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 SEPTEMBER 2016

COMMISSION FILE NUMBER 333-04906

 

 

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

 

 

Euljiro 65 (Euljiro2-ga), Jung-gu

Seoul 04539, 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-            

 

 

 


Table of Contents

SEMI-ANNUAL BUSINESS REPORT

(From January 1, 2016 to June 30, 2016)

THIS IS A SUMMARY OF THE SEMI-ANNUAL BUSINESS REPORT ORIGINALLY PREPARED IN KOREAN WHICH 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.


Table of Contents
I. COMPANY OVERVIEW

 

  1. Company Overview

The Company’s semi-annual business report for the six months ended June 30, 2016 includes the following consolidated subsidiaries:

 

Name

   Date of
Establishment
  

Principal Business

   Total Assets as
of Dec. 31, 2015
(millions of
Won)
     Material
Subsidiary*
SK Telink Co., Ltd.    Apr. 9, 1998    Telecommunication services and satellite broadcasting services      309,955       Material
M&Service Co., Ltd.    Feb. 10, 2000    Online information services      89,452       Material
SK Communications Co., Ltd.    Sep. 19, 1996    Internet portal and other Internet information services      152,496       Material
Stonebridge Cinema Fund    Sep. 30, 2005    Investment partnership      7,797      
SK Broadband Co., Ltd.    Sep. 5, 1997    Fixed-line telecommunication services, multimedia and IPTV services      3,291,707       Material
K-net Culture and Contents Venture Fund    Nov. 24, 2008    Investment partnership      13,169      
Hwaitec Focus Investment Partnership 2    Dec. 24, 2008    Investment partnership      18,249      
Open Innovation Fund    Dec. 22, 2008    Investment partnership      19,455      
PS&Marketing Co., Ltd.    Apr. 3, 2009    Sale of telecommunication devices      509,580       Material
Service Ace Co., Ltd.    Jul. 1, 2010    Customer center management services      65,424      
Service Top Co., Ltd.    Jul. 1, 2010    Customer center management services      61,897      
Network O&S Co., Ltd.    Jul. 1, 2010    Network maintenance services      77,426       Material
SK Planet Co., Ltd.    Oct. 1, 2011    Telecommunication and platform services      2,406,988       Material
Neosnetworks Co., Ltd.    Jun. 12, 2008    Security system services      68,361      
Iriver Ltd.    Jul. 12, 2000    Audio device manufacturing      65,405      
Entrix Co., Ltd.    July 1, 2015    Telecommunication (Cloud) services      30,876      
SK Telecom China Holdings Co., Ltd.    Jul. 12, 2007    Investment (holding company)      37,748      
SK Global Healthcare Business Group, Ltd.    Sep. 14, 2012    Investment (SPC)      25,768      
Iriver Enterprise Ltd.    Jan. 14, 2014    Management of Chinese subsidiary      4,289      
Iriver China Co., Ltd.    Jun 24, 2004    Electronic device manufacturing      4,394      
DongGuan Iriver Electronics Co., Ltd.    Jul. 6, 2006    Electronic device manufacturing      23      
SK Planet Japan, K.K.    Mar. 14, 2012    Digital contents sourcing services      5,068      
groovers Japan Co. Ltd.    Feb. 25, 2015    Contents and information distribution      1,540      
SKT Vietnam PTE., Ltd.    Apr. 5, 2000    Telecommunication services      4,523      
SK Planet Global PTE, LTD.    Aug. 4, 2012    Digital contents sourcing services      1,570      
SKP Global Holdings PTE, LTD.    Aug. 10, 2012    Investment (holding company)      28,320      

 

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Name

   Date of
Establishment
  

Principal Business

   Total Assets as
of Dec. 31, 2015
(millions of
Won)
     Material
Subsidiary*
SKT Americas, Inc.    Dec. 29, 1995    Information collection and management consulting services      51,138      
SK Planet America LLC    Jan. 27, 2012    Digital contents sourcing services      380,141       Material
Shopkick Management Company, Inc.    Oct. 9, 2014    Investment      306,248       Material
Shopkick, Inc.    Jun. 1, 2009    Mileage based e-commerce application development      25,388      
SK TechX Co., Ltd.    Mar. 1, 2016    Telecommunication and platform services      —         Material
Onestore Co., Ltd.    Mar. 1, 2016    Contents distribution      —         Material
SK Telecom Innovation Fund, L.P.    Jan. 15, 2016    Investment      —        
Iriver America Inc.    May 1, 2005    Wholesale and retail      —        
Iriver Inc.    Feb. 15, 2007    North America marketing and sales      4,160      
YTK Investment Ltd.    Jul. 1, 2010    Investment      16,318      
Atlas Investment    Jun. 24, 2011    Investment      77,750       Material
SK Telecom China Fund I L.P.    Sep. 14, 2011    Investment      20,901      

 

* Material Subsidiary means a subsidiary with total assets of Won 75 billion or more as of the end of the latest fiscal year or, with respect to SK TechX Co., Ltd. (“SK TechX”) and Onestore Co., Ltd. (“Onestore”), which were established in 2016, a subsidiary with total assets of Won 75 billion or more as of the end of June 30, 2016.
LOGO During 2016, Technology Innovation Partners, L.P. changed its name to SK Telecom Innovation Fund, L.P.

Changes in subsidiaries during 2016 are set forth below.

 

Change

  

Name

  

Remarks

Additions    SK TechX Co., Ltd.    Split from SK Planet Co., Ltd. and newly established
   Onestore    Split from SK Planet Co., Ltd. and newly established
Exclusions    Commerce Planet Co. Ltd.    Merged into SK Planet Co., Ltd.

 

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

 

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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. We continue to maintain our reputation as the unparalleled premium network operator in the LTE market on the basis of our technological leadership and network management technology.

The Company plans to increase its profitability by strengthening its retention policy, which is the fundamental basis of competitiveness for telecommunication companies in this data-intensive era. The Company will lead the information and communication technology (“ICT”) trend by providing products through which customers can have a distinctive experience and by providing innovative services to transition to service-based competition.

In the business-to-business (“B2B”) area, the Company is striving to strengthen its solutions business as well as its existing leased line business. In the area of healthcare, the Company achieved several tangible milestones: point-of-care diagnostic devices manufactured by a company of which the Company is the largest shareholder received approval from the U.S. Food and Drug Administration; the Company entered the Chinese healthcare market; and the Company was the first Korean company to export medical information systems. The Company plans to continue to find and develop new growth businesses in healthcare in the mid- to long-term. The Company also plans to seek out new growth engines in existing businesses, including the intelligence business, by utilizing its technologies relating to big data.

In order to strengthen its 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. Through Service Ace Co., Ltd., another subsidiary, the Company operates customer service centers in Seoul and provides telemarketing services. 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.

 

  (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. In 1999, SK Broadband launched its high-speed Internet service in Seoul, Busan, Incheon and Ulsan and currently provides such services nationwide. SK Broadband also commercialized its TV-Portal service in July 2006 and its IPTV service in January 2009 upon receipt of permit in September 2008.

 

  (3) Other businesses

The Company is a leading player in the Korean e-commerce industry with 11th Street, an e-commerce platform service that connects various sellers and purchasers through its online and mobile platforms, and “Shocking Deal,” a mobile commerce curation service. In the online-to-offline (“O2O”) area, the Company is a leading player and continues to expand its market power with OK Cashbag, Korea’s largest loyalty mileage program, Syrup, which offers smart shopping services utilizing its network of business partners and information technology such as big data, Syrup Store, which provides integrated marketing solutions to business partners and other Syrup-related services such as gifticon, Syrup Table and Syrup Order.

In the advertising business area, the Company is engaged in advertisement production, promotion services and research and consulting services as a business idea creator to substantively help businesses increase their value in a rapidly evolving business environment.

In the global business area, the Company has expanded its e-commerce business globally to Turkey, Indonesia and Malaysia and has rapidly grown into one of the leading market players in these regions. The Company intends to continue its efforts to secure the market leading position in these markets.

 

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In the location-based services business area, the Company provides real time traffic information and various local information through its T-Map Navigation service. In the digital contents business area, the Company provides high-quality digital contents in its leading mobile contents marketplace, Onestore.

In the media business area, the Company provides the optimum environment for subscribers to access multimedia contents according to personal taste and preference through “oksusu,” available on various digital devices such as personal computers and mobile devices.

The Company provides integrated Internet portal services through NATE and instant messaging services through NATE-ON. In the mobile internet service business area, the Company provides portal-based services and Cymera, which is a camera application. In the portal service business area, key sources of revenue 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.

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

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

April 22, 2014

   Corporate bond    AAA    Korea Ratings    Regular rating

April 22, 2014

   Corporate bond    AAA    Korea Investors Service, Inc.    Regular rating

April 22, 2014

   Corporate bond    AAA    NICE Investors Service Co., Ltd.    Regular rating

April 22, 2014

   Corporate bond    AAA    Korea Ratings    Current rating

April 22, 2014

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

April 22, 2014

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

October 15, 2014

   Corporate bond    AAA    Korea Ratings    Current rating

October 15, 2014

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

October 15, 2014

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

February 9, 2015

   Corporate bond    AAA    Korea Ratings    Current rating

February 9, 2015

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

February 9, 2015

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

May 21, 2015

   Corporate bond    AAA    Korea Ratings    Regular rating

May 27, 2015

   Corporate bond    AAA    Korea Investors Service, Inc.    Regular rating

June 10, 2015

   Corporate bond    AAA    NICE Investors Service, Co., Ltd    Regular rating

July 6, 2015

   Corporate bond    AAA    Korea Ratings    Current rating

July 6, 2015

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

July 6, 2015

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

October 26, 2015

   Corporate bond    AAA    Korea Ratings    Current rating

October 26, 2015

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

October 26, 2015

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

February 19, 2016

   Corporate bond    AAA    Korea Ratings    Current rating

February 19, 2016

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

February 19, 2016

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

May 19, 2016

   Corporate bond    AAA    Korea Ratings    Current rating

May 20, 2016

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

May 20, 2016

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current 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

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

 

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Table of Contents

Credit rating date

  

Subject of rating

   Credit rating   

Credit rating entity
(Credit rating range)

   Rating classification

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

April 22, 2014

   CP    A1    Korea Ratings    Current rating

April 22, 2014

   CP    A1    Korea Investors Service, Inc.    Current rating

April 22, 2014

   CP    A1    NICE Investors Service Co., Ltd.    Current rating

October 15, 2014

   CP    A1    Korea Ratings    Regular rating

October 15, 2014

   CP    A1    Korea Investors Service, Inc.    Regular rating

October 15, 2014

   CP    A1    NICE Investors Service Co., Ltd.    Regular rating

May 21, 2015

   CP    A1    Korea Ratings    Current rating

May 27, 2015

   CP    A1    Korea Investors Service, Inc.    Current rating

June 10, 2015

   CP    A1    NICE Investors Service Co., Ltd.    Current rating

January 19, 2016

   Short-term bond    A1    Korea Ratings    Current rating

January 19, 2016

   Short-term bond    A1    Korea Investors Service, Inc.    Current rating

January 19, 2016

   Short-term bond    A1    NICE Investors Service Co., Ltd.    Current rating

April 27, 2016

   CP    A1    Korea Ratings    Current rating

April 27, 2016

   Short-term bond    A1    Korea Ratings    Current rating

May 11, 2016

   CP    A1    Korea Investors Service, Inc.    Current rating

May 11, 2016

   Short-term bond    A1    Korea Investors Service, Inc.    Current rating

May 12, 2016

   CP    A1    NICE Investors Service Co., Ltd.    Current rating

May 12, 2016

   Short-term bond    A1    NICE Investors Service Co., Ltd.    Current rating

 

* 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 4, 2012

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

June 6, 2012

   Bonds denominated in
Swiss Franc
   A-    Fitch Inc.    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

 

* On August 9, 2013, Moody’s Investors Service raised the outlook on the Company’s rating from A3 (Negative) to A3 (Stable).
* On November 4, 2015, S&P lowered the outlook on the Company’s rating from A- (Positive) to A- (Stable).

 

  2. Company History

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

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

 

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June 2015: Consummation of the comprehensive share exchange transaction (the “Share Exchange”) through which the Company acquired all of the shares of SK Broadband that it did not otherwise own in exchange for its treasury shares such that SK Broadband became a wholly-owned subsidiary of the Company.

April 2016: The spin-off and merger of the location-based services business and the mobile phone verification services business of SK Planet Co., Ltd.

 

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 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. At the 31st General Meeting of Shareholders held on March 20, 2015, Dong Hyun Jang was elected as an inside director. At the 32nd General Meeting of Shareholders held on March 18, 2016, Dae Sik Cho was re-elected as an inside director and Dae Shick Oh was re-elected as an independent director and member of the audit committee of the Company’s board of directors.

 

C. Change in Company Name

On March 23, 2012, SK hynix Inc., which became a 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

 

  (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

 

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

 

(in millions of Won)  
     Before the spin-off
(As of September 30, 2011)
     After the spin-off
(As of October 1, 2011)
 

Description

   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

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 530-9 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.

 

  (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, 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.

 

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  (4) Acquisition of shares of PS&Marketing

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 date of investment was April 2, 2014, and the cumulative investment amount totaled Won 330 billion.

 

  (5) Disposition of shares of iHQ Inc.

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.

 

  (6) Acquisition of shares of Neosnetworks Co., Ltd. (“Neosnetworks”)

In order to acquire a new growth engine, the Company acquired a controlling stake in Neosnetworks, a building security company, with the purchase of 31,310 shares (a 66.7% equity interest) of Neosnetworks. on April 2, 2014. The Company acquired an additional 50,377 shares in Neosnetworks in April 2015 through a rights offering, resulting in an increase of its ownership to 83.9%.

 

  (7) Acquisition of shares of Iriver

On August 13, 2014, the Company purchased 10,241,722 shares (a 39.3% equity interest) of Iriver Ltd. (“Iriver”) from Vogo-Rio Investment Holdings Co., Ltd. and KGF-Rio Limited in order to foster application development and smartphone accessories as part of the Company’s growth engines. The Company holds a 48.9% equity interest of Iriver by acquiring additional shares in its rights offering. The Company does not hold a majority of the voting rights of Iriver but the Company has concluded that it has effective control, as it holds significantly more voting rights than any other shareholder or any organized group of shareholders.

 

  (8) Acquisition of shares of Shopkick, Inc. (“Shopkick”)

On October 10 2014, SK Planet America LLC, a subsidiary of the Company, acquired (through its 95.2%-owned subsidiary Shopkick Management Company, Inc.) a 100.0% ownership interest in Shopkick, a developer of a shopping app for mobile devices that provides benefits to customers for visiting stores, in order to penetrate the mobile commerce market in the United States. In the first half of 2016, SK Planet America LLC acquired all remaining shares of Shopkick Management Company, Inc.

 

  (9) Disposition of Shenzen E-Eye shares

In 2014, the Company entered into an agreement to dispose of its equity interest in Shenzen E-eye in order to focus its business portfolio on high-growth business areas in the Chinese ICT market. The sale was completed on March 23, 2015.

 

  (10) Disposition of a portion of KEB Hana Card shares

On April 3, 2015, the Company sold 27,725,264 shares (10.4% out of the 25.4% equity interest the Company held prior to the sale) of KEB Hana Card Co., Ltd. to Hana Financial Group in cash. With the proceeds of such sale (Won 180 billion), the Company acquired equity interests in Hana Financial Group on April 17, 2015 through participation in a rights offering by Hana Financial Group. The Company plans to maintain its strategic alliance and pursue opportunities to create synergies with, Hana Financial Group.

 

  (11) SK Broadband - Comprehensive Share Exchange

On March 20, 2015, the Company’s board of directors resolved to approve the Share Exchange.

 

    Share Exchange ratio: Shareholders of one common share of SK Broadband were allotted 0.0168936 common shares of SK Telecom

 

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    Shares exchanged: 2,471,883 registered common shares of SK Telecom

 

    Date of Share Exchange agreement: March 23, 2015

 

    Record date: April 6, 2015

 

    Announcement date for the proceeding of the Share Exchange as a small-scale share swap: April 6, 2015

 

    Meeting of board of directors for approval of the Share Exchange: May 6, 2015

 

    Date of the Share Exchange: June 9, 2015

 

  (12) Establishment of Entrix Co., Ltd.

In the first three quarters of 2015, SK Planet spun off its cloud streaming division and established Entrix Co., Ltd. The Company exchanged 1,300,000 shares of SK Planet for 1,300,000 shares of Entrix at the time of the spin-off and later acquired an additional 2,857,000 shares by participating in the recapitalization.

 

  (13) Additional capital raise by NanoEnTek Inc.

In the first three quarters of 2015, the Company acquired 1,090,155 shares through the additional capital raise by NanoEnTek.

 

  (14) Reclassification of Packet One Networks’ accounts

In 2015, the Company reclassified its investments in Packet One from investments in associates and joint ventures to assets classified as held for sale as the Company no longer had significant control over Packet One. The difference between the book value and the fair value of Won 37.4 billion at the time of reclassification was recognized as impairment loss.

 

  (15) Acquisition of shares of SK Communications Co., Ltd. (“SK Communications”)

On October 1, 2015, the Company became the largest shareholder of SK Communications with a 64.54% equity interest through dividends in kind from SK Planet of 26,523,815 shares and the purchase of 1,506,130 shares over-the-counter.

 

  (16) Acquisition of shares of CJ HelloVision Co., Ltd. (“CJ HelloVision”)

On November 2, 2015, the Company’s board of directors resolved to approve the acquisition of CJ HelloVision’s shares from CJ O Shopping Co., Ltd. (“CJ O Shopping”) and on the same day, entered into a share purchase agreement with CJ O Shopping. In addition, on November 2, 2015, SK Broadband’s board of directors resolved to approve the merger of SK Broadband with CJ HelloVision and on the same day, entered into a merger agreement with CJ HelloVision and the closing of the merger was conditioned upon receipt of regulatory approval from relevant authorities. On July 25, 2016, the Company notified CJ O Shopping of the termination of the share purchase agreement and SK Broadband notified CJ HelloVision of the termination of the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger.

 

  (17) Tender offer of shares of CJ HelloVision

From November 2, 2015 to November 23, 2015, the Company purchased 6,671,933 shares of CJ Hellovision in a tender offer for up to 10,000,000 shares, paying Won 12,000 per share. Through this tender offer, the Company acquired an 8.61% equity interest in CJ HelloVision.

 

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  (18) Establishment of SK TechX Co., Ltd. and Onestore

In the first half of 2016, SK Planet spun off its platform business and T Store business and established SK TechX and Onestore. The Company exchanged 12,323,905 shares of SK Planet for 6,323,905 shares of SK TechX and 6,000,000 shares of Onestore at the time of the spin-off. The Company later acquired an additional 4,409,600 shares of Onestore at a purchase price of Won 22 billion by participating in the follow-on rights offering. The Company did not participate in the subsequent follow-on rights offering and as of June 30, 2016, the Company has a 65.5% interest in Onestore.

 

  (19) Spin-off and merger of SK Planet’s location-based services business and mobile phone verification services business

Through the merger of SK Planet’s location-based services business and mobile phone verification services business into SK Telecom, the Company seeks to provide a solid base for continued growth, especially in the next generation platform business, and SK Planet plans to further concentrate its resources on its commerce business. The spin-off and merger was effective as of April 5, 2016 and was registered as of April 7, 2016. SK Planet is a wholly-owned subsidiary of the Company, and as the Company did not issue any new shares in connection with the merger, there was no change in the share ownership of the Company.

[SK Broadband]

 

  (1) Mergers among Subsidiaries and Affiliates

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.

On July 29, 2015, the board of directors of SK Broadband approved the acquisition of SK Planet’s Hoppin business through a spin-off and subsequent merger transaction pursuant to Article 530-2 of the Korean Commercial Code, with both SK Broadband and SK Planet remaining as existing companies. The spin-off and subsequent merger were effective as of September 1, 2015, and on the same day, SK Broadband issued 2,501,125 new common shares resulting from the merger, allotting 0.0349186 common shares of SK Broadband per one common share of SK Planet to SK Telecom, SK Planet’s sole shareholder.

 

  (2) Share Exchange

On March 20, 2015, the board of directors of SK Broadband resolved to approve the Share Exchange. The Share Exchange was approved at the extraordinary meeting of shareholders held on May 6, 2015. Subsequent to the Share Exchange, the Company became the parent company of SK Broadband with 100% ownership and remained a listed corporation on the KRX KOSPI Market, and SK Broadband became a wholly-owned subsidiary of the Company and was delisted from the KRX KOSDAQ Market. There was no change in the share ownership interest of the Company’s existing shareholders or the Company’s management in connection with the Share Exchange.

 

    Share Exchange ratio: Shareholders of one common share of SK Broadband were allotted 0.0168936 common shares of SK Telecom

 

    Shares exchanged: 2,471,883 registered common shares of SK Telecom

 

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    Date of Share Exchange agreement: March 23, 2015

 

    Record date: April 6, 2015

 

    Announcement date for the proceeding of the Share Exchange as a small-scale share swap: April 6, 2015

 

    Meeting of board of directors for approval of the Share Exchange: May 6, 2015

 

    Date of the Share Exchange: June 9, 2015

 

  (3) Merger with CJ HelloVision

On November 2, 2015, SK Broadband’s board of directors resolved to approve the merger of SK Broadband with CJ HelloVision such that CJ HelloVision would be the surviving entity and SK Broadband would be the non-surviving entity. The largest shareholder of the merged entity would be SK Telecom with an equity interest of 78.35%. On February 26, 2016, the entry into the merger agreement was resolved as proposed by SK Broadband’s shareholders.

On July 25, 2016, SK Broadband notified CJ HelloVision of the termination of the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger. On July 27, 2016, SK Broadband’s board of directors resolved to terminate the merger agreement as proposed. Subsequently, the merger agreement is no longer effective and all procedures related to the merger, including the issuance of new shares, were terminated.

[SK Planet]

As of February 1, 2013, SK Planet merged with SK Marketing & Company, a company providing e-commerce and advertising services. In connection with this merger, SK Planet issued 12,927,317 of its common stock to SK Telecom, which was a shareholder of SK Marketing & Company.

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 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.

On May 29, 2015, the board of directors of SK Planet resolved to spin off its cloud streaming division on July 1, 2015 in order to strengthen its business capabilities and expand overseas. The spin-off ratio was 0.9821740 for the surviving company to 0.0178260 for the newly-established company, and the capital reduction ratio was 1.7825968%.

On July 29, 2015, the board of directors of SK Planet resolved to spin off its Hoppin business, which was merged into SK Broadband on September 1, 2015, in order to unify capabilities within the business and maximize synergies to improve its competitive power in the Korean and international mobile media market. SK Planet issued 2,501,125 new common shares in connection with this transaction, and the merger ratio between SK Planet and SK Broadband was 0.0349186:1.

On December 29, 2015, the board of directors of SK Planet resolved to merge Commerce Planet Co., Ltd., its wholly-owned subsidiary, into SK Planet to generate synergies by uniting capabilities to promote its commerce business. The merger was effective as of February 1, 2016, and SK Planet did not issue any new shares in connection with the merger.

Effective as of March 1, 2016, SK Planet spun off its platform business and T Store business in order to enhance the competitiveness of each business for future growth.

Effective as of April 5, 2016, SK Planet spun off its location-based services business and mobile phone verification services business and merged them into the Company in order to further concentrate its resources on its commerce business.

 

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[SK Communications]

 

  (1) Disposition of shares of SK i-media

Pursuant to the resolution of its board of directors on October 17, 2011, SK Communications sold all of the shares of SK i-media Co., Ltd. it owns to LK Media Tec Co., Ltd. for Won 1 million of cash.

 

  (2) Disposition of shares of U-Land

Pursuant to the resolution of its board of directors on December 21, 2011, SK Communications sold all of the shares of U-Land Co., Ltd. (a 29.85% equity interest) it owns to SK Planet for Won 10 million.

 

  (3) Disposition of the Cyworld service

Pursuant to the resolution of its board of directors on March 6, 2014, SK Communications sold its Cyworld service and certain related assets to Cyworld Co., Ltd. for Won 2.8 billion on April 8, 2014.

 

  (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.

 

  (5) Change in the largest shareholder

On September 24, 2015, SK Telecom and SK Planet entered into a share transfer agreement to transfer all of the shares of SK Communications held by SK Planet to SK Telecom. The agreement became effective on October 1, 2015, making SK Telecom the largest shareholder of SK Communications.

[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. On the same day, the board of directors of PS&Marketing also resolved to acquire retail stores, including their assets and liabilities, of LCNC Co., Ltd (“LCNC”). The acquisitions were completed on April 30, 2014 at a purchase price of Won 124.5 billion for the assets acquired from SK Networks and a purchase price of Won 10 billion for the assets acquired from LCNC.

[M&Service]

Upon the merger between SK Marketing & Company, which held a 100% equity stake in M&Service, and SK Planet on February 1, 2013, SK Planet holds a 100% equity stake in M&Service.

[Neosnetworks]

On March 31, 2015, Neos Networks acquired the unmanned electronic security business of Joeun Safe to expand its unmanned security business. The acquisition cost, which had been reported on January 5, 2015 as Won 19.4 billion, was subject to adjustment depending on the customer transfer rate. The final acquisition cost was determined to be Won 16.9 billion. Joeun Safe was spun off from its parent company Joeun System in 2006 and has the fourth largest market share in the Korean unmanned security industry. Upon this acquisition, it is expected that the Company will quickly expand into the unmanned security market.

 

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[Iriver]

 

  (1) Merger of Iriver CS Co., Ltd. (“Iriver CS”)

Pursuant to the resolution of its board of directors on November 18, 2014, Iriver decided to merge with Iriver CS, its wholly-owned subsidiary, with Iriver as the surviving entity. The merger was completed based on the merger ratio of 1:0 with no capital increase. The merger and merger registration were completed on January 31, 2015 and February 2, 2015, respectively.

 

  (2) New Establishment of groovers Japan Co. Ltd. (“groovers Japan”)

On February 25, 2015, Iriver newly established its overseas subsidiary, groovers Japan, for the purpose of strengthening new business opportunities in Japan.

 

E. Other Important Matters related to Management Activities

[SK Telecom]

 

  (1) Issuance of bonds

On May 14, 2014, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 50 billion (with an annual interest rate of 3.301% and a maturity date of May 14, 2019), Won 150 billion (with an annual interest rate of 3.637% and a maturity date of May 14, 2024), Won 50 billion (with embedded options, an annual interest rate of 4.725% and a maturity date of May 14, 2029), and Won 50 billion (with embedded options, an annual interest rate of 4.72% and a maturity date of May 14, 2029).

On October 28, 2014, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 160 billion (with an annual interest rate of 2.53% and a maturity date of October 28, 2019), Won 150 billion (with an annual interest rate of 2.66% and a maturity date of October 28, 2021), and Won 190 billion (with an annual interest rate of 2.82% and a maturity date of October 28, 2024).

On February 26, 2015, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 100 billion (with an annual interest rate of 2.40% and a maturity date of February 26, 2022, Won 150 billion (with an annual interest rate of 2.49% and a maturity date of February 26, 2025), and Won 50 billion (with an annual interest rate of 2.61% and a maturity date of February 26, 2030).

On July 17, 2015, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 90 billion (with an annual interest rate of 1.89% and a maturity date of July 17, 2018), Won 70 billion (with an annual interest rate of 2.66% and a maturity date of July 17, 2025), Won 90 billion (with an annual interest rate of 2.82% and a maturity date of July 17, 2030), and Won 50 billion (with an annual interest rate of 3.40% and a maturity date of July 17, 2030).

On November 30, 2015, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 80 billion (with an annual interest rate of 2.073% and a maturity date of November 30, 2018), Won 100 billion (with an annual interest rate of 2.550% and a maturity date of November 30, 2025), Won 70 billion (with an annual interest rate of 2.749% and a maturity date of November 30, 2035), and Won 50 billion (with embedded options, an annual interest rate of 3.100% and a maturity date of November 30, 2030).

On March 4, 2016, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 70 billion (with an annual interest rate of 1.651% and a maturity date of March 4, 2019), Won 100 billion (with an annual interest rate of 1.802% and a maturity date of March 4, 2021), Won 90 billion (with an annual interest rate of 2.077% and a maturity date of March 4, 2026), and Won 80 billion (with an annual interest rate of 2.243% and a maturity date of March 4, 2036).

On June 3, 2016, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 50 billion (with an annual interest rate of 1.621% and a maturity date of June 3, 2019), Won 50 billion (with an annual interest rate of 1.709% and a maturity date of June 3, 2021), Won 120 billion (with an annual interest rate of 1.973% and a maturity date of June 3, 2026), and Won 50 billion (with an annual interest rate of 2.172% and a maturity date of June 3, 2031).

 

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  (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 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 billion in financial expenses 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 converted 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 paid in full as of January 6, 2014, and currently, there is no amount outstanding.

[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 the purchase of subscriberships, SK Broadband did not believe that 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.

 

  3. Total Number of Shares

 

A. Total Number of Shares

 

(As of June 30, 2016)      (Unit: in shares)  
     Share type         

Classification

   Common shares      Preferred
shares
     Total      Remarks  

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

     10,136,551         —           10,136,551         —     

VI. Number of shares outstanding (IV-V)

     70,609,160         —           70,609,160         —     

 

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B. Treasury Shares

 

  (1) Acquisitions and dispositions of treasury shares

 

(As of June 30, 2016)                                   (Unit: in shares)  
          At the      Changes         

Acquisition methods

  

Type of

shares

   beginning
of period
     Acquired
(+)
     Disposed
(-)
     Retired
(-)
     At the end of
period
 

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

   Direct acquisition   

Direct

acquisition

from market

   Common shares      10,136,551         —           —           —           10,136,551   
         Preferred shares      —           —           —           —           —     
     

Direct over-

the-counter acquisition

   Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
      Tender offer    Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
      Sub-total    Common shares      10,136,551         —           —           —           10,136,551   
         Preferred shares      —           —           —           —           —     
   Acquisition through trust and other agreements   

Held by

trustee

   Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
     

Held in actual

stock

   Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
      Sub-total    Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
Other acquisition    Common shares      —           —           —           —           —     
         Preferred shares      —           —           —           —           —     
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total    Common shares      10,136,551         —           —           —           10,136,551   
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   Preferred shares      —           —           —           —           —     
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  4. Status of Voting Rights

 

(As of June 30, 2016)           (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         10,136,551         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 rights (F = A - B - C - D + E)

     Common share         70,609,160         —     
     Preferred share         —           —     

 

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  5. Dividends and Others

 

A. Dividends

 

  (1) 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.

 

  (2) Distribution of interim dividends of Won 1,000 was approved during the 366th Board of Directors’ Meeting on July 24, 2014.

 

  (3) Distribution of cash dividends was approved during the 31st General Meeting of Shareholders held on March 20, 2015.

 

    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 378th Board of Directors’ Meeting on July 23, 2015.

 

  (5) Distribution of cash dividends was approved during the 32nd General Meeting of Shareholders held on March 18, 2016.

 

    Distribution of cash dividends per share of Won 9,000 (exclusive of an interim dividend of Won 1,000) was approved.

 

  (6) Distribution of interim dividends of Won 1,000 was approved during the Board of Directors’ Meeting on July 28, 2016.

 

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 6
months ended
June 30, 2016
     As of and for the
year ended
December 31, 2015
     As of and for the
year ended
December 31, 2014
 

Par value per share (Won)

       500         500         500   

(Consolidated)Net income

       861,982         1,518,604         1,801,178   

Net income per share (Won)

       12,089         20,988         25,154   
    

 

 

    

 

 

    

 

 

 

Total cash dividend

       70,609         708,111         666,802   
    

 

 

    

 

 

    

 

 

 

Total stock dividends

       —           —           —     
    

 

 

    

 

 

    

 

 

 

(Consolidated)

Percentage of cash dividend to available income (%)

       0.8         46.6         37   

Cash dividend yield ratio (%)

    Common share         0.5         4.6         3.5   
    Preferred share         —           —           —     

Stock dividend yield ratio (%)

    Common share         —           —           —     
    Preferred share         —           —           —     

Cash dividend per share (Won)

    Common share         1,000         10,000         9,400   
    Preferred share         —           —           —     

Stock dividend per share (share)

    Common share         —           —           —     
    Preferred share         —           —           —     

 

* Net income per share means basic net income per share. The cash dividend per share amounts include the respective interim cash dividend per share amounts.

 

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II. BUSINESS

 

  1. Business Overview

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.

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.    Maintenance of switching stations
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, Syrup, OK Cashbag in the commerce area
   SK TechX Co., Ltd.    Develop and supply system software for SK Telecom
   Onestore Co., Ltd.    Operate app store
   SK Communications Co., Ltd.    Integrated portal services through NATE and instant messaging services through NATE-ON
   M&Service Co., Ltd.    System software development, distribution and technical support services and other online information services
   SK Planet America LLC    System software development, distribution and investments
   Shopkick Management Company, Inc.    System software development, distribution and investments
   Atlas Investment    Investments

[Wireless Business]

 

A. Industry Characteristics

The Korean mobile communication market is 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. In the first half of 2014, wideband LTE-A service was commercialized and on December 29, 2014, tri-band LTE-A service with a maximum speed of 300 Mbps was also commercialized. Such achievements were the building blocks towards the Company’s LTE penetration reaching 68.7% as of June 30, 2016.

 

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B. Growth Potential

 

            (Unit: in 1,000 persons)  
     As of June 30,
2016
     As of December 31,  

Classification

      2015      2014      2013  
Number of subscribers   

SK Telecom

     26,528         26,250         26,468         26,286   
  

Others (KT, LGU+)

     27,184         26,765         26,125         25,909   
  

MVNO

     6,397         5,921         4,584         2,485   
     

 

 

    

 

 

    

 

 

    

 

 

 
  

Total

     60,109         58,936         57,177         54,680   
     

 

 

    

 

 

    

 

 

    

 

 

 

 

* Source: Wireless subscriber data from the Ministry of Science, ICT and Future Planning (“MSIP”) as of June 30, 2016.

 

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. There is also a growing importance to the business-to-business segment, which creates added value by selling and developing various solutions. 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 June 30,
2016
     As of December 31,  
      2015      2014      2013  

Mobile communication services

     49.3         49.4         50.2         50.0   

 

* 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 a result, for the six months ended June 30, 2016, the Company recorded Won 8.5 trillion in revenue and Won 0.8 trillion in operating income on a consolidated basis and Won 6.2 trillion in revenue and Won 0.9 trillion in operating income on a separate basis.

In particular, the number of subscribers subscribing to “Band Data” plans, which was launched in the second quarter of 2015, has continued to steadily increase in 2016, which in turn led to an increase in data usage. The success of Luna, a smartphone launched in September 2015 that was designed to run exclusively on the Company’s networks, led to the launch of various other relatively low-priced devices and became an example of successfully targeting a niche market.

By continuing to be innovative in developing core competencies, the Company has more firmly established its position as the market leader in wireless telecommunications. The competitive environment of the wireless telecommunications industry has become more focused on retention. For the six months ended June 30, 2016, the average monthly churn rate was 1.5%, a record low since 2004 when the mobile number portability system was first introduced. The number of subscribers (including MVNO subscribers) as of June 30, 2016 was 29.2 million, an increase of approximately 230,000 from the previous quarter. In particular, the number of smartphone subscribers as of June 30, 2016 was 21.3 million, an increase of approximately 310,000 from the previous quarter, propelled by 20.0 million LTE subscribers, solidifying the Company’s market leadership. In addition, as of June 30, 2016, the number of subscribers for products targeted towards second devices such as the T Kids’ phone – Joon and T Outdoor reached 890,000, which the Company believes shows a level of demand that can potentially lead to growth of the lifestyle enhancement platform.

 

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Following the launch of commercial LTE services in July 2011, the Company became the first telecommunications service provider in the world to launch commercial wideband LTE-A services in June 2014. In December 2014, the Company launched tri-band LTE-A services. By launching various high quality services utilizing the LTE-A and wideband LTE networks such as group video conference call services and full high definition mobile IPTV streaming services, 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 19 years, 18 years and 17 years, respectively.

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 that 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

As subscribers to various bundled wireless and fixed-line products continue 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 ultra-high definition broadcasting services for smart televisions. In the Korean pay TV market, analog cable broadcasting is increasingly being replaced with digital broadcasting and IPTV is the fastest growing digital broadcasting platform. While it is currently expected that there will be a decline in the number of subscribers switching from cable TV to IPTV, the Company believes that it will need to aggressively increase its subscriber base by providing differentiated services on its IPTV platform. In addition, with the maturity of the residential market and the changing trends of broadcasting consumption towards mobile platforms, the Company believes that giga and ultra-high definition broadcasting services and mobile media services will be important competitive factors. In the future, the Company believes that there will be rapid evolution towards a broadband network stemming from increased demand for giga and ultra-high definition broadcasting services and cloud services and the government is likely to promote the development of the next-generation ICT industry through various policies and regulations.

 

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B. Growth Potential

 

(Unit: in 1,000 persons for high-speed Internet and fixed-line telephone, in 1,000 terminals for IPTV)  
          As of June 30,      As of December 31,  

Classification

        2016      2015      2014  
Fixed-line Subscribers   

High-speed Internet

     20,314         20,025         19,199   
  

Fixed-line telephone

     15,998         16,341         16,939   
  

IPTV (real-time)

     10,992         10,992         9,670   

 

* Source: MSIP website.
* The number of IPTV subscribers was taken from data announced by the MSIP on May 18, 2016 and the number of IPTV subscribers as of December 31, 2015 and June 30, 2016 shown above is the average number of subscribers for the last six months of 2015.

 

C. Cyclical Nature and Seasonality

High-speed Internet, fixed-line telephone and IPTV services are mature markets that are comparatively less sensitive to cyclical economic changes as such services have become more of a necessity and the market has matured. 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.

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

 

     (Unit: in percentages)  
     As of June 30,
2016
     As of December 31,  

Classification

      2015      2014  

High-speed Internet (including resales)

     25.3         25.1         25.1   

Fixed-line telephone (including Voice over Internet Protocol (“VoIP”))

     17.0         17.1         17.0   

IPTV

     30.5         30.5         29.2   

 

* Source: MSIP website.
* With respect to Internet telephone, the market share was calculated based on market shares among the Company, KT and LG U+ and is based on the number of IP phone subscribers.
* The number of IPTV subscribers was taken from data announced by the MSIP on May 18, 2016 and the IPTV market shares as of December 31, 2015 and June 30, 2016 was calculated using the average number of subscribers for the last six months of 2015.

 

D. Business Overview and Competitive Strengths

In 1999, the Company was the first in the world to commence commercial ADSL services. On the back of its premium technology and enhanced competitiveness achieved through bundled products, it is currently expanding subscriber base across all of its 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, the Company has reinforced its leadership in the ultra-high definition broadcasting market by launching ultra-high definition services that require no set-top boxes in April 2014 and by commercializing ultra-high definition set-top boxes for the first time in Korea in September 2014. Furthermore, the Company was the first in the industry to adopt solutions to upgrade full high definition to ultra-high definition, and the Company also strengthened the line-up of ultra-high definition contents by securing access to diverse contents provided by Sony and NBC Universal. Moreover, the Company provides the greatest number of channels in full high definition in the IPTV market due to its recent upgrade of all 130 live high definition channels to full high definition. The Company has also been selected by the government as the lead trial operator of gigabit (“GiGA”) Internet service to promote the discovery of new technologies and services related to the expansion of GiGA coverage within the hybrid fiber-coaxial network and provide GiGA Wi-Fi and other services. Furthermore, the Company has solidified its technological leadership by setting a worldwide precedent for providing “super” 8K ultra-high definition broadcasting service, which has resolution four times as high as the pre-existing 4K ultra-high definition broadcasting service in the IPTV industry.

 

 

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SK Telink, a provider of international telecommunications service, 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 the Company to expand its international calling services to fixed-line international calling services. In 2005, SK Telink obtained a license to operate VoIP services and local calling value-added services to develop into a versatile fixed-line telecommunications service provider. 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 by providing quality solutions at reasonable prices.

[Other Business]

 

A. Industry Characteristics

As the number of smartphones distributed in Korea exceeds 40 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, Onestore). Platform businesses are evolving and expanding globally.

In order to move beyond the saturated wireless telecommunications market and plan for new future opportunities, the Company is aiming to transform itself into a next-generation platform service provider. The Company plans to actively develop a portfolio of services on its growth platforms using its leading position in the ICT business as a foundation to overcome boundaries between industries. In particular, the Company intends to maximize synergies between various business areas and overcome the limitations on growth in the wireless telecommunications market through its three growth platforms, comprising its Internet of Things (“IoT”) solutions platform, lifestyle enhancement platform and advanced media platform. The Company intends to expand its competitive strengths in the residential market, based on its media offerings through its advanced media platform, to also develop its IoT solutions and lifestyle enhancement platforms. The Company also intends to continue to seek business opportunities for its growth businesses such as its healthcare and B2B solutions businesses and integrate them with its growth platforms.

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 with which to utilize this database and provide differentiated services to customers.

 

B. Growth Potential

The scope and value generated by the platform business, including application and content marketplaces and N-screen services, continue 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.

 

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C. Domestic and Overseas Market Conditions

 

  (1) Commerce markets

The Company expects that online/mobile commerce markets will continue to grow due to the growth potential of the Internet shopping population, the strengthening of online business models by off-line operators, and the rapid rise of mobile commerce. Recently, due to the widespread use of smartphones and social media, the commercialization of location-based services and the development of big data technology, online to offline (or, O2O) business, which is a concept of attracting customers to offline stores using online and mobile environments, is being highlighted as a new field in the online commerce market industry.

 

  (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.

 

  (3) Media

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, 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

The Company plans to expand its platform ecosystem focusing on its “Open & Collaboration” motto in operating its commerce business such as 11 th Street, Syrup, and OK Cashbag, its digital contents business such as Onestore 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 rapidly growing in the mobile commerce market and has established itself as the domestic market leader in this 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. In Indonesia, an open market platform was successfully launched through a joint venture established in July 2013 with PT XM Axiata Tbk, a wireless telecommunications company in Indonesia. In October 2014, SK Planet and Celcom Axiata Berhad, which is a leading telecommunications service provider in Malaysia, established a joint venture, Celcom Planet, and launched online commerce services tailored to the Malaysian market in April 2015 and is actively engaged in operating such business.

Syrup is a consumer-oriented commerce service with the goal of minimizing its customers’ time and efforts while maximizing the economic benefits by providing information about coupons and events based on time, place and occasion. To achieve this goal, Syrup combines location-based services, such as geo-fencing, a virtual perimeter technology using a global positioning system (or, GPS) and Bluetooth Low Energy (or, BLE), with big data analysis of consumption patterns. Syrup’s business partners can benefit from cost-effective marketing through Syrup by utilizing statistics and analysis regarding consumers’ frequency of visits, preferred products, and consumption patterns. Furthermore, Syrup is strengthening its market power and competitiveness through the continual release of vertical products such as Syrup Pay, Syrup Order and Syrup Table and the expansion of Merchant.

OK Cashbag is a point-based loyalty marketing program which has grown to become a 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. As Korea’s largest loyalty mileage program, OK Cashbag maintains a leading position in the industry. The Company is continuing to develop its service in light of market conditions and customers’ needs to enhance its customers’ perception of point value and is reviewing and pursuing various plans to develop OK Cashbag into a service that goes beyond a mileage program that leverages the key competitiveness of OK Cashbag such as its platform and partnership network.

 

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  (2) Location-based services

T-Map Navigation provides map, local information, real-time traffic information and navigation services. T-Map Navigation is one of the leading location-based service platforms in Korea. By entering the Online to Offline service area with T map Taxi, T map Public Transportation and others, the Company is expanding its mobile platform foundation that connects day to day life. The Company is 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

Onestore, an application platform launched in 2016 through a joint venture between SK Telecom, KT, LG U+ and Naver’s app store, plans to widen its services to tablets and navigation devices. The Company intends to further develop Onestore 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.

 

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

The Company’s instant messenger service, “Nate-On,” had a market share of 20.6% in the instant messenger market in Korea with 3.2 million net users during the month of June 2016. The Company’s Internet search portal service, “Nate,” had a page-view market share of 3.8% as of June 30, 2016. (Source: Korean Click, based on fixed-line access)

 

  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.,

Network O&S Co., Ltd.

   Mobile communication service, wireless data service, ICT service    T, Band Data and
others
     6,499,445 (77 %) 

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
     1,329,664 (16 %) 

Other

   SK Planet Co., Ltd.,

SK TechX Co., Ltd.,

Onestore Co., Ltd.,

SK Communications Co., Ltd.,

M&Service Co., Ltd.,

SKP America, LLC,

Shopkick Mgmt. Co., Ltd.

   Internet portal service and e-commerce    OK Cashbag,
NATE, Onestore
and others
     666,643 (7 %) 
           

 

 

 

Total

     8,495,752 (100 %) 
  

 

 

 

[Wireless Business]

As of June 30, 2016, based on the Company’s standard monthly subscription plan, the basic service fee was Won 11,000 and the usage fee was Won 1.8 per second.

 

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[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 June 30, 2016, broadband Internet and TV services comprised 57.8% of SK Broadband’s revenue, telephony service 16.0%, corporate data services 24.8% and other telecommunications services 1.4%. 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.

[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    Syrup, Onestore, 11th Street, T Map, OK Cashbag and others

Advertisement (Display, Search)

   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
   Six months
ended June 30,
2016
   Network,
systems and
others
   Capacity increase and quality improvement; systems improvement      21,000         3,125         —     
              

 

 

    

 

 

    

 

 

 

Total

        21,000         3,125         —     
              

 

 

    

 

 

    

 

 

 

 

* On July 28, 2016, the Company’s board of directors resolved to increase its 2016 capital expenditure budget from Won 20 trillion to Won 21 trillion.

 

B. Future Investment Plan

 

(Unit: in 100 millions of Won)
    

Expected investment amount

     Expected investment for each year     

Business

  

Asset type

   Amount      2016     

2017

  

2018

  

Investment effect

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

For the six months ended June 30, 2016, the Company spent Won 239.7 billion for capital expenditures as set out below, including the investment of Won 103.4 billion to expand subscriber networks. In 2016, the Company expects to spend additional amounts to strengthen the competitiveness of its advanced media and IoT solutions platforms; however, the overall capital expenditure amount is expected to be similar to 2015 through efficient management of investments.

 

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(Unit: in 100 millions of Won)  

Business

   Classification      Investment
period
     Subject of
investment
    

Investment effect

   Amount
already
invested
     Future
investment
 

High-speed Internet

    
 
 
Upgrade/
New
installation
  
  
  
    
 
 
Six months
ended June 30,
2016
  
  
  
    
 
 
 
 
Backbone
and
subscriber
network /
others
  
  
  
  
  
   Expand subscriber networks and facilities      1,091         To be determined   

Telephone

                 1      

Television

                 571      

Corporate Data

            Increase leased-line and integrated information system      328      

Others

            Expand networks and required space      406      
              

 

 

    

Total

                 2,397      
  

 

 

    

 

  4. Revenues

 

(Unit: in millions of Won)  

Business

   Sales
type
    

Item

   For the six
months ended
June 30, 2016
     For the year
ended December 31,
2015
     For the year
ended December 31,
2014
 

Wireless

     Services       Mobile communication    Export      8,900         15,035         6,773   
         Domestic      6,490,545         13,254,243         13,521,108   
           

 

 

    

 

 

    

 

 

 
         Subtotal      6,499,445         13,269,278         13,527,881   
           

 

 

    

 

 

    

 

 

 

Fixed-line

     Services       Fixed-line, B2B data, High-speed Internet, TV    Export      53,926         94,387         63,608   
         Domestic      1,275,738         2,400,186         2,386,312   
           

 

 

    

 

 

    

 

 

 
         Subtotal      1,329,664         2,494,573         2,449,920   
           

 

 

    

 

 

    

 

 

 

Other

     Services       Display and Search ad., Content    Export      21,340         53,622         20,798   
         Domestic      645,303         1,319,261         1,165,199   
           

 

 

    

 

 

    

 

 

 
         Subtotal      666,643         1,372,883         1,185,997   
           

 

 

    

 

 

    

 

 

 

Total

   Export      84,166         163,044         91,179   
   Domestic      8,411,586         16,973,690         17,072,619   
     

 

 

    

 

 

    

 

 

 
         Total      8,495,752         17,136,734         17,163,798   
           

 

 

    

 

 

    

 

 

 

 

(Unit: in millions of Won)  

For the six months ended June 30, 2016

   Wireless      Fixed      Other     Sub total      Internal
transaction
    After
consolidation
 

Total sales

     7,292,918         1,629,570         928,512        9,851,000         (1,355,248     8,495,752   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Internal sales

     793,473         299,906         261,869        1,355,248         (1,355,248     —     

External sales

     6,499,445         1,329,664         666,643        8,495,752         —          8,495,752   

Operating income (loss)

     920,427         64,388         (175,324     809,491         —          809,491   

Profit (loss) for the period

     —           —           —          —           —          1,100,874   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

     23,836,373         3,680,610         2,865,977        30,382,960         (1,853,570     28,529,390   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     9,731,374         2,316,179         987,201        13,034,754         127,143        13,161,897   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

  5. Derivative Transactions

 

A. Current Swap Contract Applying Cash Flow Risk Hedge Accounting

Currency swap contracts under cash flow hedge accounting as of June 30, 2016 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

 

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Borrowing date

  

Hedged item

  

Hedged risk

  

Contract type

  

Financial institution

  

Duration of
contract

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

Oct. 29, 2013

   Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$300,000,000)    Foreign currency risk    Cross currency swap    Korea Development Bank and others    Oct. 29, 2013 – Oct. 26, 2018

Dec. 16, 2013

   Fixed-to-fixed cross currency swap (U.S. dollar denominated loan face value of US$69,056)    Foreign currency risk    Cross currency swap    Deutsche Bank    Dec. 16, 2013 – Apr. 29, 2022

 

B. Treatment of Derivative Instruments on the Balance Sheet

As of June 30, 2016, 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)      

Non-current assets:

  

Convertible option (*2)
(face amounts of Won 150 billion)

    —          —          —          —          9,961        9,961   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds face value of US$400,000,000)

    (50,424     (16,098     8,299        129,806        —          71,583   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds face value of US$700,000,000)

    (15,296     (4,884     51,650        —          —          31,470   

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

    (11,613     (3,709     24,255        —          —          8,933   

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

    (4,481     —          30,694        —          —          26,213   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds face value of US$69,056)

    (3,622     (1,156     7,457        —          —          2,679   
           

 

 

 

Total assets

              150,839   
           

 

 

 

Non-current liabilities:

  

Fixed-to-fixed cross currency swap
(Swiss Franc denominated bonds face value of CHF 300,000,000)

    (6,565     (2,095     (6,710     —          —          (15,370

Fixed-to-fixed cross currency swap
(Australia dollar denominated bonds face value of AUD 300,000,000)

    2,873        918        (74,879     —          —          (71,088
           

 

 

 

Total liabilities

              (86,458
           

 

 

 

 

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Table of Contents
(*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, 2015.

 

  6. Major Contracts

[SK Telecom]

 

(Unit: in 100 millions of Won)  

Category

  

Vendor

   Start Date      Completion
Date
    

Contract Title

   Contract
Amount
 

Product

   Acts Display & Optics Company      May 4, 2016        
 
February 28,
2017
  
  
   Purchase smart beam laser      64   

Real Estate

   SK Broadband Co., Ltd.     
 
February 1,
2016
  
  
    
 
January 31,
2017
  
  
   Namsan Office Building Lease Contract      53   

Real Estate

   Multiple      January 1, 2016         June 30, 2016       Purchase land (Euiwang and four others)      26   
              

 

 

 

Subtotal

                 143   
              

 

 

 

[SK Broadband]

Below are SK Broadband’s contracts related to its telecommunications equipment. In addition to the below, SK Broadband also has entered into various real estate rental agreements.

 

Counterparty

  

Contract Contents

  

Contract Period

  

Note

Telecommunication service providers    Interconnection among telecommunication service providers       Automatically renewed for two years at a time unless specific amendments are requested
KEPCO    Provision of electric facilities   

From Nov. 2015 to Nov. 2016

(Unless special reasons arise, the usage period will be renewed annually)

   Use of electricity poles
Seoul City Railway    Use of telecommunication line conduits    From Jan. 2015 to Dec. 2017    Use of railway telecommunication conduit (Serviced areas to expand)
Busan Transportation Corporation    Use of telecommunication line conduits    From July 2009 to July 2013 (Renewal in progress, currently in the process of transitioning to private network system, plans to enter into a contract once completed and the remaining work is confirmed)    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, currently in discussion to decide usage unit price, future plans to enter into a contract)    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, in the completion stage of transitioning to private network system, currently reviewing whether to renew contract at the end of 2016)    Use of railway telecommunication conduit (Service lease)

 

* Renewal is in progress after negotiation of lower usage fees.

 

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Table of Contents

[SK Communications]

 

Counterparty

  

Purpose

  

Contract Period

  

Contract Amount

Kakao Corp.    Cost-per-click Internet search advertisement       Amount determined based on the number of clicks

 

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

 

  7. R&D Investments

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

 

(Unit: in millions of Won except percentages)  
          For the six months
ended June 30,
2016
   

 

For the year ended December 31,

    Remarks  

Category

     2015     2014    

Raw material

     347        1,267        530        —     

Labor

     60,458        68,969        71,224        —     

Depreciation

     64,638        147,577        176,975        —     

Commissioned service

     23,842        37,001        67,802        —     

Others

     20,528        67,888        81,221        —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Total R&D costs

     169,813        322,702        397,752        —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Accounting

  

Sales and administrative expenses

     168,111        315,790        390,943        —     
  

Development expenses (Intangible assets)

     1,702        6,912        6,809        —     

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

     2.00     1.88     2.32     —     

 

  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 by providing solutions such as registering and licensing of the brands.

 

B. Business-related Intellectual Property

[SK Telecom]

As of June 30, 2016, the Company holds 6,029 Korean-registered patents, 403 U.S.-registered patents, 238 Chinese-registered patents (all including patents held jointly with other companies) and more patents with other countries. The Company holds 951 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.

[SK Broadband]

As of June 30, 2016, SK Broadband holds 419 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.

 

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Table of Contents

[SK Planet]

As of June 30, 2016, SK Planet held 2,275 registered patents, 126 registered design marks, 1,140 registered trademarks and five copyrights (including those held jointly with other companies) in Korea. It also holds 114 U.S.-registered patents, 84 Chinese-registered patents, 66 Japanese-registered patents, 24 E.U.-registered patents (all including patents held jointly with other companies) and 241 registered trademarks, along with a number of other intellectual property rights, in other countries.

[SK Communications]

As of June 30, 2016, SK Communications held 92 registered patents, 26 registered design rights and 641 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.

 

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Table of Contents
III. FINANCIAL INFORMATION

 

  1. Summary Financial Information (Consolidated and Separate)

 

A. Summary Financial Information (Consolidated)

Below is the summary consolidated financial information of the Company as of June 30, 2016, December 31, 2015 and December 31, 2014 and for the six months ended June 30, 2016 and 2015 and the years ended December 31, 2015 and 2014. The Company’s reviewed consolidated financial statements as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015, which are prepared in accordance with K-IFRS, are attached hereto.

 

(Unit: in millions of Won except number of companies)  
     As of
June 30, 2016
     As of
December 31, 2015
     As of
December 31, 2014
 

Assets

        

Current Assets

     6,118,565         5,160,242         5,083,148   

•    Cash and Cash Equivalents

     1,099,561         768,922         834,429   

•    Accounts Receivable – Trade, net

     2,199,983         2,344,867         2,392,150   

•    Accounts Receivable – Other, net

     1,273,406         673,739         690,527   

•    Others

     1,545,615         1,372,714         1,166,042   

Non-Current Assets

     22,410,825         23,421,145         22,858,085   

•    Long-Term Investment Securities

     1,046,661         1,207,226         956,280   

•    Investments in Associates and Joint Ventures

     6,929,114         6,896,293         6,298,088   

•    Property and Equipment, net

     9,716,070         10,371,256         10,567,701   

•    Intangible Assets, net

     2,070,189         2,304,784         2,483,994   

•    Goodwill

     1,912,065         1,908,590         1,917,595   

•    Others

     736,726         732,996         634,427   
  

 

 

    

 

 

    

 

 

 

Total Assets

     28,529,390         28,581,387         27,941,233   
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current Liabilities

     5,219,997         5,256,493         5,420,310   

Non-Current Liabilities

     7,941,900         7,950,798         7,272,653   
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     13,161,897         13,207,291         12,692,963   
  

 

 

    

 

 

    

 

 

 

Equity

        

Equity Attributable to Owners of the Parent Company

     15,218,121         15,251,079         14,506,739   

Share Capital

     44,639         44,639         44,639   

Capital Surplus (Deficit) and Other Capital Adjustments

     191,684         189,510         277,998   

Retained Earnings

     15,214,203         15,007,627         14,188,591   

Reserves

     (232,405      9,303         (4,489

Non-controlling Interests

     149,372         123,017         741,531   
  

 

 

    

 

 

    

 

 

 

Total Equity

     15,367,493         15,374,096         15,248,270   
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     28,529,390         28,581,387         27,941,233   
  

 

 

    

 

 

    

 

 

 

Number of Companies Consolidated

     38         37         40   
  

 

 

    

 

 

    

 

 

 

 

(Unit: in millions of Won except per share amounts)  
     For the six
months ended
June 30, 2016
     For the six
months ended
June 30, 2015
     For the
year ended
December 31, 2015
     For the
year ended
December 31, 2014
 

Operating Revenue

     8,495,752         8,496,025         17,136,734         17,163,798   

Operating Income

     809,491         815,526         1,708,006         1,825,105   

Profit Before Income Tax

     1,100,874         1,075,605         2,035,365         2,253,828   

Profit for the Period

     863,288         840,635         1,515,885         1,799,320   

Profit for the Period Attributable to Owners of the Parent Company

     861,982         840,334         1,518,604         1,801,178   

Profit for the Period Attributable to Non-controlling Interests

     1,306         301         (2,719      (1,858

Basic Earnings Per Share (Won)

     12,089         11,695         20,988         25,154   

Diluted Earnings Per Share (Won)

     12,089         11,695         20,988         25,154   

 

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Table of Contents
B. Summary Financial Information (Separate)

Below is the summary separate financial information of the Company as of June 30, 2016, December 31, 2015 and December 31, 2014 and for the six months ended June 30, 2016 and 2015 and the years ended December 31, 2015 and 2014. The Company’s reviewed separate financial statements as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015, which are prepared in accordance with K-IFRS, are attached hereto.

 

(Unit: in millions of Won)  
     As of
June 30, 2016
    As of
December 31, 2015
    As of
December 31, 2014
 

Assets

      

Current Assets

     3,559,993        2,713,529        2,689,913   

•    Cash and Cash Equivalents

     646,221        431,666        248,311   

•    Accounts Receivable – Trade, net

     1,520,723        1,528,751        1,559,281   

•    Accounts Receivable – Other, net

     697,642        264,741        305,990   

•    Others

     695,407        488,371        576,331   

Non-Current Assets

     19,621,845        20,433,411        20,022,549   

•    Long-Term Investment Securities

     756,370        726,505        608,797   

•    Investments in Subsidiaries and Associates

     8,759,224        8,810,548        8,181,769   

•    Property and Equipment, net

     6,802,084        7,442,280        7,705,906   

•    Intangible Assets, net

     1,585,409        1,766,069        1,928,169   

•    Goodwill

     1,306,236        1,306,236        1,306,236   

•    Others

     412,522        381,773        291,672   
  

 

 

   

 

 

   

 

 

 

Total Assets

     23,181,838        23,146,940        22,712,462   
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Current Liabilities

     3,370,769        3,491,306        3,378,046   

Non-Current Liabilities

     6,008,250        5,876,174        5,792,195   
  

 

 

   

 

 

   

 

 

 

Total Liabilities

     9,379,019        9,367,480        9,170,241   
  

 

 

   

 

 

   

 

 

 

Equity

      

Share Capital

     44,639        44,639        44,639   

Capital Surplus and Other Capital Adjustments

     371,481        369,446        433,894   

Retained Earnings

     13,431,966        13,418,603        12,996,790   

Reserves

     (45,267     (53,228     66,898   
  

 

 

   

 

 

   

 

 

 

Total Equity

     13,802,819        13,779,460        13,542,221   
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

     23,181,838        23,146,940        22,712,462   
  

 

 

   

 

 

   

 

 

 

 

(Unit: in millions of Won except per share amounts)  
     For the six
months ended
June 30, 2016
     For the six
months ended
June 30, 2015
     For the
year ended
December 31, 2015
     For the
year ended
December 31, 2014
 

Operating Revenue

     6,190,249         6,277,222         12,556,979         13,012,644   

Operating Income

     908,056         803,916         1,658,776         1,737,160   

Profit Before Income Tax

     846,130         698,142         1,469,444         1,321,750   

Profit for the Period

     666,350         527,783         1,106,761         1,028,541   

Basic Earnings Per Share (Won)

     9,318         7,301         15,233         14,262   

Diluted Earnings Per Share (Won)

     9,318         7,301         15,233         14,262   

 

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Table of Contents
  2. Other Matters Related to Financial Information

 

A. Restatement of the Financial Statements

Not applicable.

 

B. Allowance for Doubtful Accounts

 

  (1) Allowance for Doubtful Accounts of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the six months ended June 30, 2016  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,480,255         251,843         10

Loans

     155,850         28,091         18

Accounts receivable – other

     1,398,087         76,698         6

Accrued income

     12,645         —           0

Guarantee deposits

     300,119         —           0
  

 

 

    

 

 

    

 

 

 

Total

     4,346,956         356,632         8
  

 

 

    

 

 

    

 

 

 
     (Unit: in millions of Won)  
     For the year ended December 31, 2015  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,629,605         239,495         9

Loans

     141,878         25,529         18

Accounts receivable – other

     755,151         78,992         10

Accrued income

     10,753         —           0

Guarantee deposits

     299,142         —           0
  

 

 

    

 

 

    

 

 

 

Total

     3,836,529         344,016         9
  

 

 

    

 

 

    

 

 

 
     (Unit: in millions of Won)  
     For the year ended December 31, 2014  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,682,595         221,909         8

Loans

     157,934         27,694         18

Accounts receivable – other

     772,711         78,588         10

Accrued income

     10,134         —           0

Guarantee deposits

     289,009         —           0
  

 

 

    

 

 

    

 

 

 

Total

     3,912,383         328,191         8
  

 

 

    

 

 

    

 

 

 

 

  (2) Movements in Allowance for Doubtful Accounts of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the six
months ended
June 30, 2016
     For the year ended
December 31, 2015
     For the year ended
December 31, 2014
 

Beginning balance

     344,016         328,191         323,985   

Increase of allowance for doubtful accounts

     22,643         75,773         63,697   

Reversal of allowance for doubtful accounts

     3,409         —           —     

Write-offs

     (29,775      (87,798      (89,529

Other

     16,339         27,850         30,039   

Ending balance

     356,632         344,016         328,191   

 

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Table of Contents
  (3) Policies for Allowance for Doubtful Accounts

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 and past customer default experience for the past two years. With respect to trade receivables relating to wireless telecommunications services, the Company considers the likelihood of recovery based on past customer default experience and the length of default in connection with the type of default (e.g., whether the customer’s service has been terminated or is continued). For such trade receivables that have been overdue for more than two years after the customer’s service has been terminated, the Company records an allowance of 100% of such receivables. For such trade receivables that have been overdue for less than two years after the customer’s service has been terminated or relates to a customer that is continuing his service, the Company records an allowance of a certain percentage of such receivable. Consistent with customary practice, the Company writes off trade and other receivables for which the prescription period has passed or that are determined to be impossible or economically too costly to collect, including receivables that are less than Won 200,000 and more than six months overdue and receivables that have been determined to be the subject of identity theft.

 

  (4) Aging of Accounts Receivable

 

(Unit: in millions of Won)  
     As of June 30, 2016  
   Six months or
less
    From six
months to one
year
    From one year
to three years
    More than
three years
    Total  

Accounts receivable – general

     2,119,980        55,655        214,108        90,512        2,480,255   

Percentage

     85.5     2.2     8.6     3.7     100

 

C. Inventories

 

  (1) Detailed Categories of Inventories

 

     (Unit: in millions of Won)  

Account Category

   For the six months
ended June 30,
2016
    For the year ended
December 31, 2015
    For the year ended
December 31, 2014
 

Merchandise

     242,792        242,230        246,738   

Goods in transit

     —          —          —     

Other inventories

     28,079        31,326        20,929   
  

 

 

   

 

 

   

 

 

 

Total

     270,871        273,556        267,667   
  

 

 

   

 

 

   

 

 

 

Percentage of inventories to total assets
[ Inventories / Total assets ]

     0.95     0.96     0.96

Inventory turnover
[ Cost of sales / { ( Beginning balance of inventories + Ending balance of inventories ) / 2} ]

     6.45        7.23        7.55   

 

  (2) Reporting of Inventories

The Company holds handsets, ICT equipment for offline sales, etc. in inventory. The Company conducts physical due diligence of its inventories with its auditors at the end of each year.

 

D. Fair Value Measurement

See notes 4(5) to 4(7) and 4(16) of the notes to the Company’s audited consolidated financial statements as of and for the years ended December 31, 2015 and 2014 for more information.

 

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Table of Contents
E. Key Terms of Debt Securities

[SK Telecom]

The following are key terms and conditions of bonds issued by the Company.

 

(As of June 30, 2016)    (Unit: in millions of Won except percentages)

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 54

   Sept. 12, 2006    Sept. 12, 2016      200,000       Sept. 4, 2006    Shinhan Investment Corp.

Unsecured Bond – Series 57-2

   March 3, 2008    March 3, 2018      200,000       Feb. 22, 2008    Shinhan Investment Corp.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 50% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 5 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2016

 

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 61-1

   Dec. 27, 2011    Dec. 27, 2016      110,000       Dec. 19, 2011    Hana Financial Investment Co., Ltd.

Unsecured Bond – Series 61-2

   Dec. 27, 2011    Dec. 27, 2021      190,000       Dec. 19, 2011    Hana Financial Investment Co., Ltd.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 50% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2016

 

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 62-1

   Aug. 28, 2012    Aug. 28, 2019      170,000       Aug. 22, 2012    Meritz Securities Co., Ltd.

Unsecured Bond – Series 62-2

   Aug. 28, 2012    Aug. 28, 2022      140,000       Aug. 22, 2012    Meritz Securities Co., Ltd.

Unsecured Bond – Series 62-3

   Aug. 28, 2012    Aug. 28, 2032      90,000       Aug. 22, 2012    Meritz Securities Co., Ltd.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2016

 

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Table of Contents

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 63-1

   April 23, 2013    April 23, 2023      230,000       April 17, 2013    Korea Securities Finance Corp.

Unsecured Bond – Series 63-2

   April 23, 2013    April 23, 2033      130,000       April 17, 2013    Korea Securities Finance Corp.

Unsecured Bond – Series 64-1

   May 14, 2014    May 14, 2019      50,000       April 29, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 64-2

   May 14, 2014    May 14, 2024      150,000       April 29, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 64-4

   May 14, 2014    May 14, 2029      50,000       April 29, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 65-1

   Oct. 28, 2014    Oct. 28, 2019      160,000       Oct. 16, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 65-2

   Oct. 28, 2014    Oct. 28, 2021      150,000       Oct. 16, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 65-3

   Oct. 28, 2014    Oct. 28, 2024      190,000       Oct. 16, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 66-1

   Feb. 26, 2015    Feb. 26, 2022      100,000       Feb. 11, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 66-2

   Feb. 26, 2015    Feb. 26, 2025      150,000       Feb. 11, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 66-3

   Feb. 26, 2015    Feb. 26, 2030      50,000       Feb. 11, 2015    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2016

 

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 67-1

   July 17, 2015    July 17, 2018        90,000       July 9, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 67-2

   July 17, 2015    July 17, 2025      70,000       July 9, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 67-3

   July 17, 2015    July 17, 2030      90,000       July 9, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 67-4

   July 17, 2015    July 17, 2030      50,000       July 9, 2015    Korea Securities Finance Corp.

 

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Table of Contents
Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2016

 

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 68-1

   November 30, 2015    November 30, 2018      80,000       November 18, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 68-2

   November 30, 2015    November 30, 2025      100,000       November 18, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 68-3

   November 30, 2015    November 30, 2035      70,000       November 18, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 68-4

   November 30, 2015    November 30, 2030      50,000       November 18, 2015    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2016

 

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 69-1

   March 4, 2016    March 4, 2019      70,000       February 22, 2016    Korea Securities Finance Corp.

Unsecured Bond – Series 69-2

   March 4, 2016    March 4, 2021      100,000       February 22, 2016    Korea Securities Finance Corp.

Unsecured Bond – Series 69-3

   March 4, 2016    March 4, 2026      90,000       February 22, 2016    Korea Securities Finance Corp.

Unsecured Bond – Series 69-4

   March 4, 2016    March 4, 2036      80,000       February 22, 2016    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2016

 

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Table of Contents

[SK Broadband]

The following are key terms and conditions of bonds issued by SK Broadband.

 

(As of June 30, 2016)    (Unit: in millions of Won except percentages)

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 36-3

   Jan. 19, 2012    Jan. 19, 2017      100,000       January 11, 2012    Samsung Securities Co., Ltd.

Unsecured Bond – Series 37-2

   Oct. 12, 2012    Oct. 12, 2017      120,000       October 8, 2012    Hanwha Investment & Securities Co., Ltd.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 500%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 10 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Compliant

 

Name

  

Issue Date

  

Maturity

Date

   Principal
Amount
    

Date of Fiscal
Agency Agreement

  

Fiscal Agent

Unsecured Bond – Series 38-1

   April 2, 2014    Oct. 2, 2016      80,000       March 21, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 38-2

   April 2, 2014    April 2, 2019      210,000       March 21, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 39

   Sept. 29, 2014    Sept. 29, 2019      130,000       Sept. 17, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 40-1

   Jan. 14, 2015    Jan. 14, 2018      50,000       Jan. 2, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 40-2

   Jan. 14, 2015    Jan. 14, 2020      160,000       Jan. 2, 2014    Korea Securities Finance Corp.

Unsecured Bond – Series 41

   July 15, 2015    July 15, 2020      140,000       July 3, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 42

   October 6, 2015    October 6, 2020      130,000       September 22, 2015    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio    Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant
Restriction on Liens    Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant
Restriction on Disposition of Assets    Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Compliant

 

39


Table of Contents
IV. AUDITOR’S OPINION

 

  1. Auditor (Consolidated)

 

Six months ended June 30, 2016

  

Year ended December 31, 2015

  

Year ended December 31, 2014

KPMG Samjong Accounting Corp.    KPMG Samjong Accounting Corp.    KPMG Samjong Accounting Corp.

 

  2. Audit Opinion (Consolidated)

 

Period

  

Auditor’s opinion

  

Issues noted

Six months ended June 30, 2016      
Year ended December 31, 2015    Unqualified    N/A
Year ended December 31, 2014    Unqualified    N/A

 

* The Company’s quarterly financial statements for the first and second quarters of 2016 were reviewed and nothing came to the attention of the Company’s auditors that such financial statements were not presented fairly, in all material respects.

 

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

 

A. Audit Contracts

 

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

Fiscal Year

  

Auditors

  

Contents

   Fee      Total number of
hours accumulated
for the fiscal year
 

Year ended December 31, 2016

   KPMG Samjong Accounting Corp.    Semi-annual review      1,350         19,412   
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

Year ended December 31, 2015

   KPMG Samjong Accounting Corp.    Semi-annual review      1,320         18,127   
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

Year ended December 31, 2014

   KPMG Samjong Accounting Corp.    Semi-annual review      1,280         17,890   
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

 

40


Table of Contents
B. Non-Audit Services Contract with External Auditors

 

(Unit: in millions of Won)  

Period

  

Contract date

  

Service provided

  

Service

duration

   Fee  

Six months ended June, 2016

   May 10, 2016    Confirmation of financial information    May 10-May 12, 2016      2   

Year ended December 31, 2015

   January 9, 2015    Audit of public WiFi    January 9-January 23, 2015      85   
   September 30, 2015    Confirmation of debt ratio    September 30, 2015-October 5, 2015      30   
   November 9, 2015    Audit of public WiFi    November 9-November 30, 2015      102   

Year ended December 31, 2014

   March 18, 2014    Due diligence of assets    March 18-April 2, 2014      50   
   May 28, 2014    Tax advice    May 28-September 23, 2014      42   
   June 12, 2014    Review of revised local tax laws    June 12-July14, 2014      22   

 

  4. Change of Independent Auditors

Not applicable.

 

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Table of Contents
V. MANAGEMENT’S DISCUSSION AND ANALYSIS

Omitted in quarterly and semi-annual reports in accordance with Korean disclosure rules.

 

42


Table of Contents
VI. CORPORATE ORGANIZATION INCLUDING BOARD OF DIRECTORS

 

  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 six members: four independent directors and two inside directors. Within the Board, there are five committees: Independent Director Nomination Committee, Audit Committee, Compensation Committee, CapEx Review Committee, and Corporate Citizenship Committee.

 

(As of June 30, 2016)

Total number
of persons

  

Inside directors

  

Independent directors

6    Dong Hyun Jang, Dae Sik Cho    Jay Young Chung, Dae Shick Oh, Jae Hoon Lee, Jae Hyeon Ahn

At the 32nd General Meeting of Shareholders held on March 18, 2016, Dae Sik Cho and Dae Shick Oh were re-elected as an inside director and an independent director, respectively.

 

B. Significant Activities of the Board of Directors

 

Meeting

 

Date

 

Agenda

  Approval

384th

(the 1st meeting of 2016)

  January 25, 2016  

 

-

 

 

Approval of the spin-off and merger of SK Planet’s location-based services business and other businesses

 

 

Approved as proposed

   

 

-

 

 

Plan regarding designation of record date and closing period of the register of shareholders related to dissenting opinions in small-scale spin-offs and mergers

 

 

Approved as proposed

   

 

-

 

 

Transactions of goods, services and assets with SK Planet in 2016

 

 

Approved as proposed

385th

(the 2nd meeting of 2016)

  February 3, 2016  

 

-

 

 

Financial statements as of and for the year ended December 31, 2015

 

 

Approved as proposed

   

 

-

 

 

Annual business report as of and for the year ended December 31, 2015

 

 

Approved as proposed

   

 

-

 

 

Delegation of funding through long-term borrowings in 2016

 

 

Approved as proposed

   

 

-

 

 

Lease contract with SK Broadband

 

 

Approved as proposed

   

 

-

 

 

Report of internal accounting management

 

 

   

 

-

 

 

Report for the period after the fourth quarter of 2015

 

 

386th

(the 3rd meeting of 2016)

  February 18, 2016  

 

-

 

 

Convocation of the 32nd General Meeting of Shareholders

 

 

Approved as proposed

   

 

-

 

 

Report of internal accounting management

 

 

387th

(the 4th meeting of 2016)

  March 2, 2016  

 

-

 

 

Approval of the spin-off and merger contract with SK Planet

 

 

Approved as proposed

   

 

-

 

 

Additional investment in Oneand Co., Ltd.

 

 

Approved as proposed

388th

(the 5th meeting of 2016)

  March 18, 2016  

 

-

 

 

Election of the chairman of the Board of Directors

 

 

Approved as proposed

   

 

-

 

 

Election of committee members

 

 

Approved as proposed

   

 

-

 

 

Additional procurement of LTE frequency bands

 

 

Approved as proposed

   

 

-

 

 

Transactions with SK Holdings in the second quarter of 2016

 

 

Approved as proposed

   

 

-

 

 

Transactions regarding corporate bonds with affiliated company (SK Securities)

 

 

Approved as proposed

   

 

-

 

 

Financial transactions with affiliated company (SK Securities)

 

 

Approved as proposed

389th

(the 6th meeting of 2016)

  April 5, 2016  

 

-

 

 

Notice relating to the spin-off and merger transactions with SK Planet

 

 

Approved as proposed

 

43


Table of Contents

Meeting

 

Date

 

Agenda

  Approval

390th

(the 7th meeting of 2016)

  April 28, 2016  

 

-

 

 

Provision of funds for management of the 2016 SUPEX meeting

 

 

Approved as proposed

   

 

-

 

 

Report for the period after the first quarter of 2016

 

391st

(the 8th meeting of 2016)

  May 20, 2016  

 

-

 

 

Payment of newly allocated LTE frequency bandwidths

 

 

Approved as proposed

   

 

-

 

 

Application for reallocation of the 2.1GHz frequency bandwidth

 

 

Approved as proposed

392nd

(the 9th meeting of 2016)

  June 23, 2016  

 

-

 

 

Transactions with SK Holdings in the third quarter of 2016

 

 

Approved as proposed

   

 

-

 

 

Transactions with SK China Investment Management Company Limited

 

 

Approved as proposed

   

 

-

 

 

Allocation of operating costs in 2016 relating to the strategy and technology planning department

 

 

Approved as proposed

   

 

-

 

 

Transactions regarding corporate bonds with affiliated company (SK Securities)

 

 

Approved as proposed

   

 

-

 

 

Financial transactions with affiliated company (SK Securities)

 

 

Approved as proposed

   

 

-

 

 

Additional capital expenditure plans for LTE network in 2016

 

 

 

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

 

C. Committees within Board of Directors

 

  (1) Committee structure (as of June 30, 2016)

 

  (a) Compensation Review Committee

 

Total number
of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

  
3       Jay Young Chung, Dae Shick Oh, Jae Hyeon Ahn    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

  
4       Jay Young Chung, Dae Shick Oh, Jae Hoon Lee, Jae Hyeon Ahn    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

  
3       Jay Young Chung, Jae Hoon Lee, Jae Hyeon Ahn,    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    Dong Hyun Jang    Jay Young Chung, Dae Shick Oh    Nomination of independent directors

 

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

 

44


Table of Contents
  (e) Audit Committee

 

Total number
of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

  
3       Dae Shick Oh, Jae Hoon Lee, 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 three independent directors, Dae Shick Oh, Jae Hoon Lee and Jae Hyeon Ahn.

Major activities of the Audit Committee as of June 30, 2016 are set forth below.

 

Meeting

 

Date

 

Agenda

  Approval

The 1st

meeting of 2016

  February 2, 2016  

 

-

 

 

Report of internal accounting management system

 

 

   

 

-

 

 

Review of business and audit results for the second half of 2015 and business and audit plans for 2016

 

 

   

 

-

 

 

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

 

 

Approved as proposed

   

 

-

 

 

Construction of fixed-line and wireless networks in 2016

 

 

Approved as proposed

   

 

-

 

 

Contract for payment of customer appreciation gifts in 2016

 

 

Approved as proposed

   

 

-

 

 

Service contract with SKTCH

 

 

Approved as proposed

The 2nd

meeting of 2016

  February 17, 2016  

 

-

 

 

Report on the IFRS audit of fiscal year 2015

 

 

   

 

-

 

 

Report on review of 2015 internal accounting management system

 

 

   

 

-

 

 

Evaluation of internal accounting management system operation

 

 

Approved as proposed

   

 

-

 

 

Agenda and document review for the 32nd General Meeting of Shareholders

 

 

Approved as proposed

   

 

-

 

 

Auditor’s report for fiscal year 2015

 

 

Approved as proposed

The 3rd

meeting of 2016

  March 17, 2016  

 

-

 

 

Changes in a contract for maintenance services of transmission equipment and optical cables in 2016

 

 

Approved as proposed

   

 

-

 

 

Contract for maintenance services of transmission equipment in 2016

 

 

Approved as proposed

The 4th

meeting of 2016

  April 27, 2016  

 

-

 

 

Election of the chairman

 

 

Approved as proposed

   

 

-

 

 

Purchase of supplies from Happynarae Co., Ltd.

 

 

Approved as proposed

   

 

-

 

 

Remuneration for outside auditor for fiscal year 2016

 

 

Approved as proposed

   

 

-

 

 

Outside auditor service plan for fiscal year 2016

 

 

Approved as proposed

   

 

-

 

 

Audit plan for fiscal year 2016

 

 

 

* 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 12 th 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 is applicable. Minority shareholder rights were not exercised during the relevant period.

 

45


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 June 30, 2016)      (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      1,067         0.00         1,067         0.00   

Dong Hyun Jang

   Officer of the
Company
   Common share      251         0.00         251         0.00   

Myung Hyun Cho

   Officer of
affiliated
company
   Common share      60         0.00         60         0.00   
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

      Common share      20,364,930         25.22         20,364,930         25.22   
        

 

 

    

 

 

    

 

 

    

 

 

 

 

B. Overview of the Largest Shareholder

As of June 30, 2016, the Company’s largest shareholder was SK Holdings Co., Ltd. (“SK Holdings”) with 20,363,452 shares (25.22%) of the Company. SK Holdings was established on April 13, 1991 and was made public on the securities market for the first time under the name SK C&C Co., Ltd. on November 11, 2009. On August 3, 2015, SK Holdings merged with and into SK C&C and the merged entity was renamed SK Holdings. The main business of SK Holdings includes managing its subsidiaries as a holding company, IT services, security services and logistics services, among others.

 

C. Changes in Shareholdings of the Largest Shareholder

Changes in shareholdings of the largest shareholder are as follows:

 

(As of June 30, 2016)                       (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 Holdings

   January 2, 2014      20,367,290         25.22       Shin Won Chey, SKC’s Chairman, purchased 1,000 shares
   March 24, 2014      20,368,290         25.23       Shin Won Chey, SKC’s Chairman, purchased 1,000 shares
   January 2, 2015      20,364,290         25.22       Shin Won Chey, SKC’s Chairman, disposed of 4,000 shares
   March 20, 2015      20,363,803         25.22       Appointment of CEO Dong Hyun Jang (ownership of 251 shares of the Company), Retirement of Sung Min Ha
   June 9, 2015      20,365,006         25.22       Purchase through the Share Exchange between SK Broadband and SK Telecom (Shin Won Chey, SKC’s Chairman, purchased 1,067 shares, and Myung Hyun Cho, SK Broadband’s independent director, purchased 136 shares)
   August 3, 2015      20,364,930         25.22       Myung Hyun Cho, SK Broadband’s independent director, disposed of 76 shares

 

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

 

46


Table of Contents
  2. Distribution of Shares

 

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

 

(As of June 30, 2016)    (Unit: in shares and percentages)

Rank

  

Name (title)

   Common share
      Number of shares      Ownership ratio     

Remarks

1

   Citibank ADR      8,778,468         10.87      

2

   SK Holdings      20,363,452         25.22      

3

   SK Telecom      10,136,551         12.55       Treasury shares

4

   National Pension Service      6,761,879         8.37      
Shareholdings under the Employee Stock Ownership Program      67         0.00      

 

B. Shareholder Distribution

 

(As of June 30, 2016)    (Unit: in shares and percentages)

Classification

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

Total minority shareholders*

     63,607         99.9     34,703,883         42.98  

 

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

 

  3. Share Price and Trading Volume in the Last Six Months

 

A. Domestic Securities Market

 

(Unit: in Won and shares)  

Types

     June 2016      May 2016      April 2016      March 2016      February 2016      January 2016  

Common stock

     Highest         221,500         222,000         211,000         223,000         233,500         210,500   
     Lowest         208,500         209,000         201,500         207,500         204,500         193,000   
     Average         213,881         213,025         205,825         213,818         218,861         203,650   

Daily transaction volume

     Highest         380,552         399,830         384,732         385,725         1,126,589         348,930   
     Lowest         75,945         52,430         96,265         71,671         102,889         77,348   

Monthly transaction volume

  

       3,347,201           2,674,439           3,296,402           3,866,625           4,561,480           4,349,859   

 

B. Foreign Securities Market

 

New York Stock Exchange          

(Unit: in U.S. dollars and number of American Depositary Receipts)

 

Types

     June 2016      May 2016      April 2016      March 2016      February 2016      January 2016  

Depositary receipt

     Highest         21.08         20.83         20.48         20.98         20.82         19.99   
     Lowest         19.60         19.47         19.27         19.60         18.78         17.89   
     Average         20.29         20.01         19.74         20.26         19.64         18.92   

Daily transaction volume

     Highest         1,161,177         1,940,353         1,655,112         1,080,598         1,194,211         1,279,531   
     Lowest         259,773         307,678         391,518         275,174         341,417         368,941   

Monthly transaction volume

  

     12,857,856         13,729,657         21,103,195         12,929,342         13,790,441         14,437,399   

 

47


Table of Contents
VIII. EMPLOYEES AND DIRECTORS

 

  1. Employees

 

(As of June 30, 2016)      (Unit: in persons and millions of Won)  

Business segment

   Gender    Number of employees      Average
service

year
     Aggregate wage
for the first half
of 2016
     Average wage
per person
 
      Employees without a
fixed term of
employment
     Employees with a
fixed term of
employment
     Total           
      Total      Part-time
employees
     Total      Part-time
employees
             

—  

   Male      3,645         —           130         —           3,775         12.3         258,136         70   

—  

   Female      550         —           76         —           626         9.5         29,263         49   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     4,195         —           206         —           4,401         11.9         287,399         67   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Based on Section 9-1-2 (Employee Status) of the Corporate Disclosure Guidelines (amended as of February 2015).
* Average wage per person was calculated based on the average number of employees for the six months ended June 30, 2016 (Total: 4,262, Male: 3,670 Female: 592)

 

  2. Compensation of Directors

 

A. Amount Approved at the Shareholders’ Meeting

 

(As of June 30, 2016)      (Unit: in millions of Won)  

Classification

   Number of Directors      Aggregate Amount Approved  

Directors

     6         12,000   

 

B. Amount Paid

 

(As of June 30, 2016)      (Unit: in millions of Won)  

Classification

   Number of Directors      Aggregate Amount Paid      Average Amount Paid Per Director  

Insider Directors

     2         1,373         687   

Independent Directors

     1         39         39   

Audit Committee Members

     3         117         39   
  

 

 

    

 

 

    

 

 

 

Total

     6         1,529         —     
  

 

 

    

 

 

    

 

 

 

 

  3. Individual Compensation of Directors

 

A. Amount Paid

 

(As of December 31, 2015)    (Unit: in millions of Won)  

Name

   Title    Aggregate Amount Paid  

Dong Hyun Jang

   Inside director      1,045   

 

* Excluding amounts contributed to provision for retirement income.

 

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Table of Contents
B. Method of Calculation

 

Name   Method of calculation
Dong Hyun Jang  
  Total remuneration
        Won 1,045 million (consisting of Won 285 million in salary, Won 757 million in bonus and Won 3 million in long-term employment bonus).
        Did not receive any retirement income.
  Salary
        Annual salary is set within the executive compensation limit established by the board of directors and reflects the relevant position of the director.
       

Annual salary is equally divided and paid on a monthly basis.

  Bonus
        Bonus is awarded based on performance in the previous year and is composed of target incentive payments and profit sharing payments.
        Bonus in the range of 0 to 200% of annual salary may be awarded by evaluating the previous year’s performance through certain financial indicators, such as revenue and operating profit, and non-financial indicators, such as leadership, meeting the Company’s strategy plans, expertise and other contributions.
       

   Financial indicators: For the year ended December 31, 2015, the Company met its financial targets with revenue of Won 17.1 trillion and operating profit of Won 1.7 trillion.
           Non-financial indictors: Mr. Jang contributed to the Company’s market leadership position despite intensified competition in the industry (maintaining number one position in the industry by National Customer Satisfaction Index for the previous 18 years as well as by Korea Standard – Service Quality Index and Korean Customer Satisfaction Index and being first to commercialize L4 technology globally) and enhanced mid-to-long term sustainability by establishing the foundation of its growth business areas of IoT solutions, lifestyle enhancement and advanced media platforms.

 

49


Table of Contents
IX. RELATED PARTY TRANSACTIONS

 

  1. Line of Credit Extended to the Largest Shareholder

 

(Unit: in millions of Won)  

Name (Corporate name)

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

SK Wyverns

   Affiliate    Long-term and
short-term loans
     1,017         —           —           1,017         —           —     

 

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

None.

 

  3. Transactions with the Largest Shareholder

 

(Unit: in millions of Won)  

Name (Corporate name)

   Relationship    Investment    Transaction period    Transaction items    Transaction
amount
 

PS&Marketing

   Affiliate    Sales/

Purchases

   January 1, 2016 to
June 30, 2016
   Marketing
commissions, etc.
     762,585   

SK Broadband

   Affiliate    Sales/

Purchases

   January 1, 2016 to
June 30, 2016
   Interconnection
revenues, etc.
     315,034   

 

  4. Related Party Transactions

See note 34 of the notes to the Company’s consolidated financial statements attached hereto for more information regarding related party transactions.

 

  5. 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        

Baekmajang and others

   Agency    Long-term and
short-term loans
     58,602         99,377         (85,379     72,601         —           —     

Daehan Kanggun BCN Inc.

   Investee    Long-term loans      22,147         —           —          22,147         —           —     

Wave City Development, Inc.

   Investee    Short-term loans      1,890         1,100         (1,700     1,290         —           —     

 

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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

 

Date

  

Resolution

  

Description

  

Status

July 28, 2016    Acquisition of other company shares and investment securities   

1. Issuing company: CJ HelloVision

 

2. Expected acquisition: 23,234,060 common shares (30.0%)

 

3. Amount to be paid: Won 500 billion

 

4. Acquisition Method: cash

 

5. Purpose of acquisition: To secure position as the next generation media platform provider through merger with subsidiary SK Broadband

   SK Broadband terminated the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger.

 

B. Summary Minutes of the General Meeting of Shareholders

 

Date

            

Agenda

  

Resolution

30th Fiscal Year Meeting of Shareholders

(March 21, 2014)

  

 

1.

  

 

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

  

 

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

  

 

2.

  

 

Amendments to Articles of Incorporation

  

 

Approved

  

 

3.

  

 

Election of directors

  
     

 

-

  

 

Election of an inside director

  

 

Approved (Sung Min Ha)

     

 

-

  

 

Election of an independent director

  

 

Approved (Jay Young Chung)

     

 

-

  

 

Election of an independent director

  

 

Approved (Jae Hoon Lee)

     

 

-

  

 

Election of an independent director

  

 

Approved (Jae Hyeon Ahn)

  

 

4.

  

 

Election of an independent director as Audit Committee member

  

 

Approved (Jae Hyeon Ahn)

  

 

5.

  

 

Approval of remuneration limit for directors

  

 

Approved (Won 12 billion)

  

 

1.

  

 

Approval of the financial statements for the year ended December 31, 2014

  

 

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

31st Fiscal Year Meeting of Shareholders

(March 20, 2015)

  

 

2.

  

 

Amendments to Articles of Incorporation

  

 

Approved

  

 

3.

  

 

Election of directors

  
     

 

-

  

 

Election of an inside director

  

 

Approved (Dong Hyun Jang)

  

 

4.

  

 

Election of an independent director as Audit Committee member

  

 

Approved (Jae Hoon Lee)

  

 

5.

  

 

Approval of remuneration limit for directors

  

 

Approved (Won 12 billion)

  

 

1.

  

 

Approval of the financial statements for the year ended December 31, 2015

  

 

Approved (Cash dividend, Won 9,000 per share)

32nd Fiscal Year Meeting of Shareholders

(March 18, 2016)

  

 

2.

  

 

Amendments to Articles of Incorporation

  

 

Approved

  

 

3.

  

 

Election of directors

  
     

 

-

  

 

Election of an inside director

  

 

Approved (Dae Sik Cho)

     

 

-

  

 

Election of an independent director

  

 

Approved (Dae Shick Oh)

  

 

4.

  

 

Election of an independent director as Audit Committee member

  

 

Approved (Dae Shick Oh)

  

 

5.

  

 

Approval of remuneration limit for directors

  

 

Approved (Won 12 billion)

  

 

6.

  

 

Amendments to executive payroll regulations

  

 

Approved

 

51


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 which ruled in favor of the Company on September 4, 2014. KOMCA filed an appeal at the Supreme Court of Korea, and on January 15, 2015, the Supreme Court of Korea affirmed the Seoul High Court’s decision. There is no impact on the Company’s business or results of operation as the final outcome of this litigation has been rendered in favor of the Company.

 

B. Other Matters

None.

[SK Broadband]

 

A. Material Legal Proceedings

 

  (1) SK Broadband as the plaintiff

None.

 

  (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 Mag Telecom Co., Ltd. and 7 others

   January 2012      3,560,465       Pending before district
court

Others

   —        309,150       —  
     

 

 

    

Total

   —        3,869,615       —  
     

 

 

    

The Company does not believe that the outcome of any of the proceedings in which SK Broadband is named as a defendant will have a material effect on the Company’s financial statements.

 

B. Other Contingent Liabilities

 

  (1) Pledged assets and covenants

SK Broadband, upon approval by its board of directors, has provided guarantees for financial instruments amounting to Won 1.1 billion to support employees’ funding for the Employee Stock Ownership Program.

Additionally, SK Broadband has provided “geun” mortgage amounting to Won 7.4 billion to others, including Ilsan Guksa, on a part of its buildings in connection with the leasing of the buildings.

Seoul Guarantee Insurance Company has provided a performance guarantee of Won 15.9 billion to SK Broadband in connection with the performance of certain contracts and the repair of any defects.

SK Broadband has entered into revolving credit facilities with a limit of Won 100 billion with Shinhan Bank and one other financial institution in relation to the Company’s loans.

SK Broadband has entered into a leased line contract and a resale contract for fixed-line telecommunication services with SK Telecom.

KB Kookmin Bank has provided a payment guarantee of Won 100 million to SK Broadband in connection with its e-commerce business.

 

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Table of Contents

[SK Planet]

 

A. Material Legal Proceedings

As of June 30, 2016, there were eight pending cases proceeding with SK Planet as the defendant and the aggregate amount of the claim was Won 117.8 million. The management cannot reasonably forecast the outcome of this case and no amount in connection with this proceeding was recognized on the Company’s financial statements.

B. Other Contingent Liabilities

None.

[SK Communications]

 

A. Material Legal Proceedings

As of June 30, 2016, the aggregate amount of claims was Won 1.1 billion. The Company successfully defended some but not all suits relating to a leak of personal information of subscribers of NATE. Relevant proceedings remain pending at various courts in Korea. The management cannot reasonably forecast the outcome of the pending proceedings, and as a result, adjustments were not made in the financial statements of the Company. The Company does not believe that the outcome of any of the proceedings in which SK Communications is named as a defendant will have a material effect on the Company’s financial statements.

 

B. Other Contingent Liabilities

The material payment guarantees provided by third parties to SK Communications as of June 30, 2016 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   
  Provisional deposit guarantee insurance for bonds      190,000   
  Provisional attachment of real estate      118,000   
    

 

 

 

Total

     1,008,000   
  

 

 

 

 

  3. Status of sanctions, etc.

[SK Telecom]

On July 4, 2012, the Fair Trade Commission issued correctional orders and imposed fines on the Company and seven affiliated companies for alleged unfair advantage provided to SK C&C, an affiliated company, in services fees for information technology system management and operation. The Company and SK Planet were imposed fines of Won 25,042 million and Won 1,349 million, respectively. The Company and the seven affiliated companies appealed the orders and on May 14, 2014, won the suit at the Seoul High Court. The Fair Trade Commission appealed the decision, and on March 10, 2016, the Supreme Court of Korea ruled in favor of the Company.

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 suspended its operations during the period between April 5, 2014 and May 19, 2014, and reported to the MSIP on the implementation of actions pursuant to the suspension order by May 2014.

 

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Table of Contents

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. In April 2014, 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 April 2014. The Company suspended acquisition of new customers during the period beginning September 11, 2014 and ending September 17, 2014, and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order by September 2014.

On January 31, 2013, the Seoul Central District Court acquitted Mr. Jae Won Chey, the Company’s 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.

On August 21, 2014, the Korea Communications Commission imposed on the Company a fine of Won 37.1 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 September 2014.

On December 4, 2014, the Korea Communications Commission imposed on the Company a fine of Won 800 million and issued a correctional order for violating the Mobile Device Distribution Improvement Act. 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 2015.

On March 12, 2015, the Korea Communications Commission imposed on the Company a fine of Won 934 million and issued a correctional order for violating the Mobile Device Distribution Improvement Act with respect to the Company’s compensation programs for used handsets. 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 April 2015.

On March 26, 2015, the Korea Communications Commission imposed on the Company a fine of Won 23.5 billion, imposed a suspension on acquiring new customers for seven days, and issued a correctional order for violating the Mobile Device Distribution Improvement Act. The Company paid the fine and implemented the improvement of the procedures and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in May 2015. The suspension on acquiring new customers was implemented from October 1, 2015 to October 7, 2015.

On May 13, 2015, the Korea Communications Commission imposed on the Company a fine of Won 3.56 billion and issued a correctional order for violating its obligations to protect personal information (a fine of Won 360 million imposed for violation of its obligations to protect personal information and Won 3.2 billion imposed for damaging users’ interests). The Company paid the fine in July 2015 and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in September 2015. Whether the correctional order on the violation of obligations to protect personal information will be enforced depends on the Court’s ruling following the Company’s filing of an administrative proceeding to appeal the order on June 24, 2015.

On May 28, 2015, the Korea Communications Commission imposed on the Company a fine of Won 350 million and issued a correctional order for misleading and exaggerated advertisement of bundled media and telecommunications products. The Company paid the fine in August 2015 and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in October 2015.

 

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Table of Contents

On December 10, 2015, the Korea Communications Commission imposed on the Company a fine of Won 560 million and issued a correctional order for misleading and exaggerated advertisement of bundled media and telecommunications products. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order in February 2016.

On January 14, 2016, the Korea Communications Commission imposed on the Company a fine of Won 15 million and issued a correctional order for failure to comply with the retention period for its subscribers’ personal information. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order.

[SK Broadband]

 

  (1) Violation of the Telecommunications Business Act

 

    Date: December 10, 2015

 

    Sanction: SK Broadband received a correctional order (corrective measures for damaging users’ interests through misleading and exaggerated advertisement of bundled media and telecommunications products).

 

    Reason and the Relevant Law: Violated Article 50-1 Paragraph 5 of the Telecommunications Business Act and Article 42-1 of its enforcement ordinance by inducing subscribers through misleading and exaggerated advertisements.

 

    Status of Implementation: Made an official announcement about having received the correctional order and paid the fine.

 

    Company’s Plan: Make an official announcement about having received the correctional order

 

  (2) Violation of the Telecommunications Business Act

 

    Date: May 28, 2015

 

    Sanction: SK Broadband received a correctional order (corrective measures for damaging users’ interests through misleading and exaggerated advertisement of bundled media and telecommunications products).

 

    Reason and the Relevant Law: Violated Article 50-1 Paragraph 5 of the Telecommunications Business Act and Article 42-1 of its enforcement ordinance by inducing subscribers through misleading and exaggerated advertisements.

 

    Status of Implementation: Established plans to manage distribution network related to the misleading and exaggerated advertisements.

 

    Company’s Plan: Make an official announcement about having received the correctional order and improve operational procedures.

 

  (3) Violation of the Act on Consumer Protection in Electronic Commerce

 

    Date: July 11, 2014

 

    Sanction: SK Broadband received a correctional order (relating to the failure to notify consumers of information relating to cancellations of purchases) and a fine of Won 1 billion.

 

    Reason and the Relevant Law: Violated Article 13 of the Act on Consumer Protection in Electronic Commerce by not having notified consumers of the procedures for cancellation of purchases for paid IPTV contents.

 

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Table of Contents
    Status of Implementation: Implemented voluntary improvements to notify consumers of cancellation procedures for such purchase prior to a decision by the Fair Trade Commission.

 

    Company’s Plan: Implement the correctional order and pay the fine.

 

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

 

    Date: June 16, 2014

 

    Sanction: SK Broadband was imposed a fine of Won 3 million.

 

    Reason and the Relevant Law: Violated Articles 59 and 76 of the Act on Facilitation of the Use of Information Network and Protection of Information and Article 76 of the Enforcement Decree of the Act by not having designated proper contacts for the users of telecommunications billing services to raise objections and protect rights and interests of the users and by not having provided the contact information on the Internet or other means of communication.

 

    Status of Implementation: Paid the fine, designated contact persons for user protection of telecommunications billing services, provided contact information on the Company’s website, and paid the fine.

 

    Company’s Plan: Designate contact persons for user protection of telecommunications billing services and provide contact information to users.

[SK Planet]

 

  (1) Violation of the Electronic Financial Transactions Act

 

    Date: May 4, 2016

 

    Sanction: SK Planet received a fine of Won 25 million

 

    Reason and the Relevant Law: Violated Article 21 (Duty to Ensure Safety) of the Electronic Financial Transactions Act.

 

    Status of Implementation: Paid the fine.

 

    Company’s Plan: Implemented procedures to prevent recurrence such as setting up various detailed test scenarios, enhancing quality assurance, organizing real-time notification processes upon detection of abnormal transactions and refining a continuous monitoring and reporting system

[SK Telink]

 

  (1) Violation of the Telecommunications Business Act

 

    Date: February 4, 2016

 

    Sanction: SK Telink received a correctional order and a fine of Won 49 million.

 

    Reason and the Relevant Law: Violated Article 50-1, Paragraph 5 of the Telecommunications Business Act and Article 42-1 of the related Enforcement Decree by transferring account names of cell phone lines without subscribers’ consent, changing phone numbers upon such transfer of account names, subscribing users to cell phone lines that exceed the maximum number of cell phone lines determined in the user agreement, opening accounts using a third party’s name and transferring ownership of and reselling the account, changing account names with fabricated names of foreigners and changing accounts of cell phone lines owned by foreigners whose residency period in Korea has expired.

 

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Table of Contents
    Status of Implementation: Ceased the prohibited practice, disclosed having received the correctional order in the press (May 2016) and paid the fine (May 2016).

 

    Company’s Plan: Improve operating procedures to prevent its recurrence.

 

  (2) Violation of the Telecommunications Business Act

 

    Date: August 21, 2015

 

    Subject: SK Telink

 

    Sanction: SK Telink received a correctional order and a fine of Won 480 million.

 

    Reason and the Relevant Law: Violated Article 50-1, Paragraph 5 and Article 50-2 of the Telecommunications Business Act and Article 42-1 of the related Enforcement Decree by failing to inform or giving false information about key terms of the contract and failing to deliver usage contract

 

    Status of Implementation: Ceased the prohibited practice, disclosed having received the correctional order in a newspaper (October 2015), improved operating procedures related to recruitment of users through phone solicitation calls and paid the fine (October 2015).

 

    Company’s Plan: Accurately inform consumers of key terms of the contract and distribute usage contract by mail after entering into contract.

 

  4. Important Matters That Occurred After June 30, 2016

[SK Telecom]

The Company terminated the share purchase agreement with CJ O Shopping and SK Broadband terminated the merger agreement with CJ HelloVision, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger.

[SK Broadband]

On July 25, 2016, SK Broadband notified CJ HelloVision of the termination of the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger. On July 27, 2016, SK Broadband’s board of directors resolved to terminate the merger agreement as proposed. Subsequently, the merger agreement is no longer effective and all procedures related to the merger, including the issuance of new shares, were terminated.

 

A. Use of Proceeds from Public Offerings

Not applicable.

 

B. Use of Proceeds from Private Offerings

 

(As of June 30, 2016)    (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   

 

* 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 135.1 billion in financial expenses 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 converted by noteholders.

 

57


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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/ Sung Hyung Lee

(Signature)
Name:   Sung Hyung Lee
Title:   Senior Vice President

Date: September 19, 2016


Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Financial Statements

(Unaudited)

June 30, 2016 and 2015

(With Independent Auditors’ Review Report Thereon)


Table of Contents

Contents

 

     Page  

Independent Auditors’ Review Report

     1   

Condensed Separate Statements of Financial Position

     3   

Condensed Separate Statements of Income

     5   

Condensed Separate Statements of Comprehensive Income

     6   

Condensed Separate Statements of Changes in Equity

     7   

Condensed Separate Statements of Cash Flows

     8   

Notes to the Condensed Separate Interim Financial Statements

     10   


Table of Contents

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed separate interim financial statements of SK Telecom Co., Ltd. (the “Company”), which comprise the condensed separate statement of financial position as of June 30, 2016, the related condensed separate statements of income and comprehensive income for the three and six-month periods ended June 30, 2016 and 2015, the condensed separate statements of changes in equity and cash flows for the six-month periods ended June 30, 2016 and 2015, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these condensed separate interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1034, Interim Financial Reporting , and for such internal controls as management determines necessary to enable the preparation of condensed separate interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to issue a report on these condensed separate interim financial statements based on our reviews.

We conducted our reviews in accordance with the Review Standards for Quarterly and Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial statements consists principally of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed separate interim financial statements referred to above are not prepared fairly, in all material respects, in accordance with K-IFRS No.1034, Interim Financial Reporting .


Table of Contents

Other matters

The separate statement of finance position of the Company as of December 31, 2015, and the related separate statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing and our report thereon, dated February 23, 2016, expressed an unqualified opinion. The accompanying condensed separate statement of financial position of the Company as of December 31, 2015, presented for comparative purposes, is consistent, in all material respects, with the audited separate financial statements from which it has been derived.

The procedures and practices utilized in the Republic of Korea to review such condensed separate interim financial statements may differ from those generally accepted and applied in other countries.

KPMG Samjong Accounting Corp.

Seoul, Korea

August 5, 2016

 

This report is effective as of August 5, 2016, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed separate financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review 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.

Condensed Separate Statements of Financial Position

As of June 30, 2016 and December 31, 2015

 

(In millions of won)    Note      June 30,
2016
     December 31,
2015
 

Assets:

        

Current Assets:

        

Cash and cash equivalents

     26,27       W   646,221         431,666   

Short-term financial instruments

     4,26,27         107,500         121,500   

Short-term investment securities

     6,26,27         322,494         92,262   

Accounts receivable – trade, net

     5,26,27,28         1,520,723         1,528,751   

Short-term loans, net

     5,26,27,28         59,011         47,741   

Accounts receivable – other, net

     5,26,27,28,31         697,642         264,741   

Prepaid expenses

        89,963         92,220   

Inventories, net

        36,534         45,991   

Advanced payments and other

     5,6,26,27         79,905         88,657   
     

 

 

    

 

 

 

Total Current Assets

        3,559,993         2,713,529   
     

 

 

    

 

 

 

Non-Current Assets:

        

Long-term financial instruments

     4,26,27         10,062         10,062   

Long-term investment securities

     6,26,27         756,370         726,505   

Investments in subsidiaries and associates

     7         8,759,224         8,810,548   

Property and equipment, net

     8,28         6,802,084         7,442,280   

Goodwill

     9         1,306,236         1,306,236   

Intangible assets, net

     10         1,585,409         1,766,069   

Long-term loans, net

     5,26,27,28         37,075         35,080   

Long-term receivables - other

     5,26,27,28,31         45,498         —     

Long-term prepaid expenses

        28,692         29,802   

Guarantee deposits

     5,26,27,28         166,320         166,656   

Long-term derivative financial assets

     15,26,27         124,626         139,923   

Other non-current assets

        249         250   
     

 

 

    

 

 

 

Total Non-Current Assets

        19,621,845         20,433,411   
     

 

 

    

 

 

 

Total Assets

      W   23,181,838         23,146,940   
     

 

 

    

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

3


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SK TELECOM CO., LTD.

Condensed Separate Statements of Financial Position, Continued

As of June 30, 2016 and December 31, 2015

 

(In millions of won)    Note      June 30,
2016
    December 31,
2015
 

Liabilities and Shareholders’ Equity:

       

Current Liabilities:

       

Short-term borrowings

     11,26,27       W —          230,000   

Current installments of long-term debt, net

     11,26,27         679,117        592,637   

Current installments of long-term payables – other

     12,26,27         116,079        120,185   

Accounts payable – other

     26,27,28         961,191        927,170   

Withholdings

     26,27         629,790        607,690   

Accrued expenses

     26,27         550,100        540,770   

Income tax payable

     24         319,092        375,189   

Unearned revenue

        1,688        10,014   

Derivative financial liabilities

     15,26,27         15,370        —     

Provisions

     13         31,086        37,551   

Receipts in advance

        67,256        50,100   
     

 

 

   

 

 

 

Total Current Liabilities

        3,370,769        3,491,306   
     

 

 

   

 

 

 

Non-Current Liabilities:

       

Debentures, excluding current installments, net

     11,26,27         5,282,937        5,033,495   

Long-term borrowings, excluding current installments, net

     11,26,27         65,656        72,554   

Long-term payables – other

     12,26,27         440,841        550,964   

Long-term unearned revenue

        2,643        2,768   

Defined benefit liabilities

     14         23,788        4,006   

Long-term derivative financial liabilities

     15,26,27         71,088        89,296   

Long-term provisions

     13         26,682        20,055   

Deferred tax liabilities

     24         45,956        56,274   

Other non-current liabilities

     26,27         48,659        46,762   
     

 

 

   

 

 

 

Total Non-Current Liabilities

        6,008,250        5,876,174   
     

 

 

   

 

 

 

Total Liabilities

        9,379,019        9,367,480   
     

 

 

   

 

 

 

Shareholders’ Equity:

       

Share capital

     1,16         44,639        44,639   

Capital surplus and others

     16,17,18         371,481        369,446   

Retained earnings

     19         13,431,966        13,418,603   

Reserves

     20         (45,267     (53,228
     

 

 

   

 

 

 

Total Shareholders’ Equity

        13,802,819        13,779,460   
     

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

      W   23,181,838        23,146,940   
     

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

4


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SK TELECOM CO., LTD.

Condensed Separate Statements of Income

For the three and six-month periods ended June 30, 2016 and 2015

 

(In millions of won except for per share data)                                
            June 30, 2016     June 30, 2015  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
    Six-month
period ended
 

Operating revenue:

     28            

Revenue

      W   3,091,988        6,190,249        3,143,766        6,277,222   

Operating expenses:

     28            

Labor

        161,832        334,817        249,706        423,033   

Commissions

        1,140,041        2,358,319        1,228,049        2,571,119   

Depreciation and amortization

        547,735        1,090,181        531,639        1,056,576   

Network interconnection

        189,188        382,473        182,446        352,367   

Leased line

        91,922        180,554        85,383        181,586   

Advertising

        48,548        75,606        58,398        91,028   

Rent

        107,321        211,868        95,663        193,593   

Cost of products that have been resold

        123,131        243,026        110,599        224,108   

Others

     21         204,065        405,349        205,793        379,896   
     

 

 

   

 

 

   

 

 

   

 

 

 
        2,613,783        5,282,193        2,747,676        5,473,306   
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

        478,205        908,056        396,090        803,916   

Finance income

     23         20,614        127,830        19,735        82,519   

Finance costs

     23         (60,404     (123,643     (67,890     (133,598

Other non-operating income

     22         8,429        37,328        3,737        6,969   

Other non-operating expenses

     22         (18,770     (55,823     (32,291     (61,664

Loss on investments in subsidiaries and associates

     7         (47,618     (47,618     —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

        380,456        846,130        319,381        698,142   

Income tax expense

     24         96,313        179,780        87,384        170,359   
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

      W 284,143        666,350        231,997        527,783   
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

     25            

Basic and diluted earnings per share (in won)

      W 3,905        9,318        3,135        7,301   
     

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

5


Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2016 and 2015

 

(In millions of won)             June 30, 2016     June 30, 2015  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
    Six-month
period ended
 

Profit for the period

      W   284,143        666,350        231,997        527,783   

Other comprehensive income (loss)

           

Items that will never be reclassified to profit or loss, net of taxes:

           

Remeasurement of defined benefit liabilities

     14         (2,188     (9,085     (410     (2,453

Items that are or may be reclassified subsequently to profit or loss, net of taxes:

           

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

     20         (32,907     15,802        (28,520     (53,569

Net change in unrealized fair value of derivatives

     15,20         5,322        (7,841     (24,802     (15,402
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss for the period, net of taxes

        (29,773     (1,124     (53,732     (71,424
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

      W 254,370        665,226        178,265        456,359   
     

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

6


Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Statements of Changes in Equity

For the six-month periods ended June 30, 2016 and 2015

 

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

Balance at January 1, 2015

  W   44,639        2,915,887        (2,139,683     (18,087     398,518        (722,741     433,894        12,996,790        66,898        13,542,221   

Total comprehensive income:

                   

Profit for the period

    —          —          —          —          —          —          —          527,783        —          527,783   

Other comprehensive loss

    —          —          —          —          —          —          —          (2,453     (68,971     (71,424
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —          —          —          —          —          —          —          525,330        (68,971     456,359   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                   

Cash dividends

    —          —          —          —          —          —          —          (595,865     —          (595,865

Disposal of Treasury stocks

    —          —          369,249        18,087        —          24,736        412,072        —          —          412,072   

Interest on hybrid bond

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —          —          369,249        18,087        —          24,736        412,072        (604,285     —          (192,213
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

  W 44,639        2,915,887        (1,770,434     —          398,518        (698,005     845,966        12,917,835        (2,073     13,806,367   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2016

  W 44,639        2,915,887        (2,260,626     —          398,518        (684,333     369,446        13,418,603        (53,228     13,779,460   

Total comprehensive income:

                   

Profit for the period

    —          —          —          —          —          —          —          666,350        —          666,350   

Other comprehensive loss

    —          —          —          —          —          —          —          (9,085     7,961        (1,124
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —          —          —          —          —          —          —          657,265        7,961        665,226   

Transactions with owners:

                   

Cash dividends

    —          —          —          —          —          —          —          (635,482     —          (635,482

Business combination under common control

    —          —          —          —          —          2,035        2,035        —          —          2,035   

Interest on hybrid bond

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —          —          —          —          —          2,035        2,035        (643,902     —          (641,867
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

  W 44,639        2,915,887        (2,260,626     —          398,518        (682,298     371,481        13,431,966        (45,267     13,802,819   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

7


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SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows

For the six-month periods ended June 30, 2016 and 2015

 

(In millions of won)    Note      June 30,
2016
    June 30,
2015
 

Cash flows from operating activities:

       

Cash generated from operating activities:

       

Profit for the period

      W 666,350        527,783   

Adjustments for income and expenses

     30           1,423,773        1,383,546   

Changes in assets and liabilities related to operating activities

     30         (184,697     (647,987
     

 

 

   

 

 

 

Sub-total

        1,905,426        1,263,342   

Interest received

        12,566        11,819   

Dividends received

        96,433        56,561   

Interest paid

        (109,351     (111,951

Income tax paid

        (245,836     (68,359
     

 

 

   

 

 

 

Net cash provided by operating activities

        1,659,238        1,151,412   
     

 

 

   

 

 

 

Cash flows from investing activities:

       

Cash inflows from investing activities:

       

Decrease in short-term financial instruments, net

        14,000        10,000   

Collection of short-term loans

        87,079        199,853   

Proceeds from disposal of long-term investment securities

        7,438        5,235   

Proceeds from disposal of investments in subsidiaries and associates

        —          185,557   

Proceeds from disposal of property and equipment

        5,575        5,739   

Proceeds from disposal of intangible assets

        1,117        72   

Increase in cash due to business combination

        360        —     
     

 

 

   

 

 

 

Sub-total

        115,569        406,456   

Cash outflows for investing activities:

       

Increase in short-term investment securities, net

        (230,000     (69,842

Increase in short-term loans

        (100,477     (150,164

Acquisition of long-term investment securities

        (14,677     (202,424

Acquisition of investments in subsidiaries and associates

        (31,258     (246,271

Acquisition of property and equipment

        (504,302     (789,708

Acquisition of intangible assets

        (16,010     (9,859

Increase in other non-current assets

        —          (38
     

 

 

   

 

 

 

Sub-total

        (896,724     (1,468,306
     

 

 

   

 

 

 

Net cash used in investing activities

      W (781,155 )       (1,061,850
     

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

8


Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2016 and 2015

 

(In millions of won)    June 30,
2016
    June 30,
2015
 

Cash flows from financing activities:

    

Cash inflows from financing activities:

    

Increase in short-term borrowings, net

   W —          570,000   

Proceeds from issuance of debentures

     607,474        298,718   

Cash inflows from settlement of derivatives

     —          175   
  

 

 

   

 

 

 

Sub-total

     607,474        868,893   

Cash outflows for financing activities:

    

Decrease in short-term borrowings, net

     (230,000     —     

Repayments of long-term borrowings

     (6,407     (6,407

Repayments of long-term account payables-other

     (120,718     (190,134

Repayments of debentures

     (270,000     (250,000

Payments of cash dividends

     (635,482     (595,865

Payments of interest on hybrid bonds

     (8,420     (8,420

Cash outflows from settlement of derivatives

     —          (329
  

 

 

   

 

 

 

Sub-total

     (1,271,027     (1,051,155
  

 

 

   

 

 

 

Net cash used in financing activities

     (663,553     (182,262
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     214,530        (92,700

Cash and cash equivalents at beginning of the period

     431,666        248,311   

Effects of exchange rate changes on cash and cash equivalents

     25        76   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   W 646,221        155,687   
  

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

9


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

1. Reporting Entity

SK Telecom Co., Ltd. (“the Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Company mainly provides wireless telecommunications services in Korea. The Head office of the Company is located at 65, Eulji-ro, Jung-gu, Seoul, 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 June 30, 2016, the Company’s total issued shares are held by the following shareholders:

 

     Number of
shares
     Percentage of
total shares issued (%)
 

SK Holdings Co., Ltd.

     20,363,452         25.22   

National Pension Service, other institutional investors and other minority stockholders

     50,245,708         62.23   

Treasury stock

     10,136,551         12.55   
  

 

 

    

 

 

 
     80,745,711         100.00   
  

 

 

    

 

 

 

 

2. Basis of Presentation

 

  (1) Statement of compliance

These condensed separate interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting, as part of the period covered by the Company’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since December 31, 2015. These condensed separate interim financial statements do not include all of the disclosures required for full annual financial statements.

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

 

  (2) Use of estimates and judgments

 

  1) Critical judgments, assumptions and estimation uncertainties

The preparation of the condensed separate interim 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.

In preparing these condensed separate interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements as of and for the year ended December 31, 2015.

 

10


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

2 Basis of Presentation, Continued

 

  (2) Use of estimates and judgments, Continued

 

  2) Fair value measurement

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executive.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

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

 

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

 

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

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 27.

 

3. Significant Accounting Policies

The accounting policies applied by the Company in these condensed separate interim financial statements are the same as those applied by the Company in its separate financial statements as of and for the year ended December 31, 2015.

 

11


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

4. Restricted Deposits

Deposits which are restricted in use as of June 30, 2016 and December 31, 2015 are summarized as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Short-term financial instruments(*)

   W   79,000         79,000   

Long-term financial instruments(*)

     10,062         10,062   
  

 

 

    

 

 

 
   W 89,062         89,062   
  

 

 

    

 

 

 

 

(*) Financial instruments include charitable trust fund established by the Company. Profits from the fund are donated to charitable institutions. As of June 30, 2016 the funds cannot be withdrawn.

 

5. Trade and Other Receivables

 

  (1) Details of trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)    June 30, 2016  
     Gross
amount
     Allowances for
doubtful
accounts
     Carrying
amount
 

Current assets:

        

Accounts receivable - trade

   W   1,649,991         (129,268      1,520,723   

Short-term loans

     59,607         (596      59,011   

Accounts receivable - other

     755,753         (58,111      697,642   

Accrued income

     9,020         —           9,020   
  

 

 

    

 

 

    

 

 

 
     2,474,371         (187,975      2,286,396   

Non-current assets:

        

Long-term loans

     56,337         (19,262      37,075   

Long-term receivables - other

     45,498         —           45,498   

Guarantee deposits

     166,320         —           166,320   
  

 

 

    

 

 

    

 

 

 
     268,155         (19,262      248,893   
  

 

 

    

 

 

    

 

 

 
   W 2,742,526         (207,237      2,535,289   
  

 

 

    

 

 

    

 

 

 
(In millions of won)    December 31, 2015  
     Gross
amount
     Allowances for
doubtful
accounts
     Carrying
amount
 

Current assets:

        

Accounts receivable - trade

   W   1,654,575         (125,824      1,528,751   

Short-term loans

     48,223         (482      47,741   

Accounts receivable - other

     323,870         (59,129      264,741   

Accrued income

     7,505         —           7,505   
  

 

 

    

 

 

    

 

 

 
     2,034,173         (185,435      1,848,738   

Non-current assets:

        

Long-term loans

     54,322         (19,242      35,080   

Guarantee deposits

     166,656         —           166,656   
  

 

 

    

 

 

    

 

 

 
     220,978         (19,242      201,736   
  

 

 

    

 

 

    

 

 

 
   W 2,255,151         (204,677      2,050,474   
  

 

 

    

 

 

    

 

 

 

 

12


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

5. Trade and Other Receivables, Continued

 

  (2) Changes in allowances for doubtful accounts of trade and other receivables during the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Balance at January 1

   W   204,677         189,851   

Increase of bad debt allowances

     15,137         27,697   

Write-offs

     (22,863      (22,319

Collection of receivables previously written-off

     10,286         10,011   
  

 

 

    

 

 

 

Balance at June 30

   W 207,237         205,240   
  

 

 

    

 

 

 

 

  (3) Details of overdue but not impaired, and impaired trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)    June 30, 2016      December 31, 2015  
     Accounts
receivable -
trade
     Other
receivables
     Accounts
receivable -
trade
     Other
receivables
 

Neither overdue nor impaired

   W 1,182,054         969,486         1,188,225         488,244   

Overdue but not impaired

     30,493         —           45,146         —     

Impaired

     437,444         123,049         421,204         112,332   
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,649,991         1,092,535         1,654,575         600,576   

Allowances for doubtful accounts

     (129,268      (77,969      (125,824      (78,853
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   1,520,723         1,014,566         1,528,751         521,723   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Less than 1 month

   W   10,562         5,550   

1 ~ 3 months

     6,129         9,507   

3 ~ 6 months

     1,566         6,583   

More than 6 months

     12,236         23,506   
  

 

 

    

 

 

 
   W 30,493         45,146   
  

 

 

    

 

 

 

 

13


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

6. Investment Securities

 

  (1) Details of short-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Beneficiary certificates(*)

   W   322,494         92,262   

 

(*) The income distributable in relation to beneficiary certificates as of June 30, 2016 were accounted for as accrued income.

 

  (2) Details of long-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Equity securities:

     

Marketable equity securities

   W   600,197         579,282   

Unlisted equity securities

     79,271         72,461   

Equity investments

     68,177         65,659   
  

 

 

    

 

 

 
     747,645         717,402   

Debt securities:

     

Investment bonds(*)

     8,725         9,103   
  

 

 

    

 

 

 
   W 756,370         726,505   
  

 

 

    

 

 

 

 

(*) The Company classified the convertible bonds of IRIVER LIMITED, amounting to W 6,695 million, as financial assets at fair value through profit or loss and the difference between carrying amount and fair value was accounted for as gain or loss relating to financial assets at fair value through profit or loss.

 

7. Investments in Subsidiaries and Associates

 

  (1) Investments in subsidiaries and associates as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Investments in subsidiaries

   W   4,413,248         4,469,997   

Investments in associates

     4,345,976         4,340,551   
  

 

 

    

 

 

 
   W 8,759,224         8,810,548   
  

 

 

    

 

 

 

 

14


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

7. Investments in Subsidiaries and Associates, Continued

 

  (2) Details of investments in subsidiaries as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, except for share data)    June 30, 2016      December 31,
2015
 
     Number of
shares
     Ownership
percentage
     Carrying
amount
     Carrying
amount
 

SK Telink Co., Ltd.

     1,082,272         83.5         144,740         144,740   

SK Broadband Co., Ltd.(*1)

     298,460,212         100.0         1,870,582         1,870,582   

SK Communications Co., Ltd.

     28,029,945         64.5         151,934         151,934   

PS&Marketing Corporation

     66,000,000         100.0         313,934         313,934   

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.(*2,3)

     57,338,266         100.0         1,298,231         1,520,206   

Neosnetworks Co., Ltd.

     408,435         83.9         63,967         63,967   

IRIVER LIMITED

     15,202,039         48.9         54,503         54,503   

SK Telecom China Holdings Co., Ltd.

     —           100.0         38,652         38,652   

SKT Vietnam PTE. Ltd.

     180,476,700         73.3         2,364         2,364   

SKT Americas, Inc.(*4)

     122         100.0         45,701         93,319   

YTK Investment Ltd.

     —           100.0         18,693         18,693   

Atlas Investment

     —           100.0         80,905         78,618   

SK Global Healthcare Business Group Ltd.

     —           100.0         39,649         39,649   

Entrix Co., Ltd.

     4,157,000         100.0         27,628         27,628   

SK techx Co., Ltd.(*2)

     6,323,905         100.0         128,371         —     

One Store Co., Ltd.(*2)

     10,409,600         65.5         82,186         —     
        

 

 

    

 

 

 
         W   4,413,248         4,469,997   
        

 

 

    

 

 

 

 

15


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

7. Investments in Subsidiaries and Associates, Continued

 

  (2) Details of investments in subsidiaries as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(*1) On November 2, 2015, the board of directors of the Company entered into a share purchase agreement to acquire 30%(23,234,060 shares) of the issued and outstanding common shares of CJ Hello Vision Co., Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”) for an aggregate purchase price of W 500,000 million. The agreement states government’s approval as prerequisite.

On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Company, approved the merger of SK Broadband into CJ Hello Vision, and then SK Broadband entered into a merger agreement with CJ Hello Vision with government’s approval as prerequisite.

After the announcement of disapproval of proposed takeover of CJ Hello Vision by the Fair Trade Commission (FTC) on July 18, 2016, the Company announced the revocation of share purchase agreement to CJ O Shopping while SK Broadband withdrew from merger agreement with CJ Hello vision on July 25, 2016 as execution of the share purchase agreement with CJ O Shopping and merger agreement between SK Broadband and CJ Hello Vision became objectively impossible.

 

(*2) During the six-month period ended June 30, 2016, SK techx Co., Ltd. and One Store Co., Ltd. were established by spin-offs of platform service division and T-store service division of SK Planet Co., Ltd. from SK Planet Co., Ltd., respectively. In connection with the spin-offs, the Company exchanged 12,323,905 shares of SK Planet Co., Ltd. for 6,323,905 shares of SK techx Co., Ltd. and 6,000,000 shares of One Store Co., Ltd. The Company additionally acquired 4,409,600 shares of One Store Co., Ltd. for W 22,048 million by participating in capital increase. The Company has equity interest of 65.5% on One Store Co., Ltd. as a result of unparticipated disproportionate capital increase by One Store Co., Ltd.
(*3) During the six-month period ended June 30, 2016, the Company acquired Location Based Service(LBS) division and mobile phone verification services business, spun-off from SK Planet Co., Ltd., in order to strengthen the platform business capabilities. Since this is considered a business combination of entities under common control, the Company succeeded the assets and liabilities at the acquiree’s carrying amounts and recognized the difference between the carrying amount of 1,547,516 shares of SK Planet Co., Ltd., which were retired, and the net assets acquired in capital surplus and others.
(*4) W 47,618 million of impairment loss was recognized during the six-month period ended June 30, 2016.

 

16


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

7. Investments in Subsidiaries and Associates, Continued

 

  (3) Details of investments in associates as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, except for share data)    June 30, 2016      December 31,
2015
 
     Number of
shares
     Ownership
percentage
     Carrying
amount
     Carrying
amount
 

SK China Company Ltd.(*1)

     720,000         9.6         47,830         47,830   

HappyNarae Co., Ltd.

     680,000         42.5         12,250         12,250   

Korea IT Fund(*2)

     190         63.3         220,957         220,957   

Wave City Development Co., Ltd.(*1)

     393,460         19.1         1,532         1,532   

KEB HanaCard Co., Ltd.(*1)

     39,902,323         15.0         253,739         253,739   

Daehan Kanggun BcN Co., Ltd.

     1,675,124         29.0         8,340         8,340   

NanoEnTek, Inc.

     6,960,445         28.5         47,958         47,958   

SK Industrial Development China Co., Ltd.

     72,952,360         21.0         83,691         83,691   

SK Technology Innovation Company

     14,700         49.0         45,864         45,864   

SK hynix Inc.

     146,100,000         20.1         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         145,656   

SK Wyverns Baseball Club Co., Ltd. and others

     —           —           74,706         69,281   
        

 

 

    

 

 

 
         W   4,345,976         4,340,551   
        

 

 

    

 

 

 

 

(*1) Classified as investments in associates as the Company can exercise significant influence through its right to appoint the members of board of directors even though the Company has less than 20% of equity interests.
(*2) Investment in Korea IT Fund was classified as investment in associates as the Company does not have control over Korea IT Fund under the agreement.

 

  (4) The market price of investments in listed subsidiaries as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, except for share data)  
     June 30, 2016      December 31, 2015  
     Market
value per
share
(In won)
     Number of
shares
     Market
price
     Market
value per
share

(In won)
     Number of
shares
     Market
price
 

IRIVER LIMITED

   W   4,420         15,202,039         67,193         5,400         15,202,039         82,091   

SK Communications Co., Ltd.

     2,930         28,029,945         82,128         4,390         28,029,945         123,051   

 

17


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

8. Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)  
     For the six-month period ended June 30, 2016  
     Beginning
balance
     Acquisition      Disposal     Transfer     Depreciation     Others(*)      Ending
balance
 

Land

   W 494,359         1,725         (2,639     7,519        —          —           500,964   

Buildings

     557,932         295         (8,411     19,014        (17,792     —           551,038   

Structures

     342,411         486         (15     5,224        (16,459     —           331,647   

Machinery

     5,222,023         44,201         (3,033     235,486        (806,843     2,612         4,694,446   

Other

     402,252         125,304         (2,036     (127,123     (55,768     344         342,973   

Construction in progress

     423,303         115,679         (6,848     (154,557     —          3,439         381,016   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   W   7,442,280         287,690         (22,982     (14,437     (896,862     6,395         6,802,084   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(*) Composed of property and equipment acquired in connection with business combination.

 

(In millions of won)  
     For the six-month period ended June 30, 2015  
     Beginning
balance
     Acquisition      Disposal     Transfer     Depreciation     Ending
balance
 

Land

   W 448,255         828         (328     5,155        —          453,910   

Buildings

     568,874         782         (4,131     21,997        (17,409     570,113   

Structures

     350,915         761         (33     11,911        (17,013     346,541   

Machinery

     5,277,929         22,013         (689     525,155        (791,819     5,032,589   

Other

     430,478         421,932         (1,730     (309,165     (54,630     486,885   

Construction in progress

     629,455         200,553         —          (296,772     —          533,236   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   W   7,705,906         646,869         (6,911     (41,719     (880,871     7,423,274   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

9. Goodwill

Goodwill as of June 30, 2016 and December 31, 2015 is as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Goodwill related to acquisition of Shinsegi Telecom, Inc.

   W   1,306,236         1,306,236   

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

10. Intangible Assets

 

  (1) Changes in intangible assets for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)       
     For the six-month period ended June 30, 2016  
     Beginning
balance
     Acquisition      Disposal     Transfer      Amortization     Others(*)      Ending
balance
 

Frequency usage rights

   W 1,103,517         —           —          —           (140,264     —           963,253   

Land usage rights

     11,695         781         —          —           (2,265     —           10,211   

Industrial rights

     11,828         1,971         —          —           (1,923     202         12,078   

Facility usage rights

     16,486         478         (4     72         (1,277     —           15,755   

Memberships

     61,512         118         (1,057     —           —          —           60,573   

Other

     561,031         12,662         —          28,307         (104,137     25,676         523,539   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   W   1,766,069         16,010         (1,061     28,379         (249,866     25,878         1,585,409   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(*) Composed of intangible assets acquired in connection with business combination.

 

(In millions of won)                                        
     For the six-month period ended June 30, 2015  
     Beginning
balance
     Acquisition      Disposal     Transfer      Amortization     Ending
balance
 

Frequency usage rights

   W 1,384,044         —           —          —           (140,264     1,243,780   

Land usage rights

     14,016         1,412         —          —           (2,431     12,997   

Industrial rights

     10,583         3,507         (2     —           (2,109     11,979   

Facility usage rights

     15,843         515         (12     271         (1,276     15,341   

Memberships

     63,465         62         —          —           —          63,527   

Other

     440,218         4,363         (5     50,721         (87,030     408,267   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W   1,928,169         9,859         (19     50,992         (233,110     1,755,891   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

19


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

10. Intangible Assets, Continued

 

  (2) The carrying amount and residual useful lives of frequency usage rights as of June 30, 2016 are as follows, all of which are amortized on a straight-line basis:

 

(In millions of won)
     Amount     

Description

  

Commencement
of amortization

  

Completion of
amortization

W-CDMA license

   W 54,988      

Frequency usage rights relating to W-CDMA service

   Dec. 2003    Dec. 2016

W-CDMA license

     8,155      

Frequency usage rights relating to W-CDMA service

   Oct. 2010    Dec. 2016

800MHz license

     202,720      

Frequency usage rights relating to CDMA and LTE service

   Jul. 2011    Jun. 2021

1.8GHz license

     690,910      

Frequency usage rights relating to LTE service

   Sep. 2013    Dec. 2021

WiBro license

     6,480      

WiBro service

   Mar. 2012    Mar. 2019
  

 

 

          
   W   963,253            
  

 

 

          

 

20


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Borrowings and Debentures

 

  (1) There are no short-term borrowings as of June 30, 2016. Short-term borrowings as of December 31, 2015 are as follows:

 

(In millions of won)                     

Lender

   Annual interest
rate (%)
     Maturity      December 31,
2015
 

Kookmin Bank

     2.47         Jan. 21, 2016       W 40,000   

Commercial Papers

     1.84         Jan. 14, 2016         190,000   
        

 

 

 
         W 230,000   
        

 

 

 

 

  (2) Long-term borrowings as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won and thousands of U.S. dollars)                        

Lender

  

Annual interest
rate (%)

  

Maturity

   June 30,
2016
     December 31,
2015
 

Export Kreditnamnden(*)

   1.70    Apr. 29, 2022    W 80,430         87,685   
         (USD 69,056    (USD 74,817
        

 

 

    

 

 

 

Less present value discount

           (1,811      (2,124
        

 

 

    

 

 

 
           78,619         85,561   

Less current installments

           (12,963      (13,007
        

 

 

    

 

 

 
         W 65,656         72,554   
        

 

 

    

 

 

 

 

(*) Prior to 2015, the Company obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are repaid by installments on an annual basis from 2014 to 2022.

 

21


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Borrowings and Debentures, Continued

 

  (3) Debentures as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, thousands of U.S. dollars, and thousands of other currencies)  
    

Purpose

  

Maturity

  

Annual
interest rate
(%)

   June 30, 2016      December 31,
2015
 

Unsecured private bonds

   Refinancing fund    2016    5.00    W   200,000         200,000   

Unsecured private bonds

   Other fund    2018    5.00      200,000         200,000   

Unsecured private bonds

      2016    5.54      —           40,000   

Unsecured private bonds

      2016    5.92      —           230,000   

Unsecured private bonds

   Operating fund    2016    3.95      110,000         110,000   

Unsecured private bonds

      2021    4.22      190,000         190,000   

Unsecured private bonds

   Operating and refinancing fund    2019    3.24      170,000         170,000   

Unsecured private bonds

      2022    3.30      140,000         140,000   

Unsecured private bonds

      2032    3.45      90,000         90,000   

Unsecured private bonds

   Operating fund    2023    3.03      230,000         230,000   

Unsecured private bonds

      2033    3.22      130,000         130,000   

Unsecured private bonds

      2019    3.30      50,000         50,000   

Unsecured private bonds

      2024    3.64      150,000         150,000   

Unsecured private bonds(*2)

      2029    4.72      54,969         54,695   

Unsecured private bonds

   Refinancing fund    2019    2.53      160,000         160,000   

Unsecured private bonds

      2021    2.66      150,000         150,000   

Unsecured private bonds

      2024    2.82      190,000         190,000   

Unsecured private bonds

   Operating and refinancing fund    2022    2.40      100,000         100,000   

Unsecured private bonds

      2025    2.49      150,000         150,000   

Unsecured private bonds

      2030    2.61      50,000         50,000   

Unsecured private bonds

   Operating fund    2018    1.89      90,000         90,000   

Unsecured private bonds

      2025    2.66      70,000         70,000   

Unsecured private bonds

      2030    2.82      90,000         90,000   

Unsecured private bonds(*2)

      2030    3.40      50,098         50,485   

Unsecured private bonds

   Operating and refinancing fund    2018    2.07      80,000         80,000   

Unsecured private bonds

      2025    2.55      100,000         100,000   

Unsecured private bonds

      2035    2.75      70,000         70,000   

Unsecured private bonds(*2)

      2030    3.10      50,460         50,524   

Unsecured private bonds

   Operating fund    2019    1.65      70,000         —     

Unsecured private bonds

      2021    1.80      100,000         —     

Unsecured private bonds

      2026    2.08      90,000         —     

Unsecured private bonds

      2036    2.24      80,000         —     

Unsecured private bonds

      2019    1.62      50,000         —     

Unsecured private bonds

      2021    1.71      50,000         —     

Unsecured private bonds

      2026    1.97      120,000         —     

Unsecured private bonds

      2031    2.17      50,000         —     

 

22


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Borrowings and Debentures, Continued

 

  (3) Debentures as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(In millions of won, thousands of U.S. dollars, and thousands of other currencies)  
     Purpose     

Maturity

   Annual
interest rate
(%)
     June 30,
2016
    December 31,
2015
 

Unsecured global bonds

      2027      6.63         465,880        468,800   
            (USD 400,000   (USD 400,000

Unsecured private Swiss bonds

      2017      1.75         356,760        355,617   
            (CHF 300,000   (CHF 300,000

Unsecured global bonds

      2018      2.13         815,290        820,400   
            (USD 700,000   (USD 700,000

Unsecured private Australian bonds

      2017      4.75         260,310        255,930   
            (AUD 300,000   (AUD 300,000

Floating rate notes (*1)

      2020     
 
3M LIBOR +
0.88
  
  
     349,410        351,600   
            (USD 300,000   (USD 300,000
           

 

 

   

 

 

 

Sub-total

              5,973,177        5,638,051   

Less discounts on bonds

              (24,086     (24,926
           

 

 

   

 

 

 
              5,949,091        5,613,125   

Less current installments of bonds

              (666,154     (579,630
           

 

 

   

 

 

 
            W 5,282,937        5,033,495   
           

 

 

   

 

 

 

 

(*1) As of June 30, 2016, 3M LIBOR rate is 0.65%.
(*2) The Company eliminated a measurement inconsistency of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss.

The carrying amount of financial liabilities designated at fair value through profit or loss exceeds the principal amount required to pay at maturity by W 5,527 million as of June 30, 2016.

 

23


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

12. Long-term Payables - Other

 

  (1) As of June 30, 2016 and December 31, 2015, details of long-term payables – other which consist of payables related to the acquisition of W-CDMA licenses for 2.3GHz and 1.8GHz frequencies are as follows (See Note 10):

 

(In millions of won)                              
    

Period of
repayment

   Coupon rate     Annual effective
interest rate(*)
    June 30,
2016
    December 31,
2015
 

2.3GHz

   2014~2016      3.00%        5.80%        —          2,882   

1.8GHz

   2012~2021      2.43~3.00%        4.84~5.25%        589,172        707,006   
         

 

 

   

 

 

 
            589,172        709,888   

Present value discount on long-term payables – other

            (32,252     (38,739
         

 

 

   

 

 

 
            556,920        671,149   

Less current installments of long-term payables – other

            (116,079     (120,185
         

 

 

   

 

 

 

Carrying amount at period end

          W 440,841        550,964   
         

 

 

   

 

 

 

 

(*) The Company estimated the discount rates based on its credit ratings and corporate bond yield rate as there is no market interest rate available for long-term payables - other.

 

  (2) The repayment schedule of the principal amount of long-term payables related to acquisition of W-CDMA licenses as of June 30, 2016 is as follows:

 

(In millions of won)       
     Amount  

Less than 1 year

   W 117,834   

1~3 years

     235,669   

3~5 years

     235,669   
  

 

 

 
   W   589,172   
  

 

 

 

 

24


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

13. Provisions

Changes in provisions for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended June 30, 2016      As of June 30, 2016  
     Beginning
balance
     Increase      Utilization     Reversal     Ending
balance
     Current      Non-
current
 

Provision for installment of handset subsidy

   W 5,670         —           (1,019     —          4,651         1,213         3,438   

Provision for restoration

     50,459         2,137         (332     (697     51,567         28,323         23,244   

Emission allowance

     1,477         242         (169     —          1,550         1,550         —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W   57,606         2,379         (1,520     (697     57,768         31,086         26,682   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(In millions of won)    For the six-month period ended June 30, 2015      As of June 30, 2015  
     Beginning
balance
     Increase      Utilization     Reversal     Ending
balance
     Current      Non-
current
 

Provision for installment of handset subsidy

   W 26,799         —           (2,696     (18,173     5,930         3,368         2,562   

Provision for restoration

     51,333         2,116         (344     (962     52,143         34,208         17,935   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W   78,132         2,116         (3,040     (19,135     58,073         37,576         20,497   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

The Company has provided handset subsidy to subscribers who purchase handsets on an installment basis and recognized a provision for subsidy amounts which the Company is expected to pay in future periods.

 

14. Defined Benefit Liabilities

 

  (1) Details of defined benefit liabilities as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Present value of defined benefit obligations

   W    239,797         212,139   

Fair value of plan assets

     (216,009      (208,133
  

 

 

    

 

 

 
   W 23,788         4,006   
  

 

 

    

 

 

 

 

25


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

14. Defined Benefit Liabilities, Continued

 

  (2) Changes in defined benefit obligations for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Beginning balance

   W 212,139         195,130   

Current service cost

     18,364         17,610   

Interest cost

     2,731         2,707   

Remeasurement:

     

- Demographic assumption

     —           16   

- Adjustment based on experience

     6,816         834   

Benefit paid

     (3,755      (20,266

Others

     3,502         1,867   
  

 

 

    

 

 

 

Ending balance

   W 239,797         197,898   
  

 

 

    

 

 

 

 

  (3) Changes in plan assets for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Beginning balance

   W 208,133         179,575   

Interest income

     2,590         2,491   

Actuarial loss

     (5,169      (2,387

Contributions

     11,000         25,000   

Benefit paid

     (3,350      (19,643

Others

     2,805         —     
  

 

 

    

 

 

 

Ending balance

   W 216,009         185,036   
  

 

 

    

 

 

 

 

  (4) Expenses recognized in profit and loss for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Current service cost

   W 18,364         17,610   

Net Interest cost

     141         216   
  

 

 

    

 

 

 
   W 18,505         17,826   
  

 

 

    

 

 

 

The above costs are recognized in labor cost and research and development.

 

26


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

15. Derivative Instruments

 

  (1) Currency swap contracts under cash flow hedge accounting as of June 30, 2016 are as follows:

 

(In thousands of foreign currencies)

Borrowing
date

  

Hedging Instrument (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 with face value of USD 400,000)

   Foreign currency risk    Currency swap    Morgan Stanley and five other banks    Jul. 20, 2007 ~ Jul. 20, 2027
Jun. 12, 2012   

Fixed-to-fixed cross currency swap
(Swiss Franc denominated bonds with face value of CHF 300,000)

   Foreign currency risk    Currency swap    Citibank and four other banks    Jun. 12, 2012 ~ Jun. 12, 2017

Nov. 1,

2012

  

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds with face value of USD 700,000)

   Foreign currency risk    Currency swap    Barclays and eight other banks    Nov. 1, 2012 ~ May. 1, 2018

Jan. 17,

2013

  

Fixed-to-fixed cross currency swap
(Australia dollar denominated bonds with 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 with face value of USD 300,000)

   Foreign currency risk and interest rate risk    Currency and 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 with face value of USD 69,056)

   Foreign currency risk    Currency swap    Deutsche bank    Dec. 16, 2013 ~ Apr. 29, 2022

 

27


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

15. Derivative Instruments, Continued

 

  (2) As of June 30, 2016, details of fair values of the above derivatives recorded in assets or liabilities are as follows:

 

(In millions of won and thousands of foreign currencies)  
     Fair value  
     Cash flow hedge      Held for
trading
     Total  

Hedging Instrument (Hedged item)

   Accumulated
gain (loss) on
valuation of
derivatives
    Tax
effect
    Accumulated
foreign
currency
translations
(gain) loss
    Others
(*)
       

Non-current assets:

              

Structured bond (face value of KRW 150,000)

   W —          —          —          —           9,961         9,961   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds with face value of USD 400,000)

     (50,424     (16,098     8,299        129,806         —           71,583   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds with face value of USD 700,000)

     (15,296     (4,884     51,650        —           —           31,470   

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

     (11,613     (3,709     24,255        —           —           8,933   

Fixed-to-fixed long-term borrowings
(U.S. dollar denominated bonds with face value of USD 69,056)

     (3,622     (1,156     7,457        —           —           2,679   
              

 

 

 

Total assets

               W   124,626   
              

 

 

 

Current liability:

              

Fixed-to-fixed cross currency swap
(Swiss Franc denominated bonds with face value of CHF 300,000)

   W (6,565     (2,095     (6,710     —           —           (15,370

Non-current liability:

              

Fixed-to-fixed cross currency swap
(Australia dollar denominated bonds with face value of AUD 300,000)

     2,873        918        (74,879     —           —           (71,088
              

 

 

 

Total liabilities

               W (86,458
              

 

 

 

 

(*) Cash flow hedge accounting has been applied to the relevant contracts from May 12, 2010. Others represent gain on valuation of currency swap recognized in profit or loss prior to May 12, 2010, when the Company started to apply hedge accounting to these contracts.

 

28


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

16. Share Capital and Capital Surplus and Others

The Company’s outstanding share capital consists entirely of common stocks with a par value of W 500. The number of authorized, issued and outstanding common shares and capital surplus and others as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, except for share data)              
     June 30, 2016      December 31, 2015  

Number of authorized shares

       220,000,000         220,000,000   

Number of issued shares(*)

     80,745,711         80,745,711   

Share capital:

     

Common stock

   W 44,639         44,639   

Capital surplus and others:

     

Paid-in surplus

     2,915,887         2,915,887   

Treasury stock (Note 17)

     (2,260,626      (2,260,626

Hybrid bond (Note 18)

     398,518         398,518   

Others

     (682,298      (684,333
  

 

 

    

 

 

 
   W 371,481         369,446   
  

 

 

    

 

 

 

 

(*) Prior to 2015, the Company retired shares of treasury stock which reduced its retained earnings before appropriation. As a result, the Company’s outstanding shares have decreased without change in the share capital.

There were no changes in share capital for the six-month period ended June 30, 2016 and the year ended December 31, 2015 and details of shares outstanding as of June 30, 2016 and 2015 are as follows:

 

(In shares)    June 30, 2016      June 30, 2015  
     Issued
shares
     Treasury
stock
     Outstanding
shares
     Issued
shares
     Treasury
stock
    Outstanding
shares
 

Beginning

     80,745,711         10,136,551         70,609,160         80,745,711         9,809,375        70,936,336   

Disposal of treasury stock

     —           —           —           —           (1,692,824     1,692,824   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending

     80,745,711         10,136,551         70,609,160         80,745,711         8,116,551        72,629,160   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

17. Treasury Stock

The Company acquired treasury stocks to provide stock dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices.

Treasury stocks as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, shares)              
     June 30, 2016      December 31, 2015  

Number of shares

       10,136,551         10,136,551   

Amount

   W 2,260,626         2,260,626   

 

29


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

18. Hybrid Bonds

Hybrid bonds classified as equity as of June 30, 2016 are as follows:

 

(In millions of won)                  
    

Type

  

Issuance date

  

Maturity

   Annual
interest
rate(%)
    Amount  

Private hybrid bonds

  

Unsecured subordinated bearer bond

   June 7, 2013    June 7, 2073(*1)      4.21 (*2)    W 400,000   

Issuance costs

                (1,482
             

 

 

 
              W   398,518   
             

 

 

 

Hybrid bonds issued by the Company are classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common stocks in the event of a liquidation or reorganization of the Company.

 

(*1) The Company has a right to extend the maturity under the same terms at issuance without any notice or announcement. The Company also has the right to defer interest payment at its sole discretion.
(*2) Annual interest rate is calculated as yield rate of 5 year national bonds plus premium. According to Step-up clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.

 

19. Retained Earnings

 

  (1) Retained earnings as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Appropriated:

     

Legal reserve

   W 22,320         22,320   

Reserve for research & manpower development

     60,001         87,301   

Reserve for business expansion

     9,871,138         9,671,138   

Reserve for technology development

     2,826,300         2,616,300   
  

 

 

    

 

 

 
     12,779,759         12,397,059   

Unappropriated

     652,207         1,021,544   
  

 

 

    

 

 

 
   W   13,431,966         13,418,603   
  

 

 

    

 

 

 

 

30


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

20. Reserves

 

  (1) Details of reserves, net of taxes, as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Changes in unrealized fair value of available-for-sale financial assets

   W 39,380         23,578   

Changes in unrealized fair value of derivatives

     (84,647      (76,806
  

 

 

    

 

 

 
   W (45,267      (53,228
  

 

 

    

 

 

 

 

  (2) Changes in reserves for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended June 30, 2016  
     Unrealized
fair value of
available-for-sale
financial assets
     Unrealized
fair value of
derivatives
     Total  

Balance at January 1, 2016

   W 23,578         (76,806      (53,228

Changes

     20,847         (10,344      10,503   

Tax effect

     (5,045      2,503         (2,542
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2016

   W 39,380         (84,647      (45,267
  

 

 

    

 

 

    

 

 

 
(In millions of won)    For the six-month period ended June 30, 2015  
     Unrealized
fair value of
available-for-sale
financial assets
     Unrealized
fair value of
derivatives
     Total  

Balance at January 1, 2015

   W 145,106         (78,208      66,898   

Changes

     (70,672      (20,319      (90,991

Tax effect

     17,103         4,917         22,020   
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

   W 91,537         (93,610      (2,073
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

21. Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Other Operating Expenses:

           

Communication

   W 7,542         15,542         8,475         18,058   

Utilities

     46,779         100,397         45,979         95,260   

Taxes and dues

     4,329         9,307         5,116         9,509   

Repair

     55,236         101,860         53,017         91,491   

Research and development

     66,349         133,518         62,071         110,954   

Training

     4,931         9,991         4,421         10,161   

Bad debt for accounts receivable - trade

     9,158         11,724         16,347         23,612   

Other

     9,741         23,010         10,367         20,851   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 204,065         405,349         205,793         379,896   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

22. Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Other Non-operating Income:

           

Gain on disposal of property and equipment and intangible assets

   W 435         870         866         937   

Others

     7,994         36,458         2,871         6,032   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 8,429         37,328         3,737         6,969   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Non-operating Expenses:

           

Loss on disposal of property and equipment and intangible assets

   W 2,628         9,970         884         2,056   

Donations

     11,447         40,647         18,116         23,562   

Bad debt for accounts receivable - other

     3,413         3,413         6,239         4,085   

Others

     1,282         1,793         7,052         31,961   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 18,770         55,823         32,291         61,664   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

32


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

23. Finance Income and Costs

 

  (1) Details of finance income and costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Income:

           

Interest income

   W 5,839         12,218         5,465         11,160   

Gain on disposal of accounts receivable - trade

     5,191         7,855         —           —     

Dividends

     6,082         96,433         2,308         56,731   

Gain on foreign currency transactions

     816         5,601         2,308         4,484   

Gain on foreign currency translation

     531         111         1,197         1,098   

Gain relating to financial liabilities at fair value through profit or loss

     403         177         6,965         5,188   

Gain relating to financial assets at fair value through profit or loss

     148         —           —           —     

Gain on disposal of long-term investment securities

     1,141         1,751         1,492         2,828   

Gain on valuation of derivatives

     463         3,684         —           1,030   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 20,614         127,830         19,735         82,519   
  

 

 

    

 

 

    

 

 

    

 

 

 

Finance Costs:

           

Interest expense

   W 57,235         116,707         59,906         121,132   

Loss on foreign currency transactions

     2,850         5,040         2,378         7,027   

Loss on foreign currency translation

     —           340         —           25   

Loss on disposal of long-term investment securities

     —           44         —           2   

Loss on valuation of derivatives

     —           —           699         —     

Loss on settlement of derivatives

     319         319         4,517         4,517   

Loss relating to financial assets at fair value through profit or loss

     —           378         358         689   

Loss relating to financial liabilities at fair value through profit or loss

     —           —           —           174   

Other finance costs

     —           815         32         32   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 60,404         123,643         67,890         133,598   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

33


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

23. Finance Income and Costs, Continued

 

  (2) Details of interest income included in finance income for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest income on cash equivalents and deposits

   W 1,914         3,750         1,668         3,483   

Interest income on installment receivables and others

     3,925         8,468         3,797         7,677   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   5,839           12,218           5,465           11,160   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (3) Details of interest expenses included in finance costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest expenses on borrowings

   W 1,767         3,271         6,981         10,010   

Interest expenses on debentures

     48,051         97,254         44,050         91,353   

Others

     7,417         16,182         8,875         19,769   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 57,235         116,707         59,906         121,132   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (4) Details of impairment losses for financial assets for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Accounts receivable - trade

   W 9,158         11,724         16,347         23,612   

Other receivables

     3,413         3,413         6,239         4,085   

Available-for-sale financial assets

     —           815         32         32   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 12,571           15,952         22,618           27,729   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

34


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

24. Income Tax Expense

Income tax expense was calculated by considering current tax expense adjusted to changes in estimates related to prior periods, deferred tax expenses by origination and reversal of temporary differences.

 

25. Earnings per Share

 

  (1) Basic earnings per share

 

  1) Basic earnings per share for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:

 

(In millions of won, shares)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Profit for the period

   W 284,143         666,350         231,997         527,783   

Interest on hybrid bond

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

Profit for the period on common shares

     275,723         657,930         223,577         519,363   

Weighted average number of common shares outstanding

       70,609,160         70,609,160         71,326,988         71,132,741   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share (in won)

   W 3,905         9,318         3,135         7,301   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  2) The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:

 

(In shares)           Weighted number of shares  
     Number of
shares
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued common shares at January 1, 2016

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

Weighted average number of treasury stock

     (10,136,551      (10,136,551      (10,136,551
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2016

     70,609,160         70,609,160         70,609,160   
  

 

 

    

 

 

    

 

 

 

 

(In shares)           Weighted number of shares  
     Number of
shares
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued common shares at January 1, 2015

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

Weighted average number of treasury stock

     (8,116,551      (9,418,723      (9,612,970
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2015

     72,629,160         71,326,988         71,132,741   
  

 

 

    

 

 

    

 

 

 

 

  (2) Diluted earnings per share

For the six-month periods ended June 30, 2016 and 2015, there were no potentially dilutive shares. Therefore, diluted earnings per share for the six-month periods ended June 30, 2016 and 2015 are the same as basic earnings per share.

 

35


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

26. Categories of Financial Instruments

 

  (1) Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)  
     June 30, 2016  
     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

   W —           —           646,221         —           646,221   

Financial instruments

     —           —           117,562         —           117,562   

Short-term investment securities

     —           322,494         —           —           322,494   

Long-term investment securities(*1)

     6,695         749,675         —           —           756,370   

Accounts receivable - trade

     —           —           1,520,723         —           1,520,723   

Loans and other receivables(*2)

     —           —           1,014,566         —           1,014,566   

Derivative financial assets

     9,961         —           —           114,665         124,626   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   16,656         1,072,169         3,299,072         114,665         4,502,562   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)  
     December 31, 2015  
     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

   W —           —           431,666         —           431,666   

Financial instruments

     —           —           131,562         —           131,562   

Short-term investment securities

     —           92,262         —           —           92,262   

Long-term investment securities(*1)

     7,073         719,432         —           —           726,505   

Accounts receivable - trade

     —           —           1,528,751         —           1,528,751   

Loans and other receivables(*2)

     —           —           521,723         —           521,723   

Derivative financial assets

     6,277         —           —           133,646         139,923   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   13,350         811,694         2,613,702         133,646         3,572,392   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

36


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

26. Categories of Financial Instruments, Continued

 

  (1) Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(*1) Long-term investment securities were designated as financial assets at fair value through profit of loss since the embedded derivative (conversion right option) could not be separately measured.
(*2) Details of loans and other receivables as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Short-term loans

   W 59,011         47,741   

Accounts receivable – other

     697,642         264,741   

Accrued income

     9,020         7,505   

Long-term loans

     37,075         35,080   

Long-term receivables - other

     45,498         —     

Guarantee deposits

     166,320         166,656   
  

 

 

    

 

 

 
   W   1,014,566         521,723   
  

 

 

    

 

 

 

 

  (2) Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)                            
     June 30, 2016  
     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

   W —           —           86,458         86,458   

Borrowings

     —           78,619         —           78,619   

Debentures (*1)

     155,527         5,793,564         —           5,949,091   

Accounts payable - other and others (*2)

     —           2,102,486         —           2,102,486   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   155,527         7,974,669         86,458         8,216,654   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)                            
     December 31, 2015  
     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

   W —           —           89,296         89,296   

Borrowings

     —           315,561         —           315,561   

Debentures (*1)

     155,704         5,457,421         —           5,613,125   

Accounts payable – other and others (*2)

     —           2,171,141         —           2,171,141   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   155,704         7,944,123         89,296         8,189,123   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

37


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

26. Categories of Financial Instruments, Continued

 

  (2) Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(*1) Bonds classified as financial liabilities at fair value through profit or loss as of June 30, 2016 and December 31, 2015 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to eliminate the difference in measurement bases with the related derivatives and bonds.
(*2) Details of accounts payable and other payables as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Accounts payable - other

   W 961,191         927,170   

Withholdings

     50         —     

Accrued expenses

     550,100         540,770   

Current installments of long-term payables - other

     116,079         120,185   

Long-term payables - other

     440,841         550,964   

Other non-current liabilities

     34,225         32,052   
  

 

 

    

 

 

 
   W   2,102,486         2,171,141   
  

 

 

    

 

 

 

 

27. 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 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

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. The Company manages currency risk by currency forward, etc., if needed, to hedge currency risk on business transactions.

 

38


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

1) Market risk, Continued

 

(i) Currency risk, Continued

 

Foreign currency monetary assets and liabilities as of June 30, 2016 are as follows:

 

(In millions of won, thousands of foreign currencies)  
     Assets      Liabilities  
     Foreign
currencies
     Won
equivalent
     Foreign
currencies
     Won equivalent  

USD

     62,993         73,367         1,462,207         1,703,033   

EUR

     7,408         9,597         —           —     

JPY

     96,201         1,089         —           —     

AUD

     —           —           299,274         259,680   

CHF

     —           —           299,587         356,269   

Others

     —           1,744         —           6   
     

 

 

       

 

 

 
      W   85,797          W   2,318,988   
     

 

 

       

 

 

 

In addition, the Company has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (See Note 15)

As of June 30, 2016, 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

   W 6,889         (6,889

EUR

     960         (960

JPY

     109         (109

Others

     174         (174
  

 

 

    

 

 

 
   W 8,132         (8,132
  

 

 

    

 

 

 

(ii) Equity price risk

The Company has equity securities which include listed and non-listed securities for its liquidity management and operating purpose. As of June 30, 2016, available-for-sale equity instruments measured at fair value amounts to W 671,879 million.

(iii) Interest rate risk

Since the Company’s interest bearing assets are mostly fixed-interest bearing assets, the Company’s revenue and operating cash flows 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 to reduce interest rate risk and to optimize its financing. To minimize risks from changes in interest rates, the Company takes various measures such as refinancing, renewal, alternative financing and hedging.

 

39


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

1) Market risk, Continued

 

(iii) Interest rate risk, Continued

 

The Company’s interest rate risk arises from floating-rate borrowings and payables. As of June 30, 2016, floating-rate debentures amount to W 349,410 million and the Company has entered into interest rate swaps to hedge interest rate risk related to floating-rate borrowings and debentures (See Note 15). Therefore, income before income taxes for the six-month period ended June 30, 2016 would not have been changed by 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 June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Cash and cash equivalents

   W 646,198         431,636   

Financial instruments

     117,562         131,562   

Available-for-sale financial assets

     2,030         2,030   

Accounts receivable – trade

     1,520,723         1,528,751   

Loans and receivables

     1,014,566         521,723   

Derivative financial assets

     124,626         139,923   

Financial assets at fair value through profit or loss

     6,695         7,073   
  

 

 

    

 

 

 
   W   3,432,400         2,762,698   
  

 

 

    

 

 

 

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 six-month period ended June 30, 2016, 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 arise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Company has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Company is the carrying amount of financial assets as of June 30, 2016.

 

40


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

3) Liquidity risk

Contractual maturities of financial liabilities as of June 30, 2016 are as follows:

 

(In millions of won)  
     Carrying
amount
     Contractual
cash

flows
     Less than
1 year
     1 - 5 years      More than 5
years
 

Borrowings(*)

   W 78,619         85,640         14,861         57,154         13,625   

Debentures(*)

     5,949,091         7,201,909         846,181         2,930,047         3,425,681   

Accounts payable - other and others

     2,102,486         2,123,750         1,585,341         538,409         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   8,130,196         9,411,299         2,446,383         3,525,610         3,439,306   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

 

(*) Includes interest to be paid.

As of June 30, 2016, periods which cash flows from cash flow hedge derivatives are expected to occur are as follows:

 

(In millions of won)  
     Carrying
amount
    Contractual
cash

flows
    Less than
1 year
    1 - 5 years     More than 5
years
 

Assets

   W   114,665        122,752        1,785        97,692        23,275   

Liabilities

     (86,458     (88,457     (12,384     (76,073     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W 28,207        34,295        (10,599     21,619        23,275   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (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 structure. The overall strategy of the Company is the same as that of the Company as of and for the year ended December 31, 2015.

The Company monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity; the total liabilities and equity is derived from the financial statements.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. Financial Risk Management, Continued

 

  (2) Capital management, Continued

 

Debt-equity ratios as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)             
     June 30, 2016     December 31, 2015  

Total liabilities

   W 9,379,019        9,367,480   

Total equity

       13,802,819        13,779,460   
  

 

 

   

 

 

 

Debt-equity ratios

     67.95     67.98
  

 

 

   

 

 

 

 

  (3) Fair value

 

  1) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2016 are as follows:

 

(In millions of won)       
     Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

Financial assets at fair value through profit or loss

   W 16,656         —           9,961         6,695         16,656   

Derivative financial assets

     114,665         —           114,665         —           114,665   

Available-for-sale financial assets

     671,879         600,197         47,494         24,188         671,879   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 803,200         600,197         172,120         30,883         803,200   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

Financial liabilities at fair value through profit or loss

   W 155,527         —           155,527         —           155,527   

Derivative financial liabilities

     86,458         —           86,458         —           86,458   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 241,985         —           241,985         —           241,985   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 78,619         —           81,768         —           81,768   

Debentures

     5,793,564         —           6,391,877         —           6,391,877   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   5,872,183         —           6,473,645         —           6,473,645   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

42


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. 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, 2015 are as follows:

 

(In millions of won)       
     Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

Financial assets at fair value through profit or loss

   W 13,350         —           6,277         7,073         13,350   

Derivative financial assets

     133,646         —           133,646         —           133,646   

Available-for-sale financial assets

     655,845         579,282         47,262         29,301         655,845   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 802,841         579,282         187,185         36,374         802,841   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

Financial liabilities at fair value through profit or loss

   W 155,704         —           155,704         —           155,704   

Derivative financial liabilities

     89,296         —           89,296         —           89,296   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 245,000         —           245,000         —           245,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 315,561         —           316,726         —           316,726   

Debentures

     5,457,421         —           5,887,378         —           5,887,378   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   5,772,982         —           6,204,104         —           6,204,104   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are a reasonable approximation of fair values.

Available-for-sale financial assets amounting to W 400,290 million and W 155,849 million as of June 30, 2016 and December 31, 2015, respectively, are measured at cost in accordance with K-IFRS 1039 since they are considered as equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) and cannot be reliably measured using other valuation methods.

 

43


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. 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 determination 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 and liabilities measured.

Interest rates used by the Company for the fair value measurement as of June 30, 2016 are as follows:

 

     Interest rate

Derivative instruments

   1.82 ~ 2.99%

Borrowings and debentures

   1.57%

 

  3) There have been no transfers between Level 2 and Level 1 for the six-month period ended June 30, 2016 and changes of financial assets classified as Level 3 for the six-month period ended June 30, 2016 are as follows:

 

(In millions of won)                                
     Balance at
January 1,
2016
     Loss for the
period
    Other
comprehensive
loss
    Disposal     Balance at
June 30,
2016
 

Financial assets at fair value through profit or loss

   W 7,073         (378     —          —          6,695   

Available-for-sale financial assets

       29,301         —          (6     (5,107     24,188   

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. 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 June 30, 2016 are as follows:

 

(In millions of won)    Gross financial
instruments
recognized
     Amount
offset
    Net financial
instruments
presented on the
statement of
financial position
     Relevant financial
instruments not
offset
    Net
amount
 

Financial assets:

            

Derivatives(*)

   W 55,876         —          55,876         (55,876     —     

Accounts receivable – trade and others

     130,173         (113,781     16,392         —          16,392   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 186,049         (113,781     72,268         (55,876     16,392   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

   W 86,458         —          86,458         (55,876     30,582   

Accounts payable – other and others

     113,781         (113,781     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 200,239         (113,781     86,458         (55,876     30,582   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2015 are as follows:

 

(In millions of won)    Gross financial
instruments
recognized
     Amount
offset
    Net financial
instruments
presented on the
statement of
financial position
     Relevant financial
instruments not
offset
    Net
amount
 

Financial assets:

            

Derivatives(*)

   W 55,673         —          55,673         (55,673     —     

Accounts receivable – trade and others

     129,527         (113,003     16,524         —          16,524   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 185,200         (113,003     72,197         (55,673     16,524   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

   W 89,734         —          89,734         (55,673     34,061   

Accounts payable – other and others

     113,003         (113,003     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 202,737         (113,003     89,734         (55,673     34,061   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(*) The balance represents the net amount under the standard terms and conditions of International Swap and Derivatives Association.

 

28. Transactions with Related Parties

 

  (1) List of related parties

 

Relationship

  

Company

Ultimate Controlling Entity    SK Holdings Co., Ltd.
Subsidiaries    SK Planet Co., Ltd. and 37 other companies(*)
Joint ventures    Dogus Planet, Inc. and 3 other companies
Associates    SK hynix Inc. and 50 other companies
Affiliates    The Ultimate Controlling Entity’s other subsidiaries and associates, etc.

 

45


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

(*) As of June 30, 2016, subsidiaries of the Company are as follows:

 

Company

  Ownership
percentage (%)
   

Types of business

SK Telink Co., Ltd.

    83.5      Telecommunication and MVNO(Mobile Virtual Network Operator) service

M&Service Co., Ltd.

    100.0      Database and internet website service

SK Communications Co., Ltd.

    64.5      Internet website services

Stonebridge Cinema Fund

    55.2      Investment

SK Broadband Co., Ltd.

    100.0      Telecommunication services

K-net Culture and Contents Venture Fund

    59.0      Investment

Fitech Focus Limited Partnership II

    66.7      Investment

Open Innovation Fund

    98.9      Investment

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

SK Planet Co., Ltd.

    100.0      Telecommunication services

Neosnetworks Co., Ltd.

    83.9      Security systems service

IRIVER LIMITED

    48.9      Manufacturing of media and audio equipment

iriver Enterprise Ltd.

    100.0      Management of Chinese subsidiaries

iriver America Inc.

    100.0      Sales and marketing in North America

iriver Inc.

    100.0      Sales and marketing in North America

iriver China Co., Ltd.

    100.0      Sales and manufacturing of MP3 and 4 in China

Dongguan iriver Electronics Co., Ltd.

    100.0      Sales and Manufacturing of e-book in China

groovers Japan Co., Ltd.

    100.0      Digital music contents sourcing and distribution service

Entrix Co., Ltd.

    100.0      Cloud streaming service

SK Telecom China Holdings Co., Ltd.

    100.0      Investment

SK Global Healthcare Business Group., Ltd.

    100.0      Investment

SK Planet Japan, K. K.

    100.0      Digital contents sourcing service

SKT Vietnam PTE. Ltd.

    73.3      Telecommunication services

SK Planet Global PTE. Ltd.

    100.0      Digital contents sourcing service

SKP GLOBAL HOLDINGS PTE. LTD.

    100.0      Investment

SKT Americas, Inc.

    100.0      Information gathering and consulting

SKP America LLC.

    100.0      Digital contents sourcing service

YTK Investment Ltd.

    100.0      Investment

Atlas Investment

    100.0      Investment

SK Telecom Innovation Fund, L.P. (formerly, Technology Innovation Partners, L.P.)(*)

    100.0      Investment

SK Telecom China Fund I L.P.

    100.0      Investment

shopkick Management Company, Inc.

    100.0      Investment

shopkick, Inc.

    100.0      Mileage-based online transaction application development

SK techx Co., Ltd.

    100.0      System software development and supply

One Store Co., Ltd.

    65.5      Telecommunication services

 

(*) Changed its name to SK Telecom Innovation Fund, L.P. during the six-month period ended June 30, 2016.

 

46


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

28. Transactions with Related Parties, Continued

 

  (2) Compensation for the key management members

The Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management members. The compensation given to such key management members for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)     2016      2015  
     Three-month period
ended June 30
     Six-month period
ended June 30
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Salaries

   W 221         1,201         203         1,560   

Defined benefits plan expenses

     47         328         421         542   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 268         1,529         624         2,102   
  

 

 

    

 

 

    

 

 

    

 

 

 

Compensation for the key management members includes salaries, non-monetary salaries and contributions made in relation to pension plans.

 

47


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

28. Transactions with Related Parties, Continued

 

  (3) Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)   2016  
        Operating revenue
and others
    Operating expenses
and others
    Acquisition of
property and
equipment
    Loans     Collection of loans  

Scope

 

Company

  Three-
month
period
ended
June 30
    Six-
month
period
ended
June 30
    Three-
month
period
ended
June 30
    Six-
month
period
ended
June 30
    Three-
month
period
ended
June 30
    Six-
month
period
ended
June 30
    Three-
month
period
ended
June 30
    Six-
month
period
ended
June 30
    Three-
month
period
ended
June 30
    Six-
month
period
ended
June 30
 

Ultimate Controlling Entity

  SK Holdings Co., Ltd.(*1)   W 3,024        5,717        101,874        370,646        7,008        12,996        —          —          —          —     

Subsidiaries

  SK Broadband Co., Ltd.     30,369        61,453        132,536        253,581        7,099        7,099        —          —          —          —     
  PS&Marketing Corporation(*5)     2,396        5,632        378,720        756,953        349        355        —          —          —          —     
  Network O&S Co., Ltd.     1,756        3,110        37,146        92,569        1,875        2,819        —          —          —          —     
  SK Planet Co., Ltd.     8,213        18,438        11,478        115,465        —          331        —          —          —          —     
  SK Telink Co., Ltd.(*2)     16,374        34,202        5,649        10,856        —          —          —          —          —          —     
  Service Ace Co., Ltd.     1,950        3,887        33,284        67,899        —          —          —          —          —          —     
  Service Top Co., Ltd.     2,168        4,384        36,159        73,278        —          —          —          —          —          —     
  SK techx Co., Ltd     379        428        53,493        70,401        1,769        2,598        —          —          —          —     
  Others     5,159        7,998        12,143        24,466        678        851        —          —          —          —     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      68,764        139,532        700,608        1,465,468        11,770        14,053        —          —          —          —     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Associates

  F&U Credit information Co., Ltd.     410        808        8,357        20,416        —          —          —          —          —          —     
  HappyNarae Co., Ltd.     18        37        2,545        3,587        3,472        3,870        —          —          —          —     
  SK hynix Inc.(*3)     6,053        80,673        179        187        —          —          —          —          —          —     
  SK Wyverns Baseball Club Co., Ltd.     285        568        10        14,310        —          —          —          —          —          —     
  KEB HanaCard Co., Ltd.     4,994        9,999        4,668        7,479        —          —          —          —          —          —     
  Others(*4)     6,082        6,082        420        1,785        43        43        1,100        1,100        1,700        1,700   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      17,842        98,167        16,179        47,764        3,515        3,913        1,100        1,100        1,700        1,700   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other

  SK Engineering & Construction Co., Ltd.     1,528        2,309        396        831        645        645        —          —          —          —     
  SK Networks Co., Ltd.     1,291        2,540        4,319        8,215        —          —          —          —          —          —     
  SK Networks service Co., Ltd.     272        496        11,228        23,070        493        532        —          —          —          —     
  SK Telesys Co., Ltd.     32        47        1,774        3,760        6,321        24,131        —          —          —          —     
  SK TNS Co., Ltd.     24        42        10,515        10,515        57,865        57,865        —          —          —          —     
  Others     4,998        9,181        414        9,893        1,443        2,141        —          —          —          —     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      8,145        14,615        28,646        56,284        66,767        85,314        —          —          —          —     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    W   97,775        258,031        847,307        1,940,162        89,060        116,276        1,100        1,100        1,700        1700   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

48


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

28. Transactions with Related Parties, Continued

 

  (3) Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows, Continued:

 

(*1) Operating expenses and others include W 183,271 million of dividends paid by the Company.
(*2) Operating revenue and others include W 2,489 million of dividends received.
(*3) Operating revenue and others include W 73,050 million of dividends received.
(*4) Operating revenue and others include W 6,082 million of dividends received from Korea IT Fund.
(*5) Operating expenses and others include W 394,693 million paid to PS&Marketing Corporation relating to purchase of accounts receivables from the sale of handsets.

 

49


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

28. Transactions with Related Parties, Continued

 

  (3) Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows, Continued:

 

(In millions of won)    2015  
          Operating revenue
and others
     Operating expense
and others
     Acquisition of
property and
equipment
     Loans  

Scope

  

Company

   Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
 

Ultimate Controlling Entity

   SK Holdings Co., Ltd.(*1,4)    W 206         347         6,847         184,576         —           —           —           —     

Subsidiaries

   SK Broadband Co., Ltd.      38,684         64,378         133,507         260,899         1,977         2,000         —           —     
   PS&Marketing Corporation      2,995         5,621         170,365         416,028         249         315         —           —     
   Network O&S Co., Ltd.      656         1,559         47,674         79,673         —           —           —           —     
   SK Planet Co., Ltd.      16,013         27,183         134,795         266,743         1,640         1,720         —           —     
   SK Telink Co., Ltd.      16,242         30,296         5,575         13,507         —           —           —           —     
   Service Ace Co., Ltd.      1,907         3,805         35,472         75,406         —           —           —           —     
   Service Top Co., Ltd.      2,138         4,121         39,238         78,122         —           —           —           —     
   Others      3,206         6,235         7,149         15,040         72         150         —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        81,841         143,198         573,775         1,205,418         3,938         4,185         —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Associates

   F&U Credit information Co., Ltd.      404         853         9,205         20,718         —           —           —           —     
   HappyNarae Co., Ltd.      16         34         1,340         1,755         2,323         2,643         —           —     
   SK hynix Inc.(*2)      1,610         48,198         2,194         2,199         —           —           —           —     
   SK Wyverns Baseball Club Co., Ltd.      279         561         1,302         10,908         —           —           —           —     
   KEB HanaCard Co., Ltd.      5,418         10,850         2,837         8,223         —           —           —           —     
   Others(*3)      2,429         2,544         1,715         3,437         11         11         —           500   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        10,156         63,040         18,593         47,240         2,334         2,654         —           500   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

   SK Engineering & Construction Co., Ltd.      764         4,138         7,594         8,590         56,071         83,615         —           —     
   SK C&C Co., Ltd.(*4)      806         2,026         63,560         121,686         34,720         63,442         —           —     
   SK Networks Co., Ltd.      3,506         4,446         4,368         8,276         —           —           —           —     
   SK Networks service Co., Ltd.      2,433         4,731         14,282         17,160         423         427         —           —     
   SK Telesys Co., Ltd.      46         95         1,639         3,854         8,830         47,948         —           —     
   Others      3,785         6,331         6,898         12,734         1,575         1,882         —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        11,340         21,767         98,341         172,300         101,619         197,314         —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

      W   103,543         228,352         697,556         1,609,534         107,891         204,153         —           500   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1) Operating expense and others include W 171,053 million of dividends paid by the Company.
(*2) Operating revenue and others include W 43,830 million of dividends received from SK hynix Inc.
(*3) Operating revenue and others include W 2,103 million and W 227 million of dividends received from Korea IT Fund and UniSK, respectively.

 

50


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

28. Transactions with Related Parties, Continued

 

  (3) Transactions with related parties for the three and six-month periods ended June 30, 2016 and 2015 are as follows, Continued:

 

(*4) On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Company, and changed its name to SK Holdings Co., Ltd.

 

  (4) Account balances as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)         June 30, 2016  
          Accounts receivable      Accounts payable  

Scope

  

Company

   Loans      Accounts
receivable - trade
and others
     Accounts payable
– trade and others
 

Ultimate Controlling Entity

   SK Holdings Co., Ltd.    W —           3,495         37,031   

Subsidiaries

   SK Broadband Co., Ltd.      —           2,000         10,526   
   PS&Marketing Corporation      —           1,195         116,802   
   Network O&S Co., Ltd.      —           1,248         24,937   
   SK Planet Co., Ltd.      —           6,185         26,493   
   SK Telink Co., Ltd.      —           10,791         3,667   
   Service Ace Co., Ltd.      —           —           19,912   
   Service Top Co., Ltd.      —           10         21,421   
   SK techx Co., Ltd      —           26         9,732   
   One Store Co., Ltd      —           —           16,830   
   Others(*)      —           10,123         22,149   
     

 

 

    

 

 

    

 

 

 
        —           31,578         272,469   
     

 

 

    

 

 

    

 

 

 

Associates

   HappyNarae Co., Ltd.      —           —           2,367   
   SK hynix Inc.      —           4,906         183   
   SK Wyverns Baseball Club Co., Ltd.      1,017         10         21   
   Wave City Development Co., Ltd.      1,290         38,412         —     
   Daehan Kanggun BcN Co., Ltd.      22,147         7,791         —     
   KEB HanaCard Co., Ltd.      —           1,639         2,199   
   Others      —           16         1,726   
     

 

 

    

 

 

    

 

 

 
        24,454         52,774         6,496   
     

 

 

    

 

 

    

 

 

 

Other

   SK Engineering and Construction Co., Ltd.      —           1,272         208   
   SK Networks Co., Ltd.      —           670         1,951   
   SK Networks Services Co., Ltd.      —           —           4,027   
   SK Telesys Co., Ltd.      —           22         7,003   
   SK Innovation Co., Ltd.      —           1,427         526   
   SK TNS Co., Ltd.      —           —           14,597   
   Others      —           2,001         8,937   
     

 

 

    

 

 

    

 

 

 
        —           5,392         37,249   
     

 

 

    

 

 

    

 

 

 
      W   24,454         93,239         353,245   
     

 

 

    

 

 

    

 

 

 

 

(*) The convertible bonds amounting to W 6,695 million are included in accounts receivable - trade and others.

 

51


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

28. Transactions with Related Parties, Continued

 

  (4) Account balances as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(In millions of won)    December 31, 2015  
          Accounts receivable      Accounts payable  

Scope

  

Company

   Loans      Accounts
receivable - trade
and others
     Accounts payable
– trade and others
 

Ultimate Controlling Entity

   SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*)    W —           1,100         107,995   

Subsidiaries

   SK Broadband Co., Ltd.      —           2,160         24,847   
   PS&Marketing Corporation      —           614         62,592   
   Network O&S Co., Ltd.      —           665         33,658   
   SK Planet Co., Ltd.      —           6,722         36,874   
   SK Telink Co., Ltd.      —           10,026         3,068   
   Service Ace Co., Ltd.      —           —           20,684   
   Service Top Co., Ltd.      —           63         21,772   
   Others      —           4,722         17,116   
     

 

 

    

 

 

    

 

 

 
        —           24,972         220,611   
     

 

 

    

 

 

    

 

 

 

Associates

   HappyNarae Co., Ltd.      —           —           4,987   
   SK hynix Inc.      —           4,360         155   
   SK Wyverns Baseball Club Co., Ltd.      1,017         4,502         —     
   Wave City Development Co., Ltd.      1,890         38,412         —     
   Daehan Kanggun BcN Co., Ltd.      22,147         —           —     
   KEB HanaCard Co., Ltd.      —           1,771         7,262   
   Others      —           74         1,838   
     

 

 

    

 

 

    

 

 

 
        25,054         49,119         14,242   
     

 

 

    

 

 

    

 

 

 

Other

   SK Engineering and Construction Co., Ltd.      —           648         14,877   
   SK Networks Co., Ltd.      —           656         924   
   SK Networks Services Co., Ltd.      —           —           8,963   
   SK Telesys Co., Ltd.      —           117         3,585   
   SK Innovation Co., Ltd.      —           2,133         292   
   Others      —           2,581         39,193   
     

 

 

    

 

 

    

 

 

 
        —           6,135         67,834   
     

 

 

    

 

 

    

 

 

 
      W   25,054         81,326         410,682   
     

 

 

    

 

 

    

 

 

 

 

(*) On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Company, and changed its name to SK Holdings Co., Ltd.

 

  (5) The Company made an additional investments in associates and joint ventures during the six-month period ended June 30, 2016 as presented in Note 7.

 

52


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

29. 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. These sale and leaseback transactions were accounted for as an operating leases.

The Company recognized lease payment of W 7,382 million and W 7,270 million, respectively, in relation to the operating lease agreements and lease revenue of W 4,534 million and W 4,770 million, respectively, in relation to sublease agreements for the six-month periods ended June 30, 2016 and 2015. Future lease payments and revenue from the operating lease agreements and sublease agreements are as follows:

 

(In millions of won)    Lease payments      Revenue  

Less than 1 year

   W 15,200         9,105   

1~5 years

     52,894         26,529   

More than 5 years

     20,768         9,419   
  

 

 

    

 

 

 
   W 88,862         45,053   
  

 

 

    

 

 

 

 

53


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

30. Statements of Cash Flows

 

  (1) Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Interest income

   W (12,218      (11,160

Gain on disposal of accounts receivable - trade

     (7,855      —     

Dividends

     (96,433      (56,731

Gain on foreign currency translation

     (111      (1,098

Gain relating to financial liabilities at fair value through profit or loss

     (177      (5,188

Gain on disposal of long-term investment securities

     (1,751      (2,828

Gain on disposal of property and equipment and intangible assets

     (870      (937

Gain on valuation of derivatives

     (3,684      (1,030

Other income

     (567      —     

Loss on foreign currency translation

     340         25   

Bad debt for accounts receivable - trade

     11,724         23,612   

Bad debt for accounts receivable - other

     3,413         4,085   

Loss related to Investments in associates and joint ventures

     47,618         —     

Loss on disposal of long-term investments securities

     44         2   

Loss relating to financial assets at fair value through profit or loss

     378         689   

Other finance costs

     815         32   

Depreciation and amortization

     1,146,728         1,113,981   

Loss on disposal of property and equipment and intangible assets

     9,970         2,056   

Interest expenses

     116,707         121,132   

Loss relating to financial liabilities at fair value through profit or loss

     —           174   

Loss on settlement of derivatives

     319         4,517   

Retirement benefit expenses

     18,505         17,826   

Income tax expense

     179,780         170,359   

Other expenses

     11,098         4,028   
  

 

 

    

 

 

 
   W 1,423,773         1,383,546   
  

 

 

    

 

 

 

 

54


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

30. Statements of Cash Flows, Continued

 

  (2) Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Accounts receivable – trade

   W 4,334         (61,178

Accounts receivable – other

     (431,081      2,495   

Advance payments

     7,770         (32,173

Prepaid expenses

     2,257         3,561   

Inventories

     7,297         (11,100

Long-term receivables - other

     (45,498      —     

Long-term prepaid expenses

     1,110         (1,296

Guarantee deposits

     1,168         (8,397

Accounts payable – other

     247,598         (95,177

Advanced receipts

     17,156         16,966   

Withholdings

     22,100         (161,073

Deposits received

     2,172         (7,164

Accrued expenses

     711         (189,574

Unearned revenue

     (9,368      (58,743

Provisions

     (946      (11,476

Long-term provisions

     —           (9,393

Plan assets

     (7,650      (5,357

Retirement benefit payment

     (3,755      (20,266

Others

     (72      1,358   
  

 

 

    

 

 

 
   W (184,697      (647,987
  

 

 

    

 

 

 

 

  (3) Significant non-cash transactions for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30,
2016
     June 30,
2015
 

Decrease of accounts payable - other related to acquisition of property and equipment and intangible assets

   W 216,612         142,839   

 

31. Commitments

 

  (1) Accounts receivables from the sale of handsets

The agents of the Company sell handsets to our subscribers on an installment basis. During the six-month period ended June 30, 2016, the Company entered into comprehensive agreement to purchase the accounts receivables from the handset sales with agents and to transfer the accounts receivables from the handset sales to a Special Purpose Company, respectively.

 

55


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

The accounts receivables from the sale of handsets amounting to W 460,802 million as of June 30, 2016, which the Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable – other.

 

  (2) Frequency usage rights

During the six-month period ended June 30, 2016, the Company secured bandwidth blocs in the 2.6 GHz band for W 1,330,100 million at the spectrum auction held by the Ministry of Science, ICT and Future Planning (MSIP) of Korea. The consideration will be paid on an annual installment basis for 10 years from August 2016 with the Company acquiring ownership of the frequency usage rights on the first payment of installments.

 

32. Interim dividends

On July 28, 2016, the Board of Directors of the Company resolved to pay interim cash dividends of W 1,000 per share totaling W 70,609 million (market dividend rate: 0.48%). The ex-dividend date was June 30, 2016 and the interim dividends are expected to be paid within twenty days after the date of the Board of Directors’ resolution.

 

56


Table of Contents

SK TELECOM CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

(Unaudited)

June 30, 2016 and 2015

(With Independent Auditors’ Review Report Thereon)


Table of Contents

Contents

 

     Page  

Independent Auditors’ Review Report

     1   

Condensed Consolidated Statements of Financial Position

     3   

Condensed Consolidated Statements of Income

     5   

Condensed Consolidated Statements of Comprehensive Income

     6   

Condensed Consolidated Statements of Changes in Equity

     7   

Condensed Consolidated Statements of Cash Flows

     8   

Notes to the Condensed Consolidated Interim Financial Statements

     10   


Table of Contents

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed consolidated interim financial statements of SK Telecom Co., Ltd. and its subsidiaries (the “Group”), which comprise the condensed consolidated statement of financial position as of June 30, 2016, the related condensed consolidated statements of income and comprehensive income for the three and six-month periods ended June 30, 2016 and 2015, the condensed consolidated statements of changes in equity and cash flows for the six-month periods ended June 30, 2016 and 2015, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1034, Interim Financial Reporting , and for such internal controls as management determines necessary to enable the preparation of condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our reviews.

We conducted our reviews in accordance with the Review Standards for Quarterly and Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial statements consists principally of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements referred to above are not prepared fairly, in all material respects, in accordance with K-IFRS No.1034, Interim Financial Reporting .


Table of Contents

Other matters

The consolidated statement of financial position of the Group as of December 31, 2015, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing and our report thereon, dated February 23, 2016, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2015, presented for comparative purposes, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

The procedures and practices utilized in the Republic of Korea to review such condensed consolidated interim financial statements may differ from those generally accepted and applied in other countries.

KPMG Samjong Accounting Corp.

Seoul, Korea

August 5, 2016

 

This report is effective as of August 5, 2016, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position

As of June 30, 2016 and December 31, 2015

 

(In millions of won)    Note      June 30,
2016
     December 31,
2015
 

Assets:

        

Current Assets:

        

Cash and cash equivalents

     32,33       W 1,099,561         768,922   

Short-term financial instruments

     5,32,33,35         585,160         691,090   

Short-term investment securities

     8,32,33         346,694         92,262   

Accounts receivable – trade, net

     6,32,33,34         2,199,983         2,344,867   

Short-term loans, net

     6,32,33,34         66,187         53,895   

Accounts receivable – other, net

     6,32,33,34,35         1,273,406         673,739   

Prepaid expenses

        156,581         151,978   

Inventories, net

     7         270,871         273,556   

Advanced payments and other

     6,8,32,33         101,262         109,933   

Assets classified as held for sale

     9         18,860         —     
     

 

 

    

 

 

 

Total Current Assets

        6,118,565         5,160,242   
     

 

 

    

 

 

 

Non-Current Assets:

        

Long-term financial instruments

     5,32,33,35         10,598         10,623   

Long-term investment securities

     8,32,33         1,046,661         1,207,226   

Investments in associates and joint ventures

     11         6,929,114         6,896,293   

Property and equipment, net

     12,34,35         9,716,070         10,371,256   

Investment property, net

     13         8,246         15,071   

Goodwill

     14         1,912,065         1,908,590   

Intangible assets, net

     15         2,070,189         2,304,784   

Long-term loans, net

     6,32,33,34         61,572         62,454   

Long-term accounts receivable - other

     6,32,33,35         47,983         2,420   

Long-term prepaid expenses

     35         80,250         76,034   

Guarantee deposits

     6,32,33,34         298,232         297,281   

Long-term derivative financial assets

     21,32,33         150,839         166,399   

Deferred tax assets

     30         18,558         17,257   

Other non-current assets

     6,32,33         60,448         85,457   
     

 

 

    

 

 

 

Total Non-Current Assets

        22,410,825         23,421,145   
     

 

 

    

 

 

 

Total Assets

      W  28,529,390         28,581,387   
     

 

 

    

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position, Continued

As of June 30, 2016 and December 31, 2015

 

(In millions of won)    Note      June 30,
2016
    December 31,
2015
 

Liabilities and Shareholders’ Equity:

  

    

Current Liabilities:

       

Short-term borrowings

     16,32,33       W 85,000        260,000   

Current installments of long-term debt, net

     16,32,33         895,620        703,087   

Current installments of finance lease liabilities

     32,33         —          26   

Current installments of long-term payables – other

     17,32,33         116,079        120,185   

Accounts payable - trade

     32,33,34         251,106        279,782   

Accounts payable - other

     32,33,34         1,141,810        1,323,434   

Withholdings

     32,33         955,840        865,327   

Accrued expenses

     32,33         1,028,226        920,739   

Income tax payable

     30         341,036        381,794   

Unearned revenue

        205,779        224,233   

Derivative financial liabilities

     21,32,33         15,370        —     

Provisions

     18         36,025        40,988   

Receipts in advance

        148,051        136,844   

Other current liabilities

        55        54   
     

 

 

   

 

 

 

Total Current Liabilities

        5,219,997        5,256,493   
     

 

 

   

 

 

 

Non-Current Liabilities:

       

Debentures, excluding current installments, net

     16,32,33         6,567,440        6,439,147   

Long-term borrowings, excluding current installments, net

     16,32,33         104,556        121,553   

Long-term payables – other

     17,32,33         471,828        581,697   

Long-term unearned revenue

        2,717        2,842   

Defined benefit liabilities

     20         149,376        98,856   

Long-term derivative financial liabilities

     21,32,33         71,088        89,296   

Long-term provisions

     18         37,023        29,217   

Deferred tax liabilities

     30         492,058        538,114   

Other non-current liabilities

     32,33         45,814        50,076   
     

 

 

   

 

 

 

Total Non-Current Liabilities

        7,941,900        7,950,798   
     

 

 

   

 

 

 

Total Liabilities

        13,161,897        13,207,291   
     

 

 

   

 

 

 

Shareholders’ Equity

       

Share capital

     1,22         44,639        44,639   

Capital surplus and others

     22,23,24         191,684        189,510   

Retained earnings

     25         15,214,203        15,007,627   

Reserves

     26         (232,405     9,303   
     

 

 

   

 

 

 

Equity attributable to owners of the Parent Company

        15,218,121        15,251,079   

Non-controlling interests

        149,372        123,017   
     

 

 

   

 

 

 

Total Shareholders’ Equity

        15,367,493        15,374,096   
     

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

      W  28,529,390        28,581,387   
     

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Income

For the three and six-month periods ended June 30, 2016 and 2015

 

(In millions of won except for per share data)           June 30, 2016     June 30, 2015  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
    Six-month
period ended
 

Operating revenue:

     4,34            

Revenue

      W  4,267,289        8,495,752        4,255,739        8,496,025   

Operating expenses:

     34            

Labor

        465,712        942,586        543,881        1,018,862   

Commissions

        1,327,035        2,650,479        1,262,168        2,609,298   

Depreciation and amortization

     4         721,250        1,436,602        703,859        1,396,447   

Network interconnection

        255,485        519,356        239,857        474,109   

Leased line

        108,919        210,971        93,393        196,390   

Advertising

        108,071        195,579        120,452        197,438   

Rent

        130,777        258,801        117,037        239,488   

Cost of products that have been resold

        451,586        878,180        449,918        940,850   

Others

     27         291,090        593,707        312,296        607,617   
     

 

 

   

 

 

   

 

 

   

 

 

 
        3,859,925        7,686,261        3,842,861        7,680,499   
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     4         407,364        809,491        412,878        815,526   

Finance income

     4,29         22,210        376,404        29,053        61,302   

Finance costs

     4,29         (74,340     (151,938     (89,690     (171,040

Gains relating to investments in subsidiaries, associates and joint ventures, net

     1,4,11         41,899        116,808        208,066        452,323   

Other non-operating income

     4,28         9,625        41,324        7,176        15,363   

Other non-operating expenses

     4,28         (42,008     (91,215     (51,891     (97,869
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     4         364,750        1,100,874        515,592        1,075,605   

Income tax expense

     30         73,760        237,586        117,704        234,970   
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

      W 290,990        863,288        397,888        840,635   
     

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

           

Owners of the Parent Company

      W 290,135        861,982        395,839        840,334   

Non-controlling interests

        855        1,306        2,049        301   

Earnings per share

     31            

Basic and diluted earnings per share (in won)

      W 3,990        12,089        5,432        11,695   
     

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2016 and 2015

 

(In millions of won)           June 30, 2016     June 30, 2015  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
    Six-month
period ended
 

Profit for the period

      W 290,990        863,288        397,888        840,635   

Other comprehensive income (loss)

           

Items that will never be reclassified to profit or loss, net of taxes:

           

Remeasurement of defined benefit liabilities

     20         (9,025     (11,636     5,527        (3,092

Items that are or may be reclassified subsequently to profit or loss, net of taxes:

           

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

     26         (39,172     (190,549     71,167        53,048   

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

     26         (24,475     (31,154     23,435        27,880   

Net change in unrealized fair value of derivatives

     21,26         5,460        (5,929     (32,321     (20,673

Foreign currency translations differences for foreign operations

     26         6,250        (13,889     8,288        9,419   
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) for the period, net of taxes

        (60,962     (253,157     76,096        66,582   
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

      W 230,028        610,131        473,984        907,217   
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to:

           

Owners of the Parent Company

      W 229,285        608,770        469,790        904,733   

Non-controlling interests

        743        1,361        4,194        2,484   

See accompanying notes to the condensed consolidated interim financial statements.

 

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SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the six-month periods ended June 30, 2016 and 2015

 

(In millions of won)                                      
     Controlling Interest     Non-
controlling
interests
    Total equity  
     Share capital      Capital surplus
(deficit) and
others
    Retained
earnings
    Reserves     Sub-total      

Balance at January 1, 2015

   W 44,639         277,998        14,188,591        (4,489     14,506,739        741,531        15,248,270   

Total comprehensive income:

               

Profit for the period

     —           —          840,334        —          840,334        301        840,635   

Other comprehensive income (loss)

     —           —          (2,765     67,164        64,399        2,183        66,582   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —           —          837,569        67,164        904,733        2,484        907,217   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

               

Cash dividends

     —           —          (595,865     —          (595,865     (143     (596,008

Interest on hybrid bond

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

Treasury stocks

     —           412,072        —          —          412,072        —          412,072   

Changes in consolidation scope

     —           —          —          —          —          (5,226     (5,226

Changes in ownership in subsidiaries

     —           (27,615     (832     (3,286     (31,733     (608,585     (640,318
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        384,457        (605,117     (3,286     (223,946     (613,954     (837,900
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

   W 44,639         662,455        14,421,043        59,389        15,187,526        130,061        15,317,587   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2016

   W 44,639         189,510        15,007,627        9,303        15,251,079        123,017        15,374,096   

Total comprehensive income:

               

Profit for the period

     —           —          861,982        —          861,982        1,306        863,288   

Other comprehensive income (loss)

     —           —          (11,504     (241,708     (253,212     55        (253,157
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —           —          850,478        (241,708     608,770        1,361        610,131   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

               

Cash dividends

     —           —          (635,482     —          (635,482     (300     (635,782

Interest on hybrid bond

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

Changes in ownership in subsidiaries

     —           2,174        —          —          2,174        25,294        27,468   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —           2,174        (643,902     —          (641,728     24,994        (616,734
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

   W 44,639         191,684        15,214,203        (232,405     15,218,121        149,372        15,367,493   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six-month periods ended June 30, 2016 and 2015

 

(In millions of won)    Note      June 30,
2016
    June 30,
2015
 

Cash flows from operating activities:

       

Cash generated from operating activities:

       

Profit for the period

      W 863,288        840,635   

Adjustments for income and expenses

     36         1,525,247        1,479,292   

Changes in assets and liabilities related to operating activities

     36         (306,453     (786,942
     

 

 

   

 

 

 

Sub-total

        2,082,082        1,532,985   

Interest received

        23,107        25,052   

Dividends received

        93,948        59,349   

Interest paid

        (131,354     (137,412

Income tax paid

        (245,488     (65,923
     

 

 

   

 

 

 

Net cash provided by operating activities

        1,822,295        1,414,051   
     

 

 

   

 

 

 

Cash flows from investing activities:

       

Cash inflows from investing activities:

       

Decrease in short-term financial instruments, net

        145,880        27,448   

Collection of short-term loans

        90,162        203,599   

Decrease in long-term financial instruments

        27        3   

Proceeds from disposal of long-term investment securities

        225,531        116,256   

Proceeds from disposal of investments in associates and joint ventures

        10,769        176,037   

Proceeds from disposal of property and equipment

        8,878        13,772   

Proceeds from disposal of intangible assets

        5,666        1,101   

Proceeds from disposal of assets held for sale

        —          990   

Collection of long-term loans

        708        1,501   

Decrease in deposits

        12,823        10,618   

Proceeds from disposal of other non-current assets

        —          2,548   

Increase in cash due to acquisition of subsidiaries

        —          10,148   
  

 

 

   

 

 

 

Sub-total

        500,444        564,021   

Cash outflows for investing activities:

       

Increase in short-term investment securities, net

        (297,150     (69,842

Increase in short-term loans

        (102,342     (155,582

Increase in long-term loans

        (2,667     (10,583

Increase in long-term financial instruments

        (197     (5

Acquisition of long-term investment securities

        (20,093     (232,887

Acquisition of investments in associates and joint ventures

        (55,462     (20,570

Acquisition of property and equipment

        (842,174     (1,103,196

Acquisition of intangible assets

        (45,862     (39,935

Increase in deposits

        (11,173     (11,037

Increase in other non-current assets

        —          (436

Acquisition of businesses, net of cash acquired

        (4,498     (13,957
     

 

 

   

 

 

 

Sub-total

        (1,381,618     (1,658,030
     

 

 

   

 

 

 

Net cash used in investing activities

      W (881,174)        (1,094,009
     

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2016 and 2015

 

(In millions of won)    June 30,
2016
    June 30,
2015
 

Cash flows from financing activities:

    

Cash inflows from financing activities:

    

Proceeds from short-term borrowings, net

   W —          562,700   

Proceeds from issuance of debentures

     607,474        507,799   

Cash inflows from settlement of derivatives

     —          189   

Cash inflows related to equity interest transactions

     24,449        —     
  

 

 

   

 

 

 

Sub-total

     631,923        1,070,688   

Cash outflows for financing activities:

    

Decrease in short-term borrowings, net

     (175,000     —     

Repayments of long-term account payables-other

     (121,565     (190,603

Repayments of debentures

     (280,000     (370,000

Repayments of long-term borrowings

     (20,464     (14,953

Cash outflows from settlement of derivatives

     —          (474

Payments of finance lease liabilities

     (26     (1,789

Payments of dividends

     (635,482     (595,865

Payments of interest on hybrid bond

     (8,420     (8,420

Cash outflows related to equity interest transactions

     —          (218,394
  

 

 

   

 

 

 

Sub-total

     (1,240,957     (1,400,498
  

 

 

   

 

 

 

Net cash used in financing activities

     (609,034     (329,810
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     332,087        (9,768

Cash and cash equivalents at beginning of the period

     768,922        834,429   

Effects of exchange rate changes on cash and cash equivalents

     (1,448     4,998   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   W 1,099,561        829,659   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

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 provide cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications services in Korea. The Head office of the Parent Company is located at 65, Eulji-ro, Jung-gu, Seoul, Korea.

The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of June 30, 2016, the Parent Company’s total issued shares are held by the following shareholders:

 

     Number of
shares
     Percentage of
total shares issued (%)
 

SK Holdings Co., Ltd.

     20,363,452         25.22   

National Pension Service, other institutional investors and other minority stockholders

     50,245,708         62.23   

Treasury stock

     10,136,551         12.55   
  

 

 

    

 

 

 
     80,745,711         100.00   
  

 

 

    

 

 

 

These condensed consolidated interim financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individuals 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 June 30, 2016 and December 31, 2015 is as follows:

 

               Ownership (%)  

Subsidiary

   Location   

Primary business

   June 30,
2016
     December 31,
2015
 

SK Telink Co., Ltd.

   Korea    Telecommunication and MVNO (Mobile Virtual Network Operator) service      83.5         83.5   

M&Service Co., Ltd.

   Korea    Database and internet website service      100.0         100.0   

SK Communications Co., Ltd.

   Korea    Internet website services      64.5         64.5   

Stonebridge Cinema Fund

   Korea    Investment      55.2         55.2   

Commerce Planet Co., Ltd.(*6)

   Korea    Online shopping mall operation agency      —           100.0   

SK Broadband Co., Ltd.(*1)

   Korea    Telecommunication services      100.0         100.0   

K-net Culture and Contents Venture Fund

   Korea    Investment      59.0         59.0   

Fitech Focus Limited Partnership II

   Korea    Investment      66.7         66.7   

Open Innovation Fund

   Korea    Investment      98.9         98.9   

PS&Marketing Corporation

   Korea    Communications device retail business      100.0         100.0   

Service Ace Co., Ltd.

   Korea    Customer center management service      100.0         100.0   

Service Top Co., Ltd.

   Korea    Customer center management service      100.0         100.0   

Network O&S Co., Ltd.

   Korea    Base station maintenance service      100.0         100.0   

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

1. Reporting Entity, Continued

 

  (2) List of subsidiaries, Continued

 

The list of subsidiaries as of June 30, 2016 and December 31, 2015 is as follows, Continued:

 

               Ownership (%)  

Subsidiary

   Location   

Primary business

   June 30,
2016
     December 31,
2015
 

SK Planet Co., Ltd.

   Korea    Telecommunication service      100.0         100.0   

Neosnetworks Co.,Ltd.(*2)

   Korea    Security systems service      83.9         83.9   

IRIVER LIMITED(*3)

   Korea    Manufacturing digital audio players and other portable media devices.      48.9         49.0   

iriver Enterprise Ltd.

   Hong Kong    Management of Chinese subsidiaries      100.0         100.0   

iriver America Inc.

   USA    Marketing and sales in North America      100.0         100.0   

iriver Inc.

   USA    Marketing and sales in North America      100.0         100.0   

iriver China Co., Ltd.

   China    Sales and manufacturing MP3 and 4 in China      100.0         100.0   

Dongguan iriver Electronics Co., Ltd.

   China    Sales and manufacturing e-book in China      100.0         100.0   

groovers Japan Co., Ltd.

   Japan    Digital music contents sourcing and distribution service      100.0         100.0   

SK Telecom China Holdings Co., Ltd.

   China    Investment      100.0         100.0   

SK Global Healthcare Business Group., Ltd.

   Hong Kong    Investment      100.0         100.0   

SK Planet Japan, K. K.

   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      100.0         100.0   

SKT Americas, Inc.

   USA    Information gathering and consulting      100.0         100.0   

SKP America LLC.

   USA    Digital contents sourcing service      100.0         100.0   

YTK Investment Ltd.

   Cayman    Investment      100.0         100.0   

Atlas Investment

   Cayman    Investment      100.0         100.0   

SK Telecom Innovation Fund, L.P. (formerly, Technology Innovation Partners, LP.) (*5)

   USA    Investment      100.0         100.0   

SK Telecom China Fund I L.P.

   Cayman    Investment      100.0         100.0   

Entrix Co., Ltd.

   Korea    Cloud streaming services      100.0         100.0   

SK techx Co., Ltd.(*6)

   Korea    System software development and supply      100.0         —     

One Store Co., Ltd.(*6)

   Korea    Telecommunication service      65.5         —     

shopkick Management Company, Inc.(*4)

   USA    Investment      100.0         95.2   

shopkick, Inc.

   USA    Mileage-based online transaction application development      100.0         100.0   

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

1. Reporting Entity, Continued

 

  (2) List of subsidiaries, Continued

 

(*1) On November 2, 2015, the board of directors of the Parent Company entered into a share purchase agreement to acquire 30%(23,234,060 shares) of the issued and outstanding common shares of CJ Hello Vision Co., Ltd. (“CJ Hello Vision”) from CJ O Shopping Co., Ltd. (“CJ O Shopping”) for an aggregate purchase price of W 500,000 million. The agreement states government’s approval as prerequisite.

On November 2, 2015, the board of directors of SK Broadband Co., Ltd. (“SK Broadband”), a subsidiary of the Parent Company, approved the merger of SK Broadband into CJ Hello Vision, and then SK Broadband entered into a merger agreement with CJ Hello Vision with government’s approval as prerequisite.

After the announcement of disapproval of proposed takeover of CJ Hello Vision by the Fair Trade Commission (FTC) on July 18, 2016, the Parent Company announced the revocation of share purchase agreement to CJ O Shopping while SK Broadband withdrew from merger agreement with CJ Hello Vision on July 25, 2016 as execution of the share purchase agreement with CJ O Shopping and merger agreement between SK Broadband and CJ Hello Vision became objectively impossible.

 

(*2) Due to the shareholders’ agreement which grants put option to the non-controlling shareholders, this entity is consolidated as a wholly owned subsidiary in the consolidated financial statements.
(*3) Although the Group has less than 50% of the voting rights of IRIVER LIMITED, the Group is considered to have control over IRIVER LIMITED since the Group holds significantly more voting rights than any other vote holder or organized group of vote holders, and the other shareholdings are widely dispersed.
(*4) During the six-month period ended June 30, 2016, the Group acquired all of the non-controlling interests in shopkick Management Company, Inc.
(*5) Changed its name to SK Telecom Innovation Fund, L.P. during the six-month period ended June 30, 2016.
(*6) Changes in subsidiaries are explained in Note 1-(4).

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

1. Reporting Entity, Continued

 

  (3) Condensed financial information of subsidiaries

Condensed financial information of subsidiaries as of and for the six-month period ended June 30, 2016 is as follows:

 

(In millions of won)  

Subsidiary

   Total
assets
     Total
liabilities
     Total
equity
    Revenue      Profit
(loss)
 

SK Telink Co., Ltd.

   W 339,484         107,217         232,267        207,436         39,916   

M&Service Co., Ltd.

     94,720         47,768         46,952        78,598         1,334   

SK Communications Co., Ltd.

     142,926         31,335         111,591        30,372         (5,908

SK Broadband Co., Ltd.

     3,341,126         2,208,962         1,132,164        1,422,134         9,013   

PS&Marketing Corporation

     452,869         243,020         209,849        809,925         634   

Service Ace Co., Ltd.

     69,407         36,416         32,991        99,194         2,387   

Service Top Co., Ltd.

     67,195         40,587         26,608        94,106         3,497   

Network O&S Co., Ltd.

     65,064         32,331         32,733        99,444         3,272   

SK Planet Co., Ltd.(*1)

     2,065,256         761,070         1,304,186        616,565         189,621   

IRIVER LIMITED(*2)

     59,290         14,052         45,238        27,462         (3,111

SKP America LLC.

     410,011         2         410,009        —           1,086   

SK techx Co., Ltd.

     194,844         40,012         154,832        76,783         20,942   

One Store Co., Ltd.

     145,400         39,573         105,827        34,529         (8,371

shopkick Management Company, Inc.

     328,457         —           328,457        —           (87

shopkick, Inc.

     30,235         33,337         (3,102     17,416         (20,863

 

(*1) The condensed financial information of SK Planet Co., Ltd includes pre-merger income and expenses of Commerce Planet Co., Ltd. prior to the merger date of February 1, 2016.
(*2) The condensed financial information of IRIVER LIMITED includes financial information of iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., Dongguan iriver Electronics Co., Ltd. and groovers Japan Co., Ltd., subsidiaries of IRIVER LIMITED.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

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, 2015 is as follows:

 

(In millions of won)  

Subsidiary

   Total
assets
     Total
liabilities
     Total
equity
    Revenue      Profit
(loss)
 

SK Telink Co., Ltd.

   W 309,955         113,878         196,077        431,368         55,781   

M&Service Co., Ltd.

     89,452         42,414         47,038        143,255         5,549   

SK Communications Co., Ltd.

     152,496         35,014         117,482        80,147         (14,826

SK Broadband Co., Ltd.

     3,291,707         2,170,484         1,121,223        2,731,344         10,832   

PS&Marketing Corporation

     509,580         300,364         209,216        1,791,944         4,835   

Service Ace Co., Ltd.

     65,424         34,240         31,184        206,338         2,778   

Service Top Co., Ltd.

     61,897         38,482         23,415        197,092         4,396   

Network O&S Co., Ltd.

     77,426         48,069         29,357        210,676         6,466   

SK Planet Co., Ltd.

     2,406,988         784,631         1,622,357        1,624,630         (75,111

IRIVER LIMITED(*)

     60,434         12,377         48,057        55,637         635   

SKP America LLC.

     380,141         —           380,141        —           791   

Entrix Co., Ltd.

     30,876         3,186         27,690        4,895         (1,826

shopkick Management Company, Inc.

     306,248         7         306,241        7         (2,455

shopkick, Inc.

     25,388         32,243         (6,855     35,851         (52,390

 

(*) The condensed financial information of IRIVER LIMITED includes financial information of iriver Enterprise Ltd., iriver America Inc., iriver Inc., iriver China Co., Ltd., Dongguan iriver Electronics Co., Ltd. and groovers Japan Co., Ltd., subsidiaries of IRIVER LIMITED.

 

  (4) Changes in subsidiaries

The list of subsidiaries that were newly included in consolidation during the six-month period ended June 30, 2016 is as follows:

 

Subsidiary

  

Reason

SK techx Co., Ltd.    Established by spin-off from SK Planet Co., Ltd., a subsidiary of the Parent Company.
One Store Co., Ltd.    Established by spin-off from SK Planet Co., Ltd., a subsidiary of the Parent Company.

The following subsidiary was excluded from the Group during the six-month period ended June 30, 2016:

 

Subsidiary

  

Reason

Commerce Planet Co., Ltd.    Merged into SK Planet Co., Ltd., a subsidiary of the Parent Company

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

1. Reporting Entity, Continued

 

  (5) The information of significant non-controlling interests of the Group as of and for the six-month period ended June 30, 2016, and as of and for the year ended December 31, 2015 is as follows. There were no dividends paid during the six-month period ended June 30, 2016 and the year ended December 31, 2015 by the subsidiary of which non-controlling interests are significant.

 

(In millions of won)    SK Communications Co., Ltd.  
     June 30, 2016      December 31, 2015  

Ownership of non-controlling interests (%)

     35.46         35.46   

Current assets

   W 83,082         95,662   

Non-current assets

     59,844         56,834   

Current liabilities

     (29,368      (33,306

Non-current liabilities

     (1,967      (1,708

Net assets

     111,591         117,482   

Carrying amount of non-controlling interests

     39,567         41,659   

Revenue

   W 30,372         80,147   

Loss for the period

     5,908         14,826   

Total comprehensive loss

     5,891         16,698   

Loss attributable to non-controlling interests

     2,095         5,254   

Net cash used in operating activities

   W (2,916      (2,706

Net cash provided by investing activities

     8,681         8,723   

Net cash provided by financing activities

     —           —     

Net increase in cash and cash equivalents

     5,765         6,017   

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

2. Basis of Preparation

 

  (1) Statement of compliance

These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting , as part of the period covered by the Group’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since December 31, 2015. These condensed consolidated interim financial statements do not include all of the disclosures required for full annual financial statements.

 

  (2) Use of estimates and judgments

1) Critical judgments, assumptions and estimation uncertainties

The preparation of the condensed consolidated interim 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.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2015.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

2. Basis of Preparation, Continued

 

  (2) Use of estimates and judgments, Continued

 

2) Fair value measurement

Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executive.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

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

 

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

 

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

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 33.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

3. Significant Accounting Policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2015.

 

4. Operating Segments

The Group’s operating segments have been determined to be each business unit which provides different 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. The other operating segments, which include the Group’s internet portal services and other operations, do not meet the quantitative thresholds separately to be considered reportable segments and are collectively presented as Others.

 

  (1) Details of the segment information as of and for the six-month period ended June 30, 2016 are as follows:

 

(In millions of won)  
     Cellular
services
     Fixed-line
Telecommunication
services
     Others     Sub-total      Adjustments     Total  

Total revenue

   W 7,292,918         1,629,570         928,512        9,851,000         (1,355,248     8,495,752   

Inter-segment revenue

     793,473         299,906         261,869        1,355,248         (1,355,248     —     

External revenue

     6,499,445         1,329,664         666,643        8,495,752         —          8,495,752   

Depreciation and amortization

     1,100,243         272,026         64,333        1,436,602         —          1,436,602   

Operating income (loss)

     920,427         64,388         (175,324     809,491         —          809,491   

Finance income and costs, net

                  224,466   

Gain related to investments in associates and joint ventures, net

                  116,808   

Other non-operating income and expenses, net

                  (49,891
               

 

 

 

Profit before income tax

                  1,100,874   

Total assets

     23,836,373         3,680,610         2,865,977        30,382,960         (1,853,570     28,529,390   

Total liabilities

     9,731,374         2,316,179         987,201        13,034,754         127,143        13,161,897   

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

4. Operating Segments, Continued

 

  (2) Details of the segment information as of and for the six-month period ended June 30, 2015 are as follows:

 

(In millions of won)  
     Cellular
Services
     Fixed-line
Telecommunication
services
     Others     Sub-total      Adjustments     Total  

Total revenue

   W 7,469,465         1,533,405         997,767        10,000,637         (1,504,612     8,496,025   

Inter-segment revenue

     847,372         301,176         356,064        1,504,612         (1,504,612     —     

External revenue

     6,622,093         1,232,229         641,703        8,496,025         —          8,496,025   

Depreciation and amortization

     1,066,285         261,845         68,317        1,396,447         —          1,396,447   

Operating income (loss)

     815,120         42,805         (42,399     815,526         —          815,526   

Finance income and costs, net

                  (109,738

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

                  452,323   

Other non-operating income and expense, net

                  (82,506
               

 

 

 

Profit before income tax

                  1,075,605   

Total assets

     23,580,421         3,516,376         3,214,927        30,311,724         (2,270,218     28,041,506   

Total liabilities

     9,483,378         2,242,744         897,624        12,623,746         100,173        12,723,919   

Intersegment sales and purchases are conducted on an arms-length basis and eliminated on consolidation. The Group principally operates its businesses in Korea and the revenue amounts earned outside of Korea are immaterial. Therefore, no entity-wide geographical information is presented.

No single customer contributed 10% or more to the Group’s total revenue for the six-month periods ended June 30, 2016 and 2015.

 

5. Restricted Deposits

Deposits which are restricted in use as of June 30, 2016 and December 31, 2015 are summarized as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Short-term financial instruments(*)

   W 80,625         82,469   

Long-term financial instruments(*)

     10,598         10,596   
  

 

 

    

 

 

 
   W 91,223         93,065   
  

 

 

    

 

 

 

 

(*) Financial instruments include charitable trust fund established by the Group. Profits from the fund are donated to charitable institutions. As of June 30, 2016, the funds cannot be withdrawn.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

6. Trade and Other Receivables

 

  (1) Details of trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)    June 30, 2016  
     Gross
amount
     Allowances for
doubtful
accounts
     Carrying
amount
 

Current assets:

        

Accounts receivable - trade

   W 2,451,291         (251,308      2,199,983   

Short-term loans

     66,784         (597      66,187   

Accounts receivable - other

     1,350,104         (76,698      1,273,406   

Accrued income

     12,645         —           12,645   

Others

     1,887         —           1,887   
  

 

 

    

 

 

    

 

 

 
       3,882,711         (328,603      3,554,108   

Non-current assets:

        

Long-term loans

     89,066         (27,494      61,572   

Long-term accounts receivable - other

     47,983         —           47,983   

Guarantee deposits

     298,232         —           298,232   

Long-term accounts receivable - trade

     28,964         (535      28,429   
  

 

 

    

 

 

    

 

 

 
     464,245         (28,029      436,216   
  

 

 

    

 

 

    

 

 

 
   W 4,346,956         (356,632      3,990,324   
  

 

 

    

 

 

    

 

 

 

 

(In millions of won)    December 31, 2015  
     Gross
amount
     Allowances for
doubtful
accounts
     Carrying
amount
 

Current assets:

        

Accounts receivable - trade

   W 2,583,558         (238,691      2,344,867   

Short-term loans

     54,377         (482      53,895   

Accounts receivable - other

     752,731         (78,992      673,739   

Accrued income

     10,753         —           10,753   

Others

     1,861         —           1,861   
  

 

 

    

 

 

    

 

 

 
       3,403,280         (318,165      3,085,115   

Non-current assets:

        

Long-term loans

     87,501         (25,047      62,454   

Long-term accounts receivable - other

     2,420         —           2,420   

Guarantee deposits

     297,281         —           297,281   

Long-term accounts receivable - trade

     46,047         (804      45,243   
  

 

 

    

 

 

    

 

 

 
     433,249         (25,851      407,398   
  

 

 

    

 

 

    

 

 

 
   W 3,836,529         (344,016      3,492,513   
  

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

6. Trade and Other Receivables, Continued

 

  (2) Changes in allowances for doubtful accounts of trade and other receivables during the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Balance at January 1

   W 344,016         328,191   

Increase of bad debt allowances

     26,052         39,069   

Write-offs

     (29,775      (38,911

Others

     16,339         14,250   
  

 

 

    

 

 

 

Balance at June 30

   W 356,632         342,599   
  

 

 

    

 

 

 

 

  (3) Details of overdue but not impaired, and impaired trade and other receivables as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)    June 30, 2016      December 31, 2015  
     Accounts
receivable -

trade
     Other
receivables
     Accounts
receivable -

trade
     Other
receivables
 

Neither overdue nor impaired

   W 1,670,307         1,698,745         1,841,442         1,053,096   

Overdue but not impaired

     56,908         4,886         77,008         5,155   

Impaired

     753,040         163,070         711,155         148,673   
  

 

 

    

 

 

    

 

 

    

 

 

 
       2,480,255         1,866,701         2,629,605         1,206,924   

Allowance for doubtful accounts

     (251,843      (104,789      (239,495      (104,521
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,228,412         1,761,912         2,390,110         1,102,403   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

  (4) The aging of overdue but not impaired accounts receivable as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)                            
     June 30, 2016      December 31, 2015  
     Accounts
receivable -

trade
     Other
receivables
     Accounts
receivable -

trade
     Other
receivables
 

Less than 1 month

   W 22,464         4,060         20,908         2,770   

1 ~ 3 months

       14,572         2         21,941         924   

3 ~ 6 months

     2,380         1         7,043         265   

More than 6 months

     17,492         823         27,116         1,196   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 56,908         4,886         77,008         5,155   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

7. Inventories

Details of inventories as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)  
     June 30, 2016      December 31, 2015  
   Acquisition
cost
     Write-down     Carrying
amount
     Acquisition
cost
     Write-down     Carrying
amount
 

Merchandise

   W 246,014         (3,222     242,792         247,294         (5,064     242,230   

Finished goods

     2,174         (171     2,003         3,530         (179     3,351   

Work in process

     2,268         (198     2,070         1,976         (149     1,827   

Raw materials and supplies

     25,291         (1,285     24,006         27,296         (1,148     26,148   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   W   275,747         (4,876     270,871         280,096         (6,540     273,556   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

8. Investment Securities

 

  (1) Details of short-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Beneficiary certificates(*)

   W   346,694         92,262   

 

(*) The income distributable in relation to beneficiary certificates as of June 30, 2016 were accounted for as accrued income.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

8. Investment Securities, Continued

 

  (2) Details of long-term investment securities as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Equity securities:

     

Marketable equity securities(*)

   W 726,568         897,958   

Unlisted equity securities

     103,239         96,899   

Equity investments

     213,801         207,916   
  

 

 

    

 

 

 
       1,043,608         1,202,773   

Debt securities:

     

Investment bonds

     3,053         4,453   
  

 

 

    

 

 

 
   W 1,046,661         1,207,226   
  

 

 

    

 

 

 

 

(*) During the six-month period ended June 30, 2016, the Group sold 3,793,756 shares of Loen Entertainment, Inc. to Kakao Corp. and received 1,357,376 shares of Kakao Corp. and W 218,037 million of cash in return.

 

9. Assets classified as Held for Sale

Pursuant to the disposal plan for the Group’s entire ownership interests in Candle Media Co., Ltd. approved during the six-month period ended June 30, 2016, the investment in the associate was classified as held for sale and was measured at the lower of carrying amount and fair value less cost to sell as of June 30, 2016. The disposal agreement was entered into on July 5, 2016.

 

(In millions of won)       
     June 30, 2016  

Candle Media Co., Ltd.

   W 18,860   

 

10. Business Combinations under common control

LBS (Location based service) division and mobile phone verification services business, spun-off from SK Planet Co., Ltd., were acquired by the Parent Company during the six-month period ended June 30, 2016. Since this is considered a business combination of entities under common control, there is no impact on the Group’s consolidated financial statements.

 

23


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Investments in Associates and Joint Ventures

 

  (1) Investments in associates and joint ventures accounted for using the equity method as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)           June 30, 2016      December 31, 2015  
     Country      Ownership
percentage
     Carrying
amount
     Ownership
percentage
     Carrying
amount
 

Investments in associates:

              

SK China Company Ltd.(*1)

     China         9.6       W 45,037         9.6       W 43,814   

Korea IT Fund(*2)

     Korea         63.3         256,428         63.3         260,456   

KEB HanaCard Co., Ltd.(*1)

     Korea         15.0         260,082         15.0         254,177   

Candle Media Co., Ltd.(*3)

     Korea         —           —           35.1         20,144   

NanoEnTek, Inc.

     Korea         28.5         41,130         28.6         45,008   

SK Industrial Development China Co., Ltd.

     Hongkong         21.0         75,933         21.0         86,324   

SK Technology Innovation Company

     Cayman         49.0         45,694         49.0         45,891   

HappyNarae Co., Ltd.

     Korea         42.5         15,444         42.5         17,095   

SK hynix Inc.

     Korea         20.1         5,670,060         20.1         5,624,493   

SK MENA Investment B.V.

     Netherlands         32.1         14,860         32.1         14,929   

SKY Property Mgmt. Ltd.

     Virgin Island         33.0         265,606         33.0         251,166   

Xinan Tianlong Science and Technology Co., Ltd.

     China         49.0         25,609         49.0         25,767   

Daehan Kanggun BcN Co., Ltd. and others

             —           151,317         —           161,058   
        

 

 

       

 

 

 

Sub-total

             6,867,200              6,850,322   
        

 

 

       

 

 

 

Investments in joint ventures:

              

Dogus Planet, Inc.(*4)

     Turkey         50.0         17,764         50.0         15,118   

PT. Melon Indonesia

     Indonesia         49.0         4,949         49.0         4,339   

Celcom Planet(*2,4)

     Malaysia         51.0         894         51.0         3,406   

PT XL Planet Digital(*4)

     Indonesia         50.0         38,307         50.0         23,108   
        

 

 

       

 

 

 

Sub-total

           61,914            45,971   
        

 

 

       

 

 

 

Total

         W 6,929,114          W 6,896,293   
        

 

 

       

 

 

 

 

24


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Investments in Associates and Joint Ventures, Continued

 

  (1) Investments in associates and joint ventures accounted for using the equity method as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(*1) Classified as investments in associates as the Group can exercise significant influence through its right to appoint the members of board of directors even though the Group has less than 20% of equity interests.
(*2) Classified as investment in associates as the Group does not have control over investments under the agreement.
(*3) During the six-month periods ended June 30, 2016, the Group reclassified its investments in Candle Media Co., Ltd. to assets classified as held for sale.
(*4) The carrying amount has been increased due to additional investment during the six-month period ended June 30, 2016. There was no change in ownership interests after additional investment.

 

  (2) The market price of investments in listed associates as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, except for share data)  
     June 30, 2016      December 31, 2015  
     Market
value per
share
(In won)
     Number of
shares
     Market
price
     Market
value per
share

(In won)
     Number of
shares
     Market
price
 

NanoEnTek, Inc.

   W 5,990         6,960,445         41,693         7,300         6,960,445         50,811   

SK hynix Inc.

       32,400         146,100,000         4,733,640         30,750         146,100,000         4,492,575   

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Investments in Associates and Joint Ventures, Continued

 

  (3) The financial information of the significant investees as of and for the six-month period ended June 30, 2016 and as of and for the year ended December 31, 2015 are as follows:

 

(In millions of won)    As of and for the six-month period ended June 30, 2016  
     SK hynix
Inc.
     KEB
HanaCard
Co., Ltd.
     SKY
Property
Mgmt. Ltd.
     Korea IT
Fund
 

Current assets

   W 8,356,317         6,390,044         260,170         154,034   

Non-current assets

       20,973,135         378,445         470,589         250,853   

Current liabilities

     3,163,858         1,141,130         97,011         —     

Non-current liabilities

     4,464,772         4,252,566         45,169         —     

Revenue

     7,596,644         690,950         35,697         15,413   

Profit for the period

     730,334         38,775         49,497         11,750   

Other comprehensive loss

     (67,037      (708      (5,293      (8,506

Total comprehensive income

     663,297         38,067         44,204         3,244   

 

(In millions of won)    As of and for the year ended December 31, 2015  
     SK hynix
Inc.
     KEB
HanaCard
Co., Ltd.
     SKY
Property
Mgmt. Ltd.
     Korea IT
Fund
 

Current assets

   W 9,760,030         6,228,076         176,517         152,070   

Non-current assets

       19,917,876         509,579         650,661         259,176   

Current liabilities

     4,840,698         1,103,873         242,002         —     

Non-current liabilities

     3,449,505         4,297,289         39,154         —     

Revenue

     18,797,998         1,472,830         89,161         30,875   

Profit for the period

     4,323,595         10,119         19,722         21,655   

Other comprehensive income (loss)

     40,215         (547      (11,872      15,651   

Total comprehensive income

     4,363,810         9,572         7,850         37,306   

 

26


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Investments in Associates and Joint Ventures, Continued

 

  (4) The condensed financial information of joint ventures as of and for the six-month period ended June 30, 2016 and as of and for the year ended December 31, 2015 are as follows:

 

(In millions of won)    As of and for the six-month period ended June 30, 2016  
     Dogus Planet,
Inc.
     PT. Melon
Indonesia
     PT XL
Planet
Digital
     Celcom
Planet
 

Current assets

   W   46,543         14,695         44,663         11,816   

Cash and cash equivalents

     44,520         5,532         40,086         9,360   

Non-current assets

     17,474         1,951         46,304         2,664   

Current liabilities

     28,404         6,385         13,330         12,727   

Accounts payable, other payables and provision

     4,333         2,854         6,878         7,762   

Non-current liabilities

     85         110         1,022         —     

Revenue

     28,490         12,744         4,751         2,608   

Depreciation and amortization

     (2,799      (67      (1,306      (1,078

Interest income

     2,617         100         101         135   

Interest expense

     (1,872      —           —           —     

Income tax benefit

     —           —           618         —     

Profit (loss) for the period

     (11,726      870         (24,744      (22,255

Total comprehensive income(loss)

     (11,726      870         (24,744      (22,255
(In millions of won)    As of and for the year ended December 31, 2015  
     Dogus Planet,
Inc.
     PT. Melon
Indonesia
     PT XL
Planet
Digital
     Celcom
Planet
 

Current assets

   W   46,248         12,805         9,500         21,416   

Cash and cash equivalents

     8,091         4,027         5,034         19,371   

Non-current assets

     18,088         2,657         46,013         5,519   

Current liabilities

     34,022         6,416         8,583         20,257   

Accounts payable, other payables and provision

     4,317         3,396         3,648         5,889   

Non-current liabilities

     78         140         714         —     

Revenue

     38,944         17,094         5,536         1,647   

Depreciation and amortization

     (5,318      (132      (2,746      (1,332

Interest income

     465         288         525         345   

Income tax benefit

     —           —           7,025         —     

Profit (loss) for the period

     (32,713      1,853         (21,381      (25,881

Total comprehensive income(loss)

     (32,713      1,853         (21,381      (25,881

 

27


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Investments in Associates and Joint Ventures, Continued

 

  (5) Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016  
     Net assets      Ownership
interests
(%)
     Net assets
attributable to
the ownership
interests
     Goodwill      Carrying
amount
 

Associates:

              

SK hynix Inc.(*1,2)

   W   21,697,159         20.1         4,490,006         1,180,054         5,670,060   

KEB HanaCard Co., Ltd.

     1,374,793         15.0         206,219         53,863         260,082   

SKY Property Mgmt. Ltd.(*1)

     582,803         33.0         192,325         73,281         265,606   

Korea IT Fund

     404,887         63.3         256,428         —           256,428   
(In millions of won)              
     December 31, 2015  
     Net assets      Ownership
interests
(%)
     Net assets
attributable to
the ownership
interests
     Goodwill      Carrying
amount
 

Associates:

              

SK hynix Inc.(*1,2)

   W   21,386,863         20.1         4,425,794         1,198,699         5,624,493   

KEB HanaCard Co., Ltd.

     1,336,493         15.0         200,474         53,703         254,177   

SKY Property Mgmt. Ltd.(*1)

     537,847         33.0         177,490         73,676         251,166   

Korea IT Fund

     411,246         63.3         260,456         —           260,456   

 

(*1) Net assets of these entities represent net assets excluding their non-controlling interests.
(*2) The ownership interest is based on the number of shares owned by the Parent Company for the total shares issued by the investee company. The Group applied the equity method using the effective ownership interest of 20.69% which is based on the number of shares owned by the Parent Company for the total issued shares outstanding less investee’s treasury shares.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. 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 six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended June 30, 2016  
     Beginning
balance
     Acquisition
and
Disposal
    Share of
profits
(losses)
    Other
comprehensive
income
(loss)
    Other
decrease
    Ending
balance
 

Investments in associates:

             

SK China Company Ltd.

   W   43,814         —          1,941        (718     —          45,037   

Korea IT Fund(*)

     260,456         —          7,442        (5,388     (6,082     256,428   

KEB HanaCard Co., Ltd.

     254,177         —          5,976        (71     —          260,082   

Candle Media Co., Ltd.

     20,144         —          (673     (611     (18,860     —     

NanoEnTek, Inc.

     45,008         —          (2,655     (1,223     —          41,130   

SK Industrial Development China Co., Ltd.

     86,324         —          (5,715     (4,676     —          75,933   

SK Technology Innovation Company

     45,891         —          90        (287     —          45,694   

HappyNarae Co., Ltd.

     17,095         —          (1,609     (42     —          15,444   

SK hynix Inc.(*)

     5,624,493         —          132,490        (13,873     (73,050     5,670,060   

SK MENA Investment B.V.

     14,929         —          22        (91     —          14,860   

SKY Property Mgmt. Ltd.

     251,166         —          15,590        (1,150     —          265,606   

Xian Tianlong Science and Technology Co., Ltd

     25,767         —          (158     —          —          25,609   

Others

     161,058         (4,019     (5,603     563        (682     151,317   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     6,850,322         (4,019     147,138        (27,567     (98,674     6,867,200   

Investments in joint ventures:

  

          

Dogus Planet, Inc.

     15,118         12,131        (5,863     (3,622     —          17,764   

PT. Melon Indonesia

     4,339         —          426        184        —          4,949   

Celcom Planet

     3,406         8,838        (11,350     —          —          894   

PT XL Planet Digital

     23,108         27,571        (12,372     —          —          38,307   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     45,971         48,540        (29,159     (3,438     —          61,914   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   W   6,896,293         44,521        117,979        (31,005     (98,674     6,929,114   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Dividends received from the associate are deducted from the carrying amount during the six-month period ended June 30, 2016.

 

29


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. 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 six-month periods ended June 30, 2016 and 2015 are as follows, Continued:

 

(In millions of won)    For the six-month period ended June 30, 2015  
     Beginning
balance
     Acquisition
and
Disposal
    Share of
profits
(losses)
    Other
comprehensive
income
(loss)
    Other
increase
(decrease)
    Ending
balance
 

Investments in associates

             

SK China Company Ltd.

   W   35,817         —          (1,093     3,836        —          38,560   

Korea IT Fund(*)

     240,676         —          5,041        (1,444     (2,103     242,170   

KEB HanaCard Co., Ltd.

     425,140         (174,475     2,481        561        —          253,707   

Candle Media Co., Ltd.

     19,486         —          259        21        —          19,766   

NanoEnTek, Inc.

     36,527         —          (848     175        —          35,854   

SK Industrial Development China Co., Ltd.

     79,394         —          (587     1,854        —          80,661   

Packet One Network

     53,670         —          (8,714     (565     —          44,391   

SK Technology Innovation Company

     44,052         —          (1,970     2,806        —          44,888   

HappyNarae Co., Ltd.

     15,551         —          808        (91     —          16,268   

SK hynix Inc.(*)

     4,849,159         —          473,132        14,831        (43,830     5,293,292   

SK MENA Investment B.V.

     14,015         —          (1     312        —          14,326   

SKY Property Mgmt. Ltd.

     248,534         —          3,939        4,424        —          256,897   

Xian Tianlong Science and Technology Co., Ltd.

     25,874         —          (1,254     —          —          24,620   

Others(*)

     158,725         840        (7,678     720        7,884        160,491   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     6,246,620         (173,635     463,515        27,440        (38,049     6,525,891   

Investments in joint ventures

  

          

Dogus Planet, Inc.

     11,441         4,389        (7,516     681        —          8,995   

PT. Melon Indonesia

     3,564         —          414        (172     —          3,806   

Television Media Korea Ltd.

     6,944         —          (232     —          —          6,712   

Celcom Planet

     16,605         —          (4,156     —          —          12,449   

PT XL Planet Digital

     12,914         15,341        (4,341     —          —          23,914   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     51,468         19,730        (15,831     509        —          55,876   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   W   6,298,088         (153,905     447,684        27,949        (38,049     6,581,767   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) Dividends received from the associate are deducted from the carrying amount during the six-month period ended June 30, 2015.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

11. Investments in Associates and Joint Ventures, Continued

 

  (7) The Group discontinued the application of the equity method for the following investees due to the carrying amount of the Group’s share being reduced to zero. The details of unrecognized accumulated equity losses as of June 30, 2016 are as follows:

 

(In millions of won)    Unrealized loss      Unrealized change in equity  
     Period ended
June 30, 2016
     Accumulated      Period ended
June 30, 2016
     Accumulated  

Wave City Development Co., Ltd.

   W   172         4,710         —           —     

SK Wyverns Baseball Club Co., Ltd. and others

     —           6,510         —           365   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 172         11,220         —           365   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

12. Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)  
     For the six-month period ended June 30, 2016  
     Beginning
balance
     Acquisition      Disposal     Transfer     Depreciation     Ending balance  

Land

   W 812,947         1,725         (2,639     12,289        —          824,322   

Buildings

     911,129         295         (8,411     20,999        (25,092     898,920   

Structures

     344,221         595         (15     5,223        (16,492     333,532   

Machinery

     7,342,009         216,498         (5,848     319,818        (1,068,371     6,804,106   

Other

     473,438         140,101         (2,346     (126,461     (70,379     414,353   

Construction in progress

     487,512         222,586         (7,419     (261,842     —          440,837   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   W   10,371,256         581,800         (26,678     (29,974     (1,180,334     9,716,070   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of won)  
     For the six-month period ended June 30, 2015  
     Beginning
balance
     Acquisition      Disposal     Transfer     Depreciation     Business
combination
     Ending
balance
 

Land

   W 766,780         2,198         (2,025     4,874        —          —           771,827   

Buildings

     933,867         4,360         (6,838     23,333        (24,581     —           930,141   

Structures

     352,789         761         (33     11,911        (17,044     —           348,384   

Machinery

     7,310,815         179,819         (2,858     594,637        (1,045,697     3,641         7,040,357   

Other

     499,050         435,518         (2,574     (308,958     (69,688     —           553,348   

Construction in progress

     704,400         295,862         —          (391,821     —          —           608,441   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   W   10,567,701         918,518         (14,328     (66,024     (1,157,010     3,641         10,252,498   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

13. Investment Property

Changes in investment property for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended June 30, 2016  
     Beginning
balance
     Transfer      Depreciation      Ending
balance
 

Land

   W 10,634         (4,770      —           5,864   

Buildings

     4,437         (1,984      (71      2,382   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   15,071         (6,754      (71      8,246   
  

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of won)    For the six-month period ended June 30, 2015  
     Beginning
balance
     Transfer      Depreciation      Ending
balance
 

Land

   W 10,418         886         —           11,304   

Buildings

     4,579         385         (121      4,843   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 14,997         1,271         (121      16,147   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14. Goodwill

 

  (1) Goodwill as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31,
2015
 

Goodwill related to acquisition of Shinsegi Telecom, Inc.

   W 1,306,236         1,306,236   

Goodwill related to acquisition of SK Broadband Co., Ltd.

     358,443         358,443   

Other goodwill

     247,386         243,911   
  

 

 

    

 

 

 
   W   1,912,065         1,908,590   
  

 

 

    

 

 

 

 

  (2) Changes in goodwill for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Beginning balance

   W 1,908,590         1,917,595   

Acquisition

     4,498         —     

Impairment loss

     —           (1,976

Other

     (1,023      14,586   
  

 

 

    

 

 

 
   W   1,912,065         1,930,205   
  

 

 

    

 

 

 

 

32


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

15. Intangible Assets

 

  (1) Changes in intangible assets for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)  
     For the six-month period ended June 30, 2016  
     Beginning
balance
     Acquisition      Disposal     Transfer      Amortization     Impairment     Ending
balance
 

Frequency usage rights

   W 1,103,517         —           —          —           (140,264     —          963,253   

Land usage rights

     26,576         4,536         (1,456     —           (4,752     —          24,904   

Industrial rights

     116,542         2,110         (11     147         (2,990     —          115,798   

Development costs

     7,472         1,066         —          —           (2,039     (277     6,222   

Facility usage rights

     48,019         479         (4     70         (4,292     —          44,272   

Customer relations

     7,175         513         —          —           (2,033     —          5,655   

Memberships

     91,507         5,039         (3,842     —           —          (20     92,684   

Other

     903,976         34,462         (6,731     50,973         (164,779     (500     817,401   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   W   2,304,784         48,205         (12,044     51,190         (321,149     (797     2,070,189   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(In millions of won)  
     For the six-month period ended June 30, 2015  
     Beginning
balance
     Acquisition      Disposal     Transfer     Amortization     Business
combination
     Ending
balance
 

Frequency usage rights

   W 1,384,044         —           —          —          (140,264     —           1,243,780   

Land usage rights

     25,353         4,647         (148     —          (4,608     —           25,244   

Industrial rights

     107,760         9,334         —          1,089        (3,105     —           115,078   

Development costs

     8,331         1,262         —          32        (2,278     —           7,347   

Facility usage rights

     52,636         515         (12     271        (4,216     —           49,194   

Customer relations

     6,404         —           —          (29     (1,939     8,219         12,655   

Memberships

     94,119         549         (804     67        —          —           93,931   

Other

     805,347         23,929         (106     76,794        (154,619     —           751,345   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   W   2,483,994         40,236         (1,070     78,224        (311,029     8,219         2,298,574   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

15. Intangible Assets, Continued

 

  (2) The carrying amount and residual useful lives of frequency usage rights as of June 30, 2016 are as follows, all of which are amortized on a straight-line basis:

 

(In millions of won)  
     Amount     

Description

   Commencement
of amortization
     Completion of
amortization
 

W-CDMA license

   W 54,988       Frequency usage rights relating to W-CDMA service      Dec. 2003         Dec. 2016   

W-CDMA license

     8,155       Frequency usage rights relating to W-CDMA service      Oct. 2010         Dec. 2016   

800MHz license

     202,720       Frequency usage rights relating to CDMA and LTE service      Jul. 2011         Jun. 2021   

1.8GHz license

     690,910       Frequency usage rights relating to LTE service      Sep. 2013         Dec. 2021   

WiBro license

     6,480       WiBro service      Mar. 2012         Mar. 2019   
  

 

 

          
   W   963,253            
  

 

 

          

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

16. Borrowings and Debentures

 

  (1) Short-term borrowings as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)                     
    

Lender

   Annual
interest
rate (%)
     June 30,
2016
     December 31,
2015
 

Commercial Paper

   Hanyang Securities Co., Ltd., etc.      1.76~2.10       W   85,000         220,000   

Short-term borrowings

   Kookmin Bank      2.47         —           40,000   
        

 

 

    

 

 

 
         W 85,000         260,000   
        

 

 

    

 

 

 

 

  (2) Long-term borrowings as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won and thousands of U.S. dollars)  

Lender

   Annual interest
rate (%)
     Maturity      June 30,
2016
     December 31,
2015
 

Kookmin Bank

     1.98         Jun. 15, 2016       W —           1,625   

Shinhan Bank

    
 
6M bank debenture
rate+1.58
  
  
     Apr. 30, 2016         —           10,000   

Kookmin Bank

     1.69         Mar. 15, 2017         1,499         2,498   

Kookmin Bank

     1.69         Mar. 15, 2018         5,017         6,450   

Korea Development Bank

     3.32         Jul. 30 ,2019         39,000         39,000   

Korea Development Bank

     2.94         Jul. 30 ,2019         10,000         10,000   

Export Kreditnamnden(*)

     1.70         Apr. 29, 2022         80,430         87,685   
         (USD  69,056    (USD  74,817
        

 

 

    

 

 

 

Sub-total

           135,946         157,258   

Less present value discount

           (1,812      (2,124
        

 

 

    

 

 

 
           134,134         155,134   

Less current installments

           (29,578      (33,581
        

 

 

    

 

 

 
         W 104,556         121,553   
        

 

 

    

 

 

 

 

(*) Prior to 2015, the Group obtained long-term borrowings from Export Kreditnamnden, an export credit agency. The long-term borrowings are repaid by installments on an annual basis from 2014 to 2022.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

16. Borrowings and Debentures, Continued

 

  (3) Debentures as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, thousands of U.S. dollars and thousands of other currencies)  
     Purpose    Maturity    Annual
interest rate
(%)
     June 30,
2016
    December 31,
2015
 

Unsecured private bonds

   Refinancing fund    2016      5.00       W 200,000        200,000   

Unsecured private bonds

   Other fund    2018      5.00         200,000        200,000   

Unsecured private bonds

      2016      5.54         —          40,000   

Unsecured private bonds

      2016      5.92         —          230,000   

Unsecured private bonds

   Operating fund    2016      3.95         110,000        110,000   

Unsecured private bonds

      2021      4.22         190,000        190,000   

Unsecured private bonds

   Operating and
refinancing fund
   2019      3.24         170,000        170,000   

Unsecured private bonds

      2022      3.30         140,000        140,000   

Unsecured private bonds

      2032      3.45         90,000        90,000   

Unsecured private bonds

   Operating fund    2023      3.03         230,000        230,000   

Unsecured private bonds

      2033      3.22         130,000        130,000   

Unsecured private bonds

      2019      3.30         50,000        50,000   

Unsecured private bonds

      2024      3.64         150,000        150,000   

Unsecured private bonds(*4)

      2029      4.72         54,969        54,695   

Unsecured private bonds

   Refinancing fund    2019      2.53         160,000        160,000   

Unsecured private bonds

      2021      2.66         150,000        150,000   

Unsecured private bonds

      2024      2.82         190,000        190,000   

Unsecured private bonds

   Operating and
refinancing fund
   2022      2.40         100,000        100,000   

Unsecured private bonds

      2025      2.49         150,000        150,000   

Unsecured private bonds

      2030      2.61         50,000        50,000   

Unsecured private bonds

   Operating fund    2018      1.89         90,000        90,000   

Unsecured private bonds

      2025      2.66         70,000        70,000   

Unsecured private bonds

      2030      2.82         90,000        90,000   

Unsecured private bonds(*4)

      2030      3.40         50,098        50,485   

Unsecured private bonds

   Operating and

refinancing fund

   2018      2.07         80,000        80,000   

Unsecured private bonds

      2025      2.55         100,000        100,000   

Unsecured private bonds

      2035      2.75         70,000        70,000   

Unsecured private bonds(*4)

      2030      3.10         50,460        50,524   

Unsecured private bonds

   Operating fund    2019      1.65         70,000        —     

Unsecured private bonds

      2021      1.80         100,000        —     

Unsecured private bonds

      2026      2.08         90,000        —     

Unsecured private bonds

      2036      2.24         80,000        —     

Unsecured private bonds

      2019      1.62         50,000        —     

Unsecured private bonds

      2021      1.71         50,000        —     

Unsecured private bonds

      2026      1.97         120,000        —     

Unsecured private bonds

      2031      2.17         50,000        —     

Unsecured private bonds(*1)

      2017      4.28         100,000        100,000   

Unsecured private bonds(*1)

      2017      3.27         120,000        120,000   

Unsecured private bonds(*1)

      2016      3.05         80,000        80,000   

Unsecured private bonds(*1)

      2019      3.49         210,000        210,000   

Unsecured private bonds(*1)

      2019      2.76         130,000        130,000   

Unsecured private bonds(*1)

      2018      2.23         50,000        50,000   

Unsecured private bonds(*1)

      2020      2.49         160,000        160,000   

Unsecured private bonds(*1)

      2020      2.43         140,000        140,000   

Unsecured private bonds(*1)

      2020      2.18         130,000        130,000   

Unsecured private bonds(*2)

      2016      3.24         —          10,000   

Unsecured private bonds(*2)

      2017      3.48         20,000        20,000   

Unsecured global bonds

      2027      6.63         465,880        468,800   
            (USD  400,000   (USD  400,000

 

36


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

16. Borrowings and Debentures, Continued

 

  (3) Debentures as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(In millions of won, thousands of U.S. dollars and thousands of other currencies)        
     Purpose      Maturity      Annual interest
rate (%)
     June 30,
2016
    December 31,
2015
 

Unsecured private Swiss bond

        2017         1.75        

(CHF

356,760

 300,000

  

   

(CHF

355,617

 300,000

 

Unsecured global bonds

     Operating fund         2018         2.13        

(USD

815,290

 700,000

  

   

(USD

820,400

 700,000

  

Unsecured private Australian bonds

              260,310        255,930   
        2017         4.75       (AUD  300,000   (AUD  300,000

Floating rate notes(*3)

          
 
3M LIBOR +
0.88
  
  
     349,410        351,600   
        2020          (USD 300,000   (USD  300,000

Unsecured global bonds(*1)

              349,410        351,600   
        2018         2.88       (USD 300,000   (USD  300,000
           

 

 

   

 

 

 

Sub-total

              7,462,587        7,139,651   

Less discounts on bonds

              (29,105     (30,998
           

 

 

   

 

 

 
              7,433,482        7,108,653   

Less current portion of bonds

              (866,042     (669,506
           

 

 

   

 

 

 
            W 6,567,440        6,439,147   
           

 

 

   

 

 

 

 

(*1) Unsecured private bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company.
(*2) Unsecured private bonds were issued by PS&Marketing Corporation, a subsidiary of the Parent Company.
(*3) As of June 30, 2016, 3M LIBOR rate is 0.65%.
(*4) The Group eliminated a measurement inconsistency of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss.

The carrying amount of financial liabilities designated at fair value through profit or loss exceeds the principal amount required to pay at maturity by W 5,527 million as of June 30, 2016.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

17. Long-term Payables - other

 

  (1) Long-term payables – other as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Payables related to acquisition of W-CDMA licenses

   W 440,841         550,964   

Other(*)

     30,987         30,733   
  

 

 

    

 

 

 
   W   471,828         581,697   
  

 

 

    

 

 

 

 

(*) Other includes vested compensation claims of employees who have rendered long-term services, etc.

 

  (2) As of June 30, 2016 and December 31, 2015, details of long-term payables – other which consist of payables related to the acquisition of W-CDMA licenses for 2.3GHz and 1.8GHz frequencies are as follows (See Note 15):

 

(In millions of won)  
     Period of
repayment
     Coupon rate     Annual effective
interest rate(*)
    June 30,
2016
    December 31,
2015
 

2.3GHz

     2014~2016         3.00%        5.80%      W —          2,882   

1.8GHz

     2012~2021         2.43~3.00%        4.84~5.25%        589,172        707,006   
         

 

 

   

 

 

 
            589,172        709,888   

Present value discount on long-term payables - other

  

    (32,252     (38,739
 

 

 

   

 

 

 
    556,920        671,149   

Current installments

  

    (116,079     (120,185
 

 

 

   

 

 

 

Carrying amount at period end

  

  W 440,841        550,964   
 

 

 

   

 

 

 

 

(*) The Group estimated the discount rates based on its credit ratings and corporate bond yield rate as there is no market interest rate available for long-term payables - other.

 

  (3) The repayment schedule of the principal amount of long-term payables related to acquisition of W-CDMA licenses as of June 30, 2016 is as follows:

 

(In millions of won)       
     Amount  

Less than 1 year

   W 117,834   

1~3 years

     235,669   

3~5 years

     235,669   
  

 

 

 
   W   589,172   
  

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

18. Provisions

Changes in provisions for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)               
     For the six-month period ended June 30, 2016      As of June 30, 2016  
     Beginning
balance
     Increase      Utilization     Reversal     Other     Ending
balance
     Current      Non-current  

Provision for installment of handset subsidy

   W 5,670         —           (1,019     —          —          4,651         1,213         3,438   

Provision for restoration

     59,954         3,490         (352     (698     (33     62,361         28,816         33,545   

Emission allowance

     1,477         242         (169     —          —          1,550         1,550         —     

Other provisions

     3,104         1,629         (247     —          —          4,486         4,446         40   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W   70,205         5,361         (1,787     (698     (33     73,048         36,025         37,023   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(In millions of won)                
     For the six-month period ended June 30, 2015      As of June 30, 2015  
     Beginning
balance
     Increase      Utilization     Reversal     Other      Ending
balance
     Current      Non-current  

Provision for installment of handset subsidy

   W 26,799         —           (2,696     (18,173     —           5,930         3,368         2,562   

Provision for restoration

     59,727         1,844         (375     (962     868         61,102         34,658         26,444   

Other provisions

     562         1,921         (323     —          —           2,160         1,259         901   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
   W   87,088         3,765         (3,394     (19,135     868         69,192         39,285         29,907   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

The Group has provided handset subsidy to subscribers who purchase handsets on an installment basis and recognized a provision for subsidy amounts which the Group is expected to pay in future periods.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

19. Leases

 

  (1) Operating Lease

The Group entered into operating lease and sublease agreements in relation to rented office space and the expected future lease payments and revenues as of June 30, 2016 are as follows:

 

(In millions of won)              
     Lease payments      Revenues  

Less than 1 year

   W 41,888         1,882   

1~5 years

     79,657         896   

More than 5 years

     25,409         448   
  

 

 

    

 

 

 
   W 146,954         3,226   
  

 

 

    

 

 

 

 

  (2) Sale and Leaseback

In 2012, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. These sale and leaseback transactions are considered as operating leases and expected future lease payments and lease revenues are presented in Note 19-(1).

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

20. Defined Benefit Liabilities

 

  (1) Details of defined benefit liabilities as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Present value of defined benefit obligations

   W 578,719         525,269   

Fair value of plan assets

     (429,343      (426,413
  

 

 

    

 

 

 
   W 149,376         98,856   
  

 

 

    

 

 

 

 

  (2) Changes in defined benefit obligations for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Beginning balance

   W 525,269         437,844   

Current service cost

     56,780         52,278   

Interest cost

     6,458         5,957   

Remeasurement

     

- Demographic assumption

     —           (6

- Financial assumption

     —           760   

- Adjustment based on experience

     10,056         3,522   

Benefit paid

     (20,553      (33,513

Others

     709         4,198   
  

 

 

    

 

 

 

Ending balance

   W 578,719         471,040   
  

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

20. Defined Benefit Liabilities, Continued

 

  (3) Changes in plan assets for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Beginning balance

   W 426,413         346,257   

Interest income

     4,848         4,721   

Remeasurement

     (5,501      (2,567

Contributions

     20,509         29,033   

Benefit paid

     (18,125      (30,334

Others

     1,199         2,201   
  

 

 

    

 

 

 

Ending balance

   W 429,343         349,311   
  

 

 

    

 

 

 

 

  (4) Expenses recognized in profit and loss for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Current service cost

   W 56,780         52,278   

Net interest cost

     1,610         1,236   
  

 

 

    

 

 

 
   W 58,390         53,514   
  

 

 

    

 

 

 

The above costs are recognized in labor cost and research and development.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

21. Derivative Instruments

 

  (1) Currency swap contracts under cash flow hedge accounting as of June 30, 2016 are as follows:

 

(In thousands of foreign currencies)

Borrowing

date

  

Hedging Instrument (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 with face value of USD 400,000)    Foreign currency risk    Currency swap    Morgan Stanley and five other banks   

Jul. 20, 2007 ~

Jul. 20, 2027

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

Jun. 12, 2012 ~

Jun. 12, 2017

Nov. 1,

2012

   Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds with face value of USD 700,000)    Foreign currency risk    Currency swap    Barclays and eight other banks   

Nov. 1, 2012 ~

May 1, 2018

Jan. 17,

2013

   Fixed-to-fixed cross currency swap (Australia dollar denominated bonds with 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 with face value of USD 300,000)    Foreign currency risk and interest rate risk    Currency and 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 with 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 (U.S. dollar denominated bonds with face value of USD 69,056)    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 Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

21. Derivative Instruments, Continued

 

  (2) As of June 30, 2016, details of fair values of above derivatives recorded in assets or liabilities are as follows:

 

(In millions of won and thousands of foreign currencies)  
     Fair value  
     Cash flow hedge                

Hedging Instrument (Hedged item)

   Accumulated
gain (loss) on
valuation of
derivatives
    Tax
effect
    Accumulated
foreign
currency
translation
(gain) loss
    Others
(*)
     Held for
trading
     Total  

Non-current assets:

              

Structured bond (face value of KRW 150,000)

   W —          —          —          —           9,961         9,961   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds with face value of USD 400,000)

     (50,424     (16,098     8,299        129,806         —           71,583   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds with face value of USD 700,000)

     (15,296     (4,884     51,650        —           —           31,470   

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

     (11,613     (3,709     24,255        —           —           8,933   

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds with face value of USD 300,000)

     (4,481     —          30,694        —           —           26,213   

Fixed-to-fixed long-term borrowings
(U.S. dollar denominated bonds with face value of USD 69,056)

     (3,622     (1,156     7,457        —           —           2,679   
              

 

 

 

Total assets

               W 150,839   
              

 

 

 

Current liability:

              

Fixed-to-fixed cross currency swap
(Swiss Franc denominated bonds with face value of CHF 300,000)

   W (6,565     (2,095     (6,710     —           —           (15,370

Non-current liability:

              

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds with face value of AUD 300,000)

     2,873        918        (74,879     —           —           (71,088
              

 

 

 

Total liabilities

               W   (86,458
              

 

 

 

 

(*) Cash flow hedge accounting has been applied to the relevant contracts from May 12, 2010. Others represent gain on valuation of currency swap recognized in profit or loss prior to May 12, 2010, when the Group started to apply hedge accounting to these contracts.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

22. Share Capital and Capital Surplus and Others

The Parent Company’s outstanding share capital consists entirely of common stocks with a par value of W 500. The number of authorized, issued and outstanding common shares and capital surplus and others as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, except for share data)              
     June 30, 2016      December 31, 2015  

Number of authorized shares

     220,000,000         220,000,000   

Number of issued shares (*1)

     80,745,711         80,745,711   

Share capital:

     

Common stock

   W 44,639         44,639   

Capital surplus and others

     

Paid-in surplus

     2,915,887         2,915,887   

Treasury stock (Note 23)

     (2,260,626      (2,260,626

Hybrid bond (Note 24)

     398,518         398,518   

Others (*2)

     (862,095      (864,269
  

 

 

    

 

 

 
   W 191,684         189,510   
  

 

 

    

 

 

 

 

(*1) Prior to 2015, the Parent Company retired shares of treasury stock which reduced its retained earnings before appropriation. As a result, the Parent Company’s outstanding shares have decreased without change in the share capital.
(*2) Others primarily consist of 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 Ultimate Controlling Entity.

There were no changes in share capital for the six-month periods ended June 30, 2016 and 2015 and details of shares outstanding as of June 30, 2016 and 2015 are as follows:

 

(In shares)    June 30, 2016      June 30, 2015  
     Issued
shares
     Treasury
stock
     Outstanding
shares
     Issued
shares
     Treasury
stock
    Outstanding
shares
 

Beginning

     80,745,711         10,136,551         70,609,160         80,745,711         9,809,375        70,936,336   

Disposal of treasury stock

     —           —           —           —           (1,692,824     1,692,824   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Ending

     80,745,711         10,136,551         70,609,160         80,745,711         8,116,551        72,629,160   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

23. Treasury Stock

The Parent Company acquired treasury stocks to provide stock dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and to stabilize its stock prices.

Treasury stocks as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won, shares)              
     June 30, 2016      December 31, 2015  

Number of shares

     10,136,551         10,136,551   

Amount

   W 2,260,626         2,260,626   

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

24. Hybrid Bond

Hybrid bonds classified as equity as of June 30, 2016 are as follows:

 

(In millions of won)  
    

Type

   Issuance
date
   Maturity   Annual
interest
rate(%)
    Amount  

Private hybrid bonds

   Unsecured subordinated bearer bond    June 7,
2013
   June 7,

2073(*1)

    4.21 (*2)    W 400,000   

Issuance costs

               (1,482
            

 

 

 
             W   398,518   
            

 

 

 

Hybrid bonds issued by the Parent Company are classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common stocks in the event of a liquidation or reorganization of the Parent Company.

 

(*1) The Parent Company has a right to extend the maturity under the same terms at issuance 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 calculated as yield rate of 5 year national bonds plus premium. According to Step-up clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.

 

25. Retained Earnings

Retained earnings as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Appropriated:

     

Legal reserve

   W 22,320         22,320   

Reserve for research & manpower development

     60,001         87,301   

Reserve for business expansion

     9,871,138         9,671,138   

Reserve for technology development

     2,826,300         2,616,300   
  

 

 

    

 

 

 
     12,779,759         12,397,059   

Unappropriated

     2,434,444         2,610,568   
  

 

 

    

 

 

 
   W   15,214,203         15,007,627   
  

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

26. Reserves

 

  (1) Details of reserves, net of taxes, as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Changes in unrealized fair value of available-for-sale financial assets

   W 41,628         232,316   

Other comprehensive loss of investments in associates and joint ventures

     (200,468      (169,520

Changes in unrealized fair value of derivatives

     (89,129      (83,200

Foreign currency translations differences for foreign operations

     15,564         29,707   
  

 

 

    

 

 

 
   W   (232,405      9,303   
  

 

 

    

 

 

 

 

  (2) Change in reserves for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    Unrealized
fair value of
available-for-
sale financial
assets
    Other
comprehensive
loss
of investment
in associates
    Unrealized
fair value of
derivatives
    Foreign
currency
translations
differences
for foreign
operations
    Total  

Balance at January 1, 2015

   W 235,385        (163,808     (77,531     1,465        (4,489

Changes

     69,215        27,946        (29,988     8,356        75,529   

Tax effect

     (16,499     (69     4,917        —          (11,651
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

   W 288,101        (135,931     (102,602     9,821        59,389   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2016

   W 232,316        (169,520     (83,200     29,707        9,303   

Changes

       (253,033     (30,917     (8,432     (14,143     (306,525

Tax effect

     62,345        (31     2,503        —          64,817   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

   W 41,628        (200,468     (89,129     15,564        (232,405
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

27. Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Other Operating Expenses:

           

Communication

   W 8,368         18,150         11,512         24,051   

Utilities

     61,496         132,412         60,476         126,608   

Taxes and dues

     8,610         17,841         8,114         16,468   

Repair

     86,764         155,489         79,975         145,832   

Research and development

     84,012         168,111         77,952         147,422   

Training

     6,985         13,791         7,128         14,569   

Bad debt for accounts receivable - trade

     14,601         22,643         21,982         34,995   

Travel

     6,786         12,118         7,154         13,965   

Supplies and other

     13,468         53,152         38,003         83,707   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   291,090         593,707         312,296         607,617   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

28. Other Non-operating Income and Expenses

 

  (1) Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Other Non-operating Income:

           

Fees revenues

   W 173         267         201         323   

Gain on disposal of property and equipment and intangible assets

     1,297         2,248         1,842         2,765   

Others

     8,155         38,809         5,133         12,275   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 9,625         41,324         7,176         15,363   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Non-operating Expenses:

           

Loss on impairment of property and equipment and intangible assets

   W 609         797         953         1,976   

Loss on disposal of property and equipment and intangible assets

     9,929         18,199         1,281         3,290   

Donations

     17,529         47,138         24,937         30,769   

Bad debt for accounts receivable – others

     3,408         3,409         6,226         4,074   

Loss on impairment of investment assets

     5,531         11,868         9,398         18,668   

Others

     5,002         9,804         9,096         39,092   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   42,008         91,215         51,891         97,869   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

29. Finance Income and Costs

 

  (1) Details of finance income and costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Income:

           

Interest income

   W 12,346         24,395         12,380         25,181   

Dividends

     29         14,842         43         13,339   

Gain on foreign currency transactions

     1,765         7,513         2,815         6,288   

Gain on foreign currency translations

     826         1,036         3,243         4,024   

Gain on disposal of long-term investment securities(*)

     1,187         316,902         3,606         6,252   

Gain on valuation of derivatives

     463         3,684         —           1,030   

Gain relating to financial liabilities at fair value through profit or loss

     403         177         6,966         5,188   

Gain on disposal of accounts receivable - trade

     5,191         7,855         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   22,210         376,404         29,053         61,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*) W 314,745 million of gain on disposal of long-term investment securities was recognized upon disposal of the Group’s remaining equity interest of Loen Entertainment, Inc.

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Costs:

           

Interest expense

   W 70,017         142,409         74,706         150,222   

Loss on foreign currency transactions

     3,954         7,392         2,880         8,193   

Loss on foreign currency translations

     —           1,684         2,088         3,132   

Loss on disposal of long-term investment securities

     50         134         1,649         1,651   

Loss on valuation of derivatives

     —           —           699         —     

Loss on settlement of derivatives

     319         319         4,517         4,517   

Loss relating to financial liabilities at fair value through profit or loss

     —           —           —           174   

Other finance costs

     —           —           3,151         3,151   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   74,340         151,938         89,690         171,040   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

29. Finance Income and Costs, Continued

 

  (2) Details of interest income included in finance income for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest income on cash equivalents and deposits

   W 5,389         10,346         5,010         10,393   

Interest income on installment receivables and others

     6,957         14,049         7,370         14,788   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   12,346         24,395         12,380         25,181   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (3) Details of interest expense included in finance costs for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest expenses on borrowings

   W 2,591         4,958         8,536         12,722   

Interest expenses on debentures

     59,901         120,975         56,610         116,514   

Interest on finance lease liabilities

     —           —           19         47   

Others

     7,525         16,476         9,541         20,939   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   70,017         142,409         74,706         150,222   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (4) Details of impairment losses for financial assets for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Available-for-sale financial assets

   W —           —           3,151         3,151   

Accounts receivable - trade

     14,601         22,643         21,982         34,995   

Other receivables

     3,408         3,409         6,226         4,074   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   18,009         26,052         31,359         42,220   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

30. Income Tax Expense

Income tax expense was calculated by considering current tax expense adjusted to changes in estimates related to prior periods, deferred tax expenses by origination and reversal of temporary differences.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

31. Earnings per Share

 

  (1) Basic earnings per share

 

  1) Basic earnings per share for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:

 

(In millions of won, shares)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Basic earnings per share attributable to owners of the Parent Company:

           

Profit attributable to owners of the Parent Company on common shares

   W 290,135         861,982         395,839         840,334   

Interest on hybrid bonds

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

Profit for the period on common shares

     281,715         853,562         387,419         831,914   

Weighted average number of common shares outstanding

     70,609,160         70,609,160         71,326,988         71,132,741   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share (in won)

   W 3,990         12,089         5,432         11,695   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  2) The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2016 and 2015 are calculated as follows:

 

(In shares)    Number of
shares
     Weighted number of shares  
        Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued common shares at January 1, 2016

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

Weighted average number of treasury stock

     (10,136,551      (10,136,551      (10,136,551
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2016

     70,609,160         70,609,160         70,609,160   
  

 

 

    

 

 

    

 

 

 
(In shares)    Number of
shares
     Weighted number of shares  
        Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued common shares at January 1, 2015

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

Weighted average number of treasury stock

     (8,116,551      (9,418,723      (9,612,970
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2015

     72,629,160         71,326,988         71,132,741   
  

 

 

    

 

 

    

 

 

 

 

  (2) Diluted earnings per share

For the six-month periods ended June 30, 2016 and 2015, there were no potentially dilutive shares. Therefore, diluted earnings per share for the six-month periods ended June 30, 2016 and 2015 are the same as basic earnings per share.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

32. Categories of Financial Instruments

 

  (1) Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)  
     June 30, 2016  
     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

   W —           —           1,099,561         —           1,099,561   

Financial instruments

     —           —           595,758         —           595,758   

Short-term investment securities

     —           346,694         —           —           346,694   

Long-term investment securities

     —           1,046,661         —           —           1,046,661   

Accounts receivable – trade

     —           —           2,228,412         —           2,228,412   

Loans and other receivables(*)

     —           —           1,761,912         —           1,761,912   

Derivative financial assets

     9,961         —           —           140,878         150,839   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   9,961         1,393,355         5,685,643         140,878         7,229,837   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

32. Categories of Financial Instruments, Continued

 

  (1) Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(In millions of won)  
     December 31, 2015  
     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

   W —           —           768,922         —           768,922   

Financial instruments

     —           —           701,713         —           701,713   

Short-term investment securities

     —           92,262         —           —           92,262   

Long-term investment securities

     —           1,207,226         —           —           1,207,226   

Accounts receivable – trade

     —           —           2,390,110         —           2,390,110   

Loans and other receivables(*)

     —           —           1,102,403         —           1,102,403   

Derivative financial assets

     6,277         —           —           160,122         166,399   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 6,277         1,299,488         4,963,148         160,122         6,429,035   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

32. Categories of Financial Instruments, Continued

 

  (1) Financial assets by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(*) Details of loans and other receivables as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Short-term loans

   W 66,187         53,895   

Accounts receivable - other

     1,273,406         673,739   

Accrued income

     12,645         10,753   

Other current assets

     1,887         1,861   

Long-term loans

     61,572         62,454   

Long-term accounts receivable - other

     47,983         2,420   

Guarantee deposits

     298,232         297,281   
  

 

 

    

 

 

 
   W   1,761,912         1,102,403   
  

 

 

    

 

 

 

 

  (2) Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)    June 30, 2016  
     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

   W —           251,106         —           251,106   

Derivative financial liabilities

     —           —           86,458         86,458   

Borrowings

     —           219,134         —           219,134   

Debentures(*1)

     155,527         7,277,955         —           7,433,482   

Accounts payable - other and others (*2)

     —           2,781,063         —           2,781,063   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 155,527         10,529,258         86,458         10,771,243   
  

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of won)    December 31, 2015  
     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

   W —           279,782         —           279,782   

Derivative financial liabilities

     —           —           89,296         89,296   

Borrowings

     —           415,134         —           415,134   

Debentures(*1)

     155,704         6,952,949         —           7,108,653   

Accounts payable - other and others (*2)

     —           2,970,801         —           2,970,801   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 155,704         10,618,666         89,296         10,863,666   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1) Bonds classified as financial liabilities at fair value through profit or loss as of June 30, 2016 and December 31, 2015 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to eliminate the difference in measurement bases with the related derivatives and bonds.
(*2) Details of accounts payable and other payables as of June 30, 2016 and December 31, 2015 are as follows:

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

32. Categories of Financial Instruments, Continued

 

  (2) Financial liabilities by categories as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(In millions of won)              
     June 30, 2016      December 31, 2015  

Accounts payable - other

   W 1,141,810         1,323,434   

Withholdings

     2,400         1,178   

Accrued expenses

     1,028,226         920,739   

Current installments of long-term payables - other

     116,079         120,211   

Long-term payables - other

     471,828         581,697   

Other non-current liabilities

     20,720         23,542   
  

 

 

    

 

 

 
   W   2,781,063         2,970,801   
  

 

 

    

 

 

 

 

33. 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 consist of cash and cash equivalents, financial instruments, financial assets available-for-sale, trade and other receivables. Financial liabilities consist of trade and other payables, borrowings, and debentures.

1) Market risk

(i) Currency risk

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. The Group manages currency risk by currency forward, etc. if needed to hedge currency risk on business transactions.

 

55


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

1) Market risk, Continued

 

(i) Currency risk, Continued

 

Foreign currency monetary assets and liabilities as of June 30, 2016 are as follows:

 

(In millions of won, thousands of foreign currencies)  
     Assets      Liabilities  
     Foreign
currencies
     Won
translation
     Foreign
Currencies
     Won
translation
 

USD

     154,407       W 179,759         1,840,451       W 2,143,600   

EUR

     7,442         9,641         38         49   

JPY

     122,018         1,381         1,952         21   

AUD

     —           —           299,274         259,680   

CHF

     —           —           299,587         356,269   

Others

     —           1,744         —           6   
     

 

 

       

 

 

 
      W   192,525          W   2,759,625   
     

 

 

       

 

 

 

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (See Note 21)

As of June 30, 2016, effects on income 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

   W 8,413         (8,413

EUR

     959         (959

JPY

     136         (136

Others

     174         (174
  

 

 

    

 

 

 
   W 9,682         (9,682
  

 

 

    

 

 

 

(ii) Equity price risk

The Group has equity securities which include listed and non-listed securities for its liquidity management and operating purpose. As of June 30, 2016, available-for-sale equity instruments measured at fair value amount of W 902,960 million.

(iii) Interest rate risk

Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, the Group’s revenue and operating cash flows 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 to reduce interest rate risk and to optimize its financing. To minimize risks from changes in interest rates, the Group takes various measures such as refinancing, renewal, alternative financing and hedging.

 

56


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

1) Market risk, Continued

 

(iii) Interest rate risk, Continued

 

The Group’s interest rate risk arises from floating-rate borrowings and debentures. As of June 30, 2016, floating-rate borrowings and debentures amount to W 6,516 million and W 349,410 million respectively, and the Group has entered into interest rate swaps to hedge interest rate risk related to floating-rate debentures (See Note 21). On the other hand, if the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes over the next one year will fluctuate as much as W 65 million due to the interest expense on floating-rate borrowings that have not entered into an interest rate swap agreement.

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 June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)              
     June 30, 2016      December 31,
2015
 

Cash and cash equivalents

   W 1,099,331         768,794   

Financial instruments

     595,758         701,713   

Available-for-sale financial assets

     2,030         3,430   

Accounts receivable – trade

     2,228,412         2,390,110   

Loans and receivables

     1,761,912         1,102,403   

Derivative financial assets

     150,839         166,399   
  

 

 

    

 

 

 
   W   5,838,282         5,132,849   
  

 

 

    

 

 

 

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 six-month period ended June 30, 2016, 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 arise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of June 30, 2016.

 

57


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. Financial Risk Management, Continued

 

  (1) Financial risk management, Continued

 

3) Liquidity risk

Contractual maturities of financial liabilities as of June 30, 2016 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

   W 251,106         251,106         251,106         —           —     

Borrowings(*)

     219,134         229,253         118,073         97,555         13,625   

Debentures(*)

     7,433,482         8,809,005         1,089,040         4,294,284         3,425,681   

Accounts payable - other and others

     2,781,063         2,804,747         2,245,242         558,765         740   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   10,684,785         12,094,111         3,703,461         4,950,604         3,440,046   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

 

(*) Includes interest to be paid.

As of June 30, 2016, periods which cash flows from cash flow hedge derivatives are expected to occur are as follows:

 

(In millions of won)  
     Carrying
amount
    Contractual
cash

flows
    Less than
1 year
    1 - 5 years     More than 5
years
 

Assets

   W   140,878        147,000        243        123,482        23,275   

Liabilities

     (86,458     (88,457     (12,384     (76,073     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W 54,420        58,543        (12,141     47,409        23,275   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. Financial Risk Management, Continued

 

  (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 structure. The overall strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2015.

The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity; the total liabilities and equity is derived from the financial statements.

Debt-equity ratios as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)             
     June 30, 2016     December 31, 2015  

Total liabilities

   W   13,161,897        13,207,291   

Total equity

     15,367,493        15,374,096   
  

 

 

   

 

 

 

Debt-equity ratios

     85.65     85.91
  

 

 

   

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. Financial Risk Management, Continued

 

  (3) Fair value

 

  1) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2016 are as follows:

 

(In millions of won)                            
     Carrying amount      Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

Financial assets at fair value through profit or loss

   W 9,961         —           9,961         —           9,961   

Derivative financial assets

     140,878         —           140,878         —           140,878   

Available-for-sale financial assets

     902,960         726,568         47,494         128,898         902,960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 1,053,799         726,568         198,333         128,898         1,053,799   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

Financial liabilities at fair value through profit or loss

   W 155,527         —           155,527         —           155,527   

Derivative financial liabilities

     86,458         —           86,458         —           86,458   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 241,985         —           241,985         —           241,985   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 219,134         —           223,083         —           223,083   

Debentures

     7,277,955         —           7,920,858         —           7,920,858   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   7,497,089         —           8,143,941         —           8,143,941   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. 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, 2015 are as follows:

 

(In millions of won)                                   
     Carrying amount      Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

Financial assets at fair value through profit or loss

   W 6,277         —           6,277         —           6,277   

Derivative financial assets

     160,122         —           160,122         —           160,122   

Available-for-sale financial assets

     1,076,291         897,958         47,262         131,071         1,076,291   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 1,242,690         897,958         213,661         131,071         1,242,690   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

Financial liabilities at fair value through profit or loss

   W 155,704         —           155,704         —           155,704   

Derivative financial liabilities

     89,296         —           89,296         —           89,296   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 245,000         —           245,000         —           245,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 415,134         —           416,702         —           416,702   

Debentures

     6,952,949         —           7,411,909         —           7,411,909   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   7,368,083         —           7,828,611         —           7,828,611   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are a reasonable approximation of fair values.

Available-for-sale financial assets amounting to W 490,395 million and W 223,197 million as of June 30, 2016 and December 31, 2015, respectively, are measured at cost in accordance with K-IFRS 1039 since they are considered as equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) and cannot be reliably measured using other valuation 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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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. Financial Risk Management, Continued

 

  (3) Fair value, Continued

 

The Group uses various valuation methods for determination 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 measured.

Interest rates used by the Group for the fair value measurement as of June 30, 2016 are as follows:

 

     Interest rate  

Derivative instruments

     1.66 ~ 2.99

Borrowings and debentures

     1.57 ~ 2.38

 

  3) There have been no transfers between Level 2 and Level 1 for the six-month period ended June 30, 2016 and changes of financial assets classified as Level 3 for the six-month period ended June 30, 2016 are as follows:

 

(In millions of won)                                 
     Balance at
January 1,
2016
     Transfer      Other
comprehensive
loss
    Disposal     Balance at
June 30,
2016
 

Available-for-sale financial assets

   W   131,071         4,657         (1,722     (5,108     128,898   

 

62


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

33. 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 June 30, 2016 are as follows:

 

(In millions of won)    Gross financial
instruments
recognized
     Amount offset     Net financial
instruments presented
on the statement of
financial position
     Relevant financial
instruments not
offset
    Net
amount
 

Financial assets:

            

Derivatives(*)

   W 55,876         —          55,876         (55,876     —     

Accounts receivable – trade and others

     135,108         (118,716     16,392         —          16,392   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 190,984         (118,716     72,268         (55,876     16,392   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

   W 86,458         —          86,458         (55,876     30,582   

Accounts payable – trade and others

     120,395         (118,716     1,679         —          1,679   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W   206,853         (118,716     88,137         (55,876     32,261   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2015 are as follows:

 

(In millions of won)    Gross financial
instruments
recognized
     Amount offset     Net financial
instruments presented
on the statement of
financial position
     Relevant financial
instruments not
offset
    Net
amount
 

Financial assets:

            

Derivatives(*)

   W 55,673         —          55,673         (55,673     —     

Accounts receivable – trade and others

     129,527         (113,003     16,524         —          16,524   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 185,200         (113,003     72,197         (55,673     16,524   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

   W 89,734         —          89,734         (55,673     34,061   

Accounts payable – other and others

     113,003         (113,003     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W   202,737         (113,003     89,734         (55,673     34,061   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(*) The balance represents the net amount under the standard terms and conditions of International Swap and Derivatives Association.

 

63


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

34. Transactions with Related Parties

 

  (1) List of related parties

 

Relationship

  

Company

Ultimate Controlling Entity   

SK Holdings Co., Ltd.

Joint ventures   

Dogus Planet, Inc. and three other companies

Associates   

SK hynix Inc. and 50 other companies

Affiliates   

The Ultimate Controlling Entity’s other subsidiaries and associates, etc.

 

  (2) Compensation for the key management members

The Parent Company considers registered directors who have substantial role and responsibility in planning, operating, and controlling of the business as key management members. The compensation given to such key management members for the three and six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    2016      2015  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Salaries

   W 221         1,201         203         1,560   

Defined benefits plan expenses

     47         328         421         542   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   268         1,529         624         2,102   
  

 

 

    

 

 

    

 

 

    

 

 

 

Compensation for the key management members includes salaries, non-monetary salaries and contributions made in relation to pension plans.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

34. Transactions with Related Parties, Continued

 

  (3) Transactions with related parties for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended June 30, 2016  
          Operating
revenue and
others
     Operating expense
and others
     Acquisition of
property and
equipment
     Loans      Collection of
loans
 

Scope

  

Company

   Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.(*1)

   W 5,455         11,003         140,142         448,119         38,889         49,586         —           —           —           —     

Associates

  

F&U Credit information Co., Ltd.

     546         1,070         9,894         23,337         —           —           —           —           —           —     
  

HappyNarae Co., Ltd.

     79         152         3,481         5,721         3,745         4,309         —           —           —           —     
  

SK hynix Inc.(*2)

     9,435         85,304         281         290         —           —           —           —           —           —     
  

SK Wyverns Baseball Club Co., Ltd.

     303         620         596         14,969         —           —           —           —           —           —     
  

KEB HanaCard Co., Ltd.

     4,994         9,999         4,530         7,479         —           —           —           —           —           —     
  

Others(*3)

     6,082         6,082         861         2,715         43         43         1,100         1,100         1,700         1,700   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        21,439         103,227         19,643         54,511         3,788         4,352         1,100         1,100         1,700         1,700   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering & Construction Co., Ltd.

     1,972         3,030         963         1,162         645         645         —           —           —           —     
  

SK Networks Co., Ltd.

     2,676         5,187         259,401         533,495         —           16         —           —           —           —     
  

SK Networks service Co., Ltd.

     504         786         22,322         44,830         544         609         —           —           —           —     
  

SK Telesys Co., Ltd.

     67         133         9,019         18,356         28,208         54,593         —           —           —           —     
  

SK TNS Co., Ltd

     25         47         12,796         17,385         76,765         91,341               
  

SK Energy Co., Ltd.

     1,511         2,748         302         455         —           —           —           —           —           —     
  

SK Gas Co., Ltd.

     492         941         1         2         —           —           —           —           —           —     
  

Others

     8,969         17,061         7,843         26,594         5,134         6,288         —           —           —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        16,216         29,933         312,647         642,279         111,296         153,492         —           —           —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

      W   43,110         144,163         472,432         1,144,909         153,973         207,430         1,100         1,100         1,700         1,700   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1) Operating expenses and others include W 183,271 million of dividends paid by the Parent Company.
(*2) Operating revenue and others include W 73,050 million of dividends paid by the associates which was deducted from the investment in associates.
(*3) Operating revenue and others include W 6,082 million of dividends received from the Korea IT Fund.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

34. Transactions with Related Parties, Continued

 

  (3) Transactions with related parties for the six-month periods ended June 30, 2016 and 2015 are as follows, Continued:

 

(In millions of won)    For the six-month period ended June 30, 2015  
          Operating revenue
and others
     Operating expense
and others
     Acquisition of
property and
equipment
     Loans  

Scope

  

Company

   Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
     Three-
month
period
ended
June 30
     Six-
month
period
ended
June 30
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.(*1, 4)

   W 1,090         1,244         9,240         189,121         —           —           —           —     

Associates

  

F&U Credit information Co., Ltd.

     662         1,331         10,127         22,366         —           —           —           —     
  

HappyNarae Co., Ltd.

     68         139         2,001         2,959         2,481         2,869         —           —     
  

SK hynix Inc.(*2)

     2,627         50,178         2,194         2,199         —           —           —           —     
  

SK Wyverns Baseball Club Co., Ltd.

     1,278         3,130         1,606         11,435         —           —           —           —     
  

KEB HanaCard Co., Ltd.

     5,418         10,850         2,496         8,223         —           —           —           —     
  

Xian Tianlong Science and Technology Co., Ltd.

     —           —           —           —           —           —           121         7,153   
  

Others(*3)

     3,663         5,056         4,995         9,512         11         1,141         —           500   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        13,716         70,684         23,419         56,694         2,492         4,010         121         7,653   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering & Construction Co., Ltd.

     1,177         4,759         11,077         13,057         73,059         125,394         —           —     
  

SK C&C Co., Ltd.(*4)

     3,438         7,379         79,359         160,928         49,150         90,384         —           —     
  

SK Networks Co., Ltd.

     4,318         6,023         255,918         620,717         —           —           —           —     
  

SK Networks service Co., Ltd.

     2,483         4,830         24,893         37,774         522         526         —           —     
  

SK Telesys Co., Ltd.

     110         212         9,659         21,101         12,342         73,359         —           —     
  

SK Energy Co., Ltd.

     1,877         3,015         227         443         —           —           —           —     
  

SK Gas Co., Ltd.

     813         1,885         —           —           —           —           —           —     
  

Others

     6,628         13,094         10,180         19,660         4,214         4,563         —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        20,844         41,197         391,313         873,680         139,287         294,226         —           —     
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

      W   35,650         113,125         423,972         1,119,495         141,779         298,236         121         7,653   
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1) Operating expense and others include W 171,053 million of dividends paid by the Parent Company.
(*2) Operating revenue and others include W 43,830 million of dividends paid by SK hynix Inc. which was deducted from the investment in associates.
(*3) Operating revenue and others include W 2,103 million and W 227 million of dividends paid by Korea IT Fund and UniSK, respectively, which were deducted from the investment in associates.
(*4) On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK, Holdings Co., Ltd.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

34. Transactions with Related Parties, Continued

 

  (4) Account balances as of June 30, 2016 and December 31, 2015 are as follows:

 

(In millions of won)         June 30, 2016  
          Accounts receivable      Accounts payable  

Scope

  

Company

   Loans      Accounts
receivable- trade
and others
     Accounts
payable – trade
and others
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.

   W —           3,531         85,503   

Associates

  

HappyNarae Co., Ltd.

     —           17         2,871   
  

F&U Credit information Co., Ltd.

     —           8         1,092   
  

SK hynix Inc.

     —           15,252         204   
  

SK Wyverns Baseball Club Co., Ltd.

     1,017         43         21   
  

Wave City Development Co., Ltd.

     1,290         38,412         —     
  

Daehan Kanggun BcN Co., Ltd.

     22,147         7,791         —     
  

KEB HanaCard Co., Ltd.

     —           1,639         2,592   
  

Xian Tianlong Science and Technology Co., Ltd.

     8,287         —           —     
  

Others

     —           292         802   
     

 

 

    

 

 

    

 

 

 
        32,741         63,454         7,582   
     

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering & Construction Co., Ltd.

     —           2,093         208   
  

SK Networks. Co., Ltd.

     —           1,171         123,963   
  

SK Networks Services Co., Ltd.

     —           2         4,202   
  

SK Telesys Co., Ltd.

     —           22         19,498   
  

SK TNS Co., Ltd.

     —           —           17,516   
  

SK innovation co., ltd.

     —           1,615         552   
  

SK Energy Co., Ltd.

     —           585         692   
  

SK Gas Co., Ltd.

     —           1,432         9   
  

Others

     —           2,751         15,714   
     

 

 

    

 

 

    

 

 

 
        —           9,671         182,354   
     

 

 

    

 

 

    

 

 

 
      W   32,741         76,656         275,439   
     

 

 

    

 

 

    

 

 

 

 

67


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

34. Transactions with Related Parties, Continued

 

  (4) Account balances as of June 30, 2016 and December 31, 2015 are as follows, Continued:

 

(In millions of won)        December 31, 2015  
         Accounts receivable      Accounts payable  

Scope

 

Company

   Loans      Accounts
receivable-trade
and others
     Accounts
payable – other
and others
 

Ultimate Controlling Entity

 

SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.) (*)

   W —           1,836         160,133   

Associates

 

HappyNarae Co., Ltd.

     —           12         6,162   
 

F&U Credit information Co., Ltd.

     —           66         934   
 

SK hynix Inc.

     —           4,360         155   
 

SK Wyverns Baseball Club Co., Ltd.

     1,017         4,502         —     
 

Wave City Development Co., Ltd.

     1,890         38,412         —     
 

Daehan Kanggun BcN Co., Ltd.

     22,147         —           —     
 

KEB HanaCard Co., Ltd.

     —           1,771         9,042   
 

Xian Tianlong Science and Technology Co., Ltd.

     8,287         —           —     
 

Others

     —           299         964   
    

 

 

    

 

 

    

 

 

 
       33,341         49,422         17,257   
    

 

 

    

 

 

    

 

 

 

Other

 

SK Engineering & Construction Co., Ltd.

     —           1,005         14,877   
 

SK Networks. Co., Ltd.

     —           1,569         208,291   
 

SK Networks Services Co., Ltd.

     —           —           9,414   
 

SK Telesys Co., Ltd.

     —           140         37,491   
 

SK TNS Co., Ltd.

     —           —           43,585   
 

SK innovation co., ltd.

     —           2,159         1,424   
 

SK Energy Co., Ltd.

     —           1,681         173   
 

SK Gas Co., Ltd.

     —           1,830         9   
 

Others

     —           2,886         14,503   
    

 

 

    

 

 

    

 

 

 
       —           11,270         329,767   
    

 

 

    

 

 

    

 

 

 
     W   33,341         62,528         507,157   
    

 

 

    

 

 

    

 

 

 

 

(*) On August 1, 2015, SK C&C Co., Ltd., the Ultimate Controlling Entity’s investor using equity method, merged SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company, and changed its name to SK, Holdings Co., Ltd.

 

  (5) M&Service Co., Ltd., a subsidiary of the Parent Company, entered into performance agreement with SK Energy Co., Ltd. and provided a blank note to SK Energy Co., Ltd., with regard to this transaction.

 

  (6) There were additional investments in associates and joint ventures during the six-month period ended June 30, 2016 as presented in Note 11.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

35. Commitments and Contingencies

 

  (1) Collateral assets and commitments

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of W 7,437 million as of June 30, 2016.

SK Broadband Co., Ltd. has guaranteed for employees’ borrowings relating to employee stock ownership program and provided short-term financial instruments amounting to W 1,075 million as collateral as of June 30, 2016.

 

  (2) Contingencies

As of June 30, 2016 the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. For those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation for these matters, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

 

  (3) Accounts receivables from the sale of handsets

The agents of the Parent Company sell handsets to our subscribers on an installment basis. During the six-month period ended June 30, 2016, the Parent Company entered into comprehensive agreement to purchase the accounts receivables from the handset sales with agents and to transfer the accounts receivables from the handset sales to a Special Purpose Company, respectively.

The accounts receivables from the sale of handsets amounting to W 460,802 million as of June 30, 2016, which the Parent Company purchased according to relevant comprehensive agreement are recognized as accounts receivable - other.

 

  (4) Frequency usage rights

During the six-month period ended June 30, 2016, the Parent Company secured bandwidth blocs in the 2.6 GHz band for W 1,330,100 million at the spectrum auction held by the Ministry of Science, ICT and Future Planning (MSIP) of Korea. The consideration will be paid on an annual installment basis for 10 years from August 2016 with the Parent Company acquiring ownership of the frequency usage rights on the first payment of installments.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

36. Statements of Cash Flows

 

  (1) Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Interest income

   W (24,395      (25,181

Dividends

     (14,842      (13,339

Gain on foreign currency translation

     (1,036      (4,024

Gain on disposal of long-term investments assets

     (316,902      (6,252

Gain on valuation of derivatives

     (3,684      (1,030

Gain on disposal of accounts receivable - trade

     (7,855      —     

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

     (116,808      (452,323

Gain on disposal of property, equipment and intangible assets

     (2,248      (2,765

Gain on relating to financial liabilities at fair value through profit or loss

     (177      (5,188

Other income

     (596      (131

Interest expense

     142,409         150,222   

Loss on foreign currency translation

     1,684         3,132   

Loss on disposal of long-term investments securities

     134         1,651   

Other finance costs

     —           3,151   

Loss on settlement of derivatives

     319         4,517   

Income tax expense

     237,586         234,970   

Provision for retirement benefits

     58,390         53,514   

Depreciation and amortization

     1,501,554         1,468,160   

Bad debt expense

     22,643         34,995   

Loss on disposal of property and equipment and intangible assets

     18,199         3,290   

Loss on impairment of property and equipment and intangible assets

     797         1,976   

Loss relating to financial liabilities at fair value through profit or loss

     —           174   

Bad debt for accounts receivable - other

     3,409         4,074   

Loss on impairment of investment assets

     11,868         18,668   

Other expenses

     14,798         7,031   
  

 

 

    

 

 

 
   W   1,525,247         1,479,292   
  

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2016 and 2015

 

36. Statements of Cash Flows, Continued

 

  (2) Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Accounts receivable - trade

   W 134,035         (79,987

Accounts receivable - other

     (600,541      (42,198

Accrued income

     444         —     

Advance payments

     8,321         (34,860

Prepaid expenses

     (9,141      (14,154

Value-Added Tax refundable

     (192      27   

Inventories

     322         (16,676

Long-term receivables - other

     (45,498   

Guarantee deposits

     3,813         (12,118

Accounts payable - trade

     (46,359      36,889   

Accounts payable - other

     89,897         (132,104

Advanced receipts

     11,066         (3,289

Withholdings

     84,678         (178,717

Deposits received

     (2,561      (7,475

Accrued expenses

     99,147         (162,490

Value-Added Tax payable

     6,736         13,419   

Unearned revenue

     (18,580      (71,067

Provisions

     488         (29,665

Long-term provisions

     (20      (9,137

Plan assets

     (2,384      1,301   

Retirement benefit payment

     (20,553      (33,513

Others

     429         (11,128
  

 

 

    

 

 

 
   W   (306,453      (786,942
  

 

 

    

 

 

 

 

  (3) Significant non-cash transactions for the six-month periods ended June 30, 2016 and 2015 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2016      June 30, 2015  

Decrease of accounts payable - other related to acquisition of property and equipment and intangible assets

   W   258,031         184,377   

 

37. Interim dividends

On July 28, 2016, the Board of Directors of the Parent Company resolved to pay interim cash dividends of W 1,000 per share totaling W 70,609 million (market dividend rate: 0.48%). The ex-dividend date was June 30, 2016 and the interim dividends are expected to be paid within twenty days after the date of the Board of Directors’ resolution.

 

71

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