Form 6-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF SEPTEMBER 2018

COMMISSION FILE NUMBER 333-04906

 

 

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

 

 

Euljiro 65 (Euljiro2-ga), Jung-gu

Seoul 100-999, Korea

(Address of principal executive offices)

 

 

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

Form 20-F  ☒             Form 40-F  ☐

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

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

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

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

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

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

 

 

 


Table of Contents

SEMI-ANNUAL BUSINESS REPORT

(From January 1, 2018 to June 30, 2018)

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

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

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

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


Table of Contents
I.

COMPANY OVERVIEW

1. Company Overview

The Company’s semi-annual business report for the six months ended June 30, 2018 includes the following consolidated subsidiaries:

 

Name

  

Date of

Establishment

  

Principal Business

   Total Assets as
of Dec. 31, 2017
(millions of
Won)
     Material
Subsidiary*
SK Telink Co., Ltd.    Apr. 9, 1998    Telecommunication services and satellite broadcasting services      455,685      Material
SK M&Service Co., Ltd.    Feb. 10, 2000    Online information services      113,515      Material
SK Communications Co., Ltd.    Sept. 19, 1996    Internet portal and other Internet information services      90,923      Material
SK Broadband Co., Ltd.    Sept. 5, 1997    Fixed-line telecommunication services, multimedia and IPTV services      3,802,349      Material
Home & Service Co., Ltd.    June 5, 2017    Information and telecommunication network maintenance      83,698      Material
SK Stoa Co., Ltd.    December 1, 2017    Data broadcasting and commercial retail platform services      42,898     
K-net Culture and Contents Venture Fund    Nov. 24, 2008    Investment partnership      250,747      Material
PS&Marketing Co., Ltd.    Apr. 3, 2009    Sale of telecommunication devices      506,883      Material
Service Ace Co., Ltd.    Jul. 1, 2010    Customer center management services      77,681      Material
Service Top Co., Ltd.    Jul. 1, 2010    Customer center management services      65,406     
Network O&S Co., Ltd.    Jul. 1, 2010    Network maintenance services      87,000      Material
SK Planet Co., Ltd.    Oct. 1, 2011    Telecommunication and platform services      1,534,866      Material
NSOK Co., Ltd.    Jun. 12, 2008    Security system services      94,114      Material
Iriver Ltd.    Jul. 12, 2000    Audio device manufacturing      130,878      Material
Iriver Enterprise Ltd.    Jan. 14, 2014    Management of Chinese subsidiary      36,465     
Iriver Inc.    Feb. 15, 2007    North America marketing and sales      1,498     
Iriver China Co., Ltd.    Jun 24, 2004    Electronic device manufacturing      3,401     
DongGuan Iriver Electronics Co., Ltd.    Jul. 6, 2006    Electronic device manufacturing      43     
groovers Japan Co., Ltd.    Feb. 25, 2015    Contents and information distribution      1,232     
S.M. Life Design Company Japan Inc.    June 25, 2008    Japanese merchandise business      6,366     
S.M. Mobile Communications JAPAN Inc.    May 6, 2016    Contents and information distribution      125     
SK Telecom China Holdings Co., Ltd.    Jul. 12, 2007    Investment (holding company)      43,290     
SK Global Healthcare Business Group, Ltd.    Sept. 14, 2012    Investment (SPC)      14,033     
SK Planet Japan, K. K.    Mar. 14, 2012    Digital contents sourcing services      2,945     
SKT Vietnam PTE., Ltd.    Apr. 5, 2000    Telecommunication services      4,135     

 

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Table of Contents

Name

  

Date of

Establishment

  

Principal Business

   Total Assets as
of Dec. 31, 2017
(millions of
Won)
     Material
Subsidiary*

SK Planet Global PTE, LTD.

   Aug. 4, 2012    Digital contents sourcing services      87     

SKP GLOBAL HOLDINGS PTE, LTD.

   Aug. 10, 2012    Investment (holding company)      41,320     

SKT Americas, Inc.

   Dec. 29, 1995    Information collection and management consulting services      32,923     

SKP America LLC

   Jan. 27, 2012    Digital contents sourcing services      412,251      Material

YTK Investment Ltd.

   Jul. 1, 2010    Investment      3,169     

Atlas Investment

   Jun. 24, 2011    Investment      71,908     

SK Telecom Innovation Fund, L.P.

   Jan. 15, 2016    Investment      33,084     

SK Telecom China Fund I L.P.

   Sept. 14, 2011    Investment      19,666     

SK TechX Co., Ltd.

   Mar. 1, 2016    Telecommunication services      237,700      Material

Onestore Co., Ltd.

   Mar. 1, 2016    Contents distribution      104,891      Material

Shopkick Management Company, Inc.

   Oct. 9, 2014    Investment      338,650      Material

Shopkick, Inc.

   Jun. 1, 2009    Mileage based e-commerce application development      37,336     

FSK L&S Co., Ltd.

   Oct. 20, 2016    Logistics consulting      33,175     

FSK L&S (Shanghai) Co., Ltd.

   Jul. 29, 2010    International logistics      5,327     

SK Telecom Japan Inc.

   Mar. 1, 2018    Digital contents sourcing services      10,010     

Groovers Co., Ltd.

   Feb. 15, 2000    Contents distribution      534     

id Quantique Ltd.

   Oct. 29, 2001    QRNG technology development      8,710     

 

ø

Material Subsidiary means a subsidiary with total assets of Won 75 billion or more as of the end of the latest fiscal year.

 

ø

On January 2, 2017, SK M&Service Co., Ltd. changed its name to SK M&Service Co., Ltd. from M&Service Co., Ltd.

 

ø

On April 6, 2017, NSOK Co., Ltd. changed its name to NSOK Co., Ltd. from Neosnetworks Co., Ltd.

Changes in subsidiaries during the six months ended June 30, 2018 are set forth below.

 

Change

  

Name

  

Remarks

Additions

   FSK L&S Co., Ltd.    Newly acquired by the Company
   FSK L&S (Shanghai) Co., Ltd.    Newly acquired by the Company
   SK Telecom Japan Inc.    Newly established by the Company
   Groovers Co., Ltd.    Iriver Ltd. acquired control by acquiring additional shares during this period
   id Quantique Ltd.    Newly acquired by the Company

Subtractions

   11street (Thailand) Co., Ltd.    Disposed of invested shares
   HelloNature Co., Ltd.    Lost control due to capital increase through a third-party allotment

 

3


Table of Contents
A.

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

 

B.

Date of Incorporation: March 29, 1984

 

C.

Location of Headquarters

 

  (1)

Address: 65 Euljiro, Jung-gu, Seoul, Korea

 

  (2)

Phone: +82-2-6100-2114

 

  (3)

Website: http://www.sktelecom.com

 

D.

Major Businesses

 

  (1)

Wireless business

The Company provides wireless telecommunications services, characterized by its competitive strengths in handheld devices, affordable pricing, network coverage and an extensive contents library. The Company continues to maintain its reputation as the unparalleled premium network operator in the 2G, 3G and LTE markets on the basis of its technological leadership and network management technology. In addition, the Company is leading the process of global technology standardization with the aim of being the world’s first to commercialize 5G technology.

In order to strengthen its sales channels, the Company has been offering a variety of fixed-line and wireless telecommunication convergence products through its subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”). PS&Marketing provides differentiated service to customers through the establishment of new sales channels and product development. Through its subsidiaries Service Ace Co., Ltd. and Service Top Co., Ltd., the Company operates customer service centers in Seoul and provides telemarketing services. Additionally, Network O&S Co., Ltd., the Company’s subsidiary responsible for the operation of the Company’s 2G to 4G networks, provides customers with quality network services and provides the Company with technological know-how in network operations.

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

In addition to the mobile network operator (“MNO”) business, the Company is building next-generation growth businesses in Internet of Things (“IoT”) solutions and artificial intelligence. In July 2016, the Company deployed the world’s first low-cost Low Power Wide Area Network designed to support IoT devices based on LoRa technology. In September 2016, the Company launched NUGU, the first intelligent virtual assistant service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. The Company plans to further utilize its big data analysis capabilities to achieve growth in new business areas such as artificial intelligence.

 

  (2)

Fixed-line business

SK Broadband Co., Ltd. (“SK Broadband”) is engaged in providing telecommunications, broadcasting and new media services and various other services that are permitted to be carried out by SK Broadband under relevant regulations, as well as business activities that are directly or indirectly related to providing those services. In 1999, SK Broadband launched its high-speed Internet service in Seoul, Busan, Incheon and Ulsan and currently provides such services nationwide. SK Broadband also commercialized its TV-Portal service in July 2006 and its IPTV service in January 2009 upon receipt of permit in September 2008.

 

4


Table of Contents
  (3)

Other businesses

The Company is a leading player in the Korean e-commerce industry with 11st, an e-commerce platform service that connects various sellers and purchasers through its online and mobile platforms, and “Shocking Deal,” a mobile commerce curation service. In addition, the Company has rapidly grown into a top tier player in Turkey, Malaysia and Thailand after launching open market businesses in these countries by optimizing its businesses for the respective local markets and utilizing its expertise in the e-commerce platform business. In the online-to-offline (“O2O”) area, the Company is a leading player and continues to expand its market power with OK Cashbag, Korea’s largest loyalty mileage program, SyrupWallet, which offers smart shopping services utilizing its network of business partners and information technology such as big data, and other Syrup-related services such as gifticon and 11Pay. The Company focuses on the mobile platform to connect various on- and offline commerce service platforms that provide various benefits and information at the right place and the right time to give consumers a pleasant and convenient shopping experience and retailers an integrated marketing solution to reach their target audience. The Company intends to continue its efforts to secure the market leading position in these markets.

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

The Company is also engaged in display advertising and search engine-based advertising and provides contents and other services. Display advertising provides exposure to the advertiser’s brand in the form of flash media, images or videos. Search engine-based advertising provides exposure through the search results of specific keywords entered in the NATE search engine, and is utilized mostly by small and medium-sized advertisers. The Company also derives revenue by providing contents and other services.

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

 

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Table of Contents
E.

Credit Ratings

 

  (1)

Corporate bonds

 

Credit rating date

  

Subject of rating

   Credit rating  

Credit rating entity
(Credit rating range)

  

Rating classification

February 19, 2016

   Corporate bond    AAA (Stable)   Korea Ratings    Current rating

February 19, 2016

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Current rating

February 19, 2016

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

April 27, 2016

   Corporate bond    AAA (Stable)   Korea Ratings    Regular rating

May 11, 2016

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Regular rating

May 12, 2016

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

May 19, 2016

   Corporate bond    AAA (Stable)   Korea Ratings    Current rating

May 20, 2016

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Current rating

May 20, 2016

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

April 12, 2017

   Corporate bond    AAA (Stable)   Korea Ratings    Regular rating

April 12, 2017

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Regular rating

April 12, 2017

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

April 12, 2017

   Corporate bond    AAA (Stable)   Korea Ratings    Current rating

April 12, 2017

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Current rating

April 12, 2017

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

October 30, 2017

   Corporate bond    AAA (Stable)   Korea Ratings    Current rating

October 30, 2017

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Current rating

October 30, 2017

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

February 5, 2018

   Corporate bond    AAA (Stable)   Korea Ratings    Current rating

February 5, 2018

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

February 6, 2018

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Current rating

April 10, 2018

   Corporate bond    AAA (Stable)   Korea Investors Service, Inc.    Regular rating

April 11, 2018

   Corporate bond    AAA (Stable)   Korea Ratings    Regular rating

April 16, 2018

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

May 29, 2018

   Hybrid securities    AA+ (Stable)   Korea Ratings    Current rating

 

*

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

*

Rating definition: “AA” - The certainty of principal and interest payment is extremely high with very low investment risk, but has slightly inferior factors compared to “AAA” rating.

 

  (2)

Commercial paper (“CP”)

 

Credit rating date

  

Subject of rating

   Credit rating   

Credit rating entity
(Credit rating range)

  

Rating classification

January 19, 2016

   Short-term bond    A1    Korea Ratings    Current rating

January 19, 2016

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

January 19, 2016

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

April 27, 2016

   CP    A1    Korea Ratings    Current rating

April 27, 2016

   Short-term bond    A1    Korea Ratings    Current rating

May 11, 2016

   CP    A1    Korea Investors Service, Inc.    Current rating

May 11, 2016

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

May 12, 2016

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

May 12, 2016

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

October 26, 2016

   CP    A1    Korea Ratings    Regular rating

 

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Table of Contents

Credit rating date

  

Subject of rating

   Credit rating   

Credit rating entity
(Credit rating range)

  

Rating classification

October 26, 2016

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

October 26, 2016

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

October 26, 2016

   Short-term bond    A1    Korea Ratings    Regular rating

November 3, 2016

   CP    A1    Korea Investors Service, Inc.    Regular rating

November 3, 2016

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

April 12, 2017

   CP    A1    Korea Ratings    Current rating

April 12, 2017

   CP    A1    Korea Investors Service, Inc.    Current rating

April 12, 2017

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

April 12, 2017

   Short-term bond    A1    Korea Ratings    Current rating

April 12, 2017

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

April 12, 2017

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

October 30, 2017

   CP    A1    Korea Ratings    Regular rating

October 30, 2017

   CP    A1    Korea Investors Service, Inc.    Regular rating

October 30, 2017

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

October 30, 2017

   Short-term bond    A1    Korea Ratings    Regular rating

October 30, 2017

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

October 30, 2017

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

April 10, 2018

   CP    A1    Korea Investors Service, Inc.    Current rating

April 10, 2018

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

April 11, 2018

   CP    A1    Korea Ratings    Current rating

April 11, 2018

   Short-term bond    A1    Korea Ratings    Current rating

April 16, 2018

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

April 16, 2018

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

 

*

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

 

  (3)

International credit ratings

 

Date of credit rating

 

Subject of rating

  Credit rating of
securities
 

Credit rating company

 

Rating type

March 30, 2016

  Bonds denominated in foreign currency   A- (Stable)   Standard & Poor’s Rating Services   Regular rating

July 20, 2016

  Bonds denominated in foreign currency   A- (Stable)   Standard & Poor’s Rating Services   Regular rating

October 24, 2016

  Bonds denominated in foreign currency   A- (Stable)   Fitch Inc.   Regular rating

October 23, 2017

  Bonds denominated in foreign currency   A- (Stable)   Fitch Inc.   Regular rating

April 8, 2018

  Bonds denominated in foreign currency   A- (Stable)   Standard & Poor’s Rating Services   Current rating

April 9, 2018

  Bonds denominated in foreign currency   A3 (Stable)   Moody’s Investors Service   Current rating

May 8, 2018

  Bonds denominated in foreign currency   A- (Stable)   Standard & Poor’s Rating Services   Regular rating

May 10, 2018

  Bonds denominated in foreign currency   A3 (Negative)   Moody’s Investors Service   Regular rating

 

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Table of Contents
  (4)

Listing (registration or designation) of Company’s shares and special listing status

 

Listing (registration or designation) of stock   Date of listing (registration or designation)   Special listing   Special listing and applicable regulations
KOSPI Market of Korea Exchange   November 7, 1989   Not applicable   Not applicable

2. Company History

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

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

December 2017: Comprehensive exchange of shares of SK Telink following which SK Telink became a wholly-owned subsidiary of the Company.

 

A.

Location of Headquarters

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

B.

Significant Changes in Management

At the 30th General Meeting of Shareholders held on March 21, 2014, Jae Hoon Lee was elected as an independent director and Jae Hyeon Ahn was elected as an independent director and member of the audit committee of the Company’s board of directors. At the 31st General Meeting of Shareholders held on March 20, 2015, Dong Hyun Jang was elected as an inside director. At the 32nd General Meeting of Shareholders held on March 18, 2016, Dae Sik Cho was re-elected as an inside director and Dae Shick Oh was re-elected as an independent director and member of the audit committee of the Company’s board of directors. At the 33rd General Meeting of Shareholders held on March 24, 2017, Jung Ho Park was elected as an inside director and Dae Sik Cho was elected as a non-executive director. Jae Hoon Lee and Jae Hyeon Ahn were re-elected as independent directors and members of the audit committee and Jung Ho Ahn was elected as an independent director. At the 34th General Meeting of Shareholders held on March 21, 2018, Young Sang Ryu was elected as an inside director and Youngmin Yoon was elected as an independent director and member of the audit committee of the Company’s board of directors.

 

C.

Change in Company Name

On January 2, 2017, SK M&Service Co., Ltd., one of the Company’s subsidiaries, changed its name to SK M&Service Co., Ltd. from M&Service Co., Ltd. in accordance with a resolution at its general meeting of shareholders on December 26, 2016.

On March 23, 2017, Neosnetworks Co., Ltd., one of the Company’s subsidiaries, changed its name to NSOK Co., Ltd., from Neosnetworks Co., Ltd., in accordance with a resolution at its general meeting of shareholders.

 

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Table of Contents
D.

Mergers, Acquisitions and Restructuring

 

  (1)

Acquisition of shares of PS&Marketing

On February 20, 2014, the board of directors of the Company resolved to invest an additional Won 100 billion (20 million common shares) into PS&Marketing, an affiliated company, in order to increase its mid- to long-term competitiveness in distribution. The date of investment was April 2, 2014, and the cumulative investment amount totaled Won 330 billion.

 

  (2)

Disposition of shares of iHQ Inc.

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

 

  (3)

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

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

 

  (4)

Acquisition of shares of Iriver

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

 

  (5)

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

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

 

  (6)

Disposition of Shenzen E-Eye shares

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

 

  (7)

Disposition of a portion of KEB Hana Card shares

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

 

  (8)

SK Broadband - Comprehensive Share Exchange

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

 

   

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

 

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Table of Contents
   

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

 

   

Date of Share Exchange agreement: March 23, 2015

 

   

Record date: April 6, 2015

 

   

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

 

   

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

 

   

Date of the Share Exchange: June 9, 2015

 

  (9)

Establishment of Entrix Co., Ltd.

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

 

  (10)

Additional capital raise by NanoEnTek Inc.

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

 

  (11)

Reclassification of Packet One Networks’ accounts

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

 

  (12)

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

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

 

  (13)

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

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

 

  (14)

Tender offer of shares of CJ HelloVision

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

 

  (15)

Establishment of SK TechX Co., Ltd. and Onestore

In March 2016, SK Planet spun off its platform business and T Store business and established SK TechX and Onestore. The Company exchanged 12,323,905 shares of SK Planet for 6,323,905 shares of SK TechX and 6,000,000 shares of Onestore at the time of the spin-off. The Company later acquired an additional 4,409,600 shares of Onestore at a purchase price of Won 22 billion by participating in the follow-on rights offering. The Company did not participate in the subsequent follow-on rights offering and as of June 30, 2018, the Company had a 65.5% interest in Onestore.

 

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  (16)

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

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

 

  (17)

Establishment of Hana-SK Fintech Corporation

In order to provide an everyday finance platform, the Company entered into a joint venture agreement with Hana Financial Group, in accordance with the resolution of the Company’s board of directors on July 28, 2016. Combining the Company’s leading mobile technology and big data analysis capabilities with Hana Financial Group’s financial service, Hana-SK Fintech Corporation plans to provide innovative mobile financial services such as mobile asset management, easy payment and overseas wire transfer services. SK Telecom holds a 49% equity stake in the joint venture, and Hana Financial Group holds the remaining 51%. Service of the everyday finance platform Finnq officially launched in the third quarter of 2017.

 

  (18)

Capital contribution of shares of NSOK for new shares of SK Telink Co., Ltd. (“SK Telink”)

On October 25, 2016, the Company made a capital contribution of all shares of NSOK owned by the Company to SK Telink in exchange for 219,967 newly issued shares of SK Telink, which resulted in an increase of the Company’s equity interest in SK Telink to 85.86%.

 

  (19)

Acquisition of shares of SM Mobile Communications

In October 2016, the Company transferred the media platform businesses Hotzil and 5Ducks to SM Mobile Communications in exchange for 1,200,000 shares of SM Mobile Communications. As a result, the Company owned a 46.2% equity interest in SM Mobile Communications as of June 30, 2018.

 

  (20)

Exchange of shares of SK Communications

On November 24, 2016, the Company’s board of directors resolved to approve the payment of cash consideration in lieu of the issuance of shares of the Company in a comprehensive exchange of shares of SK Communications. The amount of cash consideration was based on a share exchange ratio of one common share of the Company to 0.0125970 common share of SK Communications. In February 2017, SK Communications became a wholly-owned subsidiary of the Company.

 

  (21)

Acquisition of shares of Iriver Ltd.

The Company acquired 4,699,248 shares of its subsidiary Iriver Ltd. at a purchase price of Won 5,320 in connection with a capital contribution. The Company’s equity interest in Iriver Ltd. following the acquisition is 45.9%. See “Report on Important Business Matters (Decision on Capital Increase)” filed on July 17, 2017 by Iriver Ltd. for more information.

 

  (22)

Acquisition of newly issued shares of SK China Company Limited (“SK China”)

On July 28, 2017, the Company acquired newly issued shares of SK China to find investment opportunities in ICT and other promising areas of growth in China. In exchange for newly issued shares of SK China, the Company contributed its full equity interest in each of SKY Property Management Limited (“SKY”) and SK Industrial Development China Co., Ltd. (“SK IDC”) as well as cash, equal to the following amounts: 1) SKY stock: USD 276,443,440.64, 2) SK IDC stock: USD 108,072,007.67 and 3) Cash: USD 100,000,000.00. As a result of the acquisition, the Company holds 10,928,921 shares and a 27.27% of equity interest in SK China. See “Report on Decision on Acquisition of SK China Shares” filed by the Company on July 28, 2017 for more information about this transaction.

 

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  (23)

Exchange of shares of SK Telink

On September 28, 2017, the Company disclosed a resolution approving the payment of cash consideration in lieu of the issuance of shares of SK Telecom in an exchange of shares of SK Telink. The amount of cash consideration was based on a share exchange ratio of 1:1.0687714. The exchange was completed on December 14, 2017, upon which exchange SK Telink became a wholly-owned subsidiary of the Company.

 

  (24)

Acquisition of shares of FSK L&S Co., Ltd.

On February 6, 2016, the Company acquired 2,415,750 shares of FSK L&S Co., Ltd. at a purchase price of Won 17.8 billion from SK Holdings to utilize its logistics sharing infrastructure with its counterparties and pursue new business opportunities. As a result of the acquisition, the Company had a 60% equity interest in FSK L&S Co., Ltd.

 

  (25)

Acquisition of shares of id Quantique SA

In order to increase the value of the Company by enhancing its position as the top MNO through utilizing quantum cryptography and by generating returns from its global business, the Company acquired an additional 41,157,506 shares of id Quantique SA on April 30, 2018. As a result, the Company owns a total of 58.1% of the issued and outstanding shares (44,157,506 shares), and has acquired control, of id Quantique SA.

 

  (26)

Acquisition of shares of Siren Holdings Korea Co., Ltd.

The Company decided to acquire shares of Siren Holdings Korea Co., Ltd.(“SHK”), which wholly owns ADT CAPS Co., Ltd. (“ADT CAPS”), in order to strengthen its security business and expand its residential customer base. The number of SHK’s shares to be acquired by the Company refers to the number of shares after the following steps have been taken, which are expected to occur within approximately two months from the date of the purchase agreement, rather than the board approval date: Siren Investments Korea Co., Ltd. will be merged with and into SHK with SHK as the surviving entity, following which CAPSTEC Co., Ltd. and ADT Security Co., Ltd., which are subsidiaries of ADT CAPS, will become subsidiaries of SHK. See “Report on Decision on Acquisition of Shares of Siren Holdings Korea Co., Ltd.” filed on May 8, 2018 for more information.

[SK Broadband]

 

  (1)

Share Exchange

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

 

  (2)

Merger among Subsidiaries and Affiliates

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

 

  (3)

Merger with CJ HelloVision

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

 

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

 

  (4)

Establishment of a subsidiary

On May 23, 2017, SK Broadband’s board of directors resolved to approve the establishment of a subsidiary. On June 5, 2017, SK Broadband established Home&Service Co., Ltd. (“Home&Service”), a subsidiary responsible for the management of customer service operations, in order to enhance SK Broadband’s competitiveness by strengthening its customer service and strategically developing its home Value Delivery channel and to create quality jobs. Home&Service was incorporated by SK Broadband under the Korean Commercial Code. The subsidiary was capitalized at Won 46 billion (9,200,000 shares with par value of Won 5,000 per share), and SK Broadband holds a 100% equity interest. The Korea Fair Trade Commission approved the subsidiary’s incorporation as an SK affiliate on July 1, 2017, from which arises a duty to report to the Fair Trade Commission.

 

  (5)

Spin-off

On August 16, 2017, SK Broadband’s board of directors resolved to approve the spin-off of its T-commerce subsidiary to enhance the competitiveness and managerial efficiency of its T-commerce business (data broadcasting and commercial retail platform service through TV home shopping channels) through a spin-off and subsequent establishment of a subsidiary pursuant to Article 530-2 and 530-12 of the Korean Commercial Code, with both companies from the simple vertical spin-off remaining as existing companies. The spin-off was effective as of December 1, 2017, and the subsidiary was capitalized at Won 15 billion (3,000,000 shares with par value of Won 5,000 per share), with SK Broadband holding a 100% equity interest. The Korea Fair Trade Commission approved the subsidiary’s incorporation as an SK affiliate on January 1, 2018, from which arises a duty to report to the Fair Trade Commission.

[SK Planet]

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

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

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

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

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

On May 29, 2017, the board of directors of SK Planet resolved to transfer the operations and assets related to its BENEPIA business for Won 7.5 billion to SK M&Service Co., Ltd. as of July 1, 2017.

On July 17, 2017, the board of directors of SK Planet resolved to (1) spin-off SK Planet’s advertising agency business as a newly established company, SM Contents & Communications, in order to strengthen the competitiveness of the business for future growth, which spin-off was effective as of October 1, 2017 and (2) sell 100% of its shares of SM Contents & Communications to SM Culture & Contents Co., Ltd. to further concentrate business capabilities and efficiently allocate management resources. The closing date of the sale transaction was October 24, 2017.

 

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On June 19, 2018, the board of directors of SK Planet resolved to spin off its 11st business (including Scinic, Gifticon and 11pay) into a newly established company, effective as of September 1, 2018, in order to enhance the level of specialization and competitiveness of its businesses by strengthening their core competencies and obtain further growth potential of the businesses. See the “Report on Decision on Spin-off of SK Planet’s 11st Business” filed on June 19, 2018 for more information.

On June 19, 2018, the board of directors of SK Planet resolved to merge SK TechX Co., Ltd. (“SK TechX”) with and into SK Planet, effective as of September 1, 2018, with a merger ratio between SK Planet and SK TechX of 1:3.0504171, in order to enhance management efficiency and create synergies. See the “Report on Decision on Merger of SK TechX into SK Planet” filed on June 19, 2018 for more information.

[SK Telink]

 

  (1)

Acquisition of shares of NSOK

In accordance with the resolution of its board of directors on September 22, 2016, SK Telink received a capital contribution of 408,435 shares (an 83.9% equity interest) of NSOK owned by SK Telecom. On October 25, 2016, SK Telink acquired the remaining 78,200 outstanding shares (a 16.1% equity interest) of NSOK, pursuant to which NSOK became a wholly-owned subsidiary of SK Telink.

In accordance with the resolution of its board of directors on April 12, 2017, SK Telink acquired 525,824 additional shares of NSOK pursuant to a rights offering for an aggregate amount of Won 40.0 billion (or Won 76,071 per share), resulting in SK Telink’s ownership of 1,012,459 shares (a 100% equity interest) of NSOK.

 

  (2)

Comprehensive exchange of shares

On September 28, 2017, SK Telink’s board of directors approved a comprehensive exchange of shares with SK Telecom, pursuant to which SK Telecom would acquire SK Telink’s remaining outstanding shares for cash consideration in lieu of issuance of shares of SK Telecom. The share exchange agreement was subsequently approved at the extraordinary general meeting of shareholders held on November 9, 2017.

Following the exchange, there were no changes to SK Telecom’s share ownership interest level or to management structure, and SK Telecom and SK Telink will remain as corporate entities. SK Telink became a wholly-owned subsidiary of SK Telecom and remains as an unlisted corporation, while SK Telecom remains as a listed corporation.

 

ø

See “Report on Cash Consideration for Shares of SK Telink Co., Ltd.” filed on September 29, 2017 for more information about this transaction.

[SK Communications]

 

  (1)

Disposition of the Cyworld service

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

 

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  (2)

Change in the largest shareholder

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

 

  (3)

Comprehensive share exchange

Pursuant to the resolution of its board of directors on November 24, 2016, SK Communications entered into a comprehensive share exchange agreement with SK Telecom on November 25, 2016. Upon the consummation of the share exchange on February 7, 2017, SK Communications became a wholly-owned subsidiary of SK Telecom.

[PS&Marketing]

On February 20, 2014, the board of directors of PS&Marketing resolved to acquire the retail distribution business, including related assets, liabilities, contracts and human capital of the information technology and mobile wing of SK Networks. On the same day, the board of directors of PS&Marketing also resolved to acquire retail stores, including their assets and liabilities, of LCNC Co., Ltd (“LCNC”). The acquisitions were completed on April 30, 2014 at a purchase price of Won 124.5 billion for the assets acquired from SK Networks and a purchase price of Won 10 billion for the assets acquired from LCNC.

[NSOK]

On March 31, 2015, NSOK acquired the unmanned electronic security business of Joeun Safe to expand its unmanned security business The acquisition cost, which had been reported on January 5, 2015 as Won 19.4 billion, was subject to adjustment depending on the customer transfer rate. The final acquisition cost was determined to be Won 16.9 billion.

[Iriver]

 

  (1)

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

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

 

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  (2)

Acquisition of shares of S.M. Life Design Company Japan Inc.

Pursuant to the resolution of its board of directors on July 17, 2017, Iriver approved a contract to acquire a total of 1,000,000 shares of S.M. Life Design Company Japan Inc. (a 100% equity interest) from S.M. Entertainment Japan Co., Ltd. with the purposes of entering foreign markets and maximizing business synergy. Iriver acquired control of S.M. Life Design Company Japan Inc. upon its completion of payment for the shares on September 1, 2017.

 

  (3)

Merger of S.M. Mobile Communications JAPAN Inc.

Pursuant to the resolution of its board of directors on July 17, 2017, Iriver decided to merge with S.M. Mobile Communications JAPAN Inc., a contents and information distribution company, with the purpose of reinforcing its contents based device business and enhancing managerial efficiency. As of October 1, 2017, Iriver merged S.M. Mobile Communications JAPAN Inc. into it with a merger ratio of 1:1.6041745, based on which Iriver issued 4,170,852 new common shares.

 

  (4)

Acquisition of shares of Groovers Co., Ltd.

On February 23, 2018 the Company acquired 414,000 additional shares (a 55.8% equity interest) of Groovers Co., Ltd., which provides high quality sound services such as FLAC (Free Lossless Audio Codec), MQS (Mastering Quality Sound) and DSD (Direct Stream Digital) from NHN Bugs Corp. and individuals. As a result, the Company acquired control of Groovers Co., Ltd. as its equity interest therein increased from 44.2% to 100%.

 

  (5)

Acquisition of important assets (Supply and distribution rights for music and digital contents)

On February 28, 2018, the Company entered into an agreement with S.M. Entertainment Co., Ltd. to acquire supply and distribution rights for music and digital contents of S.M. Entertainment Co., Ltd., JYP Entertainment Corporation and Big Hit Entertainment. Through this arrangement, the Company plans to increase sales by entering the music and sound recording industries and to create synergies through strategic alliances.

[SK M&Service]

 

  (1)

Acquisition of SK Planet’s BENEPIA business

Pursuant to the resolutions of its board of directors and its extraordinary shareholders meeting held on May 29, 2017, SK M&Service decided to acquire SK Planet’s BENEPIA business (including agency service for the Flexible Benefit Plan and related tangible and intangible assets, goodwill, systems, etc.) for Won 7.5 billion on July 1, 2017.

 

E.

Other Important Matters related to Management Activities

[SK Telecom]

 

  (1)

Issuance of bonds

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

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

 

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

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

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

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

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

On April 25, 2017, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 60 billion (with an annual interest rate of 1.925% and a maturity date of April 25, 2020), Won 120 billion (with an annual interest rate of 2.168% and a maturity date of April 25, 2022), Won 100 billion (with an annual interest rate of 2.552% and a maturity date of April 25, 2027), and Won 90 billion (with an annual interest rate of 2.649% and a maturity date of April 25, 2032).

On November 10, 2017, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 100 billion (with an annual interest rate of 2.388% and a maturity date of November 10, 2020), Won 80 billion (with an annual interest rate of 2.634% and a maturity date of November 10, 2022), and Won 100 billion (with an annual interest rate of 2.840% and a maturity date of November 10, 2027).

On February 20, 2018, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 110 billion (with an annual interest rate of 2.572% and a maturity date of February 20, 2021), Won 100 billion (with an annual interest rate of 2.806% and a maturity date of February 20, 2023), Won 200 billion (with an annual interest rate of 3.004% and a maturity date of February 20, 2028) and Won 90 billion (with an annual interest rate of 3.016% and a maturity date of February 20, 2038).

 

  (2)

Issuance of hybrid securities

In June 2018, the Company issued an aggregate of Won 400 billion principal amount of hybrid securities in the form of two series of unguaranteed subordinated bonds, Won 300 billion of which have an annual interest rate of 3.70% and Won 100 billion of which have an annual interest rate of 3.65%. Both of such interest rates are based on the five-year Korean government bond yield plus a spread. For both series of the hybrid securities, an additional spread of 0.25% is payable beginning ten years from the date of issuance and an additional spread of 0.75% is payable after 25 years from the date of issuance. The Company classified the hybrid securities as equity, as there is no contractual obligation to deliver financial assets to the bondholders. The hybrid securities are subordinated bonds which take priority over common shares upon bankruptcy or liquidation. The maturity date of the hybrid securities is June 7, 2078, which can be extended by the Company without any notice or announcement.

 

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[SK Broadband]

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

3. Total Number of Shares

 

A.

Total Number of Shares

 

(As of June 30, 2018)      (Unit: in shares)  

Classification

   Share type      Remarks  
   Common shares      Preferred
shares
     Total  

I. Total number of authorized shares

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

 

 

    

 

 

    

 

 

    

 

 

 

II. Total number of shares issued to date

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

 

 

    

 

 

    

 

 

    

 

 

 

III. Total number of shares retired to date

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

 

 

    

 

 

    

 

 

    

 

 

 

a. reduction of capital

     —          —          —          —    

b. retirement with profit

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

c. redemption of redeemable shares

     —          —          —          —    

d. others

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

IV. Total number of shares (II-III)

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

 

 

    

 

 

    

 

 

    

 

 

 

V. Number of treasury shares

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

VI. Number of shares outstanding (IV-V)

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

 

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B.

Treasury Shares

 

  (1)

Acquisitions and dispositions of treasury shares

 

(As of June 30, 2018)                           (Unit: in shares)  

Acquisition methods

   

Type of

shares

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

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

    
Direct
acquisition
 
 
    

Direct
acquisition
from market
 
 
 
  Common shares     10,136,551       —         —         —         10,136,551  
    

Preferred shares

    —         —         —         —         —    
    

Direct
over-the-counter
acquisition
 
 
 
  Common shares     —         —         —         —         —    
 

Preferred shares

    —         —         —         —         —    
     Tender offer     Common shares     —         —         —         —         —    
 

Preferred shares

    —         —         —         —         —    
     Sub-total     Common shares     10,136,551       —         —         —         10,136,551  
 

Preferred shares

    —         —         —         —         —    
    




Acquisition
through
trust
and
other
agreements
 
 
 
 
 
 
    
Held by
trustee
 
 
  Common shares     —         —         —         —         —    
 

Preferred shares

    —         —         —         —         —    
  

 

 

 

 

Held in

actual

stock

 

 

 

 

 

 

  Common shares     —         —         —         —         —    
 

Preferred shares

    —         —         —         —         —    
     Sub-total     Common shares     —         —         —         —         —    
    

Preferred shares

    —         —         —         —         —    

Other acquisition

 

  Common shares     —         —         —         —         —    
       

Preferred shares

    —         —         —         —         —    
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

Preferred shares

    —         —         —         —         —    
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

4. Status of Voting Rights

 

(As of June 30, 2018)           (Unit: in shares)  

Classification

     Number of shares      Remarks  

Total shares (A)

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

Number of shares without voting rights (B)

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

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

     Common share        —          —    
     Preferred share        —          —    

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

     Common share        —          —    
     Preferred share        —          —    

Shares with reestablished voting rights (E)

     Common share        —          —    
     Preferred share        —          —    

The number of shares with exercisable voting

right s (F = A - B - C - D + E)

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

 

19


Table of Contents

5. Dividends and Others

 

A.

Dividends

 

  (1)

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

 

   

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

 

  (2)

Distribution of interim dividends of Won 1,000 was approved during the 393rd Board of Directors’ Meeting on July 28, 2016.

 

  (3)

Distribution of cash dividends was approved during the 33rd General Meeting of Shareholders held on March 24, 2017.

 

   

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

 

  (4)

Distribution of interim dividends of Won 1,000 was approved during the 404th Board of Directors’ Meeting on July 28, 2017.

 

  (5)

Distribution of cash dividends was approved during the 34th General Meeting of Shareholders held on March 21, 2018.

 

   

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

 

  (6)

Distribution of interim dividends of Won 1,000 was approved during the 416th Board of Directors’ Meeting on July 26, 2018.

 

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Table of Contents
B.

Dividends for the Last Three Fiscal Years

 

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

Classification

     As of and for the
six months ended
June 30, 2018
     As of and for the
year ended
December 31, 2017
     As of and for the
year ended
December 31, 2016
 

Par value per share (Won)

 

     500        500        500  

(Consolidated) Net income

 

     1,611,611        2,599,829        1,675,967  

Net income per share (Won)

 

     22,705        36,582        23,497  
     

 

 

    

 

 

    

 

 

 

Total cash dividend

 

     70,609        706,091        706,091  
     

 

 

    

 

 

    

 

 

 

Total stock dividends

 

     —          —          —    
     

 

 

    

 

 

    

 

 

 

(Consolidated)

Percentage of cash dividend to available income (%)

 

 

     4.4        27.2        42.1  

Cash dividend yield ratio (%)

     —          0.4        3.6        4.3  
     —          —          —          —    

Stock dividend yield ratio (%)

     —          —          —          —    
     —          —          —          —    

Cash dividend per share (Won)

     —          1,000        10,000        10,000  
     —          —          —          —    

Stock dividend per share (share)

     —          —          —          —    
     —          —          —          —    

 

*

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

 

21


Table of Contents
II.

BUSINESS

1. Business Overview

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

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

 

Classification

  

Company name

  

Description of business

Wireless

   SK Telecom Co., Ltd.   

Wireless voice and data telecommunications services via digital wireless networks

 

   PS&Marketing Co., Ltd.   

Sale of fixed-line and wireless telecommunications products through wholesale, retail and online distribution channels

 

   Network O&S Co., Ltd.   

Maintenance of switching stations

 

   Service Ace Co., Ltd    Management and operation of customer centers

Fixed-line

   SK Broadband Co., Ltd.   

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

 

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

 

   SK Telink Co., Ltd.   

International wireless direct-dial “00700” services, voice services using Internet protocol and Mobile Virtual Network Operator (“MVNO”) business

 

   Home & Service Co., Ltd.   

System maintenance of high-speed Internet, IPTV and fixed-line services

 

Other business

   SK Planet Co., Ltd.   

Various platform services such as 11st, Syrup, OK Cashbag in the commerce area

 

   SK TechX Co., Ltd.   

Develop and supply system software for SK Telecom

 

   Onestore Co., Ltd.   

Operate app store

 

   SK Communications Co., Ltd.   

Integrated portal services through NATE and instant messaging services through NATE-ON

 

   SK M&Service Co., Ltd.   

System software development, distribution and technical support services and other online information services

 

   Iriver Ltd.   

Audio and video device manufacturing

 

   NSOK Co., Ltd.   

Security system services

 

   SK Planet America LLC   

System software development, distribution and investments

 

   Shopkick Management Company, Inc.   

System software development, distribution and investments

 

  

 

Atlas Investment

  

 

Investments

 

 

22


Table of Contents

[Wireless Business]

 

A.

Industry Characteristics

The telecommunications services market can be categorized into telecommunications services (such as fixed-line, wireless, leased line and value-added services) and broadcasting and telecommunications convergence services. Pursuant to the Telecommunications Business Act, the telecommunications services market can be further classified into basic telecommunications (fixed-line and wireless telecommunications), special category telecommunications (resale of telecommunications equipment, facilities and services) and value-added telecommunications (internet connection and management, media contents and others). The size of the domestic telecommunications services market is determined based on various factors specific to Korea, including size of population that uses telecommunication services and telecommunications expenditures per capita. While it is possible for Korean telecommunication service providers to provide services abroad through acquisitions or otherwise, foreign telecommunication services markets have their own characteristics depending, among others, on the regulatory environment and demand for telecommunication services.

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

In the first half of 2014, wideband LTE-A service was commercialized and on December 29, 2014, tri-band LTE-A service with a maximum speed of 300 Mbps was also commercialized. Since June 2017, through the commercialization of 5band CA technology, which is considered the final stage of LTE development, the Company has provided 4.5G service at the speed of 700Mbps to 900Mbps. Since early 2018, the Company was the first to start providing LTE service with a speed of up to 1 Gbps. Such achievements were the building blocks towards the Company’s LTE penetration reaching 78.1% as of June 30, 2018.

 

B.

Growth Potential

 

          (Unit: in 1,000 persons)  

Classification

   As of June 30,
2018
     As of December 31,  
   2017      2016  

Number of subscribers

   SK Telecom      27,221        26,753        26,428  
  

Others (KT, LGU+)

     29,253        28,375        27,018  
  

MVNO

     7,825        7,523        6,841  
  

Total

     64,299        62,651        60,287  

 

*

Source: Wireless subscriber data from the Ministry of Science and ICT (“MSIT”) as of June 30, 2018.

 

C.

Domestic and Overseas Market Conditions

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

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

 

     (Unit: in percentages)  

Classification

   As of June 30,
2018
     As of December 31,  
   2017      2016      2015  

Mobile communication services

     47.78        48.20        49.09        49.41  

 

*

Source: Wireless subscriber data from the MSIT as of June 30, 2018.

 

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Table of Contents
D.

Business Overview and Competitive Strengths

The Company is seeking to transform itself from a telecommunications service provider into a comprehensive ICT service provider. It has continued to innovate the scope of its services and achieved strong growth in subscribers amid fierce competition and rate cuts. As a result, for the second quarter of 2018, the Company recorded Won 4,154 billion in revenue and Won 347 billion in operating income on a consolidated basis and Won 2,942 billion in revenue and Won 368 billion in operating income on a separate basis. In particular, the number of subscribers subscribing to “Band Data” plans, which was launched in the second quarter of 2015, has continued to steadily increase in 2017, which in turn led to an increase in data usage. The success of Luna, a smartphone launched in September 2015 that was designed to run exclusively on the Company’s networks, led to the launch of various other relatively low-priced devices and became an example of successfully targeting a niche market.

By continuing to be innovative in developing core competencies, the Company has more firmly established its position as the market leader in wireless telecommunications. The competitive environment of the wireless telecommunications industry has become more focused on retention especially through the reinforcement of marketing that is focused on innovation in increasing customer value. In the second quarter of 2018, the average monthly churn rate was 1.2%. The number of subscribers (including MVNO subscribers) as of June 30, 2018 was 30.7 million, an increase of approximately 520,000 since December 31, 2017. In particular, the number of LTE subscribers as of June 30, 2018, was 24.0 million, an increase of approximately 1,120,000 since December 31, 2017, solidifying the Company’s market leadership. In addition, the Company continued to sell products targeted towards second devices such as the Cookiz Phone, T Outdoor and T Pocket-fi, which the Company believes shows a level of demand that can potentially lead to growth of the lifestyle enhancement platform.

Following the launch of commercial LTE services in July 2011, the Company became the first telecommunications service provider in the world to launch commercial wideband LTE-A services in June 2014. The Company launched tri-band LTE-A services in December 2014 and 5band 4.5G services in June 2017. In the first quarter of 2018, the Company commenced providing LTE service of up to 1 Gbps by utilizing five-band carrier aggregation technology and 4T4R technology. By launching various high quality services utilizing the LTE-A and wideband LTE networks such as group video conference call services and full high definition mobile IPTV streaming services, the Company plans to provide an innovative user experience, enhance customer satisfaction and increase profitability.

The Company has proved that it has superior network quality compared to its competitors according to the Korea Communications Commission quality evaluations. The Company has also proved to be the leader in Korea’s top three customer satisfaction indices: according to the National Customer Satisfaction Index, Korean Customer Satisfaction Index and Korean Standard Service Quality Index, the Company has continued to hold the leading position for 21 years, 20 years and 18 years, respectively. The Company received the highest level of evaluation in 2017 by the Korea Commission for Corporate Partnership for the sixth consecutive year and was selected for the commission’s Honored Corporation Award, demonstrating the Company’s efforts to be fair and law-abiding in its path towards creating a New ICT ecosystem.

SK Telink, a consolidated subsidiary of the Company, expanded its operations to the MVNO business based on its technical expertise and know-how obtained in its international telecommunications business and launched its MVNO service, ‘SK 7Mobile,’ which is offered at reasonable rates and provides excellent quality. SK Telink is increasing its efforts to develop low-cost distribution channels and create niche markets through targeted marketing towards customers including foreign workers, middle-aged adults and students. An MVNO leases the networks of an MNO and provides wireless telecommunication services under its own brand and fee structure, without owning telecommunication networks or frequencies.

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

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

 

24


Table of Contents

[Fixed-line Business]

 

A.

Industry Characteristics

The Korean fixed-line services industry is marked by a relatively low level of economic sensitivity and high level of market concentration, as the government is highly selective in granting telecommunications business licenses. The competitive landscape of the fixed-line and wireless services markets is dominated by its three leading operators, the Company (including SK Broadband), KT and LG U+. Growing competition within the industry has promoted rapid technological evolution, including the convergence of fixed-line and wireless services, as well as broadcasting and telecommunications. In general, the fixed-line and wireless services markets have been characterized by relatively high profitability, cash flows and financial stability.

In the backdrop of increasing regulation in the fixed-line industry, competition to provide Giga services has intensified and the growth of high-speed internet subscribers has slowed. It is currently expected that the rate of increase of IPTV subscribers will decrease, among others, due to the conversion to digital broadcasting. In order to differentiate itself from its competitors, the Company believes that it will need to provide customers with high quality media content on its IPTV platform. Additionally, the Company expects increased demand for ultra-high definition broadcasting. Such changing trends of broadcasting consumption present opportunities to incorporate the Company’s IoT, cloud and big data technologies into the Company’s home platform business to achieve new growth. The Company plans to increase its subscriber base by providing differentiated services and focusing on marketing strategies centered around high value services such as Giga services and ultra-high definition broadcasting services.

 

B.

Growth Potential

 

(Unit: in 1,000 persons)  

Classification

   As of June 30,
2018
     As of December 31,  
   2017      2016  

Fixed-line Subscribers

  High-speed Internet      21,314        21,196        20,556  
 

Fixed-line telephone

     14,694        15,039        15,746  
 

IPTV (real-time)

     14,039        13,314        11,850  

 

*

Source: MSIT website.

*

The number of IPTV subscribers is based on the relevant report released by the MSIT on May 10, 2018 and the number of subscribers as of June 30, 2018 was calculated based on the average number of subscribers in the last six months of 2017.

 

C.

Cyclical Nature and Seasonality

High-speed Internet, fixed-line telephone and IPTV services are mature markets that are comparatively less sensitive to cyclical economic changes as such services have become more of a necessity and the market has matured. The telecommunications services market overall is not expected to be particularly affected by economic downturns due to the low income elasticity of demand for telecommunication services.

 

D.

Market Shares

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

 

     (Unit: in percentages)  

Classification

   As of June 30,
2018
     As of December 31,  
   2017      2016  

High-speed Internet (including resales)

     25.9        25.7        25.3  

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

     16.8        16.9        16.9  

IPTV

     30.5        30.6        30.7  

 

*

Source: MSIT website.

*

With respect to Internet telephone, the market share was calculated based on market shares among the Company, KT and LG U+ and is based on the number of IP phone subscribers.

*

The market share of IPTV subscribers is based on the relevant report released by the MSIT on May 10, 2018 and the market share as of June 30, 2018 was calculated based on the average number of subscribers in the last six months of 2017.

 

25


Table of Contents
E.

Business Overview and Competitive Strengths

For the second quarter of 2018, the Company recorded Won 781.6 billion in revenue, Won 30.4 billion in operating income and Won 8.5 billion in profit for the period for its fixed-line business on a consolidated basis. The Company’s revenue grew compared to the previous quarter and the same quarter of the previous year, driven by an increase in revenue from IPTV services due to a growth in the number of subscribers and an increase in platform revenue. The number of subscribers to each of its high-speed Internet, residential fixed-line telephones, VoIP services and IPTV services was 5.52 million, 2.32 million, 1.69 million and 4.55 million, respectively (resulting in the total number of telephone subscribers being 4.01 million subscribers). In addition, SK Broadband was awarded first place for eight consecutive years, including in 2018, in the survey by the National Customer Satisfaction Index for its high-speed internet and IPTV services. This is the result of its continuous efforts to deliver new value to its customers through innovation.

In the case of high-speed Internet, the Company has continued to increase the proportion of subscribers of premium services, including its Giga Internet service, by strengthening its marketing efforts based on quality and customer value improvements. With the launch of its 2.5 Giga Internet service, the Company enhanced customer satisfaction levels as well as service value through services of various speeds. The Company was also able to provide enhanced customer experience and strengthen its brand image through the launch of products that meet customers’ needs, such as Giga+Wifi packaged products.

With continued increase in the number of subscribers and growth in platform revenue, such as transmission fees, the Company’s IPTV service business continued its steady growth, with revenue for the second quarter of 2018 increasing by more than 20% compared to the second quarter of 2017. In addition, the Company’s IPTV service has continued to improve its competitiveness through its further offerings of differentiated contents and services, such as AI STB with a voice recognition function, new monthly fixed-fee products that meet customers’ needs, expanded children’s contents and the launch of two-way children’s services.

The number of Oksusu users has increased due to a boost in its marketing centered on sports programs, such as professional baseball and the World Cup. Oksusu has also reinforced the competitiveness of its contents by producing differentiated original contents. SK Stoa improved its broadcast quality through the opening of a media center and internalization of its broadcast production capabilities, and continued its revenue growth by strengthening mobile sales and expanding direct-purchase products.

SK Telink, a provider of international telecommunications service, has been able to establish itself as a market leader as a result of its affordable pricing, proactive marketing and the quality of its services. It launched a mobile phone-based international calling service under the brand name “00700” in 1998, creating a new niche market within the long-distance telephony market that was otherwise dominated by existing service providers. In 2003, SK Telink was designated a common carrier for international calling services, which allowed the Company to expand its international calling services to fixed-line international calling services. In 2005, SK Telink obtained a license to operate VoIP services and local calling value-added services to develop into a versatile fixed-line telecommunications service provider. SK Telink plans to strategically target the convergence of wireless and fixed-line telecommunications and strengthen its existing business as a comprehensive ICT service provider, including international satellite calling services (internet, wireless and fixed-line calling services on ships, aircraft and in polar regions), and video conference call services while aiming to satisfy the diverse needs of customers by providing quality solutions at reasonable prices.

[Other Business]

 

A.

Industry Characteristics

As the number of smartphones distributed in Korea exceeds 40 million, the growth in various mobile devices has spurred the rise of the service provider with a strong platform business as the leader in the ICT market. It is becoming increasingly important to enhance competitiveness by building a platform with large data capacity to handle the increase in data transmission.

 

26


Table of Contents

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

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

 

B.

Growth Potential

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

 

C.

Domestic and Overseas Market Conditions

 

  (1)

Commerce markets

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

 

  (2)

Digital contents

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

 

D.

Business Overview and Competitive Strengths

The Company plans to expand its platform ecosystem in operating its commerce business which includes marketplace and O2O businesses, such as 11st, Syrup and OK Cashbag, thereby ultimately increasing its enterprise value.

 

  (1)

Commerce business

11st, an online marketplace, has continued its growth through effective marketing and customer satisfaction. Despite its later entry into the online commerce market (launched in 2008) which was already divided between Auction and G-Market, it is leading the domestic e-commerce market. Furthermore, 11st has established itself as the domestic market leader in mobile commerce, following its successful entry into and rapid growth in this market. Growth plans involving overseas joint ventures based on 11st’s business expertise have resulted in the successful launch of an open online commerce market in Turkey in partnership with Doğuş Group in March 2017, which has been actively engaged in such business since then.

 

27


Table of Contents

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

OK Cashbag is a point-based loyalty marketing program which has grown to become a global top-tier loyalty marketing program since its inception in 1999. Customers have access to increased benefits through accumulation of loyalty reward points and partner companies use OK Cashbag as a marketing resource. As Korea’s largest loyalty mileage program, OK Cashbag maintains a leading position in the industry. The Company is continuing to develop its service in light of market conditions and customers’ needs to enhance its customers’ perception of point value and is reviewing and pursuing various plans to develop OK Cashbag into a service that goes beyond a mileage program that leverages the key competitiveness of OK Cashbag such as its platform and partnership network.

 

  (2)

Location-based services

T-Map Navigation provides map, local information, real-time traffic information and navigation services. T-Map Navigation is one of the leading location-based service platforms in Korea. By entering the Online to Offline service area with T map Taxi, T map Public Transportation and others, the Company is expanding its mobile platform foundation that connects day to day life. In September 2016, the Company launched T-Map x NUGU, which provides a new form of intelligent car infortainment service in collaboration with the Company’s artificial intelligence (“AI”) service, NUGU. The Company has continued to secure subscribers by differentiating its product T-map x NUGU as a unique “artificial intelligence driving assistant.” The Company has also focused on providing effective “info-tainment” platforms to commercial vehicle businesses as well as providing localized content, including region-specific information and advertisements. The Company plans to further develop the T-Map Navigation platform by initiating open application programming interface-based services, providing services to more diverse types of devices and providing local area-based services.

 

  (3)

Digital contents

Onestore, an application platform launched in 2016 through a joint venture between SK Telecom, KT, LG U+ and Naver’s app store, launched Onestore 2.0, which showcases the particular benefits of the application platform. The Company intends to further develop Onestore into a personalized gateway and mobile playground through enhanced product and brand competitiveness, expansion of the scope of serviceable devices, reinforcement of digital content offerings and enhancement of search services, among other things.

 

  (4)

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

The Company’s instant messenger service, “Nate-On,” had a market share of 11.7% in the instant messenger market in Korea with 2.1 million net users during the month of June 30, 2018. “Nate,” the Company’s Internet search portal service, realized a page-view market share of 3.4% as of June 2018. (Source: Korean Click, based on fixed-line access)

2. Updates on Major Products and Services

(Unit: in millions of Won and percentages)

Business

  

Major Companies

  

Item

   Major
Trademarks
    

Consolidated

Sales Amount
(ratio)

Wireless

   SK Telecom Co., Ltd.,
PS&Marketing Co., Ltd.,
Network O&S Co., Ltd.
   Mobile communication service,
wireless data service,
ICT service
    
T, Band Data and
others
 
 
   6,248,843(75%)

Fixed-line

   SK Broadband Co., Ltd.,
SK Telink Co., Ltd.
   Fixed-line phone,
high speed Internet,
data and network lease service
    

B tv , 00700
international call,
SK 7mobile and others
 
 
 
   1,407,792 (17%)

Other

  

SK Planet Co., Ltd.,

SK TechX Co., Ltd.,

Onestore Co., Ltd.,
SK Communications Co., Ltd.,

M&Service Co., Ltd.,

SKP America, LLC,

Shopkick Mgmt. Co., Ltd.

  

Internet portal service and

e-commerce

    

11st, OK Cashbag,
NATE, Onestore and
others
 
 
 
   679,226 (8%)
           

 

     

Total

      8,335,861 (100%)
           

 

 

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Table of Contents

[Wireless Business]

As of June 30, 2018, based on the Company’s standard monthly subscription plan, the basic service fee was Won 12,100 and the usage fee was Won 1.98 per second.

[Fixed-line Business]

SK Broadband provides broadband Internet access service, telephony, TV, corporate business services and other services for both individual and corporate customers. As of June 30, 2018, SK Broadband’s revenue (on a consolidated basis) comprised of 26.3% broadband Internet, 2.2% home telephony services, 32.1% corporate business services, 38.2% TV services and 1.2% other telecommunications services. Price fluctuations in the different services provided by SK Broadband are due to discounts provided for long term contracts, changes in equipment costs and competition between companies.

[Other Business]

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

 

Business

 

Item

 

Major Trademarks

Platform

  ICT services, new media services,
advertisement services, telecommunications sales, e-commerce and others
  Syrup, Onestore, 11st,
OK Cashbag and others

Advertisement (Display, Search)

  Online advertisement services   Nate, Nate-On

Contents and others

  Pay content sales and other services   Nate, Nate-On

3. Investment Status

[Wireless Business]

 

A.

Investment in Progress

(Unit: in 100 millions of Won)

Business

   Classification    Investment
period
     Subject of
investment
     Investment effect      Expected
investment
amount
    Amount
already
invested
     Future
investment
 

Network/Common

   Upgrade/
New installation
    

Six months
ended June 30,
2018
 
 
 
    

Network,
systems and
others
 
 
 
    

Capacity increase and
quality improvement;
systems improvement
 
 
 
     21,000       4,980        —    
              

 

 

   

 

 

    

 

 

 
   Total               21,000     4,980        —    
              

 

 

   

 

 

    

 

 

 

 

*

On February 5, 2018, the Company disclosed its 2018 capital expenditure budget.

 

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Table of Contents
B.

Future Investment Plan

(Unit: in 100 millions of Won)

Business

 

Expected investment amount

    Expected investment for
each year
 

Investment effect

 

Asset type

  Amount     2018     2019   2020

Network/Common

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

 

 

   

 

 

       

Total

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

 

 

   

 

 

       

[Fixed-line Business]

 

A.

Investment in Progress

In 2018, the Company plans to make a similar level of capital expenditures to expand network coverage and upgrade its media platform compared to 2017, but does not expect such expenditures to have a material adverse effect on the Company’s financial structure through improvements in investment efficiency.

 

(Unit: in 100 millions of Won)

 

Business

  Classification   Investment
period
  Subject of
investment
   

Investment effect

  Amount
already
invested
    Future
investment
 

High-speed Internet

  Upgrade/
New
installation
  Six
months
June 30,
2018
   



Backbone
and
subscriber
network/
others
 
 
 
 
 
  Expand subscriber networks and facilities     822      
To be
determined
 
 

Fixed-line telephone

      8  

IPTV

      616  

Corporate Business

 

Increase leased-line and integrated information system

 

    423  

Backbone network

 

Additional backbone equipment and lines

 

    91  

IT infrastructure

       

Upgrade IT infrastructure and network management system

 

    47    

Others

        Increase network equipment and NW security     65    
         

 

 

   

Total

        2,072    
         

 

 

   

4. Revenues

(Unit: in millions of Won)

Business

 

Sales type

 

Item

  For the six
months ended
June 30, 2018
    For the year
ended December 31,
2017
    For the year
ended December 31,
2016
 

Wireless

  Services   Mobile communication   Export     26,748       20,507       17,393  
 

Domestic

    6,222,095       13,241,628       12,987,516  
 

Subtotal

    6,248,843       13,262,135       13,004,909  

Fixed-line

  Services   Fixed-line,
B2B data,
High-speed Internet, TV
  Export     44,440       84,395       92,630  
 

Domestic

    1,363,352       2,639,756       2,558,563  
 

Subtotal

    1,407,792       2,724,151       2,651,193  

Other

  Services   Display and
Search ad., Content
  Export     23,227       41,233       42,205  
 

Domestic

    655,999       1,492,494       1,393,509  
 

Subtotal

    679,226       1,533,727       1,435,714  
       

 

 

   

 

 

   

 

 

 
 

Total

    Export     94,414       146,135       152,228  
       

 

 

   

 

 

   

 

 

 
      Domestic     8,241,447       17,373,878       16,939,588  
       

 

 

   

 

 

   

 

 

 
      Total     8,335,861       17,520,013       17,091,816  
       

 

 

   

 

 

   

 

 

 

 

*

Revenues for the years ended December 31, 2017 and 2016 were recorded based on previously applicable accounting standards of K-IFRS 1018 and K-IFRS 1039.

 

30


Table of Contents

(Unit: in millions of Won)

For the six months ended June 30, 2018

   Wireless      Fixed      Other      Sub total      Internal
transaction
    After
consolidation
 

Total sales

     7,039,636        1,880,222        834,582        9,754,440        (1,418,579     8,335,861  

Internal sales

     790,793        472,430        155,356        1,418,579        (1,418,579     —    

External sales

     6,248,843        1,407,792        679,226        8,335,861        —         8,335,861  

Operating income (loss)

     713,895        72,351        558,494        1,344,740        —         1,344,740  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Profit (loss) for the period

                   2,070,032  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

     27,640,619        4,702,482        2,514,883        34,857,984        1,478,773       36,336,757  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     10,719,943        2,814,886        1,100,904        14,635,732        792,276       15,428,008  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

5. Derivative Transactions

 

A.

Current Swap Contract Applying Cash Flow Risk Hedge Accounting

Currency swap contracts under cash flow hedge accounting as of June 30, 2018 are as follows:

 

Borrowing date

  

Hedged item

   Hedged risk    Contract type    Financial
institution
  

Duration of
contract

Jul. 20, 2007   

Fixed-to-fixed cross currency swap (U.S.

dollar denominated bonds face value of

US$400,000,000)

   Foreign currency
risk
   Cross currency
swap
   Morgan Stanley
and four other
banks
  

Jul. 20, 2007 – 

Jul. 20, 2027

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

Mar. 7, 2013 –

Mar. 7, 2020

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

Oct. 29, 2013 –

Oct. 26, 2018

Dec. 16, 2013    Fixed-to-fixed cross currency swap (U.S. dollar denominated loan face value of US$57,535,000)    Foreign currency
risk
   Cross currency
swap
   Deutsche Bank   

Dec. 16, 2013 –

Apr. 29, 2022

Jul. 30, 2014    Floating-to-fixed interest rate swap(Korean Won denominated bonds face value of KRW 20,417 million)    Interest rate risk    Interest rate swap    Korea
Development
Bank
  

Nov. 10, 2016 – 

Jul. 30, 2019

Dec. 20, 2016    Floating-to-fixed interest rate swap(Korean Won denominated bonds face value of KRW 42,875 million)    Interest rate risk    Interest rate swap    Korea
Development
Bank
  

Dec. 20, 2016 –

Dec. 20, 2021

Jan. 30, 2017    Floating-to-fixed interest rate swap(Korean Won denominated bonds face value of KRW 28,553 million)    Interest rate risk    Interest rate swap    Korea
Development
Bank
   Nov. 10, 2016 – Jul. 30, 2019
Mar. 31, 2017    Floating-to-fixed interest rate swap(Korean Won denominated bonds face value of KRW 30,000 million)    Interest rate risk    Interest rate swap    Korea
Development
Bank
  

Mar. 31, 2017 –

Mar. 31, 2020

Dec. 21, 2017    Floating-to-fixed interest rate swap(Korean Won denominated bonds face value of KRW 50,000 million)    Interest rate risk    Interest rate swap    Korea
Development
Bank
  

Dec. 5, 2017 –

Dec. 21, 2022

Apr. 16, 2018    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$500,000,000)    Foreign currency
risk
   Cross currency
swap
   The Export-
Import Bank of
Korea and three
other banks
   Apr. 16, 2018 – Apr. 16, 2023

 

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Table of Contents
B.

Treatment of Derivative Instruments on the Balance Sheet

As of June 30, 2018, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments were as follows:

 

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

 

Hedged item

   Fair value  
   Cash flow hedge     Trading purposes      Embedded derivatives      Total  

Current assets:

 

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

     15,547       —          —          15,547  

Non-current assets:

 

Structured bond
(face value of Won 50,000 million)

     —         9,950        —          9,950  

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

     12,636       —          —          12,636  

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 42,875 million)

     200       —          —          200  

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

     6,628       —          —          6,628  

Fixed-to-fixed cross currency swap
(U.S. dollar denominated bonds face value of US$500,000,000)

     22,644       —          —          22,644  

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 20,417 million)

     23       —          —          23  

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 50,000 million)

     (63     —          —          (63
          

 

 

 

Total assets:

             67,565  
          

 

 

 

Non-current liabilities:

          

Fixed-to-fixed interest rate swap
(U.S. dollar denominated bonds face value of US$57,535,000)

     (1,400     —          —          (1,400

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 30,000 million)

     (132     —          —          (132
          

 

 

 

Total liabilities:

             (1,532
          

 

 

 

6. Major Contracts

[SK Telecom]

Not applicable.

[SK Broadband]

Due to the nature of the telecommunication service business, SK Broadband has entered into agreements related to the joint usage of telecommunication facilities for interconnection among telecommunication lines conduits and telecommunication service providers. Below are the major contracts of SK Broadband. In addition to the below, SK Broadband has also entered into various real estate rental agreements.

 

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Table of Contents

Counterparty

  

Contract Contents

  

Contract Period

  

Note

Telecommunication service providers

   Interconnection among telecommunication service providers    —      Automatically renewed for two years at a time unless specific amendments are requested

KEPCO

   Provision of electric facilities   

From Nov. 2016 to Nov. 2018

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

   Use of electricity poles

Busan Transportation Corporation

   Use of telecommunication line conduits    From Aug. 2017 to Jul. 2019    Use of railway telecommunication conduit (Serviced areas to expand)

Seoul Metro

   Use of telecommunication line conduits    From Jan. 2018 to Dec. 2020    Use of railway telecommunication conduit (Serviced areas to expand)

Seoul Metro

   Use of telecommunication line conduits    From May 2010 to May 2013 (currently in discussion to decide usage unit price, future plans to enter into a contract)    Use of railway telecommunication conduit (Serviced areas to expand)

[SK Communications]

 

Counterparty

  

Purpose

   Contract Period   

Contract Amount

Kakao Corp.

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

 

*

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

7. R&D Investments

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

 

         (Unit: in millions of Won except percentages)  

Category

  For the six months
ended June 30,
2018
    For the year ended
December 31, 2017
    For the year ended
December 31, 2016
    Remarks  

Raw material

    82       1,261       659       —    

Labor

    70,243       139,845       116,108       —    

Depreciation

    75,467       144,301       125,827       —    

Commissioned service

    33,067       76,042       54,714       —    

Others

    22,478       53,112       53,785       —    

Total R&D costs

    201,336       414,562       351,093       —    

Accounting

   Sales and
administrative expenses
    187,698       395,276       344,787       —    
   Development expenses
(Intangible assets)
    13,638       19,285       6,306       —    

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

    2.42     2.37     2.05     —    

8. Other information relating to investment decisions

 

A.

Trademark Policies

The Company manages its corporate brand and other product brands in a comprehensive way to protect and increase their value. The Company’s Brand Management Council in charge of overseeing its systematic corporate branding operates full-time to execute decisions involving major brands and operates ‘Comm.ON,’ an intranet system to manage the development, registration and licensing of brands.

 

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Table of Contents
B.

Business-related Intellectual Property

[SK Telecom]

As of June 30, 2018, the Company held 4,720 Korean-registered patents and 1,476 foreign-registered patents. The Company holds 731 Korean-registered trademarks and owns intellectual property rights to its proprietary graphic design of the alphabet “T” representing its brand. The designed alphabet “T” is registered in all business categories for trademarks (total of 45). The number of registered patents and trademarks is subject to constant change due to the acquisition of new rights, expiration of terms, abandonments and dispositions.

[SK Broadband]

As of June 20, 2018, SK Broadband held 343 Korean-registered patents and 150 foreign-registered patents (including those held jointly with other companies). It also holds 325 Korean-registered trademarks and owns intellectual property rights to its proprietary graphic design of the alphabet “B” representing its brand. The designed alphabet “B” is registered in all business categories for trademarks (total of 45). The number of registered patents and trademarks is subject to continual change due to the acquisition of new rights, expiration of terms, abandonments and dispositions.

[SK Planet]

As of June 30, 2018, SK Planet held 2,479 registered patents, 129 registered design marks, 1,344 registered trademarks and 9 copyrights (including those held jointly with other companies) in Korea. It also holds 189 U.S.-registered patents, 112 Chinese-registered patents, 75 Japanese-registered patents, 56 E.U.-registered patents (all including patents held jointly with other companies) and 433 registered trademarks, along with a number of other intellectual property rights, in other countries.

[SK Communications]

As of June 30, 2018, SK Communications held 93 registered patents, 26 registered design rights and 506 registered trademarks in Korea.

 

C.

Business-related Pollutants and Environmental Protection

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

 

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Table of Contents
III.

FINANCIAL INFORMATION

1. Summary Financial Information (Consolidated and Separate)

 

A.

Summary Financial Information (Consolidated)

Below is the summary consolidated financial information of the Company as of June 30, 2018, December 31, 2017 and December 31, 2016 and for the six months ended June 30, 2018 and 2017 and the years ended December 31, 2017 and 2016. The Company’s unaudited consolidated financial statements as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and 2017, which are prepared in accordance with K-IFRS, are attached hereto.

 

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

 

 

 
     As of
June 30, 2018
     As of
December 31, 2017
     As of
December 31, 2016
 

Assets

        

Current Assets

     7,814,328        6,201,799        5,996,628  

•  Cash and Cash Equivalents

     1,796,190        1,457,735        1,505,242  

•  Accounts Receivable – Trade, net

     1,987,902        2,126,007        2,240,926  

•  Accounts Receivable – Other, net

     1,097,106        1,260,835        1,121,444  

•  Others

     2,933,130        1,357,222        1,129,016  

Non-Current Assets

     28,522,429        27,226,870        25,301,035  

•  Long-Term Investment Securities

     1,064,907        887,007        828,521  

•  Investments in Associates and Joint Ventures

     11,004,762        9,538,438        7,404,323  

•  Property and Equipment, net

     9,534,852        10,144,882        10,374,212  

•  Intangible Assets, net

     3,341,694        3,586,965        3,776,354  

•  Goodwill

     1,954,244        1,915,017        1,932,452  

•  Others

     1,621,970        1,154,561        985,173  
  

 

 

    

 

 

    

 

 

 

Total Assets

     36,336,757        33,428,669        31,297,663  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current Liabilities

     5,759,256        7,109,123        6,444,099  

Non-Current Liabilities

     9,668,752        8,290,351        8,737,134  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     15,428,008        15,399,474        15,181,233  
  

 

 

    

 

 

    

 

 

 

Equity

        

Equity Attributable to Owners of the Parent Company

     20,704,987        17,842,139        15,971,399  

Share Capital

     44,639        44,639        44,639  

Capital Surplus (Deficit) and Other Capital Adjustments

     189,516        196,281        199,779  

Retained Earnings

     20,754,708        17,835,946        15,953,164  

Reserves

     (283,876      (234,727      (226,183

Non-controlling Interests

     203,762        187,056        145,031  
  

 

 

    

 

 

    

 

 

 

Total Equity

     20,908,749        18,029,195        16,116,430  
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     36,336,757        33,428,669        31,297,663  
  

 

 

    

 

 

    

 

 

 

Number of Companies Consolidated

     42        39        38  
  

 

 

    

 

 

    

 

 

 

 

    

(Unit: in millions of Won except per share amounts)

 
     For the six months
ended June 30, 2018
     For the six months
ended June 30, 2017
     For the year ended
December 31, 2017
     For the year ended
December 31, 2016
 

Operating Revenue

     8,335,861        8,579,958        17,520,013        17,091,816  

Operating Income

     672,370        833,768        1,536,626        1,535,744  

Profit Before Income Tax

     2,070,032        1,472,646        3,403,249        2,096,139  

Profit for the Period

     1,607,673        1,203,992        2,657,595        1,660,101  

Profit for the Period Attributable to Owners of the Parent Company

     1,611,611        1,214,023        2,599,829        1,675,967  

Profit for the Period Attributable to Non-controlling Interests

     (3,938      (10,031      57,766        (15,866

Basic and Diluted Earnings Per Share (Won)

     22,705        17,074        36,582        23,497  

 

*

Financial information as of and for the years ended December 31, 2017 and 2016 was recorded based on previously applicable accounting standards of K-IFRS 1018 and K-IFRS 1039.

 

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Table of Contents
B.

Summary Financial Information (Separate)

Below is the summary separate financial information of the Company as of June 30, 2018, December 31, 2017 and December 31, 2016 and for the six months ended June 30, 2018 and 2017 and the years ended December 31, 2017 and 2016. The Company’s unaudited separate financial statements as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and 2017, which are prepared in accordance with K-IFRS, are attached hereto.

 

     (Unit: in millions of Won)  
     As of June 30,
2018
     As of December 31,
2017
     As of December 31,
2016
 

Assets

        

Current Assets

     5,343,884        3,768,098        3,661,115  

•  Cash and Cash Equivalents

     1,055,703        880,583        874,350  

•  Accounts Receivable – Trade, net

     1,385,039        1,520,209        1,594,504  

•  Accounts Receivable – Other, net

     865,634        1,003,509        772,570  

•  Others

     2,037,508        363,797        419,691  

Non-Current Assets

     21,653,568        21,789,424        21,787,459  

•  Long-Term Investment Securities

     664,492        724,603        560,966  

•  Investments in Subsidiaries and Associates

     9,251,511        9,152,321        8,726,538  

•  Property and Equipment, net

     6,416,396        6,923,133        7,298,539  

•  Intangible Assets, net

     2,832,884        3,089,545        3,275,663  

•  Goodwill

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

•  Others

     1,182,049        593,586        619,517  
  

 

 

    

 

 

    

 

 

 

Total Assets

     26,997,452        25,557,522        25,448,574  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current Liabilities

     3,420,635        4,767,401        4,464,160  

Non-Current Liabilities

     6,969,658        5,782,730        6,727,460  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     10,390,293        10,550,131        11,191,620  
  

 

 

    

 

 

    

 

 

 

Equity

        

Share Capital

     44,639        44,639        44,639  

Capital Surplus and Other Capital Adjustments

     370,943        371,895        371,481  

Retained Earnings

     16,224,034        14,512,556        13,902,627  

Reserves

     (32,457      78,301        (61,793
  

 

 

    

 

 

    

 

 

 

Total Equity

     16,607,159        15,007,391        14,256,954  
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     26,997,452        25,557,522        25,448,574  
  

 

 

    

 

 

    

 

 

 

 

     (Unit: in millions of Won except per share amounts)  
     For the six months
ended June 30,
2018
     For the six months
ended June 30,
2017
     For the year
ended December 31,
2017
     For the year
ended December 31,
2016
 

Operating Revenue

     5,930,373        6,197,586        12,468,035        12,350,479  

Operating Income

     737,536        901,744        1,697,709        1,782,172  

Profit Before Income Tax

     773,417        862,963        1,603,808        1,562,782  

Profit for the Period

     584,213        702,256        1,331,114        1,217,274  

Basic and Diluted Earnings Per Share (Won)

     8,155        9,826        18,613        17,001  

 

*

Financial information as of and for the years ended December 31, 2017 and 2016 was recorded based on previously applicable accounting standards of K-IFRS 1018 and K-IFRS 1039.

 

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Table of Contents

2. Other Matters Related to Financial Information

 

A.

Restatement of the Financial Statements

Not applicable.

 

B.

Allowance for Doubtful Accounts

 

  (1)

Allowance for Doubtful Accounts of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the six months ended June 30, 2018  
     Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,259,230        259,343        11

Loans

     170,603        47,853        28

Accounts receivable – other

     1,415,969        70,787        5

Accrued income

     5,584        —          0

Guarantee deposits

     304,036        —          0
  

 

 

    

 

 

    

 

 

 

Total

     4,155,422        377,983        9
  

 

 

    

 

 

    

 

 

 
    
(Unit: in millions of Won)
 
     For the year ended December 31, 2017  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,378,203        239,448        10

Loans

     161,015        47,311        29

Accounts receivable – other

     1,623,295        75,412        5

Accrued income

     3,979        —          0

Guarantee deposits

     296,517        —          0
  

 

 

    

 

 

    

 

 

 

Total

     4,463,009        362,171        8
  

 

 

    

 

 

    

 

 

 
     (Unit: in millions of Won)  
     For the year ended December 31, 2016  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,503,139        241,828        10

Loans

     172,982        48,527        28

Accounts receivable – other

     1,350,090        78,977        6

Accrued income

     2,780        —          0

Guarantee deposits

     302,901        —          0
  

 

 

    

 

 

    

 

 

 

Total

     4,331,892        369,332        9
  

 

 

    

 

 

    

 

 

 

 

  (2)

Movements in Allowance for Doubtful Accounts of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the six months
ended June 30, 2018
     For the year ended
December 31, 2017
     For the year ended
December 31, 2016
 

Beginning balance

     362,171        369,332        344,016  

Effect of change in accounting policy

     13,049        —          —    

Increase of allowance for doubtful accounts

     24,757        40,377        78,132  

Reversal of allowance for doubtful accounts

     —          —          —    

Write-offs

     (32,110      (70,802      (79,891

Other

     10,116        23,264        27,075  
  

 

 

    

 

 

    

 

 

 

Ending balance

     377,983        362,171        369,332  
  

 

 

    

 

 

    

 

 

 

 

37


Table of Contents
  (3)

Policies for Allowance for Doubtful Accounts

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

 

  (4)

Aging of Accounts Receivable

 

                 (Unit: in millions of Won)  
     As of June 30, 2018  
   Six months or
less
    From six
months to one
year
    From one year
to three years
    More than
three years
    Total  

Accounts receivable – general

     2,104,359       28,255       81,420       45,196       2,259,230  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Percentage

     93     1     4     2     100

 

C.

Inventories

 

  (1)

Detailed Categories of Inventories

 

           (Unit: in millions of Won)  

Account Category

   For the six months
ended June 30, 2018
    For the year ended
December 31, 2017
    For the year ended
December 31, 2016
 

Merchandise

     227,927       243,975       225,958  

Goods in transit

     —         —         —    

Other inventories

     31,371       28,428       33,888  
  

 

 

   

 

 

   

 

 

 

Total

     259,298       272,403       259,846  
  

 

 

   

 

 

   

 

 

 

Percentage of inventories to total assets

[ Inventories / Total assets ]

     0.71     0.81     0.83

Inventory turnover

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

     6.09       7.09       6.89  

 

  (2)

Reporting of Inventories

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

 

D.

Fair Value Measurement

See note 2 of the notes to the Company’s unaudited consolidated financial statements as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and 2017, for more information.

 

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E.

Key Terms of Debt Securities

[SK Telecom]

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

 

Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent  

Unsecured Bond – Series 61-2

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

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 50% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent  

Unsecured Bond – Series 62-1

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

Unsecured Bond – Series 62-2

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

Unsecured Bond – Series 62-3

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

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

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Table of Contents

Name

   Issue Date    Maturity
Date
   Principal
Amount
     Date of Fiscal
Agency Agreement
   Fiscal Agent  

Unsecured Bond – Series 63-1

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

Unsecured Bond – Series 63-2

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

Unsecured Bond – Series 64-1

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

Unsecured Bond – Series 64-2

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

Unsecured Bond – Series 64-4

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

Unsecured Bond – Series 65-1

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

Unsecured Bond – Series 65-2

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

Unsecured Bond – Series 65-3

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

Unsecured Bond – Series 66-1

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

Unsecured Bond – Series 66-2

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

Unsecured Bond – Series 66-3

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

Unsecured Bond – Series 67-1

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

Unsecured Bond – Series 67-2

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

Unsecured Bond – Series 67-3

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

Unsecured Bond – Series 68-1

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

Unsecured Bond – Series 68-2

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

Unsecured Bond – Series 68-3

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

Unsecured Bond – Series 69-1

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

Unsecured Bond – Series 69-2

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

Unsecured Bond – Series 69-3

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

Unsecured Bond – Series 69-4

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

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

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Table of Contents

Name

   Issue Date    Maturity
Date
   Principal
Amount
     Date of Fiscal
Agency Agreement
   Fiscal Agent  

Unsecured Bond – Series 70-1

   June 3, 2016    June 3, 2019      50,000      May 24, 2016      Korea Securities Finance Corp.  

Unsecured Bond – Series 70-2

   June 3, 2016    June 3, 2021      50,000      May 24, 2016      Korea Securities Finance Corp.  

Unsecured Bond – Series 70-3

   June 3, 2016    June 3, 2026      120,000      May 24, 2016      Korea Securities Finance Corp.  

Unsecured Bond – Series 70-4

   June 3, 2016    June 3, 2031      50,000      May 24, 2016      Korea Securities Finance Corp.  

Unsecured Bond – Series 71-1

   April 25, 2017    April 25, 2020      60,000      April 13, 2017      Korea Securities Finance Corp.  

Unsecured Bond – Series 71-2

   April 25, 2017    April 25, 2022      120,000      April 13, 2017      Korea Securities Finance Corp.  

Unsecured Bond – Series 71-3

   April 25, 2017    April 25, 2027      100,000      April 13, 2017      Korea Securities Finance Corp.  

Unsecured Bond – Series 71-4

   April 25, 2017    April 25, 2032      90,000      April 13, 2017      Korea Securities Finance Corp.  

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 150% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 5 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

Name

   Issue Date      Maturity
Date
     Principal
Amount
     Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 72-1

     Nov. 10, 2017        Nov. 10, 2020        100,000      Oct. 31, 2017    Korea Securities Finance Corp.

Unsecured Bond – Series 72-2

     Nov. 10, 2017        Nov. 10, 2022        80,000      Oct. 31, 2017    Korea Securities Finance Corp.

Unsecured Bond – Series 72-3

     Nov. 10, 2017        Nov. 10, 2027        100,000      Oct. 31, 2017    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 150% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 50% of total assets
   Compliance Status    Compliant

Restriction on Changes of Management Structure

   Key Term   

Restriction of cross-shareholding

Exclusion from corporate group

   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

Name

  

Issue Date

     Maturity
Date
     Principal
Amount
     Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 73-1

     Feb. 20, 2018        Feb. 20, 2021        110,000      Feb. 6. 2018    Korea Securities Finance Corp.

Unsecured Bond – Series 73-2

     Feb. 20, 2018        Feb. 20, 2023        100,000      Feb. 6. 2018    Korea Securities Finance Corp.

Unsecured Bond – Series 73-3

     Feb. 20, 2018        Feb. 20, 2028        200,000      Feb. 6. 2018    Korea Securities Finance Corp.

Unsecured Bond – Series 73-4

     Feb. 20, 2018        Feb. 20, 2038        90,000      Feb. 6. 2018    Korea Securities Finance Corp.

 

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Table of Contents

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 150% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 50% of total assets
   Compliance Status    Compliant

Restriction on Changes of Management Structure

   Key Term   

Restriction of cross-shareholding

Exclusion from corporate group

   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    To be submitted after the release of the 2018 semi-annual report

[SK Broadband]

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

 

Name

   Issue Date    Maturity
Date
   Principal
Amount
   Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 38-2

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

Unsecured Bond – Series 39

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

Unsecured Bond – Series 40-2

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

Unsecured Bond – Series 41

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

Unsecured Bond – Series 42

   Oct. 6, 2015    Oct. 6, 2020    130,000    Sept. 22, 2015    Korea Securities Finance Corp.

Unsecured Bond – Series 43-1

   Oct. 5, 2016    Oct. 5, 2019    50,000    Sept. 22, 2016    Korea Securities Finance Corp.

Unsecured Bond – Series 43-2

   Oct. 5, 2016    Oct. 5, 2021    120,000    Sept. 22, 2016    Korea Securities Finance Corp.

Unsecured Bond – Series 44

   Feb. 3, 2017    Feb. 3, 2022    150,000    Jan. 20, 2017    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 23, 2018

 

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Table of Contents

Name

   Issue Date    Maturity
Date
   Principal
Amount
     Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 45-1

   Oct. 11, 2017    Oct. 11, 2020      30,000      Sept. 20, 2017    Korea Securities Finance Corp.

Unsecured Bond – Series 45-2

   Oct. 11, 2017    Oct. 11, 2022      140,000      Sept. 20, 2017    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 70% of total assets
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 23, 2018

 

Name

   Issue Date    Maturity
Date
   Principal
Amount
   Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 46-1

   Feb. 1, 2018    Feb. 1, 2021    70,000    Jan. 19, 2018    Korea Securities Finance Corp.

Unsecured Bond – Series 46-2

   Feb. 1, 2018    Feb. 1, 20213    80,000    Jan. 19, 2018    Korea Securities Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 70% of total assets
   Compliance Status    Compliant

Restriction on Changes of Management Structure

   Key Term    Restriction on changes of management structure
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    To be submitted in August 2018

 

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Table of Contents
IV.

AUDITOR’S OPINION

1. Auditor (Consolidated)

 

Six months ended June 30, 2018

   Year ended December 31, 2017    Year ended December 31, 2016

KPMG Samjong Accounting Corp.

   KPMG Samjong Accounting Corp.    KPMG Samjong Accounting Corp.

2. Audit Opinion (Consolidated)

 

Period

  

Auditor’s opinion

  

Issues noted

Six months ended June 30, 2018

   —      —  

Year ended December 31, 2017

   Unqualified    N/A

Year ended December 31, 2016

   Unqualified    N/A

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

 

A.

Audit Contracts

 

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

Period

   Auditors   

Contents

   Fee      Total number of
hours accumulated
for the fiscal year
 

Six months ended June 30, 2018

   KPMG Samjong
Accounting
Corp.
   Quarterly review      1,700        22,058  
   Separate financial statements audit
   Consolidated financial statements audit
   English financial statements review and other audit task

Year ended December 31, 2017

   KPMG Samjong
Accounting
Corp.
   Semi-annual review      1,470        21,098  
   Quarterly review
   Separate financial statements audit
   Consolidated financial statements audit
   English financial statements review and other audit task

Year ended December 31, 2016

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

 

B.

Non-Audit Services Contract with External Auditors

 

(Unit: in millions of Won)

Period

   Contract date    Service provided    Service duration        Fee    

Six months ended June 30, 2018

   March 5, 2017    Issuance of comfort letters    March 5, 2018 – April 26, 2018    110

Year ended December 31, 2017

   March 10, 2017    Issuance of comfort letters    March 10, 2017 – March 30, 3017    30
   April 28, 2017    Consulting services    April 28, 2017 – May 12, 2017    300

Year ended December 31, 2016

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

 

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4. Change of Independent Auditors

Not applicable.

 

45


Table of Contents
V.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

 

VI.

CORPORATE ORGANIZATION INCLUDING BOARD OF DIRECTORS

1. Board of Directors

 

A.

Overview of the Composition of the Board of Directors

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

 

               (As of June 30, 2018)

Total number
of persons

  

Inside director

  

Non-executive
director

  

Independent directors

8    Jung Ho Park, Young Sang Ryu    Dae Sik Cho    Jae Hoon Lee, Dae Shick Oh, Jae Hyeon Ahn, Jung Ho Ahn, Youngmin Yoon

At the 34th General Meeting of Shareholders held on March 21, 2018, Young Sang Ryu was newly elected as an inside director and Youngmin Yoon was newly elected as an independent director and a member of the audit committee.

 

B.

Significant Activities of the Board of Directors

 

Meeting

  

Date

  

Agenda

  

Approval

409th
(the 1st meeting of 2018)
   February 2, 2018   

•   Business Plan for 2018

•   Financial statements as of and for the year ended December 31, 2017

•   Annual business report as of and for the year ended December 31, 2017

•   Delegation of funding through long-term borrowings in 2018

•   Lease contract with SK Broadband

•   Approval of IT SM transactions in 2018

•   Report on welfare fund for 2018

•   Share acquisition of FSK L&S

•   Establishment of SK Telecom Japan

•   Report of internal accounting management

•   Donation to community in 2017

•   Report for the period after the fourth quarter of 2017

  

Approved as proposed

 

Approved as proposed

 

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

410th
(the 2nd meeting of
2018)
   February 20, 2018   

•   Adoption of electronic voting system

•   Establishment of corporate governance charter

•   Grant of stock options

•   Plan for the 34th General Meeting of Shareholders

•   Donation to the Korean Fencing Association

•   Results on internal accounting management

  

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

 

46


Table of Contents

Meeting

  

Date

  

Agenda

  

Approval

411th
(the 3rd meeting of 2018)
  

 

March 31, 2018

  

•   Election of the chairman of the Board of Directors

•   Election of committee members

•   Reappointment of compliance officer

•   Transactions with SK Holdings in the second quarter of 2018

•   Transactions related to corporate bonds with SK Securities

•   Transactions related to fund management with SK Securities

•   Donation to Korea Foundation of Advance Studies for 2018

•   Donation to SK Happiness Foundation for 2018

  

Approved as proposed

Approved as proposed
Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

412nd
(the 4th meeting of 2018)
   April 26, 2018   

•   Allocation of operating costs of SK Academy

•   Payment of operating costs in 2018 for SUPEX Council

•   Report for the period after the first quarter of 2018

  

Approved as proposed Approved as proposed

—  

413rd
(the 5th meeting of 2018)
   May 8, 2018   

•   Acquisition of shares of Siren Holdings Korea Co., Ltd.

   Approved as proposed
414th
(the 6th meeting of 2018)
   May 24, 2018   

•   Plan for the procurement of 5G frequency

•   Settlement of expenses between related parties in connection with contemplated joint R&D

•   Equity investment plan for the Guam/Saipan MNO

  

Approved as proposed

Approved as proposed

—  

415th
(the 7th meeting of 2018)
   June 28, 2018   

•   Transactions with SK Holdings in the third quarter of 2018

•   Transactions related to corporate bonds with SK Securities

•   Transactions related to fund management with SK Securities

•   Changes to joint management contract of airplane for business purposes

  

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

 

*

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

 

C.

Committees within Board of Directors

 

  (1)

Committee structure (as of June 30, 2018)

 

  (a)

Compensation Review Committee

 

Total number
of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

3    —      Jae Hoon Lee, Dae Shick Oh, Jung Ho Ahn    Review CEO remuneration system and amount

 

*

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

 

  (b)

Capex Review Committee

 

Total number

of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

6    Young Sang Ryu    Jae Hoon Lee, Dae Shick Oh, Jae Hyeon Ahn, Jung Ho Ahn, Youngmin Yoon    Review major investment plans and changes thereto

 

*

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

 

  (c)

Corporate Citizenship Committee

 

Total number
of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

3    —      Jae Hoon Lee, Jae Hyeon Ahn, Jung Ho Ahn    Review guidelines on corporate social responsibility (“CSR”) programs, etc.

 

*

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

 

47


Table of Contents
  (d)

Independent Director Nomination Committee

 

Total number
of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

3    Jung Ho Park    Jae Hoon Lee, Jae Hyeon Ahn    Nomination of independent directors

 

*

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

 

  (e)

Audit Committee

 

Total number
of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

4    —      Jae Hoon Lee, Dae Shick Oh, Jae Hyeon Ahn, Youngmin Yoon    Review financial statements and supervise independent audit process, etc.

 

*

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

2. Audit System

The Company’s Audit Committee consists of three independent directors, Dae Shick Oh, Jae Hoon Lee and Jae Hyeon Ahn.

Major activities of the Audit Committee as of June 30, 2018 are set forth below.

 

Meeting

  

Date

  

Agenda

  

Approval

The 1st

meeting of 2018

   February 1, 2018   

•   Evaluation of internal accounting management system operation

•   Review of business and audit results for the second half of 2017 and business and audit plans for 2018

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

•   Appointment of external auditor for the period of 2018 to 2020

  

—  

Approved as proposed

 

Approved as proposed

 

—  

The 2nd

meeting of 2018

   February 19, 2018   

•   Report on the IFRS audit of fiscal year 2017

•   Report on review of 2017 internal accounting management system

•   Evaluation of internal accounting management system operation

•   Agenda and document review for the 34th General Meeting of Shareholders

•   Auditor’s report for fiscal year 2017

•   Report on contract for customer appreciation gifts to fixed-line telephone customers for 2018

  

—  

—  

Approved as proposed

Approved as proposed

 

Approved as proposed

Approved as proposed

The 3rd

meeting of 2018

   March 20, 2018   

•   Contract for maintenance services of optical cables in 2018

•   Contract for maintenance services of transmission equipment in 2018

•   Consulting contract to undertake a global project

  

Approved as proposed
Approved as proposed

Approved as proposed

The 4th meeting of 2018    April 25, 2018   

•   Election of the chairman of the Audit Committee

•   Remuneration for external auditor for fiscal year 2018

•   Approval of external auditor services for fiscal year 2018

•   Audit plan for fiscal year 2018

  

Approved as proposed

Approved as proposed

Approved as proposed

—  

The 5th meeting of 2018    May 23, 2018   

•   Product/service transactions with SK Broadband for fiscal year 2018

   Approved as proposed

 

*

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

 

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Table of Contents

3. Shareholders’ Exercise of Voting Rights

 

A.

Voting System and Exercise of Minority Shareholders’ Rights

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

 

Articles of Incorporation

  

Description

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

During the 34th general meeting of shareholders held on March 21, 2018, the Company adopted the electronic voting method. Pursuant to Article 368-4 of the Korean Commercial Code, the Company entrusted the Korea Securities Depository with the role of administering the electronic voting system, allowing shareholders to exercise their voting rights through electronic voting without attending the general meeting of shareholders.

Written voting system is not applicable. Minority shareholder rights were not exercised during the relevant period.

 

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Table of Contents
VII.

SHAREHOLDERS

1. Shareholdings of the Largest Shareholder and Related Persons

 

A.

Shareholdings of the Largest Shareholder and Related Persons

 

(As of June 30, 2018)      (Unit: in shares and percentages)  

Name

  

Relationship

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

SK Holdings Co., Ltd.

  

Largest

Shareholder

     Common share        20,363,452        25.22        20,363,452        25.22  

Tae Won Chey

  

Officer of

affiliated

company

     Common share        100        0.00        100        0.00  

Dong Hyun Jang

  

Officer of

affiliated

company

     Common share        251        0.00        251        0.00  

Jung Ho Park

  

Officer of the

Company

     Common share        1,000        0.00        1,000        0.00  
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

     Common share        20,364,803        25.22        20,364,803        25.22  
        

 

 

    

 

 

    

 

 

    

 

 

 

 

B.

Overview of the Largest Shareholder

As of June 30, 2018, the Company’s largest shareholder was SK Holdings Co., Ltd. (“SK Holdings”) with 20,363,452 shares (25.22%) of the Company. SK Holdings was established on April 13, 1991 and was made public on the securities market for the first time under the name SK C&C Co., Ltd. on November 11, 2009. On August 3, 2015, SK Holdings merged with and into SK C&C and the merged entity was renamed SK Holdings. The main business of SK Holdings includes managing its subsidiaries as a holding company, IT services, security services and logistics services, among others.

 

C.

Changes in Shareholdings of the Largest Shareholder

Changes in shareholdings of the largest shareholder are as follows:

 

(As of June 30, 2018)      (Unit: in shares and percentages)

Largest
Shareholder

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

Remarks

   January 2, 2014      20,367,290        25.22      Shin Won Chey, SKC’s Chairman, purchased 1,000 shares
   March 24, 2014      20,368,290        25.23      Shin Won Chey, SKC’s Chairman, purchased 1,000 shares
   January 2, 2015      20,364,290        25.22      Shin Won Chey, SKC’s Chairman, disposed of 4,000 shares
   March 20, 2015      20,363,803        25.22      Appointment of CEO Dong Hyun Jang (ownership of 251 shares of the Company), Retirement of Sung Min Ha
   June 9, 2015      20,365,006        25.22      Purchase through the Share Exchange between SK Broadband and SK Telecom (Shin Won Chey, SKC’s Chairman, purchased 1,067 shares, and Myung Hyun Cho, SK Broadband’s independent director, purchased 136 shares)
SK Holdings    August 3, 2015      20,364,930        25.22      Myung Hyun Cho, SK Broadband’s independent director, disposed of 76 shares
   March 24, 2017      20,364,870        25.22      Retirement of Myung Hyun Cho, SK Broadband’s independent director (ownership of 60 shares of the Company)
   March 28, 2017      20,365,370        25.22      Jung Ho Park, CEO of the Company, purchased 500 shares.
   March 30, 2017      20,365,870        25.22      Jung Ho Park, CEO of the Company, purchased 500 additional shares.
   July 7, 2017      20,364,803        25.22      Shin Won Chey, SKC’s Chairman, disposed of 1,067 shares.

 

*

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

 

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Table of Contents

2. Distribution of Shares

 

A.

Shareholders with ownership of 5% or more and others

 

(As of June 30, 2018)      (Unit: in shares and percentages)

Rank

  

Name (title)

   Common share
   Number of shares      Ownership ratio     Remarks
1    Citibank ADR      8,849,283        10.96   —  
2    SK Holdings      20,363,452        25.22   —  
3    SK Telecom      10,136,551        12.55   Treasury shares
4    National Pension Service      7,441,997        9.22   —  
Shareholdings under the Employee Stock Ownership Program      —          0.00   —  

 

B.

Shareholder Distribution

 

(As of June 30, 2018)     (Unit: in shares and percentages)  

Classification

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

Total minority shareholders*

     65,811        99.9     33,954,428        42.05     —    

 

*

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

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

 

A.

Domestic Securities Market

 

Types

   June 2018      May 2018      April 2018      March 2018      February 2018      January 2018  
Common stock     Highest      246,500        231,500        237,000        239,500        262,000        280,000  
 

  Lowest

     222,000        220,500        222,000        226,500        239,500        259,500  
 

  Average

     234,738        225,174        228,333        232,429        246,222        268,682  
Daily transaction volume     Highest      496,297        288,474        438,740        282,839        326,122        289,341  
 

  Lowest

     84,766        73,057        119,524        98,455        101,187        84,282  

Monthly transaction volume

     5,173,217        3,608,544        3,907,630        3,832,650        3,043,979        3,936,581  

 

B.

Foreign Securities Market (New York Stock Exchange)

 

Types

   June 2018      May 2018      April 2018      March 2018      February 2018      January 2018  
Depositary receipt     Highest      25.18        23.87        24.83        24.70        27.19        28.82  
 

  Lowest

     23.13        22.82        23.02        23.26        24.32        27.26  
 

  Average

     23.78        23.22        23.74        24.03        25.12        27.93  
Daily transaction volume     Highest      848,181        812,445        927,339        1,057,248        1,405,563        739,383  
 

  Lowest

     194,540        233,123        269,790        296,949        257,666        266,543  

Monthly transaction volume

     9,420,124        10,710,760        10,294,651        11,081,045        10,347,790        9,419,815  

 

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Table of Contents
VIII.

EMPLOYEES AND DIRECTORS

1. Employees

 

(As of June 30, 2018)                                            (Unit: in persons and millions of Won)  

Business segment

     Gender        Number of employees        Average
service
year
       Aggregate wage
for the first three
months of 2017
       Average wage
per person
 
     Employees without a
fixed term of
employment
       Employees with a
fixed term of
employment
       Total  
     Total        Part-time
employees
       Total        Part-time
employees
 

—  

       Male          3,928          —            130          —            4,058          12.7          286,697          72  

—  

       Female          658          —            118          —            776          9.0          36,032          50  
         

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total

            4,586          —            248          —            4,834          12.1          322,729          69  
         

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

 

*

Based on Section 9-1-2 (Employee Status) of the Corporate Disclosure Guidelines (amended as of July 2018).

2. Compensation of Directors

 

A.

Amount Approved at the Shareholders’ Meeting

 

(As of June 30, 2018)      (Unit: in millions of Won)  

Classification

   Number of Directors      Aggregate Amount Approved  

Directors

     8        12,000  

 

B.

Amount Paid

B-1. Total Amount

 

(As of June 30, 2018)      (Unit: in millions of Won)  

Number of Directors

   Aggregate Amount Paid      Average Amount Paid Per Director      Remarks  

8

     3,216        402        —    

B-2. Amount by Classification

 

(As of June 30, 2018)           (Unit: in millions of Won)  

Classification

  Number of Directors     Aggregate Amount Paid     Average Amount Paid Per Director     Remarks  

Inside Directors

    3       3,022       1,007       —    

Independent Directors

    1       40       40       —    

Audit Committee Members

    4       154       39       —    

Auditor

    —         —         —         —    

3. Individual Compensation of Directors

 

A.

Remuneration for Individual Directors

 

                 (Unit: in millions of Won)

Name

   Position    Total remuneration      Payment not included in
total remuneration

Jung Ho Park

   Representative Director      2,925      66,504 shares in stock
option

 

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Table of Contents

Method of calculation

 

Name

  

Method of calculation

Jung Ho Park

  

Total remuneration

 

•  Won 2,925 million (consisting of Won 575 million in salary and Won 2,350 million in bonus).

 

Salary

 

•  An annual base salary of Won 1,150 million was set based on Mr. Park’s position (as Representative Director and President), leadership, expertise and contribution to the Company and within the director compensation limits established by the board of directors for the year 2018. One twelfth of the annual base salary (Won 95.8 million) is paid each month.

 

Bonus

 

•  Bonus awarded at the beginning of 2018 was based on the annual performance in 2017 and consisted of target incentive payments and profit sharing payments.

 

•  Bonus in the range of 0% to 250% of the annual base salary may be awarded to the Representative Director, based on a comprehensive evaluation of performance through certain financial indicators, including revenue and operating profit, and non-financial indicators, including leadership, ability to achieve strategic tasks, expertise and other management skills and contributions.

 

•  For the year ended December 31, 2017, the Company met its financial targets with revenue of Won 17.5 trillion and operating profit of Won 1.5 trillion on a consolidated basis and succeeded in achieving a turnaround in revenue for the first time in three years since 2014. Mr. Park also solidified Company’s market position as a leader in the mobile communication industry; it was ranked number one for the Korean Customer Satisfaction Index (“KCSI”) for 20 consecutive years in 2017, and has held the number one position in the top 3 customer satisfaction evaluations in Korea, including KS-SQI and KCSI, for the longest period among all companies, and the number of the Company’s mobile subscribers surpassed 30 million in the year ended December 31, 2017. He also laid the groundwork for securing new growth drivers in the new ICT area, including media, commerce and AI. In particular, since the launch of AI speaker “NUGU,” the Company has achieved outstanding results in the new ICT area by strengthening the Company’s competitiveness in the AI business with the “AI virtuous cycle strategy,” which seeks to expand service areas, contents and users simultaneously. As a result, the number of monthly active users of AI speaker “NUGU” increased from 0.1 million in August 2016 to 2.1 million in December 2017. Based on these factors, a bonus of Won 2,350 million was awarded to Mr. Park.

 

B.

Remuneration for the Five Highest-Paid Officers (among those Paid over W500 Million per Year)

 

          (Unit: in millions of Won)

Name

   Position    Total remuneration      Payment not included in
total remuneration

Jung Ho Park

   Representative Director      2,925      66,504 stock options

Ho Cheol Yeo

   Non-registered Officer      1,777      —  

Yong Seob Yeom

   Non-registered Officer      727      —  

Joon Choi

   Non-registered Officer      715      —  

Yong Seok Lee

   Non-registered Officer      633      —  

 

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Table of Contents

Name

  

Method of calculation

Jung Ho Park    See “VIII.3.A. Remuneration for Individual Directors” above.

Ho Cheol Yeo

  

Total remuneration

 

•  Won 1,777 million (consisting of Won 83 million in salary, Won 254 million in bonus, Won 606 million in other earned income and Won 834 million in retirement pay).

 

Salary

 

•  An annual base salary of Won 237 million was set based on Mr. Yeo’s position, leadership, expertise and contribution to the Company. One twelfth of the annual base salary (Won 19.7 million) is paid each month.

 

•  The total amount of salary paid is for the period from January 1, 2018 and May 8, 2018.

 

Bonus

 

•  Bonus awarded at the beginning of 2018 was based on the annual performance in 2017 and consisted of target incentive payments and profit sharing payments.

 

•  Bonus in the range of 0% to 200% of the annual base salary may be awarded to an executive, based on a comprehensive evaluation of performance through certain financial indicators, including revenue and operating profit, and non-financial indicators, such as leadership, ability to achieve strategic tasks, expertise and other management skills and contributions.

 

•  Mr. Yeo contributed to the management’s decision-making process to minimize business risk through the business evaluation of the Company and its affiliated companies. He also built the foundation for systematic management through upgrades in ethical management infrastructure and created a culture and environment for ethical management practices through workshops and active training. Based on these factors, a bonus of Won 254 million was awarded to Mr. Yeo.

 

Other earned income

 

•  Bereavement pay was paid for the death of the executive.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the Company’s policy on executive retirement pay and includes additional amounts for special contributions based on the Company’s policy on executive management.

 

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Table of Contents
Yong Seob Yeom   

Total remuneration

 

•  Won 727 million (consisting of Won 247 million in salary and Won 480 million in bonus).

 

Salary

 

•  An annual base salary of Won 495 million was set based on the executive’s position, leadership, expertise and contribution to the Company. One twelfth of the annual base salary (Won 41.2 million) is paid each month.

 

Bonus

 

•  Bonus was paid in February 2018 based on the performance of Mr. Yeom during his tenure as the head of the SK Research Institute for SUPEX Management for the year 2017.

 

•  Bonus may be awarded based on the executive compensation guidelines and a comprehensive evaluation of performance through certain financial indicators, including revenue and operating profit, and non-financial indicators, such as ability to achieve strategic tasks and leadership in generating management skills.

 

•  Mr. Yeom contributed to increasing the Company’s corporate value and competitiveness by performing his role as the head of SK Research for SUPEX Management, which acts as a think tank that supports the Company’s sustainable growth. Based on these factors, a bonus of Won 480 million was awarded to Mr. Yeom.

Joon Choi   

Total remuneration

 

•  Won 715 million (consisting of Won 172 million in salary and Won 543 million in bonus).

 

Salary

 

•  An annual base salary of Won 345 million was set based on the executive’s position, leadership, expertise and contribution to the Company. One twelfth of the annual base salary (Won 28.7 million) is paid each month.

 

•  The total amount was allocated based on the operating standards agreed by the SUPEX Council member companies.

 

Bonus

 

•  Bonus was paid in February 2018 based on the performance of Mr. Choi as an executive in the strategic support team of the SUPEX Council for the year 2017.

 

•  Bonus may be awarded based on the executive compensation guidelines and a comprehensive evaluation of performance through certain financial indicators, including revenue and operating profit, and non-financial indicators, such as ability to achieve strategic tasks and leadership in generating management skills.

 

•  As an executive of the strategic support team of the SUPEX Council, Mr. Choi contributed to the growth of SK Group by enhancing SK Group’s ability to execute the “Independent Yet United” management philosophy and increasing the corporate value and competitiveness of affiliated companies. He also contributed to the innovation of the Company’s business model and its global growth. Based on these factors, a bonus of Won 543 million was awarded to Mr. Choi. (The total amount was allocated based on the operating standards agreed by the SUPEX Council member companies.)

 

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Table of Contents
Yong Seok Lee   

Total remuneration

 

•  Won 633 million (consisting of Won 247 million in salary, Won 386 million in bonus).

 

Salary

 

•  An annual base salary of Won 495 million was set based on the executive’s position, leadership, expertise and contribution to the Company. One twelfth of the annual base salary (Won 41.2 million) is paid each month.

 

Bonus

 

•  Bonus was paid in February 2018 based on the performance of Mr. Lee during his tenure as the head of economic research of the SK Research Institute for SUPEX Management for the year 2017.

 

•  Bonus may be awarded based on the executive compensation guidelines and a comprehensive evaluation of performance through certain financial indicators, including revenue and operating profit, and non-financial indicators, such as ability to achieve strategic tasks and leadership in generating management skills.

 

•  Mr. Lee contributed to increasing the Company’s corporate value and competitiveness by performing his role as the head of economic research of the SK Research for SUPEX Management, which acts as a think tank that supports the Company’s sustainable growth. Based on these factors, a bonus of Won 386 million was awarded to Mr. Lee.

 

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Table of Contents

4. Stock Options Granted and Exercised

 

A.

Stock Options Granted to Directors and Auditors

 

(As of June 30, 2018)      (Unit: in millions of Won)  

Classification

   Number of Directors      Fair Value of Stock Options      Remarks  

Inside Directors

     3        271        —    

Independent Directors

     1        —          —    

Audit Committee Members

     4        —          —    
  

 

 

    

 

 

    

 

 

 

Total

     8        271        —    
  

 

 

    

 

 

    

 

 

 

 

*

See note 24 of the notes to the Company’s consolidated financial statements attached hereto for more information regarding the calculation method for the fair value of stock options.

The fair value of stock options is based on the cost associated with stock options as set forth in the Company’s statement of comprehensive income for the relevant period, to the extent such options were granted to directors.

 

B.

Stock Options Granted and Exercised

 

(As of June 30, 2018)      (Unit: in Won and shares)  

Grantee

   Relationship
with the
Company
   Date of Grant    Method of
Grant
     Changes      Unexercised
Number of
Shares
     Exercise Period      Exercise
Price
 
   Granted      Exercised      Canceled  

Jung Ho Park

   Inside
Director
   March 24,
2017
    
Treasury
stock
 
 
     22,168        —          —          22,168       
March 25, 2019 –
March 24, 2022
 
 
     246,750  

Jung Ho Park

   Inside
Director
   March 24,
2017
    
Treasury
stock
 
 
     22,168        —          —          22,168       
March 25, 2020 –
March 24, 2023
 
 
     266,490  

Jung Ho Park

   Inside
Director
   March 24,
2017
    
Treasury
stock
 
 
     22,168        —          —          22,168       
Mach 25, 2021 –
March 24, 2024
 
 
     287,810  

Young Sang Ryu

   Inside
Director
   February 20,
2018
    
Treasury
stock
 
 
     1,358        —          —          1,358       
February 21, 2020
–February 2, 2023
 
 
     254,120  

Sung Won Suh

   Officer    February 20,
2018
    
Treasury
stock
 
 
     2,755        —          —          2,755       
February 21, 2020
–February 2, 2023
 
 
     254,120  

Sang Ho Lee

   Officer    February 20,
2018
    
Treasury
stock
 
 
     1,594              1,594       
February 21, 2020
–February 2, 2023
 
 
     254,120  

 

*

On June 30, 2018, the closing price was Won 233,000.

 

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IX.

RELATED PARTY TRANSACTIONS

 

  1.

Line of Credit Extended to the Largest Shareholder and Related Parties

 

(As of June 30, 2018)      (Unit: in millions of Won)  

Name (Corporate name)

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

SK Wyverns

  Affiliate   Long-term and
short-term loans
    611       —          —          611        14        —    

 

  2.

Transfer of Assets to/from the Largest Shareholder and Related Parties and Other Transactions

Purchase and Dispositions of Investments

 

(As of June 30, 2018)      (Unit: in millions of Won)

Name (Corporate name)

  Relationship   Details     

Remarks

  Type of
investment
  Change  
  Beginning     Increase      Decrease      Ending  

SK Telecom Japan Inc.

  Affiliate   Equity     —         10,316        —          10,316      Newly Established

Atlas

  Affiliate   Equity     84,495       5,329        —          89,824      Capital increase

Purchase and Disposition of Securities

 

 

(As of June 30, 2018)   

(Unit: in millions of Won)

Name (Corporate name)

  Relationship   Type of
Transaction
  Transaction Date   Object of Transaction    Transaction
Amount
    

Valuation Method

SK Holdings

  Affiliate   Purchase of
equity interest
  February 6, 2018   FSK L&S Co., Ltd.      17,757    Third party appraisal
*

The transaction amount has been adjusted from the transaction amount disclosed in the first quarter of 2018 to reflect the final adjusted amount.

Transfer of Assets

None.

 

  3.

Transactions with the Largest Shareholder and Related Parties

None.

 

  4.

Related Party Transactions

See note 32 of the notes to the Company’s unaudited consolidated financial statements as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and 2017, for more information regarding related party transactions.

 

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  5.

Other Related Party Transactions (excluding Transactions with the Largest Shareholder and Related Parties listed above)

 

A.

Provisional Payment and Loans (including loans on marketable securities)

 

(As of June 30, 2018)     (Unit: in millions of Won)  

Name (Corporate name)

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

Baekmajang and others

  Agency   Long-term and
short-term loans
    61,930       110,980       100,133       72,777       —         —    

Daehan Kanggun BCN Inc.

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

 

 

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X.

OTHER INFORMATION RELATING TO THE PROTECTION OF INVESTORS

 

  1.

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

 

A.

Summary Minutes of the General Meeting of Shareholders

 

Date

  

Agenda

  

Resolution

32nd Fiscal Year Meeting of Shareholders

(March 18, 2016)

  

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

2.  Amendments to Articles of Incorporation

3.  Election of directors

•  Election of an inside director

•  Election of an independent director

4.  Election of an independent director as Audit Committee member

5.  Approval of remuneration limit for directors

6.  Amendments to executive payroll regulations

  

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

 

Approved

 

Approved (Dae Sik Cho)

Approved (Dae Shick Oh)

Approved (Dae Shick Oh)

 

Approved (Won 12 billion)

Approved

 

33rd Fiscal Year Meeting of Shareholders

(March 24, 2017)

  

1.  Approval of the financial statements for the year ended December 31, 2016

2.  Amendments to Articles of Incorporation

3.  Election of directors

•  Election of an inside director

•  Election of a non-executive director

•  Election of an independent director

•  Election of an independent director

•  Election of an independent director

4.  Election of an independent director as Audit Committee member

•  Election of an independent director as Audit Committee member

•  Election of an independent director as Audit Committee member

5.  Approval of remuneration limit for directors

6.  Award of stock options

  

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

 

Approved

 

Approved (Jung Ho Park)

Approved (Dae Sik Cho)

Approved (Jae Hoon Lee)

Approved (Jae Hyeon Ahn)

Approved (Jung Ho Ahn)

 

Approved (Jae Hoon Lee)

 

Approved (Jae Hyeon Ahn)

 

Approved (Won 12 billion)

Approved

34th Fiscal Year Meeting of Shareholders

(March 21, 2018)

  

1.  Approval of the financial statements for the year ended December 31, 2017

2.  Award of stock options

3.  Election of directors

•  Election of an inside director

•  Election of an independent director

4.  Election of an independent director as Audit Committee member

5.  Approval of remuneration limit for directors

  

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

 

Approved

 

Approved (Young Sang Ryu)

Approved (Youngmin Yoon)

Approved (Youngmin Yoon)

 

Approved (Won 12 billion)

2. Contingent Liabilities

[SK Telecom]

 

A.

Material Legal Proceedings

None.

 

B.

Other Contingent Liabilities

None.

 

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[SK Broadband]

 

A.

Material Legal Proceedings

As of June 30, 2018, there were 15 lawsuits against SK Broadband (total amount of Won 3,377 million) that were pending. The Company does not believe that the outcome of these lawsuits will have a material impact on its financial statements.

 

B.

Other Contingent Liabilities

 

  (1)

Pledged assets and covenants

SK Broadband has entered into revolving credit facilities with a limit of Won 80 billion with two financial institutions including Shinhan Bank in relation to its loans.

In connection with public offerings of notes, SK Broadband is subject to certain restrictions with respect to its debt ratio, third party payment guarantees and other limitations on liens.

SK Broadband, upon approval by its board of directors, has provided guarantees for financial instruments amounting to Won 263 million to support employees’ funding for the Employee Stock Ownership Program.

Additionally, SK Broadband has provided “geun” mortgage amounting to Won 3,933 million to others, including Seodaemoon Guksa, on a part of its buildings in connection with the leasing of the buildings.

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

Seoul Guarantee Insurance Company has provided a performance guarantee of Won 23,377 million to SK Broadband in connection with the performance of certain contracts and the repair of any defects.

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

[SK Planet]

 

A.

Material Legal Proceedings

As of June 30, 2018, there were nine pending cases proceeding with SK Planet as the defendant and the aggregate amount of the claims was Won 3,382 million. The management cannot reasonably forecast the outcome of these cases and no amount in connection with these proceedings was recognized on the Company’s financial statements.

 

B.

Other Contingent Liabilities

 

(1)

Borrowings

SK Planet’s borrowings from financial institutions as of June 30, 2018 are set forth in the table below.

 

(Unit: in thousands of Won)  

Financial Institution

   Borrowing    Limit Amount      Borrowed Amount  

KEB Hana Bank

   Overdrafts      10,000,000        —    
   Standard loan      40,000,000        40,000,000  

Shinhan Bank

   Overdrafts      15,000,000        —    
   Standard loan      30,000,000        30,000,000  

Korea Development Bank

   Project finance loan      —          30,000,000  

Total

        95,000,000        100,000,000  

 

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  (2)

Payment guarantees

The material payment guarantees provided by third parties to SK Planet as of June 30, 2018 are set forth in the table below.

 

(Unit: in thousands of Won)  

Recipient

   Financial institution    Guarantee    Amount  

SK Planet

   Seoul Guarantee Insurance
Company
   Payment guarantee on e-commerce
business
     10,897,587  
   KEB Hana Bank    Guarantee fulfillment of contractual
obligations
     450,000  
   Other guarantees      707,000  

The material payment guarantee provided to a third party by SK Planet as of June 30, 2018 is set forth in the table below.

 

(Unit: in thousands of Won)  

Recipient

   Financial institution    Guarantee    Amount  

Citibank Berhad

   SK Planet    Payment guarantee for overseas
business
     12,240,000  

[SK Telink]

 

A.

Material Legal Proceedings

On October 14, 2016, 12 creditors filed a lawsuit to demand a court injunction against SK Telink regarding its plan to issue new stock (219,967 shares with a face value of Won 5,000) pursuant to the resolution of SK Telink’s board of directors on September 22, 2016. The court granted SK Telink’s motion to dismiss on October 24, 2016. There is no impact on SK Telink’s business or results of operation as the claim has been conclusively dismissed.

 

B.

Other Contingent Liabilities

Seoul Guarantee Insurance Company and KB Insurance have provided performance guarantees of Won 12.5 billion and Won 3.3 billion, respectively, to SK Telink in connection with the performance of and potential losses from certain contracts.

SK Telink has provided a performance guarantee of up to Won 224 million to business partners through Seoul Guarantee Insurance Company.

[SK Communications]

 

A.

Material Legal Proceedings

As of June 30, 2018, the aggregate amount of pending claims against SK Communications was Won 12.6 million. There were four pending cases relating to a leak of personal information of subscribers of NATE at various appellate courts and the Supreme Court in Korea.

 

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B.

Other Contingent Liabilities

The material payment guarantees provided by third parties to SK Communications as of June 30, 2018 are set forth in the table below.

 

(Unit: in thousands of Won)

 

Financial Institution

   Guarantee   

Amount

 
Seoul Guarantee Insurance Company    Prepaid coverage payment guarantee      700,000  
   Provisional attachment of real estate      118,000  
     

 

 

 
   Total      818,000  
     

 

 

 

[Iriver]

 

A.

Material Legal Proceedings

As of June 30, 2018, there was one pending case against Iriver for damages of Won 5 billion. It is difficult to predict the final outcome of this case, and its effect on the Company’s financial statements cannot be reasonably estimated due to the uncertainty regarding the extent of Iriver’s obligations thereunder.

 

B.

Other Contingent Liabilities

(1) As of June 30, 2018, Iriver was not party to any agreements with any financial institutions.

(2) Seoul Guarantee Insurance Company has provided performance guarantees of Won 125 million to Iriver in connection with the performance of contracts, advance payment guarantee and defective guarantee.

(3) Iriver has entered into design and technology contracts with domestic and foreign companies for the production of products and has made payments for the use of design and technology, which derived from the sale of the products or the use of the patent. The design and technology fees incurred during the six months ended June 30, 2018 and 2017 were Won 3,401 million and Won 376 million, respectively, and such fees are included in cost of sales and selling and administrative expenses.

[NSOK]

 

A.

Material Legal Proceedings

On June 21, 2016, a lawsuit was filed against NSOK for damages of Won 40 million in connection with the installation of security services. The plaintiff accepted an offer of reconciliation by court without making further complaints, which led to a settlement on April 5, 2017. There is no impact on NSOK’s business or results of operation as a result of the settlement.

 

B.

Other Contingent Liabilities

NSOK has entered into revolving credit facilities with a limit of Won 8 billion with Woori Bank and Won 20 billion with Hana Bank in relation to its loans.

 

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3. Status of Sanctions, etc.

[SK Telecom]

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

On December 6, 2016, the Korea Communications Commission imposed on the Company a fine of Won 1,280 million and issued a correctional order for violating the rights of subscribers in relation to its high-speed internet and bundled services. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order.

On December 21, 2016, the Korea Communications Commission imposed on the Company a fine of Won 30 million and issued a correctional order for violation of its obligations to protect personal location-based information. The Company paid the fine and reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order.

On March 21, 2017, the Korea Communications Commission imposed on the Company a fine of Won 794 million and issued a correctional order for violating the Mobile Device Distribution Improvement Act with respect to the Company’s promotions targeting foreigners. The Company paid the fine and reported to the Korea Communications Commission regarding the implementation of actions pursuant to the correctional order.

On December 6, 2017, the Korea Communications Commission issued a correctional order for violating the rights of subscribers in relation to its high-speed internet and bundled services. The Company reported to the Korea Communications Commission on the implementation of actions pursuant to the correctional order.

On January 24, 2018, the Korea Communications Commission imposed on the Company a fine of Won 21.1 billion and issued a correctional order for violating the Mobile Device Distribution Improvement Act with respect to its dealers. The Company paid the fine and reported to the Korea Communications Commission regarding the implementation of actions pursuant to the correctional order.

On January 24, 2018, the Korea Communications Commission imposed on the Company a fine of Won 223 million and issued a correctional order for violating the Mobile Device Distribution Improvement Act with respect to its corporate business. The Company paid the fine and reported to the Korea Communications Commission regarding the implementation of actions pursuant to the correctional order.

On January 24, 2018, the Korea Communications Commission imposed on the Company a fine of Won 27 million and issued a correctional order for violating the Mobile Device Distribution Improvement Act with respect to its large retail dealers. The Company paid the fine and reported to the Korea Communications Commission regarding the implementation of actions pursuant to the correctional order.

* Important matters that occurred after June 30, 2018

On July 26, 2018, the board of directors of Iriver, a subsidiary of the Company, resolved a capital increase through a third-party allotment in the amount of Won 70,000 million, pursuant to which Iriver issued 7,990,867 common shares. The Company participated in such capital increase and paid Won 65,000 million as consideration for 7,420,091 common shares of Iriver, resulting in a change in the Company’s ownership interest from 45.9% to 53.7%.

 

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[SK Broadband]

 

  (1)

Violation of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.

 

   

Date: August 2, 2016

 

   

Sanction: SK Broadband was imposed a fine of Won 3.8 million for breaching of restrictions on transmission of advertising information for profit.

 

   

Reason and the Relevant Law: Violated Articles 50-2, 50-4, 50-6 and 76 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. and Article 74 of its Enforcement Decree by transmitting advertising information for profits to users who express their intention to refuse to receive the information.

 

   

Status of Implementation: Implemented improvements to spam related activity and paid the fine.

 

   

Company’s Plan: Implement procedures to prevent recurrence of spam.

 

  (2)

Violation of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.

 

   

Date: September 2, 2016

 

   

Sanction: SK Broadband was imposed a fine of Won 3 million for breaching of restrictions on rendering information transmission services.

 

   

Reason and the Relevant Law: Violated Articles 50-4 and 76 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. and Article 74 of its Enforcement Decree by lacking of management and supervision standards in merchants involved in spamming and by not putting any sanctions on them.

 

   

Status of Implementation: Implemented improvements to spam related activity and paid the fine.

 

   

Company’s Plan: Implement procedures to prevent recurrence of spam.

 

  (3)

Violation of the Telecommunications Business Act

 

   

Date: September 27, 2016

 

   

Sanction: SK Broadband was imposed a fine of Won 6.4 million.

 

   

Reason and the Relevant Law: Violated Article 84-2 Paragraph 1, 104-2 Paragraph 5 of the Telecommunications Business Act and Article 66 of its Enforcement Decree by not having performed technological measures to prevent caller ID manipulations.

 

   

Status of Implementation: Paid the fine (September 27, 2016).

 

   

Company’s Plan: Implement technological measures to prevent caller ID manipulations through institutional improvement.

 

  (4)

Violation of the Telecommunications Business Act

 

   

Date: December 6, 2016

 

   

Sanction: SK Broadband received a correctional order (corrective measures for damaging users’ interests in relation to bundled high-speed internet products).

 

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Reason and the Relevant Law: Violated Article 50-1 Paragraph 5 of the Telecommunications Business Act and Article 42-1 of its Enforcement Decree by providing telecommunications services in a manner different from the terms and conditions of use.

 

   

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

 

   

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

 

  (5)

Violation of the Internet Multimedia Broadcast Services Act

 

   

Date: December 21, 2016

 

   

Sanction: SK Broadband received a correctional order (corrective measures for violating prohibited acts under the Internet Multimedia Broadcast Services Act).

 

   

Reason and the Relevant Law: Violated Article 17-1 Paragraph 2 of the Internet Multimedia Broadcast Services Act and Article 15 of its Enforcement Decree by performing prohibited acts which undermine or are likely to undermine the fair competition of service providers or the interests of users.

 

   

Status of Implementation: Ceased the prohibited practice and paid the fine (Plan to make an official announcement about having received the correctional order and improve operating procedures).

 

   

Company’s Plan: Improve operation procedures in relation to the violation of prohibited acts.

 

  (6)

Violation of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.

 

   

Date: July 13, 2017

 

   

Sanction: SK Broadband was imposed a fine of Won 12 million for breach of restrictions on transmission of advertising information for profit.

 

   

Reason and the Relevant Law: Violated Articles 50-1, 50-4 and 76 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. and Article 74 of its Enforcement Decree for electronic transmission of advertisements without prior consent of the recipient.

 

   

Status of Implementation: Implemented improvements to advertisement transmission related activity and paid the fine in July 2017.

 

   

Company’s Plan: Implement improvements to advertisement transmission related activity.

 

  (7)

Violation of the Telecommunications Business Act

 

   

Date: December 6, 2017

 

   

Sanction: SK Broadband received a correctional order (corrective measures for damaging users’ interests in relation to high speed internet products and gifts).

 

   

Reason and the Relevant Law: Violated Article 50-1 Paragraph 5 of the Telecommunications Business Act and Article 42-1 of its Enforcement Decree by providing telecommunications services in a manner different from the terms and conditions of use.

 

   

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

 

   

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

 

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* Important matters that occurred after June 30, 2018

 

   

On August 13, 2018, the company publicly issued foreign-currency five-year bonds in the aggregate principal amount of USD 300 million (Interest rate: 3.875%; Rating: A- (S&P, Fitch); Underwriters: HSBC, BNP Paribas, Citi Global Markets Securities).

[SK Planet]

 

  (1)

Violation of the Electronic Financial Transactions Act

 

   

Date: May 4, 2016

 

   

Sanction: SK Planet received a fine of Won 25 million.

 

   

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

 

   

Status of Implementation: Paid the fine.

 

   

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

 

  (2)

Violation of the Act on Consumer Protection in Electronic Commerce

 

   

Date: August 19, 2016 (Fined); September 12, 2016 (Warned)

 

   

Sanction: SK Planet received a fine of Won 5 million.

 

   

Reason and the Relevant Law: Violated Article 21 (Prohibited Acts) of the Act on Consumer Protection in Electronic Commerce.

 

   

Status of Implementation: Admitted to the violation in connection with the warning but submitted a statement of objection on August 26, 2016 regarding the fine.

 

   

Company’s Plan: Executed a seminar regarding the Act on Consumer Protection in Electronic Commerce to prevent recurrence, reviewed the advertisement/display approval process and implemented a continuous monitoring system.

 

  (3)

Violation of the Framework Act on Logistics Policies

 

   

Date: November 10, 2016

 

   

Sanction: SK Planet received a fine of Won 156 thousand for failing to register a modification of the international logistics brokerage business on time (Within 60 days from the date of modification).

 

   

Reason and the Relevant Law: Violated Article 43 of the Framework Act on Logistics Policies (Registration of international logistics brokerage business).

 

   

Company’s Plan: Implemented a continuous monitoring system to prevent its recurrence in registration of a modification.

 

  (4)

Violation of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.

 

   

Date: April 10, 2017

 

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Sanction: SK Planet received and paid a fine of Won 10 million for breaching of protective measures for personal information rule by not conducting additional measures for security apart from requesting ID and password with a merchant management system under IMPAY service, which was disclosed during a survey on personal information protection carried out by the Korea Communications Commission in August 2016.

 

   

Reason and the Relevant Law: Violated Article 28 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. (Protective Measures for Personal Information)

 

   

Company’s Plan: Implemented an additional authentication procedure (OTP authentication) to the merchant management system / implemented additional internal training and improved management to prevent its recurrence.

[SK Telink]

 

  (1)

Violation of the Telecommunications Business Act

 

   

Date: February 4, 2016

 

   

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

 

   

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

 

   

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

 

   

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

[Home & Service]

 

  (1)

Violation of the Employment Insurance Act

 

   

Date: January 19, 2018

 

   

Sanction: Home & Service received a fine of Won 0.5 million.

 

   

Reason and the Relevant Law: Violated Article 15 of the Employment Insurance Act by delaying notification of matters related to the employees’ insurance status.

 

   

Status of Implementation: Paid the fine.

 

   

Company’s plan: Implement measures to improve reporting procedures.

 

  (2)

Violation of Industrial Safety and Health Act

 

   

Date: March 12, 2018

 

   

Sanction: Home & Service received a fine of Won 5 million.

 

   

Reason and the Relevant Law: Violated Article 10-2 of the Industrial Safety and Health Act by delaying reporting of industrial accidents.

 

   

Status of Implementation: Paid the fine.

 

   

Company’s plan: Improve and strengthen management related to industrial accidents

 

  (3)

Violation of Industrial Safety and Health Act

 

   

Date: April 30, 2018

 

   

Sanction: Home & Service received a correctional order for failing to establish an industrial safety and health committee and providing training related to employee safety and health.

 

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Reason and the Relevant Law: Violated Articles 19-1 and 31-1 of the Industrial Safety and Health Act for failing to establish an industrial safety and health committee and not providing training related to employee safety and health in the first quarter of 2018.

 

   

Status of Implementation: The company paid the fine and its board of directors resolved to establish an industrial safety and health committee on May 16, 2018. The company has also conducted offline and online training programs.

 

   

Company’s plan: Execute the correctional order.

[Iriver]

* Important matters that occurred after June 30, 2018

On July 26, 2018, the board of directors of Iriver resolved a capital increase through a third-party allotment (approximately Won 70,000 million), and 7,990,867 common shares were issued upon payment on August 10, 2018.

On July 26, 2018, the board of directors of the company resolved to invest in operating funds (Won 11,000 million) for Groovers Co., Ltd. (“Groovers”), a subsidiary, to improve its financial structure and pursue new businesses. Payment was completed on July 27, 2018.

On June 28, 2018, the board of directors of Groovers resolved to acquire all properties, assets and rights related to the Music Mate streaming service from SK TechX, a related person of Iriver, for Won 3,320 million.

Effective as of July 1, 2018, SM Mobile Communications Japan Inc. (merging entity) and groovers Japan Co., Ltd. (surviving entity), a subsidiary of the company, completed their merger.

4. Use of Direct Financing

 

A.

Use of Proceeds from Public Offerings

Not applicable.

 

B.

Use of Proceeds from Private Offerings

Not applicable.

 

69


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SIGNATURES

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

 

SK Telecom Co., Ltd.
(Registrant)

By: /s/ Jeong Hwan Choi

(Signature)
Name:   Jeong Hwan Choi
Title:   Senior Vice President

Date: September 14, 2018


Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Financial Statements

(Unaudited)

June 30, 2018 and 2017

(With Independent Auditors’ Review Report Thereon)


Table of Contents

Contents

 

     Page  

Independent Auditors’ Review Report

     1  

Condensed Separate Statements of Financial Position

     3  

Condensed Separate Statements of Income

     5  

Condensed Separate Statements of Comprehensive Income

     6  

Condensed Separate Statements of Changes in Equity

     7  

Condensed Separate Statements of Cash Flows

     8  

Notes to the Condensed Separate Interim Financial Statements

     10  


Table of Contents

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To the Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed separate interim financial statements of SK Telecom Co., Ltd. (the “Company”), which comprise the condensed separate statement of financial position as of June 30, 2018, the condensed separate statements of income, and comprehensive income for the three and six-month periods ended June 30, 2018 and 2017, the condensed separate statements of changes in equity and cash flows for the six-month periods ended June 30, 2018 and 2017, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

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

Auditors’ responsibility

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

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

Conclusion

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

Emphasis of matter

As a matter that does not have an impact on our review conclusion, we draw the attention of the users of the above-mentioned financial statements of the Company to the matter described in Note 3 to the condensed separate financial statements. The Company has initially adopted K-IFRS Nos. 1109 and 1115 for the year beginning on January 1, 2018, and the Company has taken an exemption not to restate the condensed separate financial statements as of December 31, 2017 or for the three or six-month period ended June 30, 2017, presented for comparative purposes, in accordance with transition requirements of the standards. The financial impacts of applying K-IFRS Nos. 1109 and 1115 are discussed in Note 3.

 

1


Table of Contents

Other matters

The separate statement of financial position of the Company as of December 31, 2017, and the related separate statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing and our report thereon, dated February 23, 2018, expressed an unqualified opinion. The accompanying condensed separate statement of financial position of the Company as of December 31, 2017, presented for comparative purposes, is consistent, in all material respects, with the audited separate financial statements from which it has been derived.

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

KPMG Samjong Accounting Corp.

Seoul, Korea

August 13, 2018

 

 

This report is effective as of August 13, 2018, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed separate interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

 

2


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SK TELECOM CO., LTD.

Condensed Separate Statements of Financial Position

As of June 30, 2018 and December 31, 2017

 

(In millions of won)                     
     Note      June 30, 2018      December 31, 2017  

Assets

        

Current Assets:

        

Cash and cash equivalents

     3,27,28      W 1,055,703        880,583  

Short-term financial instruments

     3,27,28        79,500        94,000  

Short-term investment securities

     3,6,27,28        47,547        47,383  

Accounts receivable - trade, net

     3,4,27,28,29        1,385,039        1,520,209  

Short-term loans, net

     3,4,27,28,29        65,319        54,403  

Accounts receivable - other, net

     3,4,27,28,29,30        865,634        1,003,509  

Accrued income

     3,4,27,28        642        659  

Contract assets

     15        1,280        —    

Advanced payments

        10,514        13,783  

Prepaid expenses

     3,5        1,797,751        121,121  

Inventories, net

        25,197        29,837  

Non-current assets held for sale and discontinued operations

     7        8,481        —    

Others

        1,277        2,611  
     

 

 

    

 

 

 

Total Current Assets

        5,343,884        3,768,098  
     

 

 

    

 

 

 

Non-Current Assets:

        

Long-term financial instruments

     3,27,28        382        382  

Long-term investment securities

     3,6,27,28        664,492        724,603  

Investments in subsidiaries, associates and joint ventures

     7        9,251,511        9,152,321  

Property and equipment, net

     8,29        6,416,396        6,923,133  

Goodwill

        1,306,236        1,306,236  

Intangible assets, net

     9        2,832,884        3,089,545  

Long-term loans, net

     3,4,27,28,29        7,334        7,512  

Long-term accounts receivable - other

     3,4,27,28,30        248,076        285,118  

Long-term contract assets

     15        5,013        —    

Long-term prepaid expenses

     3,5        667,539        25,169  

Guarantee deposits

     3,4,27,28,29        184,922        173,513  

Long-term derivative financial assets

     3,13,27,28        51,858        30,608  

Deferred tax assets

     3,25        —          30,953  

Defined benefit assets

     14        16,676        40,082  

Other non-current assets

        249        249  
     

 

 

    

 

 

 

Total Non-Current Assets

        21,653,568        21,789,424  
     

 

 

    

 

 

 

Total Assets

      W 26,997,452        25,557,522  
     

 

 

    

 

 

 

 

See accompanying notes to the condensed separate interim financial statements.

3


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SK TELECOM CO., LTD.

Condensed Separate Statements of Financial Position, Continued

As of June 30, 2018 and December 31, 2017

 

(In millions of won)                    
     Note      June 30, 2018     December 31, 2017  

Liabilities and Shareholders’ Equity

       

Current Liabilities:

       

Accounts payable - other

     27,28,29      W 1,201,887       1,664,054  

Receipts in advance

     3        —         76,126  

Contract liabilities

     3,15        50,723       —    

Withholdings

     3,27,28        616,572       517,991  

Accrued expenses

     27,28        644,796       790,368  

Income tax payable

     25        211,608       206,060  

Unearned revenue

     3        —         3,705  

Derivative financial liabilities

     13,27,28        —         27,791  

Provisions

     12        43,528       48,508  

Current installments of long-term debt, net

     10,27,28        352,408       1,131,047  

Current installments of long-term payables - other

     11,27,28        299,113       301,751  
     

 

 

   

 

 

 

Total Current Liabilities

        3,420,635       4,767,401  
     

 

 

   

 

 

 

Non-Current Liabilities:

       

Debentures, excluding current installments, net

     10,27,28        5,255,471       4,334,848  

Long-term borrowings, excluding current installments, net

     10,27,28        38,185       42,486  

Long-term payables - other

     11,27,28        1,040,761       1,328,630  

Long-term contract liabilities

     3,15        7,758       —    

Long-term unearned revenue

     3        —         7,033  

Long-term derivative financial liabilities

     13,27,28        1,400       10,719  

Long-term provisions

     12        16,060       16,178  

Deferred tax liabilities

     3,25        566,360       —    

Other non-current liabilities

     27,28        43,663       42,836  
     

 

 

   

 

 

 

Total Non-Current Liabilities

        6,969,658       5,782,730  
     

 

 

   

 

 

 

Total Liabilities

        10,390,293       10,550,131  
     

 

 

   

 

 

 

Shareholders’ Equity:

       

Share capital

     1,16        44,639       44,639  

Capital surplus and others

     16,17,18        370,943       371,895  

Retained earnings

     19        16,224,034       14,512,556  

Reserves

     20        (32,457     78,301  
     

 

 

   

 

 

 

Total Shareholders’ Equity

        16,607,159       15,007,391  
     

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

      W 26,997,452       25,557,522  
     

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

4


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SK TELECOM CO., LTD.

Condensed Separate Statements of Income

For the three and six-month periods ended June 30, 2018 and 2017

 

(In millions of won except for per share data)                    
            June 30, 2018     June 30, 2017  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
    Six-month
period ended
 

Operating revenue:

     3,21,29           

Revenue

      W 2,941,835       5,930,373       3,109,630       6,197,586  

Operating expenses:

     29           

Labor

        158,681       333,708       151,931       308,809  

Commissions

     3        1,085,518       2,218,460       1,196,606       2,394,123  

Depreciation and amortization

        580,715       1,181,434       586,841       1,172,312  

Network interconnection

        167,024       329,627       152,225       308,959  

Leased line

        68,290       138,829       70,846       146,744  

Advertising

        37,968       63,966       40,715       63,159  

Rent

        111,176       222,582       109,780       221,301  

Cost of products that have been resold

        133,527       256,695       130,641       266,076  

Others

     22        230,657       447,536       207,697       414,359  
     

 

 

   

 

 

   

 

 

   

 

 

 
        2,573,556       5,192,837       2,647,282       5,295,842  
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     3        368,279       737,536       462,348       901,744  

Finance income

     24        26,715       208,003       21,001       147,187  

Finance costs

     24        (73,596     (140,612     (75,528     (140,525

Other non-operating income

     23        4,369       16,494       2,664       9,320  

Other non-operating expenses

     23        (29,826     (48,004     (21,850     (39,458

Loss on investments in subsidiaries and associates

     7        —         —         (15,305     (15,305
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     3        295,941       773,417       373,330       862,963  

Income tax expense

     3,25        76,155       189,204       59,280       160,707  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

     3      W 219,786       584,213       314,050       702,256  
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

     26           

Basic and diluted earnings per share (in won)

      W 2,993       8,155       4,328       9,826  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

5


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SK TELECOM CO., LTD.

Condensed Separate Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2018 and 2017

 

(In millions of won)           June 30, 2018     June 30, 2017  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
     Six-month
period ended
 

Profit for the period

      W 219,786       584,213       314,050        702,256  

Other comprehensive income (loss):

            

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

        (17,585     (44,792     406        (6,372

Remeasurement of defined benefit liabilities

     14        3,003       (4,065     406        (6,372

Valuation gain (loss) on financial assets at FVOCI

     20        (20,588     (40,727     —          —    

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

        (981     (10,006     69,543        105,151  

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

     20        —         —         56,010        99,347  

Net change in unrealized fair value of derivatives

     20        (981     (10,006     13,533        5,804  
     

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss) for the period, net of taxes

        (18,566     (54,798     69,949        98,779  
     

 

 

   

 

 

   

 

 

    

 

 

 

Total comprehensive income

      W 201,220       529,415       383,999        801,035  
     

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

6


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SK TELECOM CO., LTD.

Condensed Separate Statements of Changes in Equity

For the six-month periods ended June 30, 2018 and 2017

 

(In millions of won)                                                        
                Capital surplus and others                    
    Note     Share
capital
    Paid-in
surplus
    Treasury
share
    Hybrid
bonds
    Share
option
    Other     Sub-total     Retained
earnings
    Reserves     Total equity  

Balance, January 1, 2017

    W 44,639       2,915,887       (2,260,626     398,518       —         (682,298     371,481       13,902,627       (61,793     14,256,954  

Total comprehensive income:

                     

Profit for the period

      —         —         —         —         —         —         —         702,256       —         702,256  

Other comprehensive income (loss)

    14,20       —         —         —         —         —         —         —         (6,372     105,151       98,779  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      —         —         —         —         —         —         —         695,884       105,151       801,035  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                     

Cash dividends

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

Share option

      —         —         —         —         145       —         145       —         —         145  

Interest on hybrid bond

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      —         —         —         —         145       —         145       (643,902     —         (643,757
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2017

    W 44,639       2,915,887       (2,260,626     398,518       145       (682,298     371,626       13,954,609       43,358       14,414,232  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2017

    W 44,639       2,915,887       (2,260,626     398,518       414       (682,298     371,895       14,512,556       78,301       15,007,391  

Impact of adopting K-IFRS No. 1115

    3       —         —         —         —         —         —         —         1,723,985       —         1,723,985  

Impact of adopting K-IFRS No. 1109

    3       —         —         —         —         —         —         —         49,611       (58,389     (8,778
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2018

    W 44,639       2,915,887       (2,260,626     398,518       414       (682,298     371,895       16,286,152       19,912       16,722,598  

Total comprehensive income:

                     

Profit for the period

      —         —         —         —         —         —         —         584,213       —         584,213  

Other comprehensive income (loss)

    14,20       —         —         —         —         —         —         —         (2,429     (52,369     (54,798
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      —         —         —         —         —         —         —         581,784       (52,369     529,415  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                     

Annual dividends

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

Share option

      —         —         —         —         289       —         289       —         —         289  

Repayments of hybrid bond

    18       —         —         —         (398,518     —         (1,482     (400,000     —         —         (400,000

Proceeds from issuance of hybrid bond

    18       —         —         —         398,759       —         —         398,759       —         —         398,759  

Interest on hybrid bond

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      —         —         —         241       289       (1,482     (952     (643,902     —         (644,854
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2018

    W 44,639       2,915,887       (2,260,626     398,759       703       (683,780     370,943       16,224,034       (32,457     16,607,159  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

7


Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows

For the six-month periods ended June 30, 2018 and 2017

 

(In millions of won)    Note      June 30, 2018     June 30, 2017  

Cash flows from operating activities:

       

Cash generated from operating activities:

       

Profit for the period

      W 584,213       702,256  

Adjustments for income and expenses

     31        1,420,008       1,431,941  

Changes in assets and liabilities related to operating activities

     31        70,515       (216,566
     

 

 

   

 

 

 

Sub-total

        2,074,736       1,917,631  

Interest received

        20,489       25,733  

Dividends received

        161,213       99,423  

Interest paid

        (102,487     (93,362

Income tax paid

        (196,330     (377,715
     

 

 

   

 

 

 

Net cash provided by operating activities

        1,957,621       1,571,710  
     

 

 

   

 

 

 

Cash flows from investing activities:

       

Cash inflows from investing activities:

       

Decrease in short-term investment securities, net

        —         50,000  

Decrease in short-term financial instruments, net

        14,500       —    

Collection of short-term loans

        99,953       97,193  

Proceeds from disposal of long-term investment securities

        4,992       4,781  

Proceeds from disposal of investments in subsidiaries and associates

        2,414       —    

Proceeds from disposal of property and equipment

        5,268       9,950  

Proceeds from disposal of intangible assets

        143       992  
     

 

 

   

 

 

 
        127,270       162,916  

Cash outflows for investing activities:

       

Increase in short-term financial instruments, net

        —         (19,000

Increase in short-term loans

        (110,800     (107,300

Acquisition of long-term investment securities

        (990     (5,367

Acquisition of investments in subsidiaries and associates

        (106,121     (45,139

Acquisition of property and equipment

        (780,766     (748,089

Acquisition of intangible assets

        (10,869     (11,698
     

 

 

   

 

 

 
        (1,009,546     (936,593
     

 

 

   

 

 

 

Net cash used in investing activities

      W (882,276     (773,677
     

 

 

   

 

 

 

 

See accompanying notes to the condensed separate interim financial statements.

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SK TELECOM CO., LTD.

Condensed Separate Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2018 and 2017

 

(In millions of won)    Note      June 30, 2018     June 30, 2017  

Cash flows from financing activities:

       

Cash inflows from financing activities:

       

Proceeds from issuance of hybrid bond

      W 398,759       —    

Proceeds from issuance of debentures

        1,027,541       368,456  
     

 

 

   

 

 

 
        1,426,300       368,456  

Cash outflows for financing activities:

       

Repayments of long-term borrowings

        (6,200     (6,407

Repayments of hybrid bonds

        (400,000     —    

Repayments of long-term account payables-other

        (302,867     (302,867

Repayments of debentures

        (946,550     (349,119

Payments of cash dividends

        (635,482     (635,482

Payments of interest on hybrid bond

        (8,420     (8,420

Cash outflows from transactions of derivatives

        (27,213     (22,883
     

 

 

   

 

 

 
        (2,326,732     (1,325,178
     

 

 

   

 

 

 

Net cash used in financing activities

        (900,432     (956,722
     

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

        174,913       (158,689

Cash and cash equivalents at beginning of the period

        880,583       874,350  

Effects of exchange rate changes on cash and cash equivalents

        207       (51
     

 

 

   

 

 

 

Cash and cash equivalents at end of the period

      W 1,055,703       715,610  
  

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

1.

Reporting Entity

SK Telecom Co., Ltd. (“the Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Company mainly provides wireless telecommunications services in Korea. The head office of the Company is located at 65, Eulji-ro, Jung-gu, Seoul, Korea.

The Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of June 30, 2018, the Company’s total issued shares are held by the following shareholders:

 

     Number of
shares
     Percentage of
total shares issued (%)
 

SK Holdings Co., Ltd.

     20,363,452        25.22  

National Pension Service, institutional investors and other shareholders

     50,245,708        62.23  

Treasury shares

     10,136,551        12.55  
  

 

 

    

 

 

 
     80,745,711        100.00  
  

 

 

    

 

 

 

 

2.

Basis of Preparation

 

  (1)

Statement of compliance

These condensed separate interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting, as part of the period covered by the Company’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since December 31, 2017. These condensed separate interim financial statements do not include all of the disclosures required for full annual financial statements.

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

 

  (2)

Use of estimates and judgments

1) Critical judgments, assumptions and estimation uncertainties

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

In preparing these condensed separate interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements as of and for the year ended December 31, 2017 except significant judgments and key sources of estimation uncertainty related to the K-IFRS No. 1115, Revenue from contracts with customers, and K-IFRS No. 1109, Financial Instruments, that are described in Note 3.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

2.

Basis of Preparation, Continued

 

  (2)

Use of estimates and judgments, Continued

 

2) Fair value measurement

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established 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, are used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

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

 

 

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

 

 

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); 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 Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 28.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies

The significant accounting policies applied by the Company in these condensed separate interim financial statements are the same as those applied by the Company in its separate financial statements as of and for the year ended December 31, 2017, except for the following changes in accounting policies described below. The following changes in accounting policies are also expected to be reflected in the Company’s separate financial statements as at and for the year ending December 31, 2018.

(1)    Changes in accounting policies

The Company has initially adopted K-IFRS No. 1115, Revenue from Contracts with Customers, and K-IFRS No. 1109, Financial Instruments, from January 1, 2018. A number of other amendments to standards are effective from January 1, 2018, but they do not have a material effect on the Company’s condensed separate interim financial statements.

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

K-IFRS No. 1115, Revenue from Contracts with Customers, establishes a comprehensive framework for determining whether, how much and when revenue is recognized. K-IFRS No. 1115 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 Company has initially applied K-IFRS No. 1115, Revenue from Contracts with Customers, from January 1, 2018 using the cumulative effect method with the effect of initially applying this standard as an adjustment to the opening balance of retained earnings as at January 1, 2018. The Company applied K-IFRS No. 1115 retrospectively only to contracts that are not completed contracts at the date of initial application, which is January 1, 2018 using the practical expedient permitted by K-IFRS No.1115.

i) Identification of performance obligations in the contract

A substantial portion of the Company’s revenue is generated from providing wireless telecommunications services. K-IFRS No. 1115 requires the Company to evaluate goods or services promised to customers to determine if there are performance obligations other than wireless telecommunications service that should be accounted for separately. In the case that the Company provides a wireless telecommunications service and sells a handset together to one customer, the Company allocates considerations from the customer between handset sale revenue and wireless telecommunications service revenue. The handset sales revenue is recognized when handset is delivered and the wireless telecommunications service revenue is recognized as revenue over the period of the contract term as stated in the subscription contract.

ii) Allocation of the transaction price to performance obligations

Under K-IFRS No. 1115, the Company allocates the transaction price to each performance obligation identified in a contract on a relative stand-alone selling price basis. The Company uses “adjusted market assessment approach” method for estimating the stand-alone selling price of a good or service.

In the case of providing both wireless telecommunication services and mobile devices for sale, the Company allocates the transaction price based on relative stand-alone selling prices.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

iii) Incremental costs to acquire a contract

The Company pays commissions to its direct retail stores and authorized dealers in connection with acquiring service contracts. The commissions paid to these parties historically constituted a significant portion of the Company’s operating expenses. These commissions would not have been paid if there have been no binding contracts with subscribers. K-IFRS No. 1115 requires the Company to capitalize certain costs associated with commissions paid to obtain new customer contracts and amortize them over the expected contract periods with customers. As a result of applying K-IFRS No. 1115, the Company recognized W2,356,136 million of prepaid expenses as at January 1, 2018.

iv) Contract liability

Upon adoption of K-IFRS No. 1115, the Company reclassified the receipts in advance and unearned revenue amounting to W44,045 million that are related to prepaid rate plans and customer loyalty program, respectively, to contract liabilities as at January 1, 2018.

v) Impact of adopting K-IFRS No. 1115 on the condensed separate interim financial statements

If K-IFRS No. 1018 were applied on the Company’s condensed separate statement of financial position as of June 30, 2018, prepaid expenses and long-term prepaid expenses would be decreased by W1,683,133 million and W640,838 million, respectively, and contract assets and long-term contract assets each would be decreased by W1,280 million and W5,013 million, respectively, while deferred tax assets would be increased by W58,819 million. As a result, total assets would be decreased by W2,271,445 million. In addition, contract liabilities, long-term contract liabilities and deferred tax liabilities would be decreased by W50,723 million, W7,758 million and W566,360 million, respectively, while other liabilities such as receipts in advance and unearned revenue would be increased by W58,481 million. As a result, total liabilities would be decreased by W566,360 million. In relation to these changes in assets and liabilities, retained earnings would be decreased by W1,705,085 million.

If K-IFRS No. 1018 were applied on the Company’s condensed separate statement of income for the six-month period ended June 30, 2018, revenues would be increased by W2,486 million, while commissions would be decreased by W23,385 million. Operating profit and profit before income tax would be increased by W25,871 million. As a result, profit for the period would be increased by W18,900 million with increase in income tax expense of W6,971 million.

When compared to K-IFRS No. 1018, the adoption of K-IFRS No. 1115 did not have material impact on the Company’s condensed separate statement of cash flows for the six-month period ended June 30, 2018.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

(1)    Changes in accounting policies, Continued

 

2) K-IFRS No. 1109, Financial Instruments

K-IFRS No. 1109 set out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces K-IFRS No. 1039, Financial Instruments: Recognition and Measurement. The Company adopted K-IFRS No. 1109, Financial Instruments, from January 1, 2018, and the Company has taken an exemption not to restate the financial statements for prior years with respects to transition requirements.

The following table explains the impact of transition to K-IFRS No. 1109 on the opening balance of reserves and retained earnings as at January 1, 2018.

 

(In millions of won)    Reserves      Retained earnings  

Reclassification of available-for-sale financial assets to financial assets at fair value through profit or loss(“FVTPL”)

     W            106        (4,495

Reclassification of available-for-sale financial assets to financial assets measured at fair value through other comprehensive income (“FVOCI”)

     (79,908      85,349  

Recognition of loss allowances on accounts receivable - trade and others

     —          (13,049

Related tax

     21,413        (18,194
  

 

 

    

 

 

 
     W     (58,389      49,611  
  

 

 

    

 

 

 

i) Classification of financial assets and financial liabilities

K-IFRS No. 1109 largely retains the existing requirements in K-IFRS No. 1039 for the classification and measurement of financial liabilities. However, it eliminates the previous K-IFRS No. 1039 categories for financial assets of held to maturity, available for sale, loans, and receivables.

Under K-IFRS No. 1109, on initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI-debt investment; FVOCI-equity investment; or FVTPL. The classification of financial assets under K-IFRS No. 1109 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. If a contract contains embedded derivatives and the host is an asset within the scope of K-IFRS No. 1109, then such embedded derivatives are not separated.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

 

   

it is held within a business model whose objective is to hold assets to collect contractual cash flow; and

 

   

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

i) Classification of financial assets and financial liabilities, Continued

 

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

 

   

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

 

   

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. These include all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset (unless it is an account receivable - trade without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.

The following accounting polices apply to the subsequent measurement of financial assets.

 

Financial assets at FVTPL    These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost    These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Debt investments at FVOCI    These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI    These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

i) Classification of financial assets and financial liabilities, Continued

 

The following table explains the original measurement categories under K-IFRS No. 1039 and the changes in measurement categories under K-IFRS No. 1109 for each class of the Company’s financial assets as at January 1, 2018.

 

(In millions of won)    Original    New                     
     classification    classification    Original carrying      New carrying         
     under K-IFRS    under K-IFRS    amount under      amount under         
    

No. 1039

  

No. 1109

   K-IFRS No. 1039      K-IFRS No. 1109      Difference  

Short-term financial assets:

 

Cash and cash equivalents

  

Amortized cost

  

Amortized cost

   W 880,583        880,583        —    

Short-term financial instruments

  

Amortized cost

  

Amortized cost

     94,000        94,000        —    

Short-term investment securities(*1)

  

Available-for-sale

  

FVTPL

     47,383        47,383        —    

Accounts receivable - trade

  

Amortized cost

  

Amortized cost

     1,520,209        1,507,259        (12,950

Short-term loans

  

Amortized cost

  

Amortized cost

     54,403        54,403        —    

Accounts receivable - other(*3)

  

Amortized cost

  

FVTPL

     759,720        759,720        —    

Accounts receivable - other

  

Amortized cost

  

Amortized cost

     243,789        243,690        (99

Accrued revenue

  

Amortized cost

  

Amortized cost

     659        659        —    
        

 

 

    

 

 

    

 

 

 
           3,600,746        3,587,697        (13,049
        

 

 

    

 

 

    

 

 

 

Long-term financial assets:

 

Long-term financial instruments

  

Amortized cost

  

Amortized cost

     382        382        —    

Long-term investment securities(*1)

  

Available-for-sale

  

FVTPL

     75,527        71,138        (4,389

Long-term investment securities(*2)

  

Available-for-sale

  

FVOCI

     649,076        654,517        5,441  

Long-term loans

  

Amortized cost

  

Amortized cost

     7,512        7,512        —    

Long-term accounts receivable - other(*3)

  

Amortized cost

  

FVTPL

     243,742        243,742        —    

Long-term accounts receivable - other

  

Amortized cost

  

Amortized cost

     41,376        41,376        —    

Guarantee deposits

  

Amortized cost

  

Amortized cost

     173,513        173,513        —    

Derivative financial assets

  

Derivatives hedging instrument

  

Derivatives hedging instrument

     21,554        21,554        —    

Derivative financial assets

  

Designated as at FVTPL

  

FVTPL

     9,054        9,054        —    
        

 

 

    

 

 

    

 

 

 
           1,221,736        1,222,788        1,052  
        

 

 

    

 

 

    

 

 

 
         W 4,822,482        4,810,485        (11,997
        

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

i) Classification of financial assets and financial liabilities, Continued

 

The following table explains the original measurement categories under K-IFRS No. 1039 and the changes in measurement categories under K-IFRS No. 1109 for each class of the Company’s financial assets as at January 1, 2018, Continued.

 

  (*1)

As of January 1, 2018, available-for-sale financial assets such as beneficiary certificates and equity investments amounting to W122,910 million were reclassified to financial assets measured at FVTPL. As the contractual terms of these assets do not give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, these assets were not qualified to be designated as financial assets measured at amortized cost. As a result of this reclassification, as at January 1, 2018, accumulated OCI of W(-)106 million was reclassified to retained earnings and, due to its new classification to financial assets measured at FVTPL, retained earnings was decreased by W4,389 million. In addition, change in the fair value of these financial assets of W85 million was recognized in profit before income tax.

 

  (*2)

As of January 1, 2018, available-for-sale financial assets such as marketable equity instruments amounting to W649,076 million were reclassified to equity investments at FVOCI. As a result of this reclassification, as at January 1, 2018, OCI of W85,349 million was reclassified to retained earnings and OCI was increased by W5,441 million due to the changes in the fair value of these financial assets. The Company designated equity instruments that are not held for trading as FVOCI on initial application of K-IFRS No. 1109 with no recycling of amounts from OCI to profit and loss.

 

  (*3)

As of January 1, 2018, accounts receivable - other of W1,003,462 million were reclassified to financial assets at FVTPL. Upon the initial application of K-IFRS No. 1109, the Company reclassified the debt instruments to financial assets at FVTPL whose objectives of the business model are not achieved both by collecting contractual cash flows and selling financial assets. There was no material impact on retained earnings as at January 1, 2018 as the fair values of these debt instruments were not significantly different from the carrying amounts as of December 31, 2017.

ii) Impairment of financial assets

K-IFRS No. 1109 sets out a new ‘expected credit loss’ (ECL) impairment model which replaces the ‘incurred loss’ model under K-IFRS No. 1039 for recognizing and measuring impairment. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under K-IFRS No. 1109, credit losses are recognized earlier than under K-IFRS No. 1039.

ECL is a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive).

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

ii) Impairment of financial assets, Continued

 

At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. As a result of applying K-IFRS No. 1109, as of January 1, 2018, the Company recognized the impairment loss on debt instruments at an amount equal to the lifetime expected credit losses.

Loss allowance on financial assets measured at amortized cost is deducted from the carrying amount of the respective assets, while loss allowance on debt instruments at FVOCI is recognized in OCI, instead of reducing the carrying amount of the assets.

iii) Hedge accounting

When initially applying K-IFRS No. 1109, the Company elected as its accounting policy to apply hedge accounting requirements under K-IFRS No. 1109. The Company 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 Company’s hedging instruments as of January 1, 2018 satisfy the hedge requirements of retrospective testing (80~125%) under K-IFRS No. 1039, there is no material effect of applying K-IFRS No. 1109.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

  3)

The following table explains the impacts of adopting K-IFRS Nos. 1115 and 1109 on the Company’s statement of financial position as of January 1, 2018.

 

(In millions of won)                            
     December 31,
2017
     Adjustments      January 1,
2018
 
   As reported      K-IFRS 1115      K-IFRS 1109      Restated  

Current Assets

     3,768,098        1,711,387        (13,049      5,466,436  

Accounts receivable - trade, net

     1,520,209        —          (12,950      1,507,259  

Accounts receivable - other, net

     1,003,509        —          (99      1,003,410  

Prepaid expenses

     121,121        1,711,387        —          1,832,508  

Others

     1,123,259        —          —          1,123,259  

Non-Current Assets

     21,789,424        613,796        1,052        22,404,272  

Long-term investment

securities

     724,603        —          1,052        725,655  

Long-term prepaid expenses

     25,169        644,749        —          669,918  

Deferred tax assets

     30,953        (30,953      —          —    

Others

     21,008,699        —          —          21,008,699  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

     25,557,522        2,325,183        (11,997      27,870,708  
  

 

 

    

 

 

    

 

 

    

 

 

 

Current Liabilities

     4,767,401        —          —          4,767,401  

Contract liabilities

     —          37,012        —          37,012  

Receipts in advance

     76,126        (76,126      —          —    

Unearned revenue

     3,705        (3,705      —          —    

Withholdings

     517,991        42,819        —          560,810  

Others

     4,169,579        —          —          4,169,579  

Non-Current Liabilities

     5,782,730        601,198        (3,219      6,380,709  

Long-term contract liabilities

     —          7,033        —          7,033  

Long-term unearned revenue

     7,033        (7,033      —          —    

Deferred tax liabilities

     —          601,198        (3,219      597,979  

Others

     5,775,697        —          —          5,775,697  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities

     10,550,131        601,198        (3,219      11,148,110  
  

 

 

    

 

 

    

 

 

    

 

 

 

Share capital

     44,639        —          —          44,639  

Capital surplus and others

     371,895        —          —          371,895  

Retained earnings

     14,512,556        1,723,985        49,611        16,286,152  

Reserves

     78,301        —          (58,389      19,912  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Shareholders’ Equity

     15,007,391        1,723,985        (8,778      16,722,598  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

     25,557,522        2,325,183        (11,997      27,870,708  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (2)

Standards issued but not yet effective

The following new standard is effective for annual periods beginning after January 1, 2018 and earlier application is permitted; however, the Company has not early adopted the following new standard in preparing the accompanying condensed separate interim financial statements as of and for the six-month period ended June 30, 2018.

K-IFRS No. 1116, Leases

The Company currently plans to apply K-IFRS No.1116 in the period beginning on January 1, 2019 and to assess the financial impact on its separate financial statements resulting from the adoption of K-IFRS No. 1116 by December 31, 2018. The assessment results will be disclosed in its annual financial statements for the year ending December 31, 2018. As of June 30, 2018, there have been no significant changes related to the Company’s plan for the adoption of K-IFRS No. 1116 which was disclosed in the Company’s separate financial statements as of December 31, 2017.

 

4.

Trade and Other Receivables

 

  (1)

Details of trade and other receivables as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)    June 30, 2018  
     Gross
amount
     Loss allowance      Carrying
amount
 

Current assets:

        

Accounts receivable - trade

   W 1,505,400        (120,361      1,385,039  

Short-term loans

     65,979        (660      65,319  

Accounts receivable - other(*)

     919,520        (53,886      865,634  

Accrued income

     642        —          642  
  

 

 

    

 

 

    

 

 

 
     2,491,541        (174,907      2,316,634  

Non-current assets:

        

Long-term loans

     48,443        (41,109      7,334  

Long-term accounts receivable - other(*)

     248,076        —          248,076  

Guarantee deposits

     184,922        —          184,922  
  

 

 

    

 

 

    

 

 

 
     481,441        (41,109      440,332  
  

 

 

    

 

 

    

 

 

 
   W 2,972,982        (216,016      2,756,966  
  

 

 

    

 

 

    

 

 

 

 

(*)

Gross and carrying amounts of accounts receivable - other as of June 30, 2018 include W843,622 million of financial instruments at FVTPL.

 

20


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

4.

Trade and Other Receivables, Continued

 

  (1)

Details of trade and other receivables as of June 30, 2018 and December 31, 2017 are as follows, Continued

 

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

Current assets:

        

Accounts receivable - trade

   W 1,628,036        (107,827      1,520,209  

Short-term loans

     54,953        (550      54,403  

Accounts receivable - other

     1,059,395        (55,886      1,003,509  

Accrued income

     659        —          659  
  

 

 

    

 

 

    

 

 

 
     2,743,043        (164,263      2,578,780  

Non-current assets:

        

Long-term loans

     48,623        (41,111      7,512  

Accounts receivable - other

     285,118        —          285,118  

Guarantee deposits

     173,513        —          173,513  
  

 

 

    

 

 

    

 

 

 
     507,254        (41,111      466,143  
  

 

 

    

 

 

    

 

 

 
   W 3,250,297        (205,374      3,044,923  
  

 

 

    

 

 

    

 

 

 

 

  (2)

Changes in the loss allowance on trade and other receivables measured at amortized costs during the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                         
     January 1,
2018
     Impact of
adopting
K-IFRS No. 1109
     Impair-
ment
     Write-
offs(*)
    Collection of
receivables
previously
written-off
     June 30,
2018
 

Accounts receivable - trade

   W 107,827        12,950        8,593        (14,532     5,523        120,361  

Accounts receivable - other

     97,547        99        1,498        (6,335     2,846        95,655  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   W 205,374        13,049        10,091        (20,867     8,369        216,016  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(In millions of won)                                  
     January 1,
2017
     Impairment      Write-
offs(*)
    Collection of
receivables
previously
written-off
     June 30,
2017
 

Accounts receivable - trade

   W 119,027        8,352        (18,552     6,668        115,495  

Accounts receivable - other

     99,800        2,177        (11,042     6,793        97,728  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   W 218,827        10,529        (29,594     13,461        213,223  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(*)

The Company writes off the trade and other receivables when contractual payments are more than 5 years past due, or for reasons such as shut-down or liquidation.

 

21


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

4.

Trade and Other Receivables, Continued

 

  (3)

The Company applies the simplified approach that allows the Company to estimate the loss allowance for accounts receivables - trade at an amount equal to the lifetime expected credit losses. The expected credit losses include the forward-looking information. To make that assessment, the Company used its historical credit loss experience and classified the accounts receivable - trade by their credit risk characteristics and days overdue.

As the Company is a wireless telecommunications service provider, the Company’s financial assets measured at amortized cost consist primarily of receivables from individual customers, and, therefore, no significant credit concentration risk arises.

 

5.

Prepaid expenses

As discussed in Note 3, the Company adopted K-IFRS No. 1115, Revenue from Contracts with Customers, during the year beginning on January 1, 2018.

 

  (1)

Details of prepaid expenses as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Current assets:

 

Incremental costs of obtaining contracts

   W 1,683,133        —    

Others

     114,618        121,121  
  

 

 

    

 

 

 
     1,797,751        121,121  
  

 

 

    

 

 

 

Non-current assets:

 

Incremental costs of obtaining contracts

   W 640,838        —    

Others

     26,701        25,169  
  

 

 

    

 

 

 
     667,539        25,169  
  

 

 

    

 

 

 

 

  (2)

Incremental costs of obtaining contracts

Incremental costs of obtaining a contract that are capitalized as assets as of June 30, 2018 and the related depreciation recognized as commissions during the three and six-month periods ended June 30, 2018 are as follows:

 

(In millions of won)    2018  
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Depreciation recognized as commission

   W 497,237        1,035,206  

The Company pays commissions to its direct retail stores and authorized dealers for wireless telecommunications services for each service contract and installation contract secured. The Company capitalized certain costs associated with commissions paid to sales agents to obtain new customer contracts as prepaid expenses, which the Company previously expensed. These prepaid expenses are amortized over the periods that the Company expects to maintain its customers.

 

22


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

6.

Investment Securities

 

  (1)

Details of short-term investment securities as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)                
     Category      June 30, 2018      December 31, 2017  

Beneficiary certificates

    
Available-for-sale
financial assets
 
 
   W —          47,383  
     FVTPL        47,547        —    
     

 

 

    

 

 

 
   W 47,547        47,383  
  

 

 

    

 

 

 

 

  (2)

Details of long-term investment securities as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)               
     Category     June 30, 2018      December 31, 2017  

Equity instruments

    
Available-for-sale
financial assets
 
 
  W —          723,703  
     FVOCI(*)       597,225        —    
    

 

 

    

 

 

 
    597,225        723,703  

Debt instruments

    
Available-for-sale
financial assets
 
 
    —          900  
     FVTPL       67,267        —    
    

 

 

    

 

 

 
       67,267        900  
    

 

 

    

 

 

 
     W 664,492        724,603  
    

 

 

    

 

 

 

 

(*)

The Company designated W597,225 million of equity instrument that is not held for trading as financial assets at FVOCI.

 

7.

Investments in Subsidiaries, Associates and Joint ventures

 

  (1)

Investments in subsidiaries, associates and joint ventures as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Investments in subsidiaries

   W 4,493,753        4,391,693  

Investments in associates and joint ventures

     4,757,758        4,760,628  
  

 

 

    

 

 

 
   W 9,251,511        9,152,321  
  

 

 

    

 

 

 

 

23


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

7.

Investments in Subsidiaries, Associates and Joint ventures, Continued

 

  (2)

Details of investments in subsidiaries as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won, except for share data)    June 30,
2018
     December 31,
2017
 
     Number of
shares
     Ownership
(%)
     Carrying
amount
     Carrying
amount
 

SK Telink Co., Ltd.

     1,432,627        100.0      W 243,988        243,988  

SK Broadband Co., Ltd.

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

SK Communications Co., Ltd.

     43,427,530        100.0        69,668        69,668  

PS&Marketing Corporation

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

SERVICEACE Co., Ltd.

     4,385,400        100.0        21,927        21,927  

SK Planet Co., Ltd.

     57,338,266        98.1        1,298,237        1,298,237  

IRIVER LIMITED(*1)

     21,826,296        45.9        91,642        91,642  

SK Telecom China Holdings Co., Ltd.

     —          100.0        48,096        38,652  

SKT Americas, Inc.

     122        100.0        45,701        45,701  

Atlas Investment(*2)

     —          100.0        89,824        84,495  

SK Global Healthcare Business Group, Ltd.

     —          100.0        39,649        39,649  

SK techx Co., Ltd.

     6,713,838        100.0        155,999        155,999  

One Store Co., Ltd.

     10,409,600        65.5        82,186        82,186  

id Quantique SA(*3)

     44,157,506        58.1        59,214        —    

Network O&S Co., Ltd., etc

           63,106        35,033  
        

 

 

    

 

 

 
         W 4,493,753        4,391,693  
        

 

 

    

 

 

 

 

(*1)

Although the Company has less than 50% of the voting rights of IRIVER LIMITED, the Company is considered to have control over IRIVER LIMITED since the Company holds significantly more voting rights than any other shareholder or organized group of shareholders, and the other shareholdings are widely dispersed.

(*2)

The Company contributed W5,329 million in cash during the six-month period ended June 30, 2018.

(*3)

The Company acquired additional 41,157,506 shares of both common and preferred stocks, in aggregate, for W55,249 million in cash during the six-month period ended June 30, 2018, and reclassified the existing equity instruments at FVOCI to subsidiaries. Due to the reclassification, W1,636 million valuation gain on the equity instruments at FVOCI is reclassified to retained earnings.

 

24


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

7.

Investments in Subsidiaries, Associates and Joint ventures, Continued

 

  (3)

Details of investments in associates and joint ventures accounted for using the equity method as of June 30, 2018 and December, 2017 are as follows:

 

(In millions of won, except for share data)                            
     June 30,
2018
     December 31,
2017
 
     Number of
shares
     Ownership
(%)
     Carrying
amount
     Carrying
amount
 

Investments in associates:

           

SK China Company Ltd.

     10,928,921        27.3      W 601,192        601,192  

HappyNarae Co., Ltd.

     720,000        45.0        12,939        12,939  

Korea IT Fund(*1)

     190        63.3        220,957        220,957  

Wave City Development Co., Ltd.(*2)

     393,460        19.1        1,532        1,532  

KEB HanaCard Co., Ltd.(*2)

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

Daehan Kanggun BcN Co., Ltd.

     1,675,124        29.0        353        353  

NanoEnTek, Inc.

     6,960,445        27.1        47,958        47,958  

SK Technology Innovation Company

     14,700        49.0        45,864        45,864  

SK hynix Inc.

     146,100,000        20.1        3,374,725        3,374,725  

SK MENA Investment B.V.

     9,772,686        32.1        14,485        14,485  

SK Latin America Investment S.A.

     9,448,937        32.1        14,243        14,243  

S.M.Culture & Contents Co.,Ltd.

     22,033,898        23.4        65,341        65,341  

12CM Japan, Inc.(*3)

     3,925        29.2        7,697        —    

MAKEUS Corp. (*2,3)

     2,153        8.9        9,773        —    

SK USA, Inc. and others

     —          —          62,380        71,824  
        

 

 

    

 

 

 
         W 4,733,178        4,725,152  
        

 

 

    

 

 

 

Investment in joint ventures:

           

Finnq Co., Ltd.(*4)

     4,900,000        49.0      W 24,580        24,580  

12CM GLOBAL PTE. LTD.(*5)

     766,088        47.7        —          10,896  
        

 

 

    

 

 

 
           24,580        35,476  
        

 

 

    

 

 

 
         W 4,757,758        4,760,628  
        

 

 

    

 

 

 

 

(*1)

Investment in Korea IT Fund was classified as investment in associates as the Company does not have control over Korea IT Fund under the contractual agreement.

(*2)

These investments were classified as investments in associates as the Company can exercise significant influence through its right to appoint the members of board of directors even though the Company has less than 20% of equity interests.

(*3)

The Company acquired the shares at the carrying amount of the Ultimate Controlling Entity during the six-month period ended June 30, 2018.

(*4)

These investments were classified as investment in joint ventures as the Company has joint control pursuant to the agreement with the other shareholders.

(*5)

The Company sold 241,055 shares during the six-month period ended June 30, 2018, and reclassified the remaining 766,088 shares to non-current assets held for sale upon the contract to sell the remaining shares.

 

25


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

7.

Investments in Subsidiaries, Associates and Joint ventures, Continued

 

  (4)

The market price of investments in listed subsidiaries as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won, except for share data)   

 

    

 

 
     June 30, 2018      December 31, 2017  
     Market
value per
share

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

(in won)
     Number of
shares
     Fair
value
 

IRIVER LIMITED

   W 8,250        21,826,296        180,067        5,580        21,826,296        121,790  

 

  (5)

The market price of investments in listed associates as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won, except for share data)   

 

    

 

 
     June 30, 2018      December 31, 2017  
     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 5,670        6,960,445        39,466        5,950        6,960,445        41,415  

SK hynix Inc.

     85,700        146,100,000        12,520,770        76,500        146,100,000        11,176,650  

S.M.Culture & Contents Co.,Ltd.

     2,665        22,033,898        58,720        2,700        22,033,898        59,492  

 

8.

Property and Equipment

Details of the changes in property and equipment for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)   

 

 
     For the six-month period ended June 30, 2018  
     Beginning
balance
     Acquisition      Disposal     Transfer     Depreciation     Ending
balance
 

Land

   W 525,572        1,069        (29     4,228       —         530,840  

Buildings

     546,872        90        (1,330     24,662       (18,606     551,688  

Structures

     376,755        279        —         2,327       (17,974     361,387  

Machinery

     4,648,331        37,953        (13,158     445,784       (818,413     4,300,497  

Other

     448,203        248,394        (1,065     (235,041     (51,356     409,135  

Construction in progress

     377,400        200,846        (3,312     (312,085     —         262,849  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   W 6,923,133        488,631        (18,894     (70,125     (906,349     6,416,396  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

8.

Property and Equipment, Continued

 

Details of the changes in property and equipment for the six-month periods ended June 30, 2018 and 2017 are as follows, Continued:

 

(In millions of won)   

 

 
     For the six-month period ended June 30, 2017  
     Beginning
balance
     Acquisition      Disposal     Transfer     Depreciation     Ending
balance
 

Land

   W 506,786        2,293        (3,625     8,765       —         514,219  

Buildings

     557,021        129        (302     18,540       (18,347     557,041  

Structures

     357,065        2,115        (70     414       (17,367     342,157  

Machinery

     4,781,985        22,100        (985     416,388       (822,774     4,396,714  

Other

     492,410        207,928        (2,421     (204,150     (55,284     438,483  

Construction in progress

     603,272        195,537        (1,811     (537,509     —         259,489  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
   W 7,298,539        430,102        (9,214     (297,552     (913,772     6,508,103  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

9.     Intangible Assets

 

  (1)

Details of the changes in intangible assets for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)   

 

 
     For the six-month period ended June 30, 2018  
     Beginning
balance
     Acquisition      Disposal     Transfer      Amortization     Ending
balance
 

Frequency usage rights

   W 2,176,940        —          —         —          (201,944     1,974,996  

Land usage rights

     7,858        1,622        (49     —          (1,981     7,450  

Industrial rights

     12,899        3,183        —         —          (1,760     14,322  

Facility usage rights

     16,456        844        (22     90        (1,368     16,000  

Club memberships

     44,843        1,215        (25     —          —         46,033  

Other

     830,549        4,005        (1,400     80,917        (139,988     774,083  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 3,089,545        10,869        (1,496     81,007        (347,041     2,832,884  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(In millions of won)   

 

 
     For the six-month period ended June 30, 2017  
     Beginning
balance
     Acquisition      Disposal     Transfer      Amortization     Ending
balance
 

Frequency usage rights

   W 2,580,828        —          —         —          (201,944     2,378,884  

Land usage rights

     8,359        1,243        (81     200        (1,831     7,890  

Industrial rights

     13,692        2,196        —         —          (1,815     14,073  

Facility usage rights

     16,259        651        (30     118        (1,347     15,651  

Club memberships

     43,984        1,125        (145     —          —         44,964  

Other

     612,541        6,483        (563     307,619        (113,677     812,403  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 3,275,663        11,698        (819     307,937        (320,614     3,273,865  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

9.

Intangible Assets, Continued

 

  (2)

Details of frequency usage rights as of June 30, 2018 are as follows:

 

(In millions of won)                          
     Amount     

Description

   Commencement
of amortization
     Completion of
amortization
 

800MHz license

   W 121,632      CDMA and LTE service      Jul. 2011        Jun. 2021  

1.8GHz license

     439,670      LTE service      Sept. 2013        Dec. 2021  

WiBro license

     1,783      WiBro service      Mar. 2012        Mar. 2019  

2.6GHz license

     1,032,060      LTE service      Sept. 2016        Dec. 2026  

2.1GHz license

     379,851      W-CDMA and LTE service      Dec. 2016        Dec. 2021  
  

 

 

          
   W 1,974,996           
  

 

 

          

The Company participated in the frequency license allocation auction hosted by Ministry of Science and Information and Communication Technology (ICT) and was selected for the 3.5GHz and 28GHz license allocation during the six-month period ended June 30, 2018. The considerations payable for the bands of frequency are W1,218,500 million and W207,300 million, respectively. These bands of frequency are to be allocated in December 2018 as the Company pays the initial lump sum during November 2018, and then the annual payments in installment of the remaining balance will be made for the next ten and five years, respectively. The Company will recognize these frequency licenses at the initial lump sum as intangible assets and will amortize when the bands of frequency are in the condition necessary for them to be capable of operating in the manner intended by management.

 

10.

Borrowings and Debentures

(1) Changes in borrowings for the six-month period ended June 30, 2018 are as follows:

 

(In millions of won)                            
     Lender      Annual
interest
rate (%)
     Maturity      Book value  

Current

            W 12,031  

Non-current

              42,486  
           

 

 

 

As of January 1, 2018

              54,517  
           

 

 

 

Borrowings repaid

    
Export
Kreditnamnden
 
 
     1.70        2022. 4. 29        (6,200

Other changes(*):

              2,499  

Current

              12,631  

Non-current

              38,185  
           

 

 

 

As of June 30, 2018

              50,816  
           

 

 

 

 

(*)

Other changes include the effects on foreign currency translation of foreign currency-denominated debentures and changes in present value discount during the six-month period ended June 30, 2018.

 

28


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

10.     Borrowings and Debentures, Continued

(2) Changes in debentures for the six-month period ended June 30, 2018 are as follows:

 

(In thousands of other currencies, In millions of won)                                  
     Purpose      Annual
interest
rate(%)
     Maturity      Face value     Book value  

Current

            W 1,119,980       1,119,016  

Non-current

              4,350,258       4,334,848  
           

 

 

   

 

 

 

As of January 1, 2018

              5,470,238       5,453,864  
           

 

 

   

 

 

 

Debentures newly issued:

 

Unsecured corporate bonds

    
Refinancing
fund
 
 
     2.57        Feb. 20, 2021        110,000       109,507  
        2.81        Feb. 20, 2023        100,000       99,576  
        3.00        Feb. 20, 2028        200,000       199,228  
        3.02        Feb. 20, 2038        90,000       89,664  
              535,000       529,566  

Global unsecured corporate bonds

    
Operating
fund
 
 
     3.75        Apr. 16, 2023        USD 500,000       USD 500,000  
           

 

 

   

 

 

 
            W 1,035,000       1,027,541  
           

 

 

   

 

 

 

Debentures repaid:

 

Unsecured corporate bonds

     Other fund        5.00        Mar. 3, 2018        (200,000     (200,000

Global unsecured corporate bonds

    
Operating
fund
 
 
     2.13        May. 1, 2018        (746,550     (746,550
              USD 700,000       USD 700,000  
           

 

 

   

 

 

 
            W (946,550     (946,550
           

 

 

   

 

 

 

Other changes(*):

              58,411       60,393  

Current

              340,000       339,777  

Non-current

              5,277,099       5,255,471  
           

 

 

   

 

 

 

As of June 30, 2018

            W 5,617,099       5,595,248  
           

 

 

   

 

 

 

 

(*)

Other changes include the effects on foreign currency translation of foreign currency-denominated debentures and changes in present value discount during the six-month period ended June 30, 2018.

 

11.

Long-term Payables - other

 

  (1)

As of June 30, 2018 and December 31, 2017, details of long-term payables – other which consist of payables related to the acquisition of frequency usage rights are as follows (See Note 9):

 

(In millions of won)              
     June 30,
2018
     December 31,
2017
 

Long-term payables - other

   W 1,407,388        1,710,255  

Present value discount on long-term payables - other

     (67,514      (79,874

Current installments of long-term payables - other

     (299,113      (301,751
  

 

 

    

 

 

 

Carrying amount at period end

   W 1,040,761        1,328,630  
  

 

 

    

 

 

 

 

29


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

11.

Long-term Payables – other, Continued

 

  (2)

The Company repaid W302,867 million of the principal amount of long-term payables - other related to the acquisition of frequency usage rights during the six-month period ended June 30, 2018. The repayment schedule of the principal amount of long-term payables - other as of June 30, 2018 is as follows:

 

(In millions of won)    Amount  

Less than 1 year

   W 302,867  

1~3 years

     605,734  

3~5 years

     199,515  

More than 5 years

     299,272  
  

 

 

 
   W 1,407,388  
  

 

 

 

 

12.

Provisions

Changes in provisions for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended June 30, 2018      As of June 30, 2018  
     Beginning
balance
     Increase      Utilization     Reversal     Ending
balance
     Current      Non-
current
 

Provision for installment of handset subsidy

   W 3,874        —          (1,059     (2,702     113        113        —    

Provision for restoration

     56,162        2,296        (369     (350     57,739        41,679        16,060  

Emission allowance

     4,650        1,726        (1,334     (3,306     1,736        1,736        —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W 64,686        4,022        (2,762     (6,358     59,588        43,528        16,060  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

(In millions of won)    For the six-month period ended June 30, 2017      As of June 30, 2017  
     Beginning
balance
     Increase      Utilization     Reversal     Ending
balance
     Current      Non-
current
 

Provision for installment of handset subsidy

   W 24,710        2        (4,902     —         19,810        19,810        —    

Provision for restoration

     53,022        1,588        (400     (232     53,978        37,745        16,233  

Emission allowance

     2,788        2,401        (518     (2,283     2,388        2,388        —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W 80,520        3,991        (5,820     (2,515     76,176        59,943        16,233  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

13.

Derivatives

Changes in derivative contracts for the six-month period ended June 30, 2018 are as follows:

 

(In thousands of other currencies)
    

Hedged items

  

Hedging instruments

  

Date

  

Item

  

Risk type

  

Contract type

  

Counterparty

  

Contract term

Expired

   Nov. 1, 2012   

Fixed rate foreign currency bond

(par value USD 700,000)

   Currency risk    Currency swap contract    Standard Chartered and 8 others   

Nov. 1, 2012 ~

May 1, 2018

New

   Apr. 16, 2018   

Fixed rate foreign currency bond

(par value USD 500,000)

   Currency risk    Currency swap contract    The Export-Import Bank of Korea and 3 others   

Apr. 16, 2018 ~

Apr. 16, 2023

 

30


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

14.

Defined Benefit Liabilities (Assets)

 

  (1)

Details of defined benefit liabilities (assets) as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Present value of defined benefit obligations

   W 305,092        278,778  

Fair value of plan assets

     (321,768      (318,860
  

 

 

    

 

 

 

Defined benefit assets

   W (16,676      (40,082
  

 

 

    

 

 

 

 

  (2)

Changes in defined benefit obligations for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Beginning balance

   W 278,778        240,289  

Current service cost

     20,188        19,398  

Interest cost

     4,268        3,212  

Remeasurement:

     

- Adjustment based on experience

     4,289        8,045  

Benefit paid

     (5,886      (5,599

Others

     3,455        8,720  
  

 

 

    

 

 

 

Ending balance

   W 305,092        274,065  
  

 

 

    

 

 

 

 

  (3)

Changes in plan assets for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Beginning balance

   W 318,860        265,076  

Interest income

     4,757        3,328  

Remeasurement

     (1,372      (361

Contribution

     9,000        20,000  

Benefit paid

     (15,642      (24,034

Others

     6,165        6,375  
  

 

 

    

 

 

 

Ending balance

   W 321,768        270,384  
  

 

 

    

 

 

 

 

  (4)

Total cost of benefit plan, which is recognized in profit and loss (included in labor in the statement of income) and capitalized into construction-in-progress, for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Current service cost

   W 20,188        19,398  

Net interest income

     (489      (116
  

 

 

    

 

 

 
   W 19,699        19,282  
  

 

 

    

 

 

 

 

31


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

15.

Contract assets and liabilities

As discussed in Note 3, the Company adopted K-IFRS No. 1115, Revenue from Contracts with Customers on January 1, 2018.

Details of contract assets and liabilities as of June 30, 2018 and January 1, 2018 are as follows:

 

(In millions of won)              
     June 30, 2018      January 1, 2018  

Contract assets:

     

allocation of performance obligations

     6,293        —    
  

 

 

    

 

 

 
   W 6,293        —    
  

 

 

    

 

 

 

Contract liabilities:

     

wireless service contracts

     17,094        16,577  

customer loyalty programs

     13,681        10,739  

others

     27,706        16,729  
  

 

 

    

 

 

 
   W 58,481        44,045  
  

 

 

    

 

 

 

 

16.

Share Capital and Capital Surplus and Others

The Company’s outstanding share capital consists entirely of common stocks with a par value of W500. The number of authorized, issued and outstanding common stocks and the details of capital surplus and others as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won, except for share data)   

 

    

 

 
     June 30, 2018      December 31, 2017  

Number of authorized shares

     220,000,000        220,000,000  

Number of issued shares

     80,745,711        80,745,711  

Share capital:

     

Common stock

   W 44,639        44,639  

Capital surplus and others:

     

Paid-in capital surplus

     2,915,887        2,915,887  

Treasury shares

     (2,260,626      (2,260,626

Hybrid bonds (Note 18)

     398,759        398,518  

Share option (Note 17)

     703        414  

Others

     (683,780      (682,298
  

 

 

    

 

 

 
   W 370,943        371,895  
  

 

 

    

 

 

 

There were no changes in share capital for the six-month periods ended June 30, 2018 and 2017 and details of shares outstanding as of June 30, 2018 and 2017 are as follows:

 

(In shares)   

 

    

 

 
     June 30, 2018      June 30, 2017  
     Issued
shares
     Treasury
stock
     Outstanding
shares
     Issued
shares
     Treasury
stock
     Outstanding
shares
 

Issued shares

     80,745,711        10,136,551        70,609,160        80,745,711        10,136,551        70,609,160  

 

32


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

17.

Share option

 

  (1)

The terms and conditions related to the grants of the share options under the share option program are as follows:

 

     Series  
     1-1    1-2    1-3    2  

Grant date

   March 24, 2017      February 20, 2018  

Types of shares to be issued

   Registered common shares  

Grant method

   Reissue of treasury shares  

Number of shares (in shares)

   22,168    22,168    22,168      5,707  

Exercise price (in won)

   246,750    266,490    287,810      254,120  

Exercise period

   Mar. 25, 2019 ~
Mar. 24, 2022
   Mar. 25, 2020 ~
Mar. 24, 2023
   Mar. 25, 2021 ~
Mar. 24, 2024
    
Feb. 21, 2020 ~
Feb. 20, 2023
 
 

Vesting conditions

   2 years’ service
from the grant
date
   3 years’ service
from the grant
date
   4 years’ service
from the grant
date
    

2 years’ service
from the grant
date
 
 
 

 

  (2)

The recognized share compensation expense and the remaining share compensation expense to be recognized in subsequent periods are as follows:

 

(In millions of won)    Share
compensation expense
 

During the year ended December 31, 2017

   W 414  

During the six-month period ended June 30, 2018

     289  

In subsequent periods

     825  
  

 

 

 
   W 1,528  
  

 

 

 

 

  (3)

The Company used binomial option pricing model and the inputs used in the measurement of the value of the share options at grant dates of the share-based payment plans are as follows:

 

     1-1     1-2     1-3     2  

Risk-free interest rate

     1.86     1.95     2.07     2.63

Estimated option’s life

     5 years       6 years       7 years       5 years  

Share price

(Closing price on the preceding day in won)

     262,500       262,500       262,500       243,500  

Expected volatility

     13.38     13.38     13.38     16.45

Expected dividends

     3.80     3.80     3.80     3.70

Exercise price (in won)

     246,750       266,490       287,810       254,120  

Per share fair value of the option (in won)

     27,015       20,240       15,480       23,988  

 

33


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

18.

Hybrid Bonds

The Company repaid the hybrid bonds during the six-month period ended June 30, 2018 and issued new hybrid bonds at par, and the details are as follows:

 

(In millions of won)                                   
     Type      Issue date      Maturity
date(*1)
     Interest rate
(%)(*2)
     Amount  

2-1 Private equity bond securities

    

Unsecured
subordinated
coupon bond
 
 
 
     2018. 6. 7        2078. 6. 7        3.70        300,000  

2-2 Private equity bond securities

    

Unsecured
subordinated
coupon bond
 
 
 
     2018. 6. 7        2078. 6. 7        3.65        100,000  

Issuing cost

                 (1,241
              

 

 

 
                 398,759  
              

 

 

 

As there is no contractual obligation to deliver financial assets to the holders of hybrid bonds, the Company classified the hybrid bonds as equity. When in liquidation or bankruptcy, these hybrid bonds are senior only to common stocks.

 

(*1)

The Company may extend the maturity without any notice or announcement.

 

(*2)

The interest rate of the hybrid bonds is determined by applying additional interest on a five-year Korea national bond interest rate. In addition, according to ‘Step-up’ clause, 0.25%p adds on the rate of return after 10 years from the issuance and another 0.75%p after 25 years from the issue date

 

19.

Retained Earnings

Retained earnings as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)       
     June 30, 2018      December 31, 2017  

Appropriated:

     

Legal reserve

   W 22,320        22,320  

Reserve for business expansion

     10,531,138        10,171,138  

Reserve for technology development

     3,321,300        3,071,300  
  

 

 

    

 

 

 
     13,852,438        13,242,438  

Unappropriated

     2,349,276        1,247,798  
  

 

 

    

 

 

 
   W 16,224,034        14,512,556  
  

 

 

    

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

20.

Reserves

 

  (1)

Details of reserves, net of taxes, as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)       
     June 30, 2018      December 31, 2017  

Valuation gain on financial assets at FVOCI

   W 48,121        —    

Valuation gain on available-for-sale financial assets

     —          148,873  

Valuation loss on derivatives

     (80,578      (70,572
  

 

 

    

 

 

 
   W (32,457      78,301  
  

 

 

    

 

 

 

 

  (2)

Changes in reserves for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)  
     Valuation gain (loss)
on financial assets
at FVOCI
    Valuation gain (loss)
on available-for-sale
financial assets
    Valuation gain
(loss) on
derivatives
    Total  

Balance at January 1, 2017

   W —         28,963       (90,756     (61,793

Changes, net of taxes

     —         99,347       5,804       105,151  
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017

     —         128,310       (84,952     43,358  

Balance at December 31, 2017

     —         148,873       (70,572     78,301  

Impact of adopting K-IFRS No.1109

     90,484       (148,873     —         (58,389
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2018

     90,484       —         (70,572     19,912  

Changes, net of taxes

     (42,363     —         (10,006     (52,369
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

   W 48,121       —         (80,578     (32,457
  

 

 

   

 

 

   

 

 

   

 

 

 

 

21.

Operating revenue

Disaggregation of operating revenues considering the economic factors that affect the amounts, timing and uncertainty of the Company’s revenue and future cash flows is as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Products transferred at a point in time:

           

Product sales

   W 36,694        69,967        42,950        89,543  

Services transferred over time:

           

Wireless service revenue(*1)

     2,497,727        5,066,607        2,697,722        5,359,993  

Cellular interconnection revenue

     156,064        306,936        144,683        317,352  

Other(*2)

     251,350        486,863        224,275        430,698  
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,905,141        5,860,406        3,066,680        6,108,043  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,941,835        5,930,373        3,109,630        6,197,586  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1)

Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through usage charges paid by the wireless subscribers.

(*2)

Other revenue includes revenue from IoT solutions as well as other miscellaneous wireless services.

 

35


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

Most of the Company’s transactions are occurring in Korea as it principally operates its businesses in Korea.

 

22.

Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Communication

   W 7,131        14,164        6,121        12,488  

Utilities

     49,737        107,553        49,921        106,516  

Taxes and dues

     11,747        15,851        2,802        7,274  

Repair

     63,298        116,674        56,215        106,772  

Research and development

     79,973        151,184        73,490        144,739  

Training

     4,798        11,693        4,447        9,330  

Bad debt for accounts receivable - trade

     4,107        8,593        7,107        8,352  

Other

     9,866        21,824        7,594        18,888  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 230,657        447,536        207,697        414,359  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

23.

Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Other Non-operating Income:

           

Gain on disposal of property and equipment and intangible assets

   W 886        1,000        552        4,564  

Others

     3,483        15,494        2,112        4,756  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 4,369        16,494        2,664        9,320  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Non-operating Expenses:

           

Loss on disposal of property and

equipment and intangible assets

   W 15,589        15,979        1,895        3,655  

Donations

     12,211        28,150        18,568        30,694  

Bad debt for accounts receivable - other

     775        1,498        —          2,177  

Others

     1,251        2,377        1,387        2,932  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 29,826        48,004        21,850        39,458  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

36


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

24.

Finance Income and Costs

 

  (1)

Details of finance income and costs for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Income:

           

Interest income

   W 12,690        24,284        9,089        29,397  

Gain on sale of accounts receivable - trade

     4,390        8,139        4,065        9,090  

Dividends

     1,676        162,918        1,612        99,423  

Gain on foreign currency transactions

     5,093        8,469        4,236        5,439  

Gain on foreign currency translations

     1,588        1,604        1,432        184  

Gain relating to financial assets at fair value through profit or loss

     700        1,692        —          465  

Gain on disposal of long-term investment securities

     —          —          91        2,358  

Gain on valuation of derivatives

     578        897        476        831  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 26,715        208,003        21,001        147,187  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Costs:

           

Interest expenses

   W 57,450        118,383        61,946        123,597  

Loss on foreign currency transactions

     3,119        8,650        3,362        6,443  

Loss on foreign currency translations

     1        65        —          490  

Loss on disposal of long-term investment securities

     —          —          507        556  

Loss on settlement of derivatives

     12,156        12,156        8,910        8,910  

Loss relating to financial assets at

fair value through profit or loss

     378        578        605        —    

Loss relating to financial liabilities at fair value through profit or loss

     492        780        198        529  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 73,596        140,612        75,528        140,525  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest income on cash equivalents and short-term financial instruments

   W 4,245        7,639        4,457        7,465  

Interest income on installment receivables and others

     8,445        16,645        4,632        21,932  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 12,690        24,284        9,089        29,397  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

37


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

24.

Finance Income and Costs, Continued

 

  (3)

Details of interest expenses included in finance costs for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest expenses on borrowings

   W 1,102        2,822        2,578        3,982  

Interest expenses on debentures

     45,150        90,978        45,654        90,033  

Others

     11,198        24,583        13,714        29,582  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 57,450        118,383        61,946        123,597  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (4)

Details of impairment losses on financial assets for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Accounts receivable - trade

   W 4,107        8,593        7,107        8,352  

Other receivables

     775        1,498        —          2,177  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 4,882        10,091        7,107        10,529  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25.

Income Tax Expense

Income tax expense was calculated by considering current tax expense adjusted to changes in estimates related to prior periods, deferred tax expenses by origination and reversal of temporary differences.

 

26.

Earnings per Share

 

  (1)

Basic earnings per share

 

  1)

Basic earnings per share for the three and six-month periods ended June 30, 2018 and 2017 are calculated as follows:

 

(In millions of won, shares)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Profit for the period

   W 219,786        584,213        314,050        702,256  

Interest on hybrid bond

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

Profit for the period available for common shares

     211,366        575,793        305,630        693,836  

Weighted average number of common shares outstanding

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

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share (in won)

   W 2,993        8,155        4,328        9,826  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

38


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

26.

Earnings per Share, Continued

 

  (1)

Basic earnings per share, Continued

 

  2)

The weighted average number of common shares outstanding for the six-month periods ended June 30, 2018 and 2017 are calculated as follows:

 

           Weighted number of shares  
(In shares)    Number of
shares
    Three-month period
ended June 30
    Six-month period
ended June 30
 

Issued common shares at January 1, 2018

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

Effect of treasury shares

     (10,136,551     (10,136,551     (10,136,551
  

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding at June 30, 2018

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

 

 

   

 

 

   

 

 

 
           Weighted number of shares  
(In shares)    Number of
shares
    Three-month period
ended June 30
    Six-month period
ended June 30
 

Issued common shares at January 1, 2017

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

Effect of treasury shares

     (10,136,551     (10,136,551     (10,136,551
  

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding at June 30, 2017

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

 

 

   

 

 

   

 

 

 

 

  (2)

Diluted earnings per share

For the six-month periods ended June 30, 2018 and 2017, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.

 

27.

Categories of Financial Instruments

 

  (1)

Financial assets by category as of June 30, 2018 and December 31, 2017 are as follows:

 

     June 30, 2018  
(In millions of won)    Financial
assets at
FVTPL
     Equity
instruments at

FVOCI
     Financial assets at
amortized cost
     Derivatives-
hedging
instrument
     Total  

Cash and cash equivalents

   W —          —          1,055,703        —          1,055,703  

Financial instruments

     —          —          79,882        —          79,882  

Short-term investment securities

     47,547        —          —          —          47,547  

Long-term investment securities(*)

     67,267        597,225        —          —          664,492  

Accounts receivable - trade

     —          —          1,385,039        —          1,385,039  

Loans and other receivables

     843,622        —          528,305        —          1,371,927  

Derivative financial assets

     9,950        —          —          41,908        51,858  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 968,386        597,225        3,048,929        41,908        4,656,448  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

The Company designated W597,225 million of equity instruments that are not held for trading as financial assets measured at FVOCI.

 

39


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

27.

Categories of Financial Instruments, Continued

 

  (1)

Financial assets by category as of June 30, 2018 and December 31, 2017 are as follows, Continued

 

     December 31, 2017  
(In millions of won)    Financial
assets at
FVTPL
     Available-
for-sale
financial
assets
     Loans and
receivables
     Derivatives-
hedging
instrument
     Total  

Cash and cash equivalents

   W —          —          880,583        —          880,583  

Financial instruments

     —          —          94,382        —          94,382  

Short-term investment securities

     —          47,383        —          —          47,383  

Long-term investment securities

     —          724,603        —          —          724,603  

Accounts receivable - trade

     —          —          1,520,209        —          1,520,209  

Loans and other receivables

     —          —          1,524,714        —          1,524,714  

Derivative financial assets

     9,054        —          —          21,554        30,608  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W  9,054        771,986        4,019,888        21,554        4,822,482  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (2)

Financial liabilities by category as of June 30, 2018 and December 31, 2017 are as follows:

 

     June 30, 2018  
(In millions of won)    Financial
liabilities at
FVTPL
     Financial
liabilities at
amortized
cost
     Derivatives-
hedging
instrument
     Total  

Derivative financial liabilities

   W —          —          1,400        1,400  

Borrowings

     —          50,816        —          50,816  

Debentures(*)

     61,058        5,534,189        —          5,595,248  

Accounts payable - other and others

     —          3,678,706        —          3,678,706  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  61,058        9,263,711        1,400        9,326,170  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Debentures classified as financial liabilities at FVTPL as of June 30, 2018 are structured bonds, and they were designated as financial liabilities at FVTPL in order to eliminate a measurement inconsistency with the related derivatives.

 

     December 31, 2017  
(In millions of won)    Financial
liabilities
measured at
FVTPL
     Financial
liabilities
measured at
amortized
cost
     Derivatives-
hedging
instrument
     Total  

Derivative financial liabilities

   W —          —          38,510        38,510  

Borrowings

     —          54,517        —          54,517  

Debentures(*)

     60,278        5,393,586        —          5,453,864  

Accounts payable - other and others

     —          4,116,758        —          4,116,758  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 60,278        9,564,861        38,510        9,663,649  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Debentures classified as financial liabilities at FVTPL as of December 31, 2017 are structured bonds, and they were designated as financial liabilities at FVTPL in order to eliminate a measurement inconsistency with the related derivatives.

 

40


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

28.

Financial Risk Management

 

  (1)

Financial risk management

 

The Company is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates and interest rates. The Company implements a risk management system to monitor and manage these specific risks.

The Company’s financial assets consist of cash and cash equivalents, financial instruments, investment securities, and accounts receivable - trade and other. Financial liabilities consist of accounts payable – other, borrowings, and debentures.

1) Market risk

(i) Currency risk

The Company is exposed to currency risk mainly on exchange fluctuations on forecasted transactions and recognized assets and liabilities which are denominated in a currency other than the functional currency of the Company.

Monetary assets and liabilities denominated in foreign currencies as of June 30, 2018 are as follows:

 

(In millions of won, thousands of foreign currencies)  
     Assets      Liabilities  
     Foreign
currencies
     Won
translation
     Foreign
currencies
     Won
translation
 

USD

     107,835        120,958        1,239,448        1,390,289  

EUR

     9,930        12,879        26        34  

JPY

     25,428        258        1,100        11  

Others

     —          724        —          —    
     

 

 

       

 

 

 
      W 134,819         W 1,390,334  
     

 

 

       

 

 

 

In addition, the Company has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures.

As of June 30, 2018, a hypothetical change in exchange rates by 10% would have increased (reduced) the Company’s income before income taxes as follows:

 

(In millions of won)              
     If increased by 10%      If decreased by 10%  

USD

   W 11,648        (11,648

EUR

     1,285        (1,285

JPY

     25        (25

Others

     72        (72
  

 

 

    

 

 

 
   W 13,030        (13,030
  

 

 

    

 

 

 

 

41


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

28.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

1) Market risk, Continued

 

(ii) Interest rate risk

The interest rate risk of the Company arises from borrowings and debentures. Since the Company’s interest bearing assets are mostly fixed-interest bearing assets, the Company’s revenue and operating cash flows are not influenced by the changes in market interest rates.

The Company performs various analysis of interest rate risk to reduce interest rate risk and to optimize its financing. To minimize risks arising from changes in interest rates, the Company takes various measures such as refinancing, renewal, alternative financing and hedging.

As of June 30, 2018, floating-rate debentures amount to W336,510 million, and the Company has entered into interest rate swaps to hedge interest rate risk related to floating-rate debentures. Therefore, income before income taxes for the six-month period ended June 30, 2018 would not have been affected by the changes in interest rates of floating-rate borrowings and debentures.

2) Credit risk

The maximum credit exposure as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)    June 30, 2018      December 31, 2017  

Cash and cash equivalents

   W 1,055,457        880,541  

Financial instruments

     79,882        94,382  

Investment securities

     900        900  

Accounts receivable – trade

     1,385,039        1,520,209  

Loans and other receivables

     1,371,927        1,524,714  

Derivative financial assets

     51,858        30,608  
  

 

 

    

 

 

 
   W 3,945,063        4,051,354  
  

 

 

    

 

 

 

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. To manage credit risk, the Company evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors. Based on such information, the Company establishes credit limits for each customer or counterparty.

The Company establishes an allowance for doubtful accounts on its estimated losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been expected to occur. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Also, the Company’s credit risk can arise from transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Company has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Company is the carrying amount of financial assets as of June 30, 2018.

 

42


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

28.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

3) Liquidity risk

The Company’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Company maintains enough liquidity within credit lines through active operating activities.

Contractual maturities of financial liabilities as of June 30, 2018 are as follows:

 

(In millions of won)  
     Carrying
amount
     Contractual
cash flows
     Less than
1 year
     1 - 5 years      More than
5 years
 

Borrowings(*)

   W 50,816        54,066        13,870        40,196        —    

Debentures(*)

     5,595,248        6,936,723        518,236        3,312,462        3,106,025  

Accounts payable - other and others

     3,678,706        3,811,795        2,630,736        875,098        305,961  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 9,324,770        10,802,584        3,162,842        4,227,756        3,411,986  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

 

(*)

Includes interest payables.

As of June 30, 2018, periods in which cash flows from cash flow hedge derivatives are expected to occur are as follows:

 

(In millions of won)  
     Carrying
amount
    Contractual
cash flows
    Less than
1 year
    1 - 5 years     More than
5 years
 

Assets

   W 41,908       37,108       19,539       49,125       (31,556

Liabilities

     (1,400     (1,473     (94     (1,379     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W 40,508       35,635       19,445       47,746       (31,556
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (2)

Capital management

The Company manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall capital management strategy of the Company is the same as that of the Company as of and for the year ended December 31, 2017.

The Company monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity both from the financial statements.

 

43


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

28.

Financial Risk Management, Continued

 

  (2)

Capital management, Continued

 

Debt-equity ratio as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)    June 30, 2018     December 31, 2017  

Total liabilities

   W 10,390,293       10,550,131  

Total equity

     16,607,159       15,007,391  

Debt-equity ratios

     62.57     70.30

 

  (3)

Fair value

 

  1)

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2018 are as follows:

 

     June 30, 2018  
(In millions of won)    Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

FVTPL

   W 968,386        —          901,119        67,267        968,386  

Derivative financial assets

     41,908        —          41,908        —          41,908  

FVOCI

     597,225        530,850        —          66,375        597,225  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 1,607,519        530,850        943,027        133,642        1,607,519  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

FVTPL

   W 61,058        —          61,058        —          61,058  

Derivative financial

liabilities

     1,400        —          1,400        —          1,400  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 62,458        —          62,458        —          62,458  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 50,816        —          51,426        —          51,426  

Debentures

     5,534,190        —          5,835,986        —          5,835,986  

Long-term payables - other

     1,339,874        —          1,423,929        —          1,423,929  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 6,924,880        —          7,311,341        —          7,311,341  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

44


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

28.

Financial Risk Management, Continued

 

  (3)

Fair value, Continued

 

2) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2017 are as follows:

 

     December 31, 2017  
(In millions of won)    Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

Financial assets at fair value through profit or loss

   W 9,054        —          9,054        —          9,054  

Derivative financial assets

     21,554        —          21,554        —          21,554  

Available-for-sale financial assets

     636,642        586,713        47,383        2,546        636,642  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 667,250        586,713        77,991        2,546        667,250  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

Financial liabilities at fair value through profit or loss

   W 60,278        —          60,278        —          60,278  

Derivative financial

liabilities

     38,510        —          38,510        —          38,510  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 98,788        —          98,788        —          98,788  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 54,517        —          55,131        —          55,131  

Debentures

     5,393,586        —          5,647,638        —          5,647,638  

Long-term payables - other

     1,630,381        —          1,749,132        —          1,749,132  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 7,078,484        —          7,451,901        —          7,451,901  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above information does not include fair values of financial liabilities of which fair values have not been measured as carrying amounts are reasonable approximation of fair values.

Available-for-sale financial assets amounting to W135,344 million as of December 31, 2017 are measured at cost in accordance with K-IFRS 1039 since they are equity instruments which do not have quoted price in an active market for the identical instruments and for which fair value cannot be reliably measured using other valuation methods.

Fair value of the financial instruments classified as financial assets at FVOCI that are traded in an active market is measured based on the bid price at the end of the reporting date.

The Company uses various valuation methods for determination of fair value of financial instruments that are not traded in an active market. Derivative financial contracts and long-term liabilities are measured using the discounted present value methods. Other financial assets are determined using the methods such as discounted cash flow and market approach. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Company performs valuation using the inputs which are consistent with natures of assets and liabilities measured.

 

45


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

28.     Financial Risk Management, Continued

 

  (3)

Fair value, Continued

 

Interest rates used by the Company for the fair value measurement as of June 30, 2018 are as follows:

 

     Interest rate  

Derivative instruments

     1.47% ~ 2.83%  

Borrowings and debentures

     2.51% ~ 2.53%  

Long-term payables - other

     2.23% ~ 2.58%  

 

  3)

There have been no transfers between Level 2 to Level 1 for the six-month period ended June 30, 2018. Changes of financial assets classified as Level 3 for the six-month period ended June 30, 2018 are as follows:

 

(In millions of won)    Balance at
January 1,
2018
     Impact of
adopting

K-IFRS No. 1109
    Gain or loss
for the
period
     OCI      Acquisition      Disposal     Balance at
June 30, 2018
 

Available-for-sale financial assets

   W 2,546        (2,546     —          —          —          —         —    

FVTPL

     —          71,139       1        —          90        (3,963     67,267  

FVOCI

     —          67,804       —          —          900        (2,329     66,375  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     W 2,546      136,397     1      —        990      (6,292)     133,642  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

  (4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2018 and December 31, 2017 are as follows:

 

     June 30, 2018  
(In millions of won)    Gross financial
instruments
recognized
     Amount offset     Net financial
instruments
presented on the
statement of
financial position
     Relevant financial
instruments not
offset
    Net amount  

Financial assets:

            

Derivatives(*)

     W51,858        —         51,858        (1,400     50,458  

Accounts receivable – trade and others

     90,758        (90,688     70        —         70  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     W 142,616        (90,688     51,928        (1,400     50,528  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

     W1,400        —         1,400        (1,400     —    

Accounts payable – other and others

     90,688        (90,688     —          —         —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     W 92,088        (90,688     1,400        (1,400     —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

46


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

28.

    Financial Risk Management, Continued

 

  (4)

Enforceable master netting agreement or similar agreement, Continued

 

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2018 and December 31, 2017 are as follows, Continued:

 

     December 31, 2017  
(In millions of won)    Gross financial
instruments
recognized
     Amount
offset
    Net financial
instruments
presented on the
statement of
financial position
     Relevant financial
instruments not
offset
    Net
amount
 

Financial assets:

            

Derivatives(*)

   W 26,297        —         26,297        (19,781     6,516  

Accounts receivable – trade and others

     88,901        (88,301     600        —         600  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 115,198        (88,301     26,897        (19,781     7,116  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

   W 19,781        —         19,781        (19,781     —    

Accounts payable – other and others

     88,301        (88,301     —          —         —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W  108,082        (88,301     19,781        (19,781     —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(*)

The balance represents the net amount under the standard terms and conditions of International Swap and Derivatives Association.

 

47


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

29.

Related Parties and Others

 

  (1)

List of related parties

 

Relationship

  

Company

Ultimate Controlling Entity    SK Holdings Co., Ltd.
Subsidiaries    SK Planet Co., Ltd. and 41 others(*)
Joint ventures    Dogus Planet, Inc. and 2 others
Associates    SK Hynix Inc. and 38 others
Others    The Ultimate Controlling Entity’s other subsidiaries and associates, etc.

 

  (*)

As of June 30, 2018, subsidiaries of the Company are as follows:

 

Company

   Ownership
percentage(%)(*1)
    

Types of business

Subsidiaries owned by the Company

   SK Telink Co., Ltd.      100.0      Telecommunication and MVNO(Mobile Virtual Network Operator) service
   SK Communications Co., Ltd.      100.0      Internet website services
   SK Broadband Co., Ltd.      100.0      Telecommunication services
   PS&Marketing Corporation      100.0      Communications device retail business
   SERVICEACE Co., Ltd.      100.0      Customer center management service
   SERVICE TOP Co., Ltd.      100.0      Customer center management service
   Network O&S Co., Ltd.      100.0      Base station maintenance service
   SK Telecom China Holdings Co., Ltd.      100.0      Investment
   SK Global Healthcare Business Group Ltd.      100.0      Investment
   SKT Vietnam PTE. Ltd.      73.3      Telecommunication services
   YTK Investment Ltd.      100.0      Investment
   Atlas Investment      100.0      Investment
   SKT Americas, Inc.      100.0      Information gathering and consulting
   SK techx Co., Ltd.      100.0      System software development and supply
   One Store Co., Ltd.      65.5      Telecommunication services
   SK Planet Co., Ltd.      98.1      Telecommunication services
   IRIVER LIMITED      45.9      Manufacturing of media and audio equipment
   FSK L&S Co., Ltd.(*2)      60.0      Freight forwarding and logistics consulting
   SK Telecom Japan Inc.(*3)      100.0      Information gathering and consulting
   id Quantique SA(*4)      58.1      Quantum information and communications service

Subsidiaries owned by SK Planet Co., Ltd.

   SK m&service Co.,Ltd.      100.0      Database and internet website service
   SK Planet Japan, K. K.      79.5      Digital contents sourcing service
   SK Planet Global PTE. Ltd.      100.0      Digital contents sourcing service
   SKP GLOBAL HOLDINGS PTE. LTD.      100.0      Investment
   SKP America LLC.      100.0      Digital contents sourcing service
   shopkick Management Company, Inc.      100.0      Investment
   shopkick, Inc.      100.0      Reward points-based in-store shopping app development

Subsidiaries owned by IRIVER

LIMITED

   iriver Enterprise Ltd.      100.0      Management of Chinese subsidiaries
   iriver Inc.      100.0      Sales and marketing in North America
   iriver China Co., Ltd.      100.0      Sales and manufacturing of MP3 and 4 in China
   Dongguan iriver Electronics Co., Ltd.      100.0      Sales and Manufacturing of e-book in China
   groovers Japan Co., Ltd.      100.0      Digital music contents sourcing and distribution service
   S.M. LIFE DESIGN COMPANY JAPAN INC.      100.0      Selling of goods in Japan
   S.M. Mobile Communications JAPAN Inc.      100.0      Digital contents service
   groovers Inc.(*5)      100.0      Selling of contents and MQS album

Subsidiaries owned by SK Telink Co., Ltd.

   NSOK Co., Ltd.      100.0      Security systems service

Subsidiaries owned by SK techx Co., Ltd.

   K-net Culture and Contents Venture Fund      59.0      Capital investing in startups

 

48


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

29.

Related Parties and Others, Continued

 

  (1)

List of related parties, Continued

 

Subsidiaries owned by SK Broadband Co., Ltd.

   Home & Service Co., Ltd.      100.0      Operation of information and communication facility
   SK stoa Co., Ltd.      100.0      Other telecommunication retail business

Subsidiary owned by FSK L&S Co., Ltd.

   FSK L&S(Shanghai) Co.,Ltd.(*3)      66.0      Transportation services

Others(*6)

   SK Telecom Innovation Fund, L.P.      100.0      Investment
   SK Telecom China Fund I L.P.      100.0      Investment

 

(*1)

The ownership interest represents direct ownership interest in subsidiaries either by the Parent Company or subsidiaries of the Parent Company.

(*2)

FSK L&S Co., Ltd. was acquired from SK Holdings Co., Ltd., the Ultimate Controlling Entity, during the six-month period ended June 30, 2018.

(*3)

SK Telecom Japan Inc. was established during the six-month period ended June 30, 2018.

(*4)

The Company additionally acquired shares of id Quantique SA during the six-month ended June 30, 2018 and reclassified the investee as the investment in subsidiaries.

(*5)

groovers Inc. became one of the subsidiaries of IRIVER LIMITED as a result of the acquisition of additional ownership interests during the six-month period ended June 30, 2018.

(*6)

Others are owned together by Atlas Investment and one other subsidiary of the Parent Company.

For the periods presented, the Company belongs to SK Group, a conglomerate as defined in the Monopoly Regulation and Fair Trade Act of the Republic of Korea. All of the other entities included in SK Group are considered related parties of the Company.

 

(2)

Compensation to the key management personnel

The Company considers registered directors (3 inside and 5 outside directors) who have substantial role and responsibility in planning, operations, and relevant controls of the business as key management personnel. The compensation given to such key management personnel for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     For the period ended June 30  
     Three-
month
     Six-
month
     Three-
month
     Six-
month
 

Salaries

   W  479        3,216        331        1,499  

Defined benefits plan expenses

     121        678        85        92  

Share option

     137        271        133        145  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W  737        4,165        549        1,736  
  

 

 

    

 

 

    

 

 

    

 

 

 

Compensation for the key management personnel includes salaries, non-monetary salaries, and retirement benefits made in relation to the pension plan and compensation expenses related to share options granted.

 

49


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

29.

Related Parties and Others, Continued

 

 

  (3)

Transactions with related parties for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)         2018  
          For the period ended June 30  
          Operating revenue and
others
     Operating expense and
others
     Acquisition of property
and equipment
 

Scope

  

Company

   Three-
month
     Six-month      Three-
month
     Six-month      Three-
month
     Six-month  

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.(*1)

   W 2,913        5,811        72,688        331,970        5,242        6,768  

Subsidiaries

  

SK Broadband Co., Ltd.

     27,789        57,718        133,266        263,650        4,347        4,347  
  

PS&Marketing Corporation(*2)

     2,804        6,054        370,845        737,902        —          62  
  

Network O&S Co., Ltd.

     1,062        2,054        58,825        105,867        10,050        10,050  
  

SK Planet Co., Ltd.

     8,043        14,391        6,631        14,023        167        167  
  

SK Telink Co., Ltd.

     14,443        29,133        5,771        11,226        —          —    
  

Service Ace Co., Ltd.

     1,935        3,868        32,083        65,292        —          —    
  

Service Top Co., Ltd.

     2,148        4,292        39,511        79,317        —          —    
  

SK techx Co., Ltd

     1,177        2,561        38,075        84,297        810        1,282  
  

Others

     6,306        12,571        9,700        21,479        809        2,653  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        65,707        132,642        694,707        1,383,053        16,183        18,561  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Associates

  

F&U Credit information Co., Ltd.

     394        788        11,796        23,257        —          —    
  

HappyNarae Co., Ltd.

     30        53        2,060        4,784        17,132        21,254  
  

SK hynix Inc.(*3)

     4,929        156,893        178        206        —          —    
  

KEB HanaCard Co., Ltd.

     4,906        8,938        8,286        12,317        —          —    
  

Others(*4)

     292        2,259        5,130        18,134        123        123  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        10,551        167,255        27,450        58,698        17,255        21,377  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering & Construction Co., Ltd.

     1,409        1,958        134        134        —          —    
  

SK Innovation Co., Ltd.

     2,165        4,168        338        519        —          —    
  

SK Networks Co., Ltd.

     3,064        5,805        3,244        7,679        67        67  
  

SK Networks service Co., Ltd.

     164        316        11,174        22,860        1,554        1,560  
  

SK Telesys Co., Ltd.

     55        103        232        439        20,933        27,198  
  

SK TNS Co., Ltd.

     25        50        6,364        6,757        77,018        89,167  
  

SK energy Co., Ltd

     746        1,333        141        145        —          —    
  

SKC Infra Services Co., Ltd

     29        33        2,067        4,470        —          506  
  

SK Infosec Co., Ltd

     74        76        8,456        15,116        1,084        1,121  
  

Others

     2,770        5,759        1,437        2,485        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        10,501        19,601        33,587        60,604        100,656        119,619  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      W 89,672        326,985        828,432        1,834,325        139,336        166,325  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

50


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

29.

Related Parties and Others, Continued

 

 

  (3)

Transactions with related parties for the six-month periods ended June 30, 2018 and 2017 are as follows, Continued:

 

  (*1)

Operating expenses and others include W183,271 million of dividends declared by the Company.

 

  (*2)

Operating expenses and others include W426,952 million paid to PS&Marketing Corporation relating to purchase of accounts receivables resulting from sale of handsets.

 

  (*3)

Operating revenue and others include W146,100 million of dividends income accrued.

 

  (*4)

Operating revenue and others include W1,676 million of dividends income accrued from Korea IT Fund and UniSK.

 

(In millions of won)         2017  
          For the period ended June 30  
          Operating revenue and
others
     Operating expense and
others
     Acquisition of property
and equipment
 

Scope

  

Company

   Three-
month
     Six-
month
     Three-
month
     Six-
month
     Three-
month
     Six-
month
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.(*1)

   W 2,143        4,823        80,370        330,279        35,924        61,010  

Subsidiaries

  

SK Broadband Co., Ltd.

     28,785        56,271        132,072        277,189        2,776        2,864  
  

PS&Marketing Corporation(*2)

     3,104        7,154        349,163        686,367        480        480  
  

Network O&S Co., Ltd.

     1,171        1,929        56,185        108,173        1,902        4,421  
  

SK Planet Co., Ltd.

     6,944        14,063        5,748        11,509        36        36  
  

SK Telink Co., Ltd.

     16,105        30,578        4,566        9,051        —          —    
  

Service Ace Co., Ltd.

     1,992        3,968        32,622        65,317        —          —    
  

Service Top Co., Ltd.

     2,115        4,244        34,136        68,462        —          —    
  

SK techx Co., Ltd

     295        1,078        46,335        94,097        282        282  
  

Others

     7,388        14,159        8,079        19,842        881        935  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        67,899        133,444        668,906        1,340,007        6,357        9,018  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Associates

  

F&U Credit information Co., Ltd.

     414        820        10,626        22,864        37        37  
  

HappyNarae Co., Ltd.

     3        3        2,398        7,987        10,230        12,482  
  

SK hynix Inc.(*3)

     5,849        97,369        182        213        —          —    
  

KEB HanaCard Co., Ltd.

     4,577        9,174        3,714        7,400        43        43  
  

Others(*4)

     1,901        2,188        4,420        25,489        151        151  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        12,744        109,554        21,340        63,953        10,461        12,713  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering & Construction Co., Ltd.

     1,724        2,342        141        141        —          —    
  

SK Innovation Co., Ltd.

     1,407        2,943        309        490        —          —    
  

SK Networks Co., Ltd.

     4,527        7,313        4,146        8,260        281        281  
  

SK Networks service Co., Ltd.

     —          —          5,974        17,819        302        302  
  

SK Telesys Co., Ltd.

     28        83        473        719        18,843        27,563  
  

SK TNS Co., Ltd.

     24        49        6,146        6,393        49,437        65,054  
  

Others

     2,513        4,660        11,864        23,489        2,025        2,100  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        10,223        17,390        29,053        57,311        70,888        95,300  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

      W 93,009        265,211        799,669        1,791,550        123,630        178,041  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

51


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

29.

Related Parties and Others, Continued

 

  (3)

Transactions with related parties for the six-month periods ended June 30, 2018 and 2017 are as follows, Continued:

 

  (*1)

Operating expenses and others include W183,271 million of dividends declared by the Company.

 

  (*2)

Operating expenses and others include W330,097 million paid to PS&Marketing Corporation relating to purchase of accounts receivables resulting from sale of handsets.

 

  (*3)

Operating revenue and others include W87,660 million of dividends income accrued.

 

  (*4)

Operating revenue and others include W1,403 million of dividends income accrued from Korea IT Fund and UniSK.

 

  (4)

Account balances with related parties as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)         June 30, 2018  
          Accounts receivable      Accounts payable  

Scope

  

Company

   Loans      Accounts receivable-
trade and others
     Accounts payable-
other and others
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.

   W —          1,450        31,293  

Subsidiaries

  

SK Broadband Co., Ltd.

     —          8,166        45,975  
  

PS&Marketing Corporation

     —          123        75,268  
  

Network O&S Co., Ltd.

     —          213        34,976  
  

SK Planet Co., Ltd.

     —          4,623        15,235  
  

SK Telink Co., Ltd.

     —          9,188        4,209  
  

SERVICE ACE Co., Ltd.

     —          60        19,377  
  

SERVICE TOP Co., Ltd.

     —          141        21,140  
  

SK techx Co., Ltd.

     —          427        24,761  
  

One Store Co., Ltd.

     —          979        24,254  
  

SK m&service Co.,Ltd.

     —          3,421        4,999  
  

Others

     —          329        11,372  
     

 

 

    

 

 

    

 

 

 
        —          27,670        281,566  
     

 

 

    

 

 

    

 

 

 

Associates

  

HappyNarae Co., Ltd.

     —          8        1,620  
  

SK hynix Inc.

     —          1,769        181  
  

Wave City Development Co., Ltd.(*)

     —          37,263        —    
  

Daehan Kanggun BcN Co., Ltd.(*)

     22,147        —          —    
  

KEB HanaCard Co., Ltd.

     —          3,475        10,863  
  

F&U Credit InformationCo., Ltd.

     —          74        1,258  
  

Others

     611        3,459        336  
     

 

 

    

 

 

    

 

 

 
        22,758        46,048        14,258  
     

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering and Construction Co., Ltd.

     —          97        147  
  

SK Networks Co., Ltd.

     —          1,731        396  
  

SK Networks Services Co., Ltd.

     —          11        9,321  
  

SK Telesys Co., Ltd.

     —          27        2,150  
  

SK Innovation Co., Ltd.

     —          2,323        338  
  

SK TNS Co., Ltd.

     —          8        36,763  
  

Others

     —          1,801        9,548  
     

 

 

    

 

 

    

 

 

 
        —          5,998        58,663  
     

 

 

    

 

 

    

 

 

 

Total

      W 22,758        81,166        385,780  
     

 

 

    

 

 

    

 

 

 

 

52


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

29.

Related Parties and Others, Continued

 

  (4)

Account balances with related parties as of June 30, 2018 and December 31, 2017 are as follows, Continued:

 

(*)

As of June 30, 2018, the Company recognized the entire balance of loans and accounts receivable as loss allowances.

 

(In millions of won)         December 31, 2017  
          Accounts receivable      Accounts payable  

Scope

  

Company

   Loans      Accounts receivable-
trade and others
     Accounts payable -
other and others
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.

   W —          1,819        82,456  

Subsidiaries

  

SK Broadband Co., Ltd.

     —          12,458        117,262  
  

PS&Marketing Corporation

     —          335        116,333  
  

Network O&S Co., Ltd.

     —          611        52,507  
  

SK Planet Co., Ltd.

     —          4,232        14,487  
  

SK Telink Co., Ltd.

     —          8,626        4,119  
  

SERVICE ACE Co., Ltd.

     —          252        24,432  
  

SERVICE TOP Co., Ltd.

     —          136        26,625  
  

SK techx Co., Ltd.

     —          1,273        22,722  
  

One Store Co., Ltd.

     —          226        23,210  
  

SK m&service Co.,Ltd.

     —          5,967        6,096  
  

Others

     —          2,059        17,860  
     

 

 

    

 

 

    

 

 

 
        —          36,175        425,653  
     

 

 

    

 

 

    

 

 

 

Associates

  

HappyNarae Co., Ltd.

     —          8        1,305  
  

SK hynix Inc.

     —          2,803        94  
  

Wave City Development Co., Ltd.

     —          38,412        —    
  

Daehan Kanggun BcN Co., Ltd.(*)

     22,147        —          —    
  

KEB HanaCard Co., Ltd.

     —          1,427        11,080  
  

S.M. Culture & Contents Co.,Ltd.

     —          77        4,559  
  

Others

     611        1,928        2,443  
     

 

 

    

 

 

    

 

 

 
        22,758        44,655        19,481  
     

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering and Construction Co., Ltd.

     —          1,413        69  
  

SK Networks Co., Ltd.

     —          2,279        1,469  
  

SK Networks Services Co., Ltd.

     —          14        8,646  
  

SK Telesys Co., Ltd.

     —          26        397  
  

SK Innovation Co., Ltd.

     —          2,530        564  
  

SK TNS Co., Ltd.

     —          —          133,220  
  

Others

     —          1,884        14,016  
     

 

 

    

 

 

    

 

 

 
        —          8,146        158,381  
     

 

 

    

 

 

    

 

 

 

Total

      W 22,758        90,795        685,971  
     

 

 

    

 

 

    

 

 

 

 

(*)

As of December 31, 2017, the Company recognized the entire balance of loans to Daehan Kanggun BcN Co., Ltd. as loss allowances.

 

53


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

30.

Commitments and Contingencies

 

  (1)

Accounts receivables from sale of handsets

The sales agents of the Company sell handsets to the Company’s subscribers on an installment basis. During the six-month period ended June 30, 2018, the Company entered into a comprehensive agreement to purchase the accounts receivables from handset sales with agents and to transfer the accounts receivables from handset sales to special purpose companies which were established with the purpose of liquidating receivables, respectively.

The accounts receivables from sale of handsets amounting to W935,773 million as of June 30, 2018 which the Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable – other and long-term accounts receivable – other.

 

  (2)

Legal claims and litigations

As of June 30, 2018, the Company is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. In connection with those legal claims and litigation for which no provision was recognized, management does not believe the Company has a present obligation, nor is it expected any of these claims or litigation will have a significant impact on the Company’s financial position or operating results in the event an outflow of resources is ultimately necessary.

 

  (3)

Siren Holdings Korea Co., Ltd. stock purchase contract

On May 8, 2018, the Company entered into a contract to acquire 740,895 shares of Siren Holdings Korea Co., Ltd. at W702,000 million in cash in order to strengthen the security business and expand residential customer base. This contract requires Siren Holdings Korea Co., Ltd. to merge Siren Investments Korea Co., Ltd. which wholly owns ADT Caps Co., Ltd. as a prerequisite. At the conclusion of this acquisition, the Company expects to own 55% ownership interests in Siren Holdings Korea Co., Ltd. and will obtain control over ADT Caps Co., Ltd. The transaction is subject to government’s approval, and terms and conditions of the contract may change in the course of obtaining approval and application of laws related to the approval, and the acquisition price may also change upon the price adjustment at the transaction date.

Blue Security Investments, LLC. will purchase 45% ownership of Siren Holdings Korea Co., Ltd.at the conclusion of transaction, and, according to the agreement with the shareholders along with the contract, the entire shares will be converted to cumulative and participating convertible preferred stocks as soon as possible. The holders of the convertible preferred stock can exercise the same voting right as the holders of the common stock. The convertible preferred stock has 1-to-1 conversion ratio to common stock without restriction and empowers the holders a right of priority to the dividends at 2% of their investments.

 

54


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Statements of Cash Flows

 

  (1)

Adjustments for income and expenses not involving cash flows for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Gain on foreign currency translations

   W (1,604)        (184)  

Interest income

     (24,284)        (29,397)  

Dividends

     (162,918)        (99,423)  

Gain relating to financial assets at FVTPL

     (1,692)        (465)  

Gain on disposal of long-term investment securities

     —          (2,358)  

Gain on disposal of property and equipment and intangible assets

     (1,000)        (4,564)  

Gain on valuation of derivatives

     (897)        (831)  

Gain on sale of accounts receivable - other

     (8,139)        (9,090)  

Other incomes

     (72)        —    

Loss on foreign currency translations

     65        490  

Bad debt for accounts receivable - trade

     8,593        8,352  

Bad debt for accounts receivable - other

     1,498        2,177  

Loss on disposal of long-term investments securities

     —          556  

Loss relating to financial assets at FVTPL

     578        —    

Depreciation and amortization

     1,253,390        1,234,386  

Loss on disposal of property and equipment and intangible assets

     15,979        3,655  

Interest expenses

     118,383        123,597  

Loss relating to financial liabilities at FVTPL

     780        529  

Loss on valuation of derivatives

     12,156        8,910  

Loss on investments in subsidiaries and associates

     —          15,305  

Retirement benefit expenses

     19,699        19,282  

Share option

     289        145  

Income tax expense

     189,204        160,707  

Other expenses

     —          162  
  

 

 

    

 

 

 
   W 1,420,008        1,431,941  
  

 

 

    

 

 

 

 

55


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Statements of Cash Flows, Continued

 

  (2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Accounts receivable - trade

   W 114,762        (17,610

Accounts receivable - other

     147,405        40,005  

Advance payments

     6,646        16,066  

Prepaid expenses

     37,135        3,455  

Inventories

     4,633        150  

Long-term accounts receivable - other

     37,042        42,280  

Guarantee deposits

     (8,519      7,057  

Contract assets

     (6,293      —    

Accounts payable - other

     (170,167      (344,948

Advanced receipts

     —          (5,059

Withholdings

     55,763        103,082  

Deposits received

     (674      (4,283

Accrued expenses

     (156,883      (51,087

Unearned revenue

     —          (349

Provisions

     (3,761      (129

Long-term provisions

     1,580        (3,601

Plan assets

     6,642        4,034  

Retirement benefit payment

     (5,886      (5,599

Contract liabilities

     14,436        —    

Others

     (3,346      (30
  

 

 

    

 

 

 
   W 70,515        (216,566
  

 

 

    

 

 

 

 

  (3)

Significant non-cash transactions for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    June 30,
2018
     June 30,
2017
 

Decrease in accounts payable - other relating to the acquisition of property and equipment and intangible assets

     (292,135      (317,987

 

56


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

32.

Subsequent Events

(1) Interim dividend

The board of directors of the Company resolved to pay the interim dividend at the board meeting on July 26, 2018, and the details are as follows:

 

Interim dividend amount

   W1,000 per share (Total amount: W70,609 million)

Dividend rate

   0.4%

Dividend date

   June 30, 2018

Date of distribution

   According to Article 464 Commercial Act 2-1, the Company is to distribute dividends by August 26, 2018.

(2) Paid-in capital increase of subsidiaries

IRVIER LIMITED, one of the Company’s subsidiaries, resolved to increase its capital by allocating new issue of common shares to third parties with cash consideration of W70,000 million at the board of directors’ meeting on July 26, 2018, and is to issue 7,990,867 common shares accordingly. In connection with this capital increase, the Company invested W65,000 million in cash and acquired 7,420,091 common shares of IRIVER LIMITED on August 10, 2018, which increased its ownership over IRIVER LIMITED from 45.9% to 53.7%.

 

57


Table of Contents

SK TELECOM CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

(Unaudited)

June 30, 2018 and 2017

(With Independent Auditors’ Review Report Thereon)


Table of Contents

Contents

 

     Page  

Independent Auditors’ Review Report

     1  

Condensed Consolidated Statements of Financial Position

     3  

Condensed Consolidated Statements of Income

     5  

Condensed Consolidated Statements of Comprehensive Income

     6  

Condensed Consolidated Statements of Changes in Equity

     7  

Condensed Consolidated Statements of Cash Flows

     8  

Notes to the Condensed Consolidated Interim Financial Statements

     10  


Table of Contents

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To the Board of Directors and Shareholders

SK Telecom Co., Ltd.:

Reviewed financial statements

We have reviewed the accompanying condensed consolidated interim financial statements of SK Telecom Co., Ltd. and its subsidiaries (the “Group”), which comprise the condensed consolidated statement of financial position as of June 30, 2018, the condensed consolidated statements of income and comprehensive income for the three and six-month periods ended June 30, 2018 and 2017, the condensed consolidated statements of changes in equity and cash flows for the six-month periods ended June 30, 2018 and 2017, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

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

Auditors’ responsibility

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

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

Conclusion

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

Emphasis of matter

As a matter that does not have an impact on our review conclusion, we draw the attention of the users of the above-mentioned financial statements of the Group to the matter described in Note 3 to the condensed consolidated financial statements. The Group has initially adopted K-IFRS Nos. 1109 and 1115 for the year beginning on January 1, 2018, and the Group has taken an exemption not to restate the condensed consolidated financial statements as of December 31, 2017 or for the three or six-month period ended June 30, 2017, presented for comparative purposes, in accordance with transition requirements of the standards. The financial impacts of applying K-IFRS Nos. 1109 and 1115 are discussed in Note 3.

 

1


Table of Contents

Other matters

The consolidated statement of financial position of the Group as of December 31, 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing and our report thereon, dated February 23, 2018, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2017, presented for comparative purposes, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

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

KPMG Samjong Accounting Corp.

Seoul, Korea

August 13, 2018

 

This report is effective as of August 13, 2018, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

2


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position

As of June 30, 2018 and December 31, 2017

 

(In millions of won)    Note      June 30, 2018      December 31, 2017  

Assets

        

Current Assets:

        

Cash and cash equivalents

     3,30,31      W 1,796,190        1,457,735  

Short-term financial instruments

     3,30,31,33        419,283        616,780  

Short-term investment securities

     3,9,30,31        119,547        144,386  

Accounts receivable – trade, net

     3,5,30,31,32        1,987,902        2,126,007  

Short-term loans, net

     3,5,30,31,32        74,904        62,830  

Accounts receivable – other, net

     3,5,30,31,32,33        1,097,106        1,260,835  

Prepaid expenses

     3,6        1,862,925        197,046  

Contract assets

     3,7        92,183        —    

Inventories, net

     8        259,298        272,403  

Non-current assets held for sale

     10        42,711        —    

Derivative financial assets

     19        15,547        —    

Advance payments and other

     3,5,30,31,32        46,732        63,777  
     

 

 

    

 

 

 

Total Current Assets

        7,814,328        6,201,799  
     

 

 

    

 

 

 

Non-Current Assets:

        

Long-term financial instruments

     3,30,31        1,219        1,222  

Long-term investment securities

     3,9, 30,31        1,064,907        887,007  

Investments in associates and joint ventures

     12        11,004,762        9,538,438  

Property and equipment, net

     13,32,33        9,534,852        10,144,882  

Goodwill

     11        1,954,244        1,915,017  

Intangible assets, net

     14        3,341,694        3,586,965  

Long-term contract assets

     3,7        35,232        —    

Long-term loans, net

     3,5,30,31,32        47,846        50,874  

Long-term accounts receivable - other

     3,5,30,31,33        248,076        287,048  

Long-term prepaid expenses

     3,6        803,320        90,834  

Guarantee deposits

     3,5,30,31,32        300,362        292,590  

Long-term derivative financial assets

     3,19,30,31        52,018        253,213  

Defined benefit assets

     18        18,821        45,952  

Deferred tax assets

     3,28        81,513        88,132  

Other non-current assets

     5,30,31        33,563        44,696  
     

 

 

    

 

 

 

Total Non-Current Assets

        28,522,429        27,226,870  
     

 

 

    

 

 

 

Total Assets

      W 36,336,757        33,428,669  
     

 

 

    

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Financial Position, Continued

As of June 30, 2018 and December 31, 2017

 

(In millions of won)    Note      June 30, 2018     December 31, 2017  

Liabilities and Shareholders’ Equity

 

    

Current Liabilities:

       

Short-term borrowings

     15,30,31      W 45,890       130,000  

Current installments of long-term debt, net

     15,30,31        973,273       1,530,948  

Current installments of long-term payables - other

     16,30,31        299,526       302,703  

Accounts payable - trade

     30,31,32        263,198       351,711  

Accounts payable - other

     30,31,32        1,319,324       1,867,074  

Receipts in advance

     3        —         161,266  

Withholdings

     3,30,31,32        1,243,248       961,501  

Contract liabilities

     3,7        113,841       —    

Accrued expenses

     30,31        1,230,984       1,327,906  

Income tax payable

     28        223,096       219,791  

Unearned revenue

     3        —         175,732  

Derivative financial liabilities

     19,30,31        —         28,406  

Provisions

     3,17        46,876       52,057  

Other current liabilities

        —         28  
     

 

 

   

 

 

 

Total Current Liabilities

        5,759,256       7,109,123  
     

 

 

   

 

 

 

Non-Current Liabilities:

       

Debentures, excluding current installments, net

     15,30,31        6,457,385       5,596,570  

Long-term borrowings, excluding current installments, net

     15,30,31        146,643       211,486  

Long-term payables - other

     16,30,31        1,058,411       1,346,763  

Long-term unearned revenue

     3        —         7,052  

Long-term contract liabilities

     3,7        20,104       —    

Defined benefit liabilities

     18        94,520       61,960  

Long-term derivative financial liabilities

     19,30,31        1,532       11,064  

Long-term provisions

     17        32,421       32,669  

Deferred tax liabilities

     3,28        1,812,638       978,693  

Other non-current liabilities

     3,30,31        45,098       44,094  
     

 

 

   

 

 

 

Total Non-Current Liabilities

        9,668,752       8,290,351  
     

 

 

   

 

 

 

Total Liabilities

        15,428,008       15,399,474  
     

 

 

   

 

 

 

Shareholders’ Equity

       

Share capital

     1,20        44,639       44,639  

Capital surplus and others

     11,20,21,22        189,516       196,281  

Retained earnings

     3,23        20,754,708       17,835,946  

Reserves

     3,24        (283,876     (234,727
     

 

 

   

 

 

 

Equity attributable to owners of the Parent Company

        20,704,987       17,842,139  

Non-controlling interests

        203,762       187,056  
     

 

 

   

 

 

 

Total Shareholders’ Equity

        20,908,749       18,029,195  
     

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

      W 36,336,757       33,428,669  
     

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

4


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Income

For the three and six-month periods ended June 30, 2018 and 2017

 

(In millions of won except for per share data)      June 30, 2018     June 30, 2017  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
    Six-month
period ended
 

Operating revenue:

     3,4,32           

Revenue

      W 4,154,324       8,335,861       4,345,593       8,579,958  

Operating expenses:

     3,32           

Labor

        535,556       1,085,527       465,087       927,928  

Commissions

     3        1,216,856       2,478,955       1,367,292       2,730,628  

Depreciation and amortization

     4        767,722       1,553,701       766,167       1,527,883  

Network interconnection

        218,829       433,789       213,024       434,104  

Leased line

        76,484       157,145       83,383       171,199  

Advertising

        110,475       210,592       123,448       208,876  

Rent

        131,144       262,757       132,414       265,485  

Cost of products that have

been resold

        398,961       809,820       445,407       847,569  

Others

     25        351,403       671,205       326,105       632,518  
     

 

 

   

 

 

   

 

 

   

 

 

 
        3,807,430       7,663,491       3,922,327       7,746,190  
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     4        346,894       672,370       423,266       833,768  

Finance income

     4,27        34,563       84,360       27,254       75,130  

Finance costs

     4,27        (93,172     (178,051     (139,963     (226,612

Other non-operating income

     4,26        5,425       22,345       7,167       15,436  

Other non-operating expenses

     4,26        (46,265     (73,232     (67,587     (103,326

Gain on investments in associates and joint ventures

     4,12        915,597       1,542,240       498,289       878,250  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     4        1,163,042       2,070,032       748,426       1,472,646  

Income tax expense

     28        248,741       462,359       127,915       268,654  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

      W 914,301       1,607,673       620,511       1,203,992  
     

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

           

Owners of the Parent Company

      W 916,652       1,611,611       624,889       1,214,023  

Non-controlling interests

        (2,351     (3,938     (4,378     (10,031

Earnings per share:

     29           

Basic and diluted earnings per share (in won)

      W 12,863       22,705       8,731       17,074  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

5


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2018 and 2017

 

(In millions of won)           June 30, 2018     June 30, 2017  
     Note      Three-month
period ended
    Six-month
period ended
    Three-month
period ended
    Six-month
period ended
 

Profit for the period

      W 914,301       1,607,673       620,511       1,203,992  

Other comprehensive income (loss):

 

        

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

        (19,559     (52,630     1,409       (9,878

Remeasurement of defined benefit liabilities

     18        2,412       (10,738     1,409       (9,878

Valuation loss on financial assets at fair value through other comprehensive income

     24        (21,971     (41,892     —         —    

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

        32,547       63,530       148,600       49,804  

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

     24        —         —         82,782       131,987  

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

     12,24        9,524       48,085       41,088       (61,279

Net change in unrealized fair value of derivatives

     19,24        717       (8,961     14,694       5,924  

Foreign currency translation differences for foreign operations

     24        22,306       24,406       10,036       (26,828
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income for the period, net of taxes

 

     12,988       10,900       150,009       39,926  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

      W 927,289       1,618,573       770,520       1,243,918  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) attributable to:

 

     

Owners of the Parent Company

      W 929,650       1,622,244       774,020       1,253,700  

Non-controlling interests

        (2,361     (3,671     (3,500     (9,782

See accompanying notes to the condensed consolidated interim financial statements.

 

6


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Changes in Equity

For the six-month periods ended June 30, 2018 and 2017

 

(In millions of won)

                  
            Controlling Interest     Non-
controlling
interests
    Total equity  
     Note      Share
capital
     Capital surplus
and other capital
adjustments
    Retained
earnings
    Reserves     Total  

Balance, 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 period

        —          —         1,214,023       —         1,214,023       (10,031     1,203,992  

Other comprehensive income (loss)

     18,24        —          —         (9,881     49,558       39,677       249       39,926  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —          —         1,204,142       49,558       1,253,700       (9,782     1,243,918  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                  

Annual dividends

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

Interest on hybrid bonds

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

Share option

        —          145       —         —         145       —         145  

Changes in ownership in subsidiaries

        —          (7,881     —         —         (7,881     (33,218     (41,099
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —          (7,736     (643,902     —         (651,638     (33,499     (685,137
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2017

      W 44,639        192,043       16,513,404       (176,625     16,573,461       101,750       16,675,211  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2017

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

Impact of adopting K-IFRS No. 1115

     3        —          —         1,900,049       —         1,900,049       —         1,900,049  

Impact of adopting K-IFRS No. 1109

     3        —          —         60,026       (68,804     (8,778     —         (8,778
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2018

      W 44,639        196,281       19,796,021       (303,531     19,733,410       187,056       19,920,466  

Total comprehensive income:

                  

Profit for the period

        —          —         1,611,611       —         1,611,611       (3,938     1,607,673  

Other comprehensive income (loss)

     18,24        —          —         (9,022     19,655       10,633       267       10,900  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —          —         1,602,589       19,655       1,622,244       (3,671     1,618,573  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                  

Annual dividends

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

Interest on hybrid bonds

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

Repayments of hybrid bonds

     21        —          (400,000     —         —         (400,000     —         (400,000

Proceeds from issuance of hybrid bonds

     21        —          398,759       —         —         398,759       —         398,759  

Share option

        —          289       —         —         289       52       341  

Changes in ownership in subsidiaries

        —          (5,813     —         —         (5,813     20,325       14,512  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —          (6,765     (643,902     —         (650,667     20,377       (630,290
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2018

      W 44,639        189,516       20,754,708       (283,876     20,704,987       203,762       20,908,749  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

7


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the six-month periods ended June 30, 2018 and 2017

 

(In millions of won)                     
     Note      June 30,
2018
     June 30,
2017
 

Cash flows from operating activities:

        

Cash generated from operating activities:

        

Profit for the period

      W 1,607,673        1,203,992  

Adjustments for income and expenses

     34        760,145        1,233,560  

Changes in assets and liabilities related to operating activities

     34        (17,014      (244,788
     

 

 

    

 

 

 

Sub-total

        2,350,804        2,192,764  

Interest received

        29,900        34,612  

Dividends received

        161,836        100,642  

Interest paid

        (129,003      (118,581

Income tax paid

        (206,160      (396,734
     

 

 

    

 

 

 

Net cash provided by operating activities

        2,207,377        1,812,703  
     

 

 

    

 

 

 

Cash flows from investing activities:

        

Cash inflows from investing activities:

        

Decrease in short-term financial instruments, net

        219,230        —    

Decrease in short-term investment securities, net

        5,208        60,025  

Collection of short-term loans

        106,727        100,456  

Decrease in long-term financial instruments

        3        1  

Proceeds from disposal of long-term investment securities

        6,162        125,413  

Proceeds from disposal of investments in associates and joint ventures

        2,491        3,941  

Proceeds from disposal of property and equipment

        8,615        14,484  

Proceeds from disposal of intangible assets

        7,958        4,113  

Collection of long-term loans

        567        1,551  

Decrease in deposits

        5,416        6,370  

Proceeds from disposal of other non-current assets

 

     486        315  

Acquisitions of subsidiaries, net of cash acquired

        11,107        —    
     

 

 

    

 

 

 
        373,970        316,669  

Cash outflows for investing activities:

        

Increase in short-term financial instruments, net

        —          (219,275

Increase in short-term loans

        (112,905      (109,242

Increase in long-term loans

        (3,626      (2,894

Increase in long-term financial instruments

        (16      (2,030

Acquisition of long-term investment securities

        (8,815      (9,225

Acquisition of investments in associates and joint ventures

        (31,318      (7

Acquisition of property and equipment

        (1,084,202      (1,103,160

Acquisition of intangible assets

        (46,570      (55,761

Increase in deposits

        (3,805      (9,459

Acquisition of business, net of cash acquired

        (4,452      —    

Acquisition of subsidiaries

        (44,080      —    

Disposal of subsidiaries

        (1,836      —    
     

 

 

    

 

 

 
        (1,341,625      (1,511,053
     

 

 

    

 

 

 

Net cash used in investing activities

      W (967,655      (1,194,384
     

 

 

    

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

8


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2018 and 2017

 

(In millions of won)             
     June 30,
2018
    June 30,
2017
 

Cash flows from financing activities:

    

Cash inflows from financing activities:

    

Proceeds from short-term borrowings, net

   W —         27,386  

Proceeds from issuance of debentures

     1,176,857       517,804  

Proceeds from long-term borrowings, net

     —         70,000  

Proceeds from issuance of hybrid bonds

     398,759       —    
  

 

 

   

 

 

 
     1,575,616       615,190  

Cash outflows for financing activities:

    

Decrease in short-term borrowings, net

     (85,610     —    

Repayments of long-term account payables-other

     (304,112     (304,160

Repayments of debentures

     (996,550     (469,119

Repayments of long-term borrowings

     (21,208     (16,507

Cash outflows from settlement of derivatives

     (27,213     (22,883

Payments of cash dividends

     (635,482     (635,482

Payments of interest on hybrid bonds

     (8,420     (8,420

Repayments of hybrid bonds

     (400,000     —    

Transactions with the non-controlling shareholders

     (1,198     (41,368
  

 

 

   

 

 

 
     (2,479,793     (1,497,939
  

 

 

   

 

 

 

Net cash used in financing activities

     (904,177     (882,749
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     335,545       (264,430

Cash and cash equivalents at beginning of the period

     1,457,735       1,505,242  

Effects of exchange rate changes on cash and cash equivalents

     2,910       (3,183
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   W 1,796,190       1,237,629  
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

9


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

1.

Reporting Entity

 

  (1)

General

SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications services in Korea. The head office of the Parent Company is located at 65, Eulji-ro, Jung-gu, Seoul, Korea.

The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of June 30, 2018, 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, institutional investors and other shareholders

     50,245,708        62.23  

Treasury shares

     10,136,551        12.55  
  

 

 

    

 

 

 
     80,745,711        100.00  
  

 

 

    

 

 

 

These condensed consolidated interim financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and 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 June 30, 2018 and December 31, 2017 is as follows:

 

               Ownership (%)(*1)  

Subsidiary

   Location   

Primary business

   June 30,
2018
     Dec. 31,
2017
 

Subsidiaries owned by the Parent Company

  

SK Telink Co., Ltd.

   Korea   

Telecommunication and MVNO service

     100.0        100.0  
  

SK Communications Co., Ltd.

   Korea   

Internet website services

     100.0        100.0  
  

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   

Call center management service

     100.0        100.0  
  

SERVICE TOP Co., Ltd.

   Korea   

Call 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(*2)

   Korea   

Manufacturing digital audio players and other portable media devices

     45.9        45.9  
  

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  
  

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  
  

FSK L&S Co., Ltd.(*3)

   Korea   

Freight forwarding and logistics consulting

     60.0        —    
  

SK Telecom Japan Inc.(*3)

   Japan   

Information gathering and consulting

     100.0        —    
  

id Quantique SA(*3)

   Switzerland   

Quantum information and communications service

     58.1        —    

 

10


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

1.

Reporting Entity, Continued

 

  (2)

List of subsidiaries, Continued

 

The list of subsidiaries as of June 30, 2018 and December 31, 2017 is as follows, Continued:

 

                    Ownership (%)(*1)  

Subsidiary

   Location   

Primary business

   June. 30,
2018
     Dec. 31,
2017
 

Subsidiaries owned by SK Planet Co., Ltd.

  

SK m&service Co.,Ltd.

   Korea   

Data base and internet website service

     100.0        100.0  
  

SK Planet Japan, K. K.

   Japan   

Digital contents sourcing service

     79.5        79.5  
  

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 application development

     100.0        100.0  
  

11street (Thailand) Co., Ltd.(*3)

   Thailand   

Electronic commerce

     —          100.0  
  

Hello Nature Ltd.(*3)

   Korea   

Retail of agro-fisheries and livestock

     49.9        100.0  

Subsidiaries owned by IRIVER LIMITED

  

iriver Enterprise Ltd.

   Hong Kong   

Management of Chinese subsidiaries

     100.0        100.0  
  

iriver Inc.

   USA   

Marketing and sales in North America

     100.0        100.0  
  

iriver China Co., Ltd.

   China   

Sales of and manufacturing MP3 and 4

     100.0        100.0  
  

Dongguan iriver Electronics Co., Ltd.

   China   

Sales of and manufacturing e-book

     100.0        100.0  
  

groovers Japan Co., Ltd.

   Japan   

Digital music contents sourcing and distribution service

     100.0        100.0  
  

S.M. LIFE DESIGN COMPANY JAPAN INC.

   Japan   

Sale of goods in Japan

     100.0        100.0  
  

S.M. Mobile Communications JAPAN Inc.

   Japan   

Digital contents service

     100.0        100.0  
  

groovers Inc.(*3)

   Korea   

Sale of contents and MQS album

     100.0        44.2  

Subsidiary owned by SK Telink Co., Ltd.

  

NSOK Co., Ltd.

   Korea   

Security and maintenance services

     100.0        100.0  

Subsidiary owned by SK techx Co., Ltd.

  

K-net Culture and Contents Venture Fund

   Korea   

Capital investment in startups

     59.0        59.0  

Subsidiaries owned by SK Broadband Co., Ltd.

  

Home & Service Co., Ltd.

   Korea   

Operation of information and communications facility

     100.0        100.0  
  

SK stoa Co., Ltd.

   Korea   

Other telecommunication retail business

     100.0        100.0  

Subsidiary owned by FSK L&S Co., Ltd.

  

FSK L&S(Shanghai) Co.,Ltd.(*3)

   China   

Transportation services

     66.0        —    

Others(*4)

  

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  

 

11


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

1.

Reporting Entity, Continued

 

  (2)

List of subsidiaries, Continued

 

The list of subsidiaries as of June 30, 2018 and December 31, 2017 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)

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 shareholder or organized group of shareholders, and the other shareholdings are widely dispersed.

 

  (*3)

Details of changes in consolidation scope for the six-month period ended June 30, 2018 are presented and explained separately in Note 1-(4).

 

  (*4)

Others are owned together by Atlas Investment and one other subsidiary of the Parent Company.

 

  (3)

Condensed financial information of subsidiaries

Condensed financial information of significant subsidiaries as of and for the six-month period ended June 30, 2018 is as follows:

 

(In millions of won)  
     As of June 30, 2018      For the six-month
period ended
June 30, 2018
 

Subsidiary

   Total
assets
     Total
liabilities
     Total equity      Revenue      Profit (loss)  

SK Telink Co., Ltd.

   W 495,783        115,277        380,506        183,551        19,508  

SK m&service Co., Ltd.

     96,501        47,148        49,353        97,244        (246

SK Communications Co., Ltd.

     87,107        28,745        58,362        21,623        (7,625

SK Broadband Co., Ltd.

     4,015,789        2,560,730        1,455,059        1,497,852        29,594  

K-net Culture and Contents Venture Fund

     250,823        35,980        214,843        —          (4

PS&Marketing Corporation

     432,397        218,160        214,237        791,376        (3,684

SERVICEACE Co., Ltd.

     74,072        41,542        32,530        98,761        2,427  

SERVICE TOP Co., Ltd.

     63,653        36,332        27,321        103,206        5,018  

Network O&S Co., Ltd.

     73,044        33,616        39,428        115,920        (2,016

SK Planet Co., Ltd.

     1,330,570        804,301        526,269        413,328        (85,941

IRIVER LIMITED(*)

     142,544        27,505        115,039        59,431        1,082  

SKP America LLC.

     437,176        —          437,176        —          (37

SK techx Co., Ltd.

     237,197        25,423        211,774        93,103        13,134  

One Store Co., Ltd.

     106,226        49,668        56,558        52,374        (8,488

Home & Service Co., Ltd.

     95,474        53,033        42,441        154,600        (2,908

shopkick Management Company, Inc.

     364,581        —          364,581        —          (104

shopkick, Inc.

     34,826        29,960        4,866        21,564        (10,540

 

(*)

The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and seven 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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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

1.

Reporting Entity, Continued

 

  (3)

Condensed financial information of subsidiaries, Continued

 

Condensed financial information of 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.

     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.

 

13


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

1.

Reporting Entity, Continued

 

  (4)

Changes in subsidiaries

 

1) The list of subsidiaries that were newly included in consolidation during the six-month period ended June 30, 2018 is as follows:

 

Subsidiary

  

Reason

FSK L&S Co., Ltd.    Acquired by the Parent Company
FSK L&S(Shanghai) Co., Ltd.    Acquired by the Parent Company
id Quantique SA    Acquired by the Parent Company
SK Telecom Japan Inc.    Established by the Parent Company
groovers Inc.    Acquired additional ownership interests by IRIVER LIMITED

2) The list of subsidiaries that were excluded in consolidation during the six-month period ended June 30, 2018 is as follows:

 

Subsidiary

  

Reason

11street (Thailand) Co., Ltd.    Disposed by SK Planet Co., Ltd.
Hello Nature Ltd.    Loss of control due to third parties’ investments

 

  (5)

The financial information of the subsidiaries with significant non-controlling interests as of and for the six-month period ended June 30, 2018, and as of and for the year ended December 31, 2017 are as follows. There were no dividends paid during the six-month period ended June 30, 2018 and the year ended December 31, 2017 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 June 30, 2018  

Current assets

   W 700        66,803        80,824  

Non-current assets

     250,123        75,741        25,402  

Current liabilities

     (35,980      (19,222      (47,822

Non-current liabilities

     —          (8,283      (1,846

Net assets

     214,843        115,039        56,558  

Carrying amount of non-controlling interests

     88,086        64,013        19,490  
     For the six-month period ended June 30, 2018  

Revenue

   W —          59,431        52,374  

Profit (Loss) for the period

     (4      1,082        (8,488

Total comprehensive income (loss)

     —          1,295        (8,511

Profit (Loss) attributable to non-controlling interests

     (1      586        (2,925

Net cash provided by (used in) operating activities

   W (1      623        (550

Net cash provided by (used in) investing activities

     600        29        (3,891

Net cash provided by (used in) financing activities

     —          (1,107      4  

Net increase (decrease) in cash and cash equivalents

     599        (455      (4,437

 

14


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

1.

Reporting Entity, Continued

 

  (5)

The financial information of significant non-controlling interests of the Group as of and for the six-month period ended June 30, 2018, and as of and for the year ended December 31, 2017 are as follows. There were no dividends paid during the six-month period ended June 30, 2018 and the year ended December 31, 2017 by subsidiaries of which non-controlling interests are significant, Continued.

 

(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        gk28,081  

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  
     For the year ended December 31, 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  

 

2.

Basis of Preparation

 

  (1)

Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Stock Companies.

These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No. 1034, Interim Financial Reporting, as part of the period covered by the Group’s K-IFRS annual financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since December 31, 2017. These condensed consolidated interim financial statements do not include all of the disclosures required for full annual financial statements.

 

15


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

2.

Basis of Preparation, Continued

 

  (2)

Use of estimates and judgments

1) Critical judgments, assumptions and estimation uncertainties

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

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2017 except significant judgments and key sources of estimation uncertainty related to the K-IFRS Nos. 1115 and 1109 that are described in Note 3.

2) 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 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, are used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

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

 

 

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

 

 

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); 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 31.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies

The significant accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2017, except for the following changes in accounting policies described below. The following changes in accounting policies are also expected to be reflected in the Group consolidated financial statements as at and for the year ending December 31, 2018.

 

  (1)

Changes in accounting policies

The Group has initially adopted K-IFRS No. 1115, Revenue from Contracts with Customers, and K-IFRS No. 1109, Financial Instruments, from January 1, 2018. A number of other amended standards are effective from January 1, 2018 but they do not have a material effect on the Group’s condensed consolidated financial statements.

 

  1)

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

K-IFRS No. 1115, Revenue from contracts with customers, establishes a comprehensive framework for determining whether, how much and when revenue is recognized. K-IFRS No. 1115 replaced the 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 has adopted K-IFRS No. 1115, Revenue from contracts with customers, from January 1, 2018 using the cumulative effect method with the effect of initially applying this standard as an adjustment to the opening balance of retained earnings as at January 1, 2018. The Group applied K-IFRS No. 1115 retrospectively only to contracts that are not completed contracts at the date of initial application, which is January 1, 2018 using the practical expedient permitted by K-IFRS No.1115.

i) Identification of performance obligations in the contract

A substantial portion of the Group’s revenue is generated from providing wireless telecommunications services. K-IFRS No. 1115 requires the Group to evaluate goods or services promised to customers to determine if there are performance obligations other than wireless telecommunications service that should be accounted for separately. In the case that the Group provides a wireless telecommunications service and sells a handset together to one customer, the Group allocates considerations from the customer between handset sale revenue and wireless telecommunications service revenue. The handset sales revenue is recognized when handset is delivered and the wireless telecommunications service revenue is recognized as revenue over the period of the contract term as stated in the subscription contract.

The Group also determined that the installation services provided with the fixed-line telecommunication services are not distinguishable performance obligations from the related fixed-line telecommunication services such as high speed broadband Internet or IPTV services. Therefore, the Group included the installation fee in the fixed-line telecommunication service revenue. The installation fee will be recognized as revenue over the contract term in which the Group has to provide fixed-line telecommunication services. The Group recognized W 23,063 million as contract liability on the consolidated statement of financial position as of January 1, 2018 due to such change in the accounting policies.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

ii) Allocate the transaction price to each performance obligations

In accordance with K-IFRS No. 1115, the Group allocates the considerations from contracts to each performance obligation in a contract in proportion to their stand-alone selling prices when the Group provides a wireless telecommunications service and sells a handset together to one customer. The Group used adjusted market assessment method for estimating the stand-alone selling price. However, in some circumstances, the Group used ‘expected cost plus a margin’ approach.

As a result of applying K-IFRS No. 1115, the Group recognized W142,596 million of considerations allocated to handset sale revenue as contract assets at January 1, 2018.

iii) Incremental costs to acquire a contract

The Group pays commissions to its direct retail stores and authorized dealers in connection with acquiring service contracts. The commissions paid to these parties historically constituted a significant portion of the Group’s operating expenses. These commissions would not have been paid if there have been no binding contracts with subscribers. K-IFRS No. 1115 requires the Group to capitalize certain costs associated with commissions paid to obtain new customer contracts and amortize them over the expected contract periods with customers. As a result of applying K-IFRS No. 1115, the Group recognized W2,389,097 million of prepaid expenses as at January 1, 2018.

iv) Contract liability

Under K-IFRS No. 1115, the Group reclassified the receipts in advance and unearned revenue amounting to W109,555 million that are related to prepaid rate plans and customer loyalty program, respectively, to contract liabilities as at January 1, 2018.

v) Impact of adopting K-IFRS No. 1115 on the condensed consolidated interim financial statements

If K-IFRS No. 1018 were applied on the Group’s condensed consolidated statement of financial position as of June 30, 2018, prepaid expenses and long-term prepaid expenses would be decreased by W1,658,170 million and W708,413 million, respectively, and contract assets and long-term contract assets each would be decreased by W92,183 million and W35,232 million, respectively, while accounts receivable - trade would be increased by W4,072 million. As a result, total assets would be decreased by W2,489,926 million. In addition, contract liabilities, long-term contract liabilities and deferred tax liabilities would be decreased by W113,841 million, W20,104 million and W589,189 million, respectively, while other liabilities such as receipts in advance and unearned revenue would be increased by W108,421 million. As a result, total liabilities would be decreased by W614,713 million. In relation to these changes in assets and liabilities, retained earnings would be decreased by W1,875,213 million.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

v) Impact of adopting K-IFRS No. 1115 on the condensed consolidated interim financial statements, Continued

 

If K-IFRS No. 1018 were applied on the Group’s condensed consolidated statement of income for the six-month period ended June 30, 2018, revenues and advertising would be increased by W56,730 million and W26,306 million, respectively, while commission expenses would be decreased by W9,702 million. Operating profit and profit before income tax would be increased by W39,791 million with increase in operating expenses by W16,939 million. As a result, profit for the period would be increased by W24,807 million with increase in income tax expense of W14,984 million.

When compared to K-IFRS No. 1018, the adoption of K-IFRS No. 1115 did not have material impact on the Group’s condensed consolidated statement of cash flows for the six-month period ended June 30, 2018.

2) K-IFRS No. 1109, Financial Instruments

K-IFRS No. 1109 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standards replaces K-IFRS No. 1039, Financial Instruments: Recognition and Measurement. The Group adopted K-IFRS No. 1109, Financial Instruments, from January 1, 2018, and the Group has taken an exemption not to restate the financial statements for prior years with respects to transition requirements.

The following table explains the impact of transition to K-IFRS No. 1109 on the opening balance of reserves and retained earnings as at January 1, 2018.

 

(In millions of won)              
     Reserves      Retained earnings  

Reclassification of available-for-sale financial assets to financial assets at fair value through profit or loss (“FVTPL”)

   W (5,336      947  

Reclassification of available-for-sale financial assets to financial assets measured at fair value through other comprehensive income (“FVOCI”)

     (84,881      90,322  

Recognition of loss allowances on accounts receivable – trade and others

     —          (13,049

Related income tax

     21,413        (18,194
  

 

 

    

 

 

 
   W (68,804      60,026  
  

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

i) Classification of financial assets and financial liabilities

K-IFRS No. 1109 largely retains the existing requirements in K-IFRS No. 1039 for the classification and measurement of financial liabilities. However, it eliminates the previous K-IFRS No. 1039 categories for financial assets of held-to-maturity, available-for-sale, and loans and receivables.

Under K-IFRS No. 1109, on initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI-debt investment; FVOCI-equity investment; or FVTPL. The classification of financial assets under K-IFRS No. 1109 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. If a contract contains embedded derivatives and the host is an asset within the scope of K-IFRS No. 1109, then such embedded derivatives are not separated.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

 

  -

it is held within a business model whose objective is to hold assets to collect contractual cash flow; and

 

  -

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

 

  -

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

 

  -

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. These include all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset (unless it is an account receivable - trade without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.

 

20


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

i) Classification of financial assets and financial liabilities, Continued

 

The following accounting polices apply to the subsequent measurement of financial assets.

 

Financial assets at FVTPL    These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost    These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Debt investments at FVOCI    These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI    These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

i) Classification of financial assets and financial liabilities, Continued

 

The following table explains the original measurement categories under K-IFRS No. 1039 and the changes in measurement categories under K-IFRS No. 1109 for each class of the Group’s financial assets as at January 1, 2018:

 

(In millions of won)                               
    

Original

classification

under K-IFRS
No. 1039

  

New
classification
under K-IFRS
No. 1109

   Original carrying
amount under
K-IFRS No. 1039
     New carrying
amount under
K-IFRS No. 1109
     Difference  

Short-term financial assets:

 

Cash and cash equivalents

   Amortized cost    Amortized cost    W 1,457,735        1,457,735        —    

Short-term financial instruments

   Amortized cost    Amortized cost      616,780        616,780        —    

Short-term investment securities(*1)

   Available-for-sale    FVTPL      47,383        47,383        —    

Short-term investment securities

  

Designated as at FVTPL

   FVTPL      97,003        97,003        —    

Accounts receivable - trade

   Amortized cost    Amortized cost      2,126,007        2,113,057        (12,950

Short-term loans

   Amortized cost    Amortized cost      62,830        62,830        —    

Accounts receivable - other(*3)

   Amortized cost    FVTPL      830,321        830,321        —    

Accounts receivable - other

   Amortized cost    Amortized cost      430,514        430,415        (99

Accrued revenue

   Amortized cost    Amortized cost      3,979        3,979        —    

Guarantee deposits

   Amortized cost    Amortized cost      3,927        3,927        —    
        

 

 

    

 

 

    

 

 

 
           5,676,479        5,663,430        (13,049
        

 

 

    

 

 

    

 

 

 

Long-term financial assets:

 

Long-term financial instruments

   Amortized cost    Amortized cost      1,222        1,222        —    

Long-term investment securities(*1)

   Available-for-sale    FVTPL      173,394        169,005        (4,389

Long-term investment securities(*2)

   Available-for-sale    FVOCI      713,613        719,054        5,441  

Long-term accounts receivable - trade

   Amortized cost    Amortized cost      12,748        12,748        —    

Long-term loans

   Amortized cost    Amortized cost      50,874        50,874        —    

Long-term accounts receivable - other(*3)

   Amortized cost    FVTPL      243,742        243,742        —    

Long-term accounts receivable - other

   Amortized cost    Amortized cost      43,306        43,306        —    

Guarantee deposits

   Amortized cost    Amortized cost      292,590        292,590        —    

Derivative financial assets

  

Derivatives hedging instrument

  

Derivatives hedging instrument

     21,902        21,902        —    

Derivative financial assets(*1)

  

Designated as at FVTPL

   FVTPL      231,311        9,054        (222,257

Long-term investment securities(*1)

  

Designated as at FVTPL

   FVTPL      —          222,257        222,257  
        

 

 

    

 

 

    

 

 

 
           1,784,702        1,785,754        1,052  
        

 

 

    

 

 

    

 

 

 
         W 7,461,181        7,449,184        (11,997
        

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

i) Classification of financial assets and financial liabilities, Continued

 

The following table explains the original measurement categories under K-IFRS No. 1039 and the changes in measurement categories under K-IFRS No. 1109 for each class of the Group’s financial assets as at January 1 2018, Continued:

 

  (*1)

As of January 1, 2018, available-for-sale financial assets such as beneficiary certificates and equity investments amounting to W205,435 million were reclassified to financial assets measured at FVTPL. In addition, as derivatives embedded in contracts where the host is a financial asset in the scope of K-IFRS No. 1109 are never separated, the available-for-sale financial assets related to the redeemable convertible preferred shares of W15,342 million and the related derivative financial assets of W222,257 million were reclassified to financial assets measured at FVTPL. As the contractual terms of these assets do not give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, these assets were not designated as financial assets measured at amortized cost. As a result of this reclassification, as at January 1, 2018, accumulated OCI of W5,336 million was reclassified to retained earnings, and due to its reclassification to financial assets measured at FVTPL, retained earnings was decreased by W4,389 million. In addition, change in the fair value of these financial assets of W7,443 million was recognized in profit before income tax during the six-month period ended June 30, 2018.

 

  (*2)

As of January 1, 2018, available-for-sale financial assets amounting to W713,613 million including marketable equity instruments were reclassified to equity investments at FVOCI and debt instrument at FVOCI of W713,399 million and W214 million, respectively. As a result of this reclassification, as at January 1, 2018, retained earnings of W (-)90,322 million was reclassified to accumulated OCI and accumulated OCI was increased by W5,441 million due to the fair value measurement of financial assets which were stated at cost under K-IFRS No. 1039. The Group designated equity instruments that are not held for trading as FVOCI on initial application of K-IFRS No. 1109 with no subsequent recycling of amounts from OCI to profit and loss.

 

  (*3)

As of January 1, 2018, accounts receivable – other of W1,074,063 million were reclassified to financial assets at FVTPL. Upon the initial application of K-IFRS No. 1109, the Group reclassified the debt instruments to financial assets at FVTPL whose objectives of the business model are not achieved both by collecting contractual cash flows or selling financial assets. There was no material impact on retained earnings as at January 1, 2018 as the fair values of these debt instruments were not significantly different from the carrying amounts as of December 31, 2017.

ii) Impairment of financial assets

K-IFRS No. 1109 sets out a new ‘expected credit loss’ (ECL) impairment model which replaces the ‘incurred loss’ model under K-IFRS No. 1039 for recognizing and measuring impairment. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under K-IFRS No. 1109, credit losses are recognized earlier than under K-IFRS No. 1039.

 

23


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

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

 

ii) Impairment of financial assets, Continued

 

ECL is a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. As a result of applying K-IFRS No. 1109, as of January 1, 2018, the Group recognizes the impairment loss on debt instruments at an amount equal to the lifetime expected credit losses.

Loss allowance on financial assets measured at amortized cost is deducted from the carrying amount of the respective assets, while loss allowance on debt instruments at FVOCI is recognized in OCI, instead of reducing the carrying amount of the assets.

iii) Hedge accounting

When initially applying K-IFRS No. 1109, the Group elected as its accounting policy to apply hedge accounting requirements under 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 January 1, 2018 satisfy the hedge requirements of retrospective testing (80~125%) under K-IFRS No. 1039, there is no material effect of applying K-IFRS No. 1109.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (1)

Changes in accounting policies, Continued

 

3) The following table explains the impacts of adopting K-IFRS Nos. 1115 and 1109 on the Group’s statement of financial position as of January 1, 2018.

 

(In millions of won)                         
     December 31,
2017
    Adjustments     January 1,
2018
 
   As reported     K-IFRS 1115     K-IFRS 1109     Restated  

Current Assets

     6,201,799       1,804,080       (13,049     7,992,830  

Accounts receivable - trade, net

     2,126,007       (4,314     (12,950     2,108,743  

Accounts receivable - other, net

     1,260,835       —         (99     1,260,736  

Prepaid expenses

     197,046       1,695,704       —         1,892,750  

Contract assets

     —         112,690       —         112,690  

Others

     2,617,911       —         —         2,617,911  

Non-Current Assets

     27,226,870       718,898       1,052       27,946,820  

Long-term investment securities

     887,007       —         223,309       1,110,316  

Long-term prepaid expenses

     90,834       693,393       —         784,227  

Long-term contract assets

     —         30,363       —         30,363  

Deferred tax assets

     88,132       (4,858     —         83,274  

Others

     26,160,897       —         (222,257     25,938,640  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

     33,428,669       2,522,978       (11,997     35,939,650  
  

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities

     7,109,123       12,485       —         7,121,608  

Provisions

     52,057       (215     —         51,842  

Contract liabilities

     —         114,284       —         114,284  

Receipts in advance

     161,266       (161,266     —         —    

Unearned revenue

     175,732       (175,732     —         —    

Withholdings

     961,501       235,414       —         1,196,915  

Others

     5,758,567       —         —         5,758,567  

Non-Current Liabilities

     8,290,351       610,444       (3,219     8,897,576  

Long-term contract liabilities

     —         19,100       —         19,100  

Long-term unearned revenue

     7,052       (7,052     —         —    

Other non-current liabilities

     44,094       (919     —         43,175  

Deferred tax liabilities

     978,693       599,315       (3,219     1,574,789  

Others

     7,260,512       —         —         7,260,512  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

     15,399,474       622,929       (3,219     16,019,184  
  

 

 

   

 

 

   

 

 

   

 

 

 

Share capital

     44,639       —         —         44,639  

Capital surplus and others

     196,281       —         —         196,281  

Retained earnings

     17,835,946       1,900,049       60,026       19,796,021  

Reserves

     (234,727     —         (68,804     (303,531

Non-controlling interests

     187,056       —         —         187,056  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Shareholders’ Equity

     18,029,195       1,900,049       (8,778     19,920,466  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

     33,428,669       2,522,978       (11,997     35,939,650  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

3.

Significant Accounting Policies, Continued

 

  (2)

Standards issued but not yet effective

The following new standard is effective for annual periods beginning after January 1, 2018 and earlier application is permitted; however, the Group has not early adopted the following new standard in preparing the accompanying condensed consolidated interim financial statements as of and for the six-month period ended June 30, 2018.

 

  K-IFRS

No. 1116, Leases

The Group currently plans to apply K-IFRS No.1116 in the period beginning on January 1, 2019 and to assess the financial impact on its consolidated financial statements resulting from the adoption of K-IFRS No. 1116 by December 31, 2018. The assessment results will be disclosed in its annual financial statements for the year ending December 31, 2018. As of June 30, 2018, there have been no significant changes related to the financial impact assessment of adopting K-IFRS No. 1116 which was disclosed in the Group’s consolidated financial statements as of and for the year ended December 31, 2017.

 

4.

Operating Segments

The Group’s operating segments have been identified to be each business unit, by which the Group provides independent services and goods. The Group’s reportable segments are cellular, which provides wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services; fixed-line telecommunication, which provides fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services; e-commerce, which runs open marketplace platform, 11st, and other commerce solutions; and other businesses, which include online portal service, hardware business and other operations that do not meet the quantitative thresholds to be separately considered reportable segments.

 

  (1)

Segment information for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                              
     For the six-month period ended June 30, 2018  
     Cellular      Fixed-line
telecommu-
nication
     E-commerce
Services
    Others     Sub-total      Adjustments     Total  

Total revenue

   W 7,039,636        1,880,222        413,328       421,254       9,754,440        (1,418,579     8,335,861  

Inter-segment revenue

     790,793        472,430        17,469       137,887       1,418,579        (1,418,579     —    

External revenue

     6,248,843        1,407,792        395,859       283,367       8,335,861        —         8,335,861  

Depreciation and amortization

     1,190,388        313,280        20,803       29,230       1,553,701        —         1,553,701  

Operating profit (loss)

     713,895        72,351        (80,993     (32,883     672,370        —         672,370  

Finance income and costs, net

 

    (93,691

Gain relating to investments in associates and joint ventures, net

 

    1,542,240  

Other non-operating income and expense, net

 

    (50,887
 

 

 

 

Profit before income tax

 

    2,070,032  

 

26


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

4.

Operating Segments, Continued

 

  (1)

Segment information for the six-month periods ended June 30, 2018 and 2017 are as follows, Continued

 

(In millions of won)                                                 
     For the six-month period ended June 30, 2017  
     Cellular      Fixed-line
telecommu-
nication
     E-commerce
Services
     Others      Sub-total      Adjustments      Total  

Total revenue

   W 7,303,708        1,649,960        528,624        367,599        9,849,891        (1,269,933      8,579,958  

Inter-segment revenue

     791,083        319,947        19,340        139,563        1,269,933        (1,269,933      —    

External revenue

     6,512,625        1,330,013        509,284        228,036        8,579,958        —          8,579,958  

Depreciation and amortization

     1,181,795        289,282        27,682        29,124        1,527,883        —          1,527,883  

Operating profit (loss)

     915,836        79,218        (121,577      (39,709      833,768        —          833,768  

Finance income and costs, net

 

     (151,482

Gain relating to investments in associates and joint ventures, net

 

     878,250  

Other non-operating income and expense, net

 

     (87,890
  

 

 

 

Profit before income tax

 

     1,472,646  

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 earned outside of Korea are immaterial. Therefore, no entity-wide geographical information is presented.

No single customer contributed 10% or more to the Group’s total revenue for the six-month periods ended June 30, 2018 and 2017.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

4.

Operating Segments, Continued

 

  (2)

Disaggregation of operating revenues considering the economic factors that affect the amounts, timing and uncertainty of the Group’s revenue and future cash flows is as follows:

 

(In millions of won)                   
          June 30, 2018      June 30, 2017  

Products transferred at a point in time:

        

Cellular revenue

   Goods (*1)    W 595,040        535,523  

Fixed-line telecommunication revenue

   Goods      41,427        42,381  

Other revenue

   Goods      46,360        35,956  
   Goods      15,522        12,834  
     

 

 

    

 

 

 
        698,349        626,694  
     

 

 

    

 

 

 

Services transferred over time:

        

Cellular revenue

   Wireless service(*2)      4,943,327        5,291,856  
  

Cellular interconnection

     289,355        304,561  
  

Miscellaneous(*3)

     421,121        380,685  

Fixed-line telecommunication revenue

   Wireless service      147,429        156,515  
  

Cellular interconnection

     54,299        59,463  
  

Internet Protocol Television(*4)

     543,232        480,903  
  

International calls

     40,820        45,862  
  

Internet service and miscellaneous(*5)

     580,585        544,889  

E-commerce services revenue

   E-commerce service      395,859        509,284  

Other revenue

   Miscellaneous(*6)      221,485        179,246  
     

 

 

    

 

 

 
        7,637,512        7,953,264  
     

 

 

    

 

 

 
      W 8,335,861        8,579,958  
     

 

 

    

 

 

 

 

(*1)

Merchandise cellular services revenue includes revenue from considerations received from sales of handsets.

(*2)

Wireless service includes revenue from wireless voice and data transmission services principally derived from usage charges paid by the wireless subscribers.

(*3)

Miscellaneous cellular service revenue includes revenue from IoT solutions as well as other miscellaneous cellular services.

(*4)

IPTV service revenue includes revenue from IPTV services principally derived from usage charges paid by the IPTV subscribers.

(*5)

Internet service includes revenue from the high speed broadband internet service principally derived from usage charges paid by the subscribers as well as other miscellaneous services.

(*6)

Miscellaneous other revenue includes revenue from considerations received for the development and maintenance of system software, and digital contents platform services.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

5.

Trade and Other Receivables

 

  (1)

Details of trade and other receivables as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)    June 30, 2018  
     Gross
amount
     Loss
allowance
     Carrying
amount
 

Current assets:

        

Accounts receivable - trade

   W 2,247,128        (259,226      1,987,902  

Short-term loans

     75,564        (660      74,904  

Accounts receivable - other(*)

     1,167,893        (70,787      1,097,106  

Accrued income

     5,584        —          5,584  

Others

     3,674        —          3,674  
  

 

 

    

 

 

    

 

 

 
     3,499,843        (330,673      3,169,170  

Non-current assets:

        

Long-term loans

     95,039        (47,193      47,846  

Long-term accounts receivable - other(*)

     248,076        —          248,076  

Guarantee deposits

     300,362        —          300,362  

Long-term accounts receivable - trade

     12,102        (117      11,985  
  

 

 

    

 

 

    

 

 

 
     655,579        (47,310      608,269  
  

 

 

    

 

 

    

 

 

 
   W 4,155,422        (377,983      3,777,439  
  

 

 

    

 

 

    

 

 

 

 

(In millions of won)    December 31, 2017  
     Gross
amount
     Loss
allowance
     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  
  

 

 

    

 

 

    

 

 

 

 

(*)

Gross and carrying amounts of accounts receivable - other as of June 30, 2018 include W 899,794 million of financial instruments classified as FVTPL.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

5.

Trade and Other Receivables, Continued

 

  (2)

Changes in the loss allowance on trade and other receivables measured at amortized costs during the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                          
     January 1,
2018
     Impact of
adopting
K-IFRS No. 1109
     Impairment      Write-offs(*)      Collection of
receivables
previously
written-off
     June 30,
2018
 

Accounts receivable - trade

   W 239,448        12,950        20,211        (20,098      6,832        259,343  

Accounts receivable - other

     122,723        99        4,546        (12,012      3,284        118,640  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 362,171        13,049        24,757        (32,110      10,116        377,983  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)                                   
     January 1,
2017
     Impairment      Write-offs(*)      Collection of
receivables
previously
written-off
     June 30,
2017
 

Accounts receivable - trade

   W 241,828        18,430        (25,810      8,076        242,524  

Accounts receivable - other

     127,504        2,191        (12,072      6,562        124,185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 369,332        20,621        (37,882      14,638        366,709  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

The Group writes off the trade and other receivables when contractual payments are more than 5 years past due, or for reasons such as shut-down or liquidation.

 

  (3)

The Group applies the simplified approach that allows the Group to estimate the loss allowance for accounts receivables - trade at an amount equal to the lifetime expected credit losses. The expected credit losses include the forward-looking information. To make that assessment, the Group uses its historical credit loss experience and classifies the accounts receivable - trade by their credit risk characteristics and days overdue.

As the Group is the wireless telecommunication services provider, the Group’s financial assets measured at amortized cost consist primarily of receivables from numerous individual customers and, accordingly, no significant credit concentration risk arises.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

6.

Prepaid expenses

As discussed in Note 3, the Group adopted K-IFRS No. 1115, Revenue from Contracts with Customers, during the year beginning on January 1, 2018.

 

  (1)

Details of prepaid expenses as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Current assets:

 

Incremental costs of obtaining contracts

   W 1,658,170        —    

Others

     204,755        197,046  
  

 

 

    

 

 

 
     1,862,925        197,046  
  

 

 

    

 

 

 

Non-current assets:

 

Incremental costs of obtaining contracts

     708,413        —    

Others

     94,907        90,834  
  

 

 

    

 

 

 
   W 803,320        90,834  
  

 

 

    

 

 

 

 

  (2)

Incremental costs of obtaining contracts

Incremental costs of obtaining contracts that are capitalized as assets as of June 30, 2018 and the related depreciation recognized as commissions during the three and six-month periods ended June 30, 2018 are as follows:

 

(In millions of won)    2018  
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Depreciation recognized as commission

   W 503,050        1,019,727  

The Group pays commissions to its direct retail stores and authorized dealers for wireless telecommunications services for each service contract and installation contract secured. The Group capitalized certain costs associated with commissions paid to sales agents to obtain new customer contracts as prepaid expenses, which the Group previously expensed. These prepaid expenses are amortized over the periods that the Group expects to maintain its customers.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

7.

Contract assets and liabilities

As discussed in Note 3, the Group adopted K-IFRS No. 1115, Revenue from Contracts with Customers, during the year beginning on January 1, 2018.

Details of contract assets and liabilities as of June 30, 2018 and January 1, 2018 are as follows:

 

(In millions of won)              
     June 30, 2018      January 1, 2018  

Contract assets:

     

allocation of performance obligations

   W 127,415        143,053  

Contract liabilities:

     

wireless service contracts

     17,495        16,624  

customer loyalty programs

     13,681        10,739  

fixed-line service contracts

     49,782        47,125  

commerce service

     1,479        6,779  

others

     51,508        52,117  
  

 

 

    

 

 

 
   W 133,945        133,384  
  

 

 

    

 

 

 

 

8.

Inventories

Details of inventories as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  
   Acquisition
cost
     Write-
down
    Carrying
amount
     Acquisition
cost
     Write-
down
    Carrying
amount
 

Merchandise

   W 233,949        (6,022     227,927        251,463        (7,488     243,975  

Finished goods

     1,696        (190     1,506        1,889        (557     1,332  

Work in process

     3,752        (340     3,412        1,906        (956     950  

Raw materials

     9,833        (2,034     7,799        10,426        (3,249     7,177  

Supplies

     18,654        —         18,654        18,969        —         18,969  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   W 267,884        (8,586     259,298        284,653        (12,250     272,403  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

9.

Investment Securities

 

  (1)

Details of short-term investment securities as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)                     
     Category      June 30, 2018      December 31, 2017  

Beneficiary certificates

     Available-for-sale financial assets      W —          144,386  
     FVTPL        119,547        —    
     

 

 

    

 

 

 
      W 119,547        144,386  
     

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

9.

Investment Securities, Continued

 

  (2)

Details of long-term investment securities as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)                   
    

Category

   June 30, 2018      December 31, 2017  

Equity instruments

   Available-for-sale financial assets    W —          867,079  
  

FVOCI(*)

     667,368        —    
     

 

 

    

 

 

 
        667,368        867,079  

Debt instruments

   Available-for-sale financial assets      —          19,928  
  

FVOCI

     1,139        —    
  

FVTPL

     396,400        —    
     

 

 

    

 

 

 
        397,539        19,928  
     

 

 

    

 

 

 
      W 1,064,907        887,007  
     

 

 

    

 

 

 

 

(*)

The Group designated W667,368 million of equity instruments that are not held for trading as financial assets at FVOCI.

 

10.

Non-current assets held for sale

 

  (1)

Investments in associates

Details of the non-current assets held for sale as of June 30, 2018 are as follows:

 

(In millions of won)       
     Amount  

12CM GLOBAL PTE. LTD.(*)

   W 7,217  

Xian Tianlong Science and Technology Co., Ltd.(*)

     25,554  
  

 

 

 
   W 32,771  
  

 

 

 

 

(*)

During the six-month period ended June 30, 2018, the Group executed the sales agreement for the sale of the entire shares of 12CM GLOBAL PTE. LTD. and Xian Tianlong Science and Technology Co., Ltd. and reclassified them to non-current assets held for sale. W835 million of accumulated foreign currency translation differences for foreign operations of these associates are included in reserves as of June 30, 2018.

 

  (2)

Property and equipment

During the six-month period ended June 30, 2018, the Group executed the disposal agreement for the sale of idle properties such as land and buildings to one of the related parties, SK D&D Co., Ltd., and reclassified W9,940 million of land and buildings to non-current assets held for sale.

Assets held for sale were measured at the lower of the fair value and the carrying amount.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

11.

Business Combinations

 

  (1)

Business combination

1) Acquisition of id Quantique SA by the Parent Company

During the six-month period ended June 30, 2018, the Parent Company acquired additional 41,157,506 shares in exchange of W55,248 million in cash, which resulted in the Parent Company obtaining control over id Quantique with 44,157,506 shares and 58.1% ownership of the outstanding shares, in aggregate. Taking control of id Quantique will enable the Parent Company to increase its corporate value as the leading mobile telecommunication operator in Korea and to generate profit in overseas markets by utilizing quantum cryptographic security. id Quantique has recognized W1,294 million in revenue and W1,110 in net losses since the transfer of control. Meanwhile, the existing shares were reclassified into the investment in a subsidiary from the FVOCI equity instrument with the valuation gain on FVOCI equity instrument of W1,636 million reclassified into the retained earnings.

2) Summary of the acquiree

 

Corporate name       id Quantique SA
Location       3, CHEMIN DE LA MARBRERIE, 1227 CAROUGE, SWITZERLAND
CEO       Gregoire Ribordy
Industry       Quantum information and communications industry

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

 

(In millions of won)       
     June 30, 2018  

I. Considerations paid:

  

Cash and cash equivalents

   W 55,248  

Existing shares (financial assets at FVOCI) at fair value

     3,965  
  

 

 

 
     59,213  

II. Assets and liabilities acquired:

  

Cash and cash equivalent

     1,538  

Trade and other receivables

     13,609  

Inventories

     2,003  

Property and equipment

     415  

Intangible assets

     7,566  

Other assets

     447  

Trade and other payables

     (1,569

Deferred tax liabilities

     (1,648

Other liabilities

     (1,232
  

 

 

 
     21,129  

III. Non-controlling interests:

     9,291  
  

 

 

 

IV. Goodwill (I - II + III)

   W 47,375  
  

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

11.

Business Combinations, Continued

 

  (2)

Business combination under common control

During the six-month period ended June 30, 2018, SK Telink Co., Ltd., the subsidiary owned by the Parent Company, acquired a device business in exchange of W4,450 million in cash from SK Holdings Co., Ltd., the ultimate controlling entity of the Parent Company. As this transaction is a business combination under common control, the difference between the consideration and carrying amount of net assets amounting to W1,018 million was recognized as capital surplus and others.

 

12.

Investments in Associates and Joint Ventures

 

  (1)

Investments in associates and joint ventures accounted for using the equity method as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)           June 30, 2018      December 31, 2017  
     Country      Ownership
(%)
     Carrying
amount
     Ownership
(%)
     Carrying
amount
 

Investments in associates:

              

SK China Company Ltd.

     China        27.3      W 542,371        27.3      W 526,099  

Korea IT Fund(*1)

     Korea        63.3        274,443        63.3        257,003  

KEB HanaCard Co., Ltd.(*2)

     Korea        15.0        282,174        15.0        280,988  

NanoEnTek, Inc.

     Korea        27.1        37,568        28.5        38,718  

SK Technology Innovation Company

     Cayman Islands        49.0        44,542        49.0        42,511  

HappyNarae Co., Ltd.

     Korea        45.0        22,710        45.0        21,873  

SK hynix Inc.

     Korea        20.1        9,563,470        20.1        8,130,000  

SK MENA Investment B.V.

     Netherlands        32.1        14,483        32.1        13,853  

S.M.Culture & Contents Co.,Ltd.

     Korea        23.4        64,344        23.4        64,966  

Xian Tianlong Science and Technology Co., Ltd. (*3)

     China        49.0        —          49.0        25,891  

Hello Nature Ltd. (*4,5)

     Korea        49.9        29,880        —          —    

12CM Japan, Inc.

     Japan        28.2        7,697        —          —    

MAKEUS Corp. (*2)

     Korea        8.9        9,773        —          —    

Daehan Kanggun BcN Co., Ltd. and others

     —          —          85,177        —          96,479  
        

 

 

       

 

 

 
           10,978,632           9,498,381  
        

 

 

       

 

 

 

Investments in joint ventures:

              

Dogus Planet, Inc.(*5)

     Turkey        50.0        13,802        50.0        13,991  

Finnq Co., Ltd.(*6)

     Korea        49.0        12,328        49.0        16,474  

12CM GLOBAL PTE. LTD.(*7)

     Singapore        47.7        —          62.7        9,592  

Celcom Planet and others(*5,8)

     Malaysia        49.5        —          49.5        —    
        

 

 

       

 

 

 
           26,130           40,057  
        

 

 

       

 

 

 
         W 11,004,762         W 9,538,438  
        

 

 

       

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

12.

Investments in Associates and Joint Ventures, Continued

 

  (1)

Investments in associates and joint ventures accounted for using the equity method as of June 30, 2018 and December 31, 2017 are as follows, Continued

 

  (*1)

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.

  (*2)

These investments were 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.

  (*3)

During the six-month period ended June 30, 2018, the Group executed the agreement for the sale of the entire shares, which was classified as non-current assets held for sale.

  (*4)

During the six-month period ended June 30, 2018, Hello Nature Ltd. increased capital by allocation to third parties, which decreased the Parent Company’s ownership to 49.9% and was reclassified into the associate from the subsidiary due to the Parent Company’s loss of the control. In addition, the Group has obligation for additional investments up to W20,000 million according to the agreement with the shareholders.

  (*5)

The ownership interest is owned by SK Planet Co., Ltd.

  (*6)

These investments were classified as investment in joint ventures as the Company has a joint control pursuant to the agreement with the other shareholders.

  (*7)

During the six-month period ended June 30, 2018, 12CM GLOBAL PTE. LTD. is reclassified into non-current assets held for sale as the Group sold 241,055 shares and agreed to sell the remaining shares.

  (*8)

During the six-month period ended June 30, 2018, the Group invested W12,932 million by purchasing newly issued stocks, and the entire amount of this investment was recognized as equity losses.

 

  (2)

The market price of investments in listed associates as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won, except for share data)  
     June 30, 2018      December 31, 2017  
     Market
price per
share
(in won)
     Number of
shares
     Market
price
     Market
price per
share

(in won)
     Number of
shares
     Market
price
 

NanoEnTek, Inc.

   W 5,670        6,960,445        39,466        5,950        6,960,445        41,415  

SK hynix Inc.

     85,700        146,100,000        12,520,770        76,500        146,100,000        11,176,650  

S.M.Culture & Contents Co.,Ltd.

     2,665        22,033,898        58,720        2,700        22,033,898        59,492  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

12.

Investments in Associates and Joint Ventures, Continued

 

  (3)

The condensed financial information of significant associates as of and for the six-month period ended June 30, 2018 and as of and for the year ended December 31, 2017 are as follows:

 

(In millions of won)                            
     SK hynix
Inc.
     KEB HanaCard
Co., Ltd.
     Korea IT
Fund
     SK China
Company Ltd.
 
     As of June 30, 2018  

Current assets

   W 15,695,714        7,419,583        136,201        757,460  

Non-current assets

     37,561,366        222,090        297,130        1,067,410  

Current liabilities

     8,727,425        1,011,834        —          64,912  

Non-current liabilities

     3,751,979        5,105,768        —          83,754  
     For the six-month period ended June 30, 2018  

Revenue

     19,090,197        796,637        35,365        45,410  

Profit for the period

     7,449,871        51,565        26,633        7,163  

Other comprehensive income (loss)

     240,556        (431      (9,597      (32,008

Total comprehensive income (loss)

     7,690,427        51,134        17,036        (24,845
(In millions of won)                            
     SK hynix Inc.      KEB HanaCard
Co., Ltd.
     Korea IT
Fund
     SK China
Company Ltd.
 
     As of December 31, 2017  

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  
     For the year ended December 31, 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  

 

37


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

12.

Investments in Associates and Joint Ventures, Continued

 

  (4)

The condensed financial information of joint ventures as of and for the six-month period ended June 30, 2018 and as of and for the year ended December 31, 2017 are as follows:

 

(In millions of won)       
     Dogus Planet, Inc.      Finnq Co. Ltd.  
     As of June 30, 2018  

Current assets

   W 40,158        19,597  

Cash and cash equivalents

     38,373        1,896  

Non-current assets

     21,024        17,825  

Current liabilities

     32,159        4,686  

Accounts payable, other payables and provision

     1,949        885  

Non-current liabilities

     1,419        8,460  
     For the six-month period ended June 30, 2018  

Revenue

     48,471        46  

Depreciation and amortization

     (2,814      (1,633

Interest income

     421        3  

Interest expense

     —          (156

Profit (Loss) for the period

     2,251        (8,550

Total comprehensive income (loss)

     2,251        (8,550
(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  
     For the year ended December 31, 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

 

38


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

12.

Investments in Associates and Joint Ventures, Continued

 

  (5)

Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)       
     June 30, 2018  
     Net assets      Ownership
interests
(%)
     Net assets
attributable
to the
ownership
interests
     Cost-book
value
differentials
     Carrying
amount
 

Associates:

              

SK hynix Inc.(*1,2)

   W 40,770,317        20.1        8,437,002        1,126,468        9,563,470  

KEB HanaCard Co., Ltd.

     1,524,071        15.0        228,610        53,564        282,174  

Korea IT Fund

     433,331        63.3        274,443        —          274,443  

SK China Company Ltd.(*1)

     1,673,765        27.3        456,456        85,915        542,371  
(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  

 

(*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 investee’s total shares outstanding.

 

39


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

12.

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 six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                      
     For the six-month period ended June 30, 2018  
     Beginning
balance
     Acquisition
and Disposal
    Share of
profits
(losses)
    Other
comprehensive
income (loss)
    Other
increase
(decrease)
    Ending
balance
 

Investments in associates:

             

SK China Company Ltd.

   W 526,099        —         1,627       14,645       —         542,371  

Korea IT Fund (*)

     257,003        —         26,396       (7,496     (1,460     274,443  

KEB HanaCard Co., Ltd.

     280,988        —         7,735       (6,549     —         282,174  

NanoEnTek, Inc.

     38,718        —         (541     (609     —         37,568  

SK Technology Innovation Company

     42,511        —         18       2,013       —         44,542  

HappyNarae Co., Ltd.

     21,873        —         837       —         —         22,710  

SK hynix Inc.(*)

     8,130,000        —         1,534,928       44,642       (146,100     9,563,470  

SK MENA Investment B.V.

     13,853        —         (7     637       —         14,483  

S.M.Culture & Contents Co., Ltd.

     64,966        —         (572     (50     —         64,344  

Xian Tianlong Science and Technology Co., Ltd.

     25,891        —         (337     —         (25,554     —    

Hello Nature Ltd.

     —          —         —         —         29,880       29,880  

12CM Japan, Inc.

     —          7,697       —         —         —         7,697  

MAKEUS Corp.

     —          9,773       —         —         —         9,773  

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

     96,479        148       (3,591     643       (8,502     85,177  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     9,498,381        17,618       1,566,493       47,876       (151,736     10,978,632  

Investments in joint ventures:

             

Dogus Planet, Inc.

     13,991        (76     1,126       (1,239     —         13,802  

Finnq Co. Ltd.

     16,474        —         (4,100     (46     —         12,328  

12CM GLOBAL PTE. LTD.

     9,592        (2,414     42       (3     (7,217     —    

Celcom Planet.

     —          12,932       (12,932     —         —         —    
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     40,057        10,442       (15,864     (1,288     (7,217     26,130  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W 9,538,438        28,060       1,550,629       46,588       (158,953     11,004,762  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

Dividends received from the associates are deducted from the carrying amount during the six-month period ended June 30, 2018.

 

40


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

12.

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 six-month periods ended June 30, 2018 and 2017 are as follows, Continued:

 

(In millions of won)                                      
     For the six-month period ended June 30, 2017  
   Beginning
balance
     Acquisition
and Disposal
    Share of
profits
(losses)
    Other
comprehensive
income (loss)
    Other
decrease
    Ending
balance
 

Investments in associates:

             

SK China Company Ltd. (*)

   W 46,354        —         (596     (2,206     (1,094     42,458  

Korea IT Fund (*)

     263,850        —         (8,767     3,371       (1,403     257,051  

KEB HanaCard Co., Ltd.

     265,798        —         11,143       (55     —         276,886  

NanoEnTek, Inc.

     39,514        —         (784     5       —         38,735  

SK Industrial Development China Co., Ltd.

     74,717        —         (610     (2,621     —         71,486  

SK Technology Innovation Company

     47,488        —         222       (2,707     —         45,003  

HappyNarae Co., Ltd.

     17,236        —         (803     (1     —         16,432  

SK hynix Inc.(*)

     6,132,122        —         887,183       (44,538     (87,660     6,887,107  

SK MENA Investment B.V.

     15,451        —         68       4       —         15,523  

SKY Property Mgmt. Ltd.

     263,225        —         756       (5,114     —         258,867  

Xian Tianlong Science and Technology Co., Ltd.

     25,880        —         (737     —         —         25,143  

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

     115,181        (2,840     4,731       (2,711     (2,645     111,716  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     7,306,816        (2,840     891,806       (56,573     (92,802     8,046,407  

Investments in joint ventures:

 

          

Dogus Planet, Inc.

     20,081        —         (575     (635     —         18,871  

PT XL Planet Digital

     27,512        —         (7,536     (2,982     —         16,994  

Finnq Co., Ltd.

     24,174        —         (1,287     —         —         22,887  

Celcom Planet and others

     25,740        —         (4,158     (431     —         21,151  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

     97,507        —         (13,556     (4,048     —         79,903  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   W 7,404,323        (2,840     878,250       (60,621     (92,802     8,126,310  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

Dividends received from the associates are deducted from the carrying amount during the six-month period ended June 30, 2017.

 

41


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

12.

Investments in Associates and Joint Ventures, Continued

 

  (7)

The Group discontinued the application of equity method to the following investees due to their carrying amounts being reduced to zero. The details of cumulative unrecognized equity method losses as of June 30, 2018 are as follows:

 

(In millions of won)                            
     Unrecognized loss      Unrecognized change in equity  
     For the six-month
period ended
June 30, 2018
     Cumulative
loss
     For the six-month
period ended
June 30, 2018
     Cumulative
loss
 

Wave City Development Co., Ltd.

   W 4,335        6,435        —          —    

Daehan Kanggun BcN Co., Ltd. and others

     5,229        10,545        —          365  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 9,564        16,980        —          365  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13.

Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                                      
    For the six-month period ended June 30, 2018  
    Beginning
balance
    Acquisition     Disposal     Transfer     Depreciation     Held for
sale
    Business
Combination
    Disposal of
subsidiaries
    Ending
balance
 

Land

  W 862,861       1,069       (29     4,228       —         (7,122     —         —         861,007  

Buildings

    882,650       523       (1,330     24,661       (26,062     (2,818     —         —         877,624  

Structures

    378,575       279       —         2,328       (18,010     —         —         —         363,172  

Machinery

    7,079,798       216,318       (17,594     484,029       (1,109,219     —         20       —         6,653,352  

Other

    531,057       264,409       (2,538     (234,506     (68,655     —         994       (3,079     487,682  

Construction in progress

    409,941       253,306       (3,313     (367,919     —         —         —         —         292,015  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W 10,144,882       735,904       (24,804     (87,179     (1,221,946     (9,940     1,014       (3,079     9,534,852  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of won)                                          
    For the six-month period ended June 30, 2017  
    Beginning
balance
    Acquisition     Disposal     Transfer     Depreciation     Impairment     Ending
balance
 

Land

  W 835,909       2,293       (3,625     16,673       —         —         851,250  

Buildings

    899,972       129       (302     23,227       (25,737     —         897,289  

Structures

    358,955       2,115       (70     415       (17,402     —         344,013  

Machinery

    7,036,050       185,030       (10,829     557,999       (1,098,812     (5     6,669,433  

Other

    563,034       218,536       (2,903     (196,783     (71,065     (2,213     508,606  

Construction in progress

    680,292       335,066       (1,811     (710,434     —         —         303,113  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W 10,374,212       743,169       (19,540     (308,903     (1,213,016     (2,218     9,573,704  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

42


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

14.

Intangible Assets

 

  (1)

Details of the changes in intangible assets for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                                    
     For the six-month period ended June 30, 2018  
     Beginning
balance
     Acquisition      Disposal     Transfer     Amortization     Impairment     Business
Combination
     Ending
balance
 

Frequency usage rights

   W 2,176,940        —          —         —         (201,944     —         —          1,974,996  

Land usage rights

     15,750        1,822        (357     —         (3,890     —         —          13,325  

Industrial rights

     111,347        3,211        (24     2,082       (3,470     —         55        113,201  

Development costs

     4,103        1,878        —         (48     (1,135     —         5,994        10,792  

Facility usage rights

     36,451        844        (22     90       (3,870     —         —          33,493  

Customer relations

     4,035        213        —         127       (1,162     —         —          3,213  

Club memberships

     73,614        3,699        (1,302     —         —         (173     —          75,838  

Other

     1,164,725        33,464        (5,474     107,278       (193,078     (904     10,825        1,116,836  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
   W   3,586,965        45,131        (7,179     109,529       (408,549     (1,077     16,874        3,341,694  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(In millions of won)                                             
     For the six-month period ended June 30, 2017  
     Beginning
balance
     Acquisition      Disposal     Transfer     Amortization     Impairment     Ending
balance
 

Frequency usage rights

   W 2,580,828        —          —         —         (201,944     —         2,378,884  

Land usage rights

     20,834        1,369        (475     200       (4,063     —         17,865  

Industrial rights

     121,200        2,215        —         (2,433     (3,688     —         117,294  

Development costs

     4,871        1,420        —         —         (1,659     —         4,632  

Facility usage rights

     41,788        651        (30     118       (4,264     —         38,263  

Customer relations

     6,652        295        —         —         (1,806     —         5,141  

Club memberships

     74,039        4,114        (790     —         —         —         77,363  

Other

     926,142        42,533        (2,960     323,436       (168,336     (233     1,120,582  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W   3,776,354        52,597        (4,255     321,321       (385,760     (233     3,760,024  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (2)

Details of frequency usage rights as of June 30, 2018 are as follows:

 

(In millions of won)                          
     Amount     

Description

   Commencement
of amortization
     Completion of
amortization
 

800MHz license

   W 121,632     

Frequency usage rights relating to CDMA and LTE service

     Jul. 2011        Jun. 2021  

1.8GHz license

     439,670     

Frequency usage rights relating to LTE service

     Sept. 2013        Dec. 2021  

WiBro license

     1,783     

WiBro service

     Mar. 2012        Mar. 2019  

2.6GHz license

     1,032,060     

Frequency usage rights relating to LTE service

     Sept. 2016        Dec. 2026  

2.1GHz license

     379,851     

Frequency usage rights relating to W-CDMA and LTE service

     Dec. 2016        Dec. 2021  
  

 

 

          
   W   1,974,996           
  

 

 

          

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

14.

Intangible Assets, Continued

 

  (2)

Details of frequency usage rights as of June 30, 2018 are as follows, Continued

 

The Group participated in the frequency license allocation auction hosted by Ministry of Science and Information and Communication Technology (ICT) and was selected for the 3.5GHz and 28GHz license allocation during the six-month period ended June 30, 2018. The considerations payable for the bands of frequency are W1,218,500 million and W207,300 million, respectively. These bands of frequency are to be allocated in December 2018 as the Group pays the initial lump sum during November 2018, and then the annual payments in installment of the remaining balance will be made for the next ten and five years, respectively. The Group will recognize these frequency licenses at the initial lump sum as intangible assets and will amortize when the bands of frequency are in the condition necessary for them to be capable of operating in the manner intended by management.

 

15.

Borrowings and Debentures

 

  (1)

Short-term borrowings as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)                       
     Lender      Annual
interest rate(%)
     June 30,
2018
     December 31,
2017
 

Short-term borrowings

     Shinhan Bank        2.85      W 30,000        30,000  
     KEB Hana Bank        3.90        5,000        —    
     KEB Hana Bank        3.85        3,020        —    
     KEB Hana Bank        3.85        7,230        —    
     KEB Hana Bank        3.88        640        —    

Commercial paper

     KEB Hana Bank        1.67        —          50,000  

Bank overdraft

     KEB Hana Bank        3.17        —          30,000  
     Shinhan Bank        3.38        —          20,000  
        

 

 

    

 

 

 
         W     45,890        130,000  
        

 

 

    

 

 

 

 

  (2)

Changes in long-term borrowings for the six-month period ended June 30, 2018 are as follows:

 

(In millions of won)  
     Lender      Annual
interest rate(%)
     Maturity      Book value  

Current

            W 41,331  

Non-current

              211,486  
           

 

 

 

As of January 1, 2018

              252,817  
        

 

 

 

Repayments of long-term borrowings:

 

     Kookmin Bank        1.95        Mar. 15, 2018        (717
     Korea Development Bank        1.99        Jul. 30, 2019        (6,500
     Korea Development Bank        1.99        Jul. 30, 2019        (1,666
     Korea Development Bank        2.27        Dec. 20, 2021        (6,125
     Export Kreditnamnden        1.70        Apr. 29, 2022        (6,200

Other changes(*)

              2,499  
  

 

 

 

Current

              87,465  

Non-current

              146,643  
           

 

 

 

As of June 30, 2018

            W     234,108  
        

 

 

 

 

(*)

Other changes include the effects on foreign currency translation of foreign currency-denominated long-term borrowings and changes in present value discount during the six-month period ended June 30, 2018.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

15.

Borrowings and Debentures, Continued

 

  (3)

Changes in debentures for the six-month period ended June 30, 2018 are as follows:

 

(In millions of won, thousands of other currencies)  
     Purpose      Annual
interest
rate(%)
     Maturity      Face value     Book value  

Current

            W 1,491,400       1,489,617  

Non-current

              5,615,816       5,596,570  
           

 

 

   

 

 

 

As of January 1, 2018

              7,107,216       7,086,187  
        

 

 

   

 

 

 

Debentures newly issued:

             

Unsecured corporate bonds

     Refinancing fund        2.57        Feb. 20, 2021        110,000       109,507  
        2.81        Feb. 20, 2023        100,000       99,576  
        3.00        Feb. 20, 2028        200,000       199,228  
        3.02        Feb. 20, 2038        90,000       89,664  

Unsecured corporate bonds(*1)

     Operating fund        2.59        Feb. 1, 2021        70,000       69,680  
        2.93        Feb. 1, 2023        80,000       79,636  

Global unsecured corporate bonds

     Operating fund        3.75        Apr. 16, 2023        535,000       529,566  
              USD 500,000       USD 500,000  

Debentures repaid:

             

Unsecured corporate bonds

     Other fund        5.00        Mar. 3, 2018        (200,000     (200,000

Unsecured corporate bonds(*1)

     Operating fund        2.23        Jan. 14, 2018        (50,000     (50,000

Global unsecured corporate bonds

     Operating fund        2.13        May. 1, 2018        (746,550     (746,550
              (USD 700,000     (USD 700,000

Other changes(*2)

              73,421       76,699  
           

 

 

   

 

 

 

Current

              886,509       885,808  

Non-current

              6,482,578       6,457,385  
           

 

 

   

 

 

 

As of June 30, 2018

            W     7,369,087       7,343,193  
        

 

 

   

 

 

 

 

(*1)

Unsecured corporate bonds were issued by SK Broadband Co., Ltd., one of the subsidiaries.

(*2)

Other changes include the effects from translation of foreign currency-denominated debentures and changes in present value discount on debentures during the six-month period ended June 30, 2018.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

16.

Long-term Payables - other

 

  (1)

Long-term payables - other as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30,
2018
     December 31,
2017
 

Payables related to acquisition of frequency usage rights

   W 1,040,761        1,328,630  

Other(*)

     17,650        18,133  
  

 

 

    

 

 

 
   W 1,058,411        1,346,763  
  

 

 

    

 

 

 

 

(*)

Other includes other long-term employee compensation liabilities.

 

  (2)

As of June 30, 2018 and December 31, 2017, details of long-term payables - other which related to the acquisition of frequency usage rights are as follows (See Note 14):

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Long-term payables - other

   W 1,407,388        1,710,255  

Present value discount on long-term payables - other

     (67,514      (79,874

Current installments of long-term payables - other

     (299,113      (301,751
  

 

 

    

 

 

 

Carrying amount at period end

   W 1,040,761        1,328,630  
  

 

 

    

 

 

 

 

  (3)

The Group repaid W302,867 million of the principal amount of long-term payables - other related to the acquisition of frequency usage rights during the six-month period ended June 30, 2018. The repayment schedule of the principal amount of long-term payables - other as of June 30, 2018 is as follows:

 

(In millions of won)       
     Amount  

Less than 1 year

   W 302,867  

1~3 years

     605,734  

3~5 years

     199,515  

More than 5 years

     299,272  
  

 

 

 
   W 1,407,388  
  

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

17.

Provisions

Changes in provisions for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                                      
    For the six-month period ended June 30, 2018     As of June 30, 2018  
    Beginning
balance
    Impact of
adopting

K-IFRS
No. 1115
    Increase     Utilization     Reversal     Other     Ending
balance
    Current     Non-
current
 

Provision for installment of handset subsidy

  W 3,874       —         —         (1,059     (2,702     —         113       113       —    

Provision for restoration

    73,267       —         2,326       (423     (548     92       74,714       42,293       32,421  

Emission allowance

    4,650       —         1,726       (1,334     (3,306     —         1,736       1,736       —    

Other provisions

    2,935       (215     178       (132     (32     —         2,734       2,734       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W 84,726       (215     4,230       (2,948     (6,588     92       79,297       46,876       32,421  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of won)                                                      
     For the six-month period ended June 30, 2017      As of June 30, 2017  
     Beginning
balance
     Increase      Utilization     Reversal     Other      Ending
balance
     Current      Non-
current
 

Provision for installment of handset subsidy

   W 24,710        2        (4,902     —         —          19,810        19,810        —    

Provision for restoration

     64,679        4,138        (758     (233     82        67,908        39,204        28,704  

Emission allowance

     2,788        2,401        (518     (2,283     —          2,388        2,388        —    

Other provisions

     5,740        1,988        (2,020     —         —          5,708        5,708        —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
   W 97,917        8,529        (8,198     (2,516     82        95,814        67,110        28,704  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

18.

Defined Benefit Liabilities (Assets)

 

  (1)

Details of defined benefit liabilities (assets) as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Present value of defined benefit obligations

   W 743,957        679,625  

Fair value of plan assets

     (668,258      (663,617
  

 

 

    

 

 

 

Defined benefit assets(*)

     (18,821      (45,952
  

 

 

    

 

 

 

Defined benefit liabilities

     94,520        61,960  
  

 

 

    

 

 

 

 

(*)

Since the Group entities neither have legally enforceable right nor intention to settle the defined benefit obligations of Group entities with defined benefit assets of other Group entities, defined benefit assets of Group entities have been separately presented from defined benefit liabilities.

 

  (2)

Changes in defined benefit obligations for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Beginning balance

   W 679,625        595,667  

Current service cost

     67,045        57,937  

Interest cost

     10,117        7,755  

Remeasurement:

     

- Adjustment based on experience

     10,284        11,597  

Benefit paid

     (25,166      (26,201

Others

     2,052        13,438  
  

 

 

    

 

 

 

Ending balance

   W 743,957        660,193  
  

 

 

    

 

 

 

 

  (3)

Changes in plan assets for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Beginning balance

   W 663,617        555,175  

Interest income

     9,631        6,814  

Remeasurement

     (3,971      (1,868

Contribution

     26,790        29,764  

Benefit paid

     (33,696      (42,661

Others

     5,887        10,448  
  

 

 

    

 

 

 

Ending balance

   W 668,258        557,672  
  

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

18.

Defined Benefit Liabilities (Assets), Continued

 

  (4)

Total cost of benefit plan, which is recognized in profit and loss (included in labor in the statement of income) and capitalized into construction-in-progress, for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    For the six-month period ended  
     June 30, 2018      June 30, 2017  

Current service cost

   W 67,045        57,937  

Net interest cost

     486        941  
  

 

 

    

 

 

 
   W 67,531        58,878  
  

 

 

    

 

 

 

 

19.

Derivatives

Changes in derivative contracts for the six-month period ended June 30, 2018 are as follows:

 

(In thousands of other currencies)
     Hedged items   

Hedging instruments

   Date   

Item

  

Risk type

  

Contract type

  

Counterparty

   Contract term

Expired

   Nov. 1, 2012    Fixed rate foreign currency bond (par value USD 700,000)    Currency risk    Currency swap contract    Standard Chartered and 8 others    Nov. 1, 2012 ~

May 1, 2018

New

   Apr. 16, 2018    Fixed rate foreign currency bond (par value USD 500,000)    Currency risk    Currency swap contract    The Export-Import Bank of Korea and 3 others    Apr. 16, 2018 ~

Apr. 16, 2023

 

20.

Share Capital and Capital Surplus and Others

The Parent Company’s outstanding share capital consists entirely of common stocks with a par value of W500. The number of authorized, issued and outstanding common stocks and the details of capital surplus and others as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won, except for share data)              
     June 30, 2018      December 31, 2017  

Number of authorized shares

     220,000,000        220,000,000  

Number of issued shares

     80,745,711        80,745,711  

Share capital:

     

Common stock

   W 44,639        44,639  

Capital surplus and others:

     

Paid-in capital surplus

     2,915,887        2,915,887  

Treasury shares

     (2,260,626      (2,260,626

Hybrid bonds(Note 21)

     398,759        398,518  

Share option(Note 22)

     703        414  

Others (*)

     (865,207      (857,912
  

 

 

    

 

 

 
   W 189,516        196,281  
  

 

 

    

 

 

 

 

(*)

Others primarily consist of the excess of the consideration paid by the Group over the carrying amount of net assets acquired from entities under common control.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

20.

Share Capital and Capital Surplus and Others, Continued

 

There were no changes in share capital for the six-month periods ended June 30, 2018 and 2017 and details of shares outstanding as of June 30, 2018 and 2017 are as follows:

 

(In shares)    June 30, 2018      June 30, 2017  
     Issued
shares
     Treasury
stock
     Outstanding
shares
     Issued
shares
     Treasury
stock
     Outstanding
shares
 

Issued shares

     80,745,711        10,136,551        70,609,160        80,745,711        10,136,551        70,609,160  

 

21.

Hybrid Bonds

The Group repaid the hybrid bonds during the six month period ended June 30, 2018 and issued new hybrid bonds at par, and the details are as follows:

 

(In millions of won)                                 
    

Type

   Issue date      Maturity
date(*1)
     Interest rate
(%)(*2)
     Amount  

2-1 Private equity bond securities

   Unsecured subordinated coupon bond      2018. 6. 7        2078. 6. 7        3.70        300,000  

2-2 Private equity bond securities

   Unsecured subordinated coupon bond      2018. 6. 7        2078. 6. 7        3.65        100,000  

Issuing cost

                 (1,241
              

 

 

 
                 398,759  
              

 

 

 

As there is no contractual obligation to deliver financial assets to the holders of hybrid bonds, the Group classified the hybrid bonds as equity. When in liquidation or bankruptcy, these hybrid bonds are senior only to common stocks.

 

  (*1)

The Group may extend the maturity without any notice or announcement.

  (*2)

The interest rate of the hybrid bonds is determined by applying additional interest on a five-year Korea national bond interest rate. In addition, according to ‘Step-up’ clause, 0.25%p adds on the rate of return after 10 years from the issuance and another 0.75%p after 25 years from the issue date

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

22.

Share option

 

  (1)

The terms and conditions related to the grants of the share options under the share option program are as follows:

 

     Series      One Store
Co., Ltd
 
     1-1    1-2    1-3    2  

Grant date

   March 24, 2017      February 20, 2018        April 27, 2018  

Types of shares to be issued

   Registered common shares       
One Store Co., Ltd
common shares
 
 

Grant method

   Reissue of treasury shares        Issue of new shares  

Number of shares

   22,168    22,168    22,168      5,707        1,032,000  

Exercise price (in won)

   246,750    266,490    287,810      254,120        5,390  

Exercise period

   Mar. 25, 2019 ~

Mar. 24, 2022

   Mar. 25, 2020 ~

Mar. 24, 2023

   Mar. 25, 2021 ~

Mar. 24, 2024

    

Feb. 21, 2020 ~

Feb. 20, 2023

 

 

    

Apr. 28, 2020 ~

Apr. 27, 2024

 

 

Vesting conditions

   2 years’ service
from the grant
date
   3 years’ service
from the grant
date
   4 years’ service
from the grant
date
    

2 years’ service
from the grant
date
 
 
 
    
2 years’ service
from the grant date
 
 

 

  (2)

The recognized share compensation expense and the remaining share compensation expense to be recognized in subsequent periods are as follows:

 

(In millions of won)    Share
compensation expense
 

During the year ended December 31, 2017

   W 414  

During the six-month period ended June 30, 2018

     341  

In subsequent periods

     1,357  
  

 

 

 
   W 2,112  
  

 

 

 

 

  (3)

The group used binomial option pricing model and the inputs used in the measurement of the value of the share options at grant date of the share-based payment plans are as follows:

 

     Series     One Store
Co., Ltd
 
     1-1     1-2     1-3     2  

Risk-free interest rate

     1.86     1.95     2.07     2.63     2.61

Estimated option’s life

     5 years       6 years       7 years       5 years       6 years  

Share price (Closing price on the preceding day in won)

     262,500       262,500       262,500       243,500       4,925  

Expected volatility

     13.38     13.38     13.38     16.45     9.40

Expected dividends

     3.80     3.80     3.80     3.70     0.00

Exercise price (in won)

     246,750       266,490       287,810       254,120       5,390  

Per share fair value of the option (in won)

     27,015       20,240       15,480       23,988       566  

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

23.

Retained Earnings

Retained earnings as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Appropriated:

     

Legal reserve

   W 22,320        22,320  

Reserve for business expansion

     10,531,138        10,171,138  

Reserve for technology development

     3,321,300        3,071,300  
  

 

 

    

 

 

 
     13,874,758        13,264,758  

Unappropriated

     6,879,950        4,571,188  
  

 

 

    

 

 

 
   W 20,754,708        17,835,946  
  

 

 

    

 

 

 

 

24.

Reserves

 

  (1)

Details of reserves, net of taxes, as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Valuation gain on financial assets at FVOCI

   W 55,881        —    

Valuation gain on available-for-sale financial assets

     —          168,211  

Other comprehensive loss of investments in associates

     (271,955      (320,060

Valuation loss on derivatives

     (82,776      (73,828

Foreign currency translation differences for foreign operations

     14,974        (9,050
  

 

 

    

 

 

 
   W (283,876      (234,727
  

 

 

    

 

 

 

 

  (2)

Changes in reserves for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)                                     
     Valuation
gain (loss)
on financial
assets at
FVOCI
    Valuation gain
(loss) on
available-for-sale
financial assets
    Other compre-
hensive income
(loss) of
investments in
associates
    Valuation
gain (loss)
on
derivatives
    Foreign currency
translation
differences for
foreign
operations
    Total  

Balance at January 1, 2017

   W —         12,534       (179,167     (96,418     36,868       (226,183

Changes, net of taxes

     —         131,456       (61,210     5,929       (26,617     49,558  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2017

     —         143,990       (240,377     (90,489     10,251       (176,625

Balance at December 31, 2017

     —         168,211       (320,060     (73,828     (9,050     (234,727

Impact of adopting K-IFRS No.1109

     99,407       (168,211     —         —         —         (68,804
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2018

     99,407       —         (320,060     (73,828     (9,050     (303,531

Changes, net of taxes

     (43,526     —         48,105       (8,948     24,024       19,655  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

   W 55,881       —         (271,955     (82,776     14,974       (283,876
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

25.

Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Communication

   W 8,451        16,623        6,863        13,997  

Utilities

     64,382        139,463        64,580        138,251  

Taxes and dues

     14,820        23,454        6,655        9,954  

Repair

     91,165        170,323        88,148        163,541  

Research and development

     98,273        187,698        94,848        189,465  

Training

     7,225        15,669        6,155        13,031  

Bad debt for accounts receivable - trade

     10,391        20,211        11,919        18,430  

Traveling

     6,633        13,329        5,789        11,622  

Supplies and others

     50,063        84,435        41,148        74,227  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 351,403        671,205        326,105        632,518  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26.

Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Other Non-operating Income:

           

Fees revenues

   W 459        544        113        186  

Gain on disposal of property and equipment and intangible assets

     1,383        3,540        3,452        7,976  

Others

     3,583        18,261        3,602        7,274  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 5,425        22,345        7,167        15,436  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Non-operating Expenses:

           

Loss on impairment of property and equipment and intangible assets

   W 174        1,077        257        2,451  

Loss on disposal of property and equipment and intangible assets

     16,689        19,756        3,047        13,174  

Donations

     16,028        31,999        22,314        37,505  

Bad debt for accounts receivable - other

     832        4,546        —          2,191  

Loss on impairment of investment assets

     2,279        2,734        3,969        6,416  

Others

     10,263        13,120        38,000        41,589  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 46,265        73,232        67,587        103,326  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

27.

Finance Income and Costs

 

  (1)

Details of finance income and costs for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Income:

           

Interest income

   W 18,300        35,220        14,688        39,968  

Gain on sale of accounts receivable - trade

     4,390        8,139        4,065        9,090  

Dividends

     —          15,142        433        10,584  

Gain on foreign currency transactions

     5,853        9,460        5,353        7,639  

Gain on foreign currency translations

     5,005        5,563        1,668        4,178  

Gain on disposal of long-term investment securities

     —          —          493        2,762  

Gain on valuation of derivatives

     578        897        554        909  

Gain on financial assets at FVTPL

     437        9,939        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 34,563        84,360        27,254        75,130  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Costs:

           

Interest expenses

   W 71,861        146,976        75,066        149,486  

Loss on sale of accounts receivable - trade

     1,922        4,380        2,437        4,955  

Loss on foreign currency transactions

     3,719        9,857        4,854        9,217  

Loss on foreign currency translations

     2,644        3,124        —          4,968  

Loss on disposal of long-term investment securities

     —          —          35,975        36,024  

Loss on settlement of derivatives

     12,156        12,156        8,910        8,910  

Loss relating to financial liabilities at FVTPL

     492        780        198        529  

Loss relating to financial assets at FVTPL

     378        778        —          —    

Others

     —          —          12,523        12,523  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 93,172        178,051        139,963        226,612  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest income on cash equivalents and short-term financial instruments

   W 7,852        14,619        7,934        13,539  

Interest income on installment receivables and others

     10,448        20,601        6,754        26,429  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 18,300        35,220        14,688        39,968  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

27.

Finance Income and Costs, Continued

 

  (3)

Details of interest expenses included in finance costs for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Interest expenses on borrowings

   W 2,770        6,332        3,687        6,139  

Interest expenses on debentures

     57,614        115,584        57,495        113,319  

Others

     11,477        25,060        13,884        30,028  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 71,861        146,976        75,066        149,486  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (4)

Details of impairment losses on financial assets for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Accounts receivable - trade

   W 10,391        20,211        11,919        18,430  

Other receivables

     832        4,546        —          2,191  

Available-for-sale financial assets

     —          —          12,523        12,523  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 11,223        24,757        24,442        33,144  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

28.

Income Tax Expense

Income tax expense was calculated by considering current tax expense adjusted to changes in estimates related to prior periods, and deferred tax expenses by origination and reversal of temporary differences.

 

29.

Earnings per Share

 

  (1)

Basic earnings per share

 

  1)

Basic earnings per share for the three and six-month periods ended June 30, 2018 and 2017 are calculated as follows:

 

(In millions of won, except for share data)    2018      2017  
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Basic earnings per share:

           

Profit attributable to owners of the Parent Company on common shares

   W 916,652        1,611,611        624,889        1,214,023  

Interest on hybrid bonds

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

Profit for the period available for common shares

     908,232        1,603,191        616,469        1,205,603  

Weighted average number of common shares outstanding

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

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share (in won)

   W 12,863        22,705        8,731        17,074  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

29.

Earnings per Share, Continued

 

  (1)

Basic earnings per share, Continued

 

  2)

The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2018 and 2017 are calculated as follows:

 

(In shares)    Number of
shares
     Weighted number of shares  
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued common shares at January 1, 2018

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

Effect of treasury shares

     (10,136,551      (10,136,551      (10,136,551
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2018

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

 

 

    

 

 

    

 

 

 
(In shares)    Number of
shares
     Weighted number of shares  
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued common shares at January 1, 2017

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

Effect of treasury shares

     (10,136,551      (10,136,551      (10,136,551
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2017

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

 

 

    

 

 

    

 

 

 

 

  (2)

Diluted earnings per share

For the six-month periods ended June 30, 2018 and 2017, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.

 

30.

Categories of Financial Instruments

 

  (1)

Financial assets by category as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)                                          
     June 30, 2018  
     Financial
assets at

FVTPL
     Equity
instruments
at FVOCI
     Debt
instruments
at FVOCI
     Financial assets at
amortized cost
     Derivatives
hedging
instrument
     Total  

Cash and cash equivalents

   W —          —          —          1,796,190        —          1,796,190  

Financial instruments

     —          —          —          420,502        —          420,502  

Short-term investment securities

     119,547        —          —          —          —          119,547  

Long-term investment securities(*)

     396,400        667,368        1,139        —          —          1,064,907  

Accounts receivable - trade

     —          —          —          1,999,887        —          1,999,887  

Loans and other receivables

     899,794        —          —          877,758        —          1,777,552  

Derivative financial assets

     9,950        —          —          —          57,615        67,565  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 1,425,691        667,368        1,139        5,094,337        57,615        7,246,150  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

The group designated W 667,368 million of equity instrument that is not held for trading as financial assets measured at FVOCI.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

30.

Categories of Financial Instruments, Continued

 

  (1)

Financial assets by category as of June 30, 2018 and December 31, 2017 are as follows, Continued:

 

(In millions of won)  
     December 31, 2017  
     Financial assets at
fair value through
profit or loss
     Available-for-
sale financial
assets
     Loans and
receivables
     Derivatives hedging
instrument
     Total  

Cash and cash equivalents

   W —          —          1,457,735        —          1,457,735  

Financial instruments

     —          —          618,002        —          618,002  

Short-term investment securities

     97,003        47,383        —          —          144,386  

Long-term investment securities

     —          887,007        —          —          887,007  

Accounts receivable – trade

     —          —          2,138,755        —          2,138,755  

Loans and other receivables

     —          —          1,962,083        —          1,962,083  

Derivative financial assets

     231,311        —          —          21,902        253,213  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 328,314        934,390        6,176,575        21,902        7,461,181  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (2)

Financial liabilities by category as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)                            
     June 30, 2018  
     Financial
liabilities at
FVTPL
     Financial
liabilities at
amortized
cost
     Derivatives
hedging
instrument
     Total  

Accounts payable – trade

   W —          263,198        —          263,198  

Derivative financial liabilities

     —          —          1,532        1,532  

Borrowings

     —          279,998        —          279,998  

Debentures(*)

     61,058        7,282,135        —          7,343,193  

Accounts payable - other and others

     —          4,904,298        —          4,904,298  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   61,058        12,729,629        1,532        12,792,219  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Debentures classified as financial liabilities at FVTPL as of June 30, 2018 are structured bonds and they were designated as financial liabilities at FVTPL in order to eliminate a measurement inconsistency with the related derivatives.

 

57


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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

30.

Categories of Financial Instruments, Continued

 

  (2)

Financial liabilities by category as of June 30, 2018 and December 31, 2017 are as follows, Continued:

 

(In millions of won)                            
     December 31, 2017  
     Financial
liabilities
measured at
fair value
through profit
or loss
     Financial
liabilities
measured at
amortized
cost
     Derivatives
hedging
instrument
     Total  

Accounts payable – trade

   W —          351,711        —          351,711  

Derivative financial liabilities

     —          —          39,470        39,470  

Borrowings

     —          382,817        —          382,817  

Debentures(*)

     60,278        7,025,909        —          7,086,187  

Accounts payable - other and others

     —          4,865,519        —          4,865,519  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 60,278        12,625,956        39,470        12,725,704  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Debentures classified as financial liabilities at fair value through profit or loss as of December 31, 2017 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to eliminate a measurement inconsistency with the related derivatives.

 

31.

Financial Risk Management

 

  (1)

Financial risk management

The Group is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates and interest rates. The Group implements a risk management system to monitor and manage these specific risks.

The Group’s financial assets consist of cash and cash equivalents, financial instruments, investment securities, and accounts receivable - trade and other. Financial liabilities consist of accounts payable - trade and others, borrowings, and debentures.

1) Market risk

(i) Currency risk

The Group incurs exchange position due to revenue and expenses from its foreign operations. Major foreign currencies where the currency risk occur are USD, JPY and EUR. The Group determines the currency risk management policy after considering the nature of business and the presence of methods that mitigate the currency risk for each Group entities. Currency risk occurs on forecasted transactions and recognized assets and liabilities which are denominated in a currency other than the functional currency of each Group entity. The Group manages currency risk arising from business transactions by using currency forwards, etc.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

1) Market risk, Continued

 

(i) Currency risk, Continued

 

Monetary assets and liabilities denominated in foreign currencies as of June 30, 2018 are as follows:

 

(In millions of won, thousands of foreign currencies)                            
     Assets      Liabilities  
     Foreign
currencies
     Won
translation
     Foreign
currencies
     Won
translation
 

USD

     200,705      W 225,129        1,619,878      W 1,817,018  

EUR

     9,973        12,935        50        65  

JPY

     553,676        5,619        203,116        2,061  

Others

        10,397           6,931  
     

 

 

       

 

 

 
      W 254,080         W 1,826,075  
     

 

 

       

 

 

 

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures.

As of June 30, 2018, a hypothetical change in exchange rates by 10% would have increased (reduced) the Group’s income before income taxes as follows:

 

(In millions of won)              
     If increased by 10%      If decreased by 10%  

USD

   W 13,043        (13,043

EUR

     1,287        (1,287

JPY

     356        (356

Others

     347        (347
  

 

 

    

 

 

 
   W 15,033        (15,033
  

 

 

    

 

 

 

(ii) Interest rate risk

The interest rate risk of the Group arises from borrowings and debentures. Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, the Group’s revenue and operating cash flows are not influenced by the changes in market interest rates.

The Group performs various analysis of interest rate risk to reduce interest rate risk and to optimize its financing. To minimize risks arising from changes in interest rates, the Group takes various measures such as refinancing, renewal, alternative financing and hedging.

As of June 30, 2018, the floating-rate borrowings and debentures of the Group are W229,182 million and W336,510 million, respectively, and the Group has entered into interest rate swap agreements for some of floating-rate borrowings and debentures to hedge interest rate risk.

If the interest rate increases (decreases) 1%p with all other variables held constant, income before income taxes for the six-month period ended June 30, 2018 would change by W858 million due to the interest expense on floating-rate borrowings that are exposed to interest rate risk.

 

59


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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

2) Credit risk

The maximum credit exposure as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)              
     June 30, 2018      December 31, 2017  

Cash and cash equivalents

   W 1,789,085        1,457,416  

Financial instruments

     420,502        618,002  

Investment securities

     20,874        19,928  

Accounts receivable – trade

     1,999,887        2,138,755  

Loans and other receivables

     1,777,552        1,962,083  

Derivative financial assets

     67,565        30,956  
  

 

 

    

 

 

 
   W 6,075,465        6,227,140  
  

 

 

    

 

 

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors. Based on such information, the Group establishes credit limits for each customer or counterparty.

The Group establishes an allowance for doubtful accounts on its estimated losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that have been expected to occur. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Also, the Group’s credit risk can arise from transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of June 30, 2018.

3) Liquidity risk

The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group maintains enough liquidity within credit lines through strong operating activities.

Contractual maturities of financial liabilities as of June 30, 2018 are as follows:

 

(In millions of won)                                   
     Carrying
amount
     Contractual
cash flows
     Less than
1 year
     1 - 5 years      More than
5 years
 

Accounts payable - trade

   W 263,198        263,198        263,198        —          —    

Borrowings(*)

     279,998        292,295        139,636        152,659        —    

Debentures(*)

     7,343,193        8,784,269        1,105,723        4,572,521        3,106,025  

Accounts payable - other and others

     4,904,298        5,037,387        3,828,346        896,220        312,821  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 12,790,687        14,377,149        5,336,903        5,621,400        3,418,846  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

3) Liquidity risk, Continued

 

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

(*) Includes interest payables.

As of June 30, 2018, periods in which cash flows from cash flow hedge derivatives are expected to occur are as follows:

 

(In millions of won)                               
     Carrying
amount
    Contractual
cash flows
    Less than
1 year
    1 - 5 years     More than
5 years
 

Assets

   W 57,615       52,815       35,086       49,285       (31,556

Liabilities

     (1,532     (1,605     (94     (1,511     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W 56,083       51,210       34,992       47,774       (31,556
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (2)

Capital management

The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall capital management strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2017.

The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity both from the financial statements.

Debt-equity ratio as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)             
     June 30, 2018     December 31, 2017  

Total liabilities

   W 15,428,008       15,399,474  

Total equity

     20,908,749       18,029,195  

Debt-equity ratios

     73.79     85.41

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Financial Risk Management, Continued

 

  (3)

Fair value

 

  1)

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2018 are as follows:

 

(In millions of won)    June 30, 2018  
     Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

FVTPL

   W 1,425,691        —          1,029,291        396,400        1,425,691  

Derivative financial assets

     57,615        —          57,615        —          57,615  

FVOCI

     668,507        533,466        —          135,041        668,507  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,151,813        533,466        1,086,906        531,441        2,151,813  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

FVTPL

   W 61,058        —          61,058        —          61,058  

Derivative financial liabilities

     1,532        —          1,532        —          1,532  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 62,590        —          62,590        —          62,590  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 279,998        —          280,868        —          280,868  

Debentures

     7,282,135        —          7,596,342        —          7,596,342  

Long-term payables - other

     1,357,937        —          1,425,552        —          1,425,552  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 8,920,070        —          9,302,762        —          9,302,762  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Financial Risk Management, Continued

 

  (3)

Fair value, Continued

 

  2)

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2017 are as follows:

 

(In millions of won)    December 31, 2017  
     Carrying amount      Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

              

Financial assets at fair value through profit or loss

   W 328,314        —          106,057        222,257        328,314  

Derivative financial assets

     21,902        —          21,902        —          21,902  

Available-for-sale financial assets

     734,487        589,202        47,383        97,902        734,487  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W     1,084,703        589,202        175,342        320,159        1,084,703  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

              

Financial liabilities at fair value through profit or loss

   W 60,278        —          60,278        —          60,278  

Derivative financial liabilities

     39,470        —          39,470        —          39,470  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W     99,748        —          99,748        —          99,748  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

              

Borrowings

   W 382,817        —          383,748        —          383,748  

Debentures

     7,025,909        —          7,325,370        —          7,325,370  

Long-term payables - other

     1,649,466        —          1,766,451        —          1,766,451  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W     9,058,192        —          9,475,569        —          9,475,569  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are reasonable approximation of fair values.

Available-for-sale financial assets amounting to W199,903 million as of December 31, 2017 are measured at cost in accordance with K-IFRS 1039 since they are equity instruments which do not have quoted price in an active market for the identical instruments and for which fair value cannot be reliably measured using other valuation methods.

Fair value of the financial instruments classified as financial assets at FVOCI that are traded in an active market is measured based on the bid price at the end of the reporting date.

The Group uses various valuation methods for determination of fair value of financial instruments that are not traded in an active market. Derivative financial contracts and long-term liabilities are measured using the discounted present value methods. Other financial assets are determined using the methods such as discounted cash flow and market approach. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities measured.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Financial Risk Management, Continued

 

  (3)

Fair value, Continued

 

Interest rates used by the Group for the fair value measurement as of June 30, 2018 are as follows:

 

     Interest rate

Derivative instruments

   1.47 ~ 2.83%

Borrowings and debentures

   2.49 ~ 2.53%

Long-term payables - other

   2.23 ~ 2.58%

 

  3)

There have been no transfers between Level 2 to Level 1 for the six-month period ended June 30, 2018. The changes of financial assets classified as Level 3 for the six-month period ended June 30, 2018 are as follows:

 

(In millions of won)                                               
     Balance at
January 1,
2018
     Impact of
adopting

K-IFRS
No. 1109
    Gain or loss
for the year
     Other
compre-
hensive
income
     Acquisition      Disposal     Balance at
June 30,
2018
 

Financial assets at fair value through profit or loss

   W 222,257        (222,257     —          —          —          —         —    

Available-for-sale financial assets

     97,902        (97,902     —          —          —          —         —    

FVTPL

     —          391,515       6,915        854        1,679        (4,563     396,400  

FVOCI

     —          129,455       —          2,513        7,136        (4,063     135,041  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   W 320,159        200,811       6,915        3,367        8,815        (8,626     531,441  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

  (4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)                                 
     June 30, 2018  
     Gross financial
instruments
recognized
     Amount
offset
    Net financial
instruments
presented on the
statement of
financial position
     Relevant financial
instruments not offset
    Net amount  

Financial assets:

            

Derivatives(*)

   W 67,565        —         67,565        (1,400     66,165  

Accounts receivable – trade and others

     97,088        (96,512     576        —         576  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 164,653        (96,512     68,141        (1,400     66,741  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

   W 1,400        —         1,400        (1,400     —    

Accounts payable - other and others

     96,512        (96,512     —          —         —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 97,912        (96,512     1,400        (1,400     —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

31.

Financial Risk Management, Continued

 

  (4)

Enforceable master netting agreement or similar agreement, Continued

 

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2018 and December 31, 2017 are as follows, Continued:

 

(In millions of won)    December 31, 2017  
     Gross financial
instruments
recognized
     Amount
offset
    Net financial
instruments
presented on the
statement of
financial position
     Relevant financial
instruments not offset
    Net amount  

Financial assets:

            

Derivatives(*)

   W 26,645        —         26,645        (19,875     6,770  

Accounts receivable – trade and others

     93,146        (92,409     737        —         737  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 119,791        (92,409     27,382        (19,875     7,507  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Financial liabilities:

            

Derivatives(*)

   W 19,875        —         19,875        (19,875     —    

Accounts payable - other and others

     92,409        (92,409     —          —         —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W 112,284        (92,409     19,875        (19,875     —    
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(*)

The balance represents the net amount under the standard terms and conditions of International Swap and Derivatives Association.

 

32.

Transactions with Related Parties

 

  (1)

List of related parties

 

Relationship

  

Company

Ultimate Controlling Entity    SK Holdings Co., Ltd.
Joint ventures    Dogus Planet, Inc. and 2 others
Associates    SK hynix Inc. and 38 others
Others    The Ultimate Controlling Entity’s other subsidiaries and associates, etc.

For the periods presented, the Group belongs to SK Group, a conglomerate as defined in the Monopoly Regulation and Fair Trade Act of the Republic of Korea. All of the other entities included in SK Group are considered related parties of the Group.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

32.

Transactions with Related Parties, Continued

 

  (2)

Compensation for the key management personnel

The Parent Company considers registered directors (3 inside and 5 outside directors) who have substantial role and responsibility in planning, operations, and relevant controls of the business as key management personnel. The compensation given to such key management personnel for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)    2018      2017  
     For the period ended June 30  
     Three-month      Six-month      Three-month      Six-month  

Salaries

   W 479        3,216        331        1,499  

Defined benefits plan expenses

     121        678        85        92  

Share option

     137        271        133        145  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 737        4,165        549        1,736  
  

 

 

    

 

 

    

 

 

    

 

 

 

Compensation for the key management personnel includes salaries, non-monetary salaries, and retirement benefits made in relation to the pension plan and compensation expenses related to share options granted.

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)         2018  
          Operating revenue
and others
     Operating expense
and others
     Acquisition of property and
equipment
 

Scope

  

Company

   Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.(*1)

   W 5,748        11,294        93,045        375,207        15,616        19,244  

Associates

  

F&U Credit information Co., Ltd.

     678        1,350        13,959        27,606        —          —    
  

HappyNarae Co., Ltd.

     1,632        1,766        3,636        7,461        18,478        24,162  
  

SK hynix Inc.(*2)

     6,298        159,403        178        206        —          —    
  

KEB HanaCard Co., Ltd.

     4,906        8,938        8,286        12,317        —          —    
   Others(*3)      1,991        2,305        3,457        18,477        543        543  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        15,505        173,762        29,516        66,067        19,021        24,705  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

  

SK Engineering & Construction Co., Ltd.

     1,970        2,767        351        572        —          —    
  

SK Innovation Co., Ltd.

     1,267        4,413        338        519        —          —    
  

SK Networks Co., Ltd.

     6,329        10,216        268,662        553,329        84        84  
  

SK Networks Service Co., Ltd.

     198        382        22,808        45,846        1,778        2,033  
  

SK Telesys Co., Ltd.

     108        194        3,720        5,927        31,286        38,909  
  

SK TNS Co., Ltd

     39        72        7,744        8,851        101,888        123,242  
  

SK Energy Co., Ltd.

     2,029        3,269        269        405        —          —    
  

SKC Infra Services Co., Ltd

     35        41        10,998        21,862        7,320        12,658  
  

SK infosec Co., Ltd.

     296        503        15,797        27,225        2,464        2,550  
  

Others

     27,242        34,901        2,636        8,393        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        39,513        56,758        333,323        672,929        144,820        179,476  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      W 60,766        241,814        455,884        1,114,203        179,457        223,425  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

32.

Transactions with Related Parties, Continued

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2018 and 2017 are as follows, Continued

 

(*1) Operating expenses and others include W183,271 million of dividends declared by the Parent Company.

(*2) Operating revenue and others include W147,100 million of dividends declared by the associates which was deducted from the investment in associates.

(*3) Operating revenue and others include W1,676 million of dividends declared by Korea IT Fund and UniSK which was deducted from the investment in associates.

 

(In millions of won)   2017  
    Operating revenue
and others
    Operating expense
and others
    Acquisition of property
and equipment
 

Scope

  

Company

  Three-month
period ended
June 30
    Six-month
period ended
June 30
    Three-month
period ended
June 30
    Six-month
period ended
June 30
    Three-month
period ended
June 30
    Six-month
period ended
June 30
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.(*1)

  W 5,254       10,880       102,046       379,322       78,087       136,639  

Associates

  

F&U Credit information Co., Ltd.

    697       1,370       12,880       27,137       37       37  
  

HappyNarae Co., Ltd.

    165       2,771       5,612       13,032       12,430       15,361  
  

SK hynix Inc.(*2)

    10,115       102,665       317       349       —         —    
  

KEB HanaCard Co., Ltd.

    4,577       9,174       3,714       7,400       43       43  
  

Others(*3)

    1,971       3,212       5,086       26,472       151       151  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       17,525       119,192       27,609       74,390       12,661       15,592  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other

  

SK Engineering & Construction Co., Ltd.

    2,190       3,085       357       576       —         —    
  

SK Networks Co., Ltd.

    5,959       10,033       283,641       528,311       281       281  
  

SK Networks service Co., Ltd.

    33       78       17,238       40,017       455       1,689  
  

SK Telesys Co., Ltd.

    61       162       12,428       19,151       28,787       46,867  
  

SK Energy Co., Ltd.

    1,493       2,333       286       420       —         —    
  

SK Innovation Co., Ltd.

    1,807       3,659       309       490       —         —    
  

SK TNS Co., Ltd

    35       67       7,201       7,498       70,348       94,726  
  

SK infosec Co., Ltd.

    486       503       13,070       27,199       3,094       4,656  
  

Others

    8,103       14,280       20,998       36,360       13,718       20,858  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
       20,167       34,200       355,528       660,022       116,683       169,077  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     W 42,946       164,272       485,183       1,113,734       207,431       321,308  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

Operating expenses and others include W183,271 million of dividends declared by the Parent Company.

 

(*2)

Operating revenue and others include W87,660 million of dividends declared by the associates which was deducted from the investment in associates.

 

(*2)

Operating revenue and others include W1,403 million of dividends declared by Korea IT Fund and UniSK which was deducted from the investment in associates.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

32.

Transactions with Related Parties, Continued

 

  (4)

Account balances with related parties as of June 30, 2018 and December 31, 2017 are as follows:

 

(In millions of won)        June 30, 2018  
         Accounts receivable      Accounts payable  

Scope

 

Company

   Loans      Accounts receivable -
trade and others
     Accounts payable -
other and others
 

Ultimate Controlling Entity

  SK Holdings Co., Ltd.    W —          1,883        50,648  

Associates

  HappyNarae Co., Ltd.      —          384        3,023  
  F&U Credit information Co., Ltd.      —          75        1,297  
  SK hynix Inc.      —          1,921        181  
  Wave City Development Co., Ltd.      —          37,263        —    
  Daehan Kanggun BcN Co., Ltd.(*)      22,147        —          —    
  KEB HanaCard Co., Ltd.      —          3,475        13,617  
 

Xian Tianlong Science and Technology Co., Ltd.

     7,032        —          —    
  Others      611        3,459        1,349  
    

 

 

    

 

 

    

 

 

 
       29,790        46,577        19,467  
    

 

 

    

 

 

    

 

 

 

Other

  SK Engineering & Construction Co., Ltd.      —          735        148  
  SK Networks. Co., Ltd.      —          3,935        161,917  
  SK Networks Services Co., Ltd.      —          12        9,873  
  SK Telesys Co., Ltd.      —          52        7,381  
  SK TNS Co., Ltd.      —          10        43,814  
  SK Innovation Co., Ltd.      —          2,395        491  
  SK Energy Co., Ltd.      —          1,153        307  
  SKC Infra Services Co., Ltd      —          9        5,274  
  SK Infosec Co., Ltd      —          —          11,043  
  Others      —          10,824        2,754  
    

 

 

    

 

 

    

 

 

 
       —          19,125        243,002  
    

 

 

    

 

 

    

 

 

 
     W 29,790        67,585        313,117  
    

 

 

    

 

 

    

 

 

 

 

(*)

As of June 30, 2018, the Parent Company recognized the entire balance of loans to Daehan Kanggun BcN Co., Ltd. as loss allowances.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

32.

Transactions with Related Parties, Continued

 

  (4)

Account balances with related parties as of June 30, 2018 and December 31, 2017 are as follows, Continued:

 

(In millions of won)        December 31, 2017  
         Accounts receivable      Accounts payable  

Scope

 

Company

   Loans      Accounts receivable -
trade and others
     Accounts payable -
other and others
 

Ultimate Controlling Entity

  SK Holdings Co., Ltd.    W —          2,068        148,066  

Associates

  HappyNarae Co., Ltd.      —          15        6,865  
  F&U Credit information Co., Ltd.      —          21        1,612  
  SK hynix Inc.      —          2,803        94  
  Wave City Development Co., Ltd.      —          38,412        —    
  Daehan Kanggun BcN Co., Ltd.(*)      22,147        —          —    
  KEB HanaCard Co., Ltd.      —          1,427        11,099  
  S.M. Culture & Contents Co., Ltd.      —          448        8,963  
 

Xian Tianlong Science and Technology Co., Ltd.

     7,032        —          —    
  Others      611        2,272        1,164  
    

 

 

    

 

 

    

 

 

 
       29,790        45,398        29,797  
    

 

 

    

 

 

    

 

 

 

Other

  SK Engineering & Construction Co., Ltd.      —          2,033        69  
  SK Networks. Co., Ltd.      —          3,050        267,297  
  SK Networks Services Co., Ltd.      —          15        9,522  
  SK Telesys Co., Ltd.      —          36        58,346  
  SK TNS Co., Ltd.      —          3        140,311  
  SK Innovation Co., Ltd.      —          4,112        599  
  SK Energy Co., Ltd.      —          2,965        582  
  SK Gas Co., Ltd.      —          1,941        9  
  Others      —          2,998        27,318  
    

 

 

    

 

 

    

 

 

 
       —          17,153        504,053  
    

 

 

    

 

 

    

 

 

 

Total

     W 29,790        64,619        681,916  
    

 

 

    

 

 

    

 

 

 

 

(*)

As of December 31, 2017, the Parent Company recognized the entire balance of loans to Daehan Kanggun BcN Co., Ltd. as loss allowances.

(5)

SK m&service Co., Ltd., a subsidiary of the Parent Company, has entered into a performance agreement with SK Energy Co., Ltd. and provided a blank note to SK Energy Co., Ltd., with regard to this transaction.

(6)

During the six-month period ended June 30, 2018, there were additional investments in the associates (See note 12).

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

33.

Commitments and Contingencies

 

  (1)

Collateral assets and commitments

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of W3,933 million as of June 30, 2018.

SK Broadband Co., Ltd. has guaranteed the payment of employees’ borrowings relating to employee stock ownership program and provided short-term financial instruments amounting to W263 million as collateral as of June 30, 2018.

 

  (2)

Legal claims and litigations

The Group is involved in a legal claim with Nonghyup Bank over the validity of partnership contract. No provisions have been made as the final outcome of the matter cannot be determined or predicted at the current stage.

As of June 30, 2018, the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. In connection with those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

 

  (3)

Accounts receivables from sale of handsets

The sales agents of the Group sell handsets to the Group’s subscribers on an installment basis. During the six-month period ended June 30, 2018, the Group entered into a comprehensive agreement to purchase the accounts receivables from handset sales with agents and to transfer the accounts receivables from handset sales to special purpose companies which were established with the purpose of liquidating receivables, respectively.

The accounts receivables from sale of handsets amounting to W935,773 million as of June 30, 2018 which the Group purchased according to the relevant comprehensive agreement are recognized as accounts receivable – other and long-term accounts receivable – other.

 

  (4)

Siren Holdings Korea Co., Ltd. stock purchase contract

On May 8, 2018, the Company entered into a contract to acquire 740,895 shares of Siren Holdings Korea Co., Ltd. at W702,000 million in cash in order to strengthen the security business and expand residential customer base. This contract requires Siren Holdings Korea Co., Ltd. to merge Siren Investments Korea Co., Ltd. which wholly owns ADT Caps Co., Ltd. as a prerequisite. At the conclusion of this acquisition, the Company expects to own 55% ownership interests in Siren Holdings Korea Co., Ltd. and will obtain control over ADT Caps Co., Ltd. The transaction is subject to government’s approval, and terms and conditions of the contract may change in the course of obtaining approval and application of laws related to the approval, and the acquisition price may also change upon the price adjustment at the transaction date.

Blue Security Investments, LLC. will purchase 45% ownership of Siren Holdings Korea Co., Ltd. at the conclusion of transaction, and, according to the agreement with the shareholders along with the contract, the entire shares will be converted to cumulative and participating convertible preferred stocks as soon as possible. The holders of the convertible preferred stock can exercise the same voting right as the holders of the common stock. The convertible preferred stock has 1-to-1 conversion ratio to common stock without restriction and empowers the holders a right of priority to the dividends at 2% of their investments.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

34.

Statements of Cash Flows

 

  (1)

Adjustments for income and expenses not involving cash flows for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)              
     For the six-month period ended  
     June 30, 2018      June 30, 2017  

Interest income

   W (35,220      (39,968

Dividends

     (15,142      (10,584

Gain on foreign currency translation

     (5,563      (4,178

Gain relating to financial assets at FVTPL

     (9,939      —    

Gain on disposal of long-term investments securities

     —          (2,762

Gain on valuation of derivatives

     (897      (909

Gain on sale of accounts receivable - trade

     (8,139      (9,090

Gain relating to investments in associates and joint ventures, net

     (1,542,240      (878,250

Gain on disposal of property, equipment and intangible assets

     (3,540      (7,976

Other income

     (282      —    

Interest expenses

     146,976        149,486  

Loss on foreign currency translation

     3,124        4,968  

Loss on disposal of long-term investments securities

     —          36,024  

Other finance costs

     —          12,523  

Loss on settlement of derivatives

     12,156        8,910  

Loss relating to financial assets at FVTPL

     778        —    

Loss relating to financial liabilities at FVTPL

     780        529  

Loss on sale of accounts receivable - trade

     4,380        4,955  

Bad debt for accounts receivable – trade

     20,211        18,430  

Income tax expense

     462,359        268,654  

Depreciation and amortization

     1,630,495        1,598,776  

Impairment loss on property and equipment and intangible assets

     1,077        2,451  

Loss on disposal of property and equipment and intangible assets

     19,756        13,174  

Retirement benefit expenses

     67,531        58,878  

Share option

     341        145  

Loss on impairment of investment assets

     2,734        6,416  

Bad debt for accounts receivable - other

     4,546        2,191  

Other expenses

     3,863        767  
  

 

 

    

 

 

 
   W 760,145        1,233,560  
  

 

 

    

 

 

 

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

34.

Statements of Cash Flows, Continued

 

  (2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)              
     For the six-month period ended  
     June 30, 2018      June 30, 2017  

Accounts receivable - trade

   W 120,360        (1,159

Accounts receivable - other

     165,696        130,403  

Accrued income

     (528      38  

Advance payments

     11,753        (1,401

Prepaid expenses

     15,077        (9,014

Value-Added Tax refundable

     8,135        2,824  

Inventories

     15,086        (3,008

Long-term accounts receivable - other

     37,042        42,280  

Contract assets

     15,571        —    

Guarantee deposits

     (6,271      8,808  

Accounts payable - trade

     (97,991      (105,055

Accounts payable - other

     (200,492      (409,289

Advanced receipts

     —          (8,058

Withholdings

     42,728        131,065  

Deposits received

     (976      (2,574

Contract liabilities

     (18,305      —    

Accrued expenses

     (109,246      (6,119

Value-Added Tax payable

     13,377        10,587  

Unearned revenue

     —          (6,453

Provisions

     (4,496      (314

Long-term provisions

     2,101        (3,439

Plan assets

     6,906        12,897  

Retirement benefit payment

     (25,166      (26,201

Others

     (7,375      (1,606
  

 

 

    

 

 

 
   W (17,014      (244,788
  

 

 

    

 

 

 

 

  (3)

Significant non-cash transactions for the six-month periods ended June 30, 2018 and 2017 are as follows:

 

(In millions of won)              
     For the six-month period ended  
     June 30, 2018      June 30, 2017  

Decrease in accounts payable - other relating to the acquisition of property and equipment and intangible assets

     (349,737      (363,155

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2018 and 2017

 

35.

Interim dividends

The board of the directors of the Parent Company resolved to pay the interim dividend at the board meeting on July 26, 2018, and the details are as follows:

 

Interim dividend amount

   W1,000 per share (Total amount: W70,609 million)

Dividend rate

   0.4%

Dividend date

   June 30, 2018

Date of distribution

   According to Article 464 Commercial Act 2-1, the company is to distribute dividends by August 26, 2018.

 

73