millions of won)    Note      2013     2012  

Cash flows from operating activities:

        

Cash generated from operating activities

        

Profit for the year

       ￦ 1,609,549        1,115,663   

Adjustments for income and expenses

      39         3,275,376        3,289,861   

Changes in assets and liabilities related to operating activities

      39         (969,870 )      204,308   
     

 

 

    

 

 

  

Sub-total

         3,915,055        4,609,832   

Interest received

         64,078        88,711   

Dividends received

         10,197        27,732   

Interest paid

         (300,104 )      (363,685 ) 

Income tax paid

         (130,656 )      (362,926 ) 
     

 

 

    

 

 

  

Net cash provided by operating activities

         3,558,570        3,999,664   
     

 

 

    

 

 

  

Cash flows from investing activities:

        

Cash inflows from investing activities:

        

Decrease in short-term financial instruments, net

         186,425        464,531   

Decrease in short-term investment securities, net

         —          65,000   

Collection of short-term loans

         290,856        282,658   

Proceeds from disposal of long-term financial instruments

         16        23   

Proceeds from disposal of long-term investment securities

         287,777        511,417   

Proceeds from disposal of investments in associates and joint ventures

         43,249        1,518   

Proceeds from disposal of property and equipment

         12,579        271,122   

Proceeds from disposal of investment property

         —          43,093   

Proceeds from disposal of intangible assets

         2,256        21,048   

Net proceeds from the disposition of non-current assets held for sale

         190,393        —     

Collection of long-term loans

         13,104        11,525   

Decrease of deposits

         8,509        41,785   

Proceeds from disposal of other non-current assets

         683        1,853   

Proceeds from disposal of subsidiaries

         215,939        89,002   

Increase in cash due to acquisition of a subsidiary

         —          26,651   
     

 

 

    

 

 

  

Sub-total

         1,251,786        1,831,226   

Cash outflows for investing activities:

        

Increase in short-term investment securities, net

         (45,032 )      —     

Increase in short-term loans

         (279,926 )      (245,465 ) 

Increase in long-term loans

         (4,050 )      (3,464 ) 

Increase in long-term financial instruments

         (7,510 )      (16 ) 

Acquisition of long-term investment securities

         (22,141 )      (92,929 ) 

Acquisition of investments in associates and joint ventures

         (97,366 )      (3,098,833 ) 

Acquisition of property and equipment

         (2,879,126 )      (3,394,349 ) 

Acquisition of investment property

         —          (129 ) 

Acquisition of intangible assets

         (243,163 )      (146,249 ) 

Increase in assets held for sale

         —          (51,831 ) 

Increase in deposits

         (83,314 )      (43,534 ) 

Increase in other non-current assets

         (1,830 )      (8,619 ) 

Acquisition of business, net of cash acquired

         (94,805 )      (43,389 ) 

Decrease in cash due to disposal of a subsidiary

         —          (12,003 ) 
     

 

 

    

 

 

  

Sub-total

         (3,758,263 )      (7,140,810 ) 
     

 

 

    

 

 

  

Net cash used in investing activities

       ￦ (2,506,477 )      (5,309,584 ) 
     

 

 

    

 

 

  

See accompanying notes to the consolidated financial statements.

 

8

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SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2013 and 2012

 

 

(In millions of won)    Note    2013     2012  

Cash flows from financing activities:

        

Cash inflows from financing activities:

        

Issuance of debentures

       ￦ 1,328,694        2,098,351   

Proceeds from long-term borrowings

         105,055        2,059,004   

Issuance of hybrid bond

         398,518        —     

Cash inflows from derivative transactions

         19,970        87,899   
     

 

 

    

 

 

  

Sub-total

         1,852,237        4,245,254   

Cash outflows for financing activities:

        

Decrease in short-term borrowings, net

         (340,245 )      (61,401 ) 

Repayment of current portion of long-term debt

         (161,575 )      (102,672 ) 

Repayment of debentures

         (771,976 )      (1,145,691 ) 

Repayment of long-term borrowings

         (467,217 )      (1,660,509 ) 

Cash outflows from derivative transactions

         —          (5,415 ) 

Payment of finance lease liabilities

         (20,342 )      (20,794 ) 

Payment of dividends

         (655,946 )      (655,133 ) 

Decrease in cash from the consolidated capital transaction

         (8,093 )      (8,372 ) 
     

 

 

    

 

 

  

Sub-total

         (2,425,394 )      (3,659,987 ) 
     

 

 

    

 

 

  

Net cash provided by (used in) financing activities

         (573,157 )      585,267   
     

 

 

    

 

 

  

Net increase (decrease) in cash and cash equivalents

         478,936        (724,653 ) 

Cash and cash equivalents at beginning of the year

         920,125        1,650,794   

Effects of exchange rate changes on cash and cash equivalents

         (422 )      (6,016 ) 
     

 

 

    

 

 

  

Cash and cash equivalents at end of the year

       ￦ 1,398,639        920,125   
     

 

 

    

 

 

  

See accompanying notes to the consolidated financial statements.

 

9

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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, 2013, 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

      4,760,489         5.90   

Institutional investors and other minority stockholders

      45,812,395         56.73   

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, 2013 and 2012 is as follows:

 

               Ownership (%)  

Subsidiary

    Location   

Primary business

    Dec. 31,
2013		      Dec. 31,
2012		  

SK Telink Co., Ltd.

    Korea    Telecommunication service      83.5         83.5   

M&Service Co., Ltd.(*)

    Korea    Data base and online information services      100.0         —     

SK Communications Co., Ltd.

    Korea    Internet website services      64.6         64.6   

PAXNet Co., Ltd.(*)

    Korea    Internet website services      —           59.7   

Loen Entertainment, Inc.(*)

    Korea    Release of music disc.      —           67.6   

Stonebridge Cinema Fund

    Korea    Investment association      56.0         57.0   

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   

Broadband Media Co., Ltd.(*)

    Korea    Multimedia TV portal services      —           100.0   

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   

 

10

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

1. Reporting Entity, Continued

 

  (2) List of subsidiaries, Continued

 

 

               Ownership (%)  

Subsidiary

    Location   

Primary business

    Dec. 31,
2013		      Dec. 31,
2012		  

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   

SK Planet Co., Ltd.

    Korea    Telecommunication service      100.0         100.0   

Madsmart, Inc.(*)

    Korea    Application software production      —           100.0   

SK Telecom China Holdings Co., Ltd.

    China    Investment association      100.0         100.0   

SKY Property Mgmt. Ltd.(*)

    Virgin Island    Real estate investment      —           60.0   

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 China Real Estate Co., Ltd.(*)

    Hong Kong    Real estate investment      —           99.4   

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         —     

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   

 

(*) Changes in subsidiaries are explained in note 1-(4).

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.

 

11

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

1. Reporting Entity, Continued

 

  (3) Condensed financial information of subsidiaries

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.(*1)

      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.(*1)

      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(*2)

      40,218         101         40,117        —           (8,248 ) 

 

(*1) Changes in subsidiaries are explained in note 1-(4).
(*2) 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.

 

12

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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, 2012 is as follows:

 

(In millions of won)                                  

Subsidiary

    Total
assets		      Total
liabilities		      Total
equity		     Revenue      Profit
(loss)		  

SK Telink Co., Ltd.

    ￦ 241,977         128,191         113,786        341,084         (74,951 ) 

SK Communications Co., Ltd.

      265,819         70,483         195,336        197,153         (35,334 ) 

PAXNet Co., Ltd.

      31,400         9,173         22,227        34,237         (156 ) 

Loen Entertainment, Inc.

      173,079         44,998         128,081        185,016         23,839   

Stonebridge Cinema Fund

      10,965         903         10,062        509         5,707   

Commerce Planet Co., Ltd.

      34,007         35,351         (1,344 )      52,507         655   

SK Broadband Co., Ltd.

      3,035,657         1,656,923         1,378,734        2,486,317         26,412   

Broadband media Co., Ltd.

      50,574         320,727         (270,153 )      90,602         (3,396 ) 

K-net Culture and Contents Venture Fund

      43,779         15         43,764        —           (1,778 ) 

Fitech Focus Limited Partnership II

      22,547         —           22,547        —           (3,934 ) 

Open Innovation Fund

      43,394         —           43,394        —           (788 ) 

PS&Marketing Corporation

      317,613         181,737         135,876        1,484,492         (9,662 ) 

Service Ace Co., Ltd.

      48,956         24,461         24,495        146,554         3,418   

Service Top Co., Ltd.

      43,332         25,963         17,369        133,705         4,198   

Network O&S Co., Ltd.

      165,818         140,853         24,965        377,909         7,970   

BNCP Co., Ltd.

      24,000         9,367         14,633        26,167         (2,463 ) 

SK Planet Co., Ltd.

      1,647,965         381,620         1,266,345        1,034,697         11,977   

Madsmart, Inc.

      1,591         724         867        635         (2,756 ) 

SK Telecom China Holdings Co., Ltd.

      35,233         1,782         33,451        25,755         (151 ) 

SKY Property Mgmt. Ltd.(*1)

      773,413         294,305         479,108        70,808         10,390   

Shenzhen E-eye High Tech Co., Ltd.

      18,915         1,788         17,127        9,590         (1,068 ) 

SK Global Healthcare Business Group., Ltd.

      25,784         —           25,784        —           —     

SK Planet Japan

      47         4         43        —           (63 ) 

SKT Vietnam PTE. Ltd.

      38,331         7,904         30,427        990         (8 ) 

SK Planet Global PTE. Ltd.

      636         130         506        —           (526 ) 

SKT Americas, Inc.

      36,378         784         35,594        10,712         (10,837 ) 

SKP America LLC.

      6,669         2,431         4,238        109         (3,301 ) 

YTK Investment Ltd.

      64,036         —           64,036        —           —     

Atlas Investment(*2)

      51,065         205         50,860        —           (4,324 ) 

 

(*1) The financial information of SKY Property Mgmt. Ltd. includes the financial information of SK China Real Estate Co., Ltd., a subsidiary of Sky Property Mgmt. Ltd.
(*2) 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

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

1. Reporting Entity, Continued

 

  (4) Changes in subsidiaries

The list of subsidiaries that were newly included or excluded from consolidation during the year ended December 31, 2013 is as follows:

1) Newly included subsidiaries

 

Subsidiary

   

Reason

M&Service Co., Ltd.    SK Planet Co., Ltd. acquired ownership interest in M&Service Co., Ltd.
SKP GLOBAL HOLDINGS PTE. LTD.    SK Planet Co., Ltd. invested in SKP GLOBAL HOLDINGS PTE. LTD.

2) Excluded subsidiaries

 

Subsidiary

   

Reason

PAXNet Co., Ltd.    The Parent Company sold its investment during the year.
Broadband media Co., Ltd.    Merged into SK Broadband Co., Ltd. during the year.
Madsmart, Inc.    Merged into SK Planet Co., Ltd. during the year.
SKY Property Mgmt. Ltd.    The Parent Company sold its investment during the year.
SK China Real Estate Co., Ltd.    The Parent Company sold its investment during the year.
Loen Entertainment, Inc.    The Parent Company sold its investment during the year.

 

  (5) Significant non-controlling interests of the Group for the years ended December 31, 2013 and 2012 are as follows. There were no dividends paid during the years ended December 31, 2013 and 2012 by subsidiaries of which non-controlling interests are significant.

 

(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 attributable to non-controlling interests

      (14,853 )      (9,231 ) 

Net cash provided by (used in) operating activities

    ￦ (22,867 )      440,036   

Net cash provided by (used in) investing activities

      41,788        (329,346 ) 

Net cash provided by (used in) financing activities

      19        (129,181 ) 

Net increase (decrease) in cash and cash equivalents

      18,940        (18,491 ) 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

1. Reporting Entity, Continued

 

  (5) Significant non-controlling interests of the Group for the years ended December 31, 2013 and 2012 are as follows. There were no dividends paid during the years ended December 31, 2013 and 2012 by subsidiaries of which non-controlling interests are significant, Continued

 

(In millions of won)    December 31, 2012  
     SK
Communications
Co., Ltd.		     SK Broadband Co.,
Ltd.(*1)		     SKY Property Mgmt.
Ltd.(*2)		  

Ownership of non-controlling interests (%)

      35.4        49.4        40.0   

Current assets

    ￦ 99,599        684,804        69,093   

Non-current assets

      166,220        2,394,352        704,319   

Current liabilities

      (64,811 )      (907,000 )      (51,068 ) 

Non-current liabilities

      (5,672 )      (1,061,608 )      (243,236 ) 

Net assets

      195,336        1,110,548        479,108   

Adjustment for fair value

      —          144,455        —     

Net assets of consolidated entities

      195,336        1,255,003        479,108   

Carrying amount of non-controlling interests

      69,222        621,055        195,907   

Revenue

    ￦ 197,153        2,492,160        70,808   

Profit (loss) for the period

      (35,334 )      22,499        10,390   

Amortization of adjustment for fair value

      —          (72,192 )      —     

Profit (loss) of the consolidated entities

      (35,334 )      (49,693 )      10,390   

Total comprehensive Income (loss)

      (36,785 )      17,397        (23,948 ) 

Profit (loss) attribute to non-controlling interests

      (12,525 )      (24,595 )      4,156   

Net cash provided by (used in) operating activities

    ￦ (14,925 )      375,848        16,258   

Net cash provided by (used in) Investing activities

      5,319        (287,975 )      (396 ) 

Net cash provided by (used in) financing activities

      92        (224,837 )      (1,405 ) 

Net increase (decrease) in cash and cash equivalents

      (9,514 )      (136,964 )      14,457   

 

(*1) The financial information of SK Broadband Co., Ltd. includes the financial information of Broadband media Co., Ltd., a subsidiary of SK Broadband Co., Ltd.
(*2) The financial information of SKY Property Mgmt. Ltd. includes the financial information of SK China Real Estate Co., Ltd., a subsidiary of Sky Property Mgmt. Ltd.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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 6, 2014, which will be submitted for approval at the shareholders’ meeting to be held on March 21, 2014.

 

  (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 and unrecognized past service costs

 

  (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 in which the estimates are revised and in any future periods affected.

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 and classification of investment property.

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, measurement of defined benefit obligation, recognition of deferred tax assets (liabilities), and commitments and contingencies.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

2. Basis of Presentation, Continued

 

  (4) Use of estimates and judgments, Continued

 

3) Fair value measurement

The Group establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for the majority of financial and non-financial assets and liabilities. Such policies and procedures are executed by the valuation division, which is responsible for the review of significant fair value measurements including fair values classified as level 3 in the fair value hierarchy, and the results of which are directly reported to the finance executive.

The valuation division regularly reviews unobservable significant inputs and valuation adjustments. If third party information such as prices available from an exchange, dealer, broker, industry group, pricing service or regulatory agency is used for fair value measurements, the valuation division reviews whether the valuation based on third party information includes classifications by levels within the fair value hierarchy and meets the requirements for the relevant standards.

The Group uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation methods, as follows:

 

  •   Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

 

  •   Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

 

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

If various inputs used to measure fair value of assets or liabilities are transferred between levels of the fair value hierarchy, the Group classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value and recognizes transfers between levels at the end of the reporting period of which such transfers occurred.

Information about assumptions used for fair value measurements are included in note 35.

 

  (5) Common control transactions

SK Holdings Co., Ltd. (“the Ultimate Controlling Entity”) is the Ultimate Controlling Entity of the Parent Company because it controls the Parent Company. Accordingly, gains and losses from business acquisitions and dispositions involving entities that are under the control of the Ultimate Controlling Entity are accounted for as common control transactions within equity.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

3. Changes in Accounting Policies

The accounting policies have been applied consistently to all periods presented in these consolidated financial statements except for new standards, interpretations and amendments to existing standards mandatory for the Group for annual periods beginning on or after January 1, 2013 set out below.

 

  - K-IFRS No. 1110, ‘Consolidated Financial Statements’

 

  - K-IFRS No. 1111, ‘Joint Arrangements’

 

  - K-IFRS No. 1112, ‘Disclosure of Interests in Other Entities’

 

  - K-IFRS No. 1113, ‘Fair Value Measurement’

 

  - K-IFRS No. 1019, ‘Employee Benefits’

 

  - Amendments to K-IFRS No. 1001, ‘Presentation of Items of Other Comprehensive Income (“OCI”)’

 

  - Amendments to K-IFRS No. 1107, ‘Disclosure of offsetting financial assets and financial liabilities’

 

  - Amendments to K-IFRS No. 1036, ‘Disclosure of recoverable amount of non-financial assets’

 

  (1) Subsidiaries

In accordance with the adoption of K-IFRS No.1110, ‘Consolidated Financial Statements’, the Group’s accounting policy to determine whether an entity has control over an investee has been changed. The standard introduces a new control model focusing on whether the Group 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.

The Group remeasured control over investees as of January 1, 2013, the amendment’s initial adoption date, and there were no changes in the Group’s subsidiaries as a result of adopting this amendment.

 

  (2) Joint arrangements

K-IFRS No.1111 classifies joint arrangements into two types - joint operations and joint ventures. The Company assesses its rights and obligations by considering the structure and legal form of the arrangement, the contractual terms agreed to by the parties to the arrangement and, when relevant, other facts and circumstances

The Group reassessed its involvement in joint arrangements and reclassified investment property in relation to joint controlling entities as joint ventures. There were no effects on the Group’s recognized assets, liabilities and comprehensive income due to the reclassification, as the Group consistently recognizes an investment and accounted for that investment using the equity method.

 

  (3) Disclosure of interests in other entities

As described in notes 1 and 11, the Group provides more detailed information on interests in subsidiaries and investees accounted for using the equity method in accordance with the amendments to K-IFRS 1112.

 

18

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

3. Changes in Accounting Policies, Continued

 

  (4) Fair value measurement

 

K-IFRS No. 1113 has been amended to provide a single framework for fair value and information of fair value measurements when other standards requires or permits fair value measurements. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard replaces disclosures relating to fair value measurements required by other standards including K-IFRS No. 1107, and requires additional disclosures. The required disclosures are included in note 35.

 

  (5) Defined benefit pension plans

The Group changed its accounting policy for recognition of gains and losses relating to defined benefit pension plans in accordance with the amendments to K-IFRS No. 1019, ‘Employee Benefits’. The Group determines net interest costs for net defined benefit liabilities using the discount rates used for the measurement of defined benefit obligations at the beginning of the reporting period and considers changes in net defined benefit liabilities due to contributions and retirement benefit payments. Accordingly, net interests on net defined benefits liabilities consist of interest costs on defined benefits obligations, interest income on plan assets and, if applicable, interest on the effects of limitations on asset recognition. Prior to the amendments, the Group determined interest income on plan assets based on the long-term expected return rate.

 

  (6) Presentation of other comprehensive income items

In accordance with the amendments, the Group classifies other comprehensive income items by nature and presents items as “items that will never be reclassified to profit or loss” and “items that are or may be reclassified to profit or loss.” Accordingly, the consolidated statement of comprehensive income for the year ended December 31, 2012 presented for comparative purposes, has been restated.

 

  (7) Offsetting financial assets and liabilities

As described in note 35, the Group provides disclosures relating to offsetting financial assets and financial liabilities in accordance with the amendments to K-IFRS No. 1107.

 

  (8) Disclosure of recoverable amount of non-financial assets

The Group early adopted the amendments to K-IFRS No. 1036. Accordingly, the Group makes the additional disclosures on required by the amendment when impairment losses are recognized and recoverable amounts are based on net fair value.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

Presentation and classification of certain items on the consolidated statements of comprehensive income for the year ended December 31, 2012, presented for the comparative purposes, have been modified by applying changes to the standards and classification method of other comprehensive income items and results of discontinued operations.

 

  (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.

 

20

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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 Company’s ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.

 

  (iii) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

 

  (iv) Loss of control

If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

 

  (v) Interest in investees accounted for using the equity method

Interest in investees accounted for using the equity method composed of interest in associates and joint ventures. An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement 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.

 

21

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

22

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

23

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

24

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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 ~ 13

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

 

  (11) Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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).

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

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, 2013 are as follows. The Group has not early adopted them.

As of December 31, 2013, 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 No.1032, ‘Financial instruments: Presentation’

K-IFRS No. 1032, ‘Financial Instruments has been amended to clarify requirements for offsetting financial assets and financial liabilities by adding application guidance. The amendment is mandatorily effective for annual periods beginning on or after January 1, 2014.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

5. Operating Segments

The Group’s operating segments have been determined to be each business unit, for which the Group provides independent services and merchandise. The Group’s reportable segments are: 1) cellular services, which include cellular voice service, wireless data service and wireless internet services, and 2) fixed-line telecommunication services, which include telephone services, internet services, and leased line services. All other operating segments, which include the Group’s Internet portal services, game manufaturing and other immaterial operations, do not meet the quantitative thresholds to be considered reportable segments and are presented as Other.

Segment information of the Group as of and for the year ended December 31, 2012 has been retrospectively restated to exclude discontinued operations.

(1) Segment information as of and for the years ended December 31, 2013 and 2012 is as follows:

 

(In millions of won)  
     2013  
     Cellular
services		      Fixed-line
telecommunication
services		      Other     Total
segments		      Consolidation
adjustments		     Consolidated
amount		  

Total sales

    ￦ 14,501,829         2,972,642         1,741,599        19,216,070         (2,614,016 )      16,602,054   

Internal sales

      1,186,297         648,253         779,466        2,614,016         (2,614,016 )      —     

External sales

      13,315,532         2,324,389         962,133        16,602,054         —          16,602,054   

Depreciation and amortization

      2,019,531         522,155         119,937        2,661,623         —          2,661,623   

Operating income (loss)

      1,986,106         55,625         (30,622 )      2,011,109         —          2,011,109   

Finance income and costs, net

  

          (457,811 ) 

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

  

        706,509   

Other non-operating income and expense, net

  

          (432,706 ) 
               

 

 

  

Profit from continuing operations before income tax

  

          1,827,101   

Total assets

      23,263,268         3,288,275         3,075,321        29,626,864         (3,050,349 )      26,576,515   

Total liabilities

      9,744,248         2,033,978         901,563        12,679,789         (269,831 )      12,409,958   

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

5. Operating Segments, Continued

 

(In millions of won)  
     2012  
     Cellular
services		      Fixed-line
telecommunication
services		      Other     Total
segments		      Consolidation
adjustments		     Consolidated
amount		  

Total sales

    ￦ 14,475,379         3,018,156         1,469,457        18,962,992         (2,821,583 )      16,141,409   

Internal sales

      1,256,475         824,295         740,813        2,821,583         (2,821,583 )      —     

External sales

      13,218,904         2,193,861         728,644        16,141,409         —          16,141,409   

Depreciation and amortization

      1,735,193         578,969         106,966        2,421,128         —          2,421,128   

Operating income (loss)

      1,683,431         53,115         (6,497 )      1,730,049         —          1,730,049   

Finance income and costs, net

  

          (193,727 ) 

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

  

        (24,560 ) 

Other non-operating income and expense, net

  

          7,606   
               

 

 

  

Profit from continuing operations before income tax

  

        1,519,368   

Total assets

      22,860,867         3,349,715         3,298,774        29,509,356         (3,913,797 )      25,595,559   

Total liabilities

      10,281,115         2,105,282         860,336        13,246,733         (505,956 )      12,740,777   

Intersegment sales and purchases are conducted on an arms-length basis and eliminated on consolidation. Since there are no intersegment sales of inventory, there is no unrealized intersegment profit to be eliminated on consolidation. The Group principally operates its business in its domestic market in Korea and the amounts outside of Korea are immaterial, therefore no entity-wide geographical information is presented.

No single customer contributed 10% or more to the Group’s total sales for the years ended December 31, 2013 and 2012.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

5. Operating Segments, Continued

 

(2) The Group’s revenues are generated as follows:

 

(In billions of won except percentage)                            
     2013      2012  
     Amount      Percentage of
total
revenue(%)		      Amount      Percentage of
total
revenue(%)		  

Cellular revenue

            

Wireless service

    ￦ 11,001,123         66.3         10,591,489         65.6   

Interconnection

      844,977         5.1         860,250         5.3   

Digital handset sales

      645,914         3.9         1,131,657         7.1   

Other(*1)

      823,518         5.0         635,508         3.9   
  

 

 

     

 

 

     

 

 

     

 

 

  
     13,315,532         80.2         13,218,904         81.9   
  

 

 

     

 

 

     

 

 

     

 

 

  

Fixed-line telecommunication services revenue

            

Fixed line telephone service

      474,430         2.9         485,941         3.0   

Interconnection revenue

      78,731         0.5         98,460         0.6   

Broadband internet service

      1,023,156         6.2         864,955         5.4   

International calling service

      127,005         0.8         144,073         0.9   

Miscellaneous(*2)

      621,067         3.7         600,432         3.7   
  

 

 

     

 

 

     

 

 

     

 

 

  
     2,324,389         14.0         2,193,861         13.6   
  

 

 

     

 

 

     

 

 

     

 

 

  

Other revenue

            

Commerce service(*3)

      742,616         4.5         391,894         2.5   

Portal service(*4)

      92,153         0.6         167,815         1.0   

Other(*5)

      127,364         0.7         168,935         1.0   
  

 

 

     

 

 

     

 

 

     

 

 

  
     962,133         5.8         728,644         4.5   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total operating revenue

    ￦ 16,602,054         100.0         16,141,409         100.0   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(*1) Other cellular revenue includes revenue from the sale and licensing of Internet platform solutions.
(*2) Miscellaneous includes revenues from leased line, corporate data and internet solutions businesses.
(*3) Commerce service revenue includes sales from online shopping mall, such as, 11th Street. As the Parent Company acquired the ownership interests in SK Marketing & Company Co., Ltd. during 2013, commerce service revenue for the year ended December 31, 2013 include revenue from advertising and e-commerce agency.
(*4) Portal service revenue includes revenues from Nate, an online portal service and Cyworld, a social network service.
(*5) Other includes revenue from T store, online marketplace for mobile application, and the platform businesses.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

6. Restricted Deposits

Deposits which are restricted in use as of December 31, 2013 and 2012 are summarized as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Short-term financial instruments

    ￦        

Charitable fund(*1)

      76,500         76,500   

Guarantees for loans and other similar instruments(*2)

      —           149,000   

Other

      5,134         16,087   

Long-term financial instruments

      7,589         106   

Guarantee deposits

      40         40   
  

 

 

     

 

 

  
   ￦ 89,263         241,733   
  

 

 

     

 

 

  

 

(*1) The Group established a trust fund for charitable purposes. Profits from the fund are donated to charitable institutions. As of December 31, 2013, the funds cannot be withdrawn.
(*2) For the year ended December 31, 2012, SK Broadband Co., Ltd., a subsidiary, had guaranteed certain loans of Broadband Media Co., Ltd. and provided short-term financial instruments as collateral. As of December 31, 2013, there are no guarantees for loans and other similar instruments.

 

7. Trade and Other Receivables

 

  (1) Details of trade and other receivables as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)    December 31, 2013  
     Gross
amount		      Allowances for
impairment		     Carrying
amount		  

Current assets:

        

Accounts receivable - trade

    ￦ 2,482,001         (224,685 )      2,257,316   

Short-term loans

      80,129         (734 )      79,395   

Accounts receivable - other

      715,405         (71,802 )      643,603   

Accrued income

      11,970         (29 )      11,941   

Others

      2,548         —          2,548   
  

 

 

     

 

 

    

 

 

  
     3,292,053         (297,250 )      2,994,803   

Non-current assets:

        

Long-term loans

      84,176         (26,734 )      57,442   

Guarantee deposits

      249,600         —          249,600   

Long-term accounts receivable – trade

      13,154         —          13,154   
  

 

 

     

 

 

    

 

 

  
     346,930         (26,734 )      320,196   
  

 

 

     

 

 

    

 

 

  
   ￦ 3,638,983         (323,984 )      3,314,999   
  

 

 

     

 

 

    

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

7. Trade and Other Receivables, Continued

 

  (1) Details of trade and other receivables as of December 31, 2013 and 2012 are as follows, Continued

 

(In millions of won)    December 31, 2012  
     Gross
amount		      Allowances for
impairment		     Carrying
amount		  

Current assets:

        

Accounts receivable – trade

    ￦ 2,166,293         (211,373 )      1,954,920   

Short-term loans

      86,789         (1,881 )      84,908   

Accounts receivable – other

      639,386         (57,288 )      582,098   

Accrued income

      8,857         (142 )      8,715   

Others

      431         —          431   
  

 

 

     

 

 

    

 

 

  
     2,901,756         (270,684 )      2,631,072   

Non-current assets:

        

Long-term loans

      97,636         (28,337 )      69,299   

Guarantee deposits

      236,242         —          236,242   

Long-term accounts receivable – trade

      15,024         (1,647 )      13,377   
  

 

 

     

 

 

    

 

 

  
     348,902         (29,984 )      318,918   
  

 

 

     

 

 

    

 

 

  
   ￦ 3,250,658         (300,668 )      2,949,990   
  

 

 

     

 

 

    

 

 

  

 

  (2) The movements in allowances for doubtful accounts of trade and other receivables during the years ended December 31, 2013 and 2012 were as follows:

 

(In millions of won)             
     2013     2012  

Balance at January 1

    ￦ 300,668        318,820   

Increase of bad debt allowances

      79,330        82,500   

Reversal of allowances for doubtful accounts

      (359 )      (5,902 ) 

Write-offs

      (76,697 )      (111,611 ) 

Other

      21,042        16,861   
  

 

 

    

 

 

  

Balance at December 31

    ￦ 323,984        300,668   
  

 

 

    

 

 

  

 

  (3) Details of overdue but not impaired, and impaired trade and other receivable as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                         
     December 31, 2013     December 31, 2012  
     Accounts
receivable -
trade		     Other
receivables		     Accounts
receivable -
trade		     Other
receivables		  

Neither overdue or impaired

    ￦ 1,882,607        938,131        1,589,911        976,882   

Overdue but not impaired

      46,773        2,030        38,590        1,588   

Impaired

      565,775        203,667        552,816        90,871   
  

 

 

    

 

 

    

 

 

    

 

 

  
     2,495,155        1,143,828        2,181,317        1,069,341   

Allowances for doubtful accounts

      (224,685 )      (99,299 )      (213,020 )      (87,648 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 2,270,470        1,044,529        1,968,297        981,693   
  

 

 

    

 

 

    

 

 

    

 

 

  

The Group establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

7. Trade and Other Receivables, Continued

 

  (4) The aging of overdue but not impaired accounts receivable as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                            
     December 31, 2013      December 31, 2012  
     Accounts
receivable -
trade		      Other
receivables		      Accounts
receivable -
trade		      Other
receivables		  

Less than 1 month

    ￦ 12,036         20         4,067         171   

1 ~ 3 months

      15,686         1,220         10,264         673   

3 ~ 6 months

      3,610         516         10,507         101   

More than 6 months

      15,441         274         13,752         643   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 46,773         2,030         38,590         1,588   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

8. Inventories

Details of inventories as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                        
     December 31, 2013      December 31, 2012  
     Acquisition
cost		      Write-
down of
inventory		     Carrying
amount		      Acquisition
cost		      Write-
down of
inventory		     Carrying
amount		  

Merchandise

    ￦ 165,080         (3,152 )      161,928         230,640         (1,784 )      228,856   

Finished goods

      1,711         (34 )      1,677         3,525         (962 )      2,563   

Work in process

      —           —          —           309         —          309   

Raw materials and supplies

      13,515         —          13,515         10,487         (69 )      10,418   
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  
   ￦ 180,306         (3,186 )      177,120         244,961         (2,815 )      242,146   
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

    

 

 

  

The amount of the inventory write-downs charged to the consolidated statements of income and write-offs of inventories are as follows:

 

(In millions of won)             
     2013     2012  

Charged to cost of products that have been resold

    ￦ 1,498        510   

Write-offs upon sale

      (1,127 )      (2,844 ) 
  

 

 

    

 

 

  
     371        (2,334 ) 
  

 

 

    

 

 

  

There are no significant reversals of inventory write-downs for the periods presented.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

9. Investment Securities

 

  (1) Details of short-term investment securities as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Beneficiary certificates(*)

    ￦ 102,828         56,160   

Current portion of long-term investment securities

      3,240         3,967   
  

 

 

     

 

 

  
   ￦ 106,068         60,127   
  

 

 

     

 

 

  

 

(*) The distributions arising from beneficiary certificates as of December 31, 2013 were accounted for as accrued income.

 

  (2) Details of long-term investment securities as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  

Equity securities:

     

Marketable equity securities

    ￦ 638,445        584,035   

Unlisted equity securities(*1)

      47,145        99,643   

Equity investments(*2)

      239,354        223,370   
  

 

 

    

 

 

  
     924,944        907,048   

Debt securities:

     

Public bonds

      356        377   

Investment bonds(*3)

      46,467        50,254   
  

 

 

    

 

 

  
     46,823        50,631   
  

 

 

    

 

 

  

Total

      971,767        957,679   

Less current portion of long-term investment securities

      (3,240 )      (3,967 ) 
  

 

 

    

 

 

  

Long-term investment securities

    ￦ 968,527        953,712   
  

 

 

    

 

 

  

 

(*1) Unlisted equity securities whose fair value cannot be measured reliably are recorded at cost.
(*2) Equity investments are recorded at cost.
(*3) The Group classified convertible bonds of NanoEnTek, Inc. (carrying amount as of December 31, 2013: ￦20,532 million), which were acquired during the year ended December 31, 2011, as financial assets at fair value through profit or loss. The difference between acquisition cost and fair value is accounted for as finance income (loss).

 

45

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

10. Assets and Liabilities Classified as Held for Sale

(1) Subsidiary

For the year ended December 31, 2012, the Group classified assets and liabilities of a subsidiary, SKY Property Mgmt. Ltd., as held for sale as a result of the Board of Directors’ December 21, 2012 decision to dispose of the Group’s ownership interests of 27% in the subsidiary in order to utilize the proceeds for new business opportunities. The ownership interests were disposed as of January 11, 2013.

Non-current assets and liabilities held for sale as of December 31, 2012 are as follows:

 

(In millions of won)       
     December 31, 2012  

Asset group held-for sale

    ￦ 773,413   

Current assets(*1)

      69,094   

Non-current assets

      704,319   

Long-term prepaid expense

      486,439   

Investment property

      186,682   

Property and equipment

      1,566   

Other non-current assets

      29,632   

Liability group held-for-sale

      294,305   

Current liabilities

      51,069   

Non-current liabilities

      243,236   

 

  (*1) Cash and cash equivalents of ￦51,831 million which are included in current assets are recognized as cash outflows from investing activities in the consolidated statements of cash flows as the cash equivalents are expected to be recovered through the disposal of assets and liabilities held for sale.

The assets and liabilities classified as held for sale as of December 31, 2012 are measured at the lower of their carrying amount and fair value less cost to sell.

The Group disposed of 27% of its ownership interests in SKY Property Mgmt. Ltd., which were accounted for as non-current assets held for sale and non-current liabilities held for sale, to SK Innovation, Co., Ltd., a related party, and recognized ￦140,689 thousand of a gain on disposal.

 

46

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

10. Assets and Liabilities Classified as Held for Sale, Continued

 

(2) Investments in associates

Non-current assets held for sale relating to investments in associates as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

TR Entertainment(*1)

    ￦ 2,611         —     

SK Fans Co., Ltd.(*2)

      1,056         2,143   
  

 

 

     

 

 

  
   ￦ 3,667         2,143   
  

 

 

     

 

 

  

 

(*1) A disposal contract for the Group’s entire ownership interests in TR Entertainment was entered into during the year ended December 31, 2013 and the investment in the associate was reclassified to non-current assets held for sale after an impairment loss of ￦4,019 million was recognized.
(*2) A disposal contract for the Group’s ownership interests in SK Fans Co., Ltd., an associate, was entered into during the year ended December 31, 2012. However, the contract was modified during the year ended December 31, 2013 and the difference between the contractual disposal amount and carrying amount of ￦1,088 million was recognized as an impairment loss.

 

11. Business Combinations

 

  (1) In January 2013, the Parent Company acquired an additional 50% ownership interest in SK Marketing & Company Co., Ltd., advertising and e-commerce agency, from SK Innovation Co., Ltd., a related party under common control, through the additional purchase of shares and obtained control over SK Marketing & Company Co., Ltd., and its subsidiary, M&Service Co., Ltd.

Prior to the acquisition, the Parent Company owned 50% of SK Marketing & Company Co., Ltd. After obtaining control over SK Marketing & Company Co., Ltd, the Parent Company acquired the shares of SK Planet Co., Ltd. by investing its ownership interest of 100% of SK Marketing & Company Co., Ltd. as a form of investment in kind. On February 1, 2013, SK Planet Co., Ltd. merged with SK Marketing & Company Co., Ltd.

As the business combination occurred during the year ended December 31, 2013 and was a business combination between entities under common control, the difference between the consideration and book value of net assets was recognized as a capital deficit and other capital adjustments.

 

47

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

11. Business Combination, Continued

 

  (2) Consideration and assets and liabilities transferred as of the acquisition date are as follows:

 

(In millions of won)       
     Amount  

Consideration paid

   

Cash and cash equivalents

    ￦ 190,605   

Investments in associates (carrying value)

      141,534   
  

 

 

  
     332,139   

Assets and liabilities transferred

   

Cash and cash equivalents

      95,800   

Accounts receivable – trade

      132,514   

Inventories

      3,472   

Property and equipment, and intangible assets

      68,699   

Other assets

      457,431   

Accounts payable – trade

      (150,014 ) 

Other liabilities

      (337,617 ) 
  

 

 

  
     270,285   
  

 

 

  

Amount recorded in capital surplus and other capital adjustments

    ￦ 61,854   
  

 

 

  

 

12. Investments in Associates and Joint Ventures

 

  (1) Investments in associates and joint ventures accounted for using the equity method as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)        December 31, 2013     December 31, 2012  
     Country   Ownership
percentage		   Carrying
amount		     Ownership
percentage		   Carrying
amount		  

Investments in associates

           

SK Marketing & Company Co., Ltd.(*1)

    Korea   —     ￦ —        50.0   ￦ 145,333   

SK China Company Ltd.(*2)

    China   9.6     37,434      9.6     37,628   

Korea IT Fund(*3)

    Korea   63.3     231,402      63.3     230,016   

JYP Entertainment Corporation(*5)

    Korea   —       —        25.5     4,232   

Etoos Co., Ltd.(*2)

    Korea   15.6     12,029      15.6     12,037   

HanaSK Card Co., Ltd.

    Korea   49.0     378,616      49.0     378,457   

Candle Media Co., Ltd.

    Korea   40.9     21,241      40.9     21,935   

NanoEnTek, Inc.(*2)

    Korea   9.2     9,312      9.3     9,276   

SK Industrial Development China Co., Ltd.

    Hong Kong   21.0     77,517      35.0     77,967   

Packet One Network

    Malaysia   27.0     60,706      28.2     88,389   

SK Technology Innovation Company

    Cayman   49.0     53,874      49.0     63,559   

ViKi, Inc.(*6)

    USA   —       —        26.3     15,667   

HappyNarae Co., Ltd.

    Korea   42.5     13,935      42.5     13,113   

SK hynix Inc.(*8)

    Korea   20.6     3,943,232      21.1     3,328,245   

SK MENA Investment B.V.

    Netherlands   32.1     13,477      32.1     13,666   

SKY Property Mgmt. Ltd.(*4)

    Virgin Island   33.0     238,278      —       —     

Xinan Tianlong Science and Technology Co., Ltd.(*7)

    China   49.0     26,562      —       —     

Daehan Kanggun BcN Co., Ltd. and others

    —     —       164,976      —       170,747   
      

 

 

      

 

 

  

Sub-total

          5,282,591          4,610,267   
      

 

 

      

 

 

  

 

48

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

  (1) Investments in associates and joint ventures accounted for using the equity method as of December 31, 2013 and 2012 are as follows, Continued

 

(In millions of won)         December 31, 2013      December 31, 2012  
     Country    Ownership
percentage		      Carrying
amount		      Ownership
percentage		      Carrying
amount		  

Investments in joint ventures

               

Dogus Planet, Inc.

    Turkey      50.0         10,105         50.0         6,005   

PT. Melon Indonesia

    Indonesia      49.0         3,230         49.0         4,447   

Television Media Korea Ltd.

    Korea      51.0         8,659         51.0         11,758   

PT XL Planet Digital(*7)

    Indonesia      50.0         20,712         —           —     
        

 

 

        

 

 

  

Sub-total

            42,706            22,210   
        

 

 

        

 

 

  

Total

          ￦ 5,325,297          ￦ 4,632,477   
        

 

 

        

 

 

  

 

(*1) SK Marketing & Company Co., Ltd. was merged into SK Planet Co., Ltd., a subsidiary of the Parent Company during the year ended December 31, 2013 (Refer to note 11).
(*2) Classified as investments in associates as the Group can exercise significant influence through participation on the board of directors even though the Group has less than 20% of equity interests.
(*3) Investment in Korea IT Fund was classified as investment in associates as the Group has less than 50% of voting rights, and therefore does not have control over Korea IT Fund under the agreement.
(*4) Reclassified from investment in subsidiaries to investment in associates due to the partial disposal of its shares.
(*5) Decreased as Loen Entertainment, Inc., which holds ownership interests in JYP Entertainment Corporation, has been classified as non-current assets held for sale.
(*6) De-recognized this investment during the year ended December 31, 2013 upon disposal.
(*7) Newly acquired investment during the year ended December 31, 2013.
(*8) The Group’s ownership interests in SK hynix Inc. decreased as investors of convertible bonds issued by SK hynix Inc. exercised their convertible rights during the year ended December 31, 2013.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

  (2) The market price of investments in listed associates as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, except for share and per share data)                              
     December 31, 2013      December 31, 2012  
     Market
value per
share
(In won)		      Number of
shares		      Market
price		      Market
value per
share
(In won)		      Number of
shares		      Market
price		  

Candle Media Co., Ltd.

    ￦ 810         21,620,360         17,512         858         21,620,360         18,550   

NanoEnTek, Inc.

      5,170         1,807,130         9,343         3,915         1,807,130         7,075   

SK hynix Inc.

      36,800         146,100,000         5,376,480         25,750         146,100,000         3,762,075   

 

  (3) The financial information of the significant investees as of and for the years ended December 31, 2013 and 2012 is as follows:

 

(In millions of won)    As of and for the year ended December 31, 2013  
     SK hynix
Inc.		      HanaSK
Card Co.,
Ltd.		      SKY
Property
Mgmt. Ltd.		      Korea IT
Fund		      Packet
One
Network		  

Current assets

    ￦ 6,653,123         4,687,020         106,122         132,968         45,936   

Non-current assets

      14,144,175         211,376         695,653         232,566         206,973   

Current liabilities

      3,078,240         2,053,942         137,544         6         106,038   

Non-current liabilities

      4,652,200         2,155,165         163,540         —           87,989   

Revenue

      14,165,102         853,506         76,834         8,161         97,137   

Profit (loss) from continuing operations

      2,872,857         3,521         14,408         2,128         (44,441 ) 

Other comprehensive income

      6,594         1,906         55,403         —           —     

Total comprehensive income (loss)

      2,879,451         5,427         69,811         2,128         (44,441 ) 

 

50

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

  (3) The financial information of the significant investees as of and for the years ended December 31, 2013 and 2012 is as follows, Continued

 

(In millions of won)    As of and for the year ended December 31, 2012  
     SK hynix
Inc.		     HanaSK
Card Co.,
Ltd.		     Korea IT
Fund		      Packet One
Network		  

Current assets

    ￦ 5,313,573        7,888,008        195,164         46,872   

Non-current assets

      13,335,121        296,007        168,182         210,027   

Current liabilities

      4,441,180        259,659        6         143,936   

Non-current liabilities

      4,468,071        7,240,140        —           80,896   

Revenue

      10,162,210        1,012,772        19,444         110,152   

Profit (loss) from continuing operations

      (158,795 )      (29,571 )      5,820         (42,830 ) 

Other comprehensive income (loss)

      (305,601 )      (2,653 )      —           2,259   

Total comprehensive income (loss)

      (464,396 )      (32,224 )      5,820         (40,571 ) 

 

  (4) The condensed financial information of joint ventures as of and for the year ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)                         
     As of and for the year ended December 31, 2013  
     Television
Media Korea
Ltd.		     Dogus
Planet, Inc.		     PT. Melon
Indonesia		     PT XL Planet
Digital		  

Current assets

    ￦ 18,106        25,508        7,423        31,241   

Cash and cash equivalents

      14,532        10,723        4,428        30,288   

Non-current assets

      5,143        9,935        1,658        5,801   

Current liabilities

      6,385        15,471        2,338        2,133   

Account payable, other payables and provisions

      6,385        15,386        2,338        2,133   

Non-current liabilities

      359        142        100        14   

Account payable, other payables and provisions

      359        1        —          14   

Revenue

      14,139        7,509        7,475        —     

Depreciation and amortization

      (4,004 )      (1,315 )      (397 )      (84 ) 

Interest income

      410        1,598        289        357   

Interest expense

      —          (29 )      —          (3 ) 

Income tax expense

      —          —          —          (513 ) 

Profit (loss) from continuing operations

      (6,021 )      (29,278 )      (575 )      3,606   

Total comprehensive income (loss)

      (6,021 )      (29,278 )      (575 )      3,606   

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

  (4) The condensed financial information of joint ventures as of and for the year ended December 31, 2013 and 2012 are as follows, Continued

 

(In millions of won)    As of and for the year ended December 31, 2012  
     Television
Media Korea
Ltd.		     Dogus
Planet, Inc.		     PT. Melon
Indonesia		  

Current assets

    ￦ 22,449        7,735        7,770   

Cash and cash equivalents

      10,562        6,085        6,882   

Non-current assets

      6,056        7,349        2,265   

Current liabilities

      5,724        2,970        832   

Account payable, other payables and provisions

      5,323        2,631        821   

Non-current liabilities

      199        104        78   

Account payable, other payables and provisions

      —          104        —     

Revenue

      12,115        —          1,218   

Depreciation and amortization

      (2,886 )      (864 )      (442 ) 

Interest income

      758        539        418   

Loss from continuing operations

      (6,873 )      (4,494 )      (572 ) 

Total comprehensive loss

      (6,873 )      (4,494 )      (572 ) 

 

52

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

  (5) Adjustments of financial information of significant associates to carrying amounts attributable to the ownership interests in those associates as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)  
     December 31, 2013  
     Net assets      Ownership
interests
(%)		      Net assets
attributable
to the
ownership
interests		      Cost-book
value
differentials		      Carrying
amount		  

Associates:

               

SK hynix Inc.(*)

    ￦ 13,066,474         20.6         2,687,806         1,255,426         3,943,232   

HanaSK Card Co., Ltd.

      689,290         49.0         337,752         40,864         378,616   

SKY Property Mgmt. Ltd.(*)

      494,004         33.0         163,021         75,257         238,278   

Korea IT Fund

      365,528         63.3         231,402         —           231,402   

 

(In millions of won)  
     December 31, 2012  
     Net assets      Ownership
interests
(%)		      Net assets
attributable
to the
ownership
interests		      Cost-book
value
differentials		      Carrying
amount		  

Associates:

               

SK hynix Inc.(*)

    ￦ 9,738,729         21.1         2,049,182         1,279,063         3,328,245   

HanaSK Card Co., Ltd.

      684,216         49.0         335,266         43,191         378,457   

Korea IT Fund

      363,340         63.3         230,016         —           230,016   

 

(*) These entities prepare consolidated financial statements and net assets of these entities represent net assets attributable to owners of the Parent Company.

 

53

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

  (6) Details of changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)       
     2013  
     Beginning
balance		      Acquisition
and
disposition		     Share of
profits
(losses)		     Other
comprehensive
income
(loss)		     Impairment
loss		     Other
increase
(decrease)		     Ending
balance		  

Investments in associates

                

SK Marketing & Company Co., Ltd.(*1)

    ￦ 145,333         —          (3,954 )      155        —          (141,534 )      —     

SK China Company Ltd.

      37,628         —          (7,643 )      7,449        —          —          37,434   

Korea IT Fund

      230,016         —          1,348        38        —          —          231,402   

JYP Entertainment Corporation(*2)

      4,232         —          1,000        58        —          (5,290 )      —     

Etoos Co., Ltd.

      12,037         —          56        (64 )      —          —          12,029   

HanaSK Card Co., Ltd.

      378,457         —          (612 )      771        —          —          378,616   

Candle Media Co., Ltd.

      21,935         —          (782 )      88        —          —          21,241   

NanoEnTek, Inc.

      9,276         —          25        11        —          —          9,312   

SK Industrial Development China Co., Ltd.

      77,967         —          (1,037 )      587        —          —          77,517   

Packet One Network

      88,389         25        (2,367 )      (1,843 )      (23,498 )      —          60,706   

SK Technology Innovation Company

      63,559         —          (9,108 )      (577 )      —          —          53,874   

ViKi, Inc.(*3)

      15,667         (14,636 )      (995 )      (36 )      —          —          —     

HappyNarae Co., Ltd.

      13,113         —          822        —          —          —          13,935   

SK hynix Inc.

      3,328,245         —          610,201        4,786        —          —          3,943,232   

SK MENA Investment B.V.

      13,666         —          —          (189 )      —          —          13,477   

SKY Property Mgmt. Ltd.(*4)

      —           —          5,532        43        —          232,703        238,278   

Xinan Tianlong Science and Technology Co., Ltd.

      —           25,731        831        —          —          —          26,562   

Daehan Kanggun BcN Co., Ltd. and others

      170,747         26,257        (17,899 )      (4,291 )      (5,547 )      (4,291 )      164,976   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Sub-total

      4,610,267         37,377        575,415        6,986        (29,045 )      81,589        5,282,591   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Investments in joint ventures

                

Dogus Planet, Inc.

      6,006         21,428        (13,027 )      (4,302 )      —          —          10,105   

PT. Melon Indonesia

      4,447         —          (282 )      (935 )      —          —          3,230   

Television Media Korea Ltd.

      11,757         —          (3,098 )      —          —          —          8,659   

PT XL Planet Digital

      —           19,713        1,549        —          —          (550 )      20,712   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Sub-total

      22,210         41,141        (14,858 )      (5,237 )      —          (550 )      42,706   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 4,632,477         78,518        560,557        1,749        (29,045 )      81,039        5,325,297   
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

54

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

(*1) The entity was merged into SK Planet Co., Ltd., a subsidiary of the Parent Company during the year ended December 31, 2013 (Refer to note 11).
(*2) Investment in JYP Entertainment Corporation decreased as Loen Entertainment, Inc., which holds ownership interests in JYP Entertainment Corporation, has excluded from consolidation scope.
(*3) De-recognized upon disposal during the year ended December 31, 2013.
(*4) Investments in SKY Property Mgmt. Ltd. was reclassified from investments in subsidiaries to investments to associates as portion of ownership interests were disposed during the year ended December 31, 2013.

 

(In millions of won)    2012  
     Beginning
balance		      Acquisition
and
disposition		      Share of
profits
(losses)
(*1)		     Other
compre-
hensive
income
(loss)		     Impair-
ment
loss		     Other
increase
(decrease)		     Ending
balance		  

Investments in associates

                 

SK Marketing & Company Co., Ltd.

    ￦ 128,320         —           17,585        (572 )      —          —          145,333   

SK China Company Ltd.

      48,488         —           217        (11,077 )      —          —          37,628   

Korea IT Fund

      230,980         —           (1,141 )      177        —          —          230,016   

JYP Entertainment Corporation

      4,008         —           282        (58 )      —          —          4,232   

Etoos Co., Ltd.

      13,928         —           (1,891 )      —          —          —          12,037   

HanaSK Card Co., Ltd.

      396,553         —           (16,842 )      (1,254 )      —          —          378,457   

Candle Media Co., Ltd.

      11,814         5,853         3,619        361        —          288        21,935   

NanoEnTek, Inc.

      10,470         —           (1,290 )      96        —          —          9,276   

SK Industrial Development China Co., Ltd.

      83,691         —           276        (6,000 )      —          —          77,967   

Packet One Network

      103,409         2,387         (18,252 )      845        —          —          88,389   

SK Technology Innovation Company

      75,974         —           (7,320 )      (5,095 )      —          —          63,559   

ViKi, Inc.

      17,799         —           (2,168 )      36        —          —          15,667   

HappyNarae Co., Ltd.

      12,250         —           863        —          —          —          13,113   

SK hynix Inc.

      —           3,374,726         6,865        (53,346 )      —          —          3,328,245   

SK MENA Investment B.V.

      —           14,485         16        (835 )      —          —          13,666   

Daehan Kanggun BcN Co., Ltd. and others

      226,332         33,126         (15,293 )      (3,914 )      (48,039 )      (21,465 )      170,747   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Sub-total

      1,364,015         3,430,577         (34,472 )      (80,637 )      (48,039 )      (21,177 )      4,610,267   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Investments in joint ventures

                 

PT. Melon Indonesia

      5,326         —           (468 )      (411 )      —          —          4,447   

Television Media Korea Ltd.

      15,262         —           (3,505 )      —          —          —          11,757   

Dogus Planet, Inc.

      —           8,932         (2,218 )      (709 )      —          —          6,006   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Sub-total

      20,588         8,932         (6,190 )      (1,120 )      —          —          22,210   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 1,384,603         3,439,509         (40,665 )      (81,757 )      (48,039 )      (21,176 )      4,632,477   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*1) Losses relating to investments in subsidiaries, joint venture and associates on the consolidated statements of income for the year ended December 31, 2012 includes share of profits (losses), impairment loss and losses on the disposal of investments in associates of ￦1,581 million.

 

55

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Investments in Associates and Joint Ventures, Continued

 

  (7) As the Group discontinued the application of the equity method due to the carrying amount of the Group’s share being reduced to zero, the unrecognized accumulated equity losses as of December 31, 2013 are as follows:

 

(In millions of won)    Unrealized loss      Unrealized change in equity  
     Year ended
December 31,
2013		     Accumulated      Year ended
December 31,
2013		     Accumulated  

ULand Company Limited

    ￦ (150 )      1,553         (130 )      (3 ) 

Wave City Development Co., Ltd.

      (965 )      3,721         —          334   
  

 

 

    

 

 

     

 

 

    

 

 

  
   ￦ (1,115 )      5,274         (130 )      331   
  

 

 

    

 

 

     

 

 

    

 

 

  

 

13. Property and Equipment

 

  (1) Property and equipment as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                          
     December 31, 2013  
     Acquisition cost      Accumulated
depreciation		     Accumulated
impairment loss		     Carrying
amount		  

Land

    ￦ 732,206         —          —          732,206   

Buildings

      1,510,846         (554,155 )      —          956,691   

Structures

      716,724         (351,773 )      —          364,951   

Machinery

      24,994,337         (18,145,580 )      (1,698 )      6,847,059   

Other

      1,428,159         (894,217 )      (761 )      533,181   

Construction in progress

      762,519         —          —          762,519   
  

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 30,144,791         (19,945,725 )      (2,459 )      10,196,607   
  

 

 

     

 

 

    

 

 

    

 

 

  
(In millions of won)                          
     December 31, 2012  
     Acquisition cost      Accumulated
depreciation		     Accumulated
impairment loss		     Carrying
amount		  

Land

    ￦ 704,908         —          —          704,908   

Buildings

      1,391,489         (505,118 )      —          886,371   

Structures

      681,905         (318,421 )      —          363,484   

Machinery

      22,997,148         (16,558,093 )      (122,863 )      6,316,192   

Other

      1,609,034         (971,062 )      (760 )      637,212   

Construction in progress

      804,552         —          —          804,552   
  

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 28,189,036         (18,352,694 )      (123,623 )      9,712,719   
  

 

 

     

 

 

    

 

 

    

 

 

  

 

56

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

13. Property and Equipment, Continued

 

  (2) Changes in property and equipment for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                                    
     2013  
     Beginning
balance		      Acquisition      Disposal     Transfer     Depreciation     Impairment     Change of
consolidation
scope		      Ending
balance		  

Land

    ￦ 704,908         6,865         (200 )      15,545        —          —          5,088         732,206   

Buildings

      886,371         1,128         (177 )      112,827        (47,429 )      —          3,971         956,691   

Structures

      363,484         17,850         (18 )      17,001        (33,366 )      —          —           364,951   

Machinery

      6,316,192         582,593         (13,183 )      1,951,267        (1,990,850 )      —          1,040         6,847,059   

Other

      637,212         1,190,739         (7,032 )      (1,157,150 )      (133,682 )      —          3,094         533,181   

Construction in progress

      804,552         1,113,576         (31,146 )      (1,131,703 )      —          (1,275 )      8,515         762,519   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  
   ￦ 9,712,719         2,912,751         (51,756 )      (192,213 )      (2,205,327 )      (1,275 )      21,708         10,196,607   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

 

(In millions of won)                                                    
     2012  
     Beginning
balance		      Acquisi-
tion		      Disposal     Transfer     Deprecia-
tion		     Impair-
ment(*)		     Classified
as held
for sale		     Change of
consolida-
tion scope		     Ending
balance		  

Land

    ￦ 730,361         1,499         (41,771 )      14,819        —          —          —          —          704,908   

Buildings

      989,078         1,369         (62,699 )      9,491        (50,868 )      —          —          —          886,371   

Structures

      301,115         65,541         (81 )      30,632        (33,723 )      —          —          —          363,484   

Machinery

      5,493,572         547,874         (24,614 )      2,188,882        (1,780,899 )      (108,623 )      —          —          6,316,192   

Other

      711,461         1,497,412         (4,593 )      (1,438,042 )      (124,426 )      (748 )      (1,566 )      (2,286 )      637,212   

Construction in progress

      805,411         1,280,654         (810 )      (1,262,578 )      —          (18,125 )      —          —          804,552   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 9,030,998         3,394,349         (134,568 )      (456,796 )      (1,989,916 )      (127,496 )      (1,566 )      (2,286 )      9,712,719   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*) The Group recognized ￦109,486 million of impairment loss on property and equipment in relation to the discontinuance of the digital multimedia broadcasting service and included the amount in loss from discontinued operation.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

14. Investment Property

 

  (1) Investment property as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                    
     December 31, 2013  
     Acquisition
cost		      Accumulated
depreciation		     Carrying
amount		  

Land

    ￦ 10,821         —          10,822   

Buildings

      7,657         (2,668 )      4,989   
  

 

 

     

 

 

    

 

 

  
   ￦ 18,478         (2,668 )      15,811   
  

 

 

     

 

 

    

 

 

  

 

(In millions of won)                    
     December 31, 2012  
     Acquisition
cost		      Accumulated
depreciation		     Carrying
amount		  

Land

    ￦ 12,638         —          12,638   

Buildings

      20,026         (5,185 )      14,841   
  

 

 

     

 

 

    

 

 

  
   ￦ 32,664         (5,185 )      27,479   
  

 

 

     

 

 

    

 

 

  

 

  (2) Changes in investment property for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                        
     2013  
     Beginning
balance		      Acquisition      Disposal      Transfer     Depreciation     Ending
balance		  

Land

    ￦ 12,638         —           —           (1,816 )      —          10,822   

Buildings

      14,841         —           —           (8,737 )      (1,115 )      4,989   
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 27,479         —           —           (10,553 )      (1,115 )      15,811   
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

 

(In millions of won)                                             
     2012  
     Beginning
balance		      Acquisition      Disposal     Transfer     Depreciation     Classified
as held for
sale		     Ending
balance		  

Land

    ￦ 23,153         —           (10,737 )      222        —          —          12,638   

Buildings

      247,933         129         (22,619 )      (15,797 )      (8,123 )      (186,682 )      14,841   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 271,086         129         (33,356 )      (15,575 )      (8,123 )      (186,682 )      27,479   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  (3) Details of fair value of investment property as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                            
     December 31, 2013      December 31, 2012  
     Carrying
amount		      Fair value      Carrying
amount		      Fair value  

Land

    ￦ 10,822         6,595         12,638         15,228   

Buildings

      4,989         4,737         14,841         13,949   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 15,811         11,332         27,479         29,177   
  

 

 

     

 

 

     

 

 

     

 

 

  

The fair value of investment property was appraised on the basis of market price by an independent appraisal company.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

14. Investment Property, Continued

 

  (4) Income (expense) from investment property for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Rent revenue

    ￦ 1,373        73,755   

Operating expense

      (476 )      (57,049 ) 

 

15. Goodwill

 

  (1) Goodwill as of December 31, 2013 and 2012 is as follows:

 

(In millions of won)              
     December 31,
2013		      December 31,
2012		  

Goodwill related to acquisition of Shinsegi Telecom, Inc.

    ￦ 1,306,236         1,306,236   

Goodwill related to acquisition of SK Broadband Co., Ltd.

      358,443         358,443   

Other goodwill

      68,582         79,804   
  

 

 

     

 

 

  
   ￦ 1,733,261         1,744,483   
  

 

 

     

 

 

  

Goodwill is allocated to the following CGUs for the purpose of impairment testing.

 

  - Shinsegi Telecom, Inc.(*1): cellular services

 

  - SK Broadband Co., Ltd.(*2): fixed-line telecommunication services

 

  - Other: other

 

  (*1) Shinsegi Telecom, Inc.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 6.5% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 2.0% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless business growth. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

 

  (*2) Goodwill related to acquisition of SK Broadband Co., Ltd.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 6.4% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 2.2% was applied for the cash flows expected to be incurred after five years. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

15. Goodwill, Continued

 

  (2) Details of changes in goodwill for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Beginning balance

    ￦ 1,744,483        1,749,933   

Goodwill increase due to acquisitions

      1,252        10,078   

Impairment loss

      (9,981 )      (13,316 ) 

Other decrease

      (2,493 )      (2,212 ) 
  

 

 

    

 

 

  
   ￦ 1,733,261        1,744,483   
  

 

 

    

 

 

  

 

(*) Other decrease represents effects of exchange rate changes in relation to the foreign subsidiaries and reclassification of assets held for sale.

Accumulated impairment losses for the years ended December 31, 2013 and 2012 are ￦9,981 million and ￦13,316 million, respectively.

 

16. Intangible Assets

 

  (1) Intangible assets As of December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013  
     Acquisition
cost		      Accumulated
depreciation		     Accumulated
impairment		     Carrying
amount		  

Frequency use rights

    ￦ 3,033,879         (1,369,308 )      —          1,664,571   

Land use rights

      48,031         (31,441 )      —          16,590   

Industrial rights

      84,495         (25,732 )      —          58,763   

Development costs

      138,802         (117,000 )      (11,675 )      10,127   

Facility usage rights

      143,937         (85,109 )      —          58,828   

Customer relations

      14,222         (7,889 )      —          6,333   

Memberships(*1)

      128,452         —          —          128,452   

Other(*2)

      2,438,559         (1,630,374 )      (1,067 )      807,118   
  

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 6,030,377         (3,266,853 )      (12,742 )      2,750,782   
  

 

 

     

 

 

    

 

 

    

 

 

  

 

(In millions of won)    2012  
     Acquisition
cost		      Accumulated
depreciation		     Accumulated
impairment		     Carrying
amount		  

Frequency use rights

    ￦ 2,837,385         (1,140,610 )      (2,907 )      1,693,868   

Land use rights

      42,041         (25,979 )      —          16,062   

Industrial rights

      84,955         (24,851 )      —          60,104   

Development costs

      171,256         (146,757 )      (11,079 )      13,420   

Facility usage rights

      142,283         (76,943 )      —          65,340   

Customer relations

      52,792         (3,906 )      —          48,886   

Memberships(*1)

      119,686         —          (732 )      118,954   

Other(*2)

      2,197,856         (1,518,585 )      (6,247 )      673,024   
  

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 5,648,254         (2,937,631 )      (20,965 )      2,689,658   
  

 

 

     

 

 

    

 

 

    

 

 

  

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

16. Intangible Assets, Continued

 

  (1) Intangible assets As of December 31, 2013 and 2012 are as follows, Continued

 

  (*1) Memberships are classified as intangible assets with indefinite useful life and are not amortized.
  (*2) Other intangible assets consist of computer software and usage rights to a research facility which the Group built and donated to a university which in turn the Group is given rights-to-use for a definite number of years.

 

  (2) Details of changes in intangible assets for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                                    
     2013  
     Beginning
balance		      Acquisition      Disposal     Transfer      Amortization     Impairment     Change of
consolida-
tion scope		     Ending
balance		  

Frequency use rights(*)

    ￦ 1,693,868         1,046,833         (814,213 )      —           (261,917 )      —          —          1,664,571   

Land use rights

      16,062         7,378         (279 )      —           (6,571 )      —          —          16,590   

Industrial rights

      60,104         2,045         (75 )      485         (3,674 )      —          (122 )      58,763   

Development costs

      13,420         594         —          650         (5,230 )      (1,448 )      2,141        10,127   

Facility usage rights

      65,340         1,930         (75 )      9         (8,376 )      —          —          58,828   

Customer relations

      48,886         1,293         —          1,856         (45,702 )      —          —          6,333   

Memberships

      118,954         2,828         (997 )      —           —          —          7,667        128,452   

Other

      673,024         111,972         (21,751 )      325,529         (291,870 )      (1,695 )      11,909        807,118   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 2,689,658         1,174,873         (837,390 )      328,529         (623,340 )      (3,143 )      21,595        2,750,782   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

 

(*) The Group newly acquired 1.8GHz frequency use rights through auction during the year ended December 31, 2013 and returned the existing 1.8GHz frequency use rights as partial consideration in connection with the new acquisition. Accordingly, the Group recognized ￦199,613 million of loss on disposal of property and equipment and intangible assets.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

16. Intangible Assets, Continued

 

  (2) Details of changes in intangible assets for the years ended December 31, 2013 and 2012 are as follows, Continued

 

(In millions of won)  
     2012  
     Beginning
balance		      Acquisition      Disposal     Transfer      Amortization     Impairment
(*)		     Change of
consolidation
scope		     Ending
balance		  

Frequency use rights

    ￦ 1,889,102         16,659         —          —           (208,986 )      (2,907 )      —          1,693,868   

Land use rights

      19,326         3,830         (142 )      —           (6,952 )      —          —          16,062   

Industrial rights

      59,474         4,313         —          687         (4,316 )      (6 )      (48 )      60,104   

Development costs

      20,961         3,019         —          933         (6,940 )      (4,553 )      —          13,420   

Facility usage rights

      69,491         3,998         (121 )      108         (8,136 )      —          —          65,340   

Customer relations

      141,818         578         —          —           (93,510 )      —          —          48,886   

Memberships

      117,711         6,363         (3,972 )      396         —          (732 )      (812 )      118,954   

Other

      677,920         115,498         (15,630 )      194,442         (286,139 )      (11,200 )      (1,867 )      673,024   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 2,995,803         154,258         (19,865 )      196,566         (614,979 )      (19,398 )      (2,727 )      2,689,658   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

 

(*) The Group recognized ￦12,101 million of impairment loss on intangible assets in relation to the intangible assets of the discontinuance of Digital Multimedia Broadcasting service and included the amount in loss from discontinued operations.

 

  (3) Research and development expenditures recognized as expense for the years ended December 31, 2013 and 2012 are as follows:

 

     2013      2012  

Research and development costs expensed as incurred

    ￦ 352,385         304,557   

 

(In millions of won)
     Amount     

Description

    Commencement
of depreciation		    Completion of
depreciation

W-CDMA license

    ￦ 294,245       Frequency use rights relating to W-CDMA service    Dec. 2003    Dec. 2016

W-CDMA license

      48,933       Frequency use rights relating to W-CDMA service    Oct. 2010    Dec. 2016

800MHz license

      304,080       Frequency use rights relating to CDMA and LTE service    Jul. 2011    Jun. 2021

1.8GHz license

      1,004,960       Frequency use rights relating to LTE service    Sep. 2013    Dec. 2021

WiBro license

      12,353       WiBro service    Mar. 2012    Mar. 2019
  

 

 

           
   ￦ 1,664,571            
  

 

 

           

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

17. Borrowings and Debentures

 

  (1) Short-term borrowings as of December 31, 2013 and 2012 are as follows:

 

(In millions of won and thousands of U.S. dollars)  
    

Lender

    Annual
interest
rate (%)		      December 31,
2013		      December 31,
2012		  

Commercial paper

    Woori Bank, etc.      2.98~3.10       ￦ 200,000         130,000   

Short-term borrowings (Korean won)

    Kookmin Bank, etc.      3.48~6.20         60,000         470,245   
        

 

 

     

 

 

  
         ￦ 260,000         600,245   
        

 

 

     

 

 

  

 

  (2) Long-term borrowings as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, thousands of U.S. dollars and thousands of Chinese yuan)  

Lender

    Annual interest
rate (%)		    Maturity    December 31,
2013		     December 31,
2012		  

Bank of Communications

    6M Libor + 0.29    Oct. 10, 2013    ￦ —         

 

 32,133

(USD 30,000

   

) 

Bank of China

    6M Libor + 0.29    Oct. 10, 2013      —         

 

 21,422

(USD 20,000

   

) 

DBS Bank

    6M Libor + 0.29    Oct. 10, 2013      —         

 

 26,778

(USD 25,000

   

) 

SMBC

    6M Libor + 0.29    Oct. 10, 2013      —         

 

 26,778

(USD 25,000

   

) 

Kookmin Bank and 13 others

    4.48    Feb. 14, 2015      —          350,000   

Korea Development Bank

    2.89    Jun. 17, 2013      —          1,762   

Korea Development Bank

    2.84    Jun. 16, 2014      1,648        4,942   

Shinhan Bank

    2.84    Jun. 15, 2015      5,136        8,561   

Kookmin Bank

    2.84    Jun. 15, 2015      8,124        9,749   

Kookmin Bank

    2.84    Mar. 15, 2017      5,996        5,996   

Kookmin Bank

    2.84    Mar. 15, 2018      8,600        —     

Export Kreditnamnden(*)

    1.7    Apr. 29, 2022     

 

 99,975

(USD 94,736

   

) 

     —     
        

 

 

    

 

 

  

Sub-total

            129,479        488,121   

Less present value discount on long-term borrowings

      (3,287 )      (1,667 ) 
        

 

 

    

 

 

  
           126,192        486,454   

Less current portion of long-term borrowings

      (21,384 )      (117,217 ) 
        

 

 

    

 

 

  

Long-term borrowings

          ￦ 104,808        369,237   
        

 

 

    

 

 

  

 

(*) For the year ended December 31, 2013, the Group obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are redeemed by installment on an annual basis from 2014 to 2022.

 

63

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

17. Borrowings and Debentures, Continued

 

  (3) Debentures as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, thousands of U.S. dollars and thousands of other currencies)  
    

Purpose

    Maturity    Annual interest
rate (%)		    December 31,
2013		     December 31,
2012		  

Unsecured private bonds

    Refinancing fund    2016    5.00    ￦ 200,000        200,000   

Unsecured private bonds

       2013    4.00      —          200,000   

Unsecured private bonds

       2014    5.00      200,000        200,000   

Unsecured private bonds

    Other fund    2015    5.00      200,000        200,000   

Unsecured private bonds

       2018    5.00      200,000        200,000   

Unsecured private bonds

       2013    6.92      —          250,000   

Unsecured private bonds

       2016    5.54      40,000        40,000   

Unsecured private bonds

       2016    5.92      230,000        230,000   

Unsecured private bonds

    Operating fund    2016    3.95      110,000        110,000   

Unsecured private bonds

       2021    4.22      190,000        190,000   

Unsecured private bonds

    Operating and refinancing fund    2019    3.24      170,000        170,000   

Unsecured private bonds

       2022    3.30      140,000        140,000   

Unsecured private bonds

       2032    3.45      90,000        90,000   

Unsecured private bonds

    Operating fund    2023    3.03      230,000        —     

Unsecured private bonds

       2033    3.22      130,000        —     

Unsecured private bonds(*1)

       2014    4.86      20,000        20,000   

Unsecured private bonds(*1)

       2015    4.62      10,000        10,000   

Unsecured private bonds(*2)

       2013    3.99      —          150,000   

Unsecured private bonds(*2)

       2014    4.53      290,000        290,000   

Unsecured private bonds(*2)

       2014    4.40      100,000        100,000   

Unsecured private bonds(*2)

       2015    4.09      110,000        110,000   

Unsecured private bonds(*2)

       2015    4.14      110,000        110,000   

Unsecured private bonds(*2)

       2017    4.28      100,000        100,000   

Unsecured private bonds(*2)

       2015    3.14      130,000        130,000   

Unsecured private bonds(*2)

       2017    3.27      120,000        120,000   

Foreign global bonds

       2027    6.63      422,120        428,440   
              (USD 400,000 )      (USD 400,000 ) 

Exchangeable bonds(*5,6)

    Refinancing fund    2014    1.75      96,147        405,678   
              (USD 91,109 )     
 		 (USD
332,528		   
) 

Floating rate notes(*3)

    Operating fund    2014    3M Libor + 1.60      263,825        267,775   
              (USD 250,000 )     
 		 (USD
250,000		   
) 

Floating rate notes(*4)

       2014    SOR rate + 1.20      54,129        56,906   
              (SGD 65,000 )      (SGD 65,000 ) 

Swiss unsecured private bonds

       2017    1.75      356,601        351,930   
              (CHF 300,000 )      (CHF 300,000 ) 

Foreign global bonds

       2018    2.13      738,710        749,770   
              (USD 700,000 )      (USD 700,000 ) 

Australia unsecured private bonds

       2017    4.75      281,988        —     
              (AUD 300,000 )      —     

Floating rate notes(*3)

       2020    3M Libor + 0.88      316,590        —     
              (USD 300,000 )      —     

Foreign global bonds(*2)

       2018    2.88      316,590        —     
              (USD 300,000 )      —     
           

 

 

    

 

 

  

Sub-total

               5,996,700        5,620,499   

Less discounts on bonds

               (40,228 )      (43,500 ) 
           

 

 

    

 

 

  
              5,926,472        5,576,999   

Less current portion of bonds

               (1,020,893 )      (597,779 ) 
           

 

 

    

 

 

  
            ￦ 4,905,579        4,979,220   
           

 

 

    

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

17. Borrowings and Debentures, Continued

 

  (*1) Unsecured private bonds were issued by SK Telink Co., Ltd., a subsidiary of the Parent Company.

 

  (*2) Unsecured private bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company.

 

  (*3) As of December 31, 2013, 3M Libor rate is 0.24%.

 

  (*4) As of December 31, 2013, SOR rate is 0.21%.

 

  (*5) On April 7, 2009, the Group issued exchangeable bonds with a maturity of five years in the principal amount of USD 332,528,000 for USD 326,397,463 with a coupon rate of 1.75%.

The Group may redeem the principal amount after three years from the issuance date if the market price exceeds 130% of the exchange price during a predetermined period. The exchange right may be exercised during the period from May 18, 2009 to March 24, 2014.

Exchanges of notes for common shares may be prohibited under the Telecommunications Law or other legal restrictions which restrains foreign governments, individuals and entities from owning more than 49% of the Group’s voting stock. If such 49% ownership limitation is violated due to the exercise of exchange rights, the Group will pay the bond holder a cash settlement which will be determined at the average price of one day after a holder exercises its exchange right or the weighted average price for the following five or twenty business days. Unless either previously redeemed or exchanged, the notes are redeemable at 100% of the principal amount at maturity.

In accordance with a resolution of the general shareholder’s meeting on March 22, 2013 and a resolution of the Board of Directors’ meeting on July 25, 2013, the exchange price has changed from ￦197,760 to ￦189,121.

During 2013, the accumulated principal amount that was claimed for exchange is USD 268,977,000. For the year ended December 31, 2013, exchange of bonds in the principal amount of USD 170,223,000 was claimed and the Group granted 1,241,337 shares of treasury stock. The exchange of bonds in the principal amount of USD 98,754,000 was additionally claimed and cash was paid due to the limitation on foreign ownership under Article 6 of the Telecommunications Business Act. In addition, bonds in the principal amount of USD 6,505,000 were redeemed at par value due to the exercise of the Controlling Company’s early redemption rights.

As of December 31, 2013, exchange for the entire bonds in the principal amount of USD 57,046,000 was claimed and will be redeemed by cash during 2014. The Group recognized ￦134,232 million of financial costs in relation to the exchangeable bonds for the year ended December 31, 2013.

As of December 31, 2013, fair value of the exchangeable bonds is USD 91,108,508 and the exchange price is ￦189,121. The exchange price could be adjusted with the exchange rate of ￦1,383.40 per USD 1.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

18. Long-term Payables - Other

 

  (1) Long-term payables – other as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Payables related to acquisition of W-CDMA licenses

    ￦ 828,721         705,605   

Other(*)

      9,864         9,903   
  

 

 

     

 

 

  
   ￦ 838,585         715,508   
  

 

 

     

 

 

  

 

(*) Other consists of vested compensation claims of employees who have rendered long-term service.

 

  (2) As of December 31, 2013 and 2012, long-term payables – other consist of payables related to the acquisition of W-CDMA licenses for 2.1GHz, 800MHZ, 2.3GHz and 1.8GHz frequencies as follows:

 

(In millions of won)  
     Period of
repayment		      Coupon
rate(*1)		     Annual effective
interest rate(*2)		     December 31,
2013		     December 31,
2012		  

2.1GHz

      2012~2014         3.58 %      5.89 %      17,533        35,067   

800MHz

      2013~2015         3.51 %      5.69 %      138,833        208,250   

2.3GHz

      2014~2016         3.00 %      5.80 %      8,650        8,650   

1.8GHz

      2012~2021         2.43~3.00 %      4.84~5.25 %      942,675        671,625   
         

 

 

    

 

 

  
            1,107,691        923,592   

Present value discount on long-term payables - other

  

     (72,171 )      (60,021 ) 
         

 

 

    

 

 

  
    1,035,520        863,571   

Current portion of long-term payables – other

  

     (206,799 )      (157,966 ) 
         

 

 

    

 

 

  

Carrying amount at December 31, 2013

  

   ￦ 828,721        705,605   
         

 

 

    

 

 

  

 

(*1) The Group applied an annual interest rate equal to the previous year average lending rate of public funds financing account less 1%.
(*2) The Group estimated the discount rate based on its credit ratings and corporate bond yield rate as there is no market interest rate available for long-term account payables-other.

 

  (3) The repayment schedule of long-term payables - other as of December 31, 2013 is as follows:

 

(In millions of won)       
     Amount  

2014

    ￦ 207,668   

2015

      190,134   

2016

      120,718   

2017 and thereafter

      589,171   
  

 

 

  
   ￦ 1,107,691   
  

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

19. Provisions

 

  (1) Changes in provisions for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                                     
     For the year ended December 31, 2013      As of December 31, 2013  
     Beginning
balance		      Increase      Utilization     Reversal     Other     Ending
balance		      Current      Non-current  

Provision for handset subsidy(*1)

    ￦ 353,383         9,416         (308,876 )      —          —          53,923         53,334         589   

Provision for restoration (*2)

      39,895         5,679         (712 )      (4,211 )      (144 )      40,507         13,441         27,066   

Other provisions

      590         —           (85 )      (17 )      (37 )      451         —           451   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  
   ￦ 393,868         15,095         (309,673 )      (4,228 )      (181 )      94,881         66,775         28,106   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  
(In millions of won)                                                     
     For the year ended December 31, 2012      As of December 31, 2012  
     Beginning
balance		      Increase      Utilization     Reversal     Other     Ending
balance		      Current      Non-current  

Provision for handset subsidy

    ￦ 762,238         272,869         (677,416 )      (4,525 )      217        353,383         279,977         73,406   

Provision for restoration

      36,379         3,915         (1,348 )      (32 )      981        39,895         7,256         32,639   

Other provisions

      942         43         (49 )      —          (346 )      590         74         516   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  
   ￦ 799,559         276,827         (678,813 )      (4,557 )      852        393,868         287,307         106,561   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

 

(*1) The Group recognizes a provision for handset subsidies given to the subscribers who purchase handsets on an installment basis.
(*2) In the course of the Group’s activities, base station and other assets are utilized on leased premises which are expected to have costs associated with restoring the location where these assets are situated upon ceasing their use on those premises. The associated cash outflows, which are long-term in nature, are generally expected to occur at the dates of exit of the assets to which they relate. These restoration costs are calculated on the basis of the identified costs for the current financial year, extrapolated into the future based on management’s best estimates of future trends in prices, inflation, and other factors, and are discounted to present value at a risk-adjusted rate specifically applicable to the liability. Forecasts of estimated future provisions are revised in light of future changes in business conditions or technological requirements. The Group records these restoration costs as property and equipments and subsequently allocates them to expense using a systematic and rational method over the asset’s useful life, and records the accretion of the liability as a charge to finance costs.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

19. Provisions, Continued

 

  (2) The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period.

 

    

Key assumptions

Provision for handset subsidy

    estimation based on historical service retention period data

Provision for restoration

    estimation based on inflation assuming demolition of the relevant assets after six years

 

20. Leases

(1) Finance Leases

The Group has leased telecommunication equipment under finance lease agreements with Cisco Systems Capital Korea Ltd. Finance lease liabilities as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Finance Lease Liabilities

      

Current portion of long-term finance lease liabilities

    ￦ 19,351         19,904   

Long-term finance lease liabilities

      3,867         22,036   
  

 

 

     

 

 

  
   ￦ 23,218         41,940   
  

 

 

     

 

 

  

The Group’s related interest and principal as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  
     Minimum
lease
payment		      Present
value		     Minimum
lease
payment		      Present
value		  

Less than 1 year

    ￦ 20,039         19,351        21,375         19,904   

1~5 years

      3,974         3,867        22,744         22,036   
  

 

 

     

 

 

    

 

 

     

 

 

  

Subtotal

      24,013         23,218        44,119         41,940   
  

 

 

     

 

 

    

 

 

     

 

 

  

Current portion of long-term finance lease liabilities

         (19,351 )         (19,904 ) 
     

 

 

       

 

 

  

Long-term finance lease liabilities

    ￦           3,867           22,036   
     

 

 

       

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

20. Leases, Continued

 

(2) Operating Leases

The Group entered into operating leases and sublease agreements in relation to rented office space and the expected future lease payments and lease revenues (included in other non-operating income in the accompanying consolidated statements of income) are as follows:

 

(In millions of won)                            
     2013      2012  
     Lease
payments		      Lease
revenues		      Lease
payments		      Lease
revenues		  

Less than 1 year

    ￦ 32,842         2,422         36,411         1,636   

1~5 years

      72,236         1,074         108,747         1,074   

More than 5 years

      65,013         1,026         69,058         1,026   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 170,091         4,522         214,216         3,736   
  

 

 

     

 

 

     

 

 

     

 

 

  

(3) Sale and Leaseback Transaction

For the year ended December 31, 2013, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. This sale and leaseback transaction is accounted for as an operating lease and the gain on disposal of property and equipment and investment property is recognized as other non-operating income. The Group recognized ￦13,703 million of lease payments in relation to the operating lease agreement and ￦269 million in relation to the sublease agreement. Expected future lease payments and lease revenues are explained in Note 20-(2).

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

21. Defined Benefit Liabilities

 

  (1) Details of defined benefit liabilities as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  

Present value of defined benefit obligations

    ￦ 312,494        244,866   

Fair value of plan assets

      (238,293 )      (158,345 ) 
  

 

 

    

 

 

  
   ￦ 74,201        86,521   
  

 

 

    

 

 

  

 

  (2) Principal actuarial assumptions as of December 31, 2013 and 2012 are as follows:

 

     December 31, 2013    December 31, 2012

Discount rate for defined benefit obligations

    3.06% ~ 4.34%    3.28% ~ 4.75%

Expected rate of salary increase

    3.05% ~ 6.27%    3.00% ~ 5.81%

Discount rate for defined benefit obligation is determined based on the Group’s credit ratings and yield rate of corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio in accordance with salary agreement.

 

  (3) Changes in defined benefit obligations for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    For the year ended December 31  
     2013      2012  

Beginning balance

    ￦ 244,866         188,120   

Current service cost

      89,802         77,060   

Interest cost

      9,370         8,119   

Remeasurement

      

- Demographic assumption

      (394 )       (905 ) 

- Financial assumption

      (12,371 )       7,329   

- Adjustment based on experience

      6,474         13,518   

Benefit paid

      (42,948 )       (46,066 ) 

Others(*)

      17,694         (2,309 ) 
  

 

 

     

 

 

  

Ending balance

    ￦ 312,494         244,866   
  

 

 

     

 

 

  

 

(*) Others for the year ended December 31, 2013 include liabilities of ￦14,703 million transferred due to business combination, ￦(4,141) million for changes in consolidation scope, and transfers to construction in progress. Others for the year ended December 31, 2012 include effects of changes in consolidation scope of ￦(4,185) million in relation to the disposal of Ntreev Soft Co., Ltd. and transfers to construction in progress.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

21. Defined Benefit Liabilities, Continued

 

  (4) Changes in plan assets for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)       
     2013     2012  

Beginning balance

    ￦ 158,345        102,179   

Interest income

      6,332        4,314   

Actuarial gain (loss)

      122        447   

Contributions by employer directly to plan assets

      85,683        60,533   

Benefits paid

      (23,827 )      (9,108 ) 

Others(*)

      11,638        (20 ) 
  

 

 

    

 

 

  

Ending balance

    ￦ 238,293        158,345   
  

 

 

    

 

 

  

 

(*) Others include assets of ￦14,334 million transferred due to business combination and effects of changes in consolidation scope of ￦(3,074) million for the year ended December 31, 2013.

The Group expects to make a contribution of ￦56,973 million to the defined benefit plans during the next financial year.

 

  (5) Expenses recognized in profit and loss (included in labor cost in the accompanying consolidated statements of income) and capitalized into construction-in-progress for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)       
     2013     2012  

Current service cost

    ￦ 89,802        77,060   

Interest cost

      9,370        8,119   

Interest income

      (6,332 )      (4,314 ) 
  

 

 

    

 

 

  
   ￦ 92,840        80,865   
  

 

 

    

 

 

  

The above costs are recognized in labor cost, research and development, or capitalized into construction-in-progress.

 

  (6) Details of plan assets as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)       
     December 31,
2013		      December 31,
2012		  

Equity instruments

    ￦ 713         1,221   

Debt instruments

      48,901         34,269   

Short-term financial instruments, etc.

      188,679         122,855   
  

 

 

     

 

 

  
   ￦ 238,293         158,345   
  

 

 

     

 

 

  

Actual return on plan assets for the years ended December 31, 2013 and 2012 amounted to ￦6,472 million and ￦4,761 million, respectively.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

21. Defined Benefit Liabilities, Continued

 

  (7) As of December 31, 2013, effects on defined benefit obligations if each of significant actuarial assumptions changes within potential reasonable range are as follows:

 

(In millions of won)             
     Increase     Decrease  

Discount rate (if changed by 1%)

    ￦ (22,864 )      25,216   

Expected rate of salary increase

      25,305        (23,230 ) 

The sensitivity analysis does not consider dispersion of all cashflows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

Weighted average durations of defined benefit obligations as of December 31, 2013 and 2012 are 9.12 years and 9.04 years, respectively.

 

22. Derivative Instruments

 

  (1) Currency swap contracts under cash flow hedge accounting as of December 31, 2013 are as follows:

 

(In thousands of foreign currencies)

Borrowing
date

   

Hedged item

   

Hedged risk

   

Contract
type

   

Financial

institution

   

Duration of
contract

Jul. 20,

2007

    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)    Foreign currency risk    Currency swap    Morgan Stanley and five other banks    Jul. 20, 2007 ~ Jul. 20, 2027

Dec. 15,

2011

    Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000)    Foreign currency risk and the interest rate risk    Currency interest rate swap    United Overseas Bank    Dec. 15, 2011 ~ Dec. 12, 2014

Dec. 15,

2011

    Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 250,000)    Foreign currency risk and the interest rate risk    Currency interest rate swap    DBS Bank and Citi Bank    Dec. 15, 2011 ~ Dec. 12, 2014

Jun. 12,

2012

    Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)    Foreign currency risk    Currency swap    Citibank and five other banks    Jun. 12, 2012 ~ Jun.12, 2017

Nov. 1,

2012

    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)    Foreign currency risk    Currency swap    Barclays and nine other banks    Nov. 1, 2012~ May. 1, 2018

Jan. 17,

2013

    Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)    Foreign currency risk    Currency swap    BNP Paribas and three other banks    Jan. 17, 2013 ~ Nov. 17, 2017

Mar. 7,

2013

    Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)    Foreign currency risk and the interest rate risk    Currency interest rate swap    DBS Bank    Mar. 7, 2013 ~ Mar. 7, 2020

Oct. 29,

2013

    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)    Foreign currency risk    Currency swap    Korea Development Bank and others    Oct.29, 2013 ~ Oct. 26, 2018

Dec. 16,

2013

    Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of USD 94,736)    Foreign currency risk    Currency swap    Deutsche bank    Dec.16, 2013 ~ Apr. 29, 2022

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

22. Derivative Instruments, Continued

 

  (2) As of December 31, 2013, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows:

 

(In millions of won and thousands of foreign currencies)  
     Fair value  
     Cash flow hedge                

Hedged item

   

Accumulated
gain (loss) on
valuation of
derivatives

    

Tax
effect

    

Accumulated
foreign
currency
translation
gain (loss)

    

Others

(*1)

     

Held for
trading
purpose

     

Total

  

Current assets:

               

Convertible bonds (available-for-sale securities)

(Korean won denominated bonds face value of ￦1,500 million)(*2)

    ￦ —          —          —          —           10         10   

Non-current assets:

               

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds

face value of USD 400,000)

      (42,772 )      (13,656 )      (34,853 )      129,806         —           38,525   

Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds

face value of USD 300,000)

      8,822        2,816        (8,451 )      —           —           3,187   
              

 

 

  

Total assets

                ￦ 41,722   
              

 

 

  

Current liabilities:

               

Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds

face value of USD 250,000)

      5,871        1,875        (25,602 )      —           —           (17,856 ) 

Floating-to-fixed cross currency interest rate swap (Singapore dollar denominated bonds face value of SGD 65,000)

      7        2        (3,324 )      —           —           (3,315 ) 

Non-current liabilities:

               

Fixed-to-fixed cross currency swap

(Swiss Franc denominated bonds

face value of CHF 300,000)

      (5,275 )      (1,684 )      (6,902 )      —           —           (13,861 ) 

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds

face value of USD 700,000)

      (8,400 )      (2,682 )      (24,435 )      —           —           (35,517 ) 

Fixed-to-fixed cross currency swap

(Australia dollar denominated bonds face value of AUD 300,000)

      4,262        1,361        (53,295 )      —           —           (47,672 ) 

Fixed-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds

face value of USD 300,000)

      (1,128 )      —          (1,830 )      —           —           (2,958 ) 

Fixed-to-fixed long-term borrowings

(U.S. dollar denominated bonds

face value of USD 94,736)

      (2,548 )      (813 )      201        —           —           (3,160 ) 
              

 

 

  

Total liabilities

                ￦ (124,339 ) 
              

 

 

  

 

(*1) Cash flow hedge accounting has been applied to the relevant contract from May 12, 2010. Others represent gain on valuation of currency swap incurred prior to the application of hedge accounting and was recognized through profit or loss prior to the year ended December 31, 2012.
(*2) Fair value of the conversion option of convertible bonds held by SK Communications Co., Ltd., a subsidiary, amounting to ￦10 million was accounted for as derivative financial assets.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

23. Share Capital and Capital Surplus (Deficit) and Other Capital Adjustments

The Parent Company’s outstanding share capital consists entirely of common stock with a par value of ￦500. The number of authorized, issued and outstanding common shares and capital surplus (deficit) and other capital adjustments As of December 31, 2013 and 2012 are as follows:

 

(In millions of won, except for share data)             
     December 31, 2013     December 31, 2012  

Authorized shares

      220,000,000        220,000,000   

Issued shares(*)

      80,745,711        80,745,711   

Share capital

     

Common stock

    ￦ 44,639        44,639   

Capital surplus (deficit) and other capital adjustments:

     

Paid-in surplus

      2,915,886        2,915,887   

Treasury stock

      (2,139,683 )      (2,410,451 ) 

Loss on disposal of treasury stock

      (18,087 )      (18,855 ) 

Hybrid bonds

      398,518        —     

Others(*2)

      (839,126 )      (775,464 ) 
  

 

 

    

 

 

  
   ￦ 317,508        (288,883 ) 
  

 

 

    

 

 

  

 

(*1) For the years ended December 31, 2003, 2006 and 2009, the Parent Company retired 7,002,235 shares, 1,083,000 shares and 448,000 shares, respectively, of treasury stock which reduced its retained earnings before appropriation in accordance with the Korean Commercial Law. As a result, the Parent Company’s outstanding shares have decreased without change in the share capital.
(*2) Others primarily consist of net losses on disposals of businesses and the excess of the consideration paid by the Group over the carrying values of net assets acquired from common control transactions with entities within the control of the Controlling Entity.

Changes in number of shares outstanding for the years ended December 31, 2013 and 2012 are as follows:

 

(In shares)    2013      2012  
     Issued
shares		      Treasury
stock		     Outstanding
shares		      Issued
shares		      Treasury
stock		      Outstanding
shares		  

Beginning issued shares

      80,745,711         11,050,712        69,694,999         80,745,711         11,050,712         69,694,999   

Disposal of treasury stock

      —           (1,241,337 )      1,241,337         —           —           —     
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Ending issued shares

      80,745,711         9,809,375        70,936,336         80,745,711         11,050,712         69,694,999   
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

24. Treasury Stock

The Parent Company acquired treasury stock to provide stock dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices when needed.

Treasury stock as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, shares)              
     December 31, 2013      December 31, 2012  

Number of shares

      9,809,375         11,050,712   

Amount

    ￦ 2,139,683         2,410,451   

In addition, the Parent Company granted 1,241,337 shares of treasury stock for ￦270,768 million from May 14, 2013 to October 24, 2013 as a result of exercise of exchange rights by the holders of exchangeable bonds.

 

25. Hybrid Bond

The Parent Company issued hybrid bond at face amount on June 7, 2013 and details as of December 31, 2013 are as follows:

 

(In millions of won)                             
     Type    Issuance date    Maturity    Annual
interest
rate(%)		      Amount  

Private hybrid bond

    Blank coupon unguaranteed
subordinated bond		    June 7, 2013    June 7, 2073(*1)      4.21(*2)       ￦ 400,000   

Issuance costs

                  (1,482 ) 
              

 

 

  
               ￦ 398,518   
              

 

 

  

Hybrid bond issued by the Parent Company is classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders.

 

(*1) The Parent Company has a right to extend the maturity under the same issuance terms without any notice or announcement. The Parent Company also has the right to defer interest payment at its sole discretion.

 

(*2) Annual interest rate is adjusted after five years from the issuance date.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

26. Retained Earnings

 

  (1) Retained earnings As of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Appropriated:

      

Legal reserve

    ￦ 22,320         22,320   

Reserve for research & manpower development

      155,766         220,000   

Reserve for business expansion

      9,376,138         9,106,138   

Reserve for technology development

      2,271,300         1,901,300   
  

 

 

     

 

 

  
     11,825,524         11,249,758   

Unappropriated

      1,276,971         874,899   
  

 

 

     

 

 

  
   ￦ 13,102,495         12,124,657   
  

 

 

     

 

 

  

 

  (2) Legal reserve

The Korean Commercial Code requires the Parent Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. The legal reserve may not be utilized for cash dividends, but may only be used to offset a future deficit, if any, or may be transferred to share capital.

 

  (3) Reserve for research & manpower development

The reserve for research and manpower development was appropriated in order to recognize certain tax deductible benefits through the early recognition of future expenditures for tax purposes. These reserves will be reversed from appropriated and retained earnings in accordance with the relevant tax laws. Such reversal will be included in taxable income in the year of reversal.

 

27. Reserves

 

  (1) Details of reserves, net of taxes, as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  

Unrealized fair value of available-for-sale financial assets

    ￦ 208,529        207,063   

Other comprehensive income of investments in associates

      (172,117 )      (175,044 ) 

Unrealized fair value of derivatives

      (35,429 )      (46,652 ) 

Foreign currency translation differences for foreign operations

      (13,253 )      (11,003 ) 
  

 

 

    

 

 

  
   ￦ (12,270 )      (25,636 ) 
  

 

 

    

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

27. Reserves, Continued

 

  (2) Changes in reserves for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013  
     Unrealized fair
value of
available-for-
sale financial
assets		     Other compre-
hensive income
of investments
in associates		     Unrealized
fair value of
derivatives		     Foreign currency
translation
differences for
foreign
operations		     Total  

Balance at January 1, 2013

    ￦ 207,063        (175,044 )      (46,652 )      (11,003 )      (25,636 ) 

Changes

      2,747        1,254        14,488        (2,250 )      16,239   

Tax effect

      (1,281 )      1,673        (3,265 )      —          (2,873 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2013

    ￦ 208,529        (172,117 )      (35,429 )      (13,253 )      (12,270 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
(In millions of won)    2012  
     Unrealized fair
value of
available-for-
sale financial
assets		     Other compre-
hensive income
of investments
in associates		     Unrealized
fair value of
derivatives		     Foreign currency
translation
differences for
foreign
operations		     Total  

Balance at January 1, 2012

    ￦ 354,951        (93,599 )      (25,100 )      23,812        260,064   

Changes

      (194,929 )      (75,448 )      (26,114 )      (34,815 )      (331,306 ) 

Tax effect

      47,041        (5,997 )      4,562        —          45,606   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at December 31, 2012

    ￦ 207,063        (175,044 )      (46,652 )      (11,003 )      (25,636 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  (3) Details of changes in unrealized fair value of available-for-sale financial assets for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013  
     Before taxes     Income tax effect     After taxes  

Balance at January 1, 2013

    ￦ 272,917        (65,854 )      207,063   

Amount recognized as other comprehensive income during the year

      3,879        (1,529 )      2,350   

Amount reclassified through profit or loss

      (1,133 )      249        (884 ) 
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2013

    ￦ 275,663        (67,134 )      208,529   
  

 

 

    

 

 

    

 

 

  
(In millions of won)    2012  
     Before taxes     Income tax effect     After taxes  

Balance at January 1, 2012

    ￦ 467,846        (112,895 )      354,951   

Amount recognized as other comprehensive income during the year

      (43,135 )      10,249        (32,886 ) 

Amount reclassified through profit or loss

      (151,794 )      36,792        (115,002 ) 
    

 

 

    

 

 

  

Balance at December 31, 2012

    ￦ 272,917        (65,854 )      207,063   
    

 

 

    

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

27. Reserves, Continued

 

  (4) Details of changes in unrealized valuation of derivatives for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013  
     Before taxes     Income tax effect     After taxes  

Balance at January 1, 2013

    ￦ (62,698 )      16,046        (46,652 ) 

Amount recognized as other comprehensive income during the year

      11,833        (3,001 )      8,832   

Amount reclassified through profit or loss

      2,654        (263 )      2,391   
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2013

    ￦ (48,211 )      12,782        (35,429 ) 
  

 

 

    

 

 

    

 

 

  
(In millions of won)    2012  
     Before taxes     Income tax effect     After taxes  

Balance at January 1, 2012

    ￦ (36,583 )      11,483        (25,100 ) 

Amount recognized as other comprehensive income during the year

      (29,883 )      4,327        (25,556 ) 

Amount reclassified through profit or loss

      3,768        236        4,004   
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2012

    ￦ (62,698 )      16,046        (46,652 ) 
  

 

 

    

 

 

    

 

 

  

 

28. Other Operating Expenses

Details of other operating expenses for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Other Operating Expenses:

     

Communication expenses

    ￦ 62,193        69,585   

Utilities

      227,593        197,559   

Taxes and dues(*)

      29,873        91,745   

Repair

      252,344        223,247   

Research and development

      352,385        304,557   

Training

      40,446        39,407   

Bad debt for accounts receivables – trade

      53,344        52,393   

Reversal of allowance for doubtful accounts

      (359 )      (5,902 ) 

Travel

      31,762        31,380   

Supplies and other

      189,042        143,816   
  

 

 

    

 

 

  
   ￦ 1,238,623        1,147,787   
  

 

 

    

 

 

  

 

(*) Penalties in taxes and dues until the year ended December 31, 2012 were included in taxes and dues until the year ended December 31, 2012 while penalties were included in others (other non-operating expense) starting from the year ended December 31, 2013.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

29. Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Other Non-operating Income:

      

Fees

    ￦ 7,303         3,982   

Gain on disposal of property and equipment and intangible assets

      7,991         162,590   

Others(*1)

      59,173         29,338   
  

 

 

     

 

 

  
   ￦ 74,467         195,910   
  

 

 

     

 

 

  

Other Non-operating Expenses:

      

Loss on impairment of property and equipment, and intangible assets

    ￦ 13,770         37,007   

Loss on disposal of property and equipment and intangible assets

      267,468         15,117   

Donations

      82,057         81,330   

Bad debt for accounts receivable – other

      22,155         30,107   

Others(*2)

      121,723         24,743   
  

 

 

     

 

 

  
   ￦ 507,173         188,304   
  

 

 

     

 

 

  

 

(*1) Primarily comprised of VAT adjustments and compensation for typhoon damage.

 

(*2) Primarily comprised of penalties and legal costs.

 

30. Finance Income and Costs

 

  (1) Details of finance income and costs for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Finance Income:

      

Interest income

    ￦ 65,560         97,318   

Dividends

      10,197         27,732   

Gain on foreign currency transactions

      11,041         6,735   

Gain on foreign currency translations

      4,401         4,065   

Gain on disposal of long-term investment securities

      9,300         282,605   

Gain on settlement of derivatives

      7,716         26,103   

Gain on valuation of financial asset at fair value through profit or loss

      5,177         —     
  

 

 

     

 

 

  
   ￦ 113,392         444,558   
  

 

 

     

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

30. Finance Income and Costs, Continued

 

 

(In millions of won)              
     2013      2012  

Finance Costs:

      

Interest expense

    ￦ 331,834         412,379   

Loss on foreign currency transactions

      16,429         7,204   

Loss on foreign currency translations

      2,635         4,608   

Loss on disposal of long-term investment securities

      31,909         10,802   

Loss on valuation of derivatives

      2,106         286   

Loss on settlement of derivatives

      —           1,232   

Loss on valuation of financial asset at fair value through profit or loss

      —           1,262   

Loss relating to financial liability at fair value through profit or loss(*1)

      134,232         7,793   

Loss on redemption of debentures

      —           2,099   

Other finance costs(*2)

      52,058         190,620   
  

 

 

     

 

 

  
   ￦ 571,203         638,285   
  

 

 

     

 

 

  

 

(*1) Loss relating to financial liabilities at fair value through profit or loss for the year ended December 31, 2013 related to exchangeable bonds (face amount of USD 326,397,463) due to the valuation loss from rising stock prices and loss on redemption of debenture upon the exchange claims.
(*2) See note 30(5).

 

  (2) Details of interest income included in finance income for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Interest income on cash equivalents and deposits

    ￦ 41,907         57,029   

Interest income on installment receivables and others

      23,653         40,289   
  

 

 

     

 

 

  
   ￦ 65,560         97,318   
  

 

 

     

 

 

  

 

  (3) Details of interest expense included in finance costs for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Interest expense on bank overdrafts and borrowings

    ￦ 28,600         147,741   

Interest expense on debentures

      258,962         209,545   

Interest on finance lease liabilities

      1,333         2,621   

Others

      42,939         52,472   
  

 

 

     

 

 

  
   ￦ 331,834         412,379   
  

 

 

     

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

30. Finance Income and Costs, Continued

 

 

  (4) Finance income and costs by categories of financial instruments for the years ended December 31, 2013 and 2012 are as follows. Bad debt expenses (reversal of allowance for doubtful accounts) for accounts receivable – trade, loans and receivables are excluded and are explained in note 7.

(i) Finance income and costs

 

(In millions of won)  
     2013      2012  
     Finance
income		      Finance
costs		      Finance
income		      Finance
costs		  

Financial Assets:

            

Financial assets at fair value through profit or loss

    ￦ 5,177         276         —           1,262   

Available-for-sale financial assets

      23,311         83,967         317,915         201,423   

Loans and receivables

      62,211         16,479         90,177         1,789   

Derivative financial instruments designated as hedged item

      7,716         1,830         26,103         1,516   
  

 

 

     

 

 

     

 

 

     

 

 

  
     98,415         102,552         434,195         205,990   
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial Liabilities:

            

Financial liabilities at fair value through profit or loss

      —           134,232         —           7,793   

Financial liabilities measured at amortized cost

      14,977         334,419         10,363         424,502   
  

 

 

     

 

 

     

 

 

     

 

 

  
     14,977         468,651         10,363         432,295   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 113,392         571,203         444,558         638,285   
  

 

 

     

 

 

     

 

 

     

 

 

  

(ii) Other comprehensive income

 

(In millions of won)             
     2013     2012  

Financial Assets:

     

Available-for-sale financial assets

    ￦ 2,009        (149,082 ) 

Derivative financial instruments designated as hedged item

      12,240        (23,527 ) 
  

 

 

    

 

 

  
     14,249        (172,609 ) 
  

 

 

    

 

 

  

Financial Liabilities:

     

Derivative financial instruments designated as hedged item

      (1,018 )      166   
  

 

 

    

 

 

  
     (1,018 )      166   
  

 

 

    

 

 

  
   ￦ 13,231        (172,443 ) 
  

 

 

    

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

30. Finance Income and Costs, Continued

 

  (5) Details of impairment losses for financial assets for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Available-for-sale financial assets

    ￦ 52,058         190,620   

Bad debt for accounts receivable – trade

      53,344         52,351   

Bad debt for accounts receivable – other

      22,155         30,107   
  

 

 

     

 

 

  
   ￦ 127,557         273,078   
  

 

 

     

 

 

  

 

31. Income Tax Expense for Continuing Operations

 

  (1) Income tax expenses for continuing operations for the years ended December 31, 2013 and 2012 consist of the following:

 

(In millions of won)             
     2013     2012  

Current tax expense

     

Current tax payable

    ￦ 145,457        200,836   

Adjustments recognized in the period for current tax of prior periods

      (16,696 )      (69,634 ) 
  

 

 

    

 

 

  
     128,761        131,202   
  

 

 

    

 

 

  

Deferred tax expense

     

Changes in net deferred tax assets

      266,601        103,480   

Tax directly charged to equity

      (3,584 )      50,053   

Changes in scope of consolidation

      8,919        (3,611 ) 

Others (exchange rate differences, etc.)

      100        7,083   
  

 

 

    

 

 

  
     272,036        157,005   
  

 

 

    

 

 

  

Income tax for continuing operation

    ￦ 400,797        288,207   
  

 

 

    

 

 

  

 

  (2) The difference between income taxes computed using the statutory corporate income tax rates and the recorded income taxes for the years ended December 31, 2013 and 2012 is attributable to the following:

 

(In millions of won)             
     2013     2012  

Income taxes at statutory income tax rates

    ￦ 441,697        367,661   

Non-taxable income

      (35,632 )      (5,039 ) 

Non-deductible expenses

      74,311        19,410   

Tax credit and tax reduction

      (37,893 )      (72,947 ) 

Changes in unrealizable deferred taxes

      (13,285 )      5,723   

Others (Income tax refund, tax effect from statutory tax rate change and tax rate differences, etc.)

      (28,401 )      (26,601 ) 
  

 

 

    

 

 

  

Income tax for continuing operation

    ￦ 400,797        288,207   
  

 

 

    

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Income Tax Expense for Continuing Operations, Continued

 

Tax rates applied for the above taxable income for the years ended December 31, 2013 and 2012 above are corporate income tax rates applied for taxable income in Republic of Korea, of which SK Telecom Co., Ltd., the Parent Company, is located.

 

  (3) Deferred taxes directly charged to (credited to) equity for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

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

    ￦ (1,281 )      47,041   

Share of other comprehensive income of associates

      1,673        (5,997 ) 

Gain or loss on valuation of derivatives

      (3,265 )      4,562   

Remeasurement of defined benefit obligations

      (466 )      4,447   

Loss on disposal of treasury stock

      (245 )      —     
  

 

 

    

 

 

  
   ￦ (3,584 )      50,053   
  

 

 

    

 

 

  

 

  (4) Details of changes in deferred tax assets (liabilities) for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013  
     Beginning     Changes in
scope of
consolidation		     Deferred tax
expense
(income)		     Directly added
to (deducted
from) equity		     Other      Ending  

Deferred tax assets (liabilities) related to temporary differences

              

Allowance for doubtful accounts

    ￦ 51,972        (2,323 )      6,773        —          5         56,427   

Accrued interest income

      (1,782 )      (756 )      (293 )      —          —           (2,831 ) 

Available-for-sale financial assets

      13,419        (45 )      (12,682 )      (1,281 )      —           (589 ) 

Investments in subsidiaries and associates

      66,969        51        (113,541 )      1,673        4         (44,844 ) 

Property and equipment (depreciation)

      (272,940 )      4,940        (65,633 )      —          —           (333,633 ) 

Provisions

      86,567        206        (72,470 )      —          —           14,303   

Retirement benefit obligation

      16,849        151        (445 )      (466 )      —           16,089   

Gain or loss on valuation of derivatives

      15,894        —          150        (3,265 )      —           12,779   

Gain or loss on foreign currency translation

      19,652        —          (80 )      —          —           19,572   

Tax free reserve for research and manpower development

      (31,093 )      —          (8,918 )      —          —           (40,011 ) 

Goodwill relevant to leased line

      68,675        —          (37,650 )      —          —           31,025   

Unearned revenue (activation fees)

      97,110        —          (43,698 )      —          —           53,412   

Others

      (23,804 )      (11,654 )      80,350        (245 )      91         44,738   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  
     107,488        (9,430 )      (268,137 )      (3,584 )      100         (173,563 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards

              

Tax loss carryforwards

      16,609        18,350        (3,899 )      —          —           31,060   

Tax credit carryforwards

      1        (1 )      —          —          —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  
     16,610        18,349        (3,899 )      —          —           31,060   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  
   ￦ 124,098        8,919        (272,036 )      (3,584 )      100         (142,503 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Income Tax Expense for Continuing Operations, Continued

 

(In millions of won)  
     2012  
     Beginning     Changes in
scope of
consolidation		     Deferred tax
expense
(income)		     Directly added
to (deducted
from) equity		     Other     Ending  

Deferred tax assets (liabilities) related to temporary differences

             

Allowance for doubtful accounts

    ￦ 41,451        (126 )      10,657        —          (10 )      51,972   

Accrued interest income

      (1,400 )      29        (411 )      —          —          (1,782 ) 

Available-for-sale financial assets

      (79,778 )      (154 )      46,310        47,041        —          13,419   

Investments in subsidiaries and associates

      33,439        —          39,549        (5,997 )      (22 )      66,969   

Property and equipment (depreciation)

      (210,720 )      —          (62,220 )      —          —          (272,940 ) 

Provisions

      185,266        (31 )      (98,667 )      —          (1 )      86,567   

Retirement benefit obligation

      19,245        (801 )      (6,042 )      4,447        —          16,849   

Gain or loss on valuation of derivatives

      11,216        —          116        4,562        —          15,894   

Gain or loss on foreign currency translation

      9,210        6        10,436        —          —          19,652   

Tax free reserve for research and manpower development

      (53,460 )      220        22,147        —          —          (31,093 ) 

Goodwill relevant to leased line

      116,287        —          (47,612 )      —          —          68,675   

Unearned revenue (activation fees)

      116,512        —          (19,402 )      —          —          97,110   

Others

      35,116        (1,981 )      (64,056 )      —          7,117        (23,804 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     222,384        (2,838 )      (169,195 )      50,053        7,084        107,488   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Deferred tax assets related to unused tax loss carryforwards and unused tax credit carryforwards

             

Tax loss carryforwards

      4,419        —          12,190        —          —          16,609   

Tax credit carryforwards

      774        (773 )      —          —          —          1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
     5,193        (773 )      12,190        —          —          16,610   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 227,577        (3,611 )      (157,005 )      50,053        7,084        124,098   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  (5) Details of temporary differences, unused tax losses and unused tax credits which are not recognized as deferred tax assets (liabilities), as the Group does not believe it is probable that the deferred tax assets will be realizable in the future, in the consolidated statements of financial position as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)  
     December 31, 2013      December 31, 2012  

Allowance for doubtful accounts

    ￦ 152,341         145,053   

Investments in subsidiaries and associates

      719,974         869,486   

Other temporary differences

      221,264         157,664   

Unused tax loss carryforwards

      669,890         792,796   

Unused tax credit carryforwards

      —           141   
  

 

 

     

 

 

  
   ￦ 1,763,469         1,965,140   
  

 

 

     

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Income Tax Expense for Continuing Operations, Continued

 

  (6) The expirations of the tax loss carryforwards which are not recognized as deferred tax assets as of December 31, 2013 are as follows:

 

(In millions of won)       
     Tax loss carryforwards  

Less than 1 year

    ￦ 2,746   

1 ~ 2 years

      1,087   

2 ~ 3 years

      4,894   

More than 3 years

      661,163   
  

 

 

  
   ￦ 669,890   
  

 

 

  

 

32. Earnings per Share

 

  (1) Basic earnings per share

 

  1) Basic earnings per share for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In millions of won, shares)             
     2013     2012  

Basic earnings per share attributable to owners of the Parent Company from continuing operation:

  

Profit attributable to owners of the Parent Company from continuing operations

    ￦ 1,463,097        1,255,526   

Interest on hybrid bonds

      (8,420 )      —     
  

 

 

    

 

 

  

Profit attributable to owners of the Parent Company from continuing operations on common shares

      1,454,677        1,255,526   

Weighted average number of common shares outstanding

      70,247,592        69,694,999   
  

 

 

    

 

 

  

Basic earnings per share from continuing operations (In won)

    ￦ 20,708        18,015   
  

 

 

    

 

 

  

Basic earnings per share attributable to owners of the Parent Company:

     

Profit attributable to owners of the Parent Company

    ￦ 1,638,964        1,151,705   

Interest on hybrid bond

      (8,420 )      —     
  

 

 

    

 

 

  

Profit attributable to owners of the Parent Company on common shares

      1,630,544        1,151,705   

Weighted average number of common shares outstanding

      70,247,592        69,694,999   
  

 

 

    

 

 

  

Basic earnings per share (In won)

    ￦ 23,211        16,525   
  

 

 

    

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

32. Earnings per Share, Continued

 

  (1) Basic earnings per share, Continued

 

 

  2) Profit attributable to owners of the Parent Company from continuing operation for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In millions of won)              
     2013      2012  

Profit attributable to owners of the Parent Company

    ￦ 1,638,964         1,151,705   

Results of discontinued operation attributable to owners of the Parent Company

      175,867         (103,821 ) 
  

 

 

     

 

 

  

Profit attributable to owners of the Parent Company from continuing operation

    ￦ 1,463,097         1,255,526   
  

 

 

     

 

 

  

 

  3) The weighted average number of common shares outstanding for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In shares)             
     2013     2012  

Outstanding common shares

      80,745,711        80,745,711   

Weighted number of treasury stocks

      (10,498,119 )      (11,050,712 ) 
  

 

 

    

 

 

  

Weighted average number of common shares outstanding

      70,247,592        69,694,999   
  

 

 

    

 

 

  

 

  (2) Diluted earnings per share

 

  1) Diluted earnings per share for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In millions of won, shares)              
     2013      2012  

Diluted earnings per share attributable to owners of the Parent Company from continuing operations:

  

Profit attributable to owners of the Parent Company from continuing operations on common shares

    ￦ 1,454,677         1,255,526   

Gain relating to exchangeable bonds(*)

      —           10,799   

Diluted profit attributable to owners of the Parent Company from continuing operations on common shares

      1,454,677         1,266,325   

Weighted average number of common shares outstanding

      70,247,592         72,021,148   
  

 

 

     

 

 

  

Diluted earnings per share from continuing operations (In won)

    ￦ 20,708         17,583   
  

 

 

     

 

 

  

Diluted earnings per share attributable to owners of the Parent Company:

  

Diluted profit attributable to owners of the Parent Company

    ￦ 1,630,544         1,151,705   

Gain relating to exchangeable bonds(*)

      —           10,799   

Diluted profit attributable to owners of the Parent Company on common shares

      1,630,544         1,162,504   

Weighted average number of common shares outstanding

      70,247,592         72,021,148   
  

 

 

     

 

 

  

Diluted earnings per share (In won)

    ￦ 23,211         16,141   
  

 

 

     

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

32. Earnings per Share, Continued

 

  (2) Diluted earnings per share, Continued

 

 

  (*) The number of common shares outstanding in respect of the exchangeable common shares of exchangeable bonds is excluded from the diluted earnings per share calculation for the year ended December 31, 2013 as the effect of exchangeable bond would have been anti-dilutive (the weighted average number of diluted shares of 688,744); thus, diluted earnings per share for the year ended December 31, 2013 is the same as basic earnings per share.

 

  2) Adjusted weighted average number of common shares outstanding for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In shares)              
     2013      2012  

Weighted average number of common shares outstanding

      70,247,592         69,694,999   

Effect of exchangeable bonds(*)

      —           2,326,149   
  

 

 

     

 

 

  

Adjusted weighted average number of common shares outstanding

      70,247,592         72,021,148   
  

 

 

     

 

 

  

(*) Effect of exchangeable bonds represents weighted average number of common shares outstanding in respect of the exchangeable common shares of exchangeable bonds, which could be exchanged to treasury stock.

 

  (3) Basic earnings (loss) per share from discontinued operation

 

(In millions of won, shares)              
     2013      2012  

Results of discontinued operation attributable to owners of the Parent Company

    ￦ 175,867         (103,821 ) 

Weighted average number of common shares outstanding

      70,247,592         69,694,999   
  

 

 

     

 

 

  

Basic earnings (loss) per share (In won)

    ￦ 2,503         (1,490 ) 
  

 

 

     

 

 

  

Diluted earnings (loss) per share from discontinued operation is the same as basic loss per share from discontinued operation.

 

87

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

33. Dividends

 

  (1) Details of dividends declared

Details of dividend declared for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won, except for face value and share data)  

Year

   

Dividend type

    Number of shares
outstanding		      Face value
(In won)		      Dividend
ratio		     Dividends  

2013

    Cash dividends (Interim)      70,508,482         500         200 %    ￦ 70,508   
   Cash dividends (Year-end)      70,936,336         500         1,680 %      595,865   
             

 

 

  
              ￦ 666,373   
             

 

 

  

2012

    Cash dividends (Interim)      69,694,999         500         200 %    ￦ 69,695   
   Cash dividends (Year-end)      69,694,999         500         1,680 %      585,438   
             

 

 

  
              ￦ 655,133   
             

 

 

  

 

  (2) Dividends payout ratio

Dividends payout ratios for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)

Year

    Dividends calculated      Profit      Dividends payout ratio

2013

    ￦ 666,373         1,638,964       40.66%

2012

    ￦ 655,133         1,151,705       56.88%

 

  (3) Dividends yield ratio

Dividends yield ratios for the years ended December 31, 2013 and 2012 are as follows:

 

(In won)

Year

   

Dividend type

    Dividend per
share		      Closing price at
settlement		      Dividend yield
ratio

2013

    Cash dividend      9,400         230,000       4.09%

2012

    Cash dividend      9,400         152,500       6.16%

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

34. Categories of Financial Instruments

 

  (1) Financial assets by categories as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                   
     December 31, 2013  
     Financial
assets at
fair value
through
profit or
loss		      Available-
for-sale
financial
assets		      Loans and
receivables		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Cash and cash equivalents

    ￦ —           —           1,398,639         —           1,398,639   

Financial instruments

      —           —           319,616         —           319,616   

Short-term investment securities

      —           106,068         —           —           106,068   

Long-term investment securities(*1)

      20,532         947,995         —           —           968,527   

Accounts receivable – trade

      —           —           2,270,471         —           2,270,471   

Loans and other receivables(*2)

      —           —           1,044,529         —           1,044,529   

Derivative financial assets(*3)

      10         —           —           41,712         41,722   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 20,542         1,054,063         5,033,255         41,712         6,149,572   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(In millions of won)                                   
     December 31, 2012  
     Financial
assets at
fair value
through
profit or
loss		      Available-
for-sale
financial
assets		      Loans and
receivables		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Cash and cash equivalents

    ￦ —           —           920,125         —           920,125   

Financial instruments

      —           —           514,561         —           514,561   

Short-term investment securities

      —           60,127         —           —           60,127   

Long-term investment securities(*1)

      15,356         938,356         —           —           953,712   

Accounts receivable – trade

      —           —           1,968,297         —           1,968,297   

Loans and other receivables(*2)

      —           —           981,693         —           981,693   

Derivative financial assets(*3)

      689         —           —           61,959         62,648   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 16,045         998,483         4,384,676         61,959         5,461,163   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(*1) Long-term investment securities of which the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured, were designated as financial assets at fair value through profit or loss.

 

89

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

34. Categories of Financial Instruments, Continued

 

(*2) Details of loans and other receivables as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Short-term loans

    ￦ 79,395         84,908   

Accounts receivable – other

      643,603         582,098   

Accrued income

      11,941         8,715   

Other current assets

      2,548         431   

Long-term loans

      57,442         69,299   

Guarantee deposits

      249,600         236,242   
  

 

 

     

 

 

  
   ￦ 1,044,529         981,693   
  

 

 

     

 

 

  

 

(*3) Derivative financial assets classified as financial assets at fair value through profit or loss is the fair value of conversion right of convertible bonds held by SK Communications Co., Ltd., a subsidiary of the Parent Company.

 

  (2) Financial liabilities by categories as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)    December 31, 2013  
     Financial
liabilities at
fair value
through
profit or
loss		      Financial
liabilities
measured at
amortized
cost		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Accounts payable – trade

    ￦ —           214,716         —           214,716   

Derivative financial liabilities

      —           —           124,339         124,339   

Borrowings

      —           386,192         —           386,192   

Debentures(*1)

      96,147         5,830,920         —           5,927,067   

Accounts payable – other and others(*2)

      —           3,949,794         —           3,949,794   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 96,147         10,381,622         124,339         10,602,108   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(In millions of won)    December 31, 2012  
     Financial
liabilities at
fair value
through
profit or
loss		      Financial
liabilities
measured at
amortized
cost		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Accounts payable – trade

    ￦ —           253,884         —           253,884   

Derivative financial liabilities

      —           —           63,599         63,599   

Borrowings

      —           1,086,699         —           1,086,699   

Debentures(*1)

      405,678         5,171,322         —           5,577,000   

Accounts payable – other and others(*2)

      —           3,646,486         —           3,646,486   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 405,678         10,158,391         63,599         10,627,668   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

34. Categories of Financial Instruments, Continued

 

(*1) Debentures of which the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured, were designated as financial liabilities at fair value through profit or loss.
(*2) Details of accounts payable – other and other payables as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Accounts payable – other

    ￦ 1,864,024         1,811,038   

Withholdings

      1,549         1,840   

Accrued expenses

      988,193         890,863   

Current portion of long-term payables – other

      226,151         177,870   

Long-term payables – other

      838,585         715,508   

Finance lease liabilities

      3,867         22,036   

Other non-current liabilities

      27,425         27,331   
  

 

 

     

 

 

  
   ￦ 3,949,794         3,646,486   
  

 

 

     

 

 

  

 

35. Financial Risk Management

 

  (1) Financial risk management

The Group is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Group implements a risk management system to monitor and manage these specific risks.

The Group’s financial assets under financial risk management consist of cash and cash equivalents, financial instruments, available-for-sale financial assets, trade and other receivables. Financial liabilities consist of trade and other payables, borrowings, and debentures.

1) Market risk

(i) Currency risk

The Group is exposed to currency risk mainly on exchange fluctuations on recognized assets and liabilities. The Group manages currency risk by currency forward, etc. if needed to hedge currency risk on business transactions. Currency risk occurs on forecasted transaction and recognized assets and liabilities which are denominated in a currency other than the functional currency of the Group.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

35. Financial Risk Management, Continued

Monetary foreign currency assets and liabilities as of December 31, 2013 are as follows:

 

(In millions of won, thousands of U.S. dollars, thousands of Euros, thousands of Japanese Yen, thousands of other currencies)  
     Assets      Liabilities  
     Foreign
currencies		      Won
translation		      Foreign
currencies		      Won
translation		  

USD

      127,972       ￦ 135,329         2,300,314       ￦ 2,424,243   

EUR

      44,623         64,981         223         323   

JPY

      97,776         982         9,605         99   

AUD

      18         15         64,811         53,971   

CHF

      —           —           298,039         280,145   

SGD

      —           —           298,542         354,868   

Others

      20,053         11,423         9,027         1,665   
     

 

 

        

 

 

  
      ￦ 212,730          ￦ 3,115,314   
     

 

 

        

 

 

  

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (Refer to note 22)

As of December 31, 2013, effects on income (loss) before income tax as a result of change in exchange rate by 10% are as follows:

 

(In millions of won)             
     If increased by 10%     If decreased by 10%  

USD

    ￦ (5,858 )      5,858   

EUR

      6,466        (6,466 ) 

JPY

      88        (88 ) 

SGD

      2        (2 ) 

Others

      976        (976 ) 
  

 

 

    

 

 

  
   ￦ 1,674        (1,674 ) 
  

 

 

    

 

 

  

(ii) Equity price risk

The Group has equity securities which include listed and non-listed securities for its liquidity and operating purpose. As of December 31, 2013, available-for-sale equity instruments measured at fair value amount to ￦839,647 million.

(iii) Interest rate risk

Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, as such, the Group’s revenue and operating cash flow are not influenced by the changes in market interest rates. However, the Group still has interest rate risk arising from borrowings and debentures.

Accordingly, the Group performs various analysis of interest rate risk, which includes refinancing, renewal, alternative financing and hedging instrument option, to reduce interest rate risk and to optimize its financing.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

35. Financial Risk Management, Continued

 

The Group’s interest rate risk arises from floating-rate borrowings and payables. As of December 31, 2013, floating-rate debentures amount to ￦634,544 million and the Group has entered into interest rate swaps to hedge interest rate risk related to floating-rate borrowings and debentures. (Refer to note 22) If interest rate only increases (decreases) by 1%, income before income taxes for the year ended December 31, 2013 would not have been changed due to the interest expense from floating-rate borrowings and debentures.

2) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Cash and cash equivalents

    ￦ 1,398,548         920,054   

Financial instruments

      319,616         514,561   

Available-for-sale financial assets

      35,174         35,623   

Accounts receivable - trade

      2,270,471         1,968,297   

Loans and receivables

      1,044,529         981,693   

Derivative financial assets

      41,712         61,959   

Financial assets at fair value through profit or loss

      20,532         15,356   
  

 

 

     

 

 

  
   ￦ 5,130,582         4,497,543   
  

 

 

     

 

 

  

To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors; based on such information, the Group establishes credit limits for each customer or counterparty.

For the year ended December 31, 2013, the Group has no trade and other receivables or loans which have indications of significant impairment loss or are overdue for a prolonged period. As a result, the Group believes that the possibility of default is remote. Also, the Group’s credit risk can rise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivates. To minimize such risk, the Group has a policy to deal with high credit worthy financial institutions. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets As of December 31, 2013.

In addition, the aging of trade and other receivables that are over due at the end of the reporting period but not impaired is stated in note 7 and the analysis of financial assets that are individually determined to be impaired at the end of the reporting period is stated in note 30.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

35. Financial Risk Management, Continued

 

3) Liquidity risk

The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group maintains flexibly enough liquidity under credit lines through active operating activities.

Contractual maturities of financial liabilities as of December 31, 2013 are as follows:

 

(In millions of won)  
     Carrying
amount		      Contractual
cash flows		      Less than
1 year		      1 - 5 years      More than
5 years		  

Accounts payable – trade

    ￦ 214,716         214,716         214,685         31         —     

Borrowings

      386,192         403,164         284,110         74,301         44,753   

Debentures(*1)

      5,927,067         7,131,432         1,230,996         3,775,142         2,125,294   

Accounts payable – other and others(*2)

      3,949,794         4,039,035         2,973,303         685,944         379,788   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 10,477,769         11,788,347         4,703,094         4,535,418         2,549,835   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

 

(*1) Includes estimated interest to be paid and excludes discounts on bonds.
(*2) Excludes discounts on accounts payable-other and others.

As of December 31, 2013, periods which cash flows from cash flow hedge derivatives is expected to be incurred are as follows:

 

(In millions of won)  
     Carrying
amount		     Contractual
cash
flows		     Less than
1 year		     1 - 5 years     More than
5 years		  

Assets

    ￦ 41,712        43,833        1,778        35,322        6,733   

Liabilities

      (124,339 )      (133,481 )      (31,781 )      (100,252 )      (1,447 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ (82,627 )      (89,648 )      (30,003 )      (64,930 )      5,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  (2) Capital management

The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity balance. The overall strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2012.

The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total debt divided by total equity; the total debt and equity is extracted from the financial statements.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

35. Financial Risk Management, Continued

 

  (2) Capital management, Continued

 

Debt-equity ratio as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  

Liabilities

    ￦ 12,409,958        12,740,777   

Equity

      14,166,557        12,854,782   
  

 

 

    

 

 

  

Debt-equity ratio

      87.60 %      99.11 % 
  

 

 

    

 

 

  

 

  (3) Fair value

 

  1) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2013 are as follows:

 

(In millions of won)       
     Carrying
amount		      Level 1      Level 2      Level 3      Total  

Financial assets that can be measured at fair value

               

Financial assets at fair value through profit or loss

    ￦ 20,542         —           20,532         10         20,542   

Derivative financial assets

      41,712         —           41,712         —           41,712   

Available-for-sale financial assets

      839,647         638,445         46,414         154,788         839,647   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 901,901         638,445         108,658         154,798         901,901   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial assets that cannot be measured at fair value

               

Cash and cash equivalents(*1)

    ￦ 1,398,639         —           —           —           —     

Available-for-sale financial assets(*1,2)

      214,416         —           —           —           —     

Accounts receivable – trade and others(*1)

      3,314,999         —           —           —           —     

Financial instruments(*1)

      319,616         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 5,247,670         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that can be measured at fair value

               

Financial liabilities at fair value through profit or loss

    ￦ 96,147         96,147         —           —           96,147   

Derivative financial liabilities

      124,339         —           124,339         —           124,339   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 220,486         96,147         124,339         —           220,486   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that cannot be measured at fair value

               

Accounts payable – trade(*1)

    ￦ 214,716         —           —           —           —     

Borrowings

      386,192         —           399,247         —           399,247   

Debentures

      5,830,920         —           5,946,586         —           5,946,586   

Accounts payable – other and others(*1)

      3,949,794         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 10,381,622         —           6,345,833         —           6,345,833   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

35. Financial Risk Management, Continued

 

  (3) Fair value, Continued

 

  2) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2012 are as follows:

 

(In millions of won)       
     Carrying
amount		      Level 1      Level 2      Level 3      Total  

Financial assets that can be measured at fair value

               

Financial assets at fair value through profit or loss

    ￦ 16,045         —           15,356         689         16,045   

Derivative financial assets

      61,959         —           61,959         —           61,959   

Available-for-sale financial assets

      765,759         584,029         56,158         125,572         765,759   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 843,763         584,029         133,473         126,261         843,763   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial assets that cannot be measured at fair value

               

Cash and cash equivalents(*1)

    ￦ 920,125         —           —           —           —     

Available-for-sale financial assets(*1,2)

      232,724         —           —           —           —     

Accounts receivable – trade and others(*1)

      2,949,990         —           —           —           —     

Financial instruments(*1)

      514,561         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 4,617,400         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that can be measured at fair value

               

Financial liabilities at fair value through profit or loss

    ￦ 405,678         405,678         —           —           405,678   

Derivative financial liabilities

      63,599         —           63,599         —           63,599   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 469,277         405,678         63,599         —           469,277   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that cannot be measured at fair value

               

Accounts payable – trade(*1)

    ￦ 253,884         —           —           —           —     

Borrowings

      1,086,699         —           1,100,464         —           1,100,464   

Debentures

      5,171,321         —           5,461,142         —           5,461,142   

Accounts payable - other and others(*1)

      3,646,486         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 10,158,390         —           6,561,606         —           6,561,606   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

(*1) Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are closed to the reasonable approximate fair values.

(*2) Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with K-IFRS 1039 as such equity instruments cannot be reliably measured using other methods.

Fair value of the financial instruments that are traded in an active market (available-for-sale financial assets, financial liabilities at fair value through profit or loss, etc.) is measured based on the bid price at the end of the reporting date.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

35. Financial Risk Management, Continued

 

The Group uses various valuation methods for valuation of fair value of financial instruments that are not traded in an active market. Fair value of available-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities being evaluated.

Interest rates used by the Group for the fair value measurement as of December 31, 2013 are as follows:

 

    

Interest rate

Derivative instruments

    2.86% ~ 4.04%

Borrowings and debentures

    3.12%

3) There have been no transfers from Level 2 to Level 1 in 2013 and changes of financial assets classified as Level 3 for the year ended December 31, 2013 are as follows:

 

(In millions of won)  
     Balance at
Jan. 1		      Acquisition      Loss for
the period		     Other
comprehensive
income		      Disposal     Others      Balance at
Dec.31		  

Financial assets at fair value through profit or loss

    ￦ 689         —           (276 )      —           (404 )      —           9   

Available-for-sale financial assets

      125,572         54,950         (16,548 )      7,901         (43,540 )      26,454         154,789   

 

  (4) Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2013 are as follows:

 

                                         
(In millions of won)    Gross financial
instruments
recognized		      Gross offset
financial
instruments
recognized		     Net financial
instruments
presented on the
statements of
financial position		      Relevant amount not offset
on the statements of
financial position		      Net
amount		  
             Financial
instruments		     Cash
collaterals
received		     

Financial assets:

                

Derivatives(*)

    ￦ 28,871         —          28,871         (28,871 )      —           —     

Accounts receivable – trade and other

      138,897         (127,055 )      11,841         —          —           11,841   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  
     167,768         (127,055 )      40,712         (28,871 )      —           11,841   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

Financial liabilities:

                

Derivatives(*)

      43,536         —          43,536         (28,871 )      —           14,666   

Accounts payable – trade and other

      127,055         (127,055 )      43,536         —          —           —     
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  
   ￦ 170,591         (127,055 )      87,072         (28,871 )      —           14,666   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

35. Financial Risk Management, Continued

 

(*) The Group entered into derivative contracts which include enforceable master netting arrangement in accordance with ISDA. Generally, all contracts made with the identical currencies are settled from one party to another by combining one net amount. In this case, all contracts are liquidated and paid off at net amount by evaluating liquidation value if credit events such as bankruptcy occur.

ISDA agreements do not allow the Group to exercise rights of set-off unless credit events such as bankruptcy occur. Therefore, assets and liabilities recognized in accordance with the agreements cannot be offset as the Group does not have enforceable rights of set-off.

 

36. Transactions with Related Parties

 

  (1) List of related parties

 

Relationship

   

Interest rate

Controlling Entity    SK Holding Co., Ltd.
Subsidiaries    SK Planet Co., Ltd. and 27 others (refer to note 1)
Joint venture    Dogus Planet, Inc. and three others
Associates    SK hynix Inc. and 64 others
Affiliates    The Controlling Entity’s investor using the equity method, the Controlling Company, and the Controlling Company’s subsidiaries and associates, etc.

 

  (2) Compensation for the key management

The Parent Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management. The considerations given to such key management for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Salaries

    ￦ 2,263         8,893   

Provision for retirement benefits

      1,012         799   
  

 

 

     

 

 

  
   ￦ 3,275         9,692   
  

 

 

     

 

 

  

Compensation for the key management includes salaries, non-monetary salaries and contributions made in relation to the pension plan.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

36. Transactions with Related Parties, Continued

 

  (3) Transactions with related parties for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)  
          2013  

Scope

   

Company

    Operating
revenue and
others		      Operating
expense and
others		      Acquisition of
property and
equipment		      Loans  

Controlling Entity

    SK Holding Co., Ltd.(*)    ￦ 1,912         226,023         —           —     

Associates

    HappyNarae Co., Ltd.      281         6,217         10,542         —     
  

F&U Credit information Co., Ltd.

      1,753         43,931         —           —     
  

HanaSK Card Co., Ltd.

      11,128         —           —           —     
  

Others

      6,712         6,846         125         997   
     

 

 

     

 

 

     

 

 

     

 

 

  
        19,874         56,994         10,667         997   
     

 

 

     

 

 

     

 

 

     

 

 

  

Other

    SK Engineering & Construction Co., Ltd.      5,564         37,978         484,006         —     
  

SK C&C Co., Ltd.

      4,041         357,945         206,298         —     
  

SK Networks Co., Ltd.

      51,996         1,463,340         6,241         —     
  

Others

      66,112         209,692         249,100         —     
     

 

 

     

 

 

     

 

 

     

 

 

  
        127,713         2,068,956         945,645         —     
     

 

 

     

 

 

     

 

 

     

 

 

  

Total

       ￦ 149,499         2,351,972         956,312         997   
     

 

 

     

 

 

     

 

 

     

 

 

  

 

  (*) Operating expense and others include ￦191,416 million of dividends paid by the Group.

 

(In millions of won)  
          2012  

Scope

   

Company

    Operating revenue
and others		      Operating expense
and others		      Acquisition of
property and
equipment		  

Controlling Entity

    SK Holding Co., Ltd.(*1)    ￦ 1,339         224,667         —     

Associates

    F&U Credit information Co., Ltd.      1,516         49,518         —     
  

SK M&C

      11,874         155,397         9,051   
  

HanaSK Card Co., Ltd.(*2)

      672,202         201,533         66   
  

Others

      743         96,971         11,374   
     

 

 

     

 

 

     

 

 

  
        686,335         503,419         20,491   
     

 

 

     

 

 

     

 

 

  

Other

    SK C&C Co., Ltd.      4,441         324,171         304,102   
  

SK Engineering & Construction Co., Ltd.

      5,384         55,007         687,059   
  

SK Networks Co., Ltd.

      20,477         1,747,130         8,048   
  

Others

      40,251         246,218         300,410   
     

 

 

     

 

 

     

 

 

  
        70,553         2,372,526         1,299,619   
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 758,227         3,100,612         1,320,110   
     

 

 

     

 

 

     

 

 

  

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

36. Transactions with Related Parties, Continued

 

(*1) Operating expense and others include ￦171,053 million of dividends paid by the Group.
(*2) Operating revenue include discounts on accounts receivable related to sales of handsets on installment payment plans of PS&Marketing Corporation.

 

(3) Account balances as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)         2013  
          Accounts receivable      Accounts payable  

Scope

   

Company

   

Loans

     

Accounts
receivable- trade,
and others

     

Accounts payable
– trade, and others

  

Controlling Entity

    SK Holding Co., Ltd.    ￦ —           334         —     

Associates

    HappyNarae Co., Ltd.      —           27         16,317   
  

Wave City Development Co., Ltd.

      1,200         38,412         —     
  

SK hynix Inc.

      —           392         —     
  

HanaSK Card Co., Ltd.

      —           3,723         5,443   
  

SK Wyverns Baseball Club Co., Ltd.

      1,425         —           —     
  

Daehan Kanggun BcN Co., Ltd.

      22,102         —           —     
  

Others

      —           268         492   
     

 

 

     

 

 

     

 

 

  
        24,727         42,822         22,252   
     

 

 

     

 

 

     

 

 

  

Other

    SK Engineering & Construction Co., Ltd.      —           988         92,058   
  

SK Telesys Co., Ltd.

      —           412         70,467   
  

SK C&C Co., Ltd.

      —           182         —     
  

SK Networks. Co., Ltd.

      —           5,930         118,759   
  

Others

      —           11,633         20,197   
     

 

 

     

 

 

     

 

 

  
        —           19,145         301,481   
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 24,727         62,301         323,733   
     

 

 

     

 

 

     

 

 

  

 

100

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

36. Transactions with Related Parties, Continued

 

(In millions of won)         2012  
          Accounts receivable      Accounts payable  

Scope

   

Company

   

Loans

     

Accounts
receivable- trade,
and others

     

Accounts payable
– trade, and others

  

Controlling Entity

    SK Holding Co., Ltd.    ￦ —           310         —     

Associates

    SK Wyverns Baseball Club Co., Ltd.      1,628         —           4,000   
  

Wave City Development Co., Ltd.

      —           38,412         —     
  

SK M&C

      —           6,127         109,531   
  

SK China Company, Ltd.

      —           —           39,694   
  

Daehan Kanggun BcN Co., Ltd.

      22,102         —           —     
  

Others

      —           498         11,558   
     

 

 

     

 

 

     

 

 

  
        23,730         45,037         164,783   
     

 

 

     

 

 

     

 

 

  

Other

    SK Engineering & Construction Co., Ltd.      —           1,735         34,887   
  

SK Telesys Co., Ltd.

      —           1,182         31,289   
  

SK C&C Co., Ltd.

      —           369         144,308   
  

SK Networks. Co., Ltd.

      —           34,055         285,325   
  

Others

      —           18,416         24,678   
     

 

 

     

 

 

     

 

 

  
        —           55,757         520,487   
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 23,730         101,104         685,270   
     

 

 

     

 

 

     

 

 

  

(5) As of December 31, 2013, collateral and guarantee provided by the Group for the related parties’ financing purposes are as follows. There are no collateral or guarantee provided by related parties to the Group.

(6) M&Service Co., Ltd., a subsidiary of the Parent Company, entered into performance agreement with SK Energy Co., Ltd. and provides a blank note to SK Energy Co., Ltd., with regard to this transaction.

 

37. Commitments and Contingencies

(1) Collateral assets and commitments

SK Broadband Co., Ltd. has pledged its properties as collateral for leases on buildings in the amount of ￦14,900 million as of December 31, 2013.

(2) Contingencies

As of December 31, 2013, the claim amount of pending litigations of SK Communications Co., Ltd., a subsidiary, amounts to ￦3,797 million. The ultimate outcome of such litigation is not expected to have a material effect on the Group’s financial position or performance results.

 

101

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

38. Discontinued Operation

 

  (1) Discontinued operation

During the year ended December 31, 2013, SK Planet Co., Ltd., a subsidiary of the Parent Company, sold 52.6% of its ownership interests (13,294,369 shares) in Loen Entertainment, Inc., to Star Invest Holdings Limited. Consideration for the sale amounted to ￦265,887 million. Loen Entertainment was a subsidiary of SK Planet Co., Ltd. and is engaged in the release of music discs as its primary business, The Group’s ownership interests after the disposition is 15.0% and Loen Entertainment, Inc. was excluded from the Group’s consolidated financial statements as of the date of the sale.

During the year ended December 31, 2012, SK Telink Co., Ltd., a subsidiary, ceased its broadcasting business due to the rapid decrease in satellite digital multimedia broadcasting subscribers along with the effects from smart phones, and other mobile devices.

 

  (2) Results of discontinued operations

Results of discontinued operations included in the consolidated statements of income for the years ended December 31, 2013 and 2012 are as follows. The consolidated statement of income presented for comparative purposes was restated in order to present discontinued operation segregated from the Group’s continuing operations.

 

(In millions of won)       
     2013  
     Loen Entertainment, Inc.  

Results of discontinued operations:

   

Revenue

    ￦ 167,033   

Expense

      (140,204 ) 
  

 

 

  

Operating income generated by discontinued operations

      26,829   

Non-operating income

      3,189   

Gain on disposal relating to discontinued operations

      214,352   

Income tax expense

      (61,125 ) 
  

 

 

  

Gain from discontinued operations

    ￦ 183,245   
  

 

 

  

Attributable to :

   

Owners of the Parent Company

      175,867   

Non-controlling interests

      7,378   

 

102

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

38. Discontinued Operation, Continued

 

(In millions of won)  
     2012  
     Loen
Entertainment, Inc.		     Discontinue
satellite digital
multimedia
broadcasting of
SK Telink Co., Ltd.		     Total  

Results of discontinued operations:

       

Revenue

    ￦ 159,070        1,163        160,233   

Expense

      (128,948 )      (38,257 )      (167,205 ) 
  

 

 

    

 

 

    

 

 

  

Operating income generated by discontinued operations

      30,122        (37,094 )      (6,972 ) 

Non-operating income

      1,397        (120,913 )      (119,516 ) 

Income tax benefit (expense)

      (7,680 )      18,670        10,990   
  

 

 

    

 

 

    

 

 

  

Gain (loss) from discontinued operations

    ￦ 23,839        (139,337 )      (115,498 ) 
  

 

 

    

 

 

    

 

 

  

Attributable to :

       

Owners of the Parent Company

      16,107        (119,927 )      (103,821 ) 

Non-controlling interests

      7,732        (19,410 )      (11,677 ) 

 

  (3) Cash flows from discontinued operations

Cash flows from discontinued operations for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)       
     2013  
     of Loen Entertainment, Inc.  

Cash flow from discontinued operations:

   

Net cash provided by operating activities

    ￦ 40,884   

Net cash provided by investing activities

      179,490   

Net cash used in financing activities

      (4,780 ) 
  

 

 

  
   ￦ 215,594   
  

 

 

  

 

(In millions of won)                   
     2012  
     Loen
Entertainment, Inc.		     Discontinue
satellite digital
multimedia
broadcasting of
SK Telink Co., Ltd.		     Total  

Cash flow from discontinued operations:

       

Net cash provided by (used in) operating activities

    ￦ 27,794        (4,857 )      22,937   

Net cash used in investing activities

      (19,628 )      (303 )      (19,931 ) 

Net cash used in financing activities

      (4,299 )      (9,475 )      (13,774 ) 
  

 

 

    

 

 

    

 

 

  
   ￦ 3,867        (14,635 )      (10,768 ) 
  

 

 

    

 

 

    

 

 

  

 

103

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

38. Discontinued Operation, Continued

 

  (4) Changes in financial condition relating to discontinued operations due to the disposal of ownership interests in Loen Entertainment, Inc. as of December 31, 2013 is as follows:

 

(In millions of won)       
     December 31, 2013  

Cash and cash equivalents

    ￦ 55,527   

Long-term and short-term financial instruments

      42,404   

Accounts receivable – trade

      49,700   

Property and equipment, and intangible assets

      26,334   

Other assets

      39,526   

Accounts payable – trade

      (33,154 ) 

Defined benefit liabilities

      (737 ) 

Other liabilities

      (87,022 ) 
  

 

 

  

Decrease in net assets

      92,578   
  

 

 

  

Consideration paid for disposal

      264,245   

Cash and cash equivalents disposed

      (55,527 ) 
  

 

 

  

Net cash inflow

    ￦ 208,718   
  

 

 

  

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

39. Statements of Cash Flows

 

  (1) Adjustments for income and expenses from operating activities for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Interest income

    ￦ (67,359 )      (99,967 ) 

Dividend

      (10,197 )      (27,732 ) 

Gain on foreign currency translation

      (4,401 )      (4,065 ) 

Gain on disposal of long-term investment securities

      (9,300 )      (282,605 ) 

Gain on settlement of derivatives

      (7,716 )      (26,103 ) 

Losses related to investments in subsidiaries and associates, net

      (921,861 )      24,279   

Gain on disposal of property and equipment and intangible assets

      (7,991 )      (162,590 ) 

Reversal of allowance for doubtful accounts

      (359 )      (5,902 ) 

Gain on valuation of financial asset at fair value through profit or loss

      (5,177 )      —     

Other income

      (3,951 )      (2,558 ) 

Interest expenses

      331,834        412,379   

Loss on foreign currency translation

      2,634        4,608   

Loss on disposal of long-term investment securities

      31,909        10,802   

Impairment loss on long-term investment securities

      52,058        190,621   

Loss on valuation of derivatives

      2,106        286   

Loss on settlement of derivatives

      —          1,232   

Income tax expense

      461,922        277,217   

Gain related to defined benefit plan

      92,840        80,865   

Depreciation and amortization

      2,829,784        2,613,018   

Bad debt expenses

      57,163        52,393   

Loss on disposal of property and equipment and intangible assets

      267,702        15,117   

Impairment loss on property and equipment and intangible assets

      14,399        160,210   

Loss on valuation of financial assets at fair value through profit or loss

      —          1,262   

Loss relating to financial liabilities at fair value through profit or loss

      134,232        7,793   

Loss on redemption of debentures

      —          2,099   

Bad debt for accounts receivable - other

      22,167        30,107   

Loss on disposal of other investment property

      1        —     

Impairment loss on other investment securities

      6,136        1,307   

Other expenses

      6,801        15,788   
  

 

 

    

 

 

  
   ￦ 3,275,376        3,289,861   
  

 

 

    

 

 

  

 

105

Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2013 and 2012

 

39. Statements of Cash Flows, Continued

 

  (2) Changes in assets and liabilities from operating activities for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013     2012  

Accounts receivable - trade

    ￦ (267,754 )      (183,238 ) 

Accounts receivable - other

      (41,243 )      288,739   

Accrued income

      (502 )      9,530   

Advance payments

      (26,064 )      40,664   

Prepaid expenses

      (1,583 )      18,525   

Proxy paid V.A.T.

      (5,442 )      (963 ) 

Inventories

      (39,610 )      (108,904 ) 

Long-term accounts receivables - other

      —          5,393   

Guarantee deposits

      59,431        19,460   

Accounts payable - trade

      (4,708 )      74,923   

Accounts payable - other

      (131,142 )      260,158   

Advanced receipts

      (2,916 )      (7,977 ) 

Withholdings

      22,025        234,048   

Deposits received

      (1,745 )      (6,089 ) 

Accrued expenses

      98,081        153,641   

Advanced V.A.T.

      (3,901 )      (3,955 ) 

Unearned revenue

      (188,589 )      (83,436 ) 

Provisions

      (226,644 )      (373,213 ) 

Long-term provisions

      (72,398 )      (33,254 ) 

Plan assets

      (61,856 )      (51,422 ) 

Retirement benefit payment

      (42,948 )      (46,066 ) 

Others

      (30,362 )      (2,256 ) 
  

 

 

    

 

 

  
   ￦ (969,870 )      204,308   
  

 

 

    

 

 

  

 

  (3) Significant non-cash transactions for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)       
     2013      2012  

Transfer of construction in progress to property and equipment, and intangible assets

    ￦ 2,320,528         2,700,054   

Transfer of other property and equipment and others to construction in progress

      1,188,826         1,437,476   

Accounts payable - other related to acquisition of property and equipment and intangible assets

      350,735         8,010   

Return of the existing 1.8GHz frequency use rights

      614,600         —     

 

106

Table of Contents

SK TELECOM CO., LTD.

Separate Financial Statements

December 31, 2013 and 2012

(With Independent Auditors’ Report Thereon)

Table of Contents

Contents

 

     Page  

Independent Auditors’ Report

      1   

Separate Statements of Financial Position

      2   

Separate Statements of Income

      4   

Separate Statements of Comprehensive Income

      5   

Separate Statements of Changes in Equity

      6   

Separate Statements of Cash Flows

      7   

Notes to the Separate Financial Statements

      9   

Independent Accountant’s Review Report on Internal Accounting Control System (“IACS”)

      83   

Report on the Assessment of Internal Accounting Control System (“IACS”)

      84   

Table of Contents

Independent Auditors’ Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

We have audited the accompanying separate statement of financial position of SK Telecom Co., Ltd. (the “Company”), as of December 31, 2013, and 2012, and the related separate statements of income, comprehensive income, changes in equity and cash flows for the years then ended. Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with Korean International Financial Reporting Standards. Our responsibility is to express an opinion on these separate financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the separate financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

In our opinion, the separate financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012 and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those knowledgeable about Korean auditing standards and their application in practice.

KPMG Samjong Accounting Corp.

Seoul, Korea

February 21, 2014

 

This report is effective as of February 21, 2014, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

1

Table of Contents

SK TELECOM CO., LTD.

Separate Statements of Financial Position

As of December 31, 2013 and 2012

 

(In millions of won)                     
     Note      December 31,
2013		      December 31,
2012		  

Assets

         

Current Assets:

         

Cash and cash equivalents

      30,31       ￦ 448,459         256,577   

Short-term financial instruments

      5,30,31         166,000         179,300   

Short-term investment securities

      7,30,31         102,042         56,401   

Accounts receivable - trade, net

      6,30,31,32         1,513,138         1,407,206   

Short-term loans, net

      6,30,31,32         72,198         75,449   

Accounts receivable - other, net

      6,30,31,32         388,475         383,048   

Prepaid expenses

         82,837         76,016   

Derivative financial assets

      17,30,31         —           9,656   

Inventories, net

         24,596         15,995   

Non-current assets held for sale

      8         3,666         121,337   

Advanced payments and other

      6,30,31         16,371         8,714   
     

 

 

     

 

 

  

Total Current Assets

         2,817,782         2,589,699   
     

 

 

     

 

 

  

Non-Current Assets:

         

Long-term financial instruments

      5,30,31         7,569         69   

Long-term investment securities

      7,30,31         729,703         733,893   

Investments in subsidiaries and associates

      9         8,010,121         7,915,547   

Property and equipment, net

      10         7,459,986         7,119,090   

Goodwill

      11         1,306,236         1,306,236   

Intangible assets, net

      12         2,239,167         2,187,872   

Long-term loans, net

      6,30,31,32         39,925         49,672   

Long-term prepaid expenses

         23,007         21,582   

Guarantee deposits

      5,6,30,31,32         152,057         149,373   

Long-term derivative financial assets

      17,30,31         41,712         52,303   

Deferred tax assets

      27         —           123,723   

Other non-current assets

         154         443   
     

 

 

     

 

 

  

Total Non-Current Assets

         20,009,637         19,659,803   
     

 

 

     

 

 

  

Total Assets

       ￦ 22,827,419         22,249,502   
     

 

 

     

 

 

  

See accompanying notes to the separate financial statements.

 

2

Table of Contents

SK TELECOM CO., LTD.

Separate Statements of Financial Position, Continued

As of December 31, 2013 and 2012

 

(In millions of won)                     
     Note      December 31,
2013		      December 31,
2012		  

Liabilities and Equity

         

Current Liabilities:

         

Short-term borrowings

      13,30,31       ￦ 260,000         330,000   

Current portion of long-term debt, net

      12,13,30,31         829,503         713,072   

Accounts payable - other

      30,31,32         1,556,201         1,509,456   

Withholdings

      30,31         574,166         552,380   

Accrued expenses

      30,31         653,742         600,101   

Income tax payable

      27         104,564         52,267   

Unearned revenue

         178,569         252,298   

Derivative financial liabilities

      17,30,31         21,170         —     

Provisions

      15         66,559         286,819   

Advanced receipts and other

         43,599         46,693   
     

 

 

     

 

 

  

Total Current Liabilities

         4,288,073         4,343,086   
     

 

 

     

 

 

  

Non-Current Liabilities:

         

Debentures, net, excluding current portion

      13,30,31         4,014,777         3,992,111   

Long-term borrowings, excluding current portion

      13,30,31         85,125         348,333   

Long-term payables - other

      14,30,31         828,721         705,605   

Long-term unearned revenue

         50,894         160,820   

Defined benefit obligation

      3,16         22,886         34,951   

Long-term derivative financial liabilities

      17,30,31         100,210         63,599   

Long-term provisions

      15         19,537         99,355   

Deferred tax liabilities

      27         44,601         —     

Other non-current liabilities

      30,31,32         57,187         124,594   
     

 

 

     

 

 

  

Total Non-Current Liabilities

         5,223,938         5,529,368   
     

 

 

     

 

 

  

Total Liabilities

         9,512,011         9,872,454   
     

 

 

     

 

 

  

Equity

         

Share capital

      1,18         44,639         44,639   

Capital surplus (deficit) and other capital adjustments

      18,19,20         433,894         (236,160 ) 

Retained earnings

      21,22         12,665,699         12,413,981   

Reserves

      23         171,176         154,588   
     

 

 

     

 

 

  

Total Equity

         13,315,408         12,377,048   
     

 

 

     

 

 

  

Total Liabilities and Equity

       ￦ 22,827,419         22,249,502   
     

 

 

     

 

 

  

See accompanying notes to the separate financial statements.

 

3

Table of Contents

SK TELECOM CO., LTD.

Separate Statements of Income

For the years ended December 31, 2013 and 2012

 

(In millions of won except for per share data)                    
     Note      2013     2012  

Operating revenue:

        

Revenue

      4,32       ￦ 12,860,379        12,332,719   
     

 

 

    

 

 

  

Operating expense:

      32        

Labor cost

         598,885        508,226   

Commissions paid

         5,333,869        5,576,763   

Depreciation and amortization

         2,006,896        1,724,707   

Network interconnection

         770,125        796,580   

Leased line

         412,217        431,522   

Advertising

         237,291        209,804   

Rent

         362,659        330,611   

Cost of products that have been resold

         399,810        295,757   

Other operating expenses

      24         768,943        783,361   
     

 

 

    

 

 

  

Sub-total

         10,890,695        10,657,331   
     

 

 

    

 

 

  

Operating income

         1,969,684        1,675,388   

Finance income

      26         81,196        381,930   

Finance costs

      26         (422,764 )      (533,198 ) 

Other non-operating income

      25         47,618        161,756   

Other non-operating expenses

      25         (417,252 )      (133,647 ) 

Loss relating to investments in subsidiaries and associates

      9         (37,685 )      (5,510 ) 
     

 

 

    

 

 

  

Profit before income tax

         1,220,797        1,546,719   

Income tax expense

      27         310,640        303,952   
     

 

 

    

 

 

  

Profit for the year

       ￦ 910,157        1,242,767   
     

 

 

    

 

 

  

Earnings per share

      28        

Basic earnings per share (in won)

       ￦ 12,837        17,832   
     

 

 

    

 

 

  

Diluted earnings per share (in won)

       ￦ 12,837        17,406   
     

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Comprehensive Income

For the years ended December 31, 2013 and 2012

 

(In millions of won)                     
     Note      2013      2012  

Profit for the year

       ￦ 910,157         1,242,767   

Other comprehensive loss

      3         

Items that will not be reclassified to profit or loss:

         

Remeasurement of defined benefit obligations

      16         5,927         (10,838 ) 

Items that may be reclassified subsequently to profit or loss:

         

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

      23         4,795         (146,203 ) 

Net change in unrealized fair value of derivatives

      17,23         11,793         (19,703 ) 
     

 

 

     

 

 

  
        22,515         (176,744 ) 
     

 

 

     

 

 

  

Total comprehensive income

       ￦ 932,672         1,066,023   
     

 

 

     

 

 

  

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Changes in Equity

For the years ended December 31, 2013 and 2012

 

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

Balance, January 1, 2012

    ￦ 44,639         2,915,887         (2,410,451 )      (18,855 )      —           (722,597 )      11,837,185        320,494        11,966,302   

Cash dividends

      —           —           —          —          —           —          (655,133 )      —          (655,133 ) 

Transfer of business

      —           —           —          —          —           (144 )      —          —          (144 ) 

Total comprehensive income

                      

Profit for the period

      —           —           —          —          —           —          1,242,767        —          1,242,767   

Other comprehensive loss

      —           —           —          —          —           —          (10,838 )      (165,906 )      (176,744 ) 
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  
     —           —           —          —          —           —          1,231,929        (165,906 )      1,066,023   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Balance, December 31, 2012

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

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

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 period

      —           —           —          —          —           —          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   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Cash Flows

For the years ended December 31, 2013 and 2012

 

(In millions of won)    Note      2013     2012  

Cash flows from operating activities:

        

Cash generated from operating activities

        

Profit for the year

       ￦ 910,157        1,242,767   

Adjustments for income and expenses

      34         3,120,427        2,249,241   

Changes in assets and liabilities related to operating activities

      34         (714,862 )      176,712   
     

 

 

    

 

 

  

Sub-total

         3,315,722        3,668,720   

Interest received

         29,695        45,748   

Dividends received

         20,641        30,567   

Interest paid

         (246,632 )      (265,355 ) 

Income tax paid

         (96,953 )      (318,164 ) 
     

 

 

    

 

 

  

Net cash provided by operating activities

         3,022,473        3,161,516   
     

 

 

    

 

 

  

Cash flows from investing activities:

        

Cash inflows from investing activities:

        

Decrease in short-term investment securities, net

         —          35,416   

Decrease in short-term financial instruments, net

         13,300        455,700   

Collection of short-term loans

         279,815        273,147   

Proceeds from disposal of long-term investment securities

         29,762        449,720   

Proceeds from disposal of investments in subsidiaries and associates

         1,808        88,602   

Proceeds from disposal of investment property

         —          61,186   

Proceeds from disposal of property and equipment

         3,148        187,560   

Proceeds from disposal of intangible assets

         965        2,811   

Net proceeds from the disposition of non-current assets held for sale

         190,393        —     

Collection of long-term loans

         11,727        10,689   

Proceeds from disposal of other non-current assets

         290        644   
     

 

 

    

 

 

  

Sub-total

         531,208        1,565,475   

Cash outflows for investing activities:

        

Increase in short-term investment securities, net

         (45,031 )      —     

Increase in short-term loans

         (275,913 )      (243,494 ) 

Increase in long-term financial instruments

         (7,500 )      —     

Acquisition of long-term investment securities

         (9,313 )      (4,425 ) 

Acquisition of investments in subsidiaries and associates

         (206,791 )      (3,131,483 ) 

Acquisition of property and equipment

         (2,201,354 )      (2,883,630 ) 

Acquisition of intangible assets

         (179,069 )      (72,328 ) 

Increase in long-term loans

         —          (22 ) 

Cash outflows from transfer of business

         —          (3,387 ) 

Increase in other non-current assets

         —          (328 ) 
     

 

 

    

 

 

  

Sub-total

         (2,924,971 )      (6,339,097 ) 
     

 

 

    

 

 

  

Net cash used in investing activities

         (2,393,763 )      (4,773,622 ) 
     

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Cash Flows, Continued

For the years ended December 31, 2013 and 2012

 

(In millions of won)    2013     2012  

Cash flows from financing activities:

     

Cash inflows from financing activities:

     

Increase in short-term borrowings, net

    ￦ —          330,000   

Proceeds from long-term borrowings

      96,455        1,986,800   

Issuance of hybrid bond

      398,518        —     

Issuance of debentures

      1,014,859        1,530,714   

Cash inflows from derivative transactions

      20,026        86,537   
  

 

 

    

 

 

  

Sub-total

      1,529,858        3,934,051   

Cash outflows for financing activities:

     

Decrease in short-term borrowings, net

      (70,000 )      —     

Repayment of long-term borrowings

      (457,110 )      (1,650,000 ) 

Repayment of current portion of long-term debt

      (161,575 )      (92,158 ) 

Repayment of debentures

      (621,976 )      (558,184 ) 

Payment of dividends

      (655,946 )      (655,133 ) 

Cash outflows from derivative transactions

      —          (5,415 ) 
  

 

 

    

 

 

  

Sub-total

      (1,966,607 )      (2,960,890 ) 
  

 

 

    

 

 

  

Net cash provided by (used in) financing activities

      (436,749 )      973,161   
  

 

 

    

 

 

  

Net increase (decrease) in cash and cash equivalents

      191,961        (638,945 ) 

Cash and cash equivalents at beginning of the year

      256,577        895,558   

Effects of exchange rate changes on cash and cash equivalents

      (79 )      (36 ) 
  

 

 

    

 

 

  

Cash and cash equivalents at end of the year

    ￦ 448,459        256,577   
  

 

 

    

 

 

  

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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, 2013, 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

      4,760,489         5.90   

Institutional investors and other minority stockholders

      45,812,395         56.73   

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 in an associate or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.

The separate financial statements were authorized for issuance by the Board of Directors on February 6, 2014, which will be submitted for approval at the shareholders’ meeting to be held on March 21, 2014.

 

  (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 and unrecognized past service costs

 

  (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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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 in which the estimates are revised and in any future periods affected.

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, classification of investment property.

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, measurement of defined benefit obligation, recognition of deferred tax assets (liabilities), and commitments and contingencies.

3) Fair value measurement

The Company establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for the majority of financial and non-financial assets and liabilities. Such policies and procedures are executed by the valuation division, which is responsible for the review of significant fair value measurements including fair value classified as level 3 in the fair value hierarchy and the results of which are directly reported to the finance executive.

The valuation division regularly reviews unobservable significant inputs and valuation adjustments. If third party information such as prices available from an exchange, dealer, broker, industry group, pricing service or regulatory agency is used for fair value measurements, the valuation division reviews whether the valuation based on third party information includes classification by levels within the fair value hierarchy and meets the requirements for the relevant standards.

The Company uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation method, as follows:

 

  •   Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

 

  •   Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

 

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

2. Basis of Presentation, Continued

 

  (4) Use of estimates and judgments, Continued

 

If various inputs used to measure fair value of assets or liabilities are transferred between levels of the fair value hierarchy, the Company classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value and recognizes transfers between levels at the end of the reporting period of which such transfers occurred.

Information about assumptions used for fair value measurements are included in note 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

The accounting policies have been applied consistently to all periods presented in these separate financial statements except for new standards, interpretations and amendments to existing standards mandatory for the Company for annual periods beginning on or after January 1, 2013 set out below.

 

  - K-IFRS No. 1113, ‘Fair Value Measurement’

 

  - K-IFRS No. 1019, ‘Employee Benefits’

 

  - Amendments to K-IFRS No. 1001, ‘Presentation of Items of Other Comprehensive Income (“OCI”)’

 

  - Amendments to K-IFRS No. 1107, ‘Disclosure of offsetting financial assets and financial liabilities’

 

  - Amendments to K-IFRS No. 1036, ‘Disclosure of recoverable amount of non-financial assets’

 

  (1) Fair value measurement

K-IFRS No. 1113 has been amended to provide a single framework for fair value and information of fair value measurements when other standards requires or permits fair value measurements. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard replaces disclosures relating to fair value measurements required by other standards including K-IFRS No. 1107, and requires additional disclosures. The required disclosures are included in note 31.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

3. Changes in Accounting Policies, Continued

 

  (2) Defined benefit pension plans

The Company changed its accounting policy for recognition of gains and losses relating to defined benefit pension plans in accordance with the amendments to K-IFRS No. 1019, ‘Employee Benefits’. The Company determines net interest costs for net defined benefit liabilities using the discount rates used for the measurement of defined benefit obligations at the beginning of the reporting period and considers changes in net defined benefit liabilities due to contributions and retirement benefit payments. Accordingly, net interests on net defined benefits liabilities consist of interest costs on defined benefits obligations, interest income on plan assets and, if applicable, interest on the effects of limitations on asset recognition. Prior to the amendments, the Company determined interest income on plan assets based on the long-term expected return rate.

 

  (3) Presentation of other comprehensive income items

In accordance with the amendments, the Company classifies other comprehensive income items by nature and presents items as “items that will never be reclassified to profit or loss” and “items that are or may be reclassified to profit or loss.” Accordingly, the consolidated statement of comprehensive income for the year ended December 31, 2012 presented for comparative purposes, has been restated.

 

  (4) Offsetting financial assets and liabilities

As described in note 31, the Company provides disclosures relating to offsetting financial assets and financial liabilities in accordance with the amendments to K-IFRS No. 1107.

 

  (5) Disclosure of recoverable amount of non-financial assets

The Company early adopted the amendments to K-IFRS No. 1036. Accordingly, the Company makes the additional disclosures on required by the amendment when impairment losses are recognized and recoverable amounts are based on net fair value.

 

12

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

Presentation and classification of certain items on the separate statements of comprehensive income for the year ended December 31, 2012, presented for the comparative purposes, have been modified by applying changes to the standards and classification method of other comprehensive income items.

 

  (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.

 

13

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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 ~ 13

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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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) 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 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.

Investment property except for land, are depreciated on a straight-line basis over 30 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 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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

 

  (13) Impairment of non-financial assets, Continued

 

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.

 

  (14) 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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

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 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.

(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 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).

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

(16) 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).

(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 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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

 

  (17) Employee benefits, Continued

(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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

(18) 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.

(19) 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.

(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 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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

 

  (21) 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.

 

  (22) 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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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

 

  (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 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.

 

  (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 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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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

4. Significant Accounting Policies, Continued

 

  (24) 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.

 

  (25) 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.

 

  (26) 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, 2013, and the Company has not early adopted them.

As of December 31, 2013, 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 No.1032, ‘Financial instruments: Presentation’

K-IFRS No. 1032, ‘Financial Instruments has been amended to clarify requirements for offsetting financial assets and financial liabilities by adding application guidance. The amendment is mandatorily effective for annual periods beginning on or after January 1, 2014.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

5. Restricted Deposits

Deposits which are restricted in use as of December 31, 2013 and 2012 are summarized as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Short-term financial instruments

    ￦        

Charitable fund(*)

      76,000         76,000   

Other

      —           7,500   

Long-term financial instruments

      7,569         69   

Guarantee deposits

      40         40   
  

 

 

     

 

 

  
   ￦ 83,609         83,609   
  

 

 

     

 

 

  

 

(*) The Company established a trust fund for charitable purposes. Profits from the fund are donated to charitable institutions. As of December 31, 2013, the funds cannot be withdrawn.

 

6. Trade and Other Receivables

 

  (1) Details of trade and other receivables as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                    
     December 31, 2013  
     Gross
amount		      Allowances for
impairment		     Carrying
amount		  

Current assets:

        

Accounts receivable - trade

    ￦ 1,614,466         (101,328 )      1,513,138   

Short-term loans

      72,928         (730 )      72,198   

Accounts receivable - other

      439,209         (50,734 )      388,475   

Accrued income

      5,682         —          5,682   
  

 

 

     

 

 

    

 

 

  
     2,132,285         (152,792 )      1,979,493   

Non-current assets:

        

Long-term loans

      61,613         (21,688 )      39,925   

Guarantee deposits

      152,057         —          152,057   
  

 

 

     

 

 

    

 

 

  
     213,670         (21,688 )      191,982   
  

 

 

     

 

 

    

 

 

  
   ￦ 2,345,955         (174,480 )      2,171,475   
  

 

 

     

 

 

    

 

 

  
(In millions of won)                    
     December 31, 2012  
     Gross amount      Allowances for
impairment		     Carrying
amount		  

Current assets:

        

Accounts receivable - trade

    ￦ 1,497,745         (90,539 )      1,407,206   

Short-term loans

      76,471         (1,022 )      75,449   

Accounts receivable - other

      421,695         (38,647 )      383,048   

Accrued income

      4,147         —          4,147   
  

 

 

     

 

 

    

 

 

  
     2,000,058         (130,208 )      1,869,850   

Non-current assets:

        

Long-term loans

      72,801         (23,129 )      49,672   

Guarantee deposits

      149,373         —          149,373   
  

 

 

     

 

 

    

 

 

  
     222,174         (23,129 )      199,045   
  

 

 

     

 

 

    

 

 

  
   ￦ 2,222,232         (153,337 )      2,068,895   
  

 

 

     

 

 

    

 

 

  

 

30

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

6. Trade and Other Receivables, Continued

 

  (2) The movement in allowance for doubtful accounts of trade and other receivables during the years ended December 31, 2013 and 2012 were as follows:

 

(In millions of won)             
     2013     2012  

Balance at January 1

    ￦ 153,337        171,638   

Increase of bad debt allowances

      52,835        44,347   

Reversal of allowances for doubtful accounts

      —          (4,846 ) 

Write-offs

      (51,063 )      (77,608 ) 

Collection of receivables previously written-off

      19,371        19,806   
  

 

 

    

 

 

  

Balance at December 31

    ￦ 174,480        153,337   
  

 

 

    

 

 

  

 

  (3) Details of overdue but not impaired, and impaired trade and other receivable as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                         
     December 31, 2013     December 31, 2012  
     Accounts
receivable - trade		     Other
receivables		     Accounts
receivable - trade		     Other
receivables		  

Neither overdue or impaired

    ￦ 1,169,946        622,679        1,093,481        636,292   

Overdue but not impaired

      32,705        —          25,502        —     

Impaired

      411,815        108,810        378,762        88,196   
  

 

 

    

 

 

    

 

 

    

 

 

  
     1,614,466        731,489        1,497,745        724,488   

Allowances for doubtful accounts

      (101,328 )      (73,152 )      (90,539 )      (62,798 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 1,513,138        658,337        1,407,206        661,690   
  

 

 

    

 

 

    

 

 

    

 

 

  

The Company establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.

 

  (4) The aging of overdue but not impaired accounts receivable as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Less than 1 month

    ￦ 9,549         3,699   

1 ~ 3 months

      6,975         3,686   

3 ~ 6 months

      2,565         9,175   

More than 6 months

      13,616         8,942   
  

 

 

     

 

 

  
   ￦ 32,705         25,502   
  

 

 

     

 

 

  

 

31

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

7. Investment Securities

 

  (1) Details of short-term investment securities as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Beneficiary certificates(*)

    ￦ 101,414         56,159   

Current portion of long-term investment securities

      628         242   
  

 

 

     

 

 

  
   ￦ 102,042         56,401   
  

 

 

     

 

 

  

 

(*) The distributions arising from beneficiary certificates as of December 31, 2013, were accounted for as accrued income.

 

  (2) Details of long-term available-for-sale financial assets as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  

Equity securities:

     

Marketable equity securities

    ￦ 574,321        584,029   

Unlisted equity securities(*1)

      22,870        18,814   

Equity investments(*2)

      111,792        115,120   
  

 

 

    

 

 

  
     708,983        717,963   

Debt securities:

     

Public bonds

      356        356   

Investment bonds(*3)

      20,992        15,816   
  

 

 

    

 

 

  
     21,348        16,172   
  

 

 

    

 

 

  

Total

      730,331        734,135   

Less current portion of long-term investment securities

      (628 )      (242 ) 
  

 

 

    

 

 

  

Long-term investment securities

    ￦ 729,703        733,893   
  

 

 

    

 

 

  

 

(*1) Unlisted equity securities whose fair value cannot be measured reliably are recorded at cost.
(*2) Equity investments are recorded at cost.
(*3) The Company classified convertible bonds of NanoEnTek, Inc. (carrying amount as of December 31, 2013: ￦20,532 million) as financial assets at fair value through profit or loss. The difference between acquisition cost and fair value is accounted for as finance income (loss).

 

32

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

8. Non-current Assets Held for Sale

A disposal contract for the Company’s ownership interests in SK Fans Co., Ltd., an associate, has been entered and investment in the associate was reclassified to non-current assets held for sale.

Non-current assets held for sale as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Investments in subsidiaries:

      

SKY Property Mgmt. Ltd.(*1)

    ￦ —           119,194   

Investments in associates:

      

TR Entertainment(*2)

      2,611         —     

SK Fans Co., Ltd.(*3)

      1,055         2,143   
  

 

 

     

 

 

  
   ￦ 3,666         121,337   
  

 

 

     

 

 

  

 

(*1) For the year ended December 31, 2013, the Company disposed its ownership interests of 27% in SKY Property Mgmt. Ltd., a subsidiary, to SK Innovation Co., Ltd., a related party and recognized ￦71,200 million of disposal gain.
(*2) For the year ended December 31, 2013, the Company entered into a disposal contract for ownership interests in TR Entertainment, and recognized the difference between contractual disposal price and carrying amount as impairment loss and classified to non-current assets held for sale.
(*3) For the year ended December 31, 2013, contract changes for SK Fans Co., Ltd. has been made and the Company recognized the difference between the changes and the existing contractual amount as impairment loss.

The assets classified as held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

 

9. Investments in Subsidiaries and Associates

 

  (1) Investments in subsidiaries and associates as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Investments in subsidiaries

    ￦ 3,453,988         3,315,205   

Investments in associates

      4,556,133         4,600,342   
  

 

 

     

 

 

  
   ￦ 8,010,121         7,915,547   
  

 

 

     

 

 

  

 

33

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

9. Investments in Subsidiaries and Associates, Continued

 

  (2) Details of investments in subsidiaries as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)  
     December 31, 2013      December 31,
2012		  
     Number of
shares		      Ownership
(%)		      Carrying
amount		      Carrying
amount		  

SK Telink Co., Ltd.

      1,082,272         83.5       ￦ 144,740         144,740   

SK Broadband Co., Ltd.

      149,638,354         50.6         1,242,247         1,242,247   

PS&Marketing Corporation

      46,000,000         100.0         213,934         213,934   

Service Ace Co., Ltd.

      4,385,400         100.0         21,927         21,927   

Service Top Co., Ltd.

      2,856,200         100.0         14,281         14,281   

Network O&S Co., Ltd.

      3,000,000         100.0         15,000         15,000   

SK Planet Co., Ltd.(*1)

      72,927,317         100.0         1,538,020         1,234,884   

SK Telecom China Holdings Co., Ltd.

      —           100.0         29,116         29,116   

SKY Property Mgmt. Ltd.(*2)

      —           —           —           264,850   

SKT Vietnam PTE. Ltd.(*3)

      180,476,700         73.3         2,364         26,264   

SKT Americas, Inc.

      122         100.0         76,764         72,786   

YTK Investment Ltd.

      —           100.0         69,464         69,464   

Atlas Investment

      —           100.0         60,347         59,122   

SK Global Healthcare Business Group Ltd.

      —           100.0         25,784         25,784   
        

 

 

     

 

 

  

Sub Total

            3,453,988         3,434,399   
        

 

 

     

 

 

  

Non-current assets held for sale(*2)

            —           (119,194 ) 
        

 

 

     

 

 

  
         ￦ 3,453,988         3,315,205   
        

 

 

     

 

 

  

 

(*1) The Company acquired additional 50% shares of SK Marketing & Company Co., Ltd., an associate, from SK Innovation Co., Ltd., a related party, and transferred its 100% shares of SK Marketing & Company Co., Ltd. to SK Planet Co., Ltd., and received 12,927,317 of new shares of SK Planet Co., Ltd. as a consideration. The additional interest in SK Planet Co., Ltd. is measured at the carrying value of the Company’s investments in SK Marketing & Company Co., Ltd. at the date of transaction.
(*2) The Company disposed its ownership interests of 27% in SKY Property Mgmt. Ltd., a subsidiary, to SK Innovation Co., Ltd., a related party and reclassified carrying value of the ownership interests of ￦145,656 million to investments in associates as the Company has less than 50% of the ownership interests.
(*3) The Company recognized the difference between recoverable amount and carrying amount of ￦23,900 million as impairment loss in relation to the ownership interests in SKT Vietnam PTE.Ltd., a subsidiary.

 

34

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

9. Investments in Subsidiaries and Associates, Continued

 

  (3) Details of investments in associates as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)

            
     December 31, 2013      December 31,
2012		  
     Number of
shares		      Ownership
percentage
(%)		      Carrying
amount		      Carrying
amount		  

SK Marketing & Company Co., Ltd.(*1)

      —           —           —           112,531   

SK China Company Ltd.(*2)

      720,000         9.6         47,830         47,830   

HappyNarae Co., Ltd.

      680,000         42.5         12,250         12,250   

Korea IT Fund(*3)

      190         63.3         220,957         220,957   

Wave City Development Co., Ltd.(*2)

      382,000         19.1         1,532         1,532   

HanaSK Card Co., Ltd.

      57,647,058         49.0         400,000         400,000   

Daehan Kanggun BcN Co., Ltd.

      1,675,126         29.0         8,340         8,340   

NanoEnTek, Inc.(*2)

      1,807,130         9.2         11,000         11,000   

TR Entertainment(*4,5)

      —           —           —           7,560   

SK Industrial Development China Co., Ltd.

      72,952,360         21.0         83,691         83,691   

Packet One Network(*5)

      1,153,902         27.0         60,706         140,139   

SK Technology Innovation Company

      9,800         49.0         85,873         85,873   

Lightsquared Inc.(*2,5)

      3,387,916         3.3         —           —     

SK hynix Inc.(*6)

      146,100,000         20.6         3,374,725         3,374,725   

SK MENA Investment B.V.

      9,772,686         32.1         14,485         14,485   

SK Latin America Investment S.A.

      9,448,937         32.1         14,243         14,243   

SKY Property Mgmt. Ltd.

      12,639         33.0         145,656         —     

SK Wyverns Baseball Club Co., Ltd. and others

      —           —           74,845         65,186   
        

 

 

     

 

 

  
           4,556,133         4,600,342   
        

 

 

     

 

 

  

 

(*1) Increased by ￦190,606 million as the Company acquired 50% shares from SK Innovation Co., Ltd., a related party, during the year ended December 31, 2013, and the entire ownership interests has been provided to SK Planet Co., Ltd. as a consideration for the investment in kind.
(*2) Classified as investments in associates because the Company can exercise significant influence over the associate through participation on the associate’s board of directors.
(*3) Classified as an investment in associate because the Company has less than 50% of the voting rights of the board of directors.
(*4) Classified as non-current assets held for sale as disposal contract has been entered during the year ended December 31, 2013.
(*5) Recognized the difference between recoverable amount and carrying amount for the year ended December 31, 2013, as impairment loss.
(*6) The Company’s ownership interests in SK hynix Inc. decreased as investors of convertible bonds issued by SK hynix Inc. exercised their conversion rights during the year ended December 31, 2013.

 

35

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

9. Investments in Subsidiaries and Associates, Continued

 

  (4) The market price of investments in listed subsidiaries as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, except for share data)                                          
     December 31, 2013      December 31, 2012  
     Market
value per
share
(In won)		      Number of
shares		      Market
price		      Market
value per
share
(In won)		      Number of
shares		      Market
price		  

SK Broadband Co., Ltd.

    ￦ 4,375         149,638,354         654,668         4,665         149,638,354         698,063   

 

10. Property and Equipment

 

  (1) Property and equipment as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                    
     December 31, 2013  
     Acquisition cost      Accumulated
depreciation		     Carrying amount  

Land

    ￦ 416,991         —          416,991   

Buildings

      1,015,619         (430,244 )      585,375   

Structures

      714,814         (351,721 )      363,093   

Machinery

      18,807,106         (13,862,018 )      4,945,088   

Other

      1,223,845         (751,013 )      472,832   

Construction in progress

      676,607         —          676,607   
  

 

 

     

 

 

    

 

 

  
   ￦ 22,854,982         (15,394,996 )      7,459,986   
  

 

 

     

 

 

    

 

 

  

 

(In millions of won)                          
     December 31, 2012  
     Acquisition cost      Accumulated
depreciation		     Accumulated
impairment loss		     Carrying
amount		  

Land

    ￦ 395,968         —          —          395,968   

Buildings

      1,004,058         (396,085 )      —          607,973   

Structures

      681,748         (318,384 )      —          363,364   

Machinery

      17,285,731         (12,740,389 )      (12,531 )      4,532,811   

Other

      1,430,451         (851,003 )      —          579,448   

Construction in progress

      639,526         —          —          639,526   
  

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 21,437,482         (14,305,861 )      (12,531 )      7,119,090   
  

 

 

     

 

 

    

 

 

    

 

 

  

 

36

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

10. Property and Equipment, Continued

 

  (2) Changes in property and equipment for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                       
     2013  
     Beginning
balance		      Acquisition
(*1)		      Disposal     Transfer     Depreciation     Ending
balance		  

Land

    ￦ 395,968         6,865         (21 )      14,179        —          416,991   

Buildings

      607,973         729         (139 )      11,045        (34,233 )      585,375   

Structures

      363,364         17,779         (18 )      15,315        (33,347 )      363,093   

Machinery

      4,532,811         205,190         (6,250 )      1,735,502        (1,522,165 )      4,945,088   

Other

      579,448         1,162,131         (3,491 )      (1,157,528 )      (107,728 )      472,832   

Construction in progress

      639,526         841,444         (25,105 )      (779,258 )      —          676,607   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 7,119,090         2,234,138         (35,024 )      (160,745 )      (1,697,473 )      7,459,986   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

 

(In millions of won)                                             
     2012  
     Beginning
balance		      Acquisition
(*1)		      Disposal     Transfer     Depreciation     Impairment
loss(*2)		     Ending
balance		  

Land

    ￦ 409,696         1,499         (28,642 )      13,415        —          —          395,968   

Buildings

      676,095         1,369         (37,618 )      5,926        (37,799 )      —          607,973   

Structures

      300,995         65,541         (81 )      30,632        (33,723 )      —          363,364   

Machinery

      3,581,275         233,841         (13,749 )      2,047,902        (1,303,927 )      (12,531 )      4,532,811   

Other

      640,317         1,478,701         (3,463 )      (1,439,656 )      (96,451 )      —          579,448   

Construction in progress

      651,791         1,103,944         (810 )      (1,115,399 )      —          —          639,526   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 6,260,169         2,884,895         (84,363 )      (457,180 )      (1,471,900 )      (12,531 )      7,119,090   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(*1) Acquisition for the years ended December 31, 2012 includes assets transferred of ￦1,265 million in relation to the transfer of Imagine business from SK Planet Co., Ltd.
(*2) The Company recognized impairment loss on property and equipment of ￦12,531 million in relation to the Digital Multimedia Broadcasting service.

 

37

Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

11. Goodwill

Goodwill as of December 31, 2013 and 2012 is as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Goodwill related to acquisition of Shinsegi Telecom, Inc.

    ￦ 1,306,236         1,306,236   

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 6.5% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 2.0% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Company’s long-term wireless business growth. Management of the Company does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

 

12. Intangible Assets

 

  (1) Intangible assets as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                    
     2013  
     Acquisition cost      Accumulated
depreciation		     Carrying amount  

Frequency use rights

    ￦ 3,033,879         (1,369,308 )      1,664,571   

Land use rights

      34,755         (25,003 )      9,752   

Industrial rights

      32,860         (23,747 )      9,113   

Development costs

      101,957         (101,957 )      —     

Facility usage rights

      43,461         (27,306 )      16,155   

Memberships(*1)

      82,815         —          82,815   

Other(*2)

      1,702,751         (1,245,990 )      456,761   
  

 

 

     

 

 

    

 

 

  
   ￦ 5,032,478         (2,793,311 )      2,239,167   
  

 

 

     

 

 

    

 

 

  

 

(In millions of won)                          
     2012  
     Acquisition cost      Accumulated
depreciation		     Accumulated
impairment		     Carrying
amount		  

Frequency use rights

    ￦ 2,837,385         (1,140,610 )      (2,907 )      1,693,868   

Land use rights

      31,284         (21,469 )      —          9,815   

Industrial rights

      31,846         (22,077 )      —          9,769   

Development costs

      125,477         (124,812 )      —          665   

Facility usage rights

      41,806         (25,020 )      —          16,786   

Memberships(*1)

      81,518         —          —          81,518   

Other(*2)

      1,522,516         (1,147,065 )      —          375,451   
  

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 4,671,832         (2,481,053 )      (2,907 )      2,187,872   
  

 

 

     

 

 

    

 

 

    

 

 

  

 

(*1) Memberships are classified as intangible assets with indefinite useful life and are not amortized.
(*2) Other intangible assets consist of computer software and usage rights to a research facility which the Company built and donated to a university which in turn the Company is given rights-to-use for a definite number of years.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Intangible Assets, Continued

 

  (2) Details of changes in intangible assets for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                        
     2013  
     Beginning
balance		      Acquisition      Disposal     Transfer      Amortization     Ending
balance		  

Frequency use rights(*)

    ￦ 1,693,868         1,046,833         (814,213 )      —           (261,917 )      1,664,571   

Land use rights

      9,815         4,275         (50 )      —           (4,287 )      9,753   

Industrial rights

      9,769         1,910         (74 )      —           (2,492 )      9,113   

Development costs

      665         —           —          —           (665 )      —     

Facility usage rights

      16,786         1,930         (75 )      9         (2,495 )      16,155   

Memberships

      81,518         2,131         (834 )      —           —          82,815   

Other

      375,451         53,599         (185 )      174,086         (146,191 )      456,760   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  
   ￦ 2,187,872         1,110,678         (815,431 )      174,095         (418,047 )      2,239,167   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

  

 

(*) The Company newly acquired 1.8GHz frequency use rights through auction during the year ended December 31, 2013 and provided the existing 1.8GHz frequency use rights as partial consideration in connection with the new acquisition. The Company recognized ￦199,613 million of loss on disposal of property and equipment and intangible assets with regard to this transaction.

 

(In millions of won)                                              
     2012  
     Beginning
balance		      Acquisition(*1)      Disposal     Transfer      Amortization     Impairment
loss(*2)		     Ending
balance		  

Frequency use rights

    ￦ 1,889,102         16,659         —          —           (208,986 )      (2,907 )      1,693,868   

Land use rights

      12,739         2,080         (80 )      —           (4,924 )      —          9,815   

Industrial rights

      8,328         4,252         —          —           (2,811 )      —          9,769   

Development costs

      1,186         —           —          931         (1,452 )      —          665   

Facility usage rights

      15,058         3,997         (121 )      108         (2,256 )      —          16,786   

Memberships

      80,607         2,318         (1,407 )      —           —          —          81,518   

Other

      357,775         51,230         (1,430 )      109,061         (141,185 )      —          375,451   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  
   ￦ 2,364,795         80,536         (3,038 )      110,100         (361,614 )      (2,907 )      2,187,872   
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

 

(*1) Acquisition for the year ended December 31, 2012 includes assets transferred of ￦200 million in relation to the transfer of Imagine business from SK Planet Co., Ltd.
(*2) The Company recognized impairment loss on intangible assets of ￦2,907 million in relation to the frequency use rights of the discontinued Digital Multimedia Broadcasting service.

 

39

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

12. Intangible Assets, Continued

 

  (3) Research and development expenditure recognized as expense for the years ended December 31, 2013 and 2012 are as follows:

 

     2013      2012  

Research and development costs expensed as incurred

    ￦ 231,767         213,162   

 

  (4) The carrying amount and residual useful lives of frequency usage rights as of December 31, 2013 are as follows, all of which are depreciated on a straight-line basis:

 

(In millions of won)                 
     Amount     

Description

    Commencement
of depreciation		    Completion of
depreciation

W-CDMA license

    ￦ 294,245       Frequency use rights relating to W-CDMA service    Dec. 2003    Dec. 2016

W-CDMA license

      48,933       Frequency use rights relating to W-CDMA service    Oct. 2010    Dec. 2016

800MHz license

      304,080       Frequency use rights relating to CDMA and LTE service    Jul. 2011    Jun. 2021

1.8GHz license

      1,004,960       Frequency use rights relating to LTE service    Sep. 2013    Dec. 2021

WiBro license

      12,353       WiBro service    Mar. 2012    Mar. 2019
  

 

 

           
   ￦ 1,664,571            
  

 

 

           

 

40

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

13. Borrowings and Debentures

 

  (1) Short-term borrowings as of December 31, 2013 and 2012 are as follows:

 

(In millions of won and thousands of U.S. dollars)                        

Lender

    Annual interest
rate (%)		    Maturity    December 31,
2013		      December 31,
2012		  

Woori Bank

    4.20    Jan. 10, 2013    ￦ —           100,000   

Kookmin Bank

    3.98    Jan. 10, 2013      —           100,000   
   3.48    Jan. 3, 2014      60,000         —     

CP

    2.98    Jan. 14, 2013      —           60,000   
   3.05    Jan. 25, 2013      —           20,000   
   3.10    Jan. 29, 2013      —           50,000   
   3.09    Jan. 3, 2014      100,000         —     
   3.09    Jan. 6, 2014      100,000         —     
        

 

 

     

 

 

  
         ￦ 260,000         330,000   
        

 

 

     

 

 

  

 

  (2) Long-term borrowings as of December 31, 2013 and 2012 are as follows:

 

(In millions of won and thousands of U.S. dollars)                       

Lender

    Annual interest
rate (%)		    Maturity    December 31,
2013		     December 31,
2012		  

Bank of Communications

    6M Libor + 0.29    Oct. 10, 2013    ￦ —         

 

 32,133

(USD 30,000

   

) 

Bank of China

    6M Libor + 0.29    Oct. 10, 2013      —         

 

 21,422

(USD 20,000

   

) 

DBS Bank

    6M Libor + 0.29    Oct. 10, 2013      —         

 

 26,778

(USD 25,000

   

) 

SMBC

    6M Libor + 0.29    Oct. 10, 2013      —         

 

 26,778

(USD 25,000

   

) 

Kookmin Bank and 13 others

    4.48    Feb. 14, 2015      —          350,000   

Export Kreditnamnden(*)

    1.70    Apr. 29, 2022     

 

 99,975

(USD 94,736

   

) 

     —     
        

 

 

    

 

 

  
           99,975        457,111   

Less present value discount on long-term borrowings

         (3,287 )      (1,668 ) 
        

 

 

    

 

 

  
           96,688        455,443   

Less current portion of bonds

            (11,563 )      (107,110 ) 
        

 

 

    

 

 

  
         ￦ 85,125        348,333   
        

 

 

    

 

 

  

 

(*) For the year ended December 31, 2013, the Company obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are redeemed by installment on an annual basis from 2014 to 2022.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

13. Borrowings and Debentures, Continued

 

  (3) Debentures as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, thousands of U.S. dollars, and thousands of other currencies)        
     Purpose    Maturity    Annual
interest rate
(%)		    December 31,
2013		     December 31,
2012		  

Unsecured private bonds

    Refinancing
fund		    2016    5.00    ￦ 200,000        200,000   

Unsecured private bonds

       2013    4.00      —          200,000   

Unsecured private bonds

       2014    5.00      200,000        200,000   

Unsecured private bonds

    Other fund    2015    5.00      200,000        200,000   

Unsecured private bonds

       2018    5.00      200,000        200,000   

Unsecured private bonds

       2013    6.92      —          250,000   

Unsecured private bonds

       2016    5.54      40,000        40,000   

Unsecured private bonds

       2016    5.92      230,000        230,000   

Unsecured private bonds

    Operating fund    2016    3.95      110,000        110,000   

Unsecured private bonds

       2021    4.22      190,000        190,000   

Unsecured private bonds

    Operating and
refinancing
fund		    2019    3.24      170,000        170,000   

Unsecured private bonds

       2022    3.30      140,000        140,000   

Unsecured private bonds

       2032    3.45      90,000        90,000   

Unsecured private bonds

    Operating fund    2023    3.03      230,000        —     

Unsecured private bonds

       2023    3.22      130,000        —     

Foreign global bonds

       2027    6.63      422,120        428,440   
              (USD 400,000 )      (USD 400,000 ) 

Exchangeable bonds (*3,4)

    Refinancing
fund		    2014    1.75      96,147        405,678   
              (USD 91,109 )      (USD 332,528 ) 

Floating rate notes (*1)

    Operating fund    2014    3M Libor
+ 1.60		      263,825        267,775   
              (USD 250,000 )      (USD 250,000 ) 

Floating rate notes (*2)

       2014    SOR rate +
1.20		      54,129        56,906   
              (SGD 65,000 )      (SGD 65,000 ) 

Swiss unsecured private bonds

       2017    1.75      356,601        351,930   
              (CHF 300,000 )      (CHF 300,000 ) 

Foreign global bonds

       2018    2.13      738,710        749,770   
              (USD 700,000 )      (USD 700,000 ) 

Australian unsecured private bonds

       2017    4.75      281,988        —     
              (AUD 300,000 )      —     

Floating rate notes (*1)

       2020    3M Libor
+ 0.88		      316,590        —     
              (USD 300,000 )      —     
           

 

 

    

 

 

  
              4,660,110        4,480,499   

Less discounts on bonds

               (34,193 )      (40,392 ) 
           

 

 

    

 

 

  
              4,625,917        4,440,107   

Less current portion of bonds

               (611,140 )      (447,996 ) 
           

 

 

    

 

 

  
            ￦ 4,014,777        3,992,111   
           

 

 

    

 

 

  

 

(*1) As of December 31, 2013, 3M Libor rate is 0.24%.
(*2) As of December 31, 2013, SOR rate is 0.21%.

 

42

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

13. Borrowings and Debentures, Continued

 

  (3) Debentures as of December 31, 2013 and 2012 are as follows: Continued

 

(*3) As of December 31, 2013, exchangeable bonds are classified as financial liabilities at fair value through profit or loss.
(*4) On April 7, 2009, the Company issued exchangeable bonds with a maturity of five years in the principal amount of USD 332,528,000 for USD 326,397,463 with a coupon rate of 1.75%.

The Company may redeem the principal amount after three years from the issuance date if the market price exceeds 130% of the exchange price during a predetermined period. The exchange right may be exercised during the period from May 18, 2009 to March 24, 2014.

Exchanges of notes for common shares may be prohibited under the Telecommunications Law or other legal restrictions which restrains foreign governments, individuals and entities from owning more than 49% of the Company’s voting stock. If such 49% ownership limitation is violated due to the exercise of exchange rights, the Company will pay the bond holder a cash settlement which will be determined at the average price of one day after a holder exercises its exchange right or the weighted average price for the following five or twenty business days. Unless either previously redeemed or exchanged, the notes are redeemable at 100% of the principal amount at maturity.

In accordance with a resolution of the general shareholder’s meeting on March 22, 2013 and a resolution of the Board of Directors’ meeting on July 25, 2013, the exchange price has changed from ￦197,760 to ￦189,121.

During 2013, the accumulated principal amount that was claimed for exchange is USD 268,977,000. For the year ended December 31, 2013, exchange of bonds in the principal amount of USD 170,223,000 was claimed and the Company granted 1,241,337 shares of treasury stock. The exchange of bonds in the principal amount of USD 98,754,000 was additionally claimed and cash was paid due to the limitation on foreign ownership under Article 6 of the Telecommunications Business Act. In addition, bonds in the principal amount of USD 6,505,000 were redeemed at par value due to the exercise of the Controlling Company’s early redemption rights.

As of December 31, 2013, exchange for the entire bonds in the principal amount of USD 57,046,000 was claimed and will be redeemed by cash during 2014. The Company recognized ￦134,232 million of financial costs in relation to the exchangeable bonds for the year ended December 31, 2013.

As of December 31, 2013, fair value of the exchangeable bonds is USD 91,108,508 and the exchange price is ￦189,121. The exchange price could be adjusted with the exchange rate of ￦1,383.40 per USD 1.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

14. Long-term Payables - Other

 

  (1) As of December 31, 2013 and 2012, long-term payables - other consist of payables related to the acquisition of W-CDMA licenses for 2.1GHz, 800MHZ, 2.3GHz and 1.8GHz frequencies as follows (Refer to note 12):

 

(In millions of won)                            
     Period of
repayment		      Coupon
rate(*1)		   Annual effective
interest rate(*2)		   September 30,
2013		     December 31,
2012		  

2.1GHz

      2012~2014       3.58%   5.89%   ￦ 17,533        35,067   

800MHz

      2013~2015       3.51%   5.69%     138,833        208,250   

2.3GHz

      2014~2016       3.00%   5.80%     8,650        8,650   

1.8GHz

      2012~2021       2.43~3.00%   4.84~5.25%     942,675        671,625   
         

 

 

    

 

 

  
            1,107,691        923,592   

Present value discount on long-term payables - other

       (72,170 )      (60,021 ) 
         

 

 

    

 

 

  
            1,035,521        863,571   

Less current portion of long-term payables – other

       (207,668 )      (161,575 ) 

Current portion of present value discount on long-term payables – other

       868        3,609   
         

 

 

    

 

 

  

Carrying amount at December 31, 2013

     ￦ 828,721        705,605   
         

 

 

    

 

 

  

 

(*1) The Company applied an annual interest rate equal to the previous year average lending rate of public funds financing account less 1%.
(*2) The Company estimated the discount rate based on its credit ratings and corporate bond yield rate as there is no market interest rate available for long-term accounts payables-other.

 

  (2) The repayment schedule of long-term payables - other as of December 31, 2013 is as follows:

 

(In millions of won)

    Amount  

2014

    ￦ 207,668   

2015

      190,134   

2016

      120,718   

2017 and thereafter

      589,171   
  

 

 

  
   ￦ 1,107,691   
  

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

15. Provisions

Change in provisions for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)  
     For the year ended December 31, 2013      As of December 31, 2013  
     Beginning
balance		      Increase      Utilization     Reversal     Ending
balance		      Current      Non-
current		  

Provision for handset subsidy(*1)

    ￦ 353,383         9,416         (308,876 )      —          53,923         53,334         589   

Provision for restoration(*2)

      32,791         3,761         (406 )      (3,973 )      32,173         13,225         18,948   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  
   ￦ 386,174         13,177         (309,282 )      (3,973 )      86,096         66,559         19,537   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

 

(In millions of won)  
     For the year ended December 31, 2012      As of December 31, 2012  
     Beginning
balance		      Increase      Utilization     Reversal     Ending
balance		      Current      Non-
current		  

Provision for handset subsidy

    ￦ 762,238         272,869         (677,286 )      (4,438 )      353,383         279,977         73,406   

Provision for restoration

      28,623         4,508         (282 )      (58 )      32,791         6,842         25,949   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  
   ￦ 790,861         277,377         (677,568 )      (4,496 )      386,174         286,819         99,355   
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

     

 

 

  

 

(*1) The Company recognizes a provision for handset subsidies given to the subscribers who purchase handsets on an installment basis.
(*2) In the course of the Company’s activities, base station and other assets are utilized on leased premises which are expected to have costs associated with restoring the location where these assets are situated upon ceasing their use on those premises. The associated cash outflows, which are long-term in nature, are generally expected to occur at the dates of exit of the assets to which they relate. These restoration costs are calculated on the basis of the identified costs for the current financial year, extrapolated into the future based on management’s best estimates of future trends in prices, inflation, and other factors, and are discounted to present value at a risk-adjusted rate specifically applicable to the liability. Forecasts of estimated future provisions are revised in light of future changes in business conditions or technological requirements. The Company records these restoration costs as property and equipments and subsequently allocates them to expense using a systematic and rational method over the asset’s useful life, and records the accretion of the liability as a charge to finance costs.

 

(2) The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period.

 

    

Key assumptions

Provision for handset subsidy    estimation based on historical service retention period data
Provision for restoration    estimation based on inflation assuming demolition of the relevant assets after six years

 

45

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

16. Defined Benefit Liabilities

 

  (1) Details of defined benefit liabilities as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  

Present value of defined benefit obligations

    ￦ 154,460        133,098   

Fair value of plan assets

      (131,574 )      (98,147 ) 
  

 

 

    

 

 

  
   ￦ 22,886        34,951   
  

 

 

    

 

 

  

 

  (2) Principal actuarial assumptions as of December 31, 2013 and 2012 are as follows:

 

     December 31, 2013   December 31, 2012

Discount rate for defined benefit obligations

    3.96%   3.56%

Expected rate of salary increase

    4.32%   5.20%

Discount rate for defined benefit obligation is determined based on the Company’s credit ratings and yield rate of corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Company’s historical promotion index, inflation rate and salary increase ratio in accordance with salary agreement.

 

  (3) Changes in defined benefit obligations for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)      For the year ended December 31  
       2013        2012  

Beginning balance

      ￦ 133,098           95,359   

Current service cost

        33,920           29,605   

Interest cost

        4,977           4,663   

Remeasurement

          

- Demographic assumption

        (981 )         —     

- Financial assumption

        (9,099 )         4,403   

- Adjustment based on experience

        3,837           10,572   

Benefit paid

        (15,566 )         (12,965 ) 

Others(*)

        4,274           1,461   
    

 

 

       

 

 

  

Ending balance

      ￦ 154,460           133,098   
    

 

 

       

 

 

  

 

(*) Others for the year ended December 31, 2013 include transfer to construction in progress and succession of liabilities in relation to employees transferred from affiliates. Others for the year ended December 31, 2012 include transfer to construction in progress and transfer from SK Planet Co., Ltd. in relation to the transfer of Imagine Business.

 

46

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

16. Defined Benefit Liabilities, Continued

 

  (4) Changes in plan assets for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Beginning balance

    ￦ 98,147        68,619   

Interest income

      3,535        2,464   

Actuarial gain

      1,578        677   

Contributions to the plan

      34,000        29,000   

Benefit paid

      (5,748 )      (2,802 ) 

Others(*)

      62        189   
  

 

 

    

 

 

  

Ending balance

    ￦ 131,574        98,147   
  

 

 

    

 

 

  

 

(*) Others for the year ended December 31, 2013 include changes from transfer from affiliates. Others for the year ended December 31, 2012 include transfer from SK Planet Co., Ltd. in relation to the transfer of Imaging business.

The Company expects to make a contribution of ￦24,672 million to the defined benefit plans during the next financial year.

 

  (5) Expenses recognized in profit and loss (included in labor cost in the accompanying consolidated statements of income) and capitalized into construction-in-progress for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Current service cost

    ￦ 33,920        29,605   

Interest cost

      4,977        4,663   

Interest income

      (3,535 )      (2,464 ) 
  

 

 

    

 

 

  
   ￦ 35,362        31,804   
  

 

 

    

 

 

  

The above costs are recognized in labor cost, research and development, or capitalized into construction-in-progress.

 

  (6) Details of plan assets as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Equity instruments

    ￦ 405         55   

Debt instruments

      33,320         24,199   

Short-term financial instruments, etc.

      97,849         73,893   
  

 

 

     

 

 

  
   ￦ 131,574         98,147   
  

 

 

     

 

 

  

Actual return on plan assets for the years ended December 31, 2013 and 2012 amounted to ￦5,113 million and ￦3,141 million, respectively.

 

  (7) As of December 31, 2013, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:

 

(In millions of won)             
     Increase     Decrease  

Discount rate (if changed by 1%)

    ￦ (11,119 )      11,923   

Expected salary increase rate

      12,061        (11,342 ) 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

16. Defined Benefit Liabilities, Continued

 

The sensitivity analysis does not consider dispersion of all cashflows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

Weighted average durations of defined benefit obligations as of December 31, 2013 and 2012 are 8.49 years and 8.44 years, respectively.

 

17. Derivative Instruments

 

  (1) Currency swap contracts under cash flow hedge accounting as of December 31, 2013 are as follows:

 

(In thousands of foreign currencies)

Borrowing date

   

Hedged item

   

Hedged risk

   

Contract type

   

Financial institution

    Duration of
contract
Jul. 20, 2007   

Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds

face value of USD 400,000)

    Foreign currency risk    Currency swap    Morgan Stanley and five other banks    Jul. 20, 2007 ~

Jul. 20, 2027

Dec. 15, 2011   

Floating-to-fixed cross currency interest rate swap

(Singapore dollar denominated bonds face value of SGD 65,000)

    Foreign currency risk and the interest rate risk    Currency interest rate swap    United Overseas Bank    Dec. 15, 2011 ~

Dec. 12, 2014

Dec. 15, 2011   

Floating-to-fixed cross currency interest rate swap

(U.S. dollar denominated bonds face value of USD 250,000)

    Foreign currency risk and the interest rate risk    Currency interest rate swap    DBS Bank and Citi Bank    Dec. 15, 2011 ~

Dec. 12, 2014

Jun. 12, 2012    Fixed-to-fixed cross currency swap (Swiss Franc denominated bonds face value of CHF 300,000)    Foreign currency risk    Currency swap    Citibank and five other banks    Jun. 12, 2012 ~

Jun.12, 2017

Nov. 1, 2012    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)    Foreign currency risk    Currency swap    Barclays and nine other banks    Nov. 1, 2012 ~

May. 1, 2018

Jan. 17, 2013    Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of AUD 300,000)    Foreign currency risk    Currency swap    BNP Paribas and three other banks    Jan. 17, 2013 ~

Nov. 17, 2017

Mar. 7, 2013   

Floating-to-fixed cross currency interest rate swap

(U.S. dollar denominated bonds face value of USD 300,000)

    Foreign currency risk and the interest rate risk    Currency interest rate swap    DBS Bank    Mar. 7, 2013 ~

Mar. 7, 2020

Dec. 16, 2013    Fixed-to-fixed cross currency swap (Australia dollar denominated bonds face value of USD 94,736)    Foreign currency risk    Currency swap    Deutsche bank    Dec.16, 2013 ~

Apr. 29, 2022

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

17. Derivative Instruments, Continued

 

  (2) As of December 31, 2013, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments are as follows:

 

(In millions of won, thousands of foreign currencies)                                   
     Fair value  

Hedged item

   

Accumulated
gain (loss) on
valuation of
derivatives

     

Tax effect

     

Accumulated
foreign
currency
translation
gain (loss)

     

Others(*)

     

Fair value

  

Non-current assets:

               

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds face value of USD 400,000)

    ￦ (42,772)         (13,656)         (34,853)         129,806         38,525   

Floating-to-fixed cross currency interest rate swap
(U.S. dollar denominated bonds face value of USD 300,000)

      8,822         2,816         (8,451)         —           3,187   
              

 

 

  

Total assets

                ￦ 41,712   
              

 

 

  

Current liabilities:

               

Floating-to-fixed cross currency interest rate swap
(U.S. dollar denominated bonds face value of USD 250,000)

    ￦ 5,871         1,875         (25,602)         —           (17,856)   

Floating-to-fixed cross currency interest rate swap
(U.S. dollar denominated bonds face value of SGD 65,000)

      7         2         (3,323)         —           (3,314)   
              

 

 

  
                 (21,170)   
              

 

 

  

Non-current liabilities:

               

Fixed-to-fixed cross currency swap
(Swiss Franc denominated bonds face value of CHF 300,000)

      (5,275)         (1,684)         (6,902)         —           (13,861)   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds face value of USD 700,000)

      (8,400)         (2,682)         (24,435)         —           (35,517)   

Fixed-to-fixed cross currency swap
(Australia dollar denominated bonds face value of AUD 300,000)

      4,262         1,361         (53,295)         —           (47,672)   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds face value of USD 94,736)

      (2,548)         (813)         201         —           (3,160)   
              

 

 

  

Total liabilities

                ￦ (100,210)   
              

 

 

  

 

(*) Cash flow hedge accounting has been applied to the relevant contract from May 12, 2010. Others represent gain on valuation of currency swap incurred prior to the application of hedge accounting and was recognized through profit or loss prior to the year ended December 31, 2012.

 

49

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

18. Share Capital and Capital Surplus (Deficit) and Other Capital Adjustments

The Company’s outstanding share capital consists entirely of common stock with a par value of ￦500. The number of authorized, issued and outstanding common shares and capital surplus (deficit) and other capital adjustments as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, except for share data)             
     December 31, 2013     December 31, 2012  

Authorized shares

      220,000,000        220,000,000   

Issued shares(*)

      80,745,711        80,745,711   

Share capital

     

Common stock

    ￦ 44,639        44,639   

Capital surplus (deficit) and other capital adjustments:

     

Paid-in surplus

      2,915,887        2,915,887   

Treasury stock

      (2,139,683 )      (2,410,451 ) 

Loss on disposal of treasury stock

      (18,087 )      (18,855 ) 

Hybrid bond (note 20)

      398,518        —     

Others

      (722,741 )      (722,741 ) 
  

 

 

    

 

 

  
   ￦ 433,894        (236,160 ) 
  

 

 

    

 

 

  

 

(*) During the years ended December 31, 2003, 2006 and 2009, the Company retired 7,002,235 shares, 1,083,000 shares and 448,000 shares, respectively, of treasury stock which reduced its retained earnings before appropriation in accordance with the Korean Commercial Law. As a result, the Company’s outstanding shares have decreased without change in the share capital.

Changes in number of shares outstanding for the years ended December 31, 2013 and 2012 are as follows:

 

(In shares)    2013      2012  
     Issued
shares		      Treasury
stock		     Outstanding
shares		      Issued
shares		      Treasury
stock		      Outstanding
shares		  

Beginning issued shares

      80,745,711         11,050,712        69,694,999         80,745,711         11,050,712         69,694,999   

Disposal of treasury stock

      —           (1,241,337 )      1,241,337         —           —           —     
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

Ending issued shares

      80,745,711         9,809,375        70,936,336         80,745,711         11,050,712         69,694,999   
  

 

 

     

 

 

    

 

 

     

 

 

     

 

 

     

 

 

  

 

50

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

19. Treasury Stock

The Company acquired treasury stock to provide stock dividends, issue new stocks, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices when needed. Treasury stock as of December 31, 2013 and 2012 are as follows:

 

(In millions of won, shares)              
     December 31, 2013      December 31, 2012  

Number of shares

      9,809,375         11,050,712   

Amount

    ￦ 2,139,683         2,410,451   

The Company granted 1,241,337 shares of treasury stock (acquisition cost: ￦270,768 million) due to the exchange claim by the holders of exchangeable bonds from May 14, 2013 to October 24, 2013.

 

20. Hybrid Bond

Hybrid bond classified as equity as of December 31, 2013 is as follows:

 

(In millions of won)                         
    

Type

    Issuance date    Maturity   Annual
interest
rate (%)		   Amount  

Private hybrid bond

    Blank coupon unguaranteed subordinated bond    June 7, 2013    June 7, 2073(*1)   4.21(*2)   ￦ 400,000   

Issuance costs

                (1,482 ) 
            

 

 

  
             ￦ 398,518   
            

 

 

  

Hybrid bond issued by the Company is classified as equity as there is no contractual obligation for delivery of financial assets to the underwriter.

 

(*1) The Company is able to extend the maturity under the same issuance terms without any notice or announcement.
(*2) Annual interest rate is adjusted after five years from the issuance date.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

21. Retained Earnings

 

  (1) Retained earnings as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Appropriated:

      

Legal reserve

    ￦ 22,320         22,320   

Reserve for research & manpower development

      155,767         220,000   

Reserve for business expansion

      9,376,138         9,106,138   

Reserve for technology development

      2,271,300         1,901,300   
  

 

 

     

 

 

  
     11,825,525         11,249,758   

Unappropriated

      840,174         1,164,223   
  

 

 

     

 

 

  
   ￦ 12,665,699         12,413,981   
  

 

 

     

 

 

  

 

  (2) Legal reserve

The Korean Commercial Code requires the Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. The legal reserve may not be utilized for cash dividends, but may only be used to offset a future deficit, if any, or may be transferred to share capital.

 

  (3) Reserve for research & manpower development

The reserve for research and manpower development was appropriated in order to recognize certain tax deductible benefits through the early recognition of future expenditures for tax purposes. These reserves will be reversed from appropriated and retained earnings in accordance with the relevant tax laws. Such reversal will be included in taxable income in the year of reversal.

 

52

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

22. Statements of Appropriation of Retained Earnings

Details of appropriations of retained earnings for the years ended December 31, 2013 and 2012 are as follows:

Date of appropriation for 2013: March 21, 2014

Date of appropriation for 2012: March 22, 2013

 

(In millions of won)             
     2013     2012  

Unappropriated retained earnings:

     

Unappropriated retained earnings

    ￦ 3,018        1,989   

Remeasurement of defined benefit obligations

      5,927        (10,838 ) 

Interim dividends – ￦1,000 per share,

200% on par value

      (70,508 )      (69,695 ) 

Interest on hybrid bond

      (8,420 )      —     

Profit

      910,157        1,242,767   
  

 

 

    

 

 

  
     840,174        1,164,223   
  

 

 

    

 

 

  

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

      100,000        270,000   

Reserve for technology development

      145,000        370,000   

Cash dividends – ￦8,400 per share,

1,680% on par value

      595,865        585,438   
  

 

 

    

 

 

  
     900,865        1,225,438   
  

 

 

    

 

 

  

Unappropriated retained earnings to be carried over to subsequent year

    ￦ 3,542        3,018   
  

 

 

    

 

 

  

 

53

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

23. Reserves

 

  (1) Details of reserves, net of taxes, as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     December 31, 2013     December 31, 2012  

Unrealized fair value of available-for-sale financial assets

    ￦ 211,209        206,414   

Unrealized fair value of derivatives

      (40,033 )      (51,826 ) 
  

 

 

    

 

 

  
   ￦ 171,176        154,588   
  

 

 

    

 

 

  

 

  (2) Changes in reserves for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013  
     Net change in
unrealized fair
value  of
available-for-sale
financial assets		     Net change in
unrealized fair
value of
derivatives		     Total  

Balance at January 1, 2013

      206,414        (51,826 )      154,588   

Changes

      6,326        15,058        21,384   

Tax effect

      (1,531 )      (3,265 )      (4,796 ) 
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2013

    ￦ 211,209        (40,033 )      171,176   
  

 

 

    

 

 

    

 

 

  

 

(In millions of won)    2012  
     Net change in
unrealized fair
value of
available-for-sale
financial assets		     Net change in
unrealized fair
value of
derivatives		     Total  

Balance at January 1, 2012

      352,617        (32,123 )      320,494   

Changes

      (192,879 )      (24,266 )      (217,145 ) 

Tax effect

      46,676        4,563        51,239   
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2012

    ￦ 206,414        (51,826 )      154,588   
  

 

 

    

 

 

    

 

 

  

 

54

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

23. Reserves, Continued

 

  (3) Details of change in fair value of available-for-sale financial assets for the years ended December 31, 2013 and 2012 are as follows

 

(In millions of won)    2013  
     Before taxes      Income tax effect     After taxes  

Balance at January 1, 2013

    ￦ 272,314         (65,900 )      206,414   

Amount recognized as other comprehensive income during the year

      6,326         (1,531 )      4,795   

Amount reclassified through profit or loss

      —           —          —     
  

 

 

     

 

 

    

 

 

  

Balance at December 31, 2013

    ￦ 278,640         (67,431 )      211,209   
  

 

 

     

 

 

    

 

 

  

 

(In millions of won)    2012  
     Before taxes     Income tax effect     After taxes  

Balance at January 1, 2012

    ￦ 465,193        (112,576 )      352,617   

Amount recognized as other comprehensive income during the year

      (37,609 )      9,101        (28,508 ) 

Amount reclassified through profit or loss

      (155,270 )      37,575        (117,695 ) 
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2012

    ￦ 272,314        (65,900 )      206,414   
  

 

 

    

 

 

    

 

 

  

 

  (4) Details of change in valuation of derivatives for the years ended December 31, 2013 and 2012 are as follows.

 

(In millions of won)    2013  
     Before taxes     Income tax effect     After taxes  

Balance at January 1, 2013

    ￦ (67,871 )      16,045        (51,826 ) 

Amount recognized as other comprehensive income during the year

      12,404        (3,002 )      9,402   

Amount reclassified through profit or loss

      2,654        (263 )      2,391   
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2013

    ￦ (52,813 )      12,780        (40,033 ) 
  

 

 

    

 

 

    

 

 

  

 

(In millions of won)    2012  
     Before taxes     Income tax effect     After taxes  

Balance at January 1, 2012

    ￦ (43,606 )      11,483        (32,123 ) 

Amount recognized as other comprehensive income during the year

      (19,827 )      4,798        (15,029 ) 

Amount reclassified through profit or loss

      (4,438 )      (236 )      (4,674 ) 
  

 

 

    

 

 

    

 

 

  

Balance at December 31, 2012

    ￦ (67,871 )      16,045        (51,826 ) 
  

 

 

    

 

 

    

 

 

  

 

55

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

24. Other Operating Expenses

Details of other operating expenses for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013      2012  

Other Operating Expenses:

      

Communication expenses

    ￦ 49,789         59,398   

Utilities

      168,073         147,442   

Taxes and dues(*)

      19,184         81,145   

Repair

      191,489         185,588   

Research and development

      231,767         213,162   

Training

      27,847         29,295   

Bad debt for accounts receivables – trade

      32,051         22,502   

Reversal of allowance for doubtful accounts

      —           (4,846 ) 

Other

      48,743         49,675   
  

 

 

     

 

 

  
   ￦ 768,943         783,361   
  

 

 

     

 

 

  

 

(*) Penalties in taxes and dues until the year ended December 31, 2012 were included in taxes and dues until the year ended December 31, 2012 while penalties were included in others (other non-operating expense) starting from the year ended December 31, 2013.

 

25. Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013      2012  

Other Non-operating Income:

      

Gain on disposal of property and equipment and intangible assets

    ￦ 1,869         142,988   

Others(*1)

      45,749         18,768   
  

 

 

     

 

 

  
   ￦ 47,618         161,756   
  

 

 

     

 

 

  

Other Non-operating Expenses:

      

Loss on disposal of property and equipment and intangible assets

    ￦ 233,611         9,628   

Impairment loss on property and equipment, and intangible assets

      —           15,438   

Donations

      59,820         77,357   

Bad debt for accounts receivable – other

      20,784         21,845   

Others(*2)

      103,037         9,379   
  

 

 

     

 

 

  
   ￦ 417,252         133,647   
  

 

 

     

 

 

  

 

(*1) Primarily comprised of VAT adjustments and compensation for typhoon damage.
(*2) Primarily comprised of penalties and legal costs.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

26. Finance Income and Costs

 

  (1) Details of finance income and costs for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013      2012  

Finance Income:

      

Interest income

    ￦ 32,265         52,408   

Dividends

      20,640         30,568   

Gain on foreign currency transactions

      9,260         3,341   

Gain on foreign currency translations

      699         158   

Gain on valuation of financial assets at fair value through profit or loss

      5,177         —     

Gain on disposal of long-term investment securities

      5,439         269,352   

Gain on settlement of derivatives

      7,716         26,103   
  

 

 

     

 

 

  
   ￦ 81,196         381,930   
  

 

 

     

 

 

  
(In millions of won)    2013      2012  

Finance Costs:

      

Interest expense

    ￦ 274,190         318,183   

Loss on foreign currency transactions

      13,607         4,895   

Loss on foreign currency translations

      662         746   

Loss on disposal of long-term investment securities

      73         9,136   

Loss on settlement of derivatives

      —           1,232   

Loss on valuation of financial assets at fair value through profit or loss(*2)

      —           1,262   

Loss relating to financial liabilities at fair value through profit or loss(*1)

      134,232         7,793   

Other finance costs

      —           189,951   
  

 

 

     

 

 

  
   ￦ 422,764         533,198   
  

 

 

     

 

 

  

 

(*1) Loss relating to financial liabilities at fair value through profit or loss for the year ended December 31, 2013 related to exchangeable bonds (face amount of USD 326,397,463) due to the valuation loss from rising stock prices and loss on redemption of debenture upon the exchange claims.
(*2) See note 26(5).

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

26. Finance Income and Costs, Continued

 

  (2) Details of interest income included in finance income for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Interest income on cash equivalents and deposits

    ￦ 18,677         29,361   

Interest income on installment receivables and others

      13,588         23,047   
  

 

 

     

 

 

  
   ￦ 32,265         52,408   
  

 

 

     

 

 

  

 

  (3) Details of interest expense included in finance costs for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Interest expense on bank overdrafts and borrowings

    ￦ 22,786         107,211   

Interest expense on debentures

      211,124         167,770   

Others

      40,280         43,202   
  

 

 

     

 

 

  
   ￦ 274,190         318,183   
  

 

 

     

 

 

  

 

58

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

26. Finance Income and Costs, Continued

 

  (4) Finance income and costs by categories of financial instruments for the years ended December 31, 2013 and 2012 are as follows. Bad debt expenses (reversal of allowance for doubtful accounts) for accounts receivable – trade, loans and receivables are excluded and are explained in note 6.

(i) Finance income and costs

 

(In millions of won)              
     2013      2012  
     Finance
income		      Finance
costs		      Finance
income		      Finance
costs		  

Financial Assets:

            

Financial asset at fair value through profit or loss

    ￦ 5,177         —           —           1,262   

Available-for-sale financial assets

      27,061         73         301,925         199,088   

Loans and receivables

      40,502         14,219         53,791         5,637   

Derivative designated as hedging instrument

      7,716         —           26,103         1,231   
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      80,456         14,292         381,819         207,218   
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial Liabilities:

            

Financial liability at fair value through profit or loss

      —           134,232         —           7,793   

Financial liability valuate as amortised cost

      740         274,240         111         318,187   
  

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      740         408,472         111         325,980   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 81,196         422,764         381,930         533,198   
  

 

 

     

 

 

     

 

 

     

 

 

  

(ii) Other comprehensive income

 

(In millions of won)             
     2013     2012  

Financial Assets:

     

Available-for-sale financial assets

    ￦ 4,795        (146,203 ) 

Derivative designated as hedging instrument

      12,810        (19,869 ) 
  

 

 

    

 

 

  

Subtotal

      17,605        (166,072 ) 
  

 

 

    

 

 

  

Financial Liabilities:

     

Derivative designated as hedging instrument

      (1,017 )      166   
  

 

 

    

 

 

  

Subtotal

      (1,017 )      166   
  

 

 

    

 

 

  

Total

    ￦ 16,588        (165,906 ) 
  

 

 

    

 

 

  

 

  (5) Details of impairment losses for financial assets for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Available-for-sale financial assets

    ￦ —           189,951   

Bad debt for accounts receivable – trade

      32,051         22,502   

Bad debt for accounts receivable – other

      20,784         21,845   
  

 

 

     

 

 

  
   ￦ 52,835         234,298   
  

 

 

     

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

27. Income Tax Expense

 

  (1) Income tax expenses for the years ended December 31, 2013 and 2012 consist of the following:

 

(In millions of won)             
     2013     2012  

Current tax expense

     

Current tax payable

    ￦ 173,915        161,010   

Adjustments recognized in the period for current tax of prior periods

      (24,665 )      (68,414 ) 
  

 

 

    

 

 

  
     149,250        92,596   
  

 

 

    

 

 

  

Deferred tax expense

     

Changes in net deferred tax assets

      168,324        156,657   

Tax directly charged to equity

      (6,934 )      54,699   
  

 

 

    

 

 

  
     161,390        211,356   
  

 

 

    

 

 

  

Income tax for continuing operation

    ￦ 310,640        303,952   
  

 

 

    

 

 

  

 

  (2) The difference between income taxes computed using the statutory corporate income tax rates and the recorded income taxes for the years ended December 31, 2013 and 2012 is attributable to the following:

 

(In millions of won)             
     2013     2012  

Income taxes at statutory income tax rate

    ￦ 294,971        373,844   

Non-taxable income

      (34,067 )      (4,716 ) 

Non-deductible expenses

      65,717        16,811   

Tax credit and tax reduction

      (36,290 )      (69,515 ) 

Changes in unrealizable deferred taxes

      52,346        20,798   

Others (Income tax refund, tax effect from statutory tax rate change, etc.)

      (32,037 )      (33,270 ) 
  

 

 

    

 

 

  

Income tax for continuing operation

    ￦ 310,640        303,952   
  

 

 

    

 

 

  

 

  (3) Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

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

    ￦ (1,531 )      46,676   

Gain or loss on valuation of derivatives

      (3,265 )      4,563   

Remeasurement of defined benefit obligations

      (1,893 )      3,460   

Loss on disposal of treasury stock

      (245 )      —     
  

 

 

    

 

 

  
   ￦ (6,934 )      54,699   
  

 

 

    

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

27. Income Tax Expense, Continued

 

  (4) Details of changes in deferred tax assets (liabilities) for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)    2013  
     Beginning     Deferred tax
expense
(income)		     Directly added
to (deducted
from) equity		     Ending  

Deferred tax assets (liabilities) related to temporary differences

         

Allowance for doubtful accounts

    ￦ 36,945        6,407        —          43,352   

Accrued interest income

      (1,004 )      (371 )      —          (1,375 ) 

Available-for-sale financial assets

      12,156        (20,350 )      (1,531 )      (9,725 ) 

Investments in subsidiaries and associates

      81,416        3,882        —          85,298   

Property and equipment (depreciation)

      (235,440 )      (73,217 )      —          (308,657 ) 

Provisions

      85,519        (72,470 )      —          13,049   

Retirement benefit obligation

      9,573        226        (1,893 )      7,906   

Gain or loss on valuation of derivatives

      16,046        —          (3,265 )      12,781   

Gain or loss on foreign currency translation

      19,706        (126 )      —          19,580   

Tax free reserve for research and manpower development

      (31,089 )      1,025        —          (30,064 ) 

Goodwill relevant to leased line

      68,675        (37,650 )      —          31,025   

Unearned revenue (activation fees)

      97,110        (43,698 )      —          53,412   

Others

      (35,890 )      74,952        (245 )      38,817   
  

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ 123,723        (161,390 )      (6,934 )      (44,601 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

 

61

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

27. Income Tax Expense, Continued

 

(In millions of won)    2012  
     Beginning     Deferred tax
expense
(income)		     Directly added
to (deducted
from) equity		      Ending  

Deferred tax assets (liabilities) related to temporary differences

          

Allowance for doubtful accounts

    ￦ 25,065        11,880        —           36,945   

Accrued interest income

      (1,277 )      273        —           (1,004 ) 

Available-for-sale financial assets

      (82,304 )      47,784        46,676         12,156   

Investments in subsidiaries and associates

      61,468        19,948        —           81,416   

Property and equipment (depreciation)

      (142,651 )      (92,789 )      —           (235,440 ) 

Provisions

      184,462        (98,943 )      —           85,519   

Retirement benefit obligation

      10,729        (4,616 )      3,460         9,573   

Gain or loss on valuation of derivatives

      11,483        —          4,563         16,046   

Gain or loss on foreign currency translation

      9,268        10,438        —           19,706   

Tax free reserve for research and manpower development

      (53,240 )      22,151        —           (31,089 ) 

Goodwill relevant to leased line

      116,287        (47,612 )      —           68,675   

Unearned revenue (activation fees)

      116,512        (19,402 )      —           97,110   

Others

      24,578        (60,468 )      —           (35,890 ) 
  

 

 

    

 

 

    

 

 

     

 

 

  
   ￦ 280,380        (211,356 )      54,699         123,723   
  

 

 

    

 

 

    

 

 

     

 

 

  

 

  (5) Details of temporary differences not recognized as deferred tax assets in the statements of financial position as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Allowance for doubtful accounts

    ￦ 77,405         77,405   

Investments in subsidiaries and associates

      626,620         410,313   

Other temporary differences

      51,150         51,150   
  

 

 

     

 

 

  
   ￦ 755,175         538,868   
  

 

 

     

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

28. Earnings per Share

 

  (1) Basic earnings per share

 

  1) Basic earnings per share for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In millions of won, shares)             
     2013     2012  

Profit for the period

    ￦ 910,157        1,242,767   

Interest on hybrid bond

      (8,420 )      —     
  

 

 

    

 

 

  

Profit for the period on common shares

      901,737        1,242,767   

Weighted average number of common shares outstanding

      70,247,592        69,694,999   
  

 

 

    

 

 

  

Basic earnings per share (In won)

    ￦ 12,837        17,832   
  

 

 

    

 

 

  

 

  2) The weighted average number of common shares outstanding for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In millions of won, shares)             
     2013     2012  

Outstanding common shares at January 1

    ￦ 80,745,711        80,745,711   

Effect of treasury stock

      (10,498,119 )      (11,050,712 ) 
  

 

 

    

 

 

  

Weighted average number of common shares outstanding

    ￦ 70,247,592        69,694,999   
  

 

 

    

 

 

  

 

  (2) Diluted earnings per share

 

  1) Diluted earnings per share for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In millions of won, shares)              
     2013(*)      2012  

Profit for the period

    ￦ 901,737         1,242,767   

Effect of exchangeable bonds

      —           10,800   
  

 

 

     

 

 

  

Profit for the period on common shares

      901,737         1,253,567   

Diluted weighted average number of common shares outstanding

      70,247,592         72,021,148   
  

 

 

     

 

 

  

Diluted earnings per share (In won)

    ￦ 12,837         17,406   
  

 

 

     

 

 

  

 

(*) The number of common shares outstanding in respect of the exchangeable common shares of exchangeable bonds is excluded from the diluted earnings per share calculation for the year ended December 31, 2013 as the effect of exchangeable bond would have been anti-dilutive (the weighted average number of diluted shares of 688,744); thus, diluted earnings per share for the year ended December 31, 2013 is the same as basic earnings per share.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

28. Earnings per Share, Continued

 

  2) The weighted average number of common shares outstanding for the years ended December 31, 2013 and 2012 are calculated as follows:

 

(In millions of won, shares)              
     2013      2012  

Weighted average number of common shares outstanding

    ￦ 70,247,592         69,694,999   

Effect of exchangeable bonds(*)

      —           2,326,149   
  

 

 

     

 

 

  

Diluted weighted average number of common shares outstanding

    ￦ 70,247,592         72,021,148   
  

 

 

     

 

 

  

 

(*) Effect of exchangeable bonds represents weighted average number of common shares outstanding in respect of the exchangeable common shares of exchangeable bonds, which could be exchanged to treasury stock.

 

29. Dividends

 

  (1) Details of dividends declared

Details of dividend declared for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won, except for face value and share data)        

Year

   

Dividend type

    Number of shares
outstanding		      Face value
(In won)		      Dividend
ratio		     Dividends  
2013    Cash dividends (Interim)      70,508,482         500         200 %    ￦ 70,508   
   Cash dividends (Year-end)      70,936,336         500         1,680 %      595,865   
             

 

 

  
              ￦ 666,373   
             

 

 

  
2012    Cash dividends (Interim)      69,694,999         500         200 %    ￦ 69,695   
   Cash dividends (Year-end)      69,694,999         500         1,680 %      585,438   
             

 

 

  
              ￦ 655,133   
             

 

 

  

 

  (2) Dividends payout ratio

Dividends payout ratios for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)

Year

    Dividends calculated      Profit      Dividends payout ratio

2013

      ￦666,373         910,157       73.22%

2012

      ￦655,133         1,242,767       52.72%

 

  (3) Dividends yield ratio

Dividends yield ratios for the years ended December 31, 2013 and 2012 are as follows:

 

(In won)

Year

   

Dividend type

    Dividend per
share		      Closing price at
settlement		      Dividend yield
ratio
2013    Cash dividends      9,400         230,000       4.09%
2012    Cash dividends      9,400         152,500       6.16%

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

30. Categories of Financial Instruments

 

  (1) Financial assets by categories as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                                   
     December 31, 2013  
     Financial
assets at
fair value
through
profit or
loss		      Available-
for-sale
financial
assets		      Loans and
receivables		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Cash and cash equivalents

    ￦ —           —           448,459         —           448,459   

Financial instruments

      —           —           173,569         —           173,569   

Short-term investment securities

      —           102,042         —           —           102,042   

Long-term investment securities(*1)

      20,532         709,171         —           —           729,703   

Accounts receivable - trade

      —           —           1,513,138         —           1,513,138   

Loans and other receivables(*2)

      —           —           658,337         —           658,337   

Derivative financial assets

      —           —           —           41,712         41,712   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 20,532         811,213         2,793,503         41,712         3,666,960   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(In millions of won)                                   
     December 31, 2012  
     Financial
assets at
fair value
through
profit or
loss		      Available-
for-sale
financial
assets		      Loans and
receivables		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Cash and cash equivalents

    ￦ —           —           256,577         —           256,577   

Financial instruments

      —           —           179,369         —           179,369   

Short-term investment securities

      —           56,401         —           —           56,401   

Long-term investment securities(*1)

      15,356         718,537         —           —           733,893   

Accounts receivable - trade

      —           —           1,407,206         —           1,407,206   

Loans and other receivables(*2)

      —           —           661,689         —           661,689   

Derivative financial assets

      —           —           —           61,959         61,959   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 15,356         774,938         2,504,841         61,959         3,357,094   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(*1) Long-term investment securities of which the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured, were designated as financial assets at fair value through profit or loss.

 

65

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

30. Categories of Financial Instruments, Continued

 

  (1) Financial assets by categories as of December 31, 2013 and 2012 are as follows, Continued:

 

  (*2) Details of loans and other receivables as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Short-term loans

    ￦ 72,198         75,449   

Accounts receivable - other

      388,475         383,048   

Accrued income

      5,682         4,147   

Long-term loans

      39,925         49,672   

Guarantee deposits

      152,057         149,373   
  

 

 

     

 

 

  
   ￦ 658,337         661,689   
  

 

 

     

 

 

  

 

  (2) Financial liabilities by categories as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)                            
     December 31, 2013  
     Financial
liabilities at
fair value
through
profit or
loss		      Financial
liabilities
measured at
amortized
cost		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Derivative financial liabilities

    ￦ —           —           121,380         121,380   

Borrowings

      —           356,688         —           356,688   

Debentures(*1)

      96,147         4,529,770         —           4,625,917   

Accounts payable - other and others(*2)

      —           3,279,604         —           3,279,604   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 96,147         8,166,062         121,380         8,383,589   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(In millions of won)                            
     December 31, 2012  
     Financial
liabilities at
fair value
through
profit or
loss		      Financial
liabilities
measured at
amortized
cost		      Derivative
financial
instruments
designated
as hedged
item		      Total  

Derivative financial liabilities

    ￦ —           —           63,599         63,599   

Borrowings

      —           785,443         —           785,443   

Debentures(*1)

      405,678         4,034,429         —           4,440,107   

Accounts payable - other and others(*2)

      —           3,073,290         —           3,073,290   
  

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 405,678         7,893,162         63,599         8,362,439   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(*1) Debentures of which the embedded derivative (conversion right option), which should be separated from the main contract, could not be separately measured, were designated as financial liabilities at fair value through profit or loss.

 

66

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

30. Categories of Financial Instruments, Continued

 

  (2) Financial liabilities by categories as of December 31, 2013 and 2012 are as follows, Continued:

 

  (*2) Details of accounts payable and other payables as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     December 31, 2013      December 31, 2012  

Accounts payable - other

    ￦ 1,556,201         1,509,456   

Withholdings

      3         18   

Accrued expenses

      653,742         600,101   

Current portion of long-term payables - other

      206,800         157,966   

Long-term payables - other

      828,721         705,605   

Other non-current liabilities

      34,137         100,144   
  

 

 

     

 

 

  
   ￦ 3,279,604         3,073,290   
  

 

 

     

 

 

  

 

31. Financial Risk Management

 

  (1) Financial risk management

The Company is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Company implements a risk management system to monitor and manage these specific risks.

The Company’s financial assets under financial risk management consist of cash and cash equivalents, financial instruments, available-for-sale financial assets, trade and other receivables. Financial liabilities consist of trade and other payables, borrowings, and debentures.

1) Market risk

(i) Currency risk

The Company is exposed to currency risk mainly on exchange fluctuations on recognized assets and liabilities. The Company manages currency risk by currency forward, etc. if needed to hedge currency risk on business transactions. Currency risk occurs on forecasted transaction and recognized assets and liabilities which are denominated in a currency other than the functional currency of the Company.

 

67

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

Monetary foreign currency assets and liabilities as of December 31, 2013 are as follows:

 

(In millions of won, thousands of U.S. dollars, thousands of Euros, thousands of Japanese Yen, thousands of other currencies)  
     Assets      Liabilities  
     Foreign
currencies		      Korean won
equivalent		      Foreign
currencies		      Korean won
equivalent		  

USD

      28,831       ￦ 30,440         1,917,801       ￦ 2,020,567   

EUR

      44,403         64,662         33         48   

JPY

      95,459         959         4,852         49   

SGD

      18         15         64,811         53,971   

AUD

      —           —           298,039         280,145   

CHF

      —           —           298,542         354,868   

Other

      1,181         1,812         69         87   
     

 

 

        

 

 

  
      ￦ 97,888          ￦ 2,709,735   
     

 

 

        

 

 

  

In addition, the Company has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (Refer to note 17)

As of December 31, 2013, effects on income (loss) before income tax as a result of change in exchange rate by 10% are as follows:

 

(In millions of won)             
     If increased by 10%     If decreased by 10%  

USD

    ￦ (7,224 )      7,224   

EUR

      6,461        (6,461 ) 

JPY

      91        (91 ) 

SGD

      2        (2 ) 

Others

      172        (172 ) 
  

 

 

    

 

 

  
   ￦ (498 )      498   
  

 

 

    

 

 

  

(ii) Equity price risk

The Company has equity securities which include listed and non-listed securities for its liquidity and operating purpose. As of December 31, 2013, available-for-sale equity instruments measured at fair value amounts to ￦715,053 million.

(iii) Interest rate risk

Since the Company’s interest bearing assets are mostly fixed-interest bearing assets, as such, the Company’s revenue and operating cash flow are not influenced by the changes in market interest rates. However, the Company still has interest rate risk arising from borrowings and debentures.

Accordingly, the Company performs various analysis of interest rate risk, which includes refinancing, renewal, alternative financing and hedging instrument option, to reduce interest rate risk and to optimize its financing.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

The Company’s interest rate risk arises from floating-rate borrowings and payables. As of December 31, 2013, floating-rate debentures amount to ￦634,544 million and the Company has entered into interest rate swaps to hedge interest rate risk related to floating-rate borrowings and debentures (Refer to note 17). If interest rate only increases (decreases) by 1%, income before income taxes for the year ended December 31, 2013 would not have been changed due to the interest expense from floating-rate borrowings and debentures.

 

  2) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations. The maximum credit exposure as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Cash and cash equivalents

    ￦ 448,429         256,547   

Financial instruments

      173,569         179,369   

Available-for-sale financial assets

      816         816   

Accounts receivable - trade

      1,513,138         1,407,206   

Loans and receivables

      658,337         661,689   

Derivative financial assets

      41,712         61,959   

Financial assets at fair value through profit or loss

      20,532         15,356   
  

 

 

     

 

 

  
   ￦ 2,856,533         2,582,942   
  

 

 

     

 

 

  

To manage credit risk, the Company evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors; based on such information, the Company establishes credit limits for each customer or counterparty.

For the year ended December 31, 2013, the Company has no trade and other receivables or loans which have indications of significant impairment loss or are overdue for a prolonged period. As a result, the Company believes that the possibility of default is remote. Also, the Company’s credit risk can rise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivates. To minimize such risk, the Company has a policy to deal with high credit worthy financial institutions. The amount of maximum exposure to credit risk of the Company is the carrying amount of financial assets as of December 31, 2013.

In addition, the aging of trade and other receivables that are overdue at the end of the reporting period but not impaired is stated in note 6 and the analysis of financial assets that are individually determined to be impaired at the end of the reporting period is stated in note 25.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

3) Liquidity risk

The Company’s approach to managing liquidity is to ensure that it will always maintain sufficient cash equivalents balance and have enough liquidity through various committed credit lines. The Company maintains flexibly enough liquidity under credit lines through active operating activities.

Contractual maturities of financial liabilities as of December 31, 2013 are as follows:

 

(In millions of won)  
     Carrying
amount		      Contractual
cash
flows		      Less than
1 year		      1 - 5 years      More than
5 years		  

Borrowings

    ￦ 356,688         371,898         273,412         53,733         44,753   

Debentures(*1)

      4,625,917         5,708,146         780,851         2,802,001         2,125,294   

Accounts payable - other and others(*2)

      3,279,604         3,389,862         2,361,032         655,619         373,211   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 8,262,209         9,469,906         3,415,295         3,511,353         2,543,258   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

The Company does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

 

(*1) Includes estimated interest to be paid and excludes discounts on bonds.
(*2) Excludes discounts on accounts payable-other and others.

As of December 31, 2013, periods which cash flows from cash flow hedge derivatives is expected to be incurred are as follows:

 

(In millions of won)  
     Carrying
amount		     Contractual
cash
flows		     Less than
1 year		     1 -5 years     More than
5 years		  

Assets

    ￦ 41,712        43,833        1,778        35,322        6,733   

Liabilities

      (121,380 )      (131,245 )      (32,503 )      (97,294 )      (1,448 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
   ￦ (79,668 )      (87,412 )      (30,725 )      (61,972 )      5,285   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  (2) Capital management

The Company manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity balance. The overall strategy of the Company is the same as that of the Company as of and for the year ended December 31, 2012.

The Company monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total debt divided by total equity; the total debt and equity is extracted from the financial statements.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Financial Risk Management, Continued

 

  (2) Capital management, Continued

 

Debt-equity ratio as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Liability

    ￦ 9,512,011        9,872,454   

Equity

      13,315,408        12,377,048   
  

 

 

    

 

 

  

Debt-equity ratio

      71.44 %      79.76 % 
  

 

 

    

 

 

  

 

  (3) Fair value

1) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2013 are as follows:

 

(In millions of won)                                   
     2013  
     Carrying
amount		      Level 1      Level 2      Level 3      Total  

Financial assets that can be measured at fair value

               

Financial assets at fair value through profit or loss

    ￦ 20,532         —           20,532         —           20,532   

Derivative financial assets

      41,712         —           41,712         —           41,712   

Available-for-sale financial assets

      715,053         574,321         46,414         94,318         715,053   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 777,297         574,321         108,658         94,318         777,297   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial assets that cannot be measured at fair value

               

Cash and cash equivalents(*1)

    ￦ 448,459         —           —           —           —     

Available-for-sale financial assets(*1,2)

      96,160         —           —           —           —     

Accounts receivable – trade and others(*1)

      2,171,475         —           —           —           —     

Financial instruments(*1)

      173,569         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 2,889,663         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that can be measured at fair value

               

Financial liabilities at fair value through profit or loss

    ￦ 96,147         96,147         —           —           96,147   

Derivative financial liabilities

      121,380         —           121,380         —           121,380   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 217,527         96,147         121,380         —           217,527   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that cannot be measured at fair value

               

Borrowings

    ￦ 356,688         —           369,810         —           369,810   

Debentures

      4,529,770         —           4,621,010         —           4,621,010   

Accounts payable - other and others(*1)

      3,279,604         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 8,166,062         —           4,990,820         —           4,990,820   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Financial Risk Management, Continued

 

  (3) Fair value, Continued

 

  2) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2012 are as follows:

 

(In millions of won)    2012  
     Carrying
amount		      Level 1      Level 2      Level 3      Total  

Financial assets that can be measured at fair value

               

Financial assets at fair value through profit or loss

    ￦ 15,356         —           15,356         —           15,356   

Derivative financial assets

      61,959         —           61,959         —           61,959   

Available-for-sale financial assets

      730,754         584,029         46,159         100,566         730,754   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 808,069         584,029         123,474         100,566         808,069   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial assets that cannot be measured at fair value

               

Cash and cash equivalents(*1)

    ￦ 256,577         —           —           —           —     

Available-for-sale financial assets(*1,2)

      44,184         —           —           —           —     

Accounts receivable – trade and others(*1)

      2,068,895         —           —           —           —     

Financial instruments(*1)

      179,369         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 2,549,025         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that can be measured at fair value

               

Financial liabilities at fair value through profit or loss

    ￦ 405,678         405,678         —           —           405,678   

Derivative financial liabilities

      63,599         —           63,599         —           63,599   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 469,277         405,678         63,599         —           469,277   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Financial liabilities that cannot be measured at fair value

               

Borrowings

    ￦ 785,443         —           798,908         —           798,908   

Debentures

      4,034,429         —           4,224,907         —           4,224,907   

Accounts payable – other and others(*1)

      3,073,290         —           —           —           —     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  
   ￦ 7,893,162         —           5,023,815         —           5,023,815   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(*1) Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are closed to the reasonable approximate fair values.
(*2) Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with K-IFRS 1039 as such equity instruments cannot be reliably measured using other methods.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Financial Risk Management, Continued

 

  (3) Fair value, Continued

 

Fair value of the financial instruments that are traded in an active market (available-for-sale financial assets, financial liabilities at fair value through profit or loss, etc.) is measured based on the bid price at the end of the reporting date.

The Company uses various valuation methods for valuation of fair value of financial instruments that are not traded in an active market. Fair value of available-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Company performs valuation using the inputs which are consistent with natures of assets, liabilities being evaluated.

Interest rates used by the Company for the fair value measurement as of December 31, 2013 are as follows:

 

     Interest rate

Derivative instruments

    2.86% ~ 4.04%

Borrowings and Debentures

    3.12%

3) There have been no transfers from Level 2 to Level 1 in 2013 and changes of financial assets classified as Level 3 for the year ended December 31, 2013 are as follows:

 

(In millions of won)                           
     Beginning      Valuation      Disposal     Ending  

Available-for-sale financial assets

    ￦ 100,566         15,779         (22,027 )      94,318   

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

31. Financial Risk Management, Continued

 

  (4) Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2013 are as follows:

 

(In millions of won)    Gross financial
instruments
recognized		      Gross offset
financial
instruments
recognized		     Net financial
instruments
presented on the
statements of
financial position		      Relevant amount not offset
on the statements of
financial position		      Net
amount		  
             Financial
instruments		     Cash
collaterals
received		     

Financial assets:

                

Derivatives(*)

    ￦ 28,870         —          28,870         (28,870 )      —           —     

Accounts receivable – trade and other

      138,897         (127,055 )      11,842         —          —           11,842   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  
     167,767         (127,055 )      40,712         (28,870 )      —           11,842   

Financial liabilities:

                

Derivatives(*)

      43,536         —          43,536         (28,870 )      —           14,666   

Accounts payable – other

      127,055         (127,055 )      —           —          —           —     
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  
   ￦ 170,591         (127,055 )      43,536         (28,870 )      —           14,666   
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

 

  (*) The Company entered into derivative contracts which include enforceable master netting arrangement in accordance with ISDA. Generally, all contracts made with the identical currencies are settled from one party to another by combining one net amount. In this case, all contracts are liquidated and paid off at net amount by evaluating liquidation value if credit events such as bankruptcy occur.

ISDA agreements do not allow the Company to exercise rights of set-off unless credit events such as bankruptcy occur. Therefore, assets and liabilities recognized in accordance with the agreements cannot be offset as the Company does not have enforceable rights of set-off.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

32. Transactions with Related Parties

 

  (1) List of related parties

 

Relationship

   

Interest rate

Controlling Entity

    SK Holding Co., Ltd.

Subsidiaries

    SK Planet Co., Ltd. and 27 others(*1)

Joint venture

    Dogus Planet, Inc. and three others

Associates

    SK hynix Inc. and 64 others

Affiliates

   

The Controlling Entity’s investor using the equity method, the Controlling Company, and the Controlling Company’s subsidiaries and associates, etc.

 

  (*1) As of December 31, 2013, subsidiaries of the Company are as follows:

 

Type

   

Company

    Ownership
percentage (%)		   

Types of business

Subsidiaries

    SK Telink Co., Ltd.    83.5    Telecommunication and MVNO service
   M&Service Co., Ltd.    100.0    Data base and internet website service
   SK Communications Co., Ltd.    64.6    Internet website services
   Stonebridge Cinema Fund    57.0    Investment association
   Commerce Planet Co., Ltd.    100.0    Online shopping mall operation agency
   SK Broadband Co., Ltd.    50.6    Telecommunication services
   K-net Culture and Contents Venture Fund    59.0    Investment association
   Fitech Focus Limited Partnership II    66.7    Investment association
   Open Innovation Fund    98.9    Investment association
   PS&Marketing Corporation    100.0    Communications device retail business
   Service Ace Co., Ltd.    100.0    Customer center management service
   Service Top Co., Ltd.    100.0    Customer center management service
   Network O&S Co., Ltd.    100.0    Base station maintenance service
   BNCP Co., Ltd.    100.0    Internet website services
   SK Planet Co., Ltd.    100.0    Telecommunication service
   SK Telecom China Holdings Co., Ltd.    100.0    Investment association
   Shenzhen E-eye High Tech Co., Ltd.    65.5    Manufacturing
   SK Global Healthcare Business Group., Ltd.    100.0    Investment association
   SK Planet Japan    100.0    Digital contents sourcing service
   SKT Vietnam PTE. Ltd.    73.3    Telecommunication service
   SK Planet Global PTE. Ltd.    100.0    Digital contents sourcing service
   SKP GLOBAL HOLDINGS PTE. LTD.    100.0    Investment association
   SKT Americas, Inc.    100.0    Information gathering and consulting
   SKP America LLC.    100.0    Digital contents sourcing service
   YTK Investment Ltd.    100.0    Investment association
   Atlas Investment    100.0    Investment association
   Technology Innovation Partners, L.P.    100.0    Investment association
   SK Telecom China Fund I L.P.    100.0    Investment association

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

32. Transactions with Related Parties, Continued

 

  (2) Compensation for the key management

The Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management. The considerations given to such key management for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)  
     2013      2012  

Salaries

    ￦ 2,263         8,893   

Provision for retirement benefits

      1,012         799   
  

 

 

     

 

 

  
   ￦ 3,275         9,692   
  

 

 

     

 

 

  

Compensation for the key management includes salaries, non-monetary salaries and contributions made in relation to the pension plan.

 

  (3) Transactions with related parties for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)         2013  

Scope

   

Company

    Operating
revenue and
others		      Operating
expense and
others		      Acquisition of
property and
equipment		      Loans  

Controlling Entity

    SK Holding Co., Ltd.(*)      934         217,707         —           —     

Subsidiaries

    SK Broadband Co., Ltd.    ￦ 105,166         524,278         46,148         —     
  

PS&Marketing Corporation

      7,404         441,309         —           —     
  

Network O&S Co., Ltd.

      9,005         156,123         —           —     
  

SK Planet Co., Ltd.

      48,840         580,910         3,039         —     
  

Others

      70,366         357,535         1,029         —     
     

 

 

     

 

 

     

 

 

     

 

 

  
        240,781         2,060,155         50,216         —     
     

 

 

     

 

 

     

 

 

     

 

 

  

Associates

    F&U Credit information Co., Ltd.      1,536         40,867         —           —     
  

HappyNarae Co., Ltd.

      15         3,304         9,167         —     
  

SK hynix Inc.

      3,113         1,120         —           —     
  

Others

      2,323         3,300         —           997   
     

 

 

     

 

 

     

 

 

     

 

 

  
        6,987         48,591         9,167         997   
     

 

 

     

 

 

     

 

 

     

 

 

  

Other

    SK Engineering & Construction Co., Ltd.      4,908         36,758         315,609         —     
  

SK C&C Co., Ltd.

      3,185         269,829         126,539         —     
  

SK Networks Co., Ltd.

      46,387         552,394         4,507         —     
  

Others

      20,193         57,387         109,151         —     
     

 

 

     

 

 

     

 

 

     

 

 

  
        74,673         916,368         555,806         —     
     

 

 

     

 

 

     

 

 

     

 

 

  

Total

       ￦ 323,375         3,242,821         615,189         997   
     

 

 

     

 

 

     

 

 

     

 

 

  

 

(*) Operating expense and others include ￦191,416 million of dividends paid by the Company.

 

76

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

32. Transactions with Related Parties, Continued

 

(In millions of won)                          
          2012  

Scope

   

Company

    Operating
revenue and
others		      Operating
expense and
others		      Acquisition of
property and
equipment		  

Ultimate Controlling Entity

    SK Holding Co., Ltd.(*)    ￦ 870         217,728         —     

Subsidiaries

    SK Broadband Co., Ltd.      114,068         419,429         140,497   
  

PS&Marketing Corporation

      4,673         463,067         —     
  

Network O&S Co., Ltd.

      3,470         168,648         197,683   
  

SK Planet Co., Ltd.

      44,705         554,286         2,817   
  

Others

      78,164         365,239         1,071   
     

 

 

     

 

 

     

 

 

  
        245,080         1,970,669         342,068   
     

 

 

     

 

 

     

 

 

  

Associates

    SK M&C      6,938         98,899         803   
  

F&U Credit information Co., Ltd.

      1,512         47,489         —     
  

Hana SK Card, Co., Ltd.

      63,716         196,936         44   
  

Others

      562         87,733         9,911   
     

 

 

     

 

 

     

 

 

  
        72,728         431,057         10,758   
     

 

 

     

 

 

     

 

 

  

Other

    SK C&C Co., Ltd.      4,431         266,918         219,077   
  

SK Engineering & Construction Co., Ltd.

      5,230         39,622         569,215   
  

SK Networks Co., Ltd.

      19,170         513,846         6,206   
  

Others

      27,352         70,372         236,360   
     

 

 

     

 

 

     

 

 

  
        56,183         890,758         1,030,858   
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 374,861         3,510,212         1,383,684   
     

 

 

     

 

 

     

 

 

  

 

(*) Operating expense and others include ￦171,053 million of dividends paid by the Company.

 

77

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

32. Transactions with Related Parties, Continued

 

  (4) Account balances as of December 31, 2013 and 2012 are as follows:

 

(In millions of won)         2013  
          Accounts receivable      Accounts payable  

Scope

   

Company

    Loans      Accounts
receivable-
trade,
and others		      Accounts
payable-
trade,
and others		  

Controlling Entity

    SK Holding Co., Ltd.    ￦ —           193         —     

Subsidiaries

    SK Broadband Co., Ltd.      —           4,779         81,243   
   SK Planet Co., Ltd.      —           10,882         116,927   
   Service Ace Co., Ltd.      —           269         18,019   
   Service Top Co., Ltd.      —           1,258         15,375   
   Others      —           5,942         72,082   
     

 

 

     

 

 

     

 

 

  
        —           23,130         303,646   
     

 

 

     

 

 

     

 

 

  

Associates

    HappyNarae Co., Ltd.      —           —           2,238   
   SK hynix Inc.      —           392         —     
   SK USA, Inc.      —           —           436   
   Wave City Development Co., Ltd.      1,200         38,412         —     
   SK Wyverns Baseball Club., Ltd.      1,425         —           —     
   Daehan Kanggun BcN Co., Ltd.      22,102         —           —     
   Others      —           550         —     
     

 

 

     

 

 

     

 

 

  
        24,727         39,354         2,674   
     

 

 

     

 

 

     

 

 

  

Other

    SK Engineering and Construction Co., Ltd.      —           767         11,374   
   SK Networks Co., Ltd.      —           5,920         53,807   
   SK C&C Co., Ltd.      —           140         64,071   
   SK Telesys Co., Ltd.      —           372         6,438   
   Others      —           3,735         10,479   
     

 

 

     

 

 

     

 

 

  
        —           10,934         146,169   
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 24,727         73,611         452,489   
     

 

 

     

 

 

     

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

32. Transactions with Related Parties, Continued

 

(In millions of won)         2012  
          Accounts receivable      Accounts payable  

Scope

   

Company

    Loans      Accounts
receivable-
trade,
and others		      Accounts
payable-
trade,
and others		  

Controlling Entity

    SK Holding Co., Ltd.    ￦ —           222         —     

Subsidiaries

    SK Broadband Co., Ltd.      —           2,493         73,483   
   PS&Marketing Corporation      —           576         59,017   
   Network O&S Co., Ltd.      —           607         124,481   
   SK Planet Co., Ltd.      —           6,323         85,511   
   Others      —           7,329         43,326   
     

 

 

     

 

 

     

 

 

  
        —           17,328         385,818   
     

 

 

     

 

 

     

 

 

  

Associates

    SK Marketing & Company Co., Ltd      —           972         56,125   
   HappyNarae Co., Ltd.      —           —           1,763   
   SK hynix Inc.      —           249         887   
   Wave City Development Co., Ltd.      —           38,412         —     
   SK Wyverns Baseball Club., Ltd.      1,628         —           4,000   
   Daehan Kanggun BcN Co., Ltd.      22,102         —           —     
   Others      —           242         10,862   
     

 

 

     

 

 

     

 

 

  
        23,730         39,875         73,637   
     

 

 

     

 

 

     

 

 

  

Other

    SK C&C Co., Ltd.      —           369         82,327   
   SK Engineering and Construction Co., Ltd.      —           1,735         20,304   
   SK Networks Co., Ltd.      —           9,174         65,206   
   Others      —           3,844         21,822   
     

 

 

     

 

 

     

 

 

  
        —           15,122         189,659   
     

 

 

     

 

 

     

 

 

  

Total

       ￦ 23,730         72,547         649,114   
     

 

 

     

 

 

     

 

 

  

 

  (5) As of December 31, 2013, there are no collateral or guarantee provided by related parties to the Company.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

33. Sale and Leaseback

For the year ended December 31, 2012, the Company disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. This sale and leaseback transaction is considered as an operating lease.

In addition, the Company subleased portion of the leased assets. This lease and sublease transactions are expired in 2018 and 2023, respectively. The Company recognized lease payment of ￦13,703 million relating to the above operating lease agreement and lease revenue of ￦8,462 million through a sublease agreement. Future lease payments and lease revenue from the above operating lease agreement and sublease agreement are as follows:

 

(In millions of won)              
     2013  
     Lease payments      Lease revenue  

Less than 1 year

    ￦ 14,116         8,462   

1~5 years

      57,361         31,237   

More than 5 years

      53,527         23,403   
  

 

 

     

 

 

  
   ￦ 125,004         63,102   
  

 

 

     

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

34. Statements of Cash Flows

 

  (1) Adjustments for income and expenses from operating activities for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Interest income

    ￦ (32,265 )      (52,408 ) 

Dividends

      (20,640 )      (30,568 ) 

Gain on foreign currency translation

      (699 )      (158 ) 

Gain on valuation of financial assets at fair value through profit or loss

      (5,177 )      —     

Gain on disposal of long-term investments securities

      (5,439 )      (269,352 ) 

Gain on settlement of derivatives

      (7,716 )      (26,103 ) 

Gain on disposal of property and equipment and intangible assets

      (1,869 )      (142,988 ) 

Reversal of allowance for doubtful accounts

      —          (4,846 ) 

Other income

      (3,626 )      —     

Interest expenses

      274,190        318,183   

Loss on foreign currency translation

      662        746   

Loss on valuation of financial asset at fair value through profit or loss

      —          1,262   

Loss on disposal of long-term investments securities

      73        9,136   

Loss on settlement of derivatives

      —          1,232   

Loss relating to financial liabilities at fair value through profit or loss

      134,232        7,793   

Other finance costs

      —          189,951   

Loss relating to investments in subsidiaries and associates

      37,685        5,510   

Income tax expense

      310,640        303,952   

Provision for retirement benefits

      35,362        31,804   

Depreciation and amortization

      2,115,520        1,835,104   

Bad debt for accounts receivable – trade

      32,051        22,502   

Impairment loss on property and equipment and intangible assets

      —          15,438   

Loss on disposal of property and equipment and intangible assets

      233,611        9,628   

Bad debt for accounts receivable – other

      20,784        21,845   

Other expenses

      3,048        1,578   
  

 

 

    

 

 

  
   ￦ 3,120,427        2,249,241   
  

 

 

    

 

 

  

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

34. Statements of Cash Flows, Continued

 

  (2) Changes in assets and liabilities from operating activities for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)             
     2013     2012  

Accounts receivable – trade

    ￦ (138,033 )      (143,431 ) 

Accounts receivable – other

      (27,722 )      369,045   

Advance payments

      (20,073 )      47,108   

Prepaid expenses

      (6,821 )      3,304   

Inventories

      (8,601 )      (6,635 ) 

Long-term accounts receivables – other

      —          5,393   

Long-term prepaid expenses

      (1,425 )      —     

Guarantee deposits

      (2,653 )      14,331   

Accounts payable – other

      5,584        111,813   

Advanced receipts

      (3,095 )      6,634   

Withholdings

      21,786        221,706   

Deposits received

      (66,828 )      (44,165 ) 

Accrued expenses

      57,014        119,764   

Unearned revenue

      (183,655 )      (81,944 ) 

Provisions

      (226,644 )      (373,195 ) 

Long-term provisions

      (72,228 )      (32,776 ) 

Plan assets

      (28,314 )      (26,198 ) 

Retirement benefit payment

      (15,566 )      (12,965 ) 

Others

      2,412        (1,077 ) 
  

 

 

    

 

 

  
   ￦ (714,862 )      176,712   
  

 

 

    

 

 

  

 

  (3) Significant non-cash transactions for the years ended December 31, 2013 and 2012 are as follows:

 

(In millions of won)              
     2013      2012  

Transfer of other property and equipment and others to construction in progress

    ￦ 1,187,295         1,454,209   

Transfer of construction in progress to property and equipment, and intangible assets

      1,966,553         2,211,285   

Accounts payable – other related to acquisition of property and equipment and intangible assets

      349,793         8,009   

Return of the existing 1.8GHz frequency use rights

      614,600         —     

Transfer of available-for-sale financial assets to investments in associates

      —           8,130   

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

Independent Accountant’s Review Report on Internal Accounting Control System (“IACS”)

Based on a report originally issued in Korean

To the Representative Director of

SK Telecom Co., Ltd.

We have reviewed the accompanying Report on the Management’s Assessment of IACS (the “Management’s Report”) of SK Telecom Co., Ltd. (the “Company”) As of December 31, 2013. The Management’s Report, and the design and operation of IACS are the responsibility of the Company’s management. Our responsibility is to review the Management’s Report and issue a review report based on our procedures. The Company’s management stated in the accompanying Management’s Report that “based on the assessment of the IACS As of December 31, 2013, the Company’s IACS has been appropriately designed and is operating effectively As of December 31, 2013, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.”

We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform a review, objective of which is to obtain a lower level of assurance than an audit, of the Management’s Report in all material respects. A review includes obtaining an understanding of a company’s IACS and making inquiries regarding the Management’s Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited procedures.

The Company’s IACS represents internal accounting policies and a system to manage and operate such policies to provide reasonable assurance regarding the reliability of financial statements prepared, in accordance with Korean International Financial Reporting Standards, for the purpose of preparing and disclosing reliable accounting information. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report referred to above is not fairly stated, in all material respects, in accordance with the IACS Framework established by the Korea Listed Companies Association.

Our review is based on the Company’s IACS as of December 31, 2013, and we did not review its IACS subsequent to December 31, 2013. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in the Republic of Korea and may not be appropriate for other purposes or for other users.

February 21, 2014

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2013 and 2012

 

Report on the Assessment of Internal Accounting Control System (“IACS”)

To the Board of Directors and Audit Committee of

SK Telecom Co., Ltd.

I, as the Internal Accounting Control Officer (“IACO”) of SK Telecom Co., Ltd. (“the Company”), assessed the status of the design and operation of the Company’s IACS for the year ended December 31, 2013.

The Company’s management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed whether the IACS has been appropriately designed and is effectively operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of preparing and disclosing reliable financial statements reporting. I, as the IACO, applied the IACS Framework established by the Korea Listed Companies Association for the assessment of design and operation of the IACS.

Based on the assessment of the IACS, the Company’s IACS has been appropriately designed and is operating effectively As of December 31, 2013, in all material respects, in accordance with the IACS Framework.

February 5, 2014

 

/s/ Internal Accounting Control Officer
/s/ Chief Executive Officer

 

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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: April 30, 2014