Report of Foreign Issuer (6-k)

Date : 03/08/2018 @ 6:08AM
Source : Edgar (US Regulatory)
Stock : SK Telecom Co., Ltd. (SKM)
Quote : 23.35  0.5 (2.19%) @ 4:02PM

Report of Foreign Issuer (6-k)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF MARCH 2018

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 office)

 

 

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

Form 20-F  ☒            Form 40-F  ☐

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

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

 

 

 


Table of Contents

Submission of Audit Report

 

1. Name of External Auditor      KPMG Samjong Accounting Corporation  
2. Date of Receiving External Audit Report      March 6, 2018  

3. Auditor’s Opinion on Consolidated Financial Statements

    

 

FY 2017

 

Unqualified

 

 

 

    

 

FY2016

 

Unqualified

 

 

 

4. Financial Highlights of Consolidated Financial Statements (KRW)

  

- Total Assets

     33,428,668,878,964        31,297,663,334,134  

- Total Liabilities

     15,399,474,290,683        15,181,233,261,640  

- Total Shareholders’ Equity

     18,029,194,588,281        16,116,430,072,494  

- Capital Stock

     44,639,473,000        44,639,473,000  

- Total Shareholder’s Equity / Capital Stock Ratio(%) (excluding Non-controlling Shareholders’ Equity)

     39,969.4        35,778.6  

- Operating Revenue

     17,520,013,332,272        17,091,816,225,069  

- Operating Profit

     1,536,626,458,745        1,535,743,271,024  

- Profit before Income Tax

     3,403,248,666,768        2,096,139,245,520  

- Profit for the Year

     2,657,595,182,285        1,660,100,916,192  

- Profit for the Year Attributable to Owners of the Parent Company

     2,599,829,358,563        1,675,967,051,569  


Table of Contents

SK TELECOM CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2017 and 2016

(With Independent Auditors’ Report Thereon)


Table of Contents

Contents

 

     Page  

Independent Auditors’ Report

     1  

Consolidated Statements of Financial Position

     3  

Consolidated Statements of Income

     5  

Consolidated Statements of Comprehensive Income

     6  

Consolidated Statements of Changes in Equity

     7  

Consolidated Statements of Cash Flows

     8  

Notes to the Consolidated Financial Statements

     10  


Table of Contents

Independent Auditors’ Report

Based on a report originally issued in Korean

To The Board of Directors and Shareholders

SK Telecom Co., Ltd.:

We have audited the accompanying consolidated financial statements of SK Telecom Co., Ltd. and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as at December 31, 2017 and 2016, the consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017 and 2016 and of its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.


Table of Contents

Other Matter

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

KPMG Samjong Accounting Corp.

Seoul, Korea

February 23, 2018

 

This report is effective as of February 23, 2018, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

2


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2017 and 2016

(In millions of won)   

Note

   December 31,
2017
     December 31,
2016
 

Assets

        

Current Assets:

        

Cash and cash equivalents

   33,34    W 1,457,735        1,505,242  

Short-term financial instruments

   6,33,34,36      616,780        468,768  

Short-term investment securities

   9,33,34      144,386        107,364  

Accounts receivable - trade, net

   7,33,34,35      2,126,007        2,240,926  

Short-term loans, net

   7,33,34,35      62,830        58,979  

Accounts receivable - other, net

   7,33,34,35,36      1,260,835        1,121,444  

Prepaid expenses

        197,046        169,173  

Inventories, net

   8      272,403        259,846  

Advanced payments and other

   7,9,33,34,35      63,777        64,886  
     

 

 

    

 

 

 

Total Current Assets

        6,201,799        5,996,628  
     

 

 

    

 

 

 

Non-Current Assets:

        

Long-term financial instruments

   6,33,34      1,222        937  

Long-term investment securities

   9,33,34      887,007        828,521  

Investments in associates and joint ventures

   11      9,538,438        7,404,323  

Property and equipment, net

   12,35,36      10,144,882        10,374,212  

Goodwill

   10,13      1,915,017        1,932,452  

Intangible assets, net

   14      3,586,965        3,776,354  

Long-term loans, net

   7,33,34,35      50,874        65,476  

Long-term accounts receivable - other

   7,33,34,36      287,048        149,669  

Long-term prepaid expenses

        90,834        88,130  

Guarantee deposits

   7,33,34,35      292,590        298,964  

Long-term derivative financial assets

   20,33,34      253,213        214,770  

Defined benefit assets

   19      45,952        30,247  

Deferred tax assets

   30      88,132        75,111  

Other non-current assets

   7,33,34      44,696        61,869  
     

 

 

    

 

 

 

Total Non-Current Assets

        27,226,870        25,301,035  
     

 

 

    

 

 

 

Total Assets

      W 33,428,669        31,297,663  
     

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

3


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 2017 and 2016

 

(In millions of won)    Note      December 31,
2017
    December 31,
2016
 

Liabilities and Shareholders’ Equity

       

Current Liabilities:

       

Short-term borrowings

     15,33,34      W 130,000       2,614  

Current installments of long-term debt, net

     15,33,34        1,530,948       888,467  

Current installments of long-term payables – other

     16,33,34        302,703       301,773  

Accounts payable - trade

     33,34,35        351,711       402,445  

Accounts payable - other

     33,34,35        1,867,074       1,767,799  

Withholdings

     33,34,35        961,501       964,084  

Accrued expenses

     33,34        1,327,906       1,125,816  

Income tax payable

     30        219,791       474,931  

Unearned revenue

        175,732       188,403  

Provisions

     17        52,057       66,227  

Receipts in advance

        161,266       174,588  

Derivative financial liabilities

     20,33,34        28,406       86,950  

Other current liabilities

        28       2  
     

 

 

   

 

 

 

Total Current Liabilities

        7,109,123       6,444,099  
     

 

 

   

 

 

 

Non-Current Liabilities:

       

Debentures, excluding current installments, net

     15,33,34        5,596,570       6,338,930  

Long-term borrowings, excluding current installments, net

     15,33,34        211,486       139,716  

Long-term payables - other

     16,33,34        1,346,763       1,624,590  

Long-term unearned revenue

        7,052       2,389  

Defined benefit liabilities

     19        61,960       70,739  

Long-term derivative financial liabilities

     20,33,34        11,064       203  

Long-term provisions

     17        32,669       31,690  

Deferred tax liabilities

     30        978,693       479,765  

Other non-current liabilities

     33,34        44,094       49,112  
     

 

 

   

 

 

 

Total Non-Current Liabilities

        8,290,351       8,737,134  
     

 

 

   

 

 

 

Total Liabilities

        15,399,474       15,181,233  
     

 

 

   

 

 

 

Shareholders’ Equity

       

Share capital

     1,21        44,639       44,639  

Capital surplus and others

     21,22,23,24        196,281       199,779  

Retained earnings

     25        17,835,946       15,953,164  

Reserves

     26        (234,727     (226,183
     

 

 

   

 

 

 

Equity attributable to owners of the Parent Company

        17,842,139       15,971,399  

Non-controlling interests

        187,056       145,031  
     

 

 

   

 

 

 

Total Shareholders’ Equity

        18,029,195       16,116,430  
     

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

      W 33,428,669       31,297,663  
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

4


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 2017 and 2016

 

(In millions of won except for per share data)    Note      2017     2016  

Operating revenue:

     5, 35       

Revenue

      W 17,520,013       17,091,816  
     

 

 

   

 

 

 

Operating expenses:

     35       

Labor

        1,966,156       1,869,763  

Commissions

        5,486,263       5,376,726  

Depreciation and amortization

     5        3,097,466       2,941,886  

Network interconnection

        875,045       954,267  

Leased line

        342,240       394,412  

Advertising

        522,753       438,453  

Rent

        520,244       517,305  

Cost of products that have been resold

        1,886,524       1,838,368  

Others

     27        1,286,696       1,224,892  
     

 

 

   

 

 

 
        15,983,387       15,556,072  
     

 

 

   

 

 

 

Operating profit

     5        1,536,626       1,535,744  

Finance income

     5, 29        366,561       575,050  

Finance costs

     5, 29        (433,616     (326,830

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

     5, 11        2,245,732       544,501  

Other non-operating income

     5, 28        31,818       66,303  

Other non-operating expenses

     5, 28        (343,872     (298,629
     

 

 

   

 

 

 

Profit before income tax

     5        3,403,249       2,096,139  

Income tax expense

     30        745,654       436,038  
     

 

 

   

 

 

 

Profit for the year

        2,657,595       1,660,101  
     

 

 

   

 

 

 

Attributable to :

       

Owners of the Parent Company

      W 2,599,829       1,675,967  

Non-controlling interests

        57,766       (15,866

Earnings per share

     31       

Basic and diluted earnings per share (in won)

      W 36,582       23,497  
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

5


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2017 and 2016

 

(In millions of won)    Note     2017     2016  

Profit for the year

     W 2,657,595       1,660,101  

Other comprehensive income (loss)

      

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

      

Remeasurement of defined benefit liabilities

     19       5,921       (7,524

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

     26,29       158,440       (223,981

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

     11,26       (141,008     (9,939

Net change in unrealized fair value of derivatives

     20,26,29       22,586       (13,218

Foreign currency translation differences for foreign operations

     26       (46,952     7,331  
    

 

 

   

 

 

 

Other comprehensive loss for the year, net of taxes

 

    (1,013     (247,331
    

 

 

   

 

 

 

Total comprehensive income

     W 2,656,582       1,412,770  
    

 

 

   

 

 

 

Total comprehensive income (loss) attributable to:

 

   

Owners of the Parent Company

     W 2,597,160       1,432,982  

Non-controlling interests

       59,422       (20,212

See accompanying notes to the consolidated financial statements.

 

6


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2017 and 2016

 

(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, 2016

   W 44,639        189,510       15,007,627       9,303       15,251,079       123,017       15,374,096  

Total comprehensive income:

               

Profit (loss) for the year

     —          —         1,675,967       —         1,675,967       (15,866     1,660,101  

Other comprehensive loss

     —          —         (7,499     (235,486     (242,985     (4,346     (247,331
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          —         1,668,468       (235,486     1,432,982       (20,212     1,412,770  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

               

Annual dividends

     —          —         (635,482     —         (635,482     (300     (635,782

Interim dividends

     —          —         (70,609     —         (70,609     —         (70,609

Interest on hybrid bonds

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

Changes in ownership in subsidiaries

     —          10,269       —         —         10,269       42,526       52,795  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          10,269       (722,931     —         (712,662     42,226       (670,436
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

   W 44,639        199,779       15,953,164       (226,183     15,971,399       145,031       16,116,430  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2017

   W 44,639        199,779       15,953,164       (226,183     15,971,399       145,031       16,116,430  

Total comprehensive income:

               

Profit for the year

     —          —         2,599,829       —         2,599,829       57,766       2,657,595  

Other comprehensive income (loss)

     —          —         5,875       (8,544     (2,669     1,656       (1,013
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          —         2,605,704       (8,544     2,597,160       59,422       2,656,582  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

               

Annual dividends

     —          —         (635,482     —         (635,482     (281     (635,763

Interim dividends

     —          —         (70,609     —         (70,609     —         (70,609

Interest on hybrid bonds

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

Share option

     —          414       —         —         414       —         414  

Changes in ownership in subsidiaries

     —          (3,912     9       —         (3,903     (17,116     (21,019
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          (3,498     (722,922     —         (726,420     (17,397     (743,817
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2017

   W 44,639        196,281       17,835,946       (234,727     17,842,139       187,056       18,029,195  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

7


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2017 and 2016

 

(In millions of won)   

Note

   2017      2016  

Cash flows from operating activities:

        

Cash generated from operating activities

        

Profit for the year

      W 2,657,595        1,660,101  

Adjustments for income and expenses

   37      2,096,764        3,039,561  

Changes in assets and liabilities related to operating activities

   37      (261,468      13,764  
     

 

 

    

 

 

 

Sub-total

        4,492,891        4,713,426  

Interest received

        66,713        44,602  

Dividends received

        106,674        98,267  

Interest paid

        (234,127      (245,236

Income tax paid

        (576,331      (367,891
     

 

 

    

 

 

 

Net cash provided by operating activities

        3,855,820        4,243,168  
     

 

 

    

 

 

 

Cash flows from investing activities:

        

Cash inflows from investing activities:

        

Decrease in short-term financial instruments, net

     —          222,322  

Collection of short-term loans

        216,700        238,980  

Decrease in long-term financial instruments

     27        28  

Proceeds from disposals of long-term investment securities

     129,726        555,519  

Proceeds from disposals of investments in associates and joint ventures

     5,925        66,852  

Proceeds from disposals of property and equipment

     29,368        22,549  

Proceeds from disposals of intangible assets

        8,848        16,532  

Collection of long-term loans

        6,205        1,960  

Decrease in deposits

        24,550        14,894  

Proceeds from disposals of other non-current assets

     1,185        728  

Proceeds from disposals of subsidiaries

        30,132        —    

Increase in cash due to merger

        4,112        —    

Receipt of government grants

        —          300  
     

 

 

    

 

 

 

Sub-total

        456,778        1,140,664  

Cash outflows for investing activities:

        

Increase in short-term financial instruments, net

        (156,012      —    

Increase in short-term investment securities, net

        (28,975      (6,334

Increase in short-term loans

        (205,878      (239,303

Increase in long-term loans

        (5,869      (32,287

Increase in long-term financial instruments

        (2,034      (342

Acquisitions of long-term investment securities

        (19,328      (30,949

Acquisitions of investments in associates and joint ventures

     (193,100      (130,388

Acquisitions of property and equipment

        (2,715,859      (2,490,455

Acquisitions of intangible assets

        (145,740      (635,387

Increase in deposits

        (26,377      (12,943

Increase in other non-current assets

        (47      (763

Acquisitions of business, net of cash acquired

        —          (4,498

Acquisitions of subsidiaries, net of cash acquired

        (26,566      (19,032

Liquidation of subsidiary

        (1,600      (191
     

 

 

    

 

 

 

Sub-total

        (3,527,385      (3,602,872
     

 

 

    

 

 

 

Net cash used in investing activities

      W (3,070,607      (2,462,208
     

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

8


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2017 and 2016

 

(In millions of won)   

Note

   2017      2016  

Cash flows from financing activities:

        

Cash inflows from financing activities:

        

Proceeds from short-term borrowings, net

      W 127,386        —    

Proceeds from issuance of debentures

        973,291        776,727  

Proceeds from long-term borrowings

        120,000        49,000  

Cash inflows from settlement of derivatives

        188        251  

Cash inflows from capital increase by subsidiary

        40,938        35,646  
     

 

 

    

 

 

 

Sub-total

        1,261,803        861,624  

Cash outflows for financing activities:

        

Decrease in short-term borrowings, net

        —          (257,386

Repayments of long-term accounts payable-other

        (305,476      (122,723

Repayments of debentures

        (842,733      (770,000

Repayments of long-term borrowings

        (32,701      (33,387

Cash outflows from settlement of derivatives

        (105,269      —    

Payments of finance lease liabilities

        —          (26

Payments of dividends

        (706,091      (706,091

Payments of interest on hybrid bonds

        (16,840      (16,840

Transactions with non-controlling shareholders

     (79,311      —    
  

 

 

    

 

 

 

Sub-total

        (2,088,421      (1,906,453
     

 

 

    

 

 

 

Net cash used in financing activities

        (826,618      (1,044,829
     

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

        (41,405      736,131  

Cash and cash equivalents at beginning of the year

        1,505,242        768,922  

Effects of exchange rate changes on cash and cash equivalents

        (6,102      189  
     

 

 

    

 

 

 

Cash and cash equivalents at end of the year

      W 1,457,735        1,505,242  
     

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

9


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

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 December 31, 2017, 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

     7,392,350        9.16  

Institutional investors and other minority stockholders

     42,853,358        53.07  

Treasury shares

     10,136,551        12.55  
  

 

 

    

 

 

 

Total number of shares

     80,745,711        100.00  
  

 

 

    

 

 

 

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

(2) List of subsidiaries

The list of subsidiaries as of December 31, 2017 and 2016 is as follows:

 

            Ownership (%)(*1)  

Subsidiary

 

Location

 

Primary business

  Dec. 31,
2017
    Dec. 31,
2016
 

Subsidiaries owned by the Parent Company

  SK Telink Co., Ltd.(*2)   Korea  

Telecommunication and MVNO service

    100.0       85.9  
  SK Communications Co.,
Ltd.(*3)
  Korea  

Internet website services

    100.0       64.5  
  SK Broadband Co., Ltd   Korea  

Telecommunication services

    100.0       100.0  
  PS&Marketing Corporation   Korea  

Communications device retail business

    100.0       100.0  
  SERVICEACE Co., Ltd.   Korea  

Customer center management service

    100.0       100.0  
  SERVICE TOP Co., Ltd.   Korea  

Customer center management service

    100.0       100.0  
  Network O&S Co., Ltd.   Korea  

Base station maintenance service

    100.0       100.0  
  SK Planet Co., Ltd.   Korea  

Telecommunication service

    98.1       98.1  
  IRIVER LIMITED (*4, 5)   Korea  

Manufacturing digital audio players and other portable media devices.

    45.9       48.9  
  SK Telecom China Holdings Co., Ltd.   China  

Investment

    100.0       100.0  
  SK Global Healthcare Business Group, Ltd.   Hong Kong  

Investment

    100.0       100.0  
  SKT Vietnam PTE. Ltd.   Singapore  

Telecommunication service

    73.3       73.3  
  SKT Americas, Inc.   USA  

Information gathering and consulting

    100.0       100.0  
  YTK Investment Ltd.   Cayman Islands  

Investment association

    100.0       100.0  
  Atlas Investment   Cayman Islands  

Investment association

    100.0       100.0  
  Entrix Co., Ltd. (*6)   Korea  

Cloud streaming services

    —         100.0  
  SK techx Co., Ltd.   Korea  

System software development and supply

    100.0       100.0  
  One Store Co., Ltd.   Korea  

Telecommunication services

    65.5       65.5  

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

1. Reporting Entity, Continued

 

  (2) List of subsidiaries, Continued

The list of subsidiaries as of December 31, 2017 and 2016 is as follows, Continued:

 

                Ownership (%)(*1)  

Subsidiary

  Location  

Primary business

  Dec. 31,
2017
    Dec. 31,
2016
 

Subsidiaries owned by SK Planet Co., Ltd.

 

SK m&service Co., Ltd.

(formerly, M&Service Co., Ltd.)

  Korea  

Data base and internet website service

    100.0       100.0  
  SK Planet Japan, K. K. (*5)   Japan  

Digital contents sourcing service

    79.5       100.0  
  SK Planet Global PTE. Ltd.   Singapore  

Digital contents sourcing service

    100.0       100.0  
 

SKP GLOBAL HOLDINGS PTE. LTD.

  Singapore  

Investment

    100.0       100.0  
  SKP America LLC.   USA  

Digital contents sourcing service

    100.0       100.0  
 

shopkick Management

Company, Inc.

  USA  

Investment

    100.0       100.0  
  shopkick, Inc.   USA  

Reward points-based in-store shopping app development

    100.0       100.0  
 

Planet11 E-commerce Solutions India Pvt. Ltd.(*6)

  India  

Electronic commerce platform service

    —         99.0  
  11street (Thailand) Co., Ltd.   Thailand  

Electronic commerce

    100.0       100.0  
  Hello Nature Ltd.   Korea  

Retail of agro-fisheries and livestock

    100.0       100.0  

Subsidiaries owned by IRIVER LIMITED

  iriver Enterprise Ltd.   Hong
Kong
 

Management of Chinese subsidiary

    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 MP3,4 in China

    100.0       100.0  
  Dongguan iriver Electronics Co., Ltd.   China  

Sales and manufacturing e-book in China

    100.0       100.0  
  groovers JP Ltd.   Japan  

Digital music contents sourcing and distribution service

    100.0       100.0  
  S.M. LIFE DESIGN COMPANY JAPAN INC.(*6)   Japan  

Selling of goods in Japan

    100.0       —    
  S.M. Mobile Communications JAPAN Inc.(*6)   Japan  

Digital contents service

    100.0       —    

Subsidiaries owned by SK Telink Co., Ltd.

 

NSOK Co., Ltd.

(formerly, Neosnetworks Co., Ltd.) (*7)

  Korea  

Guarding of facilities

    100.0       100.0  

Subsidiaries owned by SK techx Co., Ltd.

  K-net Culture and Contents Venture Fund   Korea  

Capital investing in startups

    59.0       59.0  

Subsidiaries owned by SK Broadband Co., Ltd.

  Home & Service Co., Ltd (*6)   Korea  

Operation of information and communication facility

    100.0       —    
  SK stoa Co., Ltd. (*6)   Korea  

Other telecommunication retail business

    100.0       —    

Others(*8)

  SK Telecom Innovation Fund, L.P.   USA  

Investment

    100.0       100.0  
  SK Telecom China Fund I L.P.   Cayman
Islands
 

Investment

    100.0       100.0  
  Stonebridge Cinema Fund (*6)   Korea  

Capital investing in startups

    —         60.0  

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

1. Reporting Entity, Continued

 

  (2) List of subsidiaries, Continued

The list of subsidiaries as of December 31, 2017 and 2016 is as follows, Continued:

 

(*1) The ownership interest represents direct ownership interest in subsidiaries either by the Parent Company or subsidiaries of the Parent Company.
(*2) On September 28, 2017, the board of directors of the Parent Company resolved to acquire the shares of SK Telink Co., Ltd. held by the non-controlling shareholders of SK Telink Co., Ltd. on December 14, 2017 at W 270,583 per share in cash. The Parent Company paid W 35,281 million in cash, in aggregate, and wholly owns SK Telink Co., Ltd. as of December 31, 2017.
(*3) On November 24, 2016, the board of directors of the Parent Company resolved to acquire all of the shares of SK Communications Co., Ltd. held by the non-controlling shareholders of SK Communications Co., Ltd. on February 7, 2017 at W 2,814 per share in cash. The Parent Company paid W 41,550 million in cash ,in aggregate, and wholly owns SK Communications Co., Ltd. as of December 31, 2017.
(*4) 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.
(*5) The ownership interest changed due to the non-proportional capital increase during the year ended December 31, 2017.
(*6) Details of changes in consolidation scope for the year ended December 31, 2017 are presented in Note 1-(4).
(*7) During the year ended December 31, 2017, Neosnetworks Co., Ltd. changed its name to NSOK Co., Ltd.
(*8) Others are owned together by Atlas Investment and one other subsidiary of the Parent Company.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

1. Reporting Entity, Continued

 

  (3) Condensed financial information of subsidiaries

Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2017 is as follows:

 

(In millions of won)  
     As of December 31, 2017      2017  

Subsidiary

   Total
assets
     Total
liabilities
     Total
equity
     Revenue      Profit
(loss)
 

SK Telink Co., Ltd.

   W 455,685        104,727        350,958        389,944        32,728  

SK m&service Co., Ltd.
(formerly, M&Service Co., Ltd.)

     113,515        62,795        50,720        193,256        1,249  

SK Communications Co., Ltd.

     90,923        28,410        62,513        47,546        (35,454

SK Broadband Co., Ltd.

     3,802,349        2,616,317        1,186,032        3,050,083        32,030  

K-net Culture and Contents Venture Fund

     250,747        35,900        214,847        —          196,250  

PS&Marketing Corporation

     506,883        288,881        218,002        1,766,142        391  

SERVICEACE Co., Ltd.

     77,681        45,501        32,180        197,408        2,599  

SERVICE TOP Co., Ltd.

     65,406        41,860        23,546        186,117        3,309  

Network O&S Co., Ltd.

     87,000        45,248        41,752        255,841        6,283  

SK Planet Co., Ltd.

     1,534,866        920,677        614,189        1,082,685        (513,667

IRIVER LIMITED(*)

     130,878        17,204        113,674        69,452        (14,092

SKP America LLC.

     412,251        —          412,251        —          (57

SK techx Co., Ltd.

     237,700        41,561        196,139        195,948        26,827  

One Store Co., Ltd.

     104,891        39,874        65,017        115,596        (27,254

Home & Service Co., Ltd.

     83,698        38,350        45,348        141,739        11  

shopkick Management Company, Inc.

     338,650        —          338,650        —          (238

shopkick, Inc.

     37,336        32,219        5,117        48,836        (25,249

 

(*) The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and six other subsidiaries of IRIVER LIMITED. Information for the other subsidiaries in the above summary is based on their separate financial statements.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

1. Reporting Entity, Continued

 

  (3) Condensed financial information of subsidiaries, Continued

 

Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2016 is as follows:

 

(In millions of won)  
     As of December 31, 2016      2016  

Subsidiary

   Total
assets
     Total
liabilities
     Total
equity
     Revenue      Profit
(loss)
 

SK Telink Co., Ltd.

   W 440,956        122,741        318,215        406,930        61,585  

SK m&service Co., Ltd.
(formerly, M&Service Co., Ltd.)

     107,768        56,596        51,172        173,816        4,958  

SK Communications Co., Ltd.

     128,233        31,592        96,641        58,154        (20,411

SK Broadband Co., Ltd.

     3,523,494        2,376,429        1,147,065        2,942,976        21,526  

PS&Marketing Corporation

     546,803        328,846        217,957        1,679,735        11,908  

SERVICEACE Co., Ltd.

     67,735        40,014        27,721        199,828        3,605  

SERVICE TOP Co., Ltd.

     59,004        39,121        19,883        186,740        3,971  

Network O&S Co., Ltd.

     69,774        35,798        33,976        218,917        3,755  

SK Planet Co., Ltd.(*1)

     1,935,663        834,151        1,101,512        1,177,323        (30,959

IRIVER LIMITED(*2)

     50,075        11,941        38,134        52,328        (9,987

SKP America LLC.

     439,209        —          439,209        —          1,226  

SK techx Co., Ltd.

     212,819        52,563        160,256        193,396        28,213  

One Store Co., Ltd.

     134,207        41,738        92,469        106,809        (22,161

shopkick Management Company, Inc.

     354,627        —          354,627        —          (85

shopkick, Inc.

     37,947        34,024        3,923        45,876        (27,149

 

(*1) The separate 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 is consolidated financial information including iriver Enterprise Ltd. and five other subsidiaries of IRIVER LIMITED.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

1. Reporting Entity, Continued

 

  (4) Changes in subsidiaries

The list of subsidiaries that were newly included in consolidation during the year ended December 31, 2017 is as follows:

 

Subsidiary

  

Reason

S.M. LIFE DESIGN COMPANY JAPAN INC.
(Refer to Note10)

   Acquired by IRIVER LIMITED

S.M. Mobile Communications JAPAN Inc.
(Refer to Note10)

   Acquired by IRIVER LIMITED

Home & Service Co., Ltd.

   Established by SK Boradband Co., Ltd.

SK stoa Co., Ltd.

   Established by SK Boradband Co., Ltd.

The list of subsidiaries that were excluded from consolidation during the year ended December 31, 2017 is as follows:

 

Subsidiary

  

Reason

Entrix Co., Ltd.

  

Merged into SK techx Co., Ltd. during the year ended December 31, 2017.

Planet11 E-commerce Solutions India Pvt. Ltd.

   Disposed during the year ended December 31, 2017

Stonebridge Cinema Fund

   Liquidated during the year ended December 31, 2017.

 

(5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2017 and 2016 are as follows. There were no dividends paid during the years ended December 31, 2017 and 2016 by subsidiaries of which non-controlling interests are significant.

 

(In millions of won)              
     K-net Culture
and Contents
Venture Fund
     IRIVER
LIMITED
     One Store Co., Ltd.  

Ownership of non-controlling interests (%)

     41.00        54.10        34.46  
     As of December 31, 2017  

Current assets

   W 625        74,873        76,810  

Non-current assets

     250,122        56,005        28,081  

Current liabilities

     (35,900      (9,563      (38,547

Non-current liabilities

     —          (7,641      (1,327

Net assets

     214,847        113,674        65,017  

Carrying amount of non-controlling interests

     88,087        63,382        22,405  
     2017  

Revenue

   W —          69,452        115,596  

Profit (loss) for the year

     196,250        (14,092      (27,254

Total comprehensive profit (loss)

     201,693        (14,278      (27,452

Profit (loss) attributable to non-controlling interests

     80,463        (7,438      (9,392

Net cash provided by (used in) operating activities

   W (7      (7,553      13,912  

Net cash used in investing activities

     (600      (45,002      (2,000

Net cash provided by (used in) financing activities

     —          64,571        (7

Net increase (decrease) in cash and cash equivalents

     (607      12,016        11,905  

 

15


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

1. Reporting Entity, Continued

 

  (5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2017 and 2016 are as follows. There were no dividends paid during the years ended December 31, 2017 and 2016 by subsidiaries of which non-controlling interests are significant, Continued.

 

(In millions of won)      
    SK Communications Co., Ltd.     One Store Co., Ltd.  

Ownership of non-controlling interests (%)

    35.46       34.46  
    As of December 31, 2016  

Current assets

  W 81,806       90,414  

Non-current assets

    46,427       43,793  

Current liabilities

    (30,098     (40,969

Non-current liabilities

    (1,494     (769

Net assets

    96,641       92,469  

Carrying amount of non-controlling interests

    34,265       31,863  
    2016  

Revenue

  W 58,154       106,809  

Loss for the year

    20,411       22,161  

Total comprehensive loss

    20,841       22,402  

Loss attributable to non-controlling interests

    7,240       6,772  

Net cash used in operating activities

  W (4,891     (4,447

Net cash provided by (used in) investing activities

    3,625       (20,796

Net cash provided by financing activities

    —         51,426  

Net increase (decrease) in cash and cash equivalents

    (1,266     26,183  

 

2. Basis of Presentation

 

  (1) Statement of compliance

These consolidated financial statements were prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Stock Companies in the Republic of Korea .

The consolidated financial statements were authorized for issuance by the Board of Directors on February 2, 2018, which will be submitted for approval at the shareholders’ meeting to be held on March 21, 2018.

 

  (2) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statement of financial position:

 

    derivative financial instruments measured at fair value;

 

    financial instruments at fair value through profit or loss measured at fair value;

 

    available-for-sale financial assets measured at fair value; and

 

    liabilities(assets) for defined benefit plans recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

2. Basis of Presentation, Continued

 

  (3) Functional and presentation currency

Financial statements of Group entities within the Group are prepared in functional currency of each group entity, which is the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

 

  (4) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

1) Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in Note 4 for the following areas: consolidation: whether the Group has de facto control over an investee, and classification of lease.

2) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipment and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities, and recognition of deferred tax assets (liabilities).

3) Fair value measurement

A number of the 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 policies and processes with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executives.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of 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.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

2. Basis of Presentation, Continued

 

  (4) Use of estimates and judgments, Continued

3) Fair value measurement, Continued

 

    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); and

 

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

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy 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 34.

 

3. Changes in accounting policies

Except the following amendments to the standards that are effective for annual periods beginning on January 1, 2017, the accounting policies have been applied consistently to all periods presented in these consolidated financial statements.

1) K-IFRS No. 1007, Cash Flow Statements

The Group adopted the amendments to K-IFRS No. 1007, which form a part of the IASB’s broader disclosure in the period beginning on January 1, 2017. The amendment requires the Group to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Group disclosed the reconciliation of the opening and closing balances of liabilities arising from financing activities including changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes in Note 37.

2) K-IFRS No. 1012, Income Taxes

The Group adopted the amendments to K-IFRS No. 1012 in the period beginning January 1, 2017. The amendments clarify the necessity to consider whether there are restrictions on tax laws on the sources of taxable profits which may be used for the reversal of deductible temporary difference. In addition, the amendments provide the guidance on how to estimate the probable future taxable profit and specify the circumstances where an asset can be recovered for more than its carrying amount. These amendments have no impact on the Group’s consolidated financial statements.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies

The significant accounting policies applied by the Group in the preparation of its consolidated financial statements in accordance with K-IFRSs are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

 

  (1) Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group’s operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has four reportable segments which consist of cellular services, fixed-line telecommunication services, e-commerce services and others, as described in Note 5. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

 

  (2) Basis of consolidation

 

  (i) Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. The difference between the acquired company’s fair value and the consideration transferred is accounted for goodwill. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received excluding costs to issue debt or equity securities recognized based on K-IFRS No. 1032 and 1039.

Consideration transferred does not include the amount settled in relation to the pre-existing relationship and the amount settled in relation to the pre-existing relationship is generally recognized through profit or loss.

Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration through profit or loss.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (2) Basis of consolidation, Continued

 

  (ii) Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.

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

 

  (iii) Subsidiaries

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

 

  (iv) Loss of control

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

 

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

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

The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.

 

  (vi) Intra-group transactions

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

 

  (vii) Business combinations under common control

SK Holdings Co., Ltd. is the ultimate controlling entity of the Group. The assets and liabilities acquired under business combination under common control are recognized at the carrying amounts in the ultimate controlling shareholder’s consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from capital surplus and others.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (3) Cash and cash equivalents

Cash and cash equivalents comprise cash balances, call deposits and financial asset with maturities of three months or less from the acquisition date that are easily convertible to cash and subject to an insignificant risk of changes in their fair value.

 

  (4) Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to track inventory quantities, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses.

 

  (5) Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the acquisition of the asset.

 

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

A financial asset is classified as financial asset at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

 

  (ii) Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investment. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

 

  (iii) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (5) Non-derivative financial assets, Continued

 

  (iv) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value with changes in fair value, net of any tax effect, recorded in other comprehensive income (OCI) in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

 

  (v) De-recognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

 

  (vi) Offsetting between financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

 

  (6) Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

 

  (i) Hedge accounting

The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designates derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

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

 

  (i) Hedge accounting, Continued

 

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

 

  (ii) Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

 

  (a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

 

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

 

  (c) the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

 

  (iii) Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (7) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset is impaired includes following loss events:

 

    significant financial difficulty of the issuer or obligor;

 

    a breach of contract, such as default or delinquency in interest or principal payments;

 

    the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

 

    it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

 

    the disappearance of an active market for that financial asset because of financial difficulties; or

 

    observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If financial assets have objective evidence that they are impaired, impairment losses are measured and recognized.

 

  (i) Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. The Group can recognize impairment losses directly or by establishing an allowance account. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed either directly or by adjusting an allowance account.

 

  (ii) Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (7) Impairment of financial assets, Continued

 

  (iii) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss subsequently. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

 

  (8) Property and equipment

Property and equipment are initially measured at cost. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent to initial recognition, an item of property and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of property and equipment at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property and equipment is depreciated over its separate useful life.

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized as other non-operating income (loss).

The estimated useful lives of the Group’s property and equipment are as follows:

 

     Useful lives (years)

Buildings and structures

   15 ~ 40

Machinery

   3 ~ 15

Other property and equipment

   2 ~ 10

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in accounting estimate.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (9) Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period do not exceed the amount of borrowing costs incurred during that period.

 

  (10) Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, club memberships are expected to be available for use as there are no foreseeable limits to the periods. This intangible asset is determined as having indefinite useful lives and not amortized.

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

 

     Useful lives (years)

Frequency usage rights

   5 ~ 13

Land usage rights

   5

Industrial rights

   5, 10

Development costs

   3 ~ 5

Facility usage rights

   10, 20

Customer relations

   3 ~ 7

Other

   3 ~ 20

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (10) Intangible assets, Continued

 

Expenditures on research activities are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

 

  (11) Government grants

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

(i) Grants related to assets

Government grants whose primary condition is that the Group purchases, constructs or otherwise acquires a long-term asset are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii) Grants related to income

Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.

 

  (12) Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over 15~40 years as estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (13) Impairment of non-financial assets

 

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss to the extent the carrying amount of the asset exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the business acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

  (14) Leases

The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i) Finance leases

At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statement of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (14) Leases, Continued

(i) Finance leases, Continued

 

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Group adopts for depreciable assets that are owned. If there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased assets are impaired at the reporting date.

 

  (ii) Operating leases

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

 

  (iii) Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance charge on the liability is recognized using the Group’s incremental borrowing rate of interest.

 

  (15) Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with K-IFRS No. 1036, Impairment of Assets .

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (16) Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

 

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

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issue of the financial liability are recognized in profit or loss as incurred.

 

  (ii) Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the issue of the financial liability. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

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

 

  (17) Employee benefits

 

  (i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

 

  (ii) Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service. The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (17) Employee benefits, Continued

 

  (iii) Retirement benefits: defined contribution plans

When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

 

  (iv) Retirement benefits: defined benefit plans

At of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized at present value of defined benefit obligations net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

 

  (v) Termination benefits

The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, they are discounted to their present value.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (18) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision is used only for expenditures for which the provision was originally recognized.

 

  (19) Transactions in foreign currencies

 

  (i) Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments.

 

  (ii) Foreign operations

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (19) Transactions in foreign currencies, Continued

 

  (ii) Foreign operations, Continued

 

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate at the reporting date.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

 

  (20) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

When the Group repurchases its own shares, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are directly recognized in equity being as transaction with owners

 

  (21) Hybrid bond

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

 

  (22) Share-based Payment

For equity-settled share-based payment transaction, if the fair value of the goods or services received cannot be reliably estimated, the Group measures their value indirectly by reference to the fair value of the equity instruments granted. Related expense, with a corresponding increase in capital surplus and others is recognized over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

 

  (23) Revenue

Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates are recognized as a reduction of revenue.

When two or more revenue generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of account is accounted for separately. The allocation of consideration from a revenue arrangement to its separate units of account is based on the relative fair values of each unit.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (23) Revenue, Continued

 

  (i) Services rendered

Revenue from cellular services consists of revenue from basic charges, voice charges, data charges, data-roaming services and interconnection charges. Such revenues are recognized as services are performed.

Revenue from fixed-line services includes domestic and long-distance call charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed.

Revenue from other services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

 

  (ii) Goods sold

Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

 

  (iii) Commission revenue

In connection with the commission revenue from e-commerce services, the Group has determined that it is acting as an agent due to the followings:

 

    The Group does not bear inventory risk or have responsibility for the delivery goods;

 

    All of the credit risks are borne by suppliers of goods though the Group collects the proceeds from end customers on behalf of the suppliers; and

 

    The Group has no latitude in establishing prices regarding goods sold in e-commerce.

 

  (iv) Customer loyalty programs

For customer loyalty programs, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programs is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Group performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (24) Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on disposal of available-for-sale financial assets, changes in fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.

Finance costs comprise interest expense on borrowings, changes in fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

 

  (25) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

The Group pays income tax in accordance with the tax-consolidation system when the parent company and its subsidiaries are economically unified.

 

  (i) Current tax

In accordance with the tax-consolidation system, the Parent Company calculates current taxes for the Parent Company and its wholly owned domestic subsidiaries and recognizes the income tax payable as current tax liabilities of the Parent Company. Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and includes interests and fines related to income taxes paid or payable. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

 

  (ii) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences, except for the difference associated with investments in subsidiaries and associates that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (25) Income taxes, Continued

 

  (ii) Deferred tax, Continued

 

A deferred tax asset is recognized for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. Future taxable profit is dependent on the reversal of taxable temporary differences. If there are insufficient taxable temporary differences to recognize the deferred tax asset, the business plan of the Group and the reversal of existing temporary differences are considered in determining the future taxable profit.

The Group reviews the carrying amount of a deferred tax asset at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they are intended to be settled current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

 

  (26) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees, if any.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective

The following new standards are effective for annual periods beginning after January 1, 2017 and earlier application is permitted; however, the Group has not early adopted the following new standards in preparing the accompanying consolidate financial statements.

1) K-IFRS No. 1109, Financial Instruments

K-IFRS No. 1109, published on September 25, 2015 which will replace the K-IFRS No. 1039 Financial Instruments: Recognition and Measurement , is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Group currently plans to apply K-IFRS No.1109 in the period beginning on January 1, 2018.

K-IFRS No. 1109 will be applied retrospectively with exemption allowing the Group not to restate comparative information for prior periods with respect to classification and measurement changes. The Group will recognize any difference on the measurement of financial assets and liabilities in the opening balance of retained earnings of the year beginning January 1, 2018. In the case of hedge accounting, the prospective application is allowed except for those specified in K-IFRS No. 1109 such as accounting for the time value of options and the forward element of forward contracts which requires retrospective application.

Key features of K-IFRS No. 1109 includes new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics, impairment model based on changes in expected credit losses, and new approach to hedge qualification and methods for assessing hedge effectiveness.

To ensure smooth implementation of K-IFRS No.1109, the Group needs to assess the financial impact of adopting K-IFRS No. 1109, to formulate the accounting policy, and to design, implement and enhance the accounting system and related controls. The expected quantitative impact of adopting K-IFRS No. 1109 on the Group’s financial statements cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds and economic conditions at that time as well as accounting elections and judgments that it will make in the future.

Based on the circumstances and information available as of December 31 2017, the Group preliminary assessed the financial impact on its consolidated financial statements resulting from the adoption of K-IFRS No. 1109. The results of the preliminary assessment are as follows. The results are subject to change according to the additional information available in subsequent periods.

i) Classification and measurement of financial assets

Classification of financial assets under K-IFRS No. 1109 is driven by the entity’s business model for managing financial assets and their contractual cash flows. This contains three principal classification categories: financial assets measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). Derivatives embedded in contracts where the host is a financial asset are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Details of the classification based on business models and contractual cash flows are as follows:

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective, Continued

1) K-IFRS No. 1109, Financial Instruments , Continued

i) Classification and measurement of financial assets, Continued

 

Business model assessment (*1)

  

Contractual cash flow characteristics

  

Solely payments of principal

and interest

  

Others

Hold to collect contractual cash flows

   Amortized cost(*2)   

 

FVTPL-measured at fair value (*3)

 

Hold to collect contractual cash flows and sell financial assets

  

 

FVOCI- measured at fair value (*2)

  

Hold to sell financial assets and others

   FVTPL-measured at fair value   

 

(*1) The business model will be assessed at portfolio level.
(*2) To eliminate or significantly reduce the accounting mismatch, the Group may irrevocably designate a financial asset as measured at FVTPL using the fair value option at initial recognition.
(*3) Equity instruments that are not held for trading may be irrevocably designated as FVOCI using the fair value option. This election will be made on an investment-by-investment basis.

As new classification requirements for financial assets under K-IFRS No. 1109 are more stringent than requirements under K-IFRS No. 1039, the adoption of the new standard may result in increase in financial assets designated as FVTPL and higher volatility in profit or loss of the Group. As of December 31, 2017, the Group’s financial assets consist of W 6,176,575 million of loans and receivables, W 934,390 million of available-for-sale financial assets, and W 328,314 million of financial assets at fair value through profit or loss.

A financial asset is measured at amortized cost under K-IFRS No. 1109 if the asset is held by the Group to collect its contractual cash flows and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2017, the Group has W 6,176,575 million of loans and receivables measured at amortized cost.

Based on preliminary assessment, most of the Group’s loans and receivables are held to collect their contractual cash flows and the asset’s contractual cash flows represent solely payments of principal and interest. Though some are held for collecting the asset’s contractual cash flows and sale, management does not expect this to have a significant impact due to the short term nature of the receivables.

A financial asset is measured at FVOCI under K-IFRS No. 1109 if the objective of the business model is achieved both by collecting contractual cash flows and selling financial assets; and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2017, the Group has W 19,928 million of debt instruments classified as available-for-sale financial assets.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective, Continued

1) K-IFRS No. 1109, Financial Instruments , Continued

i) Classification and measurement of financial assets, Continued

 

Most of the debt instruments held by the Group classified as available-for-sale financial assets are expected to be classified as financial assets measured at FVOCI upon adoption K-IFRS No. 1109 as at January 1, 2018. Therefore, management does not expect there to be a significant impact.

Under K-IFRS No. 1109, equity instruments that are not held for trading may be irrevocably designated as FVOCI on initial recognition with no recycling of amounts from OCI to profit and loss. As of December 31, 2017, the Group has W 914,462 million of available-for-sale equity instruments.

As the Group plans to classify the equity instruments with long-term investment purposes to financial assets measured at FVOCI under K-IFRS No. 1109, the Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements except no recycling of amounts from OCI to profit and loss is allowed.

All other financial assets are measured at FVTPL. As of December 31, 2017, the Group has W 97,003 million of debt instruments classified as financial assets at FVTPL.

Most of the financial assets classified as FVTPL under K-IFRS No. 1039 of the Group are expected to be designated as financial assets measured at FVTPL under K-IFRS No. 1109. Therefore, the Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of K-IFRS No. 1109 as at January 1, 2018.

ii) Classification and measurement of financial liabilities

Under K-IFRS No. 1109, for the financial liabilities designated as FVTPL using the fair value option, the element of gains or losses attributable to changes in the own credit risk should normally be recognized in OCI, with the remainder recognized in profit or loss. These amounts recognized in OCI are not recycled to profit or loss even when the liability is derecognized. However, if presentation of the fair value change in respect of the liability’s credit risk in OCI results in or enlarges an accounting mismatch in profit or loss, gains and losses are entirely presented in profit or loss.

Adoption of K-IFRS No. 1109 may result in decrease in profit or loss, since the amount of fair value changes that is attributable to changes in the credit risk of the liability will be presented in OCI.

As of December 31, 2017, the Group’s total financial liability amounts to W 12,725,704 million, among which the financial liabilities designated as FVTPL using fair value option amount to W 60,278 million.

As of December 31, 2017, most of the financial liabilities designated as FVTPL of the Group have short-term maturities with no significant changes in their credit risks. The Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements if K-IFRS No. 1109 were applied at December 31, 2017.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective, Continued

1) K-IFRS No. 1109, Financial Instruments , Continued

 

iii) Impairment: financial assets and contract assets

The current impairment requirements under K-IFRS No. 1039 are based on an ‘incurred loss model’, where the impairment exists if there is objective evidence as a result of one or more events that occurred after the initial recognition of an asset. However, K-IFRS No. 1109 replaces the incurred loss model in K-IFRS No. 1039 with an ‘expected credit loss model’ which applies to debt instruments measured at amortized cost or at fair value through other comprehensive income.

Under K-IFRS No. 1109, the Group should recognize a loss allowance or provision at an amount equal to 12-month expected credit losses or lifetime expected credit losses for financial assets determined by the extent of probable credit deterioration since initial recognition as explained below. Therefore, the new impairment requirements are expected to result in earlier recognition of credit losses compared to the incurred loss model of K-IFRS No. 1039.

 

Stages (*1)

  

Loss allowances

Stage 1

   No significant increase in credit risk since initial recognition (*2)    Loss allowances are determined for the amount of the expected credit losses that result from default events that are possible within 12 months after the reporting date.

Stage 2

   Significant increase in credit risk since initial recognition    Loss allowances are determined for the amount of the expected credit losses that result from all possible default events over the expected life of the financial instrument.

 

Stage 3

  

 

Objective evidence of credit risk impairment

  

 

(*1) Under K-IFRS No. 1115, Revenue from Contracts with Customers (see note 4 (27) (2)), for trade receivables and contract assets arising with no significant credit risk, loss allowances are recognized at an amount equal to lifetime expected credit losses. However, for trade receivables and contract assets with a significant financing component arising under K-IFRS No. 1115, the Group may choose as its accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses. In addition, for receivables under lease arrangement, the Group may choose to recognize loss allowances at an amount equal to lifetime expected credit losses. The Group expects to perform the analysis on whether there was a significant increase in credit risk on collective basis instead of on individual instrument basis. In addition, when information that is more forward-looking than past due status is not available without undue cost or effort, the Group expects to use past due information to determine whether there have been significant increases in credit risk since initial recognition.
(*2) The Group may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective, Continued

1) K-IFRS No. 1109, Financial Instruments , Continued

iii) Impairment: financial assets and contract assets, Continued

 

K-IFRS No. 1109 allows the Group to only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for purchased or originated credit-impaired financial assets at the reporting date. As of December 31, 2017, the Group has W 6,176,575 million of debt instrument financial assets measured at amortized cost and W 362,171 million as loss allowances for these assets. The Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of K-IFRS No. 1109 on January 1, 2018.

iv) Hedge accounting

K-IFRS No. 1109 maintains the mechanics of hedge accounting from those in K-IFRS No. 1039. However, K-IFRS No. 1109 replaces existing rule-based requirements under K-IFRS No. 1039 that are complex and difficult to apply with principle based requirement focusing more on the Group’s risk management purposes and procedures. Under K-IFRS No. 1109, more hedging instruments and hedged items are permitted and 80%-125% effectiveness requirement is removed.

By complying with the hedging rules in K-IFRS No. 1109, the Group may apply hedge accounting for transactions that currently do not meet the hedging criteria under K-IFRS No. 1039 thereby reducing volatility in profit or loss. As of December 31, 2016, the Group recognized the total amount of W 2,026,434 million as hedged liabilities that applied hedge accounting and changes in fair value of cash flow hedge in the amount of W 73,828 million was recognized in OCI for the year ended December 31, 2017.

Upon initial application of K-IFRS No. 1109, the Group may choose as its accounting policy to continue to apply hedge accounting requirements under K-IFRS No. 1039 instead of the requirements in K-IFRS No. 1109.

The Group is yet to decide on its accounting policy whether to continuously apply the hedge accounting requirements of K-IFRS No. 1039 instead of the requirements in K-IFRS No. 1109 when initially applying K-IFRS No. 1109. The Group designates derivatives such as currency swaps as hedging instruments to hedge the risk of variability in cash flows associated with the foreign currency debentures and borrowings. As the Group’s hedging instruments as of December 31, 2017 satisfy the hedge requirements of retrospective testing (80~125%) under K-IFRS No. 1039, the adoption of K-IFRS No. 1109 is not expected to have material impact on the Group’s consolidated financial statements.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective, Continued

 

2) K-IFRS No. 1115, Revenue from Contracts with Customers

K-IFRS No. 1115, Revenue from Contracts with Customers , published on November 6, 2015 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. It replaces existing revenue recognition guidance, including K-IFRS No. 1018, Revenue , K-IFRS No. 1011, Construction Contracts , K-IFRS No. 2031, Revenue: Barter Transactions Involving Advertising Services , K-IFRS No. 2113, Customer Loyalty Programs , K-IFRS No. 2115, Agreements for the Construction of Real Estate , and K-IFRS No. 2118, Transfers of Assets from Customers . The Group plans to adopt K-IFRS No. 1115 on January 1, 2018. The Group plans to apply K-IFRS No. 1115 by recognizing the cumulative effect of initially applying the K-IFRS No. 1115 as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) of the year beginning January 1, 2018. The Group elected to apply K-IFRS No. 1115 retrospectively only to contracts that are not completed contracts at the date of initial application (January 1, 2018) using the transition method permitted by K-IFRS No. 1115.

K-IFRS No. 1018 provides separate revenue recognition criteria by transaction type which include sale of goods, rendering of services, and use of entity assets by others yielding interest, royalties and dividends. However, K-IFRS No. 1115 introduces a five-step model for revenue recognition that focuses on the ‘transfer of control’ rather than the ‘transfer of risks and rewards’. The steps in five-step model are as follows:

 

    identification of the contract with a customer;

 

    identification of the performance obligations in the contract;

 

    determination of the transaction price;

 

    allocation of the transaction price to the performance obligations in the contract; and

 

    recognition of revenue when (or as) the entity satisfies a performance obligation.

The Group updated its accounting system and related controls based on the understanding of the revenue stream of the Group with the assistance of external information technology and accounting specialists. The Group is assessing the financial impact of the adoption of K-IFRS No. 1115 on its consolidated financial statements and plans to complete the assessment by March 31, 2018. The results of the assessment will be disclosed in the Group’s condensed consolidated interim financial statements for the three-month period ending March 31, 2018.

Based on the circumstances and information available as of December 31, 2017, the Group preliminarily assessed the financial impact on its consolidated financial statements resulting from the adoption of K-IFRS No. 1115. The results of the preliminary assessment are as follows. The results are subject to change according to the additional information available to use in subsequent periods.

i) Identification of performance obligations in the contract

A substantial portion of the Group’s revenues are generated from provision of wireless telecommunications services. K-IFRS No. 1115 requires the Group to evaluate goods or services promised to customers to determine if they are performance obligations other than wireless telecommunications service that should be accounted for separately. The amount and timing of revenue recognition under K-IFRS No. 1105 may be different from those under K-IFRS No. 1018 depending on the conclusion over the existence of separately identifiable performance obligations and the timing of satisfying each performance obligation.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective, Continued

2) K-IFRS No. 1115, Revenue from Contracts with Customers , Continued

i) Identification of performance obligations in the contract, Continued

 

In the case that the Group provides the wireless telecommunications services and a handset to one customer, the Group will allocate considerations from the customer between handset sale revenue and wireless telecommunications service revenue. The handset sales revenue is recognized when handset is sold and the wireless telecommunications service revenue is recognized as revenue over the period of the contract term as stated in the subscription contract.

ii) Allocate the transaction price to the separate performance obligations

In accordance with K-IFRS No. 1115, the Group should allocate the transaction price to each performance obligation in a contract in proportion to their stand-alone selling price. The Group plans to use adjusted market assessment method for estimating the stand-alone selling price. However, in some circumstances, ‘expected cost plus a margin’ approach will be used.

The Group is in the progress of assessing the financial impact of allocating the transaction price to each performance obligation in a contract in proportion to their stand-alone selling price for the case where the Group provides the wireless telecommunications services and handset to one customer. Based on the preliminary assessment, the Group expects that wireless telecommunications service revenue will be decreased, while handset sale revenue will be increased upon adoption of K-IFRS No. 1115.

iii) Incremental costs to acquire a contract

The Group has exclusive contracts with its sales agents to sell the Group’s wireless telecommunications services to subscribers. These agents receive commissions depending on the number of subscribers newly added and retained. The commissions paid to the agents constitute a significant portion of the Group’s operating expenses. Currently, the portion of these commissions that would not have been incurred if there have been no binding contracts with the subscribers are expensed.

Under K-IFRS No. 1115, for the Group’s incremental costs to acquire a subscription contract, the Group expects to capitalize such amounts and amortized over the expected subscription period estimated based on historical experience. However, as a practical expedient, the Group plans to expense the incremental cost as incurred if the amortization period of the contract acquisition and fulfillment cost is considered to be not longer than one year.

As of December 31, 2017, the Group is assessing the impact of capitalizing the incremental costs associated with obtaining customer contracts. Based on the preliminary assessment, the Group expects commission expenses to decrease, while corresponding assets capitalized (incremental costs of obtaining a contract) and amortization expenses to be recognized and incurred, respectively.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

4. Significant Accounting Policies, Continued

 

  (27) Standards issued but not yet effective, Continued

 

3) K-IFRS No. 1116, Leases

K-IFRS No. 1116, published on May 22, 2017 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. K-IFRS No. 1116 replaces existing leases guidance including K-IFRS No. 1017, Leases , K-IFRS No. 2104, Determining whether an Arrangement contains a Lease , K-IFRS No.2015, Operating Leases - Incentives and K-IFRS No. 2027, Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

K-IFRS No. 1116, at the inception date of a contract and the first implementation of the standard, requires the Group to determine whether a contract is, or contains, a lease unless the Group applies the practical expedient for the existing lease contract at the date of adoption of the standard.

When accounting for lease, lessee and lessor should account for each lease component within the contract as a lease separately from non-lease components of the contract.

Lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. However, there are optional exemptions for short-term leases and leases of low value items. As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.

Lessor accounting remains similar to the current standard K-IFRS No. 1017. For a sale and leaseback arrangement, K-IFRS No. 1116 requires the Group to apply the requirements for determining when a performance obligation is satisfied in K-IFRS No. 1115 to determine whether the transfer of an asset is accounted for as a sale of that asset. However, sale and leaseback arrangements entered into before the adoption of K-IFRS No. 1116 may not be reassessed.

i) Lease accounting for lessees

As a lessee, the Group can either apply the K-IFRS No. 1116 using a full retrospective approach; or modified retrospective approach. The full retrospective approach requires the Group to retrospectively apply the new standard to each prior reporting period presented, while modified retrospective approach requires the lessee to recognize the cumulative effect of initial application at the date of initial application of the new leases standard.

ii) Lease accounting for lessors

In case where the Group is an intermediate lessor, the Group should reassess subleases that were classified as operating leases applying K-IFRS No. 1017 and are ongoing at the date of initial application, whether each sublease should be classified as an operating lease or a finance lease applying K-IFRS No. 1116. For subleases that were classified as operating leases applying K-IFRS No. 1017 but finance leases applying K-IFRS No. 1116, the Group should accounts for such sublease as a new finance lease entered into at the date of initial application of K-IFRS No. 1116.

The Group plans to update its accounting system and related controls and complete the assessment of impact on its consolidated financial statements resulting from the adoption of K-IFRS No. 1116 by December 31, 2018.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

5. Operating Segments

The Group’s operating segments have been identified to be each business unit, by which the Group provides independent services and merchandise. The Group’s reportable segments are cellular services, which include cellular voice service, wireless data service and wireless internet services; fixed-line telecommunication services, which include telephone services, internet services, and leased line services; e-commerce services, which include online commerce services; and all other businesses, which include the Group’s internet portal services and other immaterial operations, each of which does not meet the quantitative threshold to be considered as a reportable segment and are presented collectively as others.

 

  (1) Segment information for the year ended December 31, 2017 is as follows:

 

(In millions of won)  
     2017  
     Cellular
Services
     Fixed-line
telecommu-
nication

services
     E-commerce
Services
    Others     Sub-total      Adjustments     Total  

Total revenue

   W 14,873,543        3,586,887        1,091,903       788,836       20,341,169        (2,821,156     17,520,013  

Inter-segment revenue

     1,611,408        862,736        47,732       299,280       2,821,156        (2,821,156     —    

External revenue

     13,262,135        2,724,151        1,044,171       489,556       17,520,013        —         17,520,013  

Depreciation and amortization

     2,390,016        592,877        54,486       60,087       3,097,466        —         3,097,466  

Operating profit (loss)

     1,714,078        167,515        (267,829     (77,138     1,536,626        —         1,536,626  

Finance income and costs, net

 

    (67,055

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

 

    2,245,732  

Other non-operating income and expense, net

 

    (312,054

Profit before income tax

 

    3,403,249  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

5. Operating Segments, Continued

 

  (2) Segment information for the year ended December 31, 2016 is as follows:

 

(In millions of won)  
     2016  
     Cellular
Services
     Fixed-line
telecommu-
nication

services
     E-commerce
Services
    Others     Sub-total      Adjustments     Total  

Total revenue

   W 14,635,720        3,349,905        1,177,323       726,374       19,889,322        (2,797,506     17,091,816  

Inter-segment revenue

     1,630,811        698,712        176,007       291,976       2,797,506        (2,797,506     —    

External revenue

     13,004,909        2,651,193        1,001,316       434,398       17,091,816        —         17,091,816  

Depreciation and amortization

     2,262,363        551,811        68,298       59,414       2,941,886        —         2,941,886  

Operating profit (loss)

     1,799,127        132,459        (365,194     (30,648     1,535,744        —         1,535,744  

Finance income and costs, net

 

    248,220  

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

 

    544,501  

Other non-operating income and expense, net

 

    (232,326

Profit before income tax

 

    2,096,139  

Since there are no intersegment sales of inventory or depreciable assets, there is no unrealized intersegment profit to be 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 years ended December 31, 2017 and 2016.

 

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Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

6. Restricted Deposits

Deposits which are restricted in use as of December 31, 2017 and 2016 are summarized as follows:

 

(In millions of won)              
     December 31,
2017
     December 31,
2016
 

Short-term financial instruments(*)

   W 89,850        90,278  

Long-term financial instruments(*)

     1,222        937  
  

 

 

    

 

 

 
   W 91,072        91,215  
  

 

 

    

 

 

 

 

(*) Financial instruments include charitable trust fund established by the Group where profits from the fund are donated to charitable institutions. As of December 31, 2017, the funds cannot be withdrawn before maturity.

 

7. Trade and Other Receivables

 

  (1) Details of trade and other receivables as of December 31, 2017 and 2016 are as follows:

 

(In millions of won)    December 31, 2017  
     Gross
amount
     Allowances for
doubtful accounts
     Carrying
amount
 

Current assets:

        

Accounts receivable – trade

   W 2,365,270        (239,263      2,126,007  

Short-term loans

     63,380        (550      62,830  

Accounts receivable – other

     1,336,247        (75,412      1,260,835  

Accrued income

     3,979        —          3,979  

Others

     3,927        —          3,927  
  

 

 

    

 

 

    

 

 

 
     3,772,803        (315,225      3,457,578  

Non-current assets:

        

Long-term loans

     97,635        (46,761      50,874  

Long-term accounts receivable - other

     287,048        —          287,048  

Guarantee deposits

     292,590        —          292,590  

Long-term accounts receivable - trade

     12,933        (185      12,748  
  

 

 

    

 

 

    

 

 

 
     690,206        (46,946      643,260  
  

 

 

    

 

 

    

 

 

 
   W 4,463,009        (362,171      4,100,838  
  

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

7. Trade and Other Receivables, Continued

 

  (1) Details of trade and other receivables as of December 31, 2017 and 2016 are as follows, Continued:

 

(In millions of won)    December 31, 2016  
     Gross
amount
     Allowances for
doubtful accounts
     Carrying
amount
 

Current assets:

        

Accounts receivable – trade

   W 2,482,502        (241,576      2,240,926  

Short-term loans

     59,526        (547      58,979  

Accounts receivable – other

     1,200,421        (78,977      1,121,444  

Accrued income

     2,780        —          2,780  

Others

     3,937        —          3,937  
  

 

 

    

 

 

    

 

 

 
     3,749,166        (321,100      3,428,066  

Non-current assets:

        

Long-term loans

     113,456        (47,980      65,476  

Long-term accounts receivable - other

     149,669        —          149,669  

Guarantee deposits

     298,964        —          298,964  

Long-term accounts receivable - trade

     20,637        (252      20,385  
  

 

 

    

 

 

    

 

 

 
     582,726        (48,232      534,494  
  

 

 

    

 

 

    

 

 

 
   W 4,331,892        (369,332      3,962,560  
  

 

 

    

 

 

    

 

 

 

 

  (2) Changes in allowances for doubtful accounts of trade and other receivables for the years ended December 31, 2017 and 2016 are as follows:

 

(In millions of won)       
     2017      2016  

Balance at January 1

   W 369,332        344,016  

Bad debt expense

     40,377        78,132  

Write-offs

     (70,802      (79,891

Other

     23,264        27,075  
  

 

 

    

 

 

 

Balance at December 31

   W 362,171        369,332  
  

 

 

    

 

 

 

 

  (3) Details of overdue but not impaired, and impaired trade and other receivable as of December 31, 2017 and 2016 are as follows:

 

(In millions of won)  
     December 31, 2017      December 31, 2016  
     Accounts
receivable -
 trade
     Other
receivables
     Accounts
receivable -
 trade
     Other
receivables
 

Neither overdue nor impaired

   W 1,585,714        1,930,261        1,715,966        1,617,349  

Overdue but not impaired

     29,304        3,113        41,613        5,663  

Impaired

     763,185        151,432        745,560        205,741  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,378,203        2,084,806        2,503,139        1,828,753  

Allowances for doubtful accounts

     (239,448      (122,723      (241,828      (127,504
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,138,755        1,962,083        2,261,311        1,701,249  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

7. Trade and Other Receivables, Continued

 

  (4) The aging of overdue but not impaired accounts receivable as of December 31, 2017 and 2016 are as follows:

 

(In millions of won)       
     December 31, 2017      December 31, 2016  
     Accounts
receivable
- trade
     Other
receivables
     Accounts
receivable
- trade
     Other
receivables
 

Less than 1 month

   W 7,150        2,679        11,543        2,838  

1 ~ 3 months

     1,663        44        9,144        140  

3 ~ 6 months

     1,576        124        4,643        1  

More than 6 months

     18,915        266        16,283        2,684  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 29,304        3,113        41,613        5,663  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

8. Inventories

Details of inventories as of December 31, 2017 and 2016 are as follows:

 

(In millions of won)  
     December 31, 2017      December 31, 2016  
   Acquisition
cost
     Write-
down
    Carrying
amount
     Acquisition
cost
     Write-
down
    Carrying
amount
 

Merchandise

   W 251,463        (7,488     243,975        232,871        (6,913     225,958  

Finished goods

     1,889        (557     1,332        1,931        (363     1,568  

Work in process

     1,906        (956     950        2,895        (347     2,548  

Raw materials and supplies

     29,395        (3,249     26,146        31,141        (1,369     29,772  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   W 284,653        (12,250     272,403        268,838        (8,992     259,846  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

9. Investment Securities

 

  (1) Details of short-term investment securities as of December 31, 2017 and 2016 are as follows:

 

(In millions of won)              
     December 31, 2017      December 31, 2016  

Beneficiary certificates(*)

   W 144,386        107,364  

 

(*) The income distributable in relation to beneficiary certificates as of December 31, 2017 were accounted for as accrued income.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

9. Investment Securities, Continued

 

  (2) Details of long-term investment securities as of December 31, 2017 and 2016 are as follows:

 

(In millions of won)              
     December 31, 2017      December 31, 2016  

Equity securities:

     

Marketable equity securities(*)

   W 589,202        526,363  

Unlisted equity securities etc.

     277,877        295,403  
  

 

 

    

 

 

 
     867,079        821,766  

Debt securities:

     

Investment bonds

     19,928        6,755  
  

 

 

    

 

 

 
   W 887,007        828,521  
  

 

 

    

 

 

 

 

(*) During the year ended December 31, 2016, the Group sold 3,793,756 shares of Loen Entertainment, Inc. to Kakao Corp. in exchange for 1,357,367 shares of Kakao Corp. and W 218,037 million in cash. In connection with the sale of Loen Entertainment shares, the Group recognized gain on disposal of long-term investment securities amounting to W 314,745 million.

The Group recognized gain on disposal amounting to W 138,779 million as the Group disposed its entire marketable equity securities of POSCO Co., Ltd. for W 305,110 million of cash during the year ended December 31, 2016.

In addition, the Group sold 1,357,367 shares of Kakao Corp. in exchange for W 112,649 million in cash during the year ended December 31, 2017. In connection with the sale of Kakao Corp. shares, the Group recognized loss on disposal of long-term investment securities amounting to W 35,468 million.

 

10. Business Combination

 

  (1) 2017

 

  1) Acquisition of S.M. LIFE DESIGN COMPANY JAPAN INC. by IRIVER LIMITED

On September 1, 2017, IRIVER LIMITED, a subsidiary of the Parent Company, acquired all of the S.M. LIFE DESIGN COMPANY JAPAN INC.’s shares from S.M. ENTERTAINMENT JAPAN, Inc. in order to enter overseas business and enhance its competitiveness with the consideration of W 30,000 in cash. The Group recognized the difference between the consideration paid and the fair value of net assets acquired amounting to W 21,748 million as goodwill. Subsequent to the acquisition, S.M. LIFE DESIGN COMPANY JAPAN INC. recognized revenues and net profit of amounting to W 6,365 million and W 1,244 million, respectively, in 2017.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

10. Business Combination, Continued

 

  (1) 2017, Continued

 

  2) Merger of SM mobile communications Co., Ltd. by IRIVER LIMITED

On October 1, 2017, IRIVER LIMITED merged SM mobile communications Co., Ltd. in order to enter contents business and enhance competitiveness of its device business. As a result of merger, IRIVER LIMITED obtained controls over S.M. Mobile Communications JAPAN Inc. which was wholly owned by SM mobile communications Co., Ltd. The consideration transferred was measured at the fair value of the shares transferred based on the merger ratio set on October 1, 2017. The Group recognized the difference between the consideration and the fair value of net assets amounting to W 13,473 million as goodwill. Subsequent to the consummation of the merger, S.M. Mobile Communications JAPAN Inc. recognized no revenue with W 103 million of net loss in 2017.

 

  3) Considerations paid and assets and liabilities recognized at the acquisition date are as follows:

 

(In millions of won)              
     S.M. LIFE DESIGN
COMPANY JAPAN INC.
     S.M. Mobile
Communications JAPAN Inc.
 

Considerations paid:

     

Cash and cash equivalents

   W 30,000        —    

Shares of IRIVER LIMITED

     —          24,650  

Assets and liabilities acquired:

     

Cash and cash equivalents

   W 3,434        4,112  

Trade and other receivables

     1,471        237  

Inventories

     1,879        —    

Property and equipment

     4        311  

Intangible assets

     6,677        7,445  

Other assets

     —          41  

Trade and other payables

     (2,563      (815

Deferred tax liabilities

     (2,324      —    

Other liabilities

     (326      (154
  

 

 

    

 

 

 

Net assets

   W 8,252        11,177  
  

 

 

    

 

 

 

 

  (2) 2016

During the year ended December 31, 2016, the Parent Company distributed its entire ownership interests in Neosnetworks Co., Ltd. to SK Telink Co., Ltd., a subsidiary of the Parent Company, as contribution in kind. Neosnetworks Co., Ltd. became a wholly owned subsidiary of SK Telink Co., Ltd. As this transaction is a business combination under common control, SK Telink Co., Ltd. recognized the book value of the assets and liabilities of Neosnetworks Co., Ltd. in its financial statements. There’s no effect on the assets and liabilities of the consolidated financial statements.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

11. Investments in Associates and Joint Ventures

 

  (1) Investments in associates and joint ventures accounted for using the equity method as of December 31, 2017 and 2016 are as follows:

 

(In millions of won)          December 31, 2017     December 31, 2016  
     Country     Ownership
(%)
    Carrying
amount
    Ownership
(%)
    Carrying
amount
 

Investments in associates:

          

SK China Company Ltd.(*1)

     China       27.3     W 526,099       9.6     W 46,354  

Korea IT Fund(*2)

     Korea       63.3       257,003       63.3       263,850  

KEB HanaCard Co., Ltd.(*3)

     Korea       15.0       280,988       15.0       265,798  

NanoEnTek, Inc.

     Korea       28.5       38,718       28.5       39,514  

SK Industrial Development China Co., Ltd.(*1)

     Hong Kong       —         —         21.0       74,717  

SK Technology Innovation Company

     Cayman Islands       49.0       42,511       49.0       47,488  

HappyNarae Co., Ltd. (*4)

     Korea       45.0       21,873       42.5       17,236  

SK hynix Inc.

     Korea       20.1       8,130,000       20.1       6,132,122  

SK MENA Investment B.V.

     Netherlands       32.1       13,853       32.1       15,451  

SKY Property Mgmt. Ltd.(*1)

     Virgin Island       —         —         33.0       263,225  

S.M. Culture & Contents Co., Ltd. (*5)

     Korea       23.4       64,966       —         —    

Xian Tianlong Science and Technology Co., Ltd.

     China       49.0       25,891       49.0       25,880  

Daehan Kanggun BcN Co., Ltd. and others

     —         —         96,479       —         115,181  
      

 

 

     

 

 

 

Sub-total

         9,498,381         7,306,816  
      

 

 

     

 

 

 

Investments in joint ventures:

          

Dogus Planet, Inc.(*6)

     Turkey       50.0       13,991       50.0       20,081  

PT XL Planet Digital(*7)

     Indonesia       —         —         50.0       27,512  

Finnq Co. Ltd.(*8)

     Korea       49.0       16,474       49.0       24,174  

Celcom Planet and others

     —         —         9,592       —         25,740  
      

 

 

     

 

 

 

Sub-total

         40,057         97,507  
      

 

 

     

 

 

 

Total

       W 9,538,438       W 7,404,323  
      

 

 

     

 

 

 

 

(*1) During the year ended December 31, 2017, the Group contributed its shares in SKY Property Mgmt. Ltd. and SK Industrial Development China Co., Ltd., both the equity method investees of the Group, to SK China Company Ltd., and participated in SK China Company Ltd.’s rights issue amounting to USD 100,000,000, which resulted in Group’s acquiring 8,101,884 and 2,107,037 shares of SK China Company Ltd., respectively.
(*2) Investment in Korea IT Fund was classified as investment in associates as the Group does not have control over Korea IT Fund under the contractual agreement with other shareholders.
(*3) This investment was 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.
(*4) The Group acquired 40,000 shares of HappyNarae Co., Ltd. at W 17,212 per share during the year ended December 31, 2017.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

11. Investments in Associates and Joint Ventures, Continued

 

  (1) Investments in associates and joint ventures accounted for using the equity method as of December 31, 2017 and 2016 are as follows, Continued:

 

(*5) During the year ended December 31, 2017, the Group subscribed to a third-party allocation of new shares of 22,033,898 by S.M. Culture & Contents Co., Ltd. at W 65,341 million in cash.
(*6) The investment is held by SK Planet Co., Ltd.
(*7) PT XL Planet Digital was disposed during the year ended December 31, 2017.
(*8) Investment in Finnq Co., Ltd. was classified as investment in joint venture as the Group has joint control pursuant to the agreement with the other shareholders.

 

  (2) The market price of investments in listed associates as of December 31, 2017 and 2016 are as follows:

 

(In millions of won, except for share data)  
     December 31, 2017     December 31, 2016  
   Market
value per
share

(in won)
    Number of
shares
    Fair value     Market
value per
share

(in won)
    Number of
shares
    Fair value  

NanoEnTek, Inc.

   W 5,950       6,960,445       41,415       5,020       6,960,445       34,941  

SK hynix Inc.

     76,500       146,100,000       11,176,650       44,700       146,100,000       6,530,670  

S.M. Culture & Contents Co., Ltd.

     2,700       22,033,898       59,492       —         —         —    

 

  (3) The financial information of significant associates as of and for the years ended December 31, 2017 and 2016 are as follows:

 

(In millions of won)       
     As of December 31, 2017  
     SK hynix
Inc.(*)
     KEB
HanaCard
Co., Ltd. (*)
     Korea IT
Fund
     SK China
Company
Ltd. (*)
 

Current assets

   W 17,310,444        7,339,492        144,874        729,872  

Non-current assets

     28,108,020        220,258        260,920        1,031,647  

Current liabilities

     8,116,133        1,181,746        —          81,161  

Non-current liabilities

     3,481,412        4,861,842        —          64,717  
     2017  

Revenue

     30,109,434        1,519,607        11,743        69,420  

Profit for the year

     10,642,219        106,352        1,916        11,492  

Other comprehensive income (loss)

     (422,042      (984      4,108        27,190  

Total comprehensive income

     10,220,177        105,368        6,024        38,682  

 

(*) The financial information of SK hynix Inc., KEB HanaCard Co., Ltd., and SK China Company Ltd. are consolidated financial information.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

11. Investments in Associates and Joint Ventures, Continued

 

  (3) The financial information of significant associates as of and for the years ended December 31, 2017 and 2016 are as follows, Continued:

 

 

(In millions of won)      
    As of December 31, 2016  
    SK hynix
Inc.(*)
    KEB
HanaCard
Co., Ltd.(*)
    SKY Property
Mgmt. Ltd.
    Korea IT
Fund(*)
 

Current assets

  W 9,838,982       6,868,387       181,469       166,349  

Non-current assets

    22,377,044       239,758       458,690       250,257  

Current liabilities

    4,160,849       1,219,327       12,423       —    

Non-current liabilities

    4,031,647       4,476,979       45,136       —    
    2016  

Revenue

    17,197,975       1,413,077       64,894       28,839  

Profit for the year

    2,960,483       75,595       52,404       23,469  

Other comprehensive income (loss)

    28,844       (154     (14,188     (8,506

Total comprehensive income

    2,989,327       75,441       38,216       14,963  

 

(*) The financial information of SK hynix Inc., KEB HanaCard Co., Ltd., and SK China Company Ltd. are consolidated financial information.

 

  (4) The condensed financial information of joint ventures as of and for the years ended December 31, 2017 and 2016 are as follows:

 

(In millions of won)             
     Dogus Planet, Inc.     Finnq Co., Ltd.  
     As of December 31, 2017  

Current assets

   W 39,656       32,232  

Cash and cash equivalents

     25,818       4,590  

Non-current assets

     21,159       15,610  

Current liabilities

     32,622       5,685  

Accounts payable, other payables and provision

     2,743       2,290  

Non-current liabilities

     212       13,862  
     2017  

Revenue

     82,791       —    

Depreciation and amortization

     (6,152     (1,077

Interest income

     781       532  

Interest expense

     (4     (276

Loss for the year

     (4,535     (15,699

Total comprehensive loss

     (4,535     (15,699

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

11. Investments in Associates and Joint Ventures, Continued

 

  (4) The condensed financial information of joint ventures as of and for the years ended December 31, 2017 and 2016 are as follows, Continued:

 

(In millions of won)       
     Dogus
Planet, Inc.
    PT XL Planet
Digital
    Finnq Co., Ltd.  
     As of December 31, 2016  

Current assets

   W 46,433       20,077       48,699  

Cash and cash equivalents

     45,839       14,985       48,408  

Non-current assets

     20,218       50,765       673  

Current liabilities

     26,417       14,513       138  

Accounts payable, other payables and provision

     1,971       10,306       15  

Non-current liabilities

     72       1,305       784  
     2016  

Revenue

     53,864       9,492       —    

Depreciation and amortization

     (5,299     (940     (12

Interest income

     394       267       182  

Interest expense

     (2,139     —         —    

Income tax benefit

     —         51       —    

Loss for the year

     (22,017     (49,438     (829

Total comprehensive loss

     (22,017     (49,438     (829

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

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 December 31, 2017 and 2016 are as follows:

 

(In millions of won)       
     December 31, 2017  
     Net assets      Ownership
interests
(%)
     Net assets
attributable
to the
ownership
interests
     Cost-book
value
differentials
     Carrying
amount
 

Associates:

              

SK hynix Inc.(*1,2)

   W 33,814,467        20.1        6,997,560        1,132,440        8,130,000  

KEB HanaCard Co., Ltd.

     1,516,162        15.0        227,424        53,564        280,988  

Korea IT Fund

     405,794        63.3        257,003        —          257,003  

SK China Company Ltd.(*1)

     1,612,899        27.3        439,857        86,242        526,099  

 

(In millions of won)              
     December 31, 2016  
     Net assets      Ownership
interests
(%)
     Net assets
attributable
to the
ownership
interests
     Cost-book
value
differentials
     Carrying
amount
 

Associates:

              

SK hynix Inc.(*1,2)

   W 24,016,955        20.1        4,970,267        1,161,855        6,132,122  

KEB HanaCard Co., Ltd.

     1,411,839        15.0        211,776        54,022        265,798  

SKY Property Mgmt. Ltd.(*1)

     576,785        33.0        190,339        72,886        263,225  

Korea IT Fund

     416,606        63.3        263,850        —          263,850  

 

(*1) Net assets of these entities represent net assets excluding those attributable to their non-controlling interests.
(*2) The ownership interest is based on the number of shares owned by the Parent Company as divided by 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 and 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 Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

11. Investments in Associates and Joint Ventures, Continued

 

  (6) Details of the changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2017 and 2016 are as follows:

 

(In millions of won)    2017  
     Beginning
balance
     Acquisition
and
disposition
    Share of
profit
(loss)
    Other
compre-
hensive
income
(loss)
    Impair-
ment
loss
    Other
increase
(decrease)
    Ending
balance
 

Investments in associates

               

SK China Company Ltd.(*1)

   W 46,354        113,803       2,707       (36,783     —         400,018       526,099  

Korea IT Fund(*2)

     263,850        —         (8,815     3,371       —         (1,403     257,003  

KEB HanaCard Co., Ltd.

     265,798        —         15,494       (304     —         —         280,988  

NanoEnTek, Inc.

     39,514        —         (733     (63     —         —         38,718  

SK Industrial Development China Co.,
Ltd.(*1)

     74,717        —         5,154       (1,092     —         (78,779     —    

SK Technology Innovation Company

     47,488        —         433       (5,410     —         —         42,511  

HappyNarae Co., Ltd.

     17,236        688       3,929       20       —         —         21,873  

SK hynix Inc.(*2)

     6,132,122        —         2,175,887       (90,349     —         (87,660     8,130,000  

SK MENA Investment B.V.

     15,451        —         131       (1,729     —         —         13,853  

SKY Property Mgmt. Ltd. (*1)

     263,225        —         2,362       1,141       —         (266,728     —    

S.M. Culture & Contents Co., Ltd.

     —          65,341       (375     —         —         —         64,966  

Xian Tianlong Science and Technology Co., Ltd.

     25,880        —         11       —         —         —         25,891  

Daehan Kanggun BcN Co., Ltd. and
others(*2)

     115,181        (1,306     (6,924     (2,723     (1,311     (6,438     96,479  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     7,306,816        178,526       2,189,261       (133,921     (1,311     (40,990     9,498,381  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments in joint ventures

 

Dogus Planet, Inc.

     20,081        2,162       (2,267     (5,985     —         —         13,991  

PT XL Planet Digital(*3)

     27,512        (18,864     (8,648     —         —         —         —    

Finnq Co., Ltd

     24,174        —         (7,691     (9     —         —         16,474  

Celcom Planet and others

     25,740        —         (6,228     (833     —         (9,087     9,592  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     97,507        (16,702     (24,834     (6,827     —         (9,087     40,057  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   W 7,404,323        161,824       2,164,427       (140,748     (1,311     (50,077     9,538,438  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1) Other increase (decrease) is due to merger of SK China Company Ltd., SK Industrial Development China Co., Ltd. and SKY Property Mgmt. Ltd.
(*2) Dividends received from the associates are deducted from the carrying amount during the year ended December 31, 2017.
(*3) During the year ended December 31, 2017, the Group disposed the shares of PT XL Planet Digital and recognized loss on disposal of W 27,900 million.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017 and 2016

 

11. Investments in Associates and Joint Ventures, Continued

 

  (6) Details of the changes in investments in associates and joint ventures accounted for using the equity method for the year ended December 31, 2017 and 2016 are as follows, Continued:

 

(In millions of won)    2016  
     Beginning
balance
     Acquisition
and
disposition
    Share of
profit
(loss)
    Other
compre-
hensive
income
(loss)
    Impair-
ment
loss
    Other
increase
(decrease)
    Ending
balance
 

Investments in associates

               

SK China Company Ltd.

   W 43,814        —         2,257       283       —         —         46,354  

Korea IT Fund(*1)

     260,456        —         14,864       (5,388     —         (6,082     263,850  

KEB HanaCard Co., Ltd.

     254,177        —         11,658       (37     —         —         265,798  

Candle Media Co., Ltd.

     20,144        (18,860     (673     (611     —         —         —    

NanoEnTek, Inc.

     45,008        —         (3,950     (1,544     —         —         39,514  

SK Industrial Development China Co., Ltd.

     86,324        —         (6,298     (5,309     —         —         74,717  

SK Technology Innovation Company

     45,891        —         162       1,435       —         —         47,488  

HappyNarae Co., Ltd.

     17,095        —         240       (99     —         —         17,236  

SK hynix Inc.(*1)

     5,624,493        —         572,086       8,593       —         (73,050     6,132,122  

SK MENA Investment B.V.

     14,929        —         63       459       —         —         15,451  

SKY Property Mgmt. Ltd.

     251,166        —         16,066       (4,007     —         —         263,225  

Xian Tianlong Science and Technology Co., Ltd.

     25,767        —         113       —         —         —         25,880  

Daehan Kanggun BcN Co., Ltd. and others

     161,058        (26,798     (13,179     754       (6,972     318       115,181  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     6,850,322        (45,658     593,409       (5,471     (6,972     (78,814     7,306,816  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments in joint ventures

 

Dogus Planet, Inc.

     15,118        18,722       (11,008     (2,751     —         —         20,081  

PT. Melon Indonesia(*2)

     4,339        (3,488     918       (1,769     —         —         —    

PT XL Planet Digital

     23,108        29,123       (24,719     —         —         —         27,512  

Finnq Co., Ltd

     —          24,580       (406     —         —         —         24,174  

Celcom Planet and others

     3,406        43,769       (21,435     —         —         —         25,740  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     45,971        112,706       (56,650     (4,520     —         —         97,507  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   W 6,896,293        67,048       536,759       (9,991     (6,972     (78,814     7,404,323