6-K 1 d918128d6k.htm FORM 6-K 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 2020

COMMISSION FILE NUMBER: 333-04906

 

 

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

 

 

65, Eulji-ro, Jung-gu

Seoul 04539, Korea

(Address of principal executive office)

 

 

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

Form 20-F  ☒             Form 40-F  ☐

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

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.

 

 

 


Table of Contents

SEMI-ANNUAL BUSINESS REPORT

(From January 1, 2020 to June 30, 2020)

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, 2020 includes the following consolidated subsidiaries:

 

Name

   Date of
Establishment
  

Principal Business

   Total Assets as
of Dec. 31, 2019
(millions of
Won)
     Material
Subsidiary*
 

SK Telink Co., Ltd.

   Apr. 9, 1998    Telecommunication services and satellite broadcasting services      265,725        Material  

SK M&Service Co., Ltd.

   Feb. 10, 2000    Online information services      109,699        Material  

SK Communications Co., Ltd.

   Sept. 19, 1996    Internet portal and other Internet information services      67,327     

SK Broadband Co., Ltd.

   Sept. 5, 1997    Fixed-line telecommunication services, multimedia and Internet protocol TV (“IPTV”) services      4,447,549        Material  

Tbroad Nowon Broadcasting Co., Ltd.

   June 15, 2001    Cable broadcasting services      10,421     

Home & Service Co., Ltd.

   June 5, 2017    Information and telecommunication network maintenance      113,176        Material  

SK stoa Co., Ltd.

   Dec. 1, 2017    Data broadcasting and commercial retail platform services      70,754     

K-net Culture and Contents Venture Fund

   Nov. 24, 2008    Investment partnership      151,493        Material  

PS&Marketing Co., Ltd.

   Apr. 3, 2009    Sale of telecommunication devices      439,947        Material  

Service Ace Co., Ltd.

   Jul. 1, 2010    Customer center management services      80,844        Material  

Service Top Co., Ltd.

   Jul. 1, 2010    Customer center management services      66,932     

SK O&S Co., Ltd. (formerly known as Network O&S Co., Ltd.)

   Jul. 1, 2010    Network maintenance services      96,446        Material  

SK Planet Co., Ltd.

   Oct. 1, 2011    Telecommunication and platform services      595,838        Material  

Dreamus Company (formerly known as Iriver Ltd.)

   Jul. 12, 2000    Audio device manufacturing      171,586        Material  

Iriver Enterprise Ltd.

   Jan. 14, 2014    Management of Chinese subsidiary      1,689     

Iriver China Co., Ltd.

   Jun. 24, 2004    Electronic device manufacturing      2,185     

DongGuan Iriver Electronics Co., Ltd.

   Jul. 6, 2006    Electronic device manufacturing      —       

Life Design Company Inc. (formerly known as S.M. Life Design Company Japan Inc.)

   June 25, 2008    Japanese merchandise business      8,681     

SK Telecom China Holdings Co., Ltd.

   Jul. 12, 2007    Investment (holding company)      47,572     

SK Global Healthcare Business Group, Ltd.

   Sept. 14, 2012    Investment (SPC)      25,610     

SK Planet Japan, K. K.

   Mar. 14, 2012    Digital contents sourcing services      56,451     

SK Planet Global Holdings Pte. Ltd.

   Aug. 10, 2012    Investment (holding company)      415     

 

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Name

   Date of
Establishment
  

Principal Business

   Total Assets as
of Dec. 31, 2019
(millions of
Won)
     Material
Subsidiary*
SKT Americas, Inc.    Dec. 29, 1995    Information collection and management consulting services      30,704     
SKP America LLC    Jan. 27, 2012    Digital contents sourcing services      48,344     
YTK Investment Ltd.    Jul. 1, 2010    Investment      3,424     
Atlas Investment    Jun. 24, 2011    Investment      116,576      Material
SK Telecom Innovation Fund, L.P.    Jan. 15, 2016    Investment      47,879     
SK Telecom China Fund I L.P.    Sept. 14, 2011    Investment      19,896     
Onestore Co., Ltd.    Mar. 1, 2016    Contents distribution      236,329      Material
SK telecom Japan Inc.    Mar. 1, 2018    Information collection and management consulting services      10,730     
id Quantique Ltd.    Oct. 29, 2001    QRNG technology development      38,303     
Eleven Street Co., Ltd.    Sept. 1, 2018    E-commerce and Internet-related services      923,424      Material
SK TELINK VIETNAM Co., Ltd.    Aug. 30, 2018    Sale of telecommunication devices      3,084     
Quantum Innovation Fund I    Dec. 3, 2018    Investment      8,000     
Life & Security Holdings Co., Ltd.    Mar. 21, 2014    Holding company      2,639,781      Material
ADT CAPS Co., Ltd.    Jan. 22, 1971    Unmanned security services      706,808      Material
CAPSTEC Co., Ltd.    Jan. 1, 2005    Manned security services      29,569     
SK Infosec Co., Ltd.    Jun. 26, 2000    Information security services      158,424      Material
Id Quantique LLC    Jul. 27, 2018    Quantum information and communications services      1,177     
FSK L&S Co., Ltd.    Oct. 20, 2016    Logistics consulting services      47,550     
FSK L&S (Shanghai) Co., Ltd.    Jul. 29, 2010    International cargo transportation agent      23,454     
FSK L&S Vietnam Company Limited    May 5, 2020    International cargo transportation agent      0     
FSK L&S (Hungary) Co., Ltd.    Sept. 13, 2019    International cargo transportation agent      532     
SK Telecom TMT Investment Corp.    Jan. 4, 2019    Investment      33,482     
Incross Co., Ltd.    Aug. 13, 2007    Advertising agency services      144,263      Material
Infra Communications Co., Ltd.    Aug. 1, 2017    Operation of mobile services      1,569     
Happy Hanool Co., Ltd.    Aug. 8, 2019    Services      800     
SKinfosec Information Technology (wuxi) Co., Ltd.    Aug. 21, 2019    System software development and supply services      453     
Mindknock Co., Ltd.    Jan. 23, 2018    Software development services      458     

 

*

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

 

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Changes in subsidiaries during the six months ended June 30, 2020 are set forth below.

 

Change

  

Name

  

Remarks

Additions

   Tbroad Nowon Broadcasting Co., Ltd.    Newly acquired by SK Telecom
   FSK L&S Vietnam Company Limited    Newly established by FSK L&S Co., Ltd.

Exclusions

   ADT SECURITY Co., Ltd.    Merged into ADT CAPS Co., Ltd.

 

A.

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

 

B.

Date of Incorporation: March 29, 1984

 

C.

Location of Headquarters

 

  (1)

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

 

  (2)

Phone: +82-2-6100-2114

 

  (3)

Website: http://www.sktelecom.com

 

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 3G, 4G and 5G markets on the basis of its technological leadership and network management technology. With the world’s first commercialization of 5G technology in 2019, the Company continues to maintain its position as the top network operator in the 5G era and strives to provide differentiated services to its customers. In particular, in order to expedite its customers’ realization of the benefits of 5G services, the Company is pursuing efficient coverage expansion through the establishment of “5G Clusters” focused on services, key commercial districts and business-to-business (“B2B”).

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, SK O&S Co., Ltd. (“SK O&S”), the Company’s subsidiary responsible for the operation of the Company’s networks, including its 5G network, 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.

The Company plans to further utilize its big data analysis capabilities to seek momentum for growth in new business areas.

 

  (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. In April 2019, SK Broadband decided to launch an integrated over-the-top (“OTT”) platform “wavve,” combining its OTT service “oksusu” with POOQ, an OTT service alliance of Korea’s three terrestrial broadcasters. SK Broadband is focusing on strengthening the competitiveness of the combined OTT service through an increased investment in content and thereby developing it into a key service in the 5G era. In addition, SK Broadband’s merger with Tbroad Co., Ltd. (“Tbroad”) obtained all requisite regulatory approvals in January 2020, and the merger became effective as of April 30, 2020.

 

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  (3)

Security business

In the field of security business, the Company has completed its converged security business portfolio ranging from physical security to information security through the acquisitions of new material subsidiaries ADT CAPS Co., Ltd. (“ADT CAPS”) and SK Infosec Co., Ltd. (“SK Infosec”). Due to a growing number of single-person households and increasing awareness for crime prevention, the security industry has been growing steadily in recent years. New markets for physical security have also been developing as a result of integrating cutting-edge ICT, such as big data, Internet of Things (“IoT”) and AI, and bio-recognition technologies. The domestic market size of the physical security industry expanded from Won 3.6 trillion in 2012 to Won 5.5 trillion in 2017 (at an average annual growth rate of 8.7%), and is expected to grow to Won 7.9 trillion (at an average annual growth rate of 7.5%) in 2022. The Company plans to expand its security business into one of its major business areas by leveraging such industry growth and synergies with its other ICT-based businesses.

 

  (4)

Commerce business

The Company is a leading player in the Korean e-commerce industry through its material subsidiary Eleven Street Co., Ltd. (“Eleven Street”), which operates an e-commerce platform service that connects various sellers and purchasers through its online and mobile platforms. In addition, the Company continues to evolve into a commerce portal by providing differentiated shopping-related services covering shopping information, product search and purchases, relying on the strength of the Company’s core principles of innovation supported by its advanced technological capabilities, including artificial intelligence (“AI”)-based commerce search technology and customized recommendations based on big data analysis.

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

 

E.

Credit Ratings

 

  (1)

Corporate bonds and other long-term securities

 

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Table of Contents

Credit rating date

  

Subject of rating

  

Credit rating

  

Credit rating entity
(Credit rating range)

  

Rating classification

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

August 31, 2018

   Corporate bond    AAA (Stable)    Korea Ratings    Current rating

August 31, 2018

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

August 31, 2018

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

February 20, 2019

   Corporate bond    AAA (Stable)    Korea Ratings    Current rating

February 20, 2019

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

February 20, 2019

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

May 31, 2019

   Corporate bond    AAA (Stable)    Korea Ratings    Regular rating

June 4, 2019

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

June 18, 2019

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

July 15, 2019

   Corporate bond    AAA (Stable)    Korea Ratings    Current rating

July 15, 2019

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

July 15, 2019

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

October 4, 2019

   Corporate bond    AAA (Stable)    Korea Ratings    Current rating

October 7, 2019

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

October 8, 2019

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

December 26, 2019

   Corporate bond    AAA (Stable)    Korea Ratings    Current rating

December 27, 2019

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

December 27, 2019

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

June 16, 2020

   Corporate bond    AAA (Stable)    Korea Ratings    Regular rating

June 18, 2020

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

June 22, 2020

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

 

*

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

*

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”) and short-term bonds

 

Credit rating date

  

Subject of rating

   Credit rating   

Credit rating entity
(Credit rating range)

   Rating classification

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

August 31, 2018

   CP    A1    Korea Ratings    Regular rating

August 31, 2018

   CP    A1    Korea Investors Service, Inc.    Regular rating

August 31, 2018

   CP    A1    NICE Investors Service Co., Ltd.    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

August 31, 2018

   Short-term bond    A1    Korea Ratings    Regular rating

August 31, 2018

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

August 31, 2018

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

May 31, 2019

   CP    A1    Korea Ratings    Current rating

May 31, 2019

   Short-term bond    A1    Korea Ratings    Current rating

June 4, 2019

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

June 4, 2019

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

June 18, 2019

   CP    A1    Korea Investors Service, Inc.    Current rating

June 18, 2019

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

October 4, 2019

   CP    A1    Korea Ratings    Regular rating

October 4, 2019

   Short-term bond    A1    Korea Ratings    Regular rating

October 7, 2019

   CP    A1    Korea Investors Service, Inc.    Regular rating

October 7, 2019

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

October 8, 2019

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

October 8, 2019

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

June 16, 2020

   CP    A1    Korea Ratings    Current rating

June 16, 2020

   Short-term bond    A1    Korea Ratings    Current rating

June 18, 2020

   CP    A1    Korea Investors Service, Inc.    Current rating

June 18, 2020

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

June 22, 2020

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

June 22, 2020

   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 agency

  

Rating type

October 23, 2017

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

April 8, 2018

   Bonds denominated in foreign currency    A- (Stable)    S&P Global Ratings    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)    S&P Global Ratings    Regular rating

May 10, 2018

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

October 15, 2018

   Bonds denominated in foreign currency    A- (Negative)    Fitch Ratings    Regular rating

March 6, 2019

   Bonds denominated in foreign currency    A- (Negative)    S&P Global Ratings    Regular rating

May 30, 2019

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

October 14, 2019

   Bonds denominated in foreign currency    A- (Negative)    Fitch Ratings    Regular rating

June 11, 2020

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

 

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  (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

March 1984: Establishment of Korea Mobile Telecommunications Co., Ltd.

November 1989: Listing on the KOSPI Market of the Korea Exchange

March 1997: Change of name to SK Telecom Co., Ltd.

March 2008: Acquisition of Hanaro Telecom (the predecessor entity of SK Broadband)

October 2011: Spin-off of SK Planet Co., Ltd. (“SK Planet”)

June 2015: Comprehensive exchange of shares of SK Broadband

April 2016: Spin-off and merger of the location-based services business and the mobile phone verification services business of SK Planet

December 2017: Comprehensive exchange of shares of SK Telink Co., Ltd. (“SK Telink”)

December 2018: Comprehensive exchange of shares of SK Infosec

 

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 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 (the “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 Board of Directors. At the 35th General Meeting of Shareholders held on March 26, 2019, Seok-Dong Kim was elected as an independent director and member of the audit committee of the Board of Directors. At the 36th General Meeting of Shareholders held on March 26, 2020, Jung Ho Park was re-elected as an inside director, Dae Sik Cho was re-elected as a non-executive director, Jung Ho Ahn was re-elected as an independent director and member of the audit committee of the Board of Directors, Yong-Hak Kim was newly elected as an independent director and member of the audit committee and Junmo Kim was newly elected as an independent director.

 

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C.

Change in Company Name

On January 2, 2017, SK M&Service Co., Ltd. (“SK M&Service”), 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 October 23, 2018, Life & Security Holdings Co., Ltd. (“Life & Security Holdings”), one of the Company’s subsidiaries, changed its name to Life & Security Holdings Co., Ltd., from Siren Holdings Korea Co., Ltd., in accordance with a resolution at its extraordinary meeting of shareholders.

On March 28, 2019, Iriver Ltd., one of the Company’s subsidiaries, changed its name to Dreamus Company in accordance with a resolution at its general meeting of shareholders.

On April 17, 2019, Network O&S Co., Ltd., one of the Company’s subsidiaries, changed its name to SK O&S Co., Ltd. pursuant to a resolution at its extraordinary meeting of shareholders.

 

D.

Mergers, Acquisitions and Restructuring

(1) 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 Co., Ltd. (“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, 2020, the Company had a 52.7% interest in Onestore.

(2) 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. 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.

(3) 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 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%.

(4) Capital contribution of shares of NSOK Co., Ltd. (“NSOK”) for new shares of 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%.

 

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(5) 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, 2020.

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

On November 24, 2016, the 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.

(7) Acquisition of shares of Iriver

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

(8) 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.

(9) 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.

(10) 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 Co., Ltd. (“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.

(11) Acquisition of shares of id Quantique SA

In order to increase the value of the Company by enhancing its position as the top mobile network operator (“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.

(12) Acquisition of shares of Siren Holdings Korea Co., Ltd.

The Company acquired shares of Siren Holdings Korea Co., Ltd. (“SHK”), which wholly owns ADT CAPS, in order to strengthen its security business and expand its residential customer base. See “Report on Decision on Acquisition of Shares of Siren Holdings Korea Co., Ltd.” filed on May 8, 2018 for more information.

 

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*

Siren Investments Korea Co., Ltd. merged with and into SHK with SHK as the surviving entity, following which CAPSTEC Co., Ltd. (“CAPSTEC”) and ADT SECURITY Co., Ltd. (“ADT SECURITY”), which were subsidiaries of ADT CAPS, became subsidiaries of SHK.

*

SHK changed its name to Life & Security Holdings Co., Ltd. in accordance with a resolution at its extraordinary meeting of shareholders on October 23, 2018.

(13) Capital increase of Iriver

On July 26, 2018, the board of directors of Iriver, a subsidiary of the Company, resolved to approve a capital increase of Won 70,000 million through third-party allotment and subsequently issued 7,990,867 common shares. The Company participated in the capital increase and paid Won 65,000 million to subscribe 7,420,091 common shares of Iriver on August 10, 2018, resulting in an increase of the Company’s ownership interest from 45.9% to 53.7%.

(14) Exchange of shares of SK Infosec

On October 26, 2018, the Company announced the decision of the Board of Directors to approve the comprehensive exchange of shares of SK Infosec for shares of the Company. The share exchange ratio was one common share of the Company to 0.0997678 common share of SK Infosec. The share exchange was completed on December 27, 2018, upon which SK Infosec became a wholly-owned subsidiary of the Company.

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

On April 25, 2019, the Board of Directors resolved to acquire the 100% equity interest in SK Stoa owned by SK Broadband, a subsidiary of the Company, in order to expand its T-commerce business and maximize synergies with other ICT businesses of the Company. On January 3, 2020, the Company acquired 3,631,355 shares of SK Stoa after obtaining governmental approvals.

(16) Acquisition of shares of Tbroad Nowon Broadcasting Co., Ltd. (“Tbroad Nowon”)

On April 26, 2019, the Board of Directors resolved to acquire shares of Tbroad Nowon to enhance the Company’s competitiveness in the media business pursuant to a share purchase agreement with Tbroad Nowon’s largest shareholder, Tbroad. The Company acquired a 55.00% equity interest, or 627,000 shares, of Tbroad Nowon at a purchase price of Won 10.4 billion. See the report on “Amendment Regarding Decision on Acquisition of Tbroad Nowon” filed by the Company on January 28, 2020 for more information.

(17) Disposal of shares of SMC and Shopkick

On June 11, 2019, SKP America, a subsidiary of the Company, disposed of its 100% equity interest in SMC and SMC’s wholly-owned subsidiary Shopkick.

(18) Acquisition of shares of Incross Co., Ltd. (“Incross”)

On June 28, 2019, the Company acquired 2,786,455 shares of Incross in order to strengthen its digital advertising business. The Company’s equity interest in Incross following the acquisition is 34.6%. See the report on “Decision on Acquisition of Shares of Incross” filed by the Company on April 11, 2019, as amended on June 3, 2019 for more information.

(19) Capital increase of Content Alliance Platform Inc. (“Content Alliance Platform”)

The Company participated in a capital increase by Content Alliance Platform in the amount of Won 90 billion through third-party allotment in order to provide innovative media services and contents to customers and to enhance its competitiveness as a differentiated mobile OTT platform. See the report on “Participation in Capital Increase by Content Alliance Platform” filed by the Company on April 5, 2019, as amended on June 28, 2019.

 

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(20) Acquisition of newly-issued shares of Kakao Corp. (“Kakao”)

In order to pursue a strategic alliance with Kakao, the Company acquired newly-issued common shares of Kakao in the aggregate amount of approximately Won 300 billion through third-party allotment. Kakao acquired treasury shares of the Company. See the report on “Results of Disposal of Treasury Shares” filed by the Company on November 5, 2019 for more information.

[SK Broadband]

(1) 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. Home & Service was incorporated by SK Broadband under the Korean Commercial Code. The subsidiary was capitalized at Won 46 billion and the Korea Fair Trade Commission approved the subsidiary’s incorporation as an SK affiliate on July 1, 2017.

(2) Spin-off

On August 16, 2017, SK Broadband’s board of directors resolved to approve the spin-off of its T-commerce subsidiary 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, 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.

(3) Transfer of business

On April 5, 2019, SK Broadband’s board of directors resolved to approve an agreement for the transfer of its OTT service, oksusu, to Content Alliance Platform (POOQ), a joint venture among KBS, MBC and SBS. The transaction was completed on September 18, 2019.

(4) Transfer of subsidiary shares

On April 24, 2019, SK Broadband’s board of directors approved the transfer of its 100% equity interest (3,631,355 shares) in SK Stoa, a subsidiary of SK Broadband, to SK Telecom. On December 30, 2019, the Ministry of Science and ICT (“MSIT”) approved the change in the largest capital contributor, and the transaction was completed on January 3, 2020.

(5) Merger of Tbroad, Tbroad Dongdaemun Broadcasting Co., Ltd. (“Tbroad Dongdaemun”) and Korea Digital Cable Media Center (“KDMC”) with and into SK Broadband

On April 26, 2019, SK Broadband’s board of directors resolved to enter into a merger agreement pursuant to which Tbroad, Tbroad Dongdaemun and KDMC will merge with and into SK Broadband. On January 23, 2020, the parties entered into an amendment to the merger agreement due to changes in the merger timeline, and on March 26, 2020, the entry into the merger agreement was approved as proposed at the extraordinary general meeting of shareholders. The merger was completed as of April 30, 2020.

[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.

 

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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.

(3) Disposal of NSOK shares

Pursuant to the resolution of its board of directors on October 8, 2018, SK Telink entered into an agreement to sell 1,012,459 shares of NSOK (representing a 100.00% equity interest) to Life & Security Holdings. The date of sale was October 10, 2018, and the sale consideration amount was Won 100 billion. See “Report on Disposal of Shares of Related Party” filed on October 8, 2018 by SK Telink for more information about this transaction.

(4) Change in location of headquarters

As of April 20, 2020, SK Telink changed the location of its headquarters to 144 Mapo T-town, Mapo-daero, Mapo-gu, Seoul pursuant to a resolution of its board of directors on April 16, 2020.

(5) Transfer of access ID business

On May 22, 2020, the board of directors of SK Telink resolved to transfer its access ID business and related assets to ADT CAPS, a related party, for Won 0.4 billion, effective as of May 31, 2020.

(6) Transfer of device business

On May 22, 2020, the board of directors of SK Telink resolved to transfer its device business and related assets to SK Networks Co., Ltd., a related party, for Won 4.2 billion, effective as of July 1, 2020. As such transfer qualified as a simplified business transfer, the board resolution served as requisite approval in lieu of approval by the general meeting of shareholders.

[Life & Security Holdings]

(1) Spin-off and merger of certain businesses of ADT CAPS

On May 18, 2018, in order to seek a more efficient corporate structure through reorganization, Life & Security Holdings spun off ADT CAPS’ holding company business (i.e., the business of controlling its subsidiaries CAPSTEC and ADT SECURITY through the ownership of shares of these subsidiaries) from ADT CAPS and merged it with and into Life & Security Holdings, with Life & Security Holdings and ADT CAPS surviving these transactions.

[ADT CAPS]

(1) Merger of NSOK

Pursuant to resolutions of the board of directors on October 8, 2018 and the general meeting of shareholders on October 23, 2018, ADT CAPS merged NSOK with and into itself effective as of December 1, 2018 to seek new sources of growth, taking into account the growth potential of the physical security market.

 

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(2) Merger of ADT SECURITY

Pursuant to resolutions of the board of directors on November 14, 2019 and the general meeting of shareholders on November 29, 2019, ADT CAPS completed the merger of ADT SECURITY with and into itself effective as of January 1, 2020 to enhance management efficiency.

[Eleven Street]

(1) Establishment of Eleven Street

On July 31, 2018, the board of directors of SK Planet resolved to spin off its 11st business division (including Scinic, Gifticon and 11Pay) into a newly established company, Eleven Street, effective as of September 1, 2018. In the spin-off, newly issued shares of the spun-off company were allocated in proportion to the equity interest of the shareholders as of the date of such allocation, at a ratio of 0.14344419 newly issued share for 1 share of SK Planet (8,383,931 common shares).

(2) Capital increase of Eleven Street

Pursuant to the resolution of the board of directors on September 7, 2018, Eleven Street issued new shares through a third-party allotment in order to increase its capital, allocating all such new shares to Nile Holdings Co., Ltd. The payment date was September 28, 2018. After the capital increase, SK Telecom holds a 80.26% interest in Eleven Street. See “Report on Decision on Capital Increase of Eleven Street Co., Ltd.” filed by the Company on September 7, 2018 for more information.

(3) Acquisition of shares of Hello Nature Co., Ltd. (“Hello Nature”)

On October 10, 2018, Eleven Street acquired 281,908 shares of Hello Nature, a fresh food delivery service provider, from SK Planet for Won 29.9 billion. As a result of this acquisition, Eleven Street owns a 49.90% interest in Hello Nature.

(4) Acquisition of shares of KOREACENTER Co., Ltd. (“KOREACENTER”)

Pursuant to the resolution of the board of directors on December 26, 2018, Eleven Street acquired 578,521 shares owned by the shareholders of KOREACENTER (Gi Rok Kim and three other individuals) and 578,521 newly issued shares of KOREACENTER, for a total consideration of Won 27.5 billion, in order to form a strategic alliance and promote its commerce services and global business.

(5) Share repurchase

Pursuant to the resolution at its general shareholders’ meeting held on March 26, 2019 approving a share repurchase and the resolution of its board of directors held on April 26, 2019 approving the terms of such repurchase, Eleven Street repurchased 158,429 units of its own shares from SK Planet for Won 42.5 billion and 203 units of its own shares from certain other shareholders (Young-hoon Jeon and four others) for Won 50 million, effective as of August 30, 2019, in order to enhance the value of its shares. As a result of this repurchase, Eleven Street owns 1.55% of its total shares issued as treasury shares.

[SK Infosec]

(1) Merger of Bizen Co., Ltd. (“Bizen”)

Pursuant to a resolution of its board of directors on November 28, 2014, SK Infosec decided to merge Bizen with and into itself, with SK Infosec as the surviving entity, effective as of January 20, 2015, in order to strengthen its competitiveness through the creation of business synergies. The merger was completed based on a merger ratio of 1:0.0797984.

(2) Comprehensive exchange of shares

 

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On October 25, 2018, the board of directors of SK Infosec resolved to enter into a share exchange agreement with SK Telecom pursuant to which the shareholders of record of SK Infosec would be allotted 0.00997678 treasury share of SK Telecom in exchange for one common share of SK Infosec on December 27, 2018, after which SK Infosec would become a wholly-owned subsidiary of SK Telecom. The share exchange agreement was executed on November 26, 2018 and the comprehensive share exchange was completed on December 27, 2018.

[SK Planet]

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 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.

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 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 Planet decided to reduce the par value of its shares from Won 500 to Won 150 to improve its financial structure through coverage of losses. The capital reduction is effective as of April 27, 2020.

[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.

[Dreamus Company]

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

Pursuant to the resolution of its board of directors on November 18, 2014, Dreamus Company merged Iriver CS, a subsidiary of the Company, with and into itself on January 31, 2015, with the purpose of enhancing competitiveness through management rationalization and maximization of synergy. The merger was completed based on a 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. Since this merger qualified as a small-scale merger, the approval of the merger by a resolution of the board of directors substituted for the approval by a general meeting of shareholders.

 

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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, Dreamus Company 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. Dreamus Company 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, Dreamus Company 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, Dreamus Company merged S.M. Mobile Communications JAPAN Inc. into it with a merger ratio of 1:1.6041745, based on which Dreamus Company issued 4,170,852 new common shares.

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

On February 28, 2018, Dreamus 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.

(5) Merger between subsidiaries

In order to achieve management efficiency and maximize organizational operation synergies, groovers Japan Co., Ltd. and SM Mobile Communications Japan Inc., each of which was a Japanese subsidiary of Dreamus Company, completed their merger with groovers Japan Co., Ltd. as the surviving entity, effective as of July 1, 2018.

(6) Investment in groovers Inc. (“Groovers”)

On July 26, 2018, the board of directors of Dreamus Company resolved to make an equity investment of Won 11,000 million (2,200,000 common shares) in Groovers for the purposes of providing operating funds to improve its financial structure and pursue new businesses. Payment was completed on July 27, 2018, and the Company’s ownership interest after such equity investment is 100%.

(7) Transfer of Music Mate business between Groovers and SK TechX

On August 31, 2018, pursuant to the resolutions of its board of directors and the extraordinary meeting of shareholders, each of which was held on June 28, 2018, Groovers acquired all properties, assets and rights related to the Music Mate streaming service from SK TechX for Won 3,570 million.

(8) Merger of Groovers

Pursuant to the resolution of its board of directors on December 26, 2018, Dreamus Company merged Groovers, a provider of music, contents and other services, with and into itself on March 1, 2019, in order to seek synergies by integrating management resources and enhance management efficiency. The merger was completed based on a merger ratio of 1:0 with no capital increase. The merger and merger registration were completed on March 1, 2019 and March 5, 2019, respectively. Since this merger qualified as a small-scale merger, the approval of the merger by a resolution of the board of directors substituted for the approval by a general meeting of shareholders.

 

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(9) Disposal of shares of Iriver Inc.

Pursuant to the resolution of its board of directors on July 18, 2019, Dreamus Company disposed of all of its shares in Iriver Inc., effective as of September 1, 2019, with the goal of achieving sustainable growth of its device business by improving its financial structure and profitability and maintaining its business expertise and continuity of operations.

(10) Merger between subsidiaries

In order to achieve management efficiency and maximize organizational operation synergies, Life Design Company Inc. and groovers Japan Co., Ltd., each of which is a Japanese subsidiary of Dreamus Company, completed their merger with Life Design Company Inc. as the surviving entity, effective as of December 15, 2019.

[Incross]

(1) Spin-off of Infra Communications Co., Ltd. (“Infra Communications”)

Effective as of August 1, 2017, Incross spun off its business related to the operation agency service of the integrated mobile application marketplace “Onestore” into a newly established company, Infra Communications, in order to strengthen the expertise and enhance management efficiency of each of its businesses, to respond effectively to the external environment by re-investing the value generated from each business into such business, and to grow and develop such business through strategic and efficient allocation of management resources.

(2) Transfer of mobile advertising network business

Effective as of April 1, 2017, Incross acquired SK Planet’s mobile advertising network business, “Syrup Ad.”

(3) Transfer of media representative business

Effective as of March 17, 2020, Incross acquired SK Stoa’s advertisement media agency and advertising agency businesses.

3.    Total Number of Shares

 

A.

Total Number of Shares

 

(As of June 30, 2020)                  (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

     7,609,263        —          7,609,263        —    

VI. Number of shares outstanding (IV-V)

     73,136,448        —          73,136,448        —    

 

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B.

Treasury Shares

There were no acquisitions and dispositions of treasury shares during the reporting period.

4.    Status of Voting Rights

 

(As of June 30, 2020)                (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      7,609,263        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      73,136,448        —    
   Preferred share      —          —    

5.    Dividends and Others

 

A.

Dividends

 

  (1)

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.

 

  (2)

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

 

  (3)

Distribution of cash dividends was approved during the 35th General Meeting of Shareholders held on March 26, 2019.

 

   

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 426th Board of Directors’ Meeting on July 25, 2019.

 

  (5)

Distribution of cash dividends was approved during the 36th General Meeting of Shareholders held on March 26, 2020.

 

   

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 438th Board of Directors’ Meeting on July 21, 2020.

 

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B.

Dividends for the Last Three Fiscal Years

 

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

Classification

     As of and for the six months
ended June 30, 2020
     As of and for the year ended
December 31, 2019
     As of and for the year ended
December 31, 2018
 

Par value per share (Won)

 

     500        500        500  

(Consolidated) Net income

 

     736,650        889,907        3,127,887  

Net income per share (Won)

 

     9,971        12,144        44,066  

Total cash dividend

 

     73,136        730,098        717,438  

Total stock dividends

 

     —          —          —    

(Consolidated) Percentage of cash dividend to available income (%)

 

     9.9        82.0        22.9  

Cash dividend yield ratio (%)

     Common shares        0.4        3.7        3.6  
     Preferred shares        —          —          —    

Stock dividend yield ratio (%)

     Common shares        —          —          —    
     Preferred shares        —          —          —    

Cash dividend per share (Won)

     Common shares        1,000        10,000        10,000  
     Preferred shares        —          —          —    

Stock dividend per share (share)

     Common shares        —          —          —    
     Preferred shares        —          —          —    

 

*

The total amount of cash dividends was calculated by adding the total amount of cash dividends resolved at the general meeting of shareholders for the relevant fiscal year and any quarterly cash dividends paid during such fiscal year (including interim dividends) in accordance with applicable disclosure requirements.

*

Consolidated net income is based on equity attributable to owners of the parent company.

 

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II.

BUSINESS

1.     Business Overview

Each company in the consolidated entity is a separate legal entity providing independent services and products. The business is primarily separated into (1) the wireless business consisting of cellular voice, wireless data and wireless Internet services, (2) the fixed-line business consisting of fixed-line telephone, high speed Internet, data and network lease services, among others, (3) commerce business, (4) security business and (5) 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
   SK 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 services including video-on-demand (“VOD”)

   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

Security

  

 

Life & Security Holdings Co., Ltd.

  

 

Holding company

   ADT CAPS Co., Ltd.    Unmanned machine-based security and manned security services
   SK Infosec Co., Ltd.    Comprehensive information protection services and integrated computer system consulting and implementation services

 

Commerce

  

 

Eleven Street Co., Ltd.

  

 

E-commerce and Internet-related businesses

Other business

  

 

SK Planet Co., Ltd.

  

 

Information telecommunications business and development and supply of software

   Onestore Co., Ltd.    Operation of mobile application store
   Dreamus Company    Online music service and distribution of records and digital content
   SK M&Service Co., Ltd.    System software development, distribution and technical support services and other online information services
   K-net Culture and Contents Venture Fund    Start-up investment support
   Atlas Investment    Investments
   Incross Co., Ltd.    Advertising

 

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[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 smartphones which enable the provision of convergence services for multimedia contents, mobile commerce, telematics, new media and other related services. In addition, through further advancements in LTE networks and the commercialization of 5G networks in 2019, B2B businesses, such as the corporate “connected workforce” business which can directly contribute to an enhancement in productivity, are expected to grow rapidly.

 

B.

Growth Potential

 

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

                                     Classification

   2020      2019      2018  
Number of
subscribers
   SK Telecom      28,932        28,648        27,382  
   Others (KT, LGU+)      32,396        31,539        29,989  
   MVNO      7,339        7,750        7,989  
   Total      68,668        67,937        65,360  

 

*

Source: Wireless subscriber data from the MSIT as of June 30, 2020.

 

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 has been growing due to the increasing popularity of smartphones and high-speed wireless networks. There is also a growing importance to the B2B segment, which creates added value by selling and developing various solutions. The telecommunications industry is a regulated industry requiring license and approval from the MSIT.

In the wireless business, industry players compete on the basis of the following three main competitive elements:

(i)    brand competitiveness, which refers to the overall sense of recognition and loyalty experienced by customers with respect to services and values provided by a company, including the images created by a company’s comprehensive activities and communications on top of the actual services rendered;

(ii)    product and service competitiveness, which refers to the fundamental criteria for wireless telecommunications services, including voice quality, service coverage, broad ranges of rate plans, diversified mobile Internet services, price and quality of devices and customer service quality, as well as the ability to develop new services that meet customer needs in a market environment defined by convergence; and

 

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(iii)    sales competitiveness, which refers to novel and diversified marketing methods and the strength of the distribution network.

Set forth below is the historical market share of the Company (excluding MVNO subscribers).

 

(Unit: in percentages)  

Classification

   As of June 30,      As of December 31,  
   2020      2019      2018  

Mobile communication services

     47.2        47.6        47.7  

 

*

Source: Wireless subscriber data from the MSIT as of June 30, 2020.

 

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 of positive customer responses to a series of customer value innovation programs such as no-contract plans, safe roaming and the T Plan, as well as its position as the top player in the 5G services market in terms of number of subscribers, the Company secured approximately 3.35 million 5G subscribers as of June 30, 2020. The churn rate remained relatively stable at a record low of 0.9% (excluding MVNO subscribers). In the second quarter of 2020, the Company recorded revenue of Won 4,602.8 billion and an operating profit of Won 359.5 billion on a consolidated basis, and revenue of Won 2,939.8 billion and an operating profit of Won 270.3 billion on a separate basis.

In the telecommunications technology domain, in June 2018, the Company secured frequency bandwidths that are optimal for the commercialization of 5G services at a reasonable bid price. In the fourth quarter of 2018, the Company began to build its 5G networks, focusing on Seoul and other metropolitan areas. The Company began its first 5G transmission in December 2018 and is focusing on establishing 5G networks with enhanced stability and security through the application of quantum cryptography communication and AI networks.

In April 2019, the Company launched the world’s first 5G subscription services. The Company had 2.08 million 5G subscribers as of December 31, 2019, and the number of 5G subscribers is expected to continue to grow. The Company believes that 5G services would have the greatest impact on customer experiences in media, augmented reality (“AR”) / virtual reality (“VR”) and games, which are the areas that the Company believes would draw the highest level of interest from its customers. The Company is launching services related to these areas, such as the 5GX Boost Park. The Company plans to lead the 5G era by providing differentiated content in various areas including sports and entertainment.

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.

SK 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. Network quality is a core competitive factor for not only the traditional consumer market but also for the expanding B2B market, and its importance will only increase in the 5G network era.

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.

 

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Table of Contents

[Fixed-line 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 (such as IPTV, cable TV and bundled fixed-line/wireless 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 broadcasting business involves the planning, programming or production of broadcasting programs and transmission to viewers through telecommunication facilities. Pursuant to the Broadcasting Act, the broadcasting market can be categorized into terrestrial broadcasting, fixed-line TV broadcasting, satellite broadcasting and programming-providing businesses. The Company engages in the fixed-line TV broadcasting business, which is defined as the business of managing and operating fixed-line TV broadcasting stations (including their facilities and employees for the purpose of providing multi-channel broadcasting) and providing broadcasts through transmission and line facilities.

The fixed-line telecommunications industry is a technology-intensive industry that evolves rapidly and continuously through the development of communications technology and equipment, which requires proactive responses in meeting the needs of subscribers by developing new services and penetrating the market. Fixed-line telecommunications services have become universal and essential means of communication and act as the foundation for integration and convergence with various other services. The essential nature of such services provides stable demand, resulting in low sensitivity to economic conditions.

The Korean fixed-line services industry is marked by a 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.

B.     Growth Potential

 

     (Unit: in 1,000 persons)  

                                         Classification

   As of June 30,      As of December 31,  
   2020      2019      2018  

Fixed-line

Subscribers

   High-speed Internet      22,152        21,906        21,286  
   Fixed-line telephone      13,206        13,600        14,334  
   IPTV      16,833        16,440        15,054  
   Cable TV      13,558        13,642        13,925  

 

*

Source: MSIT website.

*

The number of IPTV and cable TV subscribers as of June 30, 2020 is based on the average number of subscribers in the last six months of 2019.

 

C.

Cyclical Nature and Seasonality

High-speed Internet, fixed-line telephone and pay TV 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.

 

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D.

Domestic and Overseas Market Conditions

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

 

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

Classification

   2020      2019      2018  

High-speed Internet (including resales)

     29.5        25.6        25.4  

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

     16.8        16.8        16.8  

IPTV

     30.2        30.3        30.3  

Cable TV

     22.4        22.4        22.5  

 

*

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 and cable TV subscribers as of June 30, 2020 is based on the average number of subscribers in the last six months of 2019.

In each of its principal business areas, SK Broadband principally competes on the basis of price, service quality and speed. In the IPTV business, the ability to offer complex services and differentiated contents are becoming increasingly important. General telecommunications businesses operate in a licensed industry with a high barrier of entry, which is dominated by SK Broadband, KT and LG U+.

 

E.

Business Overview and Competitive Strengths

In the second quarter of 2020, SK Broadband recorded Won 918.4 billion in revenue, Won 60.8 billion in operating profit and Won 39.9 billion in profit on a consolidated basis. SK Broadband achieved revenue growth compared to the second quarter of 2019 as a result of the mergers during the period and an increase in B2B sales, including content delivery network services.

In the case of high-speed Internet, revenue increased compared to the second quarter of 2019 due to an increase in the proportion of subscribers of premium services, such as Giga Internet. Despite the absence of new cinematic releases and other new content, the IPTV service business continued its solid growth compared to the second quarter of 2019 due to the growth in subscribers and platform sales. Revenue from the corporate business increased compared to the first quarter of 2020 and the second quarter of 2019 as a result of SK Broadband’s anticipatory response to data traffic growth.

[Security Business]

 

A.

Industry Characteristics

The security systems service business provides security services to governments, companies and individuals with the purpose of protecting tangible and intangible assets and human resources. Depending on the risk prevention method used, the security business can be classified into machine-based security, security system integration (“SI”) and manned security. Machine-based security operates by receiving information that is detected and transmitted by various sensors and cameras installed at the target facilities through control facility equipment and taking prompt and appropriate action, such as dispatching an agent or contacting the police or the fire department, if an abnormality is detected. Security SI is a service that integrates installation, operation, maintenance and repair of various equipment and systems by analyzing the appropriate security system for customer facilities, such as buildings, factories and schools. Manned security services deploy security personnel to areas subject to security, who perform on-site security services such as patrols and access control of buildings and facilities. The Company’s primary business in the security industry is its unmanned security service, and its business areas consist of the following:

 

Classification

  

Product

Machine-based security

   CAPS service (unmanned security service), access control, view guard (CCTV), attendance management, drinking water management

Security SI and maintenance and repair

   Access control (entry and parking), CCTV (recording, camera, monitor, network equipment), other security systems

Integrated security services (machine-based security + manned security)

   Machine-based security services, manned security services (security, cleaning, concierge, etc.)

 

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B.

Growth Potential

The size of the physical security industry in terms of revenue is as follows:

 

(Unit: in millions of Won except percentages)  
     2019      2018      Change (%)  

Dispatch security services

     1,727,972        1,726,210        0.1

Video security services

     415,647        401,777        3.5

Other security services

     536,208        485,004        10.6

Total

     2,679,827        2,612,991        2.6

 

*

Source: Korea Information Industry Association (2019 Korean Information Security Services Industry Survey published in December 2019). 2019 figures are estimates.

 

C.

Cyclical Nature and Seasonality

The security systems business seeks to satisfy the basic need for safety and is less sensitive to economic fluctuations compared to other industries. Although the slowdown in the Korean economy and competition based on lower-cost alternatives has had a negative impact on industry growth, sustained growth is nevertheless expected due to the recent expansion of the industry into converged security markets with the integration of ICT.

 

D.

Domestic and Overseas Market Conditions

The security industry is experiencing a rapid increase in demand for CCTV, access control and other security systems due to threats including crime, natural disasters and calamities and terrorism. With increased consumer interest in safety, demand for security system services is expected to continue to grow. To date, the Korean security market is characterized by an oligopoly dominated by three leading companies due to the high barriers to entry as a result of high initial investment costs of building large-scale network systems and the effects of brand loyalty. The traditional security industry, characterized by price competition aimed at increasing market share, is expanding into a converged security market with the integration of ICT. In addition, the global converged security market integrating ICT has recently been experiencing rapid growth and increased competition due to the entry of global information technology companies. As a result, the global AI security industry, which had a market size of US$3.9 billion in 2018, is expected to grow tenfold by 2025.

 

E.

Business Overview and Competitive Strengths

For the six months ended June 30, 2020, ADT CAPS recorded Won 391.1 billion in revenue and Won 55.3 billion in operating profit, and it has secured approximately 620,000 subscribers as of June 30, 2020, including subscribers to newly launched businesses.

Due to the saturation of the unmanned security market, the net growth rate in the number of ADT CAPS’ unmanned security contracts decreased in 2019 compared to the previous year. However, ADT CAPS was able to record approximately Won 740 billion in revenue in 2019, exceeding expectations, due to increases in the number of new subscribers acquired through the SK distribution network and sales in newly-launched businesses, such as CAPS Home and parking services.

Although the unmanned security market is expected to remain saturated in 2020, ADT CAPS will pursue efforts to improve its core unmanned security business through the development of products and market approaches that are tailored to the needs of various customers, while steadily improving its new security businesses at the same time.

In particular, through the merger of ADT SECURITY, a provider of security equipment and solutions, with and into itself, ADT CAPS plans to reach customers with a diverse range of products as a convergence security company in 2020.

 

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Unmanned security services range from crime prevention based on cutting-edge sensors and prompt dispatch of security personnel to follow-up services. With increased efforts to reduce false alarms, ADT CAPS continues to reduce dispatch and control costs, thereby improving service quality and ultimately generating new sources of revenue to establish a positive cycle for continuous growth.

Video security services provide objective security through full identification of subjects with the use of high-definition video, made convenient and safe through a diverse lineup of products and remote control services. Access security services provide outsider access control, employee attendance checks and even drinking water management, which are made user-friendly and convenient due to the integration of cutting edge AI-based technology such as fingerprint, facial and mobile recognition. ADT CAPS plans to continue advancing such technology-based services and deliver more convenient and safer security services to customers through innovative technologies.

The SI business provides comprehensive security solutions suitable for the management of large buildings, such as access control and energy, fire safety and parking management services. ADT CAPS is striving to provide customers with the best comprehensive security solution, including more economical and optimized products through the development of innovative technologies.

[Commerce Business]

A.    Industry Characteristics

Electronic commerce, or e-commerce, refers to transactions of goods and services that are processed electronically by information processing systems, such as personal computers, and can be classified into “online order” and “online order brokerage” businesses. The mail order brokerage business refers to the act of intermediating a transaction between a seller and a buyer by an online shopping mall, and the online order business refers to direct sales of goods and services by an online shopping mall. Online shopping malls can be categorized, based on the range of products that they handle, into special malls that handle products limited to specific categories and general malls that handle products across multiple categories. The Korean e-commerce market started to grow in the early 2000s with the spread of the Internet, and it is now going through a second period of growth in the form of mobile commerce as a result of the removal of time and space constraints on shopping following the proliferation of smartphones beginning in 2010, the simplification and improved convenience of payment services, the expansion of fast delivery services following intense competition in such services beginning in 2018, the combination of offline and online shopping experiences (omni-channel and O2O services) and advancements in personalization and recommendation services based on AI. 11st, which is an online order brokerage business, is known as an “open market business” within the e-commerce market. As a result of leading the trend of mobile commerce and pursuing innovative customer experience since the early stages of its business, 11st has grown into a major player in the e-commerce market.

B.    Growth Potential

As of December 31, 2019, the size of the Korean e-commerce market was Won 134.6 trillion, accounting for approximately 28% of the total online and offline distribution market and demonstrating rapid growth at an annual average growth rate of over 25% for the past three years. In addition, mobile transactions accounted for 64.4% of the total e-commerce transaction value in 2019, after surpassing 50% for the first time in 2016. Considering the current acceleration in the shift of products traditionally sold offline, such as food products, food delivery services, apparels and household products, to the mobile e-commerce platform, mobile e-commerce is expected to continue its growth in the future.

 

Year

   2019    2018    2017    2016

E-commerce transaction value (trillion Won)

   134.6    113.7    94.2    65.6

Annual growth rate

   18.3%    20.8%    43.6%    21.5%

 

*

Source: Statistics Korea, “Online Shopping Trends.”

 

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C.    Cyclical Nature and Seasonality

While the commerce industry is inherently affected by fluctuations in the economy to a certain extent, their effect on the e-commerce market has been limited due to its ongoing rapid growth.

D.    Domestic and Overseas Market Conditions

The mobile-centered online commerce market is expected to grow steadily due to the further growth potential of the Internet shopping population, the development of online business models by offline commerce operators and the growth of mobile commerce. New business models are expected to emerge and proliferate into new markets as diverse lifestyle services that go beyond commodities are incorporated into the area of commerce.

E.    Business Overview and Competitive Strengths

Focusing on the 11st Marketplace, the Company plans to continue expanding the commerce ecosystem of 11st, and ultimately enhance its corporate value by providing diverse and innovative shopping experiences based on technology and strengthening customer benefits using synergies with other ICT businesses of the Company. In particular, the Company’s 11st business recorded an operating profit in 2019 and, as a result, established a foundation for sustainable growth. 11st has become a leader in the Korean e-commerce market through steady growth since its launch in 2008, with the largest number of unique visitors per month (at an average of 17 million unique visitors per month in 2019), by building customer trust and through effective marketing, despite its late entry into the online commerce market that was previously dominated by two players, Gmarket and Auction. 11st has also firmly established itself as a market leader and top player in the Korean mobile commerce market by rapidly responding to the shift of the e-commerce market towards mobile platforms. In addition, the Company has made efforts to gain the market’s confidence and improve customer satisfaction since the launch of 11st, resulting in recognition by certifications from KS-SQI (Service Quality Index) for twelve consecutive years, KCSI (Consumer Satisfaction Index) for eleven consecutive years and CCM (Consumer Centered Management). Based on the large user base of 11st, the Company plans to expand the product offerings of 11st based on expanded partnerships with third parties and upgrade services, thereby continuing to strengthen the unique value of 11st as a commerce portal through improvements in customer’s convenience and continuous innovation.

[Other Businesses]

OK Cashbag, operated by SK Planet, 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.

Syrup is a service that provides information about coupons and events based on time, place and occasion, thereby maximizing economic benefits for consumers, as well as a marketing tool based on consumption behavior data that enables its business partners to achieve smart, low-cost and high-efficiency marketing. In 2019, based on big data accumulated over the years, Syrup expanded its service to the area of mobile finance, which allows users to check their financial assets and provides an integrated process including recommendation for and subscription to customized financial products. The Company plans to continue developing Syrup to provide more practical benefits to its customers in their daily lives.

Incross, a material subsidiary of the Company, primarily focuses on the digital advertising media representative business, which involves establishing media strategies and executing advertising on behalf of advertisers and advertising agencies, and its “Dawin” business, Korea’s first video advertising network platform. In April 2020, Incross launched T-Deal, a CPS (cost per sales) advertising product that utilizes SK Telecom’s text messaging services. In addition, Infra Communications, a subsidiary of Incross, provides operational services for the integrated mobile application market “Onestore.”

 

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FLO, launched in December 2018 by Dreamus Company, a material subsidiary of the Company, is a music streaming service that recommends music and provides a user experience (“UX”) tailored to individual users. Based on AI, FLO recommends music for its users by closely analyzing such user’s music listening history and provides various playlists on a home screen that changes daily by applying an adaptive UX. As of June 30, 2020, the market share of FLO in terms of number of average unique visitors (calculated based on the total mobile monthly active users of FLO, Melon, Genie, NAVER Music, Vibe, Bugs and YouTube Music) was approximately 21.1% (Source: Korean Click). In addition to its online music service, Dreamus Company operates a music records and digital content distribution business, artist merchandise business and device business under the “Astell&Kern” brand.

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.,

Service Ace Co., Ltd.

SK O&S Co., Ltd.

 

 

 

 

    

Mobile communication service,

wireless data service,

ICT service

 

 

 

    
T, 5GX, baro, T
Plan and others
 
 
     6,064,979        67

Fixed-line

    

SK Broadband Co., Ltd.,

SK Telink Co., Ltd.

 

 

    

Fixed-line phone, high speed
Internet, data and network
lease service
 
 
 
    


B tv, 00700
international call,
7mobile and
others
 
 
 
 
     1,609,354        18

Security

     ADT CAPS Co., Ltd.       

Manned and unmanned
security, information security
and others
 
 
 
    

T&CAPS,
B&CAPS and
others
 
 
 
     575,508        6

Commerce

     Eleven Street Co., Ltd.        E-commerce       

11st, 11Pay,
Gifticon and
others
 
 
 
     375,912        4

Other

    

SK Planet Co., Ltd.,

Onestore Co., Ltd.,

SK M&Service Co., Ltd.,

Incross Co., Ltd.

 

 

 

 

    


Information
telecommunication, electronic
finance, advertising, Internet
portal service
 
 
 
 
    

OK Cashbag,
NATE and
others
 
 
 
     427,456        5

Total

              9,053,209        100

3.     Price Trends for Major Products

[Wireless Business]

As of June 30, 2020, 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. Among the 4G-based “T-Plans” launched in 2018, the “Medium Plan” provides 4 GB of data and unlimited voice calls at Won 50,000 per month (including value-added tax). Among the “5GX Plans” launched in 2019, the “Slim Plan” provides 8 GB of data and unlimited voice calls at Won 55,000 per month (including value-added tax). The Company provides a variety of other subscription plans catered to subscriber demand.

[Fixed-line Business]

SK Broadband offers a variety of subscription plans catering to customer needs, and the price of its services varies accordingly. In the case of IPTV, SK Broadband launched the “B tv All” plan, which provides all of the available B tv channels excluding pay channels at Won 18,700 per month in the case of three-year subscriptions, in July 2019. Other “All”-based packaged plans include “All + Point” and “All + Movie” (Won 20,900 per month) plans.

In the case of Internet, SK Broadband launched the “Giga Premium X” series in December 2018, including the “Giga Premium X2.5” plan, which provides a maximum transmission speed of 2.5 Gbps and Giga WiFi Premium services for Won 44,000 per month in the case of three-year subscriptions. In addition, as a result of the merger with Tbroad in April 2020, Tbroad’s cable Internet plans, such as the optical LAN plan (Won 19,800 per month), have been incorporated as part of SK Broadband’s services. SK Broadband also provides a variety of other subscription plans.

 

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[Commerce Business]

Eleven Street acts as an intermediary in e-commerce transactions between sellers and buyers on 11st, and charges sellers sales commissions in accordance with the terms of use as consideration for execution of transactions, payment settlement and security measures. Although the amount of sales commissions vary by product category, it is generally set at market standard rates ranging from 10% to 12% of the transaction value. Such sales commission rate structure has largely remained unchanged since the launch of 11st, although the Company occasionally offers temporary promotional reductions for certain periods in order to encourage transactions.

4.     Investment Status

[Wireless Business]

 

A.

Investment in Progress

 

(Unit: in billions 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,
2020
 
 
 
    

Network,
systems and
others
 
 
 
    

Capacity increase and
quality improvement;
systems improvement
 
 
 
   To be
determined
     1,224        —    

Total

               To be
determined
     1,224        —    

 

B.

Future Investment Plan

 

(Unit: in billions of Won)

Business

   Expected investment amount    Expected investment for each year    Investment effect
   Asset type      Amount    2019    2020    2021

Network/Common

    

Network,
systems and
others
 
 
 
   To be
determined
   To be
determined
   To be
determined
   To be
determined
   Upgrades to the existing services and
expanded provision of network
services including 5G

Total

      To be
determined
   To be
determined
   To be
determined
   To be
determined
  

[Fixed-line Business]

 

A.

Investment in Progress and Future Investment Plan

 

(Unit: in 100 millions of Won)

Purpose of investment

   Subject of investment    Investment
period
   Amount
already
invested
   Future
investment
   Investment effect

Coverage expansion, upgrade of media platform

   Network, systems,
internet data
center and others
   Six months
ended June 30,
2020
   2,405    To be
determined
   Secure subscriber networks
and equipment; quality and
system improvements

 

*

The amount of capital expenditures before the merger with Tbroad on April 30, 2020 was approximately Won 6.9 billion.

 

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5.     Revenues

 

(Unit: in millions of Won)  

Business

  

Sales
type

  

Item

   For the six
months ended
June 30, 2020
     For the year
ended December 31,
2019
     For the year
ended December 31,
2018
 

Wireless

   Services    Mobile communication    Export      90,474        141,496        50,959  
   Domestic      5,974,505        12,030,919        12,327,938  
   Subtotal      6,064,979        12,172,415        12,378,897  

Fixed-line

   Services    Fixed-line,
B2B data,
high-speed Internet, IPTV
   Export      69,204        96,962        104,592  
   Domestic      1,540,150        3,445,469        2,828,006  
   Subtotal      1,609,354        3,542,431        2,932,598  

Security

   Services    Personnel and system security, information security and others    Export      6,996        —          —    
   Domestic      568,512        913,301        197,487  
   Subtotal      575,508        913,301        197,487  

Commerce

   Services    E-commerce    Export      693        3,829        5,620  
   Domestic      375,219        526,660        612,459  
   Subtotal      375,912        530,489        618,079  

Other

   Services    Display and
search ad., contents
   Export      24,013        81,844        56,925  
   Domestic      403,443        503,222        689,974  
   Subtotal      427,456        585,066        746,899  

Total

         Export      191,380        324,131        218,096  
         Domestic      8,861,829        17,419,571        16,655,864  
         Total      9,053,209        17,743,702        16,873,960  

 

     (Unit: in millions of Won)  

For the six months

ended June 30, 2020

   Wireless      Fixed      Security      Commerce      Other     Sub total      Internal
transaction
    After
consolidation
 

Total sales

     6,841,043        2,118,040        611,115        382,890        551,769       10,504,857        (1,451,648     9,053,209  

Internal sales

     776,064        508,686        35,607        6,978        124,313       1,451,648        (1,451,648     —    

External sales

     6,064,979        1,609,354        575,508        375,912        427,456       9,053,209        —         9,053,209  

Depreciation and amortization

     1,397,947        399,878        115,735        16,924        30,188       1,960,672        —         1,960,672  

Operating profit (loss)

     524,797        100,325        54,727        2,486        (20,823     661,512        —         661,512  

Finance profit (loss)

 

    (138,493

Gain from subsidiaries, investments in associates and joint ventures

 

    407,899  

Other non-operating profit (loss)

 

    (12,652

Profit before income tax

 

    918,266  

6.    Derivative Transactions

 

A.

Current Swap Contract Applying Cash Flow Risk Hedge Accounting

Currency and interest rate swap contracts under cash flow hedge accounting as of June 30, 2020 are as follows:

 

         (Unit: in millions of Won and thousands of USD)

Borrowing

date            

 

Hedged item

  

Hedged risk

  

Contract type

  

Financial
institution

  

Duration of contract

Jul. 20, 2007

  Foreign currency denominated unsecured bonds    Foreign currency risk    Cross currency swap    Morgan Stanley and four other banks    Jul. 20, 2007 – Jul. 20, 2027

Dec. 16, 2013

  Fixed rate foreign currency denominated loan    Foreign currency risk    Cross currency swap    Deutsche Bank    Dec. 16, 2013 – Apr. 29, 2022

Apr. 16, 2018

  Fixed rate foreign currency denominated bonds    Foreign currency risk    Cross currency swap    The Export-Import Bank of Korea and three other banks    Apr. 16, 2018 – Apr. 16, 2023

Mar. 4, 2020

  Floating rate foreign currency denominated bonds    Foreign currency and interest rate risks    Cross currency interest rate swap    Citibank    Mar. 4, 2020 – Jun. 4, 2025

Aug. 13, 2018

  Foreign currency denominated unsecured bonds    Foreign currency risk    Cross currency swap    Citibank    Aug. 13, 2018 – Aug. 13, 2023

Dec. 20, 2016

  Floating rate Korean Won denominated loan    Interest rate risk    Interest rate swap    Korea Development Bank    Dec. 20, 2016 – Dec. 20, 2021

Dec. 21, 2017

  Floating rate Korean Won denominated loan    Interest rate risk    Interest rate swap    Korea Development Bank    Dec. 5, 2017 – Dec. 21, 2022

Dec. 19, 2018

  Floating rate Korean Won denominated loan    Interest rate risk    Interest rate swap    Credit Agricole CIB    Mar. 19, 2019 – Dec. 14, 2023

 

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B.

Balance Settlement Agreements

In 2017, SK Broadband entered into a lease agreement with GL Gasan Metro Co., Ltd. (“GL Gasan Metro”), which engages in real estate development and leasing, in order to develop an internet data center. In connection with such real estate development, GL Gasan Metro raised funds by issuing subordinated bonds to Aegis Specialized Investment Private Real Estate Investment Trust No. 136, which in turn issued beneficiary certificates to S Bisen Co., Ltd. (“S Bisen”), MSGADI Co., Ltd. (“MSGADI”) and S Gasan Co., Ltd (“S Gasan”). SK Broadband entered into a balance settlement agreement in the amount of Won 70 billion with S Bisen and MSGADI in 2017, as well as a separate balance settlement agreement with S Gasan in the amount of Won 200 billion in 2018, each in connection with such beneficiary certificates. Both agreements expire in November 2022, until which point in time SK Broadband is obligated to guarantee a certain rate of return to the counterparties.

In addition, in 2019, SK Broadband entered into a lease agreement with Hana Alternative Investment Specialized Investment Private Real Estate Investment Trust No. 62 (“Hana REIT”), which engages in real estate development and leasing, in order to develop an internet data center. In connection with such real estate development, Hana REIT raised funds by issuing beneficiary certificates to S Gumi Co., Ltd. and S Ori Co., Ltd. (together, the “S Parties”). SK Broadband entered into a balance settlement agreement in the amount of Won 64 billion with the S Parties in connection with such beneficiary certificates. Such agreement expires in September 2024, until which point in time SK Broadband is obligated to guarantee a certain rate of return to the S Parties.

 

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Table of Contents
C.

Treatment of Derivative Instruments on the Balance Sheet

As of June 30, 2020, fair values of derivative instruments held by the Company are included in the consolidated financial statements as current derivate financial assets, derivative financial assets and derivative financial liabilities, which are part of its current assets, non-current assets and non-current liabilities, respectively, as follows:

 

     (Unit: in millions of Won and thousands of USD)  

Classification

  

Hedged item

   Fair value  
   Cash flow hedge      Trading purposes      Total  

Cross currency swap (non-current assets)

   Fixed rate foreign currency denominated bonds (face value of USD 400,000)      86,430        —          86,430  
   Fixed rate foreign currency denominated bonds (face value of USD 500,000)      87,389        —          87,389  
   Fixed rate foreign currency denominated loan (face value of USD 28,732)      1,849        —          1,849  
   Fixed rate foreign currency denominated bonds (face value of USD 300,000)      36,640        —          36,640  

Balance settlement agreements

   Others      —          5,924        5,924  

Total non-current derivative financial assets

              218,232  

Put option contracts (current assets)

   Others      —          14,696        14,696  

Total current derivative financial assets

              14,696  

Interest rate swap and cross currency interest rate swap (non-current liabilities)

   Floating rate foreign currency denominated bonds (face value of USD 300,000)      (15,090      —          (15,090
   Floating rate Korean Won denominated loan (face value of 21,437)      (151      —          (151
   Floating rate Korean Won denominated loan (face value of 34,375)      (546      —          (546
   Floating rate Korean Won denominated loan (face value of 46,875)      (855      —          (855

Total derivative financial liabilities

              (16,642

7.    Major Contracts

[SK Telecom]

None.

[SK Broadband]

 

               (Unit: in millions of Won)

Counterparty

  

Contract Contents

  

Date of Contract

  

Contract Amount

  

Notes

SK D&D Co., Ltd.    Sale of land and building in Seocho-dong    May 16, 2018    40,306    Sale of idle assets to improve financial structure
Sejin Jin (Individual)    Sale of Deogyang Bunyang Guksa    October 10, 2019    788    Sale of idle assets for non-business use

 

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Table of Contents

8.    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,
2020
    For the year ended
December 31, 2019
    For the year ended
December 31, 2018
    Remarks  

Raw material

     99       633       760       —    

Labor

     86,439       125,248       131,792       —    

Depreciation

     88,648       161,655       155,093       —    

Commissioned service

     23,296       65,794       78,323       —    

Others

     19,573       52,167       47,511       —    

Total R&D costs

     218,055       405,497       413,480       —    

Accounting

   Sales and administrative expenses      215,205       391,327       387,675       —    
   Development expenses (Intangible assets)      2,850       14,170       25,805       —    
     

 

 

   

 

 

   

 

 

   

 

 

 

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

     2.41     2.29     2.45     —    
     

 

 

   

 

 

   

 

 

   

 

 

 

9.    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 operates an intranet system called “Comm.ON” in order to implement consistent communication with consumers across various areas including branding, design, marketing and public relations, and systematically manages the development, registration and licensing of brands through such system.

 

B.

Business-related Intellectual Property

[SK Telecom]

As of June 30, 2020, the Company held 2,968 Korean-registered patents and 1,197 foreign-registered patents. The Company holds 706 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 30, 2020, SK Broadband held 354 Korean-registered patents and 142 foreign-registered patents (including those held jointly with other companies). It also holds 319 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, 2020, SK Planet held 1,613 registered patents, 91 registered design marks, 780 registered trademarks and 4 copyrights (in each case including those held jointly with other companies) in Korea. It also holds various other intellectual property rights in other countries, including 266 U.S.-registered patents, 131 Chinese-registered patents, 79 Japanese-registered patents, 89 E.U.-registered patents (in each case including those held jointly with other companies) and 168 foreign registered trademarks.

 

33


Table of Contents

[Eleven Street]

As of June 30, 2020, Eleven Street held 89 registered patents, 12 registered design marks, 589 registered trademarks and 5 copyrights (in each case including those held jointly with other companies) in Korea. It also holds various other intellectual property rights in other countries, including 30 U.S.-registered patents (including those held jointly with other companies).

 

C.

Business-related Pollutants and Environmental Protection

[SK Telecom]

The Company does not directly 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.

[SK Broadband]

SK Broadband does not directly engage in any manufacturing processes that emit environmental pollutants, and more than 99% of its greenhouse gas emissions is indirect emissions from its use of external electricity. SK Broadband was selected as a business subject to allocation of emission permits as part of Korea’s greenhouse gas emissions trading scheme that commenced in 2015, and it actively fulfills its obligations and consistently achieves the targets set by the government. In addition, SK Broadband continues to invest in environment-friendly facilities for its data centers and improve the stability and efficiency of its services.

 

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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, 2020, December 31, 2019 and December 31, 2018 and for the six months ended June 30, 2020 and 2019 and the years ended December 31, 2019 and 2018. The Company’s unaudited consolidated financial statements as of June 30, 2020 and December 31, 2019 and for the six months ended June 30, 2020 and 2019, which are prepared in accordance with K-IFRS, are attached hereto.

 

     (Unit: in millions of Won except number of companies)  
     As of
June 30, 2020
     As of
December 31, 2019
     As of
December 31, 2018
 

Assets

        

Current Assets

     8,261,328        8,102,294        7,958,839  

•   Cash and Cash Equivalents

     1,496,903        1,270,824        1,506,699  

•   Accounts Receivable – Trade, net

     2,244,884        2,230,979        2,008,640  

•   Accounts Receivable – Other, net

     837,373        905,436        937,837  

•   Others

     3,682,168        3,695,055        3,505,663  

Non-Current Assets

     37,695,822        36,509,326        34,410,272  

•   Long-Term Investment Securities

     1,109,269        857,215        664,726  

•   Investments in Associates and Joint Ventures

     13,874,353        13,385,264        12,811,771  

•   Property and Equipment, net

     12,544,240        12,334,280        10,718,354  

•   Intangible Assets, net

     4,968,547        4,866,092        5,513,510  

•   Goodwill

     3,112,809        2,949,530        2,938,563  

•   Others

     2,086,604        2,116,945        1,763,348  
  

 

 

    

 

 

    

 

 

 

Total Assets

     45,957,150        44,611,620        42,369,111  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current Liabilities

     7,435,399        7,787,722        6,847,557  

Non-Current Liabilities

     14,505,028        14,000,362        13,172,304  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     21,940,427        21,788,084        20,019,861  
  

 

 

    

 

 

    

 

 

 

Equity

        

Equity Attributable to Owners of the Parent Company

     23,496,662        22,956,829        22,470,822  

Share Capital

     44,639        44,639        44,639  

Capital Surplus (Deficit) and Other Capital Adjustments

     1,218,524        1,006,481        655,084  

Retained Earnings

     22,284,645        22,235,285        22,144,541  

Reserves

     (51,146      (329,576      (373,442

Non-controlling Interests

     520,061        (133,293      (121,572

Total Equity

     24,016,723        22,823,536        22,349,250  
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     45,957,150        44,611,620        42,369,111  
  

 

 

    

 

 

    

 

 

 

Number of Companies Consolidated

     49        48        44  

 

     (Unit: in millions of Won except per share data)  
     For the six months
ended June 30, 2020
     For the six months
ended June 30, 2019
     For the year ended
December 31, 2019
     For the year ended
December 31, 2018
 

Operating Revenue

     9,053,209        8,771,935        17,743,702        16,873,960  

Operating Profit

     661,512        645,402        1,109,980        1,201,760  

Profit Before Income Tax

     918,266        821,027        1,162,655        3,975,966  

Profit for the Period

     739,001        632,687        861,942        3,131,988  

Profit for the Period Attributable to Owners of the Parent Company

     736,650        642,586        889,907        3,127,887  

Profit for the Period Attributable to Non-controlling Interests

     2,351        (9,899      (27,965      4,101  

Basic and Diluted Earnings Per Share (Won)

     9,971        8,838        12,144        44,066  

 

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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, 2020, December 31, 2019 and December 31, 2018 and for the six months ended June 30, 2020 and 2019 and the years ended December 31, 2019 and 2018. The Company’s unaudited separate financial statements as of June 30, 2020 and December 31, 2019 and for the six months ended June 30, 2020 and 2019, which are prepared in accordance with K-IFRS, are attached hereto.

 

     (Unit: in millions of Won)  
     As of June 30,
2020
     As of December 31,
2019
     As of December 31,
2018
 

Assets

        

Current Assets

     4,754,972        5,011,363        4,679,378  

•   Cash and Cash Equivalents

     379,055        497,282        877,823  

•   Accounts Receivable – Trade, net

     1,503,023        1,479,971        1,354,260  

•   Accounts Receivable – Other, net

     400,599        507,680        518,451  

•   Others

     2,472,295        2,526,430        1,928,844  

Non-Current Assets

     25,983,780        25,828,004        24,168,645  

•   Long-Term Investment Securities

     743,827        510,633        410,672  

•   Investments in Subsidiaries and Associates

     10,800,207        10,578,158        10,188,914  

•   Property and Equipment, net

     8,424,982        8,264,888        6,943,490  

•   Intangible Assets, net

     3,175,727        3,461,152        4,010,864  

•   Goodwill

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

•   Others

     1,532,801        1,706,937        1,308,469  
  

 

 

    

 

 

    

 

 

 

Total Assets

     30,738,752        30,839,367        28,848,023  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current Liabilities

     4,560,494        5,057,478        4,178,068  

Non-Current Liabilities

     8,705,316        8,392,150        7,782,468  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     13,265,810        13,449,628        11,960,536  
  

 

 

    

 

 

    

 

 

 

Equity

        

Share Capital

     44,639        44,639        44,639  

Capital Surplus and Other Capital Adjustments

     715,722        715,619        415,324  

Retained Earnings

     16,576,694        16,678,787        16,467,789  

Reserves

     135,887        (49,306      (40,265

Total Equity

     17,472,942        17,389,739        16,887,487  
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     30,738,752        30,839,367        28,848,023  
  

 

 

    

 

 

    

 

 

 

 

     (Unit: in millions of Won except per share data)  
     For the six
months ended
June 30, 2020
     For the six
months ended
June 30, 2019
     For the year
ended
December 31,
2019
     For the year
ended
December 31,
2018
 

Operating Revenue

     5,862,677        5,659,925        11,416,215        11,705,639  

Operating Profit

     528,204        580,960        950,109        1,307,494  

Profit Before Income Tax

     708,545        979,210        1,185,490        1,221,244  

Profit for the Period

     574,742        806,007        980,338        933,902  

Basic and Diluted Earnings Per Share (Won)

     7,758        11,112        13,399        13,000  

 

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Table of Contents

2.    Other Matters Related to Financial Information

 

A.

Restatement of the Financial Statements

Not applicable.

 

B.

Loss Allowance

 

  (1)

Loss Allowance of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the six months ended June 30, 2020  
     Gross amount      Loss Allowance      Percentage  

Accounts receivable – trade

     2,531,534        269,538        11

Loans

     161,096        48,529        30

Accounts receivable – other

     1,136,411        46,668        4

Accrued income

     4,392        165        4

Guarantee deposits

     302,422        300        0
  

 

 

    

 

 

    

 

 

 

Total

     4,135,855        365,200        9
  

 

 

    

 

 

    

 

 

 
     (Unit: in millions of Won)  
     For the year ended December 31, 2019  
   Gross amount      Loss Allowance      Percentage  

Accounts receivable – trade

     2,497,396        249,501        10

Loans

     147,937        48,054        32

Accounts receivable – other

     1,298,477        48,379        4

Accrued income

     3,977        166        4

Guarantee deposits

     310,074        299        0
  

 

 

    

 

 

    

 

 

 

Total

     4,257,861        346,399        8
  

 

 

    

 

 

    

 

 

 
     (Unit: in millions of Won)  
     For the year ended December 31, 2018  
   Gross amount      Loss Allowance      Percentage  

Accounts receivable – trade

     2,280,090        260,157        11

Loans

     135,503        47,375        35

Accounts receivable – other

     1,280,236        68,346        5

Accrued income

     6,232        166        3

Guarantee deposits

     315,854        —          —    
  

 

 

    

 

 

    

 

 

 

Total

     4,017,915        376,045        9
  

 

 

    

 

 

    

 

 

 

 

  (2)

Movements in Loss Allowance of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the six months
ended June 30, 2020
     For the year ended
December 31, 2019
     For the year ended
December 31, 2018
 

Beginning balance

     346,399        376,045        362,171  

Effect of change in accounting policy

     —          —          13,049  

Increase of loss allowance

     32,406        28,841        45,051  

Reversal of loss allowance

     —          —          —    

Write-offs

     (21,770      (46,616      (65,762

Other

     6,286        17,650        21,536  
  

 

 

    

 

 

    

 

 

 

Ending balance

     365,200        346,399        376,045  
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
  (3)

Policies for Loss Allowance

The Company establishes loss allowances 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 three 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, 2020  
   Six months or
less
    From six
months to one
year
    From one year
to three years
    More than
three years
    Total  

Accounts receivable – general

     2,248,565       69,472       137,155       76,342       2,531,533  

Percentage

     89     3     5     3     100

 

C.

Inventories

 

  (1)

Detailed Categories of Inventories

 

     (Unit: in millions of Won)  

Account Category

   For the six months
ended June 30, 2020
    For the year ended
December 31, 2019
    For the year ended
December 31, 2018
 

Merchandise

     192,269       147,928       259,524  

Goods in transit

     —         —         —    

Other inventories

     12,080       14,954       28,529  

Total

     204,349       162,882       288,053  

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

     0.44     0.37     0.68

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

     6.73       7.79       6.41  

 

  (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, 2020 and December 31, 2019 and for the six months ended June 30, 2020 and 2019, 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. The compliance status is as of the date of the latest financial statements including the audit opinion of the independent auditor applicable to the determination of compliance status, except for the compliance status of the restriction on changes of ownership structure, which is as of the end of the reporting period.

 

Name

  Issue Date   Maturity Date   Principal Amount
(millions of Won)
    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 Won 2 trillion
   Compliance Status    Compliant

Restriction on Changes of Ownership Structure

   Key Term    —  
   Compliance Status    —  

Submission of Compliance Certificate

   Compliance Status    Submitted on April 20, 2020

 

Name

  Issue Date   Maturity Date   Principal Amount
(millions of Won)
    Date of Fiscal
Agency
Agreement
 

Fiscal Agent

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 Won 2 trillion
   Compliance Status    Compliant

Restriction on Changes of Ownership Structure

   Key Term    —  
   Compliance Status    —  

Submission of Compliance Certificate

   Compliance Status    Submitted on April 20, 2020

 

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Name

  Issue Date   Maturity Date   Principal Amount
(millions of Won)
    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 64-2

  May 14, 2014   May 14, 2024     150,000     April 29, 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 67-2

  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 68-2

  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 69-2

  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 Won 2 trillion
   Compliance Status    Compliant

Restriction on Changes of Ownership Structure

   Key Term    —  
   Compliance Status    —  

Submission of Compliance Certificate

   Compliance Status    Submitted on April 20, 2020

 

Name

  Issue Date   Maturity Date   Principal Amount
(millions of Won)
    Date of Fiscal
Agency
Agreement
 

Fiscal Agent

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.

 

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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 Won 5 trillion
   Compliance Status    Compliant

Restriction on Changes of Ownership Structure

   Key Term    —  
   Compliance Status    —  

Submission of Compliance Certificate

   Compliance Status    Submitted on April 20, 2020

 

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     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.
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.
Unsecured Bond – Series 74-1    Sept. 17, 2018    Sept. 17, 2021      100,000      Sept. 5, 2018    Korea Securities Finance Corp.
Unsecured Bond – Series 74-2    Sept. 17, 2018    Sept. 17, 2023      150,000      Sept. 5, 2018    Korea Securities Finance Corp.
Unsecured Bond – Series 74-3    Sept. 17, 2018    Sept. 17, 2038      50,000      Sept. 5, 2018    Korea Securities Finance Corp.
Unsecured Bond – Series 75-1    March 6, 2019    March 6, 2022      180,000      Feb. 21, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 75-2    March 6, 2019    March 6, 2024      120,000      Feb. 21, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 75-3    March 6, 2019    March 6, 2029      50,000      Feb. 21, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 75-4    March 6, 2019    March 6, 2039      50,000      Feb. 21, 2019    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 Ownership Structure   Key Term  

Restriction of cross-shareholding

Exclusion from corporate group

  Compliance Status   Compliant
Submission of Compliance Certificate   Compliance Status   Submitted on April 20, 2020

 

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Table of Contents

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     Date of Fiscal
Agency
Agreement
  

Fiscal Agent

Unsecured Bond – Series 76-1    July 29, 2019    July 29, 2022      120,000      July 17, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 76-2    July 29, 2019    July 29, 2024      60,000      July 17, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 76-3    July 29, 2019    July 29, 2029      120,000      July 17, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 76-4    July 29, 2019    July 29, 2039      50,000      July 17, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 76-5    July 29, 2019    July 29, 2049      50,000      July 17, 2019    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 Ownership Structure    Key Term   

Restriction of cross-shareholding

Exclusion from corporate group

   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 20, 2020

 

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     Date of Fiscal
Agency
Agreement
  

Fiscal Agent

Unsecured Bond – Series 77-1    Oct. 22, 2019    Oct. 21, 2022      90,000      Oct. 10, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 77-2    Oct. 22, 2019    Oct. 22, 2024      50,000      Oct. 10, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 77-3    Oct. 22, 2019    Oct. 22, 2029      30,000      Oct. 10, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 77-4    Oct. 22, 2019    Oct. 22, 2039      30,000      Oct. 10, 2019    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 Ownership Structure    Key Term   

Restriction of cross-shareholding

Exclusion from corporate group

   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 20, 2020

 

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Table of Contents

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     Date of Fiscal
Agency
Agreement
  

Fiscal Agent

Unsecured Bond – Series 78-1    Jan. 14, 2020    Jan. 13, 2023      170,000      Dec. 31, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 78-2    Jan. 14, 2020    Jan. 14, 2025      130,000      Dec. 31, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 78-3    Jan. 14, 2020    Jan. 14, 2030      50,000      Dec. 31, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 78-4    Jan. 14, 2020    Jan. 14, 2040      70,000      Dec. 31, 2019    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 Ownership 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 2020 business report

[SK Broadband]

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

 

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     Date of Fiscal
Agency
Agreement
  

Fiscal Agent

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 43-2    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 Won 2 trillion
   Compliance Status    Compliant
Restriction on Changes of Ownership Structure    Key Term    —  
   Compliance Status    —  
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2020

 

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*

Unsecured Bond – Series 41 has been repaid after the reporting period.

 

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     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
Restriction on Changes of Ownership Structure    Key Term    —  
   Compliance Status    —  
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2020

 

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     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, 2023      80,000      Jan. 19, 2018    Korea Securities Finance Corp.
Unsecured Bond – Series 47-1    March 26, 2019    March 26, 2022      50,000      March 14, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 47-2    March 26, 2019    March 26, 2024      160,000      March 14, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 48-1    Sept. 24, 2019    Sept. 23, 2022      80,000      Sept. 10, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 48-2    Sept. 24, 2019    Sept. 24, 2024      100,000      Sept. 10, 2019    Korea Securities Finance Corp.
Unsecured Bond – Series 48-3    Sept. 24, 2019    Sept. 23, 2026      50,000      Sept. 10, 2019    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 Ownership Structure    Key Term    Restriction on changes of ownership structure
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    Submitted on April 27, 2020

 

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*

Beginning with Series 47, the basis for the maintenance of financial ratio has changed to a consolidated basis.

 

Name

   Issue Date    Maturity Date    Principal Amount
(millions of Won)
     Date of Fiscal
Agency
Agreement
  

Fiscal Agent

Unsecured Bond – Series 49-1    June 11, 2020    June 9, 2023      100,000      June 1, 2020    Korea Securities Finance Corp.
Unsecured Bond – Series 49-2    June 11, 2020    June 11, 2025      100,000      June 1, 2020    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 Ownership Structure    Key Term    Restriction on changes of ownership structure
   Compliance Status    Compliant
Submission of Compliance Certificate    Compliance Status    To be submitted after the finalization of the financial statements for the first half of 2020

 

IV.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

 

V.

AUDITOR’S OPINION

1.    Independent Auditors and Audit Opinions

 

A.

Independent Auditor and Audit Opinion (Consolidated)

 

Period

 

Independent auditor

  Audit opinion   Emphasis
of Matter
 

Critical Audit
Matters

Six months ended June 30, 2020   KPMG Samjong Accounting Corp.   —     —     —  
Year ended December 31, 2019   KPMG Samjong Accounting Corp.   Unqualified   N/A   Revenue recognition; assessment of impairment of cash-generating unit of security services
Year ended December 31, 2018   KPMG Samjong Accounting Corp.   Unqualified   N/A   Revenue recognition; recognition of incremental costs of obtaining contracts

 

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B.

Audit Services Contracts with Independent Auditors

 

(Unit: in millions of Won except number of hours)  
               Audit Contract      Actual Performance  

Period

  

Auditors

  

Contents

   Fee      Total number of
hours
     Fee      Total number of
hours
 
Six months ended June 30, 2020    KPMG Samjong Accounting Corp.    Quarterly review      2,360        23,600        650        5,525  
   Separate financial statements audit
   Consolidated financial statements audit
   English financial statements review and other audit task
   Internal accounting system audit
Year ended December 31, 2019    KPMG Samjong Accounting Corp.    Quarterly review      1,860        23,040        1,860        23,040  
   Separate financial statements audit
   Consolidated financial statements audit
   English financial statements review and other audit task
Year ended December 31, 2018    KPMG Samjong Accounting Corp.    Semi-annual review      1,700        22,058        1,700        22,058  
   Quarterly review
   Separate financial statements audit
   Consolidated financial statements audit
   English financial statements review and other audit task

 

C.

Non-Audit Services Contracts with Independent Auditors

 

(Unit: in millions of Won)

Period

  

Contract date

  

Service provided

  

Service duration

   Fee

Six months ended June 30, 2020

   —      —      —      —  

Year ended December 31, 2019

   February 8, 2019    Consulting for publication of 2018 integrated annual report    February 8, 2019 – June 30, 2019    120
   April 26, 2019    Confirmation of financial information    April 26, 2019 – April 29, 2019    3

Year ended December 31, 2018

   September 20, 2018    Confirmation of financial information    September 20, 2018 – September 21, 2018    2
   March 5, 2018    Issuance of comfort letters    March 5, 2018 – April 26, 2018    110

 

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D.

Discussions between Audit Committee and Independent Auditors

 

Date

  

Attendance

   Method   

Key Matters Discussed

February 3, 2020   

Audit Committee: 4

Independent Auditor: 2

   Written    Report on the progress of internal accounting management system audit
February 19, 2020   

Audit Committee: 4

Independent Auditor: 2

   In-person    Report on critical audit matters and results of audit of financial statements; report on the results of internal accounting management system audit
April 22, 2020   

Audit Committee: 4

Independent Auditor: 1

   In-person    Report on 2019 Public Company Accounting Oversight Board audit results; report on 2020 audit plan and selection of critical audit matters
June 10, 2020   

Audit Committee: 4

Independent Auditor: 3

   In-person    Report on evaluation of 2019 independent auditor services
July 20, 2020   

Audit Committee: 4

Independent Auditor: 1

   In-person    Report on independent auditor’s 2020 semi-annual review

 

VI.

CORPORATE ORGANIZATION INCLUDING BOARD OF DIRECTORS

1.    Board of Directors

 

A.

Overview of the Composition of the 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 of Directors, there are five committees: Independent Director Nomination Committee, Audit Committee, Compensation Committee, CapEx Review Committee and Corporate Citizenship Committee.

 

(As of June 30, 2020)

Total number of
persons                

  

Inside directors

  

Non-executive director

  

Independent directors

8    Jung Ho Park, Young Sang Ryu    Dae Sik Cho    Yong-Hak Kim, Seok-Dong Kim, Jung Ho Ahn, Youngmin Yoon, Junmo Kim

At the 36th General Meeting of Shareholders held on March 26, 2020, Yong-Hak Kim was newly elected as an independent director and a member of the audit committee and Junmo Kim was newly elected as an independent director.

Yong-Hak Kim, as a highly respected sociologist with knowledge and virtue that can contribute to the Company’s proactive pursuit of social value, was elected as the chairman of the Board of Directors by the directors pursuant to Article 4(2) of the regulations of the Board of Directors.

 

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B.

Significant Activities of the Board of Directors

 

Meeting

 

Date

  

Agenda

  

Approval

431st

(the 1st meeting of 2020)

  January 16, 2020   

•   Management plan for 2020

   Approved as proposed

432nd

(the 2nd meeting of 2020)

  February 6, 2020   

•   Financial statements as of and for the year ended December 31, 2019

   Approved as proposed
  

•   Delegation of funding through long-term borrowings

   Approved as proposed
  

•   Annual business report as of and for the year ended December 31, 2019

   Approved as proposed
  

•   Participation in capital increase by SK’s investment company in Southeast Asia

   Approved as proposed
  

•   Donation to the Korean Fencing Association

   Approved as proposed
  

•   Donation for the creation of social values

   Approved as proposed
  

•   Report of internal accounting management

   —  
  

•   Report for the period after the fourth quarter of 2019

   —  

433rd

(the 3rd meeting of 2020)

  February 20, 2020   

•   Plan for the 36th General Meeting of Shareholders

  

Approved as proposed

  

•   Results on internal accounting management

   —  

434th

(the 4th meeting of 2020)

  March 26, 2020   

•   Election of the chairman of the Board of Directors

   Approved as proposed
  

•   Election of the representative director

   Approved as proposed
  

•   Election of committee members

   Approved as proposed
  

•   Transactions with SK Holdings in the second quarter of 2020

   Approved as proposed

435th

(the 5th meeting of 2020)

  April 23, 2020   

•   Payment of operating costs of SUPEX Council in 2020

   Approved as proposed
  

•   Report for the period after the first quarter of 2020

   —  

436th

(the 6th meeting of 2020)

  May 28, 2020   

•   Participation in capital increase of SK Telecom TMT Investment Corp., an overseas subsidiary, for investment in NANO-X IMAGING Ltd.

   Approved as proposed
  

•   Participation in capital increase of ID Quantique SA, an overseas subsidiary

   Approved as proposed

437th

(the 7th meeting of 2020)

  June 25, 2020   

•   Transactions with SK Holdings in the third quarter of 2020

   Approved as proposed

438th

(the 8th meeting of 2020)

  July 21, 2020   

•   Interim dividends

   Approved as proposed
  

•   Report on settlement of accounts for first half of 2020

   —  
  

•   Report for the period after the second quarter of 2020

   —  

 

*

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, 2020)

 

  (a)

Independent Director Nomination Committee

 

Total number
of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

3

   Jung Ho Park    Seok-Dong Kim, Jung Ho Ahn    Nomination of independent directors

 

*

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

 

  (b)

Compensation Review Committee

 

Total number
of persons

   Members   

Task

   Inside Directors   

Independent Directors

3

      Yong-Hak Kim, Seok-Dong Kim, Junmo Kim    Review CEO remuneration system and amount

 

*

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

 

  (c)

Capex Review Committee

 

Total number
of persons

   Members   

Task

   Inside Directors   

Independent Directors

6

   Young Sang Ryu    Yong-Hak Kim, Seok-Dong Kim, Jung Ho Ahn, Youngmin Yoon, Junmo Kim    Review major investment plans and changes thereto

 

*

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

 

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  (d)

Corporate Citizenship Committee

 

Total number
of persons

   Members   

Task

   Inside Directors   

Independent Directors

3    —      Jung Ho Ahn, Youngmin Yoon, Junmo Kim    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.

 

  (e)

Audit Committee

 

Total number
of persons

   Members   

Task

   Inside Directors   

Independent Directors

4    —      Seok-Dong Kim, Yong-Hak Kim, Youngmin Yoon, Jung Ho Ahn    Review financial statements and supervise independent audit process, etc.

 

*

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

2.     Audit System

The Company’s Audit Committee consists of four independent directors, Seok-Dong Kim (chairman of the Audit Committee and financial and accounting expert), Yong-Hak Kim, Youngmin Yoon and Jung Ho Ahn.

Major activities of the Audit Committee as of June 30, 2020 are set forth below.

 

Meeting

  

Date

  

Agenda

 

Approval

The 1st meeting of 2020

   February 5, 2020   

•   Evaluation of internal accounting management system operation

  —  
  

•   Review of business and audit results for 2019 and business and audit plans for 2020

  —  
  

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

  Approved as proposed

The 2nd meeting of 2020

   February 19, 2020   

•   Report on results of audit of fiscal year 2019

  —  
  

•   Report on audit of 2019 internal accounting management system

  —  
  

•   Evaluation of internal accounting management system operation

  Approved as proposed
  

•   Report on contract for customer appreciation gifts to fixed-line telephone customers for 2020

  Approved as proposed

The 3rd meeting of 2020

   February 20, 2020   

•   Agenda and document review for the 36th General Meeting of Shareholders

  Approved as proposed
  

•   Auditor’s report for fiscal year 2019

  Approved as proposed

The 4th meeting of 2020

   March 25, 2020   

•   Contract for maintenance services of optical cables in 2020

  Approved as proposed
  

•   Contract for maintenance services of transmission equipment in 2020

  Approved as proposed

The 5th meeting of 2020

   April 22, 2020   

•   Election of the chairman of the Audit Committee

  Approved as proposed
  

•   Approval of external auditor services for fiscal year 2020

  Approved as proposed
  

•   Audit plan for fiscal year 2020

  —  

The 6th meeting of 2020

   May 27, 2020   

•   Establishment of regulations for appointment of independent auditors

  Approved as proposed
  

•   Report on evaluation of independent auditor services for fiscal year 2019

  —  

The 7th meeting of 2020

   July 20, 2020   

•   Report on results of semi-annual review by independent auditors of fiscal year 2020

  —  

 

*

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

3.     Shareholders’ Exercise of Voting Rights

 

A.

Voting System and Exercise of Minority Shareholders’ Rights

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

 

Articles of Incorporation

  

Description

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

 

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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.

 

VII.

SHAREHOLDERS

1.     Shareholdings of the Largest Shareholder and Related Persons

 

A.

Shareholdings of the Largest Shareholder and Related Persons

 

(As of June 30, 2020)      (Unit: in shares and percentages)  
               Number of shares owned and ownership ratio  
               Beginning of Period      End of Period  

Name

   Relationship    Type of share    Number
of shares
     Ownership
ratio
     Number
of shares
     Ownership
ratio
 

SK Holdings Co., Ltd.

   Largest Shareholder    Common share      21,624,120        26.78        21,624,120        26.78  

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        2,500        0.00  

Young Sang Ryu

   Officer of the
Company
   Common share      —          0.00        500        0.00  

Total

   Common share      21,625,471        26.78        21,627,471        26.78  

 

B.

Overview of the Largest Shareholder

As of June 30, 2020, the Company’s largest shareholder was SK Holdings. SK Holdings was established on April 13, 1991 and was made public on the securities market on November 11, 2009 under the identification code “034730.” SK Holdings is located at 26, Jong-ro, Jongno-gu, Seoul, Korea. SK Holdings’ telephone number is +82-2-2121-5114 and its website is www.sk.co.kr.

 

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C.

Changes in Shareholdings of the Largest Shareholder and Related Persons

Changes in shareholdings of the largest shareholder are as follows:

 

(As of June 30, 2020)     (Unit: in shares and percentages)

Largest
Shareholder

 

Date of the change in the
largest shareholder/
Date of change in
shareholding

  Shares Held*   Holding
Ratio
   

Remarks

SK Holdings   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.
  December 27, 2018   21,625,471     26.78     SK Holdings’ interest in SK Infosec was transferred to the Company in exchange for the Company’s issuance of treasury shares to SK Holdings.
  February 17, 2020   21,627,471     26.78     Jung Ho Park, CEO of the Company, purchased 1,500 additional shares; Young Sang Ryu, inside director of the Company, purchased 500 shares.

2.     Distribution of Shares

 

A.

Shareholders with Ownership of 5% or Greater

 

(As of June 30, 2020)    (Unit: in shares and percentages)

Name (title)

   Common share
   Number of shares      Ownership ratio    

Remarks

SK Holdings

     21,624,120        26.78   —  

National Pension Service

     9,502,565        11.77   —  

SK Telecom

     7,609,263        9.42   Treasury shares

Citibank ADR

     7,626,509        9.45   —  

Shareholdings under the Employee Stock Ownership Program

     —          —       —  

 

B.

Minority Shareholders

 

(As of June 30, 2020)    (Unit: in shares and percentages)  
     Shareholders     Ownership  

Classification

   Number of minority
shareholders
     Total
number of
shareholders
     Ratio (%)     Number of shares
owned by minority
shareholders
     Total
number of
shares issued
     Ratio (%)  

Minority shareholders*

     133,073        133,079        99.9     31,598,151        80,745,711        39.1

 

*

Shareholders who hold less than 1% of total shares issued.

 

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

 

A.

Domestic Securities Market

 

     (Unit: in Won and shares)  

Types

   June 2020      May 2020      April 2020      March 2020      February 2020      January 2020  

Common stock

   Highest      230,000        216,000        215,500        225,500        229,000        238,500  
   Lowest      201,000        204,000        175,000        165,500        212,500        229,000  
   Average      213,250        209,000        198,700        189,110        223,066        233,354  

Daily transaction volume

   Highest      461,453        466,946        549,624        993,798        400,126        534,218  
   Lowest      208,905        170,965        195,673        207,340        102,123        90,895  

Monthly transaction volume

          6,988,459        5,186,311        7,141,342        6,385,443        4,582,386        4,609,540  

 

B.

Foreign Securities Market (New York Stock Exchange)

 

     (Unit : in US$ and ADRs)  

Types

   June 2020      May 2020      April 2020      March 2020      February 2020      January 2020  

Depositary receipt

   Highest      20.76        19.25        19.34        20.82        21.46        22.93  
   Lowest      18.31        18.41        15.57        14.46        19.21        21.21  
   Average      19.40        18.74        18.04        17.63        20.64        22.39  

Daily transaction volume

   Highest      1,207,916        926,362        864,362        941,336        834,301        603,712  
   Lowest      247,522        182,737        287,220        380,332        213,560        154,270  

Monthly transaction volume

        10,424,277        7,557,776        9,736,261        13,290,850        8,913,058        7,559,532  

 

VIII.

EMPLOYEES AND DIRECTORS

1.     Officers and Employees

 

A.

Employees

 

(As of June 30, 2020)      (Unit: in persons and millions of Won)  

Business

segment

  

Gender

   Number of employees      Average length
of service
(years)
     Aggregate wage for
the year

of 2020
     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      4,386        —          78        —          4,464        13.0        354,271        79  

—  

   Female      885        —          174        —          1,059        8.1        53,192        51  

Total

     5,271        —          252        —          5,523        12.0        407,463        74  

 

B.

Compensation of Unregistered Officers

 

(As of June 30, 2020)    (Unit: in persons and millions of Won)

Number of Unregistered Officers

   Aggregate wage for the year
of 2020
   Average wage per person

101

   39,178    388

 

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2.     Compensation of Directors

 

A.

Amount Approved at the Shareholders’ Meeting

 

(As of June 30, 2020)    (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, 2020)    (Unit: in millions of Won)  

Number of Directors

   Aggregate Amount Paid    Average Amount Paid Per Director    Remarks  

8                             

   5,521    690      —    

B-2. Amount by Classification

 

(As of June 30, 2020)    (Unit: in millions of Won)  

Classification

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

Inside Directors

     3        5,311        1,770        —    

Independent Directors (Excluding Audit Committee Members)

     1        42        42        —    

Audit Committee Members

     4        168        42        —    

Auditor

     —          —          —          —    

3.     Individual Compensation of Directors and Officers

 

A.

Remuneration for Individual Directors

 

(As of June 30, 2020)    (Unit: in millions of Won)

Name

  

Position

   Total remuneration     

Payment not included in total
remuneration

Jung Ho Park

   Representative Director/President      4,420      Stock options for 177,610 common shares (66,504 granted in 2017 and 111,106 granted in 2020)

Young Sang Ryu

   Head of MNO Business      890      Stock options for 5,445 common shares (1,358 granted in 2018, 1,734 granted in 2019 and 2,353 granted in 2020)

 

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*

See “VIII.4. Stock Options Granted and Exercised” below for details on the number of stock options, exercise price and exercise period.

Composition of Total Remuneration

 

Name

  

Composition

Jung Ho Park*

  

Total remuneration: Won 4,420 million

•  Salary: Won 850 million

•  Bonus: Won 3,570 million

Young Sang Ryu

  

Total remuneration: Won 890 million

•  Salary: Won 270 million

•  Bonus: Won 613 million

•  Other earned income: Won 7 million

 

*

Due to Mr. Park’s concurrent position as the representative director of SK Broadband during part of 2019, his remuneration for the period of his appointment as SK Broadband’s representative director (from March 27, 2019 to June 30, 2019) was allocated between and paid by SK Telecom and SK Broadband according to the policies agreed upon between the two companies.

 

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

   President      4,420      177,610 stock options (66,504 granted in 2017 and 111,106 granted in 2020)

Jin Woo So

   Committee Chairman      1,763      —  

Yoon Kim

   Head of T3K      1,289      1,874 stock options (granted in 2020)

Yong-Seop Yum

   Head of Institute      953      —  

Chan Kyu Noh

   Officer      935      —  

Composition of Total Remuneration

 

Name

  

Composition

Jung Ho Park

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

Jin Woo So

  

Total remuneration: Won 1,763 million

•  Salary: Won 600 million

•  Bonus: Won 1,163 million

Yoon Kim

  

Total remuneration: Won 1,289 million

•  Salary: Won 215 million

•  Bonus: Won 1,074 million

Yong-Seop Yum

  

Total remuneration: Won 953 million

•  Salary: Won 275 million

•  Bonus: Won 678 million

Chan Kyu Noh

  

Total remuneration: Won 935 million

•  Salary: Won 170 million

•  Bonus: Won 731 million

•  Other earned income: Won 34 million

 

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4.     Stock Options Granted and Exercised

 

A.

Stock Options Granted to Directors and Auditors

 

(As of June 30, 2020)  

Classification

   Number of Directors      Fair Value of Stock Options
(millions of Won)
     Remarks  

Inside Directors

     3        92        —    

Independent Directors (Excluding Audit Committee Members)

     1        —          —    

Audit Committee Members

     4        —          —    

Total

     8        92        —    

 

B.

Stock Options Granted and Exercised

 

(As of June 30, 2020)                 (Unit: in Won and shares)  
                    Changes during
Reporting Period
    Total Changes     Unexercised
as of End of
Reporting
Period
           

Grantee

  Relationship
with the
Company
  Date of
Grant
 

Method of

Grant

 

Initially
Granted

  Exercised     Canceled     Exercised     Canceled     Exercise Period   Exercise
Price
 
Jung Ho Park   Inside Director   March 24, 2017   Issuance of treasury stock, cash settlement   22,168     —         —         —         —         22,168     March 25, 2019 –
March 24, 2022
    246,750  
Jung Ho Park   Inside Director   March 24, 2017   Issuance of treasury stock, cash settlement   22,168     —         —         —         —         22,168     March 25, 2020 –
March 24, 2023
    266,490  
Jung Ho Park   Inside Director   March 24, 2017   Issuance of treasury stock, cash settlement   22,168     —         —         —         —         22,168     Mach 25, 2021 –
March 24, 2024
    287,810  
Jung Ho Park   Inside Director   March 26, 2020   Issuance of treasury stock, cash settlement   111,106     —         —         —         —         111,106     March 27, 2023 –
March 26, 2027
    192,260  
Young Sang Ryu   Inside Director   February 20,

2018

  Issuance of treasury stock, cash settlement   1,358     —         —         —         —         1,358     February 21, 2020 –
February 20, 2023
    254,120  
Young Sang Ryu   Inside Director   March 26, 2019   Issuance of treasury stock, cash settlement   1,734     —         —         —         —         1,734     March 27, 2021 –
March 26, 2024
    254,310  
Young Sang Ryu   Inside Director   March, 26, 2020   Issuance of treasury stock, cash settlement   2,353     —         —         —         —         2,353     March 27, 2023 –
March 26, 2027
    192,260  

 

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(As of June 30, 2020)                 (Unit: in Won and shares)  
                    Changes during
Reporting Period
    Total Changes     Unexercised
as of End of
Reporting
Period
           

Grantee

  Relationship
with the
Company
  Date of
Grant
 

Method of

Grant

 

Initially
Granted

  Exercised     Canceled     Exercised     Canceled     Exercise Period   Exercise
Price
 
Jong Ryeol Kang   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   2,048     —         —         —         —         2,048     March 27, 2023 –
March 26, 2027
    192,260  
Hyoung Il Ha   Unregistered

Officer

  February 22,

2019

  Issuance of treasury stock, cash settlement   1,564     —         —         —         —         1,564     February 23, 2021 –
February 22, 2024
    265,260  
Hyoung Il Ha   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   1,961     —         —         —         —         1,961     March 27, 2023 –
March 26, 2027
    192,260  
Yoon Kim   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   1,874     —         —         —         —         1,874     March 27, 2023 –
March 26, 2027
    192,260  
Seok Joon Huh   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   1,852     —         —         —         —         1,852     March 27, 2023 –
March 26, 2027
    192,260  
Poong Young Yoon   Unregistered

Officer

  February 22,

2019

  Issuance of treasury stock, cash settlement   1,244     —         —         —         —         1,244     February 23, 2021 –
February 22, 2024
    265,260  
Poong Young Yoon   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   1,743     —         —         —         —         1,743     March 27, 2023 –
March 26, 2027
    192,260  
Seong Ho Ha   Unregistered

Officer

  February 22, 2019   Issuance of treasury stock, cash settlement   1,369     —         —         —         —         1,369     February 23, 2021 –
February 22, 2024
    265,260  
Seong Ho Ha   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   1,656     —         —         —         —         1,656     March 27, 2023 –
March 26, 2027
    192,260  
Dong Hwan Cho   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   1,525     —         —         —         —         1,525     March 27, 2023 –
March 26, 2027
    192,260  
HyunA Lee   Unregistered

Officer

  March 26, 2020   Issuance of treasury stock, cash settlement   1,525     —         —         —         —         1,525     March 27, 2023 –
March 26, 2027
    192,260  

 

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IX.

RELATED PARTY TRANSACTIONS

1.     Line of Credit Extended to the Largest Shareholder and Related Parties

 

(As of June 30, 2020)      (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
     204        —          —          204        —          —    

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

Purchase and Dispositions of Investments

 

(As of June 30, 2020)             (Unit: in millions of Won)

Name

(Corporate

name)        

   Relationship      Purchase and Dispositions of Investments      Remarks
   Type of
Investment
     Transaction Details  
   Beginning      Increase      Decrease      Ending  

SK Telecom TMT Investment Corp.

     Overseas Affiliate        Shares        33,834        24,290        —          58,124      Capital increase

SE ASIA INVESTMENT PTE. LTD.

     Overseas Affiliate        Shares        224,470        119,770        —          344,240      Capital increase

Purchase and Disposition of Securities

- On January 3, 2020, in order to achieve growth in the T-commerce business and enhance synergies with the Company’s ICT businesses, SK Telecom completed its acquisition of a 100% interest in SK Stoa (3,631,355 shares), with a book value of Won 40 billion, from SK Broadband.

Transfer of Assets

 

(Unit: in millions of Won)  

Counterparty

   Relationship
with
Counterparty
     Details of Transfer  
   Type      Date of Transaction    Purpose   

Subject of Transfer

   Transaction Amount  
   Purchase      Sale  

SK Innovation Co., Ltd.

     Affiliate        Sale      February 18, 2020    Transfer of
assets
   Golf membership (Lakeside)      —          573  

SK Innovation Co., Ltd.

     Affiliate        Sale      June 24, 2020    Transfer of
assets
   Equipment and construction supplies for Susong Tower      1,093        413  

Total

     1,093        986  

 

*

In accordance with applicable disclosure requirements, transactions of less than Won 100 million are omitted.

 

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3.     Transactions with the Largest Shareholder and Related Parties

 

(Unit: in millions of Won)  

Counterparty

   Relationship
with
Counterparty
     Type      Transaction Period      Transaction Details      Transaction
Amount
 

PS&Marketing

     Affiliate        Purchase       
January 1, 2020 –
June 30, 2020
 
 
     Marketing fees, etc.        625,525  

4.     Related Party Transactions

See note 31 of the notes to the Company’s unaudited consolidated financial statements attached hereto for more information regarding related party transactions.

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, 2020)      (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
     65,681        65,629        55,206        76,104        —          —    

Daehan Kanggun BCN Inc.

   Investee    Long-term loans      22,148        —          —          22,148        —          —    

 

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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

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)

35th Fiscal Year Meeting of Shareholders

(March 26, 2019)

  

1.  Approval of the financial statements for the year ended December 31, 2018

2.  Amendments to Articles of Incorporation

3.  Approval of award of stock options

4.  Award of stock options

5.  Election of an independent director

6.  Election of an independent director as Audit Committee member

7.  Approval of remuneration limit for directors

  

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

 

Approved

Approved

Approved

Approved (Seok-Dong Kim)

Approved (Seok-Dong Kim)

 

Approved (Won 12 billion)

36th Fiscal Year Meeting of Shareholders

(March 26, 2020)

  

1.  Approval of the financial statements for the year ended December 31, 2019

2.  Amendments to Articles of Incorporation

3.  Award of stock options

4.  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

5.  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

6.  Approval of remuneration limit for directors

7.  Amendment of remuneration policy for executives

  

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

 

Approved

Approved

 

Approved (Jung Ho Park)

Approved (Dae Sik Cho)

Approved (Yong-Hak Kim)

Approved (Junmo Kim)

Approved (Jung Ho Ahn)

 

Approved (Yong-Hak Kim)

 

Approved (Jung Ho Ahn)

 

Approved (Won 12 billion)

Approved

2.     Contingent Liabilities

 

A.

Legal Proceedings

[SK Telecom]

As of June 30, 2020, the Company is involved in various pending legal proceedings and the provisions recognized for these proceedings are not material. The management of the Company has determined that there are currently no present obligations in connection with proceedings for which no provision has been recognized. The management has also determined that the outcome of these proceedings will not have a significant impact on the Company’s financial position and operating performance.

 

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A lawsuit brought by Nonghyup Bank against SK Planet, a subsidiary of the Company, regarding the validity of a credit card partnership agreement has been resolved by the parties through mediation in 2018. Pursuant to the results of the mediation, the partnership agreement between SK Planet and Nonghyup Bank will stay in effect until April 2021, and SK Planet will be responsible for settlement of fees related to customer transactions until September 2021, which is the last expiration date of the cards issued. SK Planet has determined that the partnership agreement and related agreements meet the definition of an onerous contract under K-IFRS 1037 and recognized its best estimate of the payment amount necessary to discharge its present obligations as of the end of the reporting period as current and non-current provisions in the amount of Won 29,610 million and Won 3,828 million, respectively.

[SK Broadband]

As of June 30, 2020, there were 27 pending lawsuits against SK Broadband (aggregate amount of claims of Won 15,792 million), and provisions in the amount of Won 11,333 million in connection with such lawsuits were recognized.

[SK Planet]

As of June 30, 2020, there were two pending lawsuits against SK Planet (aggregate amount of claims of Won 250 million). The management cannot reasonably predict the outcome of these cases, and no amount in connection with these proceedings was recognized on the Company’s financial statements.

[Eleven Street]

As of June 30, 2020, there were four pending lawsuits against Eleven Street (aggregate amount of claims of Won 268 million). The management cannot reasonably predict the outcome of these cases, and no amount in connection with these proceedings was recognized on the Company’s financial statements.

[Life & Security Holdings]

As of June 30, 2020, there were 22 pending lawsuits against Life & Security Holdings (aggregate amount of claims of Won 1,974 million), and provisions in the amount of Won 842 million in connection with such lawsuits were recognized.

[Incross]

As of June 30, 2020, there was one pending lawsuit against Incross, and the management cannot reasonably predict the outcome of such proceeding.

[SK Telink]

As of June 30, 2020, there were three pending lawsuits against SK Telink (aggregate amount of claims of Won 210 million). The management cannot reasonably predict 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

[SK Telecom]

None.

[SK Broadband]

As of June 30, 2020, SK Broadband has entered into revolving credit facilities with a limit of Won 221.9 billion with four financial institutions including Hana Bank in relation to its loans.

 

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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 has provided “geun” mortgage amounting to Won 4,220 million on certain of its buildings, including Seodaemun Guksa, in connection with leasing of such buildings.

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

As of June 30, 2020, Seoul Guarantee Insurance Company has provided a performance guarantee of Won 31,714 million to SK Broadband in connection with the performance of certain contracts and the repair of any defects.

[SK Planet]

As of June 30, 2020, SK Planet has entered into revolving credit facilities of up to Won 17 billion with Shinhan Bank and KEB Hana Bank.

As of June 30, 2020, Seoul Guarantee Insurance Company and KEB Hana Bank have provided guarantees of Won 3,573 million in total to SK Planet in connection with the performance of certain contracts and curing of defects.

[ADT CAPS]

As of June 30, 2020, ADT CAPS has entered into the following agreements with financial institutions, including loan agreements:

 

(Unit: in millions of Won)  

Financial Institution

   Type of Loan    Line of Credit      Amount Borrowed  

KEB Hana Bank

   Revolving credit      5,000        5,000  

KEB Hana Bank

   Revolving credit      58,000        27,000  

Shinhan Bank

   Revolving credit      15,000        15,000  

As of June 30, 2020, ADT CAPS has been provided with the following material payment guarantees by other parties:

 

(Unit: in millions of Won)  

Guarantor

   Guarantee Details    Guaranteed Amount  

Seoul Guarantee Insurance Company

   Defect performance guarantee, etc.      21,549  

Seoul Guarantee Insurance Company

   Fidelity guarantee      45,930  

As of June 30, 2020, ADT CAPS has entered into an accounts receivable-backed loan agreement with a credit limit of Won 58,000 million (of which ADT Caps has borrowed Won 47,174 million) and a letter of credit of Won 2,000 million with KEB Hana Bank in order to make purchase payments. In addition, ADT CAPS has entered into an accounts receivable-backed loan agreement with a credit limit of Won 25,000 million (of which ADT Caps has borrowed Won 4,387 million) with Kookmin Bank.

ADT CAPS has provided its shares as collateral for a long-term loan (face value of Won 1,900 billion) of Life & Security Holdings.

[Dreamus Company]

As of June 30, 2020, Dreamus Company does not have any legal proceedings pending.

As of June 30, 2020, Seoul Guarantee Insurance Company has provided a guarantee of Won 206 million in connection with the performance, prepayment and curing of defects under certain contracts related to product development, and Dreamus Company has provided certain guarantees of Won 755 million.

 

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Dreamus Company has entered into agreements with certain domestic and foreign companies for the implementation of designs and technologies in connection with product manufacturing, pursuant to which it is paying certain fees for the revenues generated from applicable products and the use of patents. The aggregate amount of such fees paid in the first quarter of 2020 and the fourth quarter of 2019 were Won 881 million and Won 2,079 million, respectively, which were included in its cost of sales and selling and administrative expenses.

[SK Infosec]

SK Infosec has issued a blank note to SK Holdings as collateral in connection with a contract performance guarantee.

[Onestore]

As of June 30, 2020, details of the major payment guarantees received by Onestore from third parties are as follows:

 

(Unit: in millions of Won)

Guarantor

   Guarantee Details    Guaranteed Amount

KEB Hana Bank

   Miscellaneous Won payment guarantee    100

Seoul Guarantee Insurance Company

   E-commerce (payment method)
guarantee
   145

[Incross]

As of June 30, 2020, Incross has pledged the following assets:

 

(Unit: in millions of Won)

Pledged Assets

   Agreement Details        Amount          Pledgee

Short-term financial instruments

   Guarantee of contract
performance
     6,900      NAVER Corporation
     6,919      Kakao Corp.
     250      Smart Media Representative Co.,
Ltd.
     20      Brand Blue
     1,500      SK Broadband
     955      KT
     748      Kakao Games Corp.
     1,610      LG U+

Total

        18,902     

As of June 30, 2020, Incross has entered into the following loan or transaction limit agreements on a consolidated basis:

 

(Unit: in millions of Won)

Counterparty

   Agreement Details    Amount

KEB Hana Bank

   Loan for general funds    2,000

Woori Bank

   Loan for general funds    2,000

Industrial Bank of Korea

   Loan for general funds    4,100

Total

      8,100

As of June 30, 2020, Seoul Guarantee Insurance Company has provided a guarantee of Won 356 million (Won 230 million as of December 31, 2019) in connection with the guarantee of contract performance related to Incross’ operations.

Pursuant to Article 530-3(1) of the Korean Commercial Code, Incross’ SP business was spun off into a newly established company pursuant to a special resolution of its general shareholders’ meeting on March 28, 2014, and pursuant to Article 530-9(1) of the Korean Commercial Code, Incross and the new spun-off company are jointly liable for the repayment of debt incurred prior to the spin-off.

 

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[M&Service]

As of June 30, 2020, M&Service has entered into the following agreements with financial institutions, including loan agreements:

 

(Unit: in millions of Won)  

Financial Institution

   Type of Loan    Line of Credit      Amount Borrowed  

Shinhan Bank

   Payment guarantee      1,000        100  

KEB Hana Bank

   Revolving credit      5,000        —    

Korea Development Bank

   Revolving credit      5,000        —    

3.     Status of Sanctions, etc.

[SK Telecom]

 

Date

  

Authority

  

Subject of
Action

  

Sanction

  

Reason and the Relevant
Law

  

Status of
Implementation

  

Company’s
Measures

Jan. 24, 2018    KCC    SK Telecom   

Decision of 5th KCC Meeting of 2018

•   Correctional order

•   Fine of Won 21.1 billion

   Payment of subsidies exceeding 115% limit by dealers; payment of discriminatory subsidies by dealers; inducement of such payments (Articles 4-5, 3-1(1) and 9-3 of the MDDIA)    Decision confirmed; fine paid; correctional order implemented    Immediately ceased such activities; provided notice of plan for implementation of correctional order to marketing personnel; revised standard agreement and reinforced supervision
Jan. 24, 2018    KCC    SK Telecom   

Decision of 5th KCC Meeting of 2018

•   Correctional order

•   Fine of Won 223.4 million

   Payment of excessive subsidies contradictory with disclosure for recruitment of corporate customers (Article 4-4 of the MDDIA)    Decision confirmed; fine paid; correctional order implemented    Immediately ceased such activities; provided notice of plan for implementation of correctional order to marketing personnel; provided training and reinforced supervision of corporate business
Jan. 24, 2018    KCC    SK Telecom   

Decision of 5th KCC Meeting of 2018

•   Correctional order

•   Fine of Won 27 million

   Payment of subsidies exceeding 115% limit by Samsung Electronics; payment of discriminatory subsidies by Samsung Electronics; inducement of such payments (Articles 4-5, 3-1(1) and 9-3 of the MDDIA)    Decision confirmed; fine paid; correctional order implemented    Immediately ceased such activities; provided notice of plan for implementation of correctional order to marketing personnel; provided training and reinforced supervision

 

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Date

  

Authority

  

Subject of
Action

  

Sanction

  

Reason and the Relevant
Law

  

Status of
Implementation

  

Company’s

Measures

Sept. 2, 2018    Korea Fair Trade Commission    SK Telecom, former director   

Sept. 12, 2018 decision by Seoul Central District Court

•   SK Telecom: Fine of Won 50 million

•   Former director: Sentence of 6 months of imprisonment (2 years of probation)

   Abuse of bargaining power in transferring visiting salespeople against the intent of the head of the sales office that contracted with such salespeople (Articles 70, 67-2 and 23-1(4) of the Monopoly Regulation and Fair Trade Act; Article 30 of the Criminal Code)    Decision confirmed; fine paid    Provided training (twice a year); implemented compliance program for employees and executives
Mar. 20, 2019    KCC    SK Telecom   

Decision of 14th KCC Meeting of 2019

•   Correctional order

•   Fine of Won 975 million

   Payment of subsidies exceeding 115% limit by dealers; payment of discriminatory subsidies by dealers; inducement of such payments in connection with operation of online business channels (Articles 4-5, 3-1(1) and 9-3 of the MDDIA)    Decision confirmed; fine paid; correctional order implemented    Immediately ceased such activities; implemented compliance monitoring of online sales guidelines; revised online request system
June 26, 2019    KCC    SK Telecom   

Decision of 31st KCC Meeting of 2019

•   Correctional order

•   Fine of Won 231 million

   Refusal or delay of termination of user contract without just cause (Article 50-1(5) of the Telecommunications Business Act; Article 42-1(5) of the Enforcement Decree)    Decision confirmed; payment of fine and implementation of correctional order completed    Addressed issues discovered during investigation, such as outbound contact with customers regarding termination without customer consent
July 9, 2019    KCC    SK Telecom   

Decision of 33rd KCC Meeting of 2019

•   Correctional order

•   Fine of Won 1.5 million

   Failure to maintain subsidies without change for a minimum period of seven days (Article 4-3 of the MDDIA)    Decision confirmed; report on implementation of correctional order and payment of fine completed    Implemented improvements to work procedures (announce subsidies separately from public announcements on official website in case of notice of subsidies during pre-order period)
June 4, 2020    KCC    SK Telecom   

Decision of 33rd KCC Meeting of 2020

•   Correctional order

•   Fine of Won 4 million

   Obtaining consent from users for collection of personal location information through new contracts for mobile phones with material omissions instead of applicable terms of use for location information business (Article 18-1 of the Location Information Act and Article 22 of Enforcement Decree)    Decision confirmed; payment of fine and implementation of correctional order completed    Provided training to persons responsible for location information management, including representatives, and personnel handling location information
July 8, 2020    KCC    SK Telecom   

Decision of 40th KCC Meeting of 2020

•   Correctional order and submission of report

•   Fine of Won 22.3 billion

   Payment of subsidies exceeding 115% limit by dealers; payment of unreasonably discriminatory subsidies based on subscription type and rate plan; selection of certain dealers and instruction to and inducement of such subsidies by such dealers (Articles 3-1, 4-5 and 9-3 of the MDDIA)    Decision confirmed, payment of fine and submission of correctional order implementation plan pending    Immediately ceased such activities; promoted measures to prevent recurrence, such as operation of voluntary consultative body regarding illegal online postings, standardization of incentive instructions/forms, establishment of record management system, development of monitoring activities of online retailers and expansion of the electronic subscription system

 

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[SK Broadband]

 

Subject
Company

  

Date

  

Reason

  

Sanction

  

Relevant Law

  

Status of
Implementation

  

Company’s

Measures

SK Broadband    October 12, 2018    Failure to explain or disclose or misrepresentation of important matters to users such as rates, contract conditions or rate discounts    Correctional order (corrective measures for violation of the Telecommunications Business Act related to representative phone number card payment services)    Article 50-1 Paragraph 5(2) of the Telecommunications Business Act and Article 42-1 of its Enforcement Decree    Made an official announcement about having received the correctional order and paid the fine    Implement the correctional order and pay the fine
   December 21, 2018    Failure to prepare and submit the Telecommunications Business Report for the year ended December 31, 2017 in compliance with the requirements under the Regulations on Accounting and Reporting of Telecommunications Businesses and the Accounting Classification Standards of Telecommunications Businesses, as such report contained errors in the classification of assets, income and expenses    Correctional order to amend its business report for the year ended December 31, 2017 to correct errors and submit it to the MSIT; fine of Won 164 million    Article 49 of the Telecommunications Business Act    Submitted the amended business report and paid the fine    Improve work procedures to prevent errors in the future
   February 25, 2019    Failure to accurately report the number of high-speed Internet subscribers.    Correctional order (for violation of the Telecommunications Business Act related to a misrepresentation of statistics) and fine of Won 2.8 million    Article 88-1, Article 92-1 and Article 104-5(17) of the Telecommunications Business Act    Submitted plans for implementation of correctional order, including improvement of relevant business procedures    Implement the correctional order and pay the fine
   March 15, 2019    Failure to establish service rejection procedures against spammers.    Fine of Won 4.8 million for breach of restrictions on rendering information transmission services    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    Implemented improvements to advertisement transmission related activities and paid the fine (April 2018)    Implement procedures for denying services to spammers

 

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Subject
Company

  

Date

  

Reason

  

Sanction

  

Relevant Law

  

Status of
Implementation

  

Company’s

Measures

   June 26, 2019    Delaying, rejecting or restricting termination of user contracts without just cause    Correctional order (corrective measures for damaging users’ interests by restricting termination of high-speed Internet and bundled services)    Article 50-1(5) of the Telecommunications Business Act and Article 42-1(5) of its Enforcement Decree    Made an official announcement about having received the correctional order, improved operating procedures and paid the fine (Won 165 million).    Implement the correctional order and pay the fine
   July 29, 2019    Substantially restricting competition in a bidding process for a public sector-only network project by agreeing on the winning bidder, bidding participants and the bidding price in advance (SK Broadband was the first to voluntarily report the act of collusion and was granted exemption from applicable sanctions)    Correctional order (for unjustly restricting competition while participating in a bid for a public sector-only circuit project of public agencies) and fine of Won 32.7 million (SK Broadband was ultimately exempted from both the correctional order and the fine)    Article 19-1(3), Article 19-1(8) and Article 22-2(1)(2) of the Monopoly Regulation and Fair Trade Act, and Article 33 and Article 35-1 of its Enforcement Decree    Not applicable due to exemption    Conduct legal education regarding collusive bidding (July 1, 2019 to July 19, 2019) and establish measures to prevent recurrence, including an internal reporting channel related to collusion and a fast-track system for legal advice on related matters
   September 30, 2019    Engaging in collusive bidding in public sector-only network project auctions from 2015 to 2017    Prohibition from bidding in public sector auctions for three months    Article 76-1 of the Enforcement Decree of the Act on Contracts to which the State is a Party    Administrative proceedings withdrawn; three-month prohibition in effect beginning April 17, 2020   

 

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Subject
Company

  

Date

  

Reason

  

Sanction

  

Relevant Law

  

Status of
Implementation

  

Company’s

Measures

   November 29, 2019    Substantially restricting competition in an auction for selection of a mobile messaging service provider by agreeing on the winning bidder in advance, and either intentionally participating or restraining from participating in the bid so that such agreed-upon bidder can win the bid (SK Broadband was the second to voluntarily report the act of collusion and was granted a reduction in fine from Won 301 million to Won 188 million)    Correctional order (for unjustly restricting competition while participating in a bid to be selected as a mobile messaging service provider for the Public Procurement Service) and fine of Won 188 million    Article 19-1(8), Article 21, Article 22, Article 22-2(1)(2), Article 55-3 of the Monopoly Regulation and Fair Trade Act and Article 9, Article 33, Article 35-1, Article 61 and Appendix 2 of its Enforcement Decree    Paid the fine   
   January 13, 2020    Correctional order to prevent the post-merger entity from engaging in activities that may restrict competition in the pay TV market    Correctional order (prohibiting acts of restricting competition, such as unilaterally raising prices, reducing the number of channels and inducing switch to high-priced products, based on post-merger market share)    Articles 7(1) and 16(1) of the Monopoly Regulation and Fair Trade Act    Submitted implementation plans (approved by Korea Fair Trade Commission)    Implement correctional order
   January 15, 2020    Failure to prepare and submit the Telecommunications Business Report for the year ended December 31, 2018 in compliance with the requirements under the Regulations on Accounting and Reporting of Telecommunications Businesses and the Accounting Classification Standards of Telecommunications Businesses, as such report contained errors in the classification of assets, income and expenses    Correctional order to amend its business report for the year ended December 31, 2018 to correct errors and submit it to the MSIT and fine of Won 79 million    Article 49 of the Telecommunications Business Act    Submitted the amended business report on February 3, 2020 and paid the fine on February 7, 2020    Improve work procedures to prevent errors in the future
Tbroad (merged entities)    January 19, 2018    Failure to meet digital investment objectives and violation of approval renewal conditions    Correctional order    Article 99-1 of the Broadcast Act    Submitted correctional measures and implementation plan    Compliance with correctional order
   November 26, 2018    Violation of prohibited acts of broadcasting channel blocking    Correctional order and fine of Won 151.7 million    Article 85-2 and Article 109 of the Broadcast Act    Implemented correctional measures and paid the fine    Compliance with correctional order

 

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Subject
Company

  

Date

  

Reason

  

Sanction

  

Relevant Law

  

Status of
Implementation

  

Company’s

Measures

   December 24, 2018    Review of 2017 fiscal year sales report    Correctional order and fine of Won 7.5 million    Article 49-1, Article 92-1 and Article 53-2 of the Telecommunications Business Act    Implemented correctional measures and paid the fine    Compliance with correctional order
   December 27, 2018    Violation of permitted scope of sponsorship notice in program production    Fine of Won 5 million    Article 74-1 of the Broadcast Act    Paid the fine    —  
   January 23, 2019    Failure to satisfy approval renewal conditions, including implementation of 2017 network investment plan    Correctional order    Article 99-1 of the Broadcast Act    Submitted correctional measures and implementation plan    Compliance with correctional order
   June 13, 2019    Provision of unfair benefits to related parties of Taekwang Group affiliates    Prosecution    Article 23-2 of the Monopoly Regulation and Fair Trade Act    Criminal investigation pending    Expected to be disposed as no right of arraignment due to merger
   August 28, 2019    Provision of unfair benefits to related parties of Taekwang Group affiliates    Correctional order and fine (Tbroad: Won 177 million; Tbroad Dongdaemun: Won 4 million; Tbroad Nowon: Won 1 million; KDMC: Won 2 million)    Article 23-2 of the Monopoly Regulation and Fair Trade Act    Paid the fine    Administrative proceedings pending
   December 9, 2019    Failure to satisfy approval renewal condition (implementation of 2018 plan)    Correctional order    Article 99-1 of the Broadcast Act    Submitted corrective action and implementation plan    Compliance with correctional order
   December 9, 2019    Violation of disclosure rules regarding corporate group status of five Taekwang group companies    Fine of Won 8 million    Articles 11-4 and 69-2(1) of the Monopoly Regulation and Fair Trade Act    Paid the fine    —  
   May 1, 2020    Failure to submit monthly broadcasting results    Fine of Won 6 million    Articles 83 and 16 of the Broadcast Act    Paid the fine    —  
Home & Service    January 19, 2018    Delaying the reporting of matters related to changes in employees’ insurance eligibility    Fine of Won 500,000    Article 15 of the Employment Insurance Act    Paid the fine    Implement measures to improve reporting procedures
   March 12, 2018    Delaying the reporting of details of industrial accidents    Fine of Won 5.04 million    Article 10-2 of the Industrial Safety and Health Act    Paid the fine    Improve management of industrial accidents

 

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Subject
Company

  

Date

  

Reason

  

Sanction

  

Relevant Law

  

Status of
Implementation

  

Company’s

Measures

   April 30, 2018    Failure to establish an industrial safety and health committee and provide training related to employee safety and health in the first quarter of 2018    Correctional order (to establish an industrial safety and health committee and provide training related to employee safety and health)    Articles 19-1 and 31-1 of the Industrial Safety and Health Act    Paid the fine, resolved to establish an industrial safety and health committee on May 16, 2018 and conducted additional offline and online training programs    Implement the correctional order

[SK Planet]

 

  (1)

Violation of the Foreign Exchange Transactions Act

 

   

Date: April 27, 2018

 

   

Sanction: SK Planet paid a fine of Won 10 million for failing to pre-register its Payment Gateway business, as required by a change in applicable law.

 

   

Reason and the Relevant Law: Violated Article 8-1 of the Foreign Exchange Transactions Act.

 

   

Company’s Measures: Engage in close monitoring to avoid future recurrences of violation.

[SK Telink]

 

  (1)

Violation of the Telecommunications Business Act

 

   

Date: October 12, 2018

 

   

Sanction: SK Telink received a correctional order and a fine of Won 55.4 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 failing to explain or notify of the availability of a similar service that is relatively cheaper before entering into “representative number service” (a fixed-line telephone credit card payment service) contracts with VAN operators after October 2012.

 

   

Status of Implementation: Ceased the prohibited practice, disclosed the receipt of the correctional order in the press (December 2018) and paid the fine (December 2018).

 

   

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

 

69


Table of Contents

4.    Use of Direct Financing

 

A.

Use of Proceeds from Public Offerings

[SK Telecom]

 

(Unit: in millions of Won)  

Category

   Bond
Series
   Payment Date    Planned Use of Proceeds      Actual Use of Proceeds      Reasons for
Difference
 
   Use    Amount      Use    Amount  

Corporate bond

   78th    January 14, 2020    Working capital      360,000      Working
capital
     360,000        —    

Corporate bond

   78th    January 14, 2020    Repayment of
debt
     60,000      Repayment
of debt
     60,000        —    

Corporate bond

   77th    October 22, 2019    Working capital      400,000      Working
capital
     400,000        —    

Corporate bond

   76th    July 29, 2019    Working capital      70,000      Working
capital
     70,000        —    

Corporate bond

   76th    July 29, 2019    Repayment of
debt
     330,000      Repayment
of debt
     330,000        —    

Corporate bond

   75th    March 6, 2019    Frequency
usage right
payments
     400,000      Frequency
usage right
payments
     400,000        —    

Corporate bond

   74th    September 17, 2018    Frequency
usage right
payments
     220,000      Frequency
usage right
payments
     220,000        —    

Corporate bond

   74th    September 17, 2018    Repayment of
debt
     80,000      Repayment
of debt
     80,000        —    

Corporate bond

   73rd    February 20, 2018    Working capital      300,000      Working
capital
     300,000        —    

Corporate bond

   73rd    February 20, 2018    Repayment of
debt
     200,000      Repayment
of debt
     200,000        —    

Corporate bond

   72nd    November 10, 2017    Working capital      20,000      Working
capital
     20,000        —    

Corporate bond

   72nd    November 10, 2017    Repayment of
debt
     260,000      Repayment
of debt
     260,000        —    

Corporate bond

   71st    April 25, 2017    Working capital      30,000      Working
capital
     30,000        —    

Corporate bond

   71st    April 25, 2017    Repayment of
debt
     340,000      Repayment
of debt
     340,000        —    

[SK Broadband]

 

(Unit: in millions of Won)  

Category

   Bond
Series
   Payment Date    Planned Use of Proceeds      Actual Use of Proceeds      Reasons for
Difference
 
   Use    Amount      Use    Amount  

Corporate bond

   Series
46-1
   February 1,
2018
   Repayment
of debt
(150,000)
     70,000      Repayment
of debt
(150,000)
     150,000        —    

Corporate bond

   Series
46-2
   February 1,
2018
     80,000        —    

 

70


Table of Contents

(Unit: in millions of Won)

 

Category

   Bond
Series
   Payment Date    Planned Use of Proceeds      Actual Use of Proceeds      Reasons for
Difference
 
   Use    Amount      Use    Amount  

Corporate bond

   Series
47-1
   March 26,
2018
   Repayment
of debt
(210,000)
     50,000      Repayment
of debt
(210,000)
     210,000        —    

Corporate bond

   Series
47-2
   March 26,
2018
     160,000        —    

Corporate bond

   Series
48-1
   September 24,
2019
   Repayment
of debt
(186,200)
     80,000      Repayment
of debt
(186,200)
     230,000        —    

Corporate bond

   Series
48-2
   September 24,
2019
     100,000  

Corporate bond

   Series
48-3
   September 24,
2019
   Working
capital
(43,800)
     50,000      Working
Capital
(43,800)
     —          —    

Corporate bond

   Series
49-1
   June 11, 2020    -Repayment
of debt
(159,200)

-Working
Capital
(40,800)

     100,000      -Repayment
of debt
(159,200)

-Working
Capital
(23,900)

     183,100       









Payment of
working
capital in
installments;
unused
funds to be
paid after
depositing
with a
financial
institution
 
 
 
 
 
 
 
 
 
 
 

Corporate bond

   Series
49-2
   June 11, 2020      100,000  

 

*

Commercial papers and foreign bonds that do not require securities reports in Korea have been omitted.

 

B.

Use of Proceeds from Private Offerings

[Dreamus Company]

 

(As of June 30, 2020)      (Unit: in millions of Won)  

Classification

   Payment Date    Planned Use of Proceeds      Actual Use of Proceeds      Reasons
for
Difference
 
   Use    Amount      Use    Amount  

Capital increase through third-party allotment (No. 2)

   December 23, 2014    Facility and operating
funds
     25,000      Expansion of R&D, marketing,
facility investment and high-
quality music infrastructure
regarding Astell & Kern
     25,000        —    

Convertible bonds (No. 2)

   December 23, 2014    Facility and operating
funds
     5,000      Expansion of R&D, marketing,
facility investment and high-
quality music infrastructure
regarding Astell & Kern
     5,000        —    

Capital increase through third-party allotment (No. 3)

   August 29, 2017    Expansion of new
businesses
     65,000      Acquisition of equity interest
in Life Design Company Inc.;
acquisition of supply and
distribution rights of music
records/digital contents;
acquisition of equity interest
and investment in Groovers
     65,000        —    

 

71


Table of Contents
(As of June 30, 2020)      (Unit: in millions of Won)  

Classification

   Payment Date    Planned Use of Proceeds      Actual Use of Proceeds      Reasons
for
Difference
 
   Use    Amount      Use    Amount  

Capital increase through third-party allotment (No. 4)

   August 10, 2018    Strengthening of
contents business and
establishment of
infrastructure related
to music industry
     70,000      Operating expenses for music
business and investment in
contents
     70,000        —    

 

C.

Material Events Subsequent to the Reporting Period

The Company declared interim dividends by resolution of its board of directors on July 21, 2020 as follows:

 

Amount of interim dividends

   Won 1,000 per share in cash (Total dividend amount Won 73,136 million)

Market price dividend yield

   0.5%

Record date

   June 30, 2020

Payment date

   To be paid on or before August 21, 2020 pursuant to Article 464-2(1) of the Korean Commercial Code

 

72


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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, 2020


Table of Contents

SK TELECOM CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

(Unaudited)

June 30, 2020 and 2019

(With Independent Auditors’ Review Report Thereon)


Table of Contents


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, 2020, the condensed consolidated statements of income and comprehensive income for the three and six-month periods ended June 30, 2020 and 2019, the condensed consolidated statements of changes in equity and cash flows for the six-month periods ended June 30, 2020 and 2019, 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 is necessary to enable the preparation of condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ review 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 information consists principally of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

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


Table of Contents

Other matters

The consolidated statement of financial position of the Group as of December 31, 2019, 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 March 10, 2020, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2019, 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, 2020

 

This report is effective as of August 13, 2020, 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. (the “Parent Company”) AND SUBSIDIARIES

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

AS OF JUNE 30, 2020, AND DECEMBER 31, 2019, AND

FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019

The accompanying condensed consolidated interim financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the Parent Company.

Park, Jung-Ho

Chief Executive Officer

SK TELECOM CO., LTD.

 

3


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Interim Statements of Financial Position

As of June 30, 2020 and December 31, 2019

 

(In millions of won)    Note             June 30, 2020      December 31, 2019  

Assets

           

Current Assets:

           

Cash and cash equivalents

     29,30      W        1,496,903        1,270,824  

Short-term financial instruments

     29,30           900,547        830,647  

Short-term investment securities

     9,29,30           80,882        166,666  

Accounts receivable—trade, net

     5,29,30,31           2,244,884        2,230,979  

Short-term loans, net

     5,29,30,31           78,928        66,123  

Accounts receivable—other, net

     5,29,30,31,32           837,373        905,436  

Contract assets

     7,30           104,383        127,499  

Prepaid expenses

     6           2,123,974        2,030,550  

Prepaid income taxes

     27           1,025        63,748  

Derivative financial assets

     19,29,30           14,696        26,253  

Inventories, net

     8           204,349        162,882  

Advanced payments and others

     5,29,30,31           173,384        220,687  
        

 

 

    

 

 

 
           8,261,328        8,102,294  
        

 

 

    

 

 

 

Non-Current Assets:

           

Long-term financial instruments

     29,30           91,850        990  

Long-term investment securities

     9,29,30           1,109,269        857,215  

Investments in associates and joint ventures

     11           13,874,353        13,385,264  

Property and equipment, net

     12,13,31,32           12,544,240        12,334,280  

Goodwill

     10           3,112,809        2,949,530  

Intangible assets, net

     14           4,968,547        4,866,092  

Long-term contract assets

     7,30           44,891        64,359  

Long-term loans, net

     5,29,30,31           33,639        33,760  

Long-term accounts receivable—other

     5,29,30,31,32           252,370        344,662  

Long-term prepaid expenses

     6           1,124,305        1,241,429  

Guarantee deposits

     5,29,30,31           172,958        164,734  

Long-term derivative financial assets

     19,29,30           218,232        124,707  

Deferred tax assets

     27           115,987        109,057  

Defined benefit assets

     18           —          1,125  

Other non-current assets

     5,29,30           32,372        32,122  
        

 

 

    

 

 

 
           37,695,822        36,509,326  
        

 

 

    

 

 

 
      W        45,957,150        44,611,620  
        

 

 

    

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

4


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Interim Statements of Financial Position, Continued

As of June 30, 2020 and December 31, 2019

 

(In millions of won)    Note             June 30, 2020     December 31, 2019  

Liabilities and Shareholders’ Equity

          

Current Liabilities:

          

Accounts payable—trade

     29,30,31      W        370,929       438,297  

Accounts payable—other

     29,30,31           2,374,726       2,521,474  

Withholdings

     29,30,31           1,277,971       1,350,244  

Contract liabilities

     7           195,596       191,225  

Accrued expenses

     29,30           1,346,288       1,425,251  

Income tax payable

     27           156,198       5,450  

Provisions

     17,32           95,624       89,446  

Short-term borrowings

     15,29,30           105,000       20,603  

Current installments of long-term debt, net

     15,29,30           780,526       1,017,327  

Current installments of long-term payables—other

     16,29,30           422,284       423,839  

Lease liabilities

     29,30,31           304,115       304,247  

Other current liabilities

           6,142       319  
        

 

 

   

 

 

 
           7,435,399       7,787,722  
        

 

 

   

 

 

 

Non-Current Liabilities:

          

Debentures, excluding current installments, net

     15,29,30           7,960,213       7,253,894  

Long-term borrowings, excluding current installments, net

     15,29,30,32           1,951,694       1,972,149  

Long-term payables—other

     16,29,30           1,137,932       1,550,167  

Long-term lease liabilities

     29,30,31           362,456       408,493  

Long-term contract liabilities

     7           32,336       32,231  

Defined benefit liabilities

     18           268,553       172,258  

Long-term derivative financial liabilities

     19,29,30           16,642       1,043  

Long-term provisions

     17,32           45,024       53,783  

Deferred tax liabilities

     27           2,634,816       2,466,295  

Other non-current liabilities

     29,30           95,362       90,049  
        

 

 

   

 

 

 
           14,505,028       14,000,362  
        

 

 

   

 

 

 

Total Liabilities

           21,940,427       21,788,084  
        

 

 

   

 

 

 

Shareholders’ Equity:

          

Share capital

     1,20           44,639       44,639  

Capital surplus and others

     20,21           1,218,524       1,006,481  

Retained earnings

     22           22,284,645       22,235,285  

Reserves

     23           (51,146     (329,576
        

 

 

   

 

 

 

Equity attributable to owners of the Parent Company

           23,496,662       22,956,829  

Non-controlling interests

           520,061       (133,293
        

 

 

   

 

 

 

Total Shareholders’ Equity

           24,016,723       22,823,536  
        

 

 

   

 

 

 
      W        45,957,150       44,611,620  
        

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

5


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Interim Statements of Income

For the three and six-month periods ended June 30, 2020 and 2019

 

(In millions of won)                  2020     2019  
     Note             Three-month
period ended
June 30
    Six-month
period ended
June 30
    Three-month
period ended
June 30
    Six-month
period ended
June 30
 

Operating revenue:

     4,31              

Revenue

      W        4,602,813       9,053,209       4,437,029       8,771,935  

Operating expenses:

     31              

Labor

           735,707       1,478,476       699,323       1,390,280  

Commissions

     6           1,333,897       2,631,865       1,256,343       2,530,069  

Depreciation and amortization

     4           985,275       1,960,672       930,351       1,821,501  

Network interconnection

           207,327       402,297       187,744       377,111  

Leased lines

           68,985       135,902       66,223       137,021  

Advertising

           93,300       167,254       104,706       190,516  

Rent

           50,072       102,427       58,999       117,416  

Cost of goods sold

     8           362,824       711,795       440,124       817,364  

Others

     24           405,950       801,009       370,386       745,255  
        

 

 

   

 

 

   

 

 

   

 

 

 
           4,243,337       8,391,697       4,114,199       8,126,533  
        

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     4           359,476       661,512       322,830       645,402  

Finance income

     4,26           32,905       68,408       27,089       64,657  

Finance costs

     4,26           (100,485     (206,901     (107,520     (213,027

Gain relating to investments in associates and joint ventures, net

     4,11           267,004       407,899       136,076       359,421  

Other non-operating income

     4,25           28,681       45,406       8,553       16,488  

Other non-operating expenses

     4,25           (39,310     (58,058     (33,809     (51,914
        

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     4           548,271       918,266       353,219       821,027  

Income tax expense

     27           116,117       179,265       94,163       188,340  
        

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

      W        432,154       739,001       259,056       632,687  
        

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

              

Owners of the Parent Company

      W        427,210       736,650       263,397       642,586  

Non-controlling interests

           4,944       2,351       (4,341     (9,899

Earnings per share:

     28              

Basic and diluted earnings per share (in won)

      W        5,790       9,971       3,613       8,838  

See accompanying notes to the condensed consolidated interim financial statements.

 

6


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Interim Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2020 and 2019

 

(In millions of won)                  2020     2019  
     Note             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        432,154       739,001       259,056       632,687  

Other comprehensive income (loss):

              

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

              

Remeasurement of defined benefit liabilities

     18           1,469       (21,581     (1,182     (10,749

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

     11,23           (971     (1,962     (1,153     (2,416

Valuation gain (loss) on financial assets at fair value through other comprehensive income

     23           202,636       182,367       (9,229     (6,206

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

              

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

     11,23           (47,018     63,760       6,492       73,610  

Net change in unrealized fair value of derivatives

     23           13,857       18,438       16,518       29,143  

Foreign currency translation differences for foreign operations

     23           (1,980     16,682       7,198       11,188  
        

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income for the period, net of taxes

           167,993       257,704       18,644       94,570  
        

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

      W        600,147       996,705       277,700       727,257  
        

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) attributable to:

              

Owners of the Parent Company

      W        594,192       993,401       281,418       736,562  

Non-controlling interests

           5,955       3,304       (3,718     (9,305

See accompanying notes to the condensed consolidated interim financial statements.

 

7


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Interim Statements of Changes in Equity

For the six-month periods ended June 30, 2020 and 2019

 

(In millions of won)                                                          
                   Controlling interests     Non-controlling
interests
    Total equity  
     Note             Share capital      Capital surplus
and others
    Retained
earnings
    Reserves     Sub-total  

Balance, December 31, 2018

      W        44,639        655,084       22,144,541       (373,442     22,470,822       (121,572     22,349,250  

Impact of adopting K-IFRS No. 1116

           —          —         (24,956     —         (24,956     (503     (25,459
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2019

           44,639        655,084       22,119,585       (373,442     22,445,866       (122,075     22,323,791  

Total comprehensive income:

                     

Profit (loss) for the period

           —          —         642,586       —         642,586       (9,899     632,687  

Other comprehensive income (loss)

     11,18,23           —          —         17,726       76,250       93,976       594       94,570  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           —          —         660,312       76,250       736,562       (9,305     727,257  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                     

Annual dividends

           —          —         (646,828     —         (646,828     —         (646,828

Share option

     21           —          157       —         —         157       279       436  

Interest on hybrid bonds

           —          —         (7,383     —         (7,383     —         (7,383

Changes in ownership in subsidiaries

           —          (239     —         —         (239     32,767       32,528  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           —          (82     (654,211     —         (654,293     33,046       (621,247
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2019

      W        44,639        655,002       22,125,686       (297,192     22,528,135       (98,334     22,429,801  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2020

      W        44,639        1,006,481       22,235,285       (329,576     22,956,829       (133,293     22,823,536  

Total comprehensive income:

                     

Profit (loss) for the period

           —          —         736,650       —         736,650       2,351       739,001  

Other comprehensive income (loss)

     11,18,23           —          —         (21,679     278,430       256,751       953       257,704  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           —          —         714,971       278,430       993,401       3,304       996,705  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                            

Annual dividends

           —          —         (658,228     —         (658,228     (5,765     (663,993

Share option

     21           —          103       —         —         103       754       857  

Interest on hybrid bonds

           —          —         (7,383     —         (7,383     —         (7,383

Changes in ownership in subsidiaries

           —          211,940       —         —         211,940       655,061       867,001  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           —          212,043       (665,611     —         (453,568     650,050       196,482  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2020

      W        44,639        1,218,524       22,284,645       (51,146     23,496,662       520,061       24,016,723  
        

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

8


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Interim Statements of Cash Flows

For the six-month periods ended June 30, 2020 and 2019

 

(In millions of won)    Note             June 30,
2020
    June 30,
2019
 

Cash flows from operating activities:

          

Cash generated from operating activities:

          

Profit for the period

      W        739,001       632,687  

Adjustments for income and expenses

     33           2,133,367       2,020,232  

Changes in assets and liabilities related to operating activities

     33           (22,621     (550,027
        

 

 

   

 

 

 
           2,849,747       2,102,892  

Interest received

           19,422       23,873  

Dividends received

           165,645       229,074  

Interest paid

           (175,736     (191,361

Income tax refunded(paid)

           25,650       (164,621
        

 

 

   

 

 

 

Net cash provided by operating activities

           2,884,728       1,999,857  
        

 

 

   

 

 

 

Cash flows from investing activities:

          

Cash inflows from investing activities:

          

Decrease in short-term financial instruments, net

           —         336,375  

Decrease in short-term investment securities, net

           86,468       116,485  

Collection of short-term loans

           58,047       54,073  

Decrease in long-term financial instruments

           99       —    

Proceeds from disposals of long-term investment securities

           7,721       229,798  

Proceeds from disposals of investments in associates and joint ventures

           2,715       81  

Proceeds from disposals of property and equipment

           4,860       5,260  

Proceeds from disposals of intangible assets

           4,165       3,893  

Collection of long-term loans

           1,550       942  

Decrease in deposits

           10,618       6,354  

Proceeds from settlement of derivatives

           359       288  

Collection of lease receivables

           —         13,733  

Proceeds from disposals of subsidiaries

           —         9,301  

Cash inflow from business combinations, net

           115,834       4,944  
        

 

 

   

 

 

 
           292,436       781,527  

Cash outflows for investing activities:

          

Increase in short-term financial instruments, net

           (69,981     —    

Increase in short-term loans

           (68,936     (68,021

Increase in long-term loans

           (3,483     (4,800

Increase in long-term financial instruments

           (90,959     —    

Acquisitions of long-term investment securities

           (5,461     (62,405

Acquisitions of investments in associates and joint ventures

           (151,357     (138,124

Acquisitions of property and equipment

           (1,695,883     (1,341,042

Acquisitions of intangible assets

           (69,604     (24,379

Increase in deposits

           (6,145     (5,399

Cash outflow for business combinations, net

           —         (36,900
        

 

 

   

 

 

 
           (2,161,809     (1,681,070
        

 

 

   

 

 

 

Net cash used in investing activities

      W        (1,869,373     (899,543
        

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

9


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Condensed Consolidated Interim Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2020 and 2019

 

(In millions of won)    Note             June 30, 2020     June 30, 2019  

Cash flows from financing activities:

          

Cash inflows from financing activities:

          

Proceeds from short-term borrowings, net

      W        84,375       —    

Proceeds from issuance of debentures

           972,863       607,427  

Proceeds from long-term borrowings

           1,250       —    

Cash inflows from settlement of derivatives

           41,182       11,931  

Transactions with non-controlling shareholders

           1,349       3,933  
        

 

 

   

 

 

 
           1,101,019       623,291  

Cash outflows for financing activities:

          

Repayments of short-term borrowings, net

           —         (30,466

Repayments of long-term payable – other

           (426,950     (426,696

Repayments of debentures

           (584,590     (430,000

Repayments of long-term borrowings

           (25,295     (26,983

Payments of dividends

           (658,228     (646,828

Payments of interest on hybrid bonds

           (7,383     (7,383

Repayments of lease liabilities

           (186,314     (182,235

Transactions with non-controlling shareholders

           (9,418     (26,136
        

 

 

   

 

 

 
           (1,898,178     (1,776,727
        

 

 

   

 

 

 

Net cash used in financing activities

           (797,159     (1,153,436
        

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

           218,196       (53,122

Cash and cash equivalents at beginning of the period

           1,270,824       1,506,699  

Effects of exchange rate changes on cash and cash equivalents

           7,883       (1,981
        

 

 

   

 

 

 

Cash and cash equivalents at end of the period

      W        1,496,903       1,451,596  
        

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

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, 2020 and 2019

 

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, 2020, 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.

     21,624,120        26.78  

National Pension Service

     9,502,565        11.77  

Institutional investors and other shareholders

     40,743,143        50.46  

Kakao Co., Ltd.

     1,266,620        1.57  

Treasury shares

     7,609,263        9.42  
  

 

 

    

 

 

 
     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.

 

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, 2020 and 2019

 

1.

Reporting Entity, Continued

 

  (2)

List of subsidiaries

The list of subsidiaries as of June 30, 2020 and December 31, 2019 is as follows:

 

            Ownership
(%)(*1)
 

Subsidiary

  Location  

Primary business

  June. 30,
2020
    Dec. 31,
2019
 

Subsidiaries
owned by the
Parent Company

  SK Telink Co., Ltd.   Korea  

Telecommunications and

Mobile Virtual Network Operator service

    100.0       100.0  
  SK Communications Co., Ltd.   Korea   Internet website services     100.0       100.0  
  SK Broadband Co., Ltd.(*2)   Korea   Telecommunications services     74.3       100.0  
  PS&Marketing Corporation   Korea   Communications device retail business     100.0       100.0  
  SERVICE ACE Co., Ltd.   Korea   Call center management service     100.0       100.0  
  SERVICE TOP Co., Ltd.   Korea   Call center management service     100.0       100.0  
  SK O&S Co., Ltd.   Korea   Base station maintenance service     100.0       100.0  
  SK Telecom China Holdings Co., Ltd.   China   Investment (holdings company)     100.0       100.0  
  SK Global Healthcare Business Group, Ltd.   Hong Kong   Investment     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  
  SKT Americas, Inc.   USA   Information gathering and consulting     100.0       100.0  
  One Store Co., Ltd.(*3)   Korea   Telecommunications services     52.1       52.7  
  SK Planet Co., Ltd.   Korea  

Telecommunications services, system software development and supply services

    98.7       98.7  
  Eleven Street Co., Ltd.(*4)   Korea   E-commerce     80.3       80.3  
  DREAMUS COMPANY   Korea  

Manufacturing digital audio players
and other portable media devices

    51.4       51.4  
  SK Infosec Co., Ltd.   Korea   Information security service     100.0       100.0  
  Life & Security Holdings Co., Ltd.   Korea   Investment (holdings company)     55.0       55.0  
  Quantum Innovation Fund I   Korea   Investment     59.9       59.9  
  SK Telecom Japan Inc.   Japan   Information gathering and consulting     100.0       100.0  
  id Quantique SA   Switzerland  

Quantum information and
communications service

    66.8       66.8  
  SK Telecom TMT Investment Corp.   USA   Investment     100.0       100.0  
  FSK L&S Co., Ltd.   Korea   Freight and logistics consulting business     60.0       60.0  
  Incross Co., Ltd.   Korea   Media representative business     34.6       34.6  
  Happy Hanool Co., Ltd.   Korea   Service     100.0       100.0  
  SK stoa Co., Ltd.(*5)   Korea   Other telecommunications retail business     100.0       —    
  Broadband Nowon Co., Ltd.(*6)   Korea   Cable broadcasting services     55.0       —    

 

12


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, 2020 and 2019

 

1.

Reporting Entity, Continued

 

  (2)

List of subsidiaries, Continued

The list of subsidiaries as of June 30, 2020 and December 31, 2019 is as follows, Continued:

 

            Ownership
(%)(*1)
 

Subsidiary

  Location  

Primary business

  June. 30,
2020
    Dec. 31,
2019
 

Subsidiaries owned by
SK Planet Co., Ltd.

  SK m&service Co., Ltd.   Korea   Database and Internet website service     100.0       100.0  
  SK Planet Global Holdings Pte. Ltd.   Singapore   Investment (holdings company)     100.0       100.0  
  SKP America LLC.   USA   Digital contents sourcing service     100.0       100.0  
  K-net Culture and Contents Venture Fund   Korea   Capital investing in startups     59.0       59.0  

Subsidiaries owned by DREAMUS COMPANY

  iriver Enterprise Ltd.   Hong Kong   Management of Chinese subsidiaries     100.0       100.0  
  iriver China Co., Ltd.   China   Sales and manufacturing of MP3 and 4     100.0       100.0  
  Dongguan iriver Electronics Co., Ltd.   China   Sales and manufacturing of e-book devices     100.0       100.0  
  LIFE DESIGN COMPANY Inc.   Japan   Sales of goods in Japan     100.0       100.0  

Subsidiary owned by
SK Infosec Co., Ltd.

 

SKinfosec Information Technology(Wuxi)
Co., Ltd.

  China  

System software development and
supply services

    100.0       100.0  

Subsidiaries owned by Life & Security Holdings Co., Ltd.

  ADT CAPS Co., Ltd.   Korea   Unmanned security     100.0       100.0  
  CAPSTEC Co., Ltd.   Korea   Manned security     100.0       100.0  
  ADT SECURITY Co., Ltd.(*6)   Korea  

Sales and trade of anti-theft devices
and surveillance devices

    —         100.0  

Subsidiary owned by
SK Telink Co., Ltd.

  SK TELINK VIETNAM Co., Ltd.   Vietnam   Communications device retail business     100.0       100.0  

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.(*5)   Korea   Other telecommunications retail business     —         100.0  

Subsidiary owned by
SK Telecom Japan Inc.

  SK Planet Japan, K. K.   Japan   Digital contents sourcing service     79.8       79.8  

Subsidiary owned by
id Quantique SA

  Id Quantique LLC   Korea  

Quantum information and communications
service

    100.0       100.0  

Subsidiaries owned by
FSK L&S Co., Ltd.

  FSK L&S(Shanghai) Co., Ltd.   China   Logistics business     66.0       66.0  
  FSK L&S(Hungary) Co., Ltd.   Hungary   Logistics business     100.0       100.0  
 

FSK L&S VIETNAM COMPANY
LIMITED(*6)

  Vietnam   Logistics business     100.0       —    

Subsidiaries owned by
Incross Co., Ltd.

  Infra Communications Co., Ltd.   Korea   Service operation     100.0       100.0  
  Mindknock Co., Ltd.   Korea   Software development     100.0       100.0  

Others(*7)

  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  

 

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, 2020 and 2019

 

1.

Reporting Entity, Continued

 

  (2)

List of subsidiaries, Continued

The list of subsidiaries as of June 30, 2020 and December 31, 2019 is as follows, Continued:

 

  (*1)

The ownership interest represents direct ownership interest in subsidiaries either by the Parent Company or subsidiaries of the Parent Company.

  (*2)

On April 30, 2020, SK Broadband Co., Ltd. merged with Tbroad Co., Ltd., Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co., Ltd. to strengthen competitiveness and enhance synergy as a broad media company. The Parent Company’s ownership interest of SK Broadband Co., Ltd. changed as SK Broadband Co., Ltd. issued new shares to the shareholders of the merged companies as the consideration for the merger.

  (*3)

The ownership interest changed as third-party share option of One Store Co., Ltd. was exercised during the six-month period ended June 30, 2020.

  (*4)

80.3% of the shares issued by Eleven Street Co., Ltd. are owned by the Parent Company and 18.2% of redeemable convertible preferred shares with voting rights are owned by non-controlling shareholder. For the year ended December 31, 2019, Eleven Street Co., Ltd. acquired 1.5% of its outstanding shares from SK Planet Co., Ltd., which is currently held as treasury shares as of June 30, 2020. The Parent Company is obliged to guarantee dividend of at least 1% per annum of the preferred share’s issue price to the investor by the date on which Eleven Street Co., Ltd. is publicly listed or at the end of qualifying listing period, whichever occurs first. The present value of obligatory dividends amounting to W14,067 million are recognized as financial liabilities as of June 30, 2020.

  (*5)

The Parent Company acquired 3,631,355 shares (100%) of SK stoa Co., Ltd. from SK Broadband Co., Ltd., a subsidiary of the Parent Company, at W40,029 million in cash during the six-month period ended June 30, 2020.

  (*6)

Details of changes in the consolidation scope for the six-month period ended June 30, 2020 are presented in note 1-(4).

  (*7)

Others are owned together by Atlas Investment and another subsidiary of the Parent Company.

 

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, 2020 and 2019

 

1.

Reporting Entity, Continued

 

  (3)

Condensed financial information of subsidiaries

 

  1)

Condensed financial information of the significant subsidiaries as of and for the six-month period ended June 30, 2020 is as follows:

 

(In millions of won)  
            As of June 30, 2020      For the six-month
period

ended June 30, 2020
 

Subsidiary

          Total assets      Total
liabilities
     Total
equity
     Revenue      Profit
(loss)
 

SK Telink Co., Ltd.(*1)

   W      171,288        62,792        108,496        179,389        10,017  

Eleven Street Co., Ltd.

        944,133        474,517        469,616        257,589        960  

SK m&service Co., Ltd.

        113,435        60,045        53,390        104,307        2,906  

SK Broadband Co., Ltd.

        5,629,254        3,064,665        2,564,589        1,741,112        67,838  

K-net Culture and Contents Venture Fund

        151,490        21,163        130,327        —          (3

PS&Marketing Corporation

        437,681        228,707        208,974        650,336        (5,061

SERVICE ACE Co., Ltd.

        100,550        75,210        25,340        105,472        2,590  

SERVICE TOP Co., Ltd.

        72,822        54,881        17,941        100,298        1,865  

SK O&S Co., Ltd.

        87,008        53,649        33,359        122,260        (47

SK Planet Co., Ltd.

        544,117        223,035        321,082        126,640        3,681  

DREAMUS COMPANY(*2)

        186,711        72,176        114,535        107,602        (4,444

Life & Security Holdings Co., Ltd.(*3)

        2,663,331        2,373,579        289,752        474,400        (303

SK Infosec Co., Ltd.(*4)

        149,563        65,529        84,034        136,714        9,037  

One Store Co., Ltd.

        241,547        94,344        147,203        80,132        3,090  

Home & Service Co., Ltd.

        128,454        91,237        37,217        196,120        1,618  

SK stoa Co., Ltd.

        78,000        57,580        20,420        125,301        8,992  

FSK L&S Co., Ltd.(*5)

        54,665        25,003        29,662        88,475        1,593  

Incross Co., Ltd.(*6)

        132,461        65,883        66,578        16,200        4,455  

 

  (*1)

The condensed financial information of SK Telink Co., Ltd. is consolidated financial information including SK TELINK VIETNAM Co., Ltd.

  (*2)

The condensed financial information of DREAMUS COMPANY is consolidated financial information including iriver Enterprise Ltd. and three other subsidiaries of DREAMUS COMPANY.

  (*3)

The condensed financial information of Life & Security Holdings Co., Ltd. is consolidated financial information including ADT CAPS CO., Ltd. and another subsidiary of Life & Security Holdings Co., Ltd.

  (*4)

The condensed financial information of SK Infosec Co., Ltd. is consolidated financial information including SK infosec Information Technology (Wuxi) Co., Ltd.

  (*5)

The condensed financial information of FSK L&S Co., Ltd. is consolidated financial information including FSK L&S (Shanghai) Co., Ltd. and two other subsidiaries of FSK L&S Co., Ltd.

  (*6)

The condensed financial information of Incross Co., Ltd. is consolidated financial information including Infra Communications Co., Ltd. and another subsidiary of Incross Co., Ltd.

 

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, 2020 and 2019

 

1.

Reporting Entity, Continued

 

  (3)

Condensed financial information of subsidiaries, Continued

 

  2)

Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2019 is as follows:

 

(In millions of won)  
            As of December 31, 2019      For the year
ended December 31, 2019
 

Subsidiary

          Total assets      Total liabilities      Total equity      Revenue      Profit (loss)  

SK Telink Co., Ltd.(*1)

   W        265,725        77,378        188,347        363,627        3,010  

Eleven Street Co., Ltd.

        923,424        446,432        476,992        530,489        (5,077

SK m&service Co., Ltd.

        109,699        58,605        51,094        218,848        2,448  

SK Broadband Co., Ltd.

        4,447,549        2,811,417        1,636,132        3,178,805        48,583  

K-net Culture and Contents Venture Fund

        151,493        21,163        130,330        —          (294

PS&Marketing Corporation

        439,947        225,942        214,005        1,684,576        96  

SERVICE ACE Co., Ltd.

        80,844        55,133        25,711        206,080        3,906  

SERVICE TOP Co., Ltd.

        66,932        50,060        16,872        193,377        2,230  

SK O&S Co., Ltd.

        96,446        62,086        34,360        281,634        1,724  

SK Planet Co., Ltd.

        595,838        278,438        317,400        275,544        1,214  

DREAMUS COMPANY(*2)

        171,586        53,669        117,917        196,961        (48,006

Life & Security Holdings Co., Ltd.(*3)

        2,639,781        2,330,920        308,861        913,301        12,703  

SK Infosec Co., Ltd.(*4)

        158,424        61,644        96,780        270,423        18,520  

One Store Co., Ltd.

        236,329        93,625        142,704        135,116        (5,415

Home & Service Co., Ltd.

        113,176        76,192        36,984        351,154        (267

SK stoa Co., Ltd.

        70,754        59,207        11,547        196,063        875  

FSK L&S Co., Ltd.(*5)

        47,550        19,651        27,899        130,872        306  

Incross Co., Ltd.(*6)

        144,263        78,519        65,744        19,787        5,756  

 

  (*1)

The condensed financial information of SK Telink Co., Ltd. is consolidated financial information including SK TELINK VIETNAM Co., Ltd.

  (*2)

The condensed financial information of DREAMUS COMPANY is consolidated financial information including iriver Enterprise Ltd. and three other subsidiaries of DREAMUS COMPANY.

  (*3)

The condensed financial information of Life & Security Holdings Co., Ltd. is consolidated financial information including ADT CAPS Co., Ltd. and two other subsidiaries of Life & Security Holdings Co., Ltd.

  (*4)

The condensed financial information of SK Infosec Co., Ltd. is consolidated financial information including SK infosec Information Technology (Wuxi) Co., Ltd.

  (*5)

The condensed financial information of FSK L&S Co., Ltd. is consolidated financial information including FSK L&S (Shanghai) Co., Ltd. and another subsidiary of FSK L&S Co., Ltd.

  (*6)

The condensed financial information of Incross Co., Ltd. is consolidated financial information including Infra Communications Co., Ltd. and another subsidiary of Incross Co., Ltd. from the date of acquisition to December 31, 2019.

 

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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, 2020 and 2019

 

1.

Reporting Entity, Continued

 

  (4)

Changes in subsidiaries

 

  1)

The list of subsidiaries that were newly included in consolidation for the six-month period ended June 30, 2020 is as follows:

 

Subsidiary

  

Reason

Broadband Nowon Co., Ltd.

   Acquired by the Parent Company

FSK L&S VIETNAM COMPANY LIMITED

   Established by FSK L&S Co., Ltd.

 

  2)

The list of subsidiary that was excluded from consolidation for the six-month period ended June 30, 2020 is as follows:

 

Subsidiary

  

Reason

ADT SECURITY Co., Ltd.

   Merged into ADT CAPS Co., Ltd.

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

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, 2020 and as of and for the year ended December 31, 2019 are as follows:

 

(In millions of won)                                            
            DREAMUS
COMPANY
    One Store
Co., Ltd.
    Eleven Street
Co., Ltd.
    Life & Security
Holdings Co., Ltd.
    Incross Co., Ltd.     SK Broadband
Co., Ltd.
 

Ownership of non-controlling interests (%)

        48.6       47.9       18.2       45.0       55.1       24.9  
            As of June 30, 2020  

Current assets

   W        156,156       215,653       724,113       135,586       119,091       1,278,922  

Non-current assets

        30,555       25,894       220,020       2,527,745       13,370       4,350,332  

Current liabilities

        (67,995     (88,968     (449,121     (311,269     (62,811     (1,318,601

Non-current liabilities

        (4,181     (5,376     (25,396     (2,062,310     (3,072     (1,746,064

Net assets

        114,535       147,203       469,616       289,752       66,578       2,564,589  

Fair value adjustment and others

        —         —         (14,067     (1,222,915     —         —    

Net assets on the consolidated financial statements

        114,535       147,203       455,549       (933,163     66,578       2,564,589  

Carrying amount of non-controlling interests

        56,182       70,779       84,186       (419,923     41,015       644,481  
            For the six-month period ended June 30, 2020  

Revenue

   W        107,602       80,132       257,589       474,400       16,200       1,741,112  

Profit (loss) for the period

        (4,444     3,090       960       (303     4,455       67,838  

Depreciation of the fair value adjustment and others

        —         —         (261     (8,958     —         —    

Profit (loss) for the period on the consolidated financial statements

        (4,444     3,090       699       (9,261     4,455       67,838  

Total comprehensive income (loss)

        (3,795     3,124       (2,636     (9,261     4,189       68,805  

Profit (loss) attributable to non-controlling interests

        (1,983     1,481       129       (4,168     2,736       6,418  

Net cash provided by operating activities

   W        11,997       11,490       26,970       112,554       10,879       474,003  

Net cash provided by (used in) investing activities

        (1,590     82,195       (99,098     (118,198     (524     (189,006

Net cash provided by (used in) financing activities

        (1,188     778       (11,445     7,928       (3,998     26,970  

Effects of exchange rate changes on cash and cash equivalents

        836       3       13       —         —         —    

Net increase (decrease) in cash and cash equivalents

        10,055       94,466       (83,560     2,284       6,357       311,967  

Dividends declared to non-controlling interests

   W        —         —         5,000       12,796       —         —    

 

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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, 2020 and 2019

 

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, 2020 and as of and for the year ended December 31, 2019 are as follows, Continued:

 

(In millions of won)                                      
            DREAMUS
COMPANY
    One Store
Co., Ltd.
    Eleven Street
Co., Ltd.
    Life & Security
Holdings Co., Ltd.
    Incross Co., Ltd.  

Ownership of non-controlling interests (%)

        48.6       47.3       18.2       45.0       65.4  
            As of December 31, 2019  

Current assets

   W        136,269       208,527       779,568       126,437       133,741  

Non-current assets

        35,317       27,802       143,856       2,513,344       10,522  

Current liabilities

        (49,776     (88,842     (420,022     (279,403     (77,530

Non-current liabilities

        (3,893     (4,783     (26,410     (2,051,517     (989

Net assets

        117,917       142,704       476,992       308,861       65,744  

Fair value adjustment and others

        —         —         (18,805     (1,219,701     —    

Net assets on the consolidated financial statements

        117,917       142,704       458,187       (910,840     65,744  

Carrying amount of non-controlling interests

        57,175       67,742       84,673       (409,878     41,074  
            For the year ended December 31, 2019  

Revenue

   W        196,961       135,116       530,489       913,301       19,787  

Profit (loss) for the year

        (48,006     (5,415     (5,077     12,703       5,756  

Depreciation of the fair value adjustment and others

        —         —         (614     (14,913     —    

Profit (loss) for the year on the consolidated financial statements

        (48,006     (5,415     (5,691     (2,210     5,756  

Total comprehensive income (loss)

        (47,971     (5,856     (13,590     (5,413     5,396  

Profit (loss) attributable to non-controlling interests

        (23,281     (2,256     (1,064     (978     3,630  

Net cash provided by (used in) operating activities

   W        (1,387     14,426       7,980       238,378       (9,331

Net cash provided by (used in) investing activities

        (2,596     (87,275     102,366       (194,472     5,053  

Net cash provided by (used in) financing activities

        (2,965     96,189       (72,686     (51,129     (4,644

Effects of exchange rate changes on cash and cash equivalents

        197       2       35       —         —    

Net increase (decrease) in cash and cash equivalents

        (6,751     23,342       37,695       (7,223     (8,922

Dividends paid to non-controlling interests

   W        —         —         17,500       28,786       —    

 

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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, 2020 and 2019

 

2.

Basis of Preparation

 

  (1)

Statement of compliance

These condensed consolidated interim financial statements were prepared in accordance with Korean International Financial Reporting Standard (“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, 2019. These condensed consolidated interim financial statements do not include all of the disclosures required for full annual financial statements.

 

  (2)

Use of estimates and judgments

1) Critical judgments, assumptions and estimation uncertainties

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

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2019.

Meanwhile, the spread of COVID-19 pandemic is having a significant impact on domestic and foreign economies, and its duration and severity are highly uncertain and unpredictable. As of the end of the reporting period, the Group’s management cannot reasonably estimate the impact of COVID-19 pandemic on the Group’s operations and financial results.

 

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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, 2020 and 2019

 

2.

Basis of Preparation, Continued

 

  (2)

Use of estimates and judgments, Continued

 

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, including Level 3 fair values, and the measurement of fair value is reviewed and is directly reported to the finance executives.

The Group regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Group 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 30.

 

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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, 2020 and 2019

 

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, 2019.

 

4.

Operating Segments

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

 

  (1)

Segment information for the six-month periods ended June 30, 2020 and 2019 is as follows:

 

(In millions of won)                                                             
            For the six-month period ended June 30, 2020  
            Cellular
services
     Fixed-line
Telecomm-
unications
services
     Security
services
     Commerce
services
     Others     Sub-total      Adjustments     Total  

Total revenue

   W        6,841,043        2,118,040        611,115        382,890        551,769       10,504,857        (1,451,648     9,053,209  

Inter-segment revenue

        776,064        508,686        35,607        6,978        124,313       1,451,648        (1,451,648     —    

External revenue

        6,064,979        1,609,354        575,508        375,912        427,456       9,053,209        —         9,053,209  

Depreciation and amortization

        1,397,947        399,878        115,735        16,924        30,188       1,960,672        —         1,960,672  

Operating profit (loss)

        524,797        100,325        54,727        2,486        (20,823     661,512        —         661,512  

Finance income and costs, net

                           (138,493

Gain relating to investments in associates and joint ventures, net

                           407,899  

Other non-operating income and expenses, net

                           (12,652

Profit before income tax

                           918,266  

 

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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, 2020 and 2019

 

4.

Operating Segments, Continued

 

  (1)

Segment information for the six-month periods ended June 30, 2020 and 2019 is as follows, Continued:

 

(In millions of won)        
            For the six-month period ended June 30, 2019  
            Cellular
services
     Fixed-line
telecomm-
unications
services(*)
     Security
services(*)
     Commerce
services(*)
     Others(*)     Sub-total      Adjustments     Total  

Total revenue

     W        6,717,679        1,962,339        568,651        392,809        504,194       10,145,672        (1,373,737     8,771,935  

Inter-segment revenue

        727,866        489,836        30,172        7,194        118,669       1,373,737        (1,373,737     —    

External revenue

 

     5,989,813        1,472,503        538,479        385,615        385,525       8,771,935        —         8,771,935  

Depreciation and amortization

 

     1,298,643        364,917        94,617        17,851        45,473       1,821,501        —         1,821,501  

Operating profit (loss)

 

     591,482        28,456        62,567        1,701        (38,804     645,402        —         645,402  

Finance income and costs, net

 

       (148,370

Gain relating to investments in associates and joint ventures, net

 

       359,421  

Other non-operating income and expenses, net

 

       (35,426

Profit before income tax

 

       821,027  

 

  (*)

During the year ended December 31, 2019, due to the change in the categorization of information reviewed by the chief operating decision maker in 2019, the Group reclassified SK stoa Co., Ltd. from Fixed-line telecommunications Service segment to Commerce Services segment. In addition, operating segment for Life & Security Holdings Co., Ltd. and SK Infosec Co., Ltd. was separately presented as a reportable segment (Security Services) and no longer included in Others segment. Segment information for the six-month period ended June 30, 2019, was restated to conform to the 2019 reclassifications.

Since there are no intersegment sales of inventory or depreciable assets, there is no unrealized intersegment profit to be eliminated on consolidation. The Group principally operates its businesses in Korea, and the revenue amounts earned outside of Korea are immaterial. Therefore, no entity-wide geographical information is presented.

No single customer contributed 10% or more to the Group’s total revenue for the six-month periods ended June 30, 2020 and 2019.

 

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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, 2020 and 2019

 

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)                For the six-month period ended  
                 June 30, 2020      June 30, 2019  

Goods and Services transferred at a point in time:

 

Cellular revenue

   Goods(*1)    W        423,503        555,330  

Fixed-line telecommunication revenue

   Goods         49,937        79,766  

Commerce services revenue

   Goods         32,093        29,721  
   Commerce         104,556        68,934  

Security services revenue

   Goods         27,424        35,371  

Other revenue

   Goods         27,576        30,464  
   Products         15,412        14,038  
   Others(*2)         250,785        240,703  
        

 

 

    

 

 

 
           931,286        1,054,327  
        

 

 

    

 

 

 

Goods and Services transferred over time:

 

Cellular revenue

   Wireless service(*3)         4,873,830        4,755,303  
   Cellular interconnection         253,256        249,104  
   Others(*4)         514,390        430,076  

Fixed-line telecommunication revenue

   Fixed-line service         100,402        72,881  
   Cellular interconnection         42,475        46,451  
   Internet protocol television(*5)         730,694        630,334  
   International calls         77,639        67,542  
   Internet service and miscellaneous(*6)         608,207        575,529  

Commerce services revenue

   Commerce service         239,263        286,960  

Security services revenue

   Service(*7)         548,084        503,108  

Other revenue

   Miscellaneous(*2)         133,683        100,320  
        

 

 

    

 

 

 
           8,121,923        7,717,608  
        

 

 

    

 

 

 
      W        9,053,209        8,771,935  
        

 

 

    

 

 

 

 

  (*1)

Cellular revenue includes revenue from sales of handsets and other electronic accessories.

  (*2)

Miscellaneous other revenue includes revenue from considerations received for the development and maintenance of system software and digital contents platform services.

  (*3)

Wireless service revenue includes revenue from wireless voice and data transmission services principally derived from usage charges to wireless subscribers.

  (*4)

Other revenue includes revenue from billing and collection services as well as other miscellaneous services.

  (*5)

IPTV service revenue includes revenue from IPTV services principally derived from usage charges to IPTV subscribers.

  (*6)

Internet service revenue includes revenue from the high-speed broadband internet service principally derived from usage charges to subscribers as well as other miscellaneous services.

  (*7)

Service revenue includes revenue from rendering security 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, 2020 and 2019

 

5.

Trade and Other Receivables

 

  (1)

Details of trade and other receivables as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)           June 30, 2020  
            Gross
amount
     Loss allowance      Carrying
amount
 

Current assets:

           

Accounts receivable – trade

   W        2,514,392        (269,508      2,244,884  

Short-term loans

        79,620        (692      78,928  

Accounts receivable – other(*)

        884,041        (46,668      837,373  

Accrued income

        4,392        (165      4,227  

Guarantee deposits (Other current assets)

        129,164        —          129,164  
     

 

 

    

 

 

    

 

 

 
        3,611,609        (317,033      3,294,576  

Non-current assets:

           

Long-term loans

        81,476        (47,837      33,639  

Long-term accounts receivable – other(*)

        252,370        —          252,370  

Guarantee deposits

        173,258        (300      172,958  

Long-term accounts receivable – trade (Other non-current assets)

        17,142        (30      17,112  
     

 

 

    

 

 

    

 

 

 
        524,246        (48,167      476,079  
     

 

 

    

 

 

    

 

 

 
   W        4,135,855        (365,200      3,770,655  
     

 

 

    

 

 

    

 

 

 

 

  (*)

Gross and carrying amounts of accounts receivable – other as of June 30, 2020 include W386,177 million of financial instruments classified as FVTPL.

 

(In millions of won)           December 31, 2019  
            Gross
amount
     Loss allowance      Carrying
amount
 

Current assets:

           

Accounts receivable – trade

   W        2,480,419        (249,440      2,230,979  

Short-term loans

        66,706        (583      66,123  

Accounts receivable – other(*)

        953,815        (48,379      905,436  

Accrued income

        3,977        (166      3,811  

Guarantee deposits (Other current assets)

        145,041        —          145,041  
     

 

 

    

 

 

    

 

 

 
        3,649,958        (298,568      3,351,390  

Non-current assets:

           

Long-term loans

        81,231        (47,471      33,760  

Long-term accounts receivable – other(*)

        344,662        —          344,662  

Guarantee deposits

        165,033        (299      164,734  

Long-term accounts receivable – trade (Other non-current assets)

        16,977        (61      16,916  
     

 

 

    

 

 

    

 

 

 
        607,903        (47,831      560,072  
     

 

 

    

 

 

    

 

 

 
   W        4,257,861        (346,399      3,911,462  
     

 

 

    

 

 

    

 

 

 

 

  (*)

Gross and carrying amounts of accounts receivable – other as of December 31, 2019, include W532,225 million of financial instruments classified as at 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, 2020 and 2019

 

5.

Trade and Other Receivables, Continued

 

  (2)

Changes in the loss allowance on trade and other receivables measured at amortized cost for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)                                                
            January 1, 2020      Impairment      Write-offs(*)     Collection of
receivables
previously
written-off
     Business
combination
     June 30, 2020  

Accounts receivable – trade

   W        249,501        30,230        (17,330     5,258        1,879        269,538  

Accounts receivable – other

        96,898        2,176        (4,440     1,028        —          95,662  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
   W        346,399        32,406        (21,770     6,286        1,879        365,200  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

(In millions of won)                                                
            January 1, 2019      Impairment      Write-offs(*)     Collection of
receivables
previously
written- off
     Business
combination
     June 30, 2019  

Accounts receivable – trade

   W        260,157        15,253        (35,679     5,493        1,487        246,711  

Accounts receivable – other

        115,887        2,095        (21,724     6,481        535        103,274  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
   W        376,044        17,348        (57,403     11,974        2,022        349,985  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

  (*)

The Group writes off the trade and other receivables that are determined to be uncollectable due to reasons such as termination of operations or bankruptcy.

 

  (3)

The Group applies the practical expedient that allows the Group to estimate the loss allowance for accounts receivable – trade at an amount equal to the lifetime expected credit losses. The expected credit losses include the forward-looking information. To make the assessment, the Group uses its historical credit loss experience over the past three years and classifies the accounts receivable – trade by their credit risk characteristics and days overdue.

 

    

As the Group is a wireless and fixed-line telecommunications service provider, the Group’s financial assets measured at amortized cost primarily consist of receivables from numerous individual customers, and, therefore, no significant credit concentration risk arises.

 

    

Receivables related to other revenue mainly consist of receivables from corporate customers. The Group transacts only with corporate customers with credit ratings that are considered to be low at credit risk. In addition, the Group is not exposed to significant credit concentration risk as the Group regularly assesses their credit risk by monitoring their credit rating. While the contract assets are under the impairment requirements, no significant credit risk has been identified.

 

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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, 2020 and 2019

 

6.

Prepaid Expenses

The Group pays commissions to its retail stores and authorized dealers for wireless and fixed-line telecommunications services. The Group capitalized certain costs associated with commissions paid to retail stores and authorized dealers to obtain new and retained customer contracts as prepaid expenses. These prepaid expenses are amortized on a straight-line basis over the periods that the Group expects to maintain its customers.

 

  (1)

Details of prepaid expenses as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30,
2020
     December 31, 2019  

Current assets:

 

Incremental costs of obtaining contracts

   W        1,972,621        1,897,233  

Others

        151,353        133,317  
     

 

 

    

 

 

 
        2,123,974        2,030,550  
     

 

 

    

 

 

 

Non-current assets:

 

Incremental costs of obtaining contracts

        1,037,539        1,152,748  

Others

        86,766        88,681  
     

 

 

    

 

 

 
   W        1,124,305        1,241,429  
     

 

 

    

 

 

 

 

  (2)

Incremental costs of obtaining contracts

The amortization and impairment losses in connection with incremental costs of obtaining contracts recognized during the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Amortization and impairment losses recognized

   W        599,193        1,202,204        512,230        1,034,612  

 

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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, 2020 and 2019

 

7.

Contract Assets and Liabilities

In case of providing both wireless telecommunications services and sales of handsets, the Group allocated the consideration based on relative stand-alone selling prices and recognized unbilled receivables from handset sales as contract assets. The Group recognized receipts in advance for prepaid telecommunications services and unearned revenue for customer loyalty programs as contract liabilities.

 

  (1)

Details of contract assets and liabilities as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Contract assets:

        

Allocation of consideration between performance obligations

   W        149,274        191,858  

Contract liabilities:

        

Wireless service contracts

        19,355        20,393  

Customer loyalty programs

        18,491        21,945  

Fixed-line service contracts

        81,331        65,315  

Security services

        32,910        32,026  

Others

        75,845        83,777  
     

 

 

    

 

 

 
   W        227,932        223,456  
     

 

 

    

 

 

 

 

  (2)

The amount of revenue recognized for the six-month period ended June 30, 2020 related to the contract liabilities carried forward from the prior period is W84,780 million.

 

8.

Inventories

 

  (1)

Details of inventories as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                                                 
            June 30, 2020      December 31, 2019  
          Acquisition
cost
     Write-down      Carrying
amount
     Acquisition
cost
     Write-down      Carrying
amount
 

Merchandise

   W        201,874        (9,605      192,269        162,485        (14,557      147,928  

Finished goods

        3,897        (1,946      1,951        4,264        (2,265      1,999  

Work in process

        2,850        (729      2,121        2,674        (539      2,135  

Raw materials

        12,376        (7,507      4,869        12,369        (7,967      4,402  

Supplies

        3,139        —          3,139        7,112        (694      6,418  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        224,136        (19,787      204,349        188,904        (26,022      162,882  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (2)

Inventories recognized as operating expenses for the six-month periods ended June 30, 2020 and 2019 are W515,186 million and W652,069 million, respectively, which are included in the cost of goods sold. In addition, valuation losses on inventories and write-down recognized for six-month period ended June 30, 2020 are W202 million and W4 million, respectively, which are included in other operating expenses.

 

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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, 2020 and 2019

 

9.

Investment Securities

 

  (1)

Details of short-term investment securities as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
    

Category

          June 30, 2020      December 31, 2019  

Beneficiary certificates

   FVTPL    W        80,882        166,666  

 

  (2)

Details of long-term investment securities as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
    

Category

          June 30, 2020      December 31, 2019  

Equity instruments

   FVOCI(*)    W        967,438        710,272  
   FVTPL         3,532        1,011  
        

 

 

    

 

 

 
           970,970        711,283  

Debt instruments

   FVOCI         2,389        4,627  
   FVTPL         135,910        141,305  
        

 

 

    

 

 

 
           138,299        145,932  
        

 

 

    

 

 

 
      W        1,109,269        857,215  
        

 

 

    

 

 

 

 

  (*)

The Group designated W967,438 million of investments in equity instruments that are not held for trading as financial assets at FVOCI.

 

29


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

10.

Business Combination

 

  (1)

2020

 

  1)

Merger of Tbroad Co., Ltd. and two other companies by SK Broadband Co., Ltd.

On April 30, 2020, SK Broadband Co., Ltd., a subsidiary of the Parent Company, merged with Tbroad Co., Ltd., Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co., Ltd. in order to strengthen the competitiveness and enhance the synergy as a comprehensive media company. The consideration transferred was measured at the fair value of the shares transferred based on the merger ratio set on April 30, 2020. The Group recognized the difference between the fair value of net assets acquired and the consideration paid amounting to W163,180 million as goodwill.

 

  (i)

Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:

 

(In millions of won)              
            Amounts  

I. Consideration transferred:

     

Shares of SK Broadband Co., Ltd.

   W        862,147  

II. Fair value of identifiable assets acquired and liabilities assumed:

     

Cash and cash equivalents

        110,644  

Short-term financial instruments

        6  

Accounts receivable – trade and other

        66,241  

Contract assets

        50,357  

Long-term investment securities

        6,239  

Investments in associates and joint ventures

        13,637  

Property and equipment, net

        245,654  

Intangible assets, net

        424,267  

Other assets

        3,261  

Accounts payable – trade and other

        (105,179

Contract liabilities

        (1,674

Income tax payable

        (11,896

Provisions

        (2,755

Defined benefit liabilities

        (30

Deferred tax liabilities

        (84,150

Other liabilities

        (15,655
     

 

 

 
   W        698,967  
     

 

 

 

III. Goodwill(I-II)

        163,180  
     

 

 

 

The fair value of certain identifiable assets and liabilities was determined at provisional amounts because valuation by external valuation firm has not been completed.

 

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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, 2020 and 2019

 

10.

Business Combination, Continued

 

  (1)

2020, Continued

 

  2)

Acquisition of Broadband Nowon Co.,Ltd. by the Parent Company

The Parent Company has obtained control by acquiring 627,000 shares(55%) of Tbroad Nowon Broadcasting Co., Ltd., and Tbroad Nowon Broadcasting Co., Ltd. changed its name to Broadband Nowon Co., Ltd. The consideration transferred was W10,421 million in cash and the difference between the fair value of net assets acquired and the consideration paid amounting to W733 million was recognized as other non-operating income. Subsequent to the acquisition, Broadband Nowon Co., Ltd. recognized revenue of W1,419 million, and net profit of W139 million.

 

  (i)

Summary of the acquiree

 

    

Information of Acquiree

Corporate name

   Broadband Nowon Co., Ltd.

Location

   21, 81gil, Dobong-ro, Gangbuk-gu, Seoul, Korea

CEO

   Yoo, Chang-Wan

Industry

   Cable broadcasting services

 

  (ii)

Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:

 

(In millions of won)              
            Amounts  

I. Consideration transferred:

     

Cash and cash equivalents

   W        10,421  

II. Fair value of identifiable assets acquired and liabilities assumed:

     

Cash and cash equivalents

        18,106  

Accounts receivable – trade and other

        1,122  

Property and equipment, net

        1,784  

Intangible assets, net

        360  

Other assets

        595  

Accounts payable – trade and other

        (1,351

Other liabilities

        (336
     

 

 

 
        20,280  

III. Non-controlling interests:

     

Non-controlling interests

        9,126  
     

 

 

 

IV. Gain on bargain purchase(I - II+III)

   W        (733
     

 

 

 

 

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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, 2020 and 2019

 

10.

Business Combination, Continued

 

  (2)

2019

The Parent Company acquired 2,786,455 shares of Incross Co., Ltd. at W53,722 million in cash during the year ended December 31, 2019 in order to expand digital advertising business through the integration of the Group’s technological capabilities. Although the Parent Company owns less than 50% of the investee, the management has determined that the Parent Company controls Incross Co., Ltd. considering the level of dispersion of remaining voting rights and voting patterns at previous shareholders’ meetings, and the fact that the Parent Company has a right to appoint the majority of the members of board of directors by the virtue of an agreement with the investee’s other shareholders. Incross Co., Ltd. reported W19,787 million of revenue and W5,756 million of profit since the Group obtained control.

 

  1)

Summary of the acquiree

 

    

Information of Acquiree

Corporate name

   Incross Co., Ltd.

Location

   5th floor, 1925, Nambusunhwan-ro, Gwanak-gu, Seoul, Korea

CEO

   Lee, Jae woon

Industry

   Media representative business

 

  2)

Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:

 

(In millions of won)  
            Amount  

I. Considerations transferred:

     

Cash and cash equivalents

   W        53,722  

II. Fair value of identifiable assets acquired and liabilities assumed:

     

Cash and cash equivalent

        17,400  

Short-term financial instruments

        24,941  

Accounts receivable – trade and other

        67,259  

Property and equipment, net

        2,411  

Intangible assets, net

        2,709  

Other assets

        9,254  

Accounts payable – trade and other

        (57,309

Other liabilities

        (1,984
     

 

 

 
        64,681  

III. Non-controlling interests:

     

Non-controlling interests

        40,592  
     

 

 

 

IV. Goodwill(I - II+III)

   W        29,633  
     

 

 

 

 

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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, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures

 

  (1)

Investments in associates and joint ventures accounted for using the equity method as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)         June 30, 2020      December 31, 2019  
     Country    Ownership
(%)
            Carrying
amount
     Ownership
(%)
            Carrying
amount
 

Investments in associates:

                 

SK China Company Ltd.

   China      27.3      W        583,055        27.3      W        568,459  

Korea IT Fund(*1)

   Korea      63.3           300,988        63.3           311,552  

KEB HanaCard Co., Ltd.(*2)

   Korea      15.0           302,168        15.0           294,756  

SK Telecom CS T1 Co., Ltd.(*1)

   Korea      54.9           56,910        54.9           60,305  

NanoEnTek, Inc.(*3)

   Korea      28.4           42,827        28.6           42,127  

UniSK

   China      49.0           15,254        49.0           14,342  

SK Technology Innovation Company

   Cayman
Islands
     49.0           45,838        49.0           43,997  

SK MENA Investment B.V.

   Netherlands      32.1           15,501        32.1           14,904  

SK hynix Inc.

   Korea      20.1           11,728,891        20.1           11,425,325  

SK Latin America Investment S.A.

   Spain      32.1           14,066        32.1           13,698  

Grab Geo Holdings PTE. LTD.

   Singapore      30.0           31,072        30.0           31,269  

SK South East Asia Investment Pte. Ltd.(*4)

   Singapore      20.0           361,057        20.0           250,034  

Pacific Telecom Inc.(*2)

   USA      15.0           41,293        15.0           40,016  

S.M. Culture & Contents Co., Ltd.

   Korea      23.4           63,186        23.4           63,469  

Content Wavve Co., Ltd.

   Korea      30.0           79,829        30.0           83,640  

Hello Nature Co., Ltd.(*5)

   Korea      49.9           16,595        49.9           13,620  

Digital Games International Pte. Ltd.(*6)

   Korea      33.3           8,810        —             —    

Invites Healthcare Co., Ltd.(*7)

   Korea      50.0           28,000        —             —    

Nam Incheon Broadcasting Co., Ltd.(*8)

   Korea      27.3           10,463        —             —    

NANO-X IMAGING LTD.(*2,9)

   Israel      6.6           15,609        —             —    

Home Choice Corp.(*2,8)

   Korea      17.8           3,396        —             —    

12CM JAPAN and others(*4)

   —        —             61,370        —             65,343  
           

 

 

          

 

 

 
              13,826,178              13,336,856  
           

 

 

          

 

 

 

Investments in joint ventures:

                    

Dogus Planet, Inc.(*10)

   Turkey      50.0           20,193        50.0           15,921  

Finnq Co., Ltd.(*10)

   Korea      49.0           18,019        49.0           22,880  

NEXTGEN BROADCAST SERVICES CO., LLC(*10)

   USA      50.0           8,256        50.0           7,961  

NEXTGEN ORCHESTRATION, LLC(*10)

   USA      50.0           1,707        50.0           1,646  
              48,175              48,408  
           

 

 

          

 

 

 
         W        13,874,353         W        13,385,264  
           

 

 

          

 

 

 

 

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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, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures, Continued

 

  (1)

Investments in associates and joint ventures accounted for using the equity method as of June 30, 2020 and December 31, 2019 are as follows, Continued:

  (*1)

Investments in Korea IT Fund and SK Telecom CS T1 Co., Ltd. were classified as investment in associates as the Group does not have control over the investee under the contractual agreement with other shareholders.

  (*2)

These investments were classified as investments in associates as the Group can exercise significant influence through its right to appoint the members of the board of directors even though the Group has less than 20% of equity interests.

  (*3)

The ownership interest changed as third-party share option was exercised and convertible bonds were converted during the six-month period ended June 30, 2020.

  (*4)

The Group additionally contributed W119,770 million in cash during the six-month period ended June 30, 2020, but there is no change in the ownership interest.

  (*5)

The Group additionally contributed W9,980 million in cash during the six-month period ended June 30, 2020, but there is no change in the ownership interest.

  (*6)

The Group newly invested W8,810 million in cash for the six-month period ended June 30, 2020.

  (*7)

The Group transferred the entire shares of Health Connect Co., Ltd. and assets related to the digital disease management business for the six-month period ended June 30, 2020. The Group acquired 279,999 shares of common stock and 140,000 shares of convertible preferred stock of Invites Healthcare Co., Ltd. in consideration of this transfer and recognized W9,372 million of gain on investments in associates and W12,451 million of gain on the business transfer.

  (*8)

The Group acquired the shares of Nam Incheon Broadcasting Co., Ltd and Home Choice Corp. from the merger with Tbroad Co., Ltd., Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co., Ltd.

  (*9)

The Group obtained significant influence by contributing W12,071 million in cash for the six-month period ended June 30, 2020 and reclassified W3,621 from financial assets at FVOCI to investments in associates.

  (*10)

These investments were classified as investments in joint ventures as the Group has a joint control pursuant to the agreement with the other shareholders.

  (2)

The market value of investments in listed associates as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won, except for share data)  
            June 30, 2020      December 31, 2019  
          Market price
per share
(in won)
     Number of
shares
     Market
value
     Market price
per share

(in won)
     Number of
shares
     Market
value
 

NanoEnTek, Inc.

   W        11,050        7,600,649        83,987        5,620        7,600,649        42,716  

SK hynix Inc.

        85,100        146,100,000        12,433,110        94,100        146,100,000        13,748,010  

S.M. Culture & Contents Co., Ltd.

        1,500        22,033,898        33,051        1,530        22,033,898        33,712  

 

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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, 2020 and 2019

 

11.

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, 2020 and as of and for the year ended December 31, 2019 are as follows:

 

(In millions of won)                                       
            SK hynix Inc.      KEB HanaCard
Co., Ltd.
    Korea IT
Fund
    SK China
Company Ltd.
    SK South East Asia
Investment Pte. Ltd.
 
            As of June 30, 2020  

Current assets

     W        17,362,825        8,330,173       95,780       380,250       885,058  

Non-current assets

        51,896,471        182,003       379,464       1,753,402       1,818,602  

Current liabilities

        9,595,473        985,054       —         56,374       1,751  

Non-current liabilities

        10,260,948        5,841,166       —         240,246       —    
           

 

For the six-month period ended June 30, 2020

 

Revenue

        15,805,426        604,713       28,354       41,644       —    

Profit (loss) for the period

        1,911,044        65,291       18,557       (536     (64,069

Other comprehensive income (loss)

        226,623        (8,491     (7,515     (16,200     10,809  

Total comprehensive income (loss)

        2,137,667        56,800       11,042       (16,736     (53,260

 

(In millions of won)

                                      
            SK hynix Inc.      KEB HanaCard
Co., Ltd.
    Korea IT
Fund
    SK China
Company Ltd.
    SK South East Asia
Investment Pte. Ltd.
 
            As of December 31, 2019  

Current assets

     W        14,457,602        7,974,407       113,233       615,028       81,065  

Non-current assets

        50,331,892        207,284       378,691       1,442,748       1,797,239  

Current liabilities

        7,874,033        1,015,657       —         59,395       94  

Non-current liabilities

        8,972,266        5,537,850       —         215,354       —    
           

 

For the year ended December 31, 2019

 

Revenue

        26,990,733        1,236,678       70,565       116,269       —    

Profit for the year

        2,016,391        56,281       53,867       23,474       1,190  

Other comprehensive income (loss)

        94,023        (4,458     6,132       (15,093     97,508  

Total comprehensive income

        2,110,414        51,823       59,999       8,381       98,698  

 

35


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, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures, Continued

 

  (4)

The condensed financial information of significant joint ventures as of and for the six-month period ended June 30, 2020 and as of and for the year ended December 31, 2019 are as follows:

 

(In millions of won)              
            Dogus Planet, Inc.      Finnq Co., Ltd.  
            As of June 30, 2020  

Current assets

     W        74,391        35,313  

Cash and cash equivalents

        18,179        20,591  

Non-current assets

        25,781        9,791  

Current liabilities

        59,100        7,780  

Accounts payable, other payables and provision

        36,882        5,191  

Non-current liabilities

        687        718  
            For the six-month period ended June 30, 2020  

Revenue

        97,690        1,474  

Depreciation and amortization

        (2,510      (2,164

Interest income

        585        12  

Interest expense

        —          (27

Profit (loss) for the period

        12,578        (9,884

Total comprehensive income (loss)

        8,589        (9,884

 

(In millions of won)              
            Dogus Planet, Inc.      Finnq Co., Ltd.  
            As of December 31, 2019  

Current assets

     W        59,632        42,995  

Cash and cash equivalents

        13,422        40,619  

Non-current assets

        25,247        11,389  

Current liabilities

        52,238        6,756  

Accounts payable, other payables and provision

        35,459        5,062  

Non-current liabilities

        800        1,099  
           

 

For the year ended December 31, 2019

 

Revenue

        136,777        1,968  

Depreciation and amortization

        (5,487      (4,769

Interest income

        1,455        12  

Interest expense

        (92      (198

Profit (loss) for the year

        9,294        (17,079

Total comprehensive income (loss)

        9,294        (17,361

 

36


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures, Continued

 

  (5)

Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                            
            June 30, 2020  
            Net assets      Ownership
interests (%)
     Net assets
attributable to
the ownership
interests
     Cost-book value
differentials
     Carrying amount  

SK hynix Inc.(*1,2)

     W        49,378,366        20.1        10,547,018        1,181,873        11,728,891  

KEB HanaCard Co., Ltd.

        1,685,956        15.0        252,893        49,275        302,168  

Korea IT Fund

        475,244        63.3        300,988        —          300,988  

SK China Company Ltd.(*1)

        1,827,139        27.3        498,283        84,772        583,055  

SK South East Asia Investment Pte. Ltd.(*1)

        1,805,284        20.0        361,057        —          361,057  

 

(In millions of won)                            
            December 31, 2019  
            Net assets      Ownership
interests (%)
     Net assets
attributable to
the ownership
interests
     Cost-book value
differentials
     Carrying amount  

SK hynix Inc.(*1,2)

     W        47,928,415        20.1        10,237,314        1,188,011        11,425,325  

KEB HanaCard Co., Ltd.

        1,628,184        15.0        244,228        50,528        294,756  

Korea IT Fund

        491,924        63.3        311,552        —          311,552  

SK China Company Ltd.(*1)

        1,772,419        27.3        483,360        85,099        568,459  

SK South East Asia Investment Pte. Ltd.(*1)

        1,250,168        20.0        250,034        —          250,034  

 

  (*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 divided by the total shares issued by the investee company. The Group applied the equity method using the effective ownership interest which is based on the number of shares owned by the Parent Company and the investee’s total shares outstanding. The effective ownership interest applied for the equity method is 21.36%.

 

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, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures, Continued

 

  (6)

Details of the changes in investments in associates and joint ventures accounted for using the equity method for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)      For the six-month period ended June 30, 2020  
            Beginning
balance
     Acquisition
and Disposal
    Share of
profits

(losses)
    Other
comprehensive
income (loss)
    Other
increase
(decrease)
    Business
Combination
     Ending
balance
 

Investments in associates:

                   

SK China Company Ltd.

     W        568,459        —         (1,719     16,315       —         —          583,055  

Korea IT Fund(*1)

        311,552        —         11,752       (4,759     (17,557     —          300,988  

KEB HanaCard Co., Ltd.

        294,756        —         8,540       (1,128     —         —          302,168  

SK Telecom CS T1 Co., Ltd.

        60,305        —         (3,415     20       —         —          56,910  

NanoEnTek, Inc.

        42,127        112       616       (28     —         —          42,827  

UniSK

        14,342        —         479       433       —         —          15,254  

SK Technology Innovation Company

        43,997        —         53       1,788       —         —          45,838  

SK MENA Investment B.V.

        14,904        —         2       595       —         —          15,501  

SK hynix Inc.(*1)

        11,425,325        —         401,260       48,406       (146,100     —          11,728,891  

SK Latin America Investment S.A.

        13,698        —         (28     396       —         —          14,066  

Grab Geo Holdings PTE. LTD.

        31,269        —         (271     74       —         —          31,072  

SK South East Asia Investment Pte. Ltd.

        250,034        119,770       (10,909     2,162       —         —          361,057  

Pacific Telecom Inc.(*1)

        40,016        —         1,209       1,047       (979     —          41,293  

S.M. Culture & Contents Co., Ltd.

        63,469        —         (164     (119     —         —          63,186  

Contents Wavve Co., Ltd.

        83,640        —         (3,811     —         —         —          79,829  

Hello Nature Co., Ltd.(*2)

        13,620        9,980       (6,510     (61     (434     —          16,595  

Digital Games International Pte. Ltd.

        —          8,810       —         —         —         —          8,810  

Invites Healthcare Co., Ltd.

        —          28,000       —         —         —         —          28,000  

Nam Incheon Broadcasting Co.,Ltd.

        —          —         237       —         —         10,226        10,463  

NANO-XIMAGING LTD.(*3)

        —          12,071       —         —         3,538       —          15,609  

Home Choice Corp.

        —          —         (15     —         —         3,411        3,396  

12CM JAPAN and others(*4)

        65,343        (3,102     159       (1,463     433       —          61,370  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
        13,336,856        175,641       397,465       63,678       (161,099     13,637        13,826,178  

Investments in joint ventures:

                   

Dogus Planet, Inc.

        15,921        —         6,227       (1,955     —         —          20,193  

Finnq Co., Ltd.

        22,880        —         (4,861     —         —         —          18,019  

NEXTGEN BROADCAST SERVICES CO., LLC

        7,961        —         —         —         295       —          8,256  

NEXTGEN ORCHESTRATION, LLC

        1,646        —         —         —         61       —          1,707  
        48,408        —         1,366       (1,955     356       —          48,175  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     W        13,385,264        175,641       398,831       61,723       (160,743     13,637        13,874,353  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures, Continued

 

  (6)

Details of the changes in investments in associates and joint ventures accounted for using the equity method for the six-month periods ended June 30, 2020 and 2019 are as follows, Continued:

 

  (*1)

Dividends declared by the associates are deducted from the carrying amount during the six-month period ended June 30, 2020.

  (*2)

The Group recognized W434 million of impairment loss for the investments in Hello Nature Co., Ltd. for the six-month period ended June 30, 2020.

  (*3)

As the Group obtained significant influence, W3,621 million of financial assets at FVOCI are reclassified for the six-month period ended June 30, 2020.

  (*4)

The disposal for the six-month period ended June 30, 2020 includes W1,142 million relating to transfer of the shares of Health Connect Co., Ltd. and W2,056 million related to liquidation of 2010 KIF-Stonebridge IT Fund.

 

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, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures, Continued

 

  (6)

Details of the changes in investments in associates and joint ventures accounted for using the equity method for the six-month periods ended June 30, 2020 and 2019 are as follows, Continued:

 

(In millions of won)      For the six-month period ended June 30, 2019  
            Beginning
balance
     Acquisition
and Disposal
    Share of
profits

(losses)
    Other
compre-
hensive

income (loss)
    Other
increase

(decrease)
    Ending
balance
 

Investments in associates:

                

SK China Company Ltd.

     W        551,548        —         (15     15,800       —         567,333  

Korea IT Fund(*1)

        281,684        —         10,101       1,705       (8,132     285,358  

KEB HanaCard Co., Ltd.

        288,457        —         4,244       82       —         292,783  

NanoEnTek, Inc.

        40,974        —         410       (32     —         41,352  

UniSK

        13,486        —         252       528       —         14,266  

SK Technology Innovation Company

        42,469        —         67       1,471       —         44,007  

SK MENA Investment B.V.

        14,420        —         7       490       —         14,917  

SK hynix Inc.(*1)

        11,208,315        —         342,999       51,557       (219,151     11,383,720  

SK Latin America Investment S.A.

        13,313        —         43       367       —         13,723  

Grab Geo Holdings PTE. LTD.

        —          30,518       —         —         —         30,518  

SK South East Asia Investment Pte. Ltd.

        111,000        113,470       —         —         —         224,470  

Pacific Telecom Inc.

        37,075        —         1,035       300       —         38,410  

SK Telecom Smart City Management Co., Ltd.

        11,176        —         —         518       —         11,694  

S.M. Culture & Contents Co., Ltd.

        63,801        —         (263     (483     —         63,055  

Hello Nature Co., Ltd.

        28,549        —         (2,941     (16     —         25,592  

Health Connect Co., Ltd. and others(*2)

        85,346        7,178       (674     1,711       (16,110     77,451  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        12,791,613        151,166       355,265       73,998       (243,393     13,128,649  

Investments in joint ventures:

              

Dogus Planet, Inc.

        12,487        (81     2,918       (508     —         14,816  

Finnq Co., Ltd.

        7,671        —         (4,215     (3     —         3,453  

NEXTGEN BROADCAST SERVICES CO, LLC

        —          8,022       —         —         76       8,098  

NEXTGEN ORCHESTRATION, LLC

        —          1,719       —         —         16       1,735  

Celcom Planet(*3)

        —          6,055       (6,055     —         —         —    
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        20,158        15,715       (7,352     (511     92       28,102  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     W        12,811,771        166,881       347,913       73,487       (243,301     13,156,751  
     

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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, 2020 and 2019

 

11.

Investments in Associates and Joint Ventures, Continued

 

  (6)

Details of the changes in investments in associates and joint ventures accounted for using the equity method for the six-month periods ended June 30, 2020 and 2019 are as follows, Continued:

  (*1)

Dividends declared by the associates are deducted from the carrying amount during the six-month period ended June 30, 2019.

  (*2)

The acquisition for the six-month period ended June 30, 2019 includes W6,800 million of additional investments on Carrot Co., Ltd. in cash. Other increase (decrease) includes the changes in book value due to the reclassification of FSK L&S Co., Ltd. as investments in subsidiary from investments in associates.

  (*3)

Investment in Celcom Planet was disposed during the six-month period ended June 30, 2019.

 

  (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, 2020 are as follows:

 

(In millions of won)          Unrecognized loss      Unrecognized change in equity  
           For the six-month
period ended

June 30, 2020
     Cumulative
loss
     For the six-month
period ended

June 30, 2020
     Cumulative
loss
 

Wave City Development Co., Ltd.

     W       (1,412      2,958        —          —    

Daehan Kanggun BcN Co., Ltd. and others

       —          10,652        —          (138
    

 

 

    

 

 

    

 

 

    

 

 

 
     W       (1,412      13,610        —          (138
    

 

 

    

 

 

    

 

 

    

 

 

 

 

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, 2020 and 2019

 

12.

Property and Equipment

 

Changes in property and equipment for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)  
            For the six-month period ended June 30, 2020  
            Beginning
balance
     Acquisition      Disposal     Transfer     Depreciation     Business
combina-
tion
     Ending
balance
 

Land

     W        981,389        435        (37     19,296       —         40,292        1,041,375  

Buildings

        867,408        1,158        (179     16,405       (27,399     17,030        874,423  

Structures

        347,069        504        (27     2,856       (18,435     37        332,004  

Machinery

        7,941,211        177,694        (8,021     996,261       (1,202,461     171,959        8,076,643  

Other

        732,299        545,106        (1,942     (440,740     (102,844     4,682        736,561  

Right-of-use assets

        709,396        263,503        (146,973     —         (194,369     8,385        639,942  

Construction in progress

        755,508        806,361        (11,933     (711,697     —         5,053        843,292  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     W        12,334,280        1,794,761        (169,112     (117,619     (1,545,508     247,438        12,544,240  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

(In millions of won)                     
            For the six-month period ended June 30, 2019  
            Beginning
balance
     Impact of
adopting

K-IFRS
No. 1116
    Acquisition      Disposal     Transfer     Depreciation     Impair-
ment
    Changes
in consoli-
dation
     Ending
balance
 

Land

     W        938,344        —         968        —         27,153       —         —         569        967,034  

Buildings

        863,294        —         1,221        (447     25,760       (26,786     —         658        863,700  

Structures

        356,039        —         1,554        —         2,803       (17,885     —         —          342,511  

Machinery

        7,146,724        —         247,490        (10,299     1,107,434       (1,128,260     —         —          7,363,089  

Other

        848,596        (934     640,150        (1,289     (730,670     (99,713     (140     214        656,214  

Right-of-use
assets

        —          653,695       245,746        (88,752     —         (164,494     —         1,080        647,275  

Construction
in progress

        565,357        —         390,879        (9,617     (488,354     —         —         —          458,265  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     W        10,718,354        652,761       1,528,008        (110,404     (55,874     (1,437,138     (140     2,521        11,298,088  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

13.

Lease

(1) Details of the right-of-use assets as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)  
            June 30, 2020      December 31, 2019  

Land, buildings and structures

     W        523,764        584,523  

Others

        116,178        124,873  
     

 

 

    

 

 

 
     W        639,942        709,396  
     

 

 

    

 

 

 

 

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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, 2020 and 2019

 

13.

Lease, Continued

 

  (2)

Details of amounts recognized in the condensed consolidated interim statements of income for the six-month periods ended June 30, 2020 and 2019 as a lessee are as follows:

 

(In millions of won)  
           For the six-month period ended  
           June 30, 2020      June 30, 2019  

Depreciation of right-of-use assets:

       

Land, buildings and structures

     W       154,744        124,868  

Others

       39,625        39,626  
    

 

 

    

 

 

 
       194,369        164,494  
    

 

 

    

 

 

 

Interest expense on lease liabilities

     W       6,675        7,423  

Expenses related to short-term leases

       52,644        83,566  

Expenses related to leases of low-value assets except for short-term leases

       1,615        1,772  

 

  (3)

Total cash outflows due to lease payments for the six-month period ended June 30, 2020 amounts to W247,248 million.

 

  (4)

In December 2019, International Financial Reporting Interpretations Committee(‘IFRIC’) issued its final agenda decision that the concept of penalty that should be considered in determining the enforceable period under IFRS 16, Leases, shall be determined considering broader economics of the contract, and not only contractual termination payments. Further, a lease is no longer enforceable when each of the parties has the right to terminate the lease without permission from the other party with no more than an insignificant penalty.

As of June 30, 2020, the Group assess the lease term based on the assumption that the right to extent or terminate the lease is no longer enforceable if a lease contract requires the counterparty’s consent to be extended. Applying the above mentioned IFRIC interpretation may change the judgement on enforceable period for certain of the Group’s lease contracts.

The Group are currently analyzing the impact of IFRIC’s interpretation on its financial statements and plans to apply the impact as changes in accounting policies when the analysis is completed.

 

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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, 2020 and 2019

14.     Intangible Assets

 

  (1)

Changes in intangible assets for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)  
            For the six-month period ended June 30, 2020  
            Beginning balance      Acquisition      Disposal     Transfer      Amortization     Impairment     Business
Combina-
tion
     Ending
balance
 

Frequency
usage rights(*1)

     W        2,647,501        —          —         —          (260,990     (12,388     —          2,374,123  

Land usage rights

        7,349        100        (2     —          (1,746     —         —          5,701  

Industrial rights

        66,824        593        (80     8,230        (2,456     —         —          73,111  

Development costs

        11,146        430        (18     1,856        (2,290     —         —          11,124  

Facility usage rights

        25,832        818        —         274        (3,100     —         —          23,824  

Customer relations

        591,371        1,385        (137     25        (21,051     —         374,771        946,364  

Club memberships(*2)

        80,410        4,125        (2,351     —          —         (30     49,845        131,999  

Brands(*2)

        374,096        —          —         —          —         —         —          374,096  

Other(*3)

        1,061,563        61,509        (2,645     121,488        (213,439     (282     11        1,028,205  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
     W        4,866,092        68,960        (5,233     131,873        (505,072     (12,700     424,627        4,968,547  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

(In millions of won)  
            For the six-month period ended June 30, 2019  
            Beginning
balance
     Impact of
adopting

K-IFRS
No. 1116
    Acquisition      Disposal     Transfer     Amortization     Impairment     Changes in
consolidation
    Ending
balance
 

Frequency usage rights

     W        3,139,978        —         —          —         —         (231,488     —         —         2,908,490  

Land usage rights

        10,511        —         1,246        (389     —         (2,720     —         —         8,648  

Industrial rights

        83,627        —         1,021        (526     1,826       (2,358     —         (14,467     69,123  

Development costs

        8,990        —         1,240        —         1,542       (2,694     (661     4,790       13,207  

Facility usagerights

        31,027        —         823        (10     172       (3,819     —         —         28,193  

Customer relations

        625,091        —         128        (143     —         (16,889     —         —         608,187  

Club memberships(*2)

        80,475        —         1,599        (831     (1,199     —         (63     1,188       81,169  

Brands(*2)

        374,096        —         —          —         —         —         —         —         374,096  

Other(*3)

        1,159,715        (2,274     16,991        (2,211     71,089       (206,713     (473     (9,869     1,026,255  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     W        5,513,510        (2,274     23,048        (4,110     73,430       (466,681     (1,197     (18,358     5,117,368  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*1)

As Ministry of Science and Information and Communication Technology(ICT) approved the termination of 2G service, the Parent Company recognized an impairment loss for the portion of 800MHz Frequency usage rights used for 2G service during the six-month period ended June 30, 2020.

  (*2)

Club memberships and Brands are classified as intangible assets with indefinite useful lives and are not amortized.

  (*3)

Other intangible assets primarily consist of computer software and others.

 

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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, 2020 and 2019

 

14.

Intangible Assets, Continued

 

  (2)

Details of frequency usage rights as of June 30, 2020 are as follows:

 

(In millions of won)  
            Amount      Description      Commencement
of amortization
     Completion of
amortization
 

800 MHz license

     W        28,157        CDMA and LTE service        Jul. 2011        Jun. 2021  

1.8 GHz license

        188,430        LTE service        Sept. 2013        Dec. 2021  

2.6 GHz license

        789,220        LTE service        Sept. 2016        Dec. 2026  

2.1 GHz license

        151,940        W-CDMA and LTE service        Dec. 2016        Dec. 2021  

3.5 GHz license(*)

        1,013,693        5G service        Apr. 2019        Nov. 2028  

28 GHz license(*)

        202,683        5G service        —          Nov. 2023  
     

 

 

          
     W        2,374,123           
     

 

 

          

 

  (*)

The Group participated in the frequency license allocation auction hosted by Ministry of Science and Information and Communication Technology(ICT) and was assigned the 3.5 GHz and 28 GHz bands of frequency licenses during the year ended December 31, 2018. The considerations payable for the bands of frequency are W1,218,500 million and W207,300 million, respectively. These bands of frequency were assigned in December 2018 and the annual payments in installment of the remaining balances will be made for the next ten and five years, respectively. The Group recognized these frequency licenses as intangible assets at the date of initial lump-sum payment and began amortization for 3.5 GHz license in April 2019. The amortization for 28 GHz license will begin when it is in the condition necessary for it to be capable of operating in the manner intended by management.

 

15.

Borrowings and Debentures

 

  (1)

Short-term borrowings as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won, thousands of other currencies)  
     Lender      Annual
interest rate (%)
          June 30,
2020
     December 31,
2019
 

Short-term borrowings

     KB Kookmin Bank      2.90      W        8,000        —    
     Citibank      2.45         50,000        —    
     KEB Hana Bank(*1)      6M CD + 2.06         27,000        —    
     Shinhan Bank(*2)      6M financial I (bank) + 1.60         15,000        15,000  
     KEB Hana Bank(*3)      3M CD + 1.59         5,000        —    
     KEB Hana Bank(*3)      3M CD + 1.75         —          5,000  
     Woori Bank      7.50         —         

603

(VND 12,068,234

 

           

 

 

    

 

 

 
           W        105,000        20,603  
           

 

 

    

 

 

 

 

  (*1)

As of June 30, 2020, 6M CD rate is 0.74%.

  (*2)

As of June 30, 2020, 6M financial I (bank) rate is 0.71%.

  (*3)

As of June 30, 2020, 3M CD rate is 0.72%.

 

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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, 2020 and 2019

 

15.

Borrowings and Debentures, Continued

 

  (2)

Changes in long-term borrowings for the six-month period ended June 30, 2020 are as follows:

 

(In millions of won, thousands of other currencies)                             
     Lender     Annual
interest rate (%)
     Maturity             Book value  

Current

             W        50,388  

Non-current

                1,972,149  
             

 

 

 

As of January 1, 2020

                2,022,537  
             

 

 

 

New long-term borrowings:

 

          
     UBS       0.00        Mar. 28, 2025        W       

597

(CHF 500

 

     FAE       0.00        May. 7, 2025          

653

(CHF 500

 

             

 

 

 
                1,250  

Repayments of long-term borrowings:

             
     Korea Development Bank(*1)       3M CD + 0.61        Dec. 20, 2021           (6,125
     Korea Development Bank(*1)       3M CD + 0.71        Dec. 21, 2022           (6,250
     Credit Agricole CIB(*1)       3M CD + 0.82        Dec. 14, 2023           (6,250
     Export Kreditnamnden       1.70        Apr. 29, 2022           (6,670
             

 

 

 
                (25,295
             

 

 

 

Other changes(*2)

                4,104  
             

 

 

 

Current(*3)

                50,902  

Non-current(*3)

                1,951,694  
             

 

 

 

As of June 30, 2020

             W        2,002,596  
             

 

 

 

 

  (*1)

As of June 30, 2020, 3M CD rate is 0.72%.

  (*2)

Other changes include the effects on foreign currency translation of long-term borrowings and changes in present value discount on long-term borrowings for the six-month period ended June 30, 2020.

  (*3)

W25,825 million was reclassified from non-current to current during the six-month period ended June 30, 2020.

 

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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, 2020 and 2019

 

15.

Borrowings and Debentures, Continued

 

  (3)

Changes in debentures for the six-month period ended June 30, 2020 are as follows:

 

(In millions of won, thousands of U.S. dollars)  
     Purpose    Annual interest rate
(%)
   Maturity           Face value     Book value  

Current

              W        967,340       966,939  

Non-current

                 7,281,874       7,253,894  
              

 

 

   

 

 

 

As of January 1, 2020

                 8,249,214       8,220,833  

Debentures newly issued:

 

Unsecured
corporate bonds

   Operating and
refinancing fund
   1.64    Jan. 13, 2023         170,000       169,368  
   Operating fund    1.75    Jan. 14, 2025         130,000       129,515  
   1.83    Jan. 14, 2030         50,000       49,811  
   1.87    Jan. 14, 2040         70,000       69,737  

Floating-rate notes(*1)

      3M LIBOR + 0.91    Jun. 4, 2025        

357,420

(USD 300,000

 

   

355,296

(USD 300,000

 

Unsecured

corporate bonds(*2)

   Refinancing fund    1.48    Jun 9, 2023         100,000       99,562  
   Operating and
refinancing fund
   1.64    Jun 11, 2025         100,000       99,574  

Private placement
corporate bonds(*3)

   Operating fund    —      Oct 1, 2023         6,168       5,783  
              

 

 

   

 

 

 
              W        983,588       978,646  
              

 

 

   

 

 

 

Debentures repaid:

 

Floating-rate notes

   Operating fund    3M LIBOR + 0.88    Mar. 7, 2020      W       

(364,590

(USD 300,000


   

(364,590

(USD 300,000


Unsecured
corporate bonds(*2)

      2.49    Jan. 14, 2020         (160,000     (160,000

Unsecured
corporate bonds

   Refinancing fund    1.93    Apr. 25, 2020         (60,000     (60,000
              

 

 

   

 

 

 
                 (584,590     (584,590
              

 

 

   

 

 

 

Other changes(*4)

                 71,520       74,948  
     

 

 

   

 

 

 

Current(*5)

                 730,000       729,624  

Non-current(*5)

                 7,989,732       7,960,213  
              

 

 

   

 

 

 

As of June 30, 2020

              W        8,719,732       8,689,837  
           

 

 

   

 

 

 

 

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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, 2020 and 2019

 

15.

Borrowings and Debentures, Continued

 

  (3)

Changes in debentures for the six-month period ended June 30, 2020 are as follows, Continued:

 

  (*1)

As of June 30, 2020, 3M LIBOR rate is 0.30%.

  (*2)

Unsecured corporate bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company.

  (*3)

Private placement corporate bonds were issued by Life & Security Holdings Co., Ltd., a subsidiary of the Parent Company.

  (*4)

Other changes include the effects on foreign currency translation of debentures and changes in present value discount on debentures for the six-month period ended June 30, 2020.

  (*5)

W329,829 million was reclassed from non-current to current during the six-month period ended June 30, 2020.

 

16.

Long-Term Payables – Other

 

  (1)

Long-term payables – other as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)  
            June 30, 2020      December 31, 2019  

Payables related to acquisition of frequency usage rights

     W        1,133,538        1,544,699  

Other

        4,394        5,468  
     

 

 

    

 

 

 
     W        1,137,932        1,550,167  
     

 

 

    

 

 

 

 

  (2)

As of June 30, 2020 and December 31, 2019, details of long-term payables – other which consist of payables related to the acquisition of frequency usage rights are as follows (see note 14):

 

(In millions of won)  
            June 30, 2020      December 31, 2019  

Long-term payables – other

     W        1,626,040        2,051,389  

Present value discount on long-term payables – other

        (70,218      (82,851

Current installments of long-term payables – other

        (422,284      (423,839
     

 

 

    

 

 

 

Carrying amount at period end

     W        1,133,538        1,544,699  
     

 

 

    

 

 

 

 

  (3)

The principal amount of the long-term payables – other repaid for the six-month period ended June 30, 2020 is W425,349 million. The repayment schedule of the principal amount of long-term payables – other related to acquisition of frequency usage rights as of June 30, 2020 is as follows:

 

(In millions of won)              
            Amount  

Less than 1 year

     W        425,349  

1~3 years

        444,480  

3~5 years

        382,290  

More than 5 years

        373,921  
     

 

 

 
     W        1,626,040  
     

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

17.

Provisions

 

Changes in provisions for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)  
       For the six-month period ended June 30, 2020      As of June 30, 2020  
       Beginning
balance
     Increase      Utilization     Reversal     Other      Business
combination
     Ending
balance
     Current      Non-current  

Provision for restoration

     W        80,587        5,660        (2,583     (1,129     7        626        83,168        54,965        28,203  

Emission allowance

        5,257        4,572        —         —         —          —          9,829        9,829        —    

Other provisions(*)

        57,385        4,908        (16,772           1        2,129        47,651        30,830        16,821  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     W      143,229      15,140      (19,355)     (1,129)     8      2,755      140,648      95,624      45,024  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

W29,610 million of current provisions and W3,828 million of non-current provisions are included in the other provisions relating to SK Planet Co., Ltd.’s onerous contracts.(see note 32)

 

(In millions of won)  
       For the six-month period ended June 30, 2019      As of June 30, 2019  
       Beginning
balance
     Increase      Utilization     Reversal     Other     Business
combination
     Ending
balance
     Current      Non-current  

Provision for restoration

     W        77,741        1,899        (2,000     (915     67       40        76,832        45,528        31,304  

Emission allowance

        2,238        2,208        —         —         —         —          4,446        4,446        —    

Other provisions(*)

        107,229        422        (19,178     (61     (11,288     —          77,124        37,995        39,129  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
     W      187,208      4,529      (21,178)     (976)     (11,221)     40      158,402      87,969      70,433  
     

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

W37,657 million of current provisions and W39,129 million of non-current provisions are included in the other provisions relating to SK Planet Co., Ltd.’s onerous contracts.

 

18.

Defined Benefit Liabilities (Assets)

 

  (1)

Details of defined benefit liabilities (assets) as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
       June 30, 2020      December 31, 2019  

Present value of defined benefit obligations

     W        1,232,035        1,136,787  

Fair value of plan assets

        (963,482      (965,654
     

 

 

    

 

 

 

Defined benefit assets(*)

        —          (1,125
     

 

 

    

 

 

 

Defined benefit liabilities

        268,553        172,258  
     

 

 

    

 

 

 

 

  (*)

Since 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.

 

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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, 2020 and 2019

 

18.

Defined Benefit Liabilities (Assets), Continued

 

  (2)

Changes in defined benefit obligations for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)   For the six-month period ended  
        June 30, 2020              June 30, 2019      

Beginning balance

   W     1,136,787        926,302  

Business combination

       515        3,653  

Current service cost

       96,841        85,485  

Past service cost

       815        —    

Interest cost

       11,675        10,472  

Remeasurement

       

- Adjustment based on experience

       24,622        10,992  

Benefit paid

       (40,164      (46,225

Others

       944        3,791  
    

 

 

    

 

 

 

Ending balance

   W     1,232,035        994,470  
    

 

 

    

 

 

 

 

  (3)

Changes in plan assets for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)      For the six-month period ended  
           June 30, 2020              June 30, 2019      

Beginning balance

     W        965,654        816,699  

Business combination

        485        3,207  

Interest income

        10,451        9,846  

Remeasurement

        (921      (806

Contributions

        32,772        42,617  

Benefit paid

        (46,415      (53,589

Others

        1,456        1,203  
     

 

 

    

 

 

 

Ending balance

     W        963,482        819,177  
     

 

 

    

 

 

 

 

  (4)

Total cost of benefit plan, which is recognized in profit and loss (included in labor in the condensed consolidated interim statements of income) and capitalized into construction-in-progress, for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)      For the six-month period ended  
           June 30, 2020              June 30, 2019      

Current service cost

     W        96,841        85,485  

Past service cost

        815        —    

Net interest cost

        1,224        626  
     

 

 

    

 

 

 
     W        98,880        86,111  
     

 

 

    

 

 

 

 

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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, 2020 and 2019

 

19.

Derivative Instruments

 

  (1)

Changes in derivative contracts for the six-month period ended June 30, 2020 are as follows:

 

(In thousands of other currencies)
     Hedged items    Hedging instruments
     Date    Item    Risk type    Contract type    Financial
institution
   Duration of
contract

Expired

   Mar. 7, 2013    U.S. dollar-denominated
bonds’ face value of
USD 300,000
   Currency risk
and Interest
rate risk
   Floating-to-fixed
cross-currency
interest rate swap
   DBS bank    Mar. 7, 2013~

Mar. 7, 2020

Contracted

   Mar. 4, 2020    U.S. dollar-denominated
bonds’ face value of
USD 300,000
   Currency risk
and Interest
rate risk
   Floating-to-fixed
cross-currency
interest rate swap
   Citibank    Mar. 4, 2020~

Jun. 4, 2025

 

  (2)

Details that Eleven Street Co., Ltd., a subsidiary of Parent Company, has entered into put options with buyers for all or part of 1,157,042 common shares of Korea Center Co., Ltd. which is held by the Group are as follows:

 

Number of shares

  

Exercise period

  

Exercise price

1,157,042    Jan. 1, 2021~Jun. 30, 2021    Applied to 106% of 23,767 won

 

Granting condition

Eleven Street Co., Ltd. is granted put options for selling all or part of target stocks to the buyers when there is no situation in which the weighted average price of the same day trading volume in the KOSDAQ market of the common stock of the target company exceeds W23,767 for three consecutive business days from October 1, 2020 to December 31, 2020.

 

20.

Share Capital and Capital Surplus and Others

 

  (1)

The Parent Company’s outstanding share capital consists entirely of common shares with a par value of W500. The number of authorized, issued and outstanding common shares and the details of capital surplus and others as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won, except for share data)                     
       June 30, 2020      December 31, 2019  

Number of authorized shares

        220,000,000        220,000,000  

Number of issued shares

        80,745,711        80,745,711  

Share capital:

        

Common share

     W        44,639        44,639  

Capital surplus and others:

        

Paid-in surplus

        2,915,887        2,915,887  

Treasury shares

        (1,696,997      (1,696,997

Hybrid bonds(*1)

        398,759        398,759  

Share option(note 21)

        1,405        1,302  

Others(*2)

        (400,530      (612,470
     

 

 

    

 

 

 
     W        1,218,524        1,006,481  
     

 

 

    

 

 

 

 

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Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

20.

Share Capital and Capital Surplus and Others, Continued

 

  (1)

The Parent Company’s outstanding share capital consists entirely of common shares with a par value of W500. The number of authorized, issued and outstanding common shares and the details of capital surplus and others as of June 30, 2020 and December 31, 2019 are as follows, Continued:

 

  (*1)

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.

 

  (*2)

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.

 

  (2)

There were no changes in share capital for the six-month periods ended June 30, 2020 and 2019 and details of shares outstanding as of June 30, 2020 and 2019 are as follows:

 

(In shares)    June 30, 2020      June 30, 2019  
     Issued
shares
     Treasury
shares
     Outstanding
shares
     Issued
shares
     Treasury
shares
     Outstanding
shares
 

Shares outstanding

     80,745,711        7,609,263        73,136,448        80,745,711        8,875,883        71,869,828  

 

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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, 2020 and 2019

 

21.

Share Option

 

  (1)

The terms and conditions related to the grants of the share options under the share option program are as follows:

 

     Parent Company
     1-1    1-2    1-3    2    3    4    5

Grant date

   March 24, 2017    February 20,
2018
   February 22,
2019
   March 26,

2019

   March 26, 2020

Types of shares to be issued

   Registered common shares

Grant method

   Reissue of treasury shares    Reissue of treasury shares,

cash settlement

Number of shares (in shares)

   22,168    22,168    22,168    1,358    4,177    1,734    127,643

Exercise price (in won)

   246,750    266,490    287,810    254,120    265,260    254,310    192,260

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

   Feb. 23, 2021

~

Feb. 22, 2024

   Mar. 27, 2021

~

Mar. 26, 2024

   Mar. 27, 2023

~

Mar. 26, 2027

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 years’

service from

the grant date

   3 years’

service from

the grant date

 

     One Store Co., Ltd.    DREAMUS COMPANY
     1-1    1-2    1-3

Grant date

   April 27, 2018    March 28, 2019    March 28, 2019    March 28, 2019

Types of shares to be issued

   Common shares of

One Store Co., Ltd.

   Common shares of DREAMUS COMPANY

Grant method

   Issuance of new shares    Issuance of new shares, reissue of treasury shares, cash settlement

Number of shares

(in shares)(*)

   712,150    386,680    386,672    386,648

Exercise price

(in won)

   5,390    9,160    9,160    9,160

Exercise period

   Apr. 28, 2020~

Apr. 27, 2024

   Mar. 29, 2021~

Mar. 28, 2024

   Mar. 29, 2022~

Mar. 28, 2025

   Mar. 29, 2023~

Mar. 28, 2026

Vesting conditions

   2 years’ service from
the grant date
   (a) 2 years’ service

from the grant date

   (a) 3 years’ service

from the grant date

   (a) 4 years’ service

from the grant date

   (b) Average stock price
for the exercise period
is more than 150% of
the exercise price
   (b) Average stock price
for the exercise period
is more than 150% of
the exercise price
   (b) Average stock price
for the exercise period
is more than 150% of
the exercise price

 

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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, 2020 and 2019

 

21.

Share Option, Continued

 

  (1)

The terms and conditions related to the grants of the share options under the share option program are as follows, Continued:

 

     Incross Co., Ltd.  
     3    4      5      6      7      8  

Grant date

   March 30, 2016      March 7, 2017        March 7, 2018        March 7, 2019        October 15, 2019        March 10, 2020  

Types of shares to be issued

   Common shares of Incross Co., Ltd.  

Grant method

   Issuance of new shares, reissue of treasury shares, cash settlement  

Number of shares (in shares)(*)

   14,750      29,625        9,900        6,600        59,225        19,800  

Exercise price (in won)

   10,571      17,485        25,861        16,895        22,073        26,291  

Exercise period

   Mar. 30, 2019~      Mar. 7, 2020~        Mar. 7, 2021~        Mar. 7, 2022~        Oct. 15, 2022~        Mar. 10, 2023~  
   Mar. 30, 2022      Mar. 6, 2023        Mar. 6, 2024        Mar. 6, 2025        Oct. 14, 2025        Mar. 10, 2026  

Vesting conditions

   3 years’

service from

the grant date

    

3 years’

service from

the grant date

 

 

 

    

3 years’

service from

the grant date

 

 

 

    

3 years’

service from

the grant date

 

 

 

    

3 years’

service from

the grant date

 

 

 

    

3 years’

service from

the grant date

 

 

 

 

     Life & Security Holdings Co., Ltd.    FSK L&S Co., Ltd.
     1-1    1-2    1-3    1-4

Grant date

   August 22, 2019    May 31, 2019

Types of shares to be issued

   Common shares of Life & Security Holdings Co., Ltd.    Common shares of

FSK L&S Co., Ltd.

Grant method

   Cash settlement    Issuance of new
shares

Number of shares (in shares)

   3,506    3,163    6,260    6,245    43,955

Exercise price (in won)

   949,940    949,940    1,025,935    1,108,010    10,000

Exercise period

   1st exercise: Applied to 50% of the granted shares and exercisable 6 months after the listing(June 30, 2023) of Life & Security Holdings Co., Ltd.    June 30, 2022~

May 31, 2025

   2nd exercise: Applied to 25% of the granted shares and exercisable 12 months after the listing(June 30, 2023) of Life & Security Holdings Co., Ltd.
   3rd exercise: Applied to 25% of the granted shares and exercisable 18 months after the listing(June 30, 2023) of Life & Security Holdings Co., Ltd.

Vesting conditions

   Service provided
until December 31,
2019
   Service provided
until December 31,
2020
   Service provided
until December 31,
2020
   Service provided
until December 31,
2021
   3 years’ service
from the grant date

 

  (*)

Some of stock options granted by One Store Co., Ltd. and DREAMUS COMPANY that have not met the vesting conditions have been forfeited, and some of the stock options granted by One Store Co., Ltd. and Incross Co., Ltd. have been exercised during the six-month period ended June 30, 2020.

 

  (2)

Share compensation expense recognized for the six-month period ended June 30, 2020 and the remaining share compensation expense to be recognized in subsequent periods are as follows:

 

(In millions of won)         
       Share compensation expense  

As of December 31, 2019

     W        3,276  

For the six-month period ended June 30, 2020

        1,600  

In subsequent periods

        3,045  
     

 

 

 
     W        7,921  
     

 

 

 

 

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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, 2020 and 2019

 

21.

Share Option, Continued

 

  (3)

The Group used the binomial option-pricing model or Monte-Carlo simulation in the measurement of the fair value of the share options at grant date and the inputs used in the model are as follows:

 

(In won)    Parent Company  
     Series  
     1-1     1-2     1-3     2     3     4     5  

Risk-free interest rate

     1.86     1.95     2.07     2.63     1.91     1.78     1.52

Estimated option’s life

     5 years       6 years       7 years       5 years       5 years       5 years       7 years  

Share price (Closing price on the preceding day)

     262,500       262,500       262,500       243,500       259,000       253,000       174,500  

Expected volatility

     13.38     13.38     13.38     16.45     8.30     7.70     8.10

Expected dividends

     3.80     3.80     3.80     3.70     3.80     3.90     5.70

Exercise price

     246,750       266,490       287,810       254,120       265,260       254,310       192,260  

Per-share fair value of the option

     27,015       20,240       15,480       23,988       8,600       8,111       962  

 

(in won)    One Store Co., Ltd.     DREAMUS COMPANY  
    1-1     1-2     1-3  

Risk-free interest rate

     2.58     1.73     1.77     1.82

Estimated option’s life

     6 years       —         —         —    

Share price (Closing price on the preceding day)

     4,925       8,950       8,950       8,950  

Expected volatility

     9.25     32.34     32.34     32.34

Expected dividends

     0.00     0.00     0.00     0.00

Exercise price

     5,390       9,160       9,160       9,160  

Per-share fair value of the option

     566       1,976       2,189       2,356  

 

(In won)    Incross Co., Ltd.     FSK L&S
Co., Ltd.
 
     3     4     5     6     7     8  

Risk-free interest rate

     2.09     1.35     1.50     1.76     1.41     1.16     1.64

Estimated option’s life

     6 years       6 years       6 years       6 years       6 years       6 years       —    

Share price (Closing price on the preceding day)

     17,993       43,843       27,300       17,000       22,050       22,350       10,455  

Expected volatility

     20.67     18.67     21.28     25.58     42.37     41.69     16.20

Expected dividends

     0.00     0.00     0.00     0.00     0.00     0.00     0.00

Exercise price

     10,571       17,485       25,861       16,895       22,073       26,291       10,000  

Per-share fair value of the option

     1,965       9,423       7,277       4,887       9,209       7,813       1,420  

 

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Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

21.

Share Option, Continued

 

  (3)

The Group used the binomial option-pricing model or Monte-Carlo simulation in the measurement of the fair value of the share options at grant date and the inputs used in the model are as follows, Continued:

 

(In won)    Life & Security Holdings Co., Ltd.  
     1-1, 1-2  
     1st exercise     2nd exercise     3rd exercise  

Risk-free interest rate

     1.47     1.47     1.47

Estimated option’s life

     4 years       4.5 years       5 years  

Share price

     964,084       964,084       964,084  

Expected volatility

     25.84     26.76     26.79

Expected dividends

     0.00     0.00     0.00

Exercise price

     949,940       949,940       949,940  

Per-share fair value of the option

     144,513       145,878       162,219  
(In won)    Life & Security Holdings Co., Ltd.  
     1-3  
     1st exercise     2nd exercise     3rd exercise  

Risk-free interest rate

     1.47     1.47     1.47

Estimated option’s life

     4 years       4.5 years       5 years  

Share price

     964,084       964,084       964,084  

Expected volatility

     25.84     26.76     26.79

Expected dividends

     0.00     0.00     0.00

Exercise price

     1,025,935       1,025,935       1,025,935  

Per-share fair value of the option

     123,004       125,792       141,861  
(In won)    Life & Security Holdings Co., Ltd.  
     1-4  
     1st exercise     2nd exercise     3rd exercise  

Risk-free interest rate

     1.47     1.47     1.47

Estimated option’s life

     4 years       4.5 years       5 years  

Share price

     964,084       964,084       964,084  

Expected volatility

     25.84     26.76     26.79

Expected dividends

     0.00     0.00     0.00

Exercise price

     1,108,010       1,108,010       1,108,010  

Per-share fair value of the option

     101,207       105,797       120,924  

As One Store Co., Ltd., FSK L&S Co., Ltd., and Life & Security Holdings Co., Ltd., the subsidiaries of the Parent Company, are unlisted, the share price is calculated using the discounted cash flow model.

 

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Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

22.

Retained Earnings

 

Retained earnings as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Appropriated:

        

Legal reserve

   W        22,320        22,320  

Reserve for business expansion

        11,631,138        11,531,138  

Reserve for technology development

        4,365,300        4,265,300  
     

 

 

    

 

 

 
        16,018,758        15,818,758  

Unappropriated

        6,265,887        6,416,527  
     

 

 

    

 

 

 
   W        22,284,645        22,235,285  
     

 

 

    

 

 

 

 

23.

Reserves

 

  (1)

Details of reserves, net of taxes, as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Valuation gain (loss) on FVOCI

   W        135,965        (47,086

Other comprehensive loss of investments in associates and joint ventures

        (216,334      (278,142

Valuation gain (loss) on derivatives

        16,970        (920

Foreign currency translation differences for foreign operations

        12,253        (3,428
     

 

 

    

 

 

 
   W        (51,146      (329,576
     

 

 

    

 

 

 

 

  (2)

Changes in reserves for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)  
            Valuation gain
(loss) on financial
assets at FVOCI
    Other comprehensive
income (loss) of
investments in
associates and

joint ventures
    Valuation gain
(loss) on
derivatives
    Foreign currency
translation
differences for
foreign operations
    Total  

Balance at January 1, 2019

   W        (124     (334,637     (41,601     2,920       (373,442

Changes, net of taxes

        (34,695     71,210       29,143       10,592       76,250  

Balance at June 30, 2019

   W        (34,819     (263,427     (12,458     13,512       (297,192

Balance at January 1, 2020

   W        (47,086     (278,142     (920     (3,428     (329,576

Changes, net of taxes

        183,051       61,808       17,890       15,681       278,430  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2020

   W        135,965       (216,334     16,970       12,253       (51,146
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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, 2020 and 2019

 

24.

Other Operating Expenses

Details of other operating expenses for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        11,279        21,871        10,945        20,875  

Utilities

        75,152        161,545        70,246        147,265  

Taxes and dues

        18,078        26,449        16,600        26,758  

Repair

        97,792        178,322        92,172        181,310  

Research and development

        104,890        215,205        96,232        195,988  

Training

        6,413        14,645        6,905        15,801  

Bad debt for accounts receivable – trade

        12,912        30,230        5,264        15,253  

Travel

        2,681        7,862        6,826        14,886  

Supplies and others

        76,753        144,880        65,196        127,119  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        405,950        801,009        370,386        745,255  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

25.

Other Non-Operating Income and Expenses

Details of other non-operating income and expenses for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        2,744        4,399        4,589        7,493  

Gain on business transfer

        —          12,451        —          —    

Others

        25,937        28,556        3,964        8,995  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        28,681        45,406        8,553        16,488  
     

 

 

    

 

 

    

 

 

    

 

 

 

Other non-operating Expenses:

              

Loss on impairment of property and equipment and intangible assets

   W        12,700        12,700        1,274        1,337  

Loss on disposal of property and equipment and intangible assets

        16,872        25,587        16,491        26,028  

Donations

        4,156        10,608        9,806        12,456  

Bad debt for accounts receivable – other

        1,385        2,176        994        2,095  

Loss on impairment of investment assets

        —          —          1,090        1,398  

Others

        4,197        6,987        4,154        8,600  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        39,310        58,058        33,809        51,914  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 2020 and 2019

26.     Finance Income and Costs

 

  (1)

Details of finance income and costs for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        11,515        24,443        14,048        29,095  

Gain on sale of accounts receivable – other

        2,834        7,513        4,045        11,987  

Dividends

        276        1,008        —          9,924  

Gain on foreign currency transactions

        3,227        5,319        3,971        5,645  

Gain on foreign currency translations

        —          7,093        2,613        5,013  

Gain on valuation of derivatives

        14,696        14,696        19        465  

Gain on settlement of derivatives

        52        7,589        389        389  

Gain relating to financial assets at FVTPL

        305        747        1,739        2,083  

Gain relating to financial liabilities at FVTPL

        —          —          265        56  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        32,905        68,408        27,089        64,657  
     

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of won)           2020      2019  
            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        94,407        192,436        99,520        201,774  

Loss on sale of accounts receivable – other

        —          —          561        561  

Loss on foreign currency transactions

        3,124        5,374        4,012        5,625  

Loss on foreign currency translations

        2,491        6,018        2,883        4,340  

Loss on disposal of long-term investment securities

        101        101        —          —    

Loss on settlement of derivatives

        313        2,179        317        317  

Loss relating to financial assets at FVTPL

        49        793        227        367  

Loss relating to financial liabilities at FVTPL

        —          —          —          43  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        100,485        206,901        107,520        213,027  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  (2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        6,261        12,638        7,326        15,149  

Interest income on loans and others

        5,254        11,805        6,722        13,946  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        11,515        24,443        14,048        29,095  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 2020 and 2019

 

26.

Finance Income and Costs, Continued

 

  (3)

Details of interest expenses included in finance costs for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        27,212        53,017        26,234        51,628  

Interest expenses on debentures

        56,193        113,090        56,044        111,876  

Others

        11,002        26,329        17,242        38,270  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        94,407        192,436        99,520        201,774  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  (4)

Details of impairment losses for financial assets for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        12,912        30,230        5,264        15,253  

Other receivables

        1,385        2,176        994        2,095  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        14,297        32,406        6,258        17,348  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

27.

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 expense due to origination and reversal of temporary differences.

 

28.

Earnings per Share

 

  (1)

Basic earnings per share

 

  1)

Basic earnings per share for the three and six-month periods ended June 30, 2020 and 2019 are calculated as follows:

 

(In millions of won, except for share data)           2020      2019  
            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 attributable to owners of the Parent Company

   W        427,210        736,650        263,397        642,586  

Interest on hybrid bonds

        (3,691      (7,383      (3,691      (7,383

Profit for the period on common shares

        423,519        729,267        259,706        635,203  

Weighted average number of common shares outstanding

        73,136,448        73,136,448        71,869,828        71,869,828  
     

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share (in won)

   W        5,790        9,971        3,613        8,838  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 2020 and 2019

 

28.

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, 2020 and 2019 are calculated as follows:

 

(In shares)    Number of common
shares
     Weighted number of
common shares
 
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued shares at January 1, 2020

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

Treasury shares at January 1, 2020

     (7,609,263      (7,609,263      (7,609,263
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2020

     73,136,448        73,136,448        73,136,448  
  

 

 

    

 

 

    

 

 

 

 

(In shares)    Number of common
shares
     Weighted number of
common shares
 
     Three-month period
ended June 30
     Six-month period
ended June 30
 

Issued shares at January 1, 2019

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

Treasury shares at January 1, 2019

     (8,875,883      (8,875,883      (8,875,883
  

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding at June 30, 2019

     71,869,828        71,869,828        71,869,828  
  

 

 

    

 

 

    

 

 

 

 

  (2)

Diluted earnings per share

For the six-month periods ended June 30, 2020 and 2019, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.

 

29.

Categories of Financial Instruments

 

  (1)

Financial assets by category as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)           June 30, 2020  
            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        —          —          —          1,496,903        —          1,496,903  

Financial instruments

        —          —          —          992,397        —          992,397  

Short-term investment securities

        80,882        —          —          —          —          80,882  

Long-term investment securities(*)

        139,442        967,438        2,389        —          —          1,109,269  

Accounts receivable—trade

        —          —          —          2,261,996        —          2,261,996  

Loans and other receivables

        386,177        —          —          1,122,482        —          1,508,659  

Derivative financial assets

        20,620        —          —          —          212,308        232,928  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        627,121        967,438        2,389        5,873,778        212,308        7,683,034  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

The Group designated W967,438 million of equity instruments that are not held for trading as financial assets 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, 2020 and 2019

 

29.

Categories of Financial Instruments, Continued

 

  (1)

Financial assets by category as of June 30, 2020 and December 31, 2019 are as follows, Continued:

 

(In millions of won)           December 31, 2019  
            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        —          —          —          1,270,824        —          1,270,824  

Financial instruments

        —          —          —          831,637        —          831,637  

Short-term investment securities

        166,666        —          —          —          —          166,666  

Long-term investment securities(*)

        142,316        710,272        4,627        —          —          857,215  

Accounts receivable – trade

        —          —          —          2,247,895        —          2,247,895  

Loans and other receivables

        532,225        —          —          1,131,342        —          1,663,567  

Derivative financial assets

        6,074        —          —          —          144,886        150,960  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        847,281        710,272        4,627        5,481,698        144,886        7,188,764  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

The Group designated W710,272 million of equity instruments that are not held for trading as financial assets measured at FVOCI.

 

  (2)

Financial liabilities by category as of June 30, 2020, and December 31, 2019, are as follows:

 

(In millions of won)                            
            June 30, 2020  
            Financial liabilities
at amortized cost
     Derivatives hedging
instrument
     Total  

Accounts payable – trade

   W        370,929        —          370,929  

Derivative financial liabilities

        —          16,642        16,642  

Borrowings

        2,107,596        —          2,107,596  

Debentures

        8,689,837        —          8,689,837  

Lease liabilities(*)

        666,571        —          666,571  

Accounts payable – other and others

        5,849,471        —          5,849,471  
     

 

 

    

 

 

    

 

 

 
   W        17,684,404        16,642        17,701,046  
     

 

 

    

 

 

    

 

 

 

 

(In millions of won)                            
            December 31, 2019  
            Financial liabilities
at amortized cost
     Derivatives hedging
instrument
     Total  

Accounts payable – trade

   W        438,297        —          438,297  

Derivative financial liabilities

        —          1,043        1,043  

Borrowings

        2,043,140        —          2,043,140  

Debentures

        8,220,833        —          8,220,833  

Lease liabilities(*)

        712,740        —          712,740  

Accounts payable – other and others

        6,563,030        —          6,563,030  
     

 

 

    

 

 

    

 

 

 
   W        17,978,040        1,043        17,979,083  
     

 

 

    

 

 

    

 

 

 

 

  (*)

Lease liabilities are not applicable on category of financial liabilities, but are classified as financial liabilities measured at amortized cost on consideration of nature for measurement of liabilities.

 

62


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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, 2020 and 2019

 

30.

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 others, etc. Financial liabilities consist of accounts payable – trade and other, borrowings, debentures, lease liabilities and others.

 

  1)

Market risk

 

  (i)

Currency risk

The Group incurs exchange position due to revenue and expenses from its global operations. Major foreign currencies where the currency risk occurs 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.

Monetary assets and liabilities denominated in foreign currencies as of June 30, 2020 are as follows:

 

(In millions of won, thousands of foreign currencies)                                     
     Assets      Liabilities            

 

 
     Foreign currencies             Won equivalent      Foreign currencies             Won equivalent  

USD

     102,823      W        123,459        1,543,576      W        1,853,372  

EUR

     5,379           7,262        3,212           4,336  

JPY

     823,046           9,186        28,766           321  

CHF

     5,000           6,311        1,000           1,262  

Others

     —             2,188        —             7  
        

 

 

          

 

 

 
      W        148,406         W        1,859,298  
        

 

 

          

 

 

 

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, 2020, a hypothetical change in exchange rates by 10% would have increased (decreased) the Group’s income before income tax as follows:

 

(In millions of won)                     
            If increased by 10%      If decreased by 10%  

USD

   W        8,558        (8,558

EUR

        292        (292

JPY

        886        (886

CHF

        505        (505

Others

        218        (218
     

 

 

    

 

 

 
   W      W 10,459        (10,459
     

 

 

    

 

 

 

 

63


Table of Contents

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

30.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

  1)

Market risk, Continued

 

  (ii)

Interest rate risk

The interest rate risk of the Group arises from borrowings, debenture, and long-term payables – other. Since the Group’s interest-bearing assets are mostly fixed-interest bearing assets, the Group’s revenue and operating cash flows from the interest-bearing assets are not influenced by the changes in market interest rates.

The Group performs various analysis 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, 2020, the floating-rate borrowings and bonds of the Group are W140,375 million and W360,210 million, respectively, and the Group has entered into interest rate swap agreements for most of floating rate borrowings and debentures to hedge interest rate risk. If the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the six-month period ended June 30, 2020, would change by W235 million in relation to the floating-rate borrowings that are exposed to interest rate risk.

As of June 30, 2020, the floating-rate long-term payables – other are W1,626,040 million. If the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the six-month period ended June 30, 2020 would change by W8,130 million in relation to the floating-rate long-term payables – other that are exposed to interest rate risk.

 

  2)

Credit risk

The maximum credit exposure as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Cash and cash equivalents

   W        1,496,658        1,270,572  

Financial instruments

        992,397        831,637  

Investment securities

        11,310        13,548  

Accounts receivable – trade

        2,261,996        2,247,895  

Contract assets

        149,274        191,858  

Loans and other receivables

        1,508,659        1,663,567  

Derivative financial assets

        232,928        150,960  
     

 

 

    

 

 

 
   W        6,653,222        6,370,037  
     

 

 

    

 

 

 

 

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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, 2020 and 2019

 

30.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

  2)

Credit risk, Continued

 

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 loss allowance in respect of accounts receivable – trade and contract assets. 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 are expected to occur. The collective loss allowance is determined based on historical data of collection 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, 2020.

 

  3)

Liquidity risk

The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalent balances and have enough liquidity through various committed credit lines. The Group maintains enough liquidity within credit lines through active operating activities.

Contractual maturities of financial liabilities as of June 30, 2020 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        370,929        370,929        370,929        —          —    

Borrowings(*)

        2,107,596        2,433,014        238,737        2,194,277        —    

Debentures(*)

        8,689,837        9,940,640        953,645        5,943,452        3,043,543  

Lease liabilities

        666,571        695,209        312,352        325,065        57,792  

Accounts payable – other and others(*)

        5,849,471        6,028,777        4,757,241        895,283        376,253  
        

 

 

    

 

 

    

 

 

    

 

 

 
   W        17,684,404        19,468,569        6,632,904        9,358,077        3,477,588  
        

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

Includes interest payables.

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

 

65


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, 2020 and 2019

 

30.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

  3)

Liquidity risk, Continued

 

As of June 30, 2020, 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        212,308       216,054       27,490       152,523       36,041  

Liabilities

        (16,642     (16,738     (1,576     (15,162     —    
       

 

 

   

 

 

   

 

 

   

 

 

 
   W        195,666       199,316       25,914       137,361       36,041  
       

 

 

   

 

 

   

 

 

   

 

 

 

 

  (2)

Capital management

The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall strategy of the Group is the same as that for the year ended December 31, 2019.

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 condensed consolidated interim financial statements.

Debt-equity ratio as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)        
            June 30, 2020     December 31, 2019  

Total liabilities

   W        21,940,427       21,788,084  

Total equity

        24,016,723       22,823,536  

Debt-equity ratios

        91.35     95.46

 

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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, 2020 and 2019

 

30.

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, 2020 and December 31, 2019 are as follows:

 

(In millions of won)          June 30, 2020  
           Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

                

FVTPL

   W       627,121        —          469,059        158,062        627,121  

Derivatives hedging instruments

       212,308        —          212,308        —          212,308  

FVOCI

       969,827        636,794        —          333,033        969,827  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W       1,809,256        636,794        681,367        491,095        1,809,256  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

                

Derivatives hedging instruments

   W       16,642        —          16,642        —          16,642  

Financial liabilities that are not measured at fair value:

                

Borrowings

   W       2,107,596        —          2,290,423        —          2,290,423  

Debentures

       8,689,837        —          9,297,162        —          9,297,162  

Long-term payables – other

       1,560,216        —          1,580,086        —          1,580,086  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W       12,357,649        —          13,167,671        —          13,167,671  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of won)          December 31, 2019  
           Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

                

FVTPL

   W       847,281        —          668,891        178,390        847,281  

Derivatives hedging instruments

       144,886        —          144,886        —          144,886  

FVOCI

       714,899        407,651        —          307,248        714,899  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W       1,707,066        407,651        813,777        485,638        1,707,066  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

                

Derivatives hedging instruments

   W       1,043        —          1,043        —          1,043  

Financial liabilities that are not measured at fair value:

                

Borrowings

   W       2,043,140        —          2,191,037        —          2,191,037  

Debentures

       8,220,833        —          8,714,408        —          8,714,408  

Long-term payables – other

       1,974,006        —          2,008,493        —          2,008,493  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W       12,237,979        —          12,913,938        —          12,913,938  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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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, 2020 and 2019

 

30.

Financial Risk Management, Continued

 

  (3)

Fair value, Continued

 

  1)

Fair value and carrying amount of financial assets and liabilities based on fair value hierarchy as of June 30, 2020 and December 31, 2019, are as follows, Continued:

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.

Fair value of the financial instruments that are traded in an active market (financial assets at FVOCI) 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 for such valuation methods include swap rate, interest rate and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities measured.

Interest rates used by the Group for the fair value measurement as of June 30, 2020 are as follows:

 

     Interest rate  

Derivative instruments

     0.26% ~ 1.84

Borrowings and debentures

     1.10% ~ 2.00

Long-term payables – other

     1.06% ~ 1.61

 

  2)

There have been no transfers between Level 2 and Level 1 for the six-month period ended June 30, 2020. The changes of financial assets classified as Level 3 for the six-month period ended June 30, 2020 are as follows:

 

(In millions of won)  
           Balance at
January 1, 2020
     Profit (loss)
for the period
    OCI      Acquisition      Disposal     Transfer     Business
combination
     Balance at
June 30, 2020
 

FVTPL

   W       178,390        13,965       1,370        4,099        (37,776     (2,002     16        158,062  

FVOCI

       307,248        (101     22,290        1,362        (368 )       (3,621     6,223        333,033  
    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
   W       485,638        13,864       23,660        5,461        (38,144     (5,623     6,239        491,095  
    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

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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, 2020 and 2019

 

30.

Financial Risk Management, Continued

 

  (4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2020 and December 31, 2019 are as follows

 

(In millions of won)          June 30, 2020  
           Gross financial
instruments recognized
     Amount offset      Net financial instruments
presented on the condensed
consolidated interim statement

of financial position
 

Financial assets:

          

Accounts receivable – trade and others

   W       181,526        (99,844      81,682  

Financial liabilities:

          

Accounts payable – other and others

   W       158,332        (99,844      58,488  
(In millions of won)          December 31, 2019  
           Gross financial
instruments recognized
     Amount offset      Net financial instruments
presented on the consolidated statement

of financial position
 

Financial assets:

          

Accounts receivable – trade and others

   W       102,241        (100,895      1,346  

Financial liabilities:

          

Accounts payable – other and others

   W       100,895        (100,895      —    

 

31.

Transactions with Related Parties

 

  (1)

List of related parties

 

Relationship

  

Company

Ultimate Controlling Entity                     

  

SK Holdings Co., Ltd.

Joint ventures

  

Dogus Planet, Inc. and 3 others

Associates

  

SK hynix Inc. and 47 others

Others

  

The Ultimate Controlling Entity’s subsidiaries and associates, etc.

As of June 30, 2020, the Group is included to SK Group, a conglomerate as defined in the Monopoly Regulation and Fair Trade Act. All of the other entities included in SK Group are considered related parties of the Group.

 

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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, 2020 and 2019

 

31.

Transactions with Related Parties, Continued

 

  (2)

Compensation for the key management

The Parent Company considers registered directors (3 executive and 5 non-executive directors) who have substantial role and responsibility in planning, operations and relevant controls of the business as key management. The compensation given to such key management for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Salaries

   W        672        5,521        547        4,875  

Defined benefits plan expenses

        175        3,108        142        953  

Share option

        61        93        64        194  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        908        8,722        753        6,022  
     

 

 

    

 

 

    

 

 

    

 

 

 

Compensation for the key management includes salaries, non-monetary salaries and retirement benefits made in relation to the pension plan and compensation expenses related to share options granted.

 

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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, 2020 and 2019

 

31.

Transactions with Related Parties, Continued

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)             
           For the period ended June 30, 2020  
                Operating revenue and
others
    Operating expense and
others(*1)
    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.(*2)    W       9,754       18,805       82,052       373,666       16,332       18,476  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Associates

   F&U Credit information Co., Ltd.        595       1,072       13,496       25,908       —         —    
   SK hynix Inc.(*3)        19,283       178,862       100       161       —         —    
   KEB HanaCard Co., Ltd.        257       408       768       1,555       —         —    
   SK Wyverns Co., Ltd.        321       637       2,634       12,063       —         —    
   Contents Wavve Co., Ltd.        18       161       15,308       25,144       —         —    
   Others(*4)        30,699       43,185       2,836       4,855       —         —    
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          51,173       224,325       35,142       69,686       —         —    
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Others

   SK Engineering & Construction Co., Ltd.        3,477       8,072       100       101       —         —    
   SK Innovation Co., Ltd.        10,177       21,225       3,308       7,448       —         —    
   SK Networks Co., Ltd.(*5)        3,250       6,925       222,689       492,001       6       12  
   SK Networks Service Co., Ltd.        2,070       3,307       17,345       34,864       455       558  
   SK Telesys Co., Ltd.        99       197       2,575       5,141       9,591       10,249  
   SK TNS Co., Ltd.        577       633       2,960       11,219       173,951       194,591  
   SK Energy Co., Ltd.        4,550       6,654       157       231       —         —    
   SK hynix Semiconductor (China) Ltd.        13,887       25,921       —         —         —         —    
   SK Battery Hungary Kft.        7,647       12,402       —         —         —         —    
   SK Global Chemical Co., Ltd.        6,809       12,146       8       8       —         —    
   SK Global Chemical International Trading
(Shanghai) Co., Ltd.
       5,060       7,756       —         8       —         —    
   Others        21,730       40,960       29,720       58,239       17,475       23,723  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          79,333       146,198       278,862       609,260       201,478       229,133  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      W       140,260       389,328       396,056       1,052,612       217,810       247,609  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*1)

Operating expense and others include lease payments by the Group.

  (*2)

Operating expense and others include W194,617 million of dividends paid by the Parent Company.

  (*3)

Operating revenue and others include W146,100 million of dividends received from SK hynix Inc. which was deducted from the investment in associates.

  (*4)

Operating revenue and others include W18,537 million of dividends received from Korea IT Fund and Pacific Telecom Inc. which was deducted from the investment in associates.

  (*5)

Operating expenses and others include costs for handset purchases amounting to W461,979 million.

 

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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, 2020 and 2019

 

31.

Transactions with Related Parties, Continued

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2020 and 2019 are as follows, Continued:

 

(In millions of won)             
           For the period ended June 30, 2019  
                Operating revenue and
others
    Operating expense and
others(*1)
    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.(*2)    W       9,181       16,803       95,678       390,258       6,991       10,708  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Associates

   F&U Credit information Co., Ltd.        606       1,214       12,526       26,092       —         —    
   SK hynix Inc.(*3)        10,287       241,148       217       369       —         —    
   KEB HanaCard Co., Ltd.        181       594       673       1,066       —         —    
   SK Wyverns Co., Ltd.        318       635       228       15,253       —         —    
   Others(*4)        8,205       8,330       3,141       6,260       —         37  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          19,597       251,921       16,785       49,040       —         37  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Others

   SK Engineering & Construction Co., Ltd.        3,514       5,063       238       478       2,600       5,000  
   SK Innovation Co., Ltd.        6,318       11,409       38       393       —         —    
   SK Networks Co., Ltd.(*5)        15,255       18,719       225,497       472,356       —         443  
   SK Networks Service Co., Ltd.        311       530       16,287       33,768       20       26  
   SK Telesys Co., Ltd.        104       236       2,470       4,557       13,342       15,413  
   SK TNS Co., Ltd.        59       117       11,496       11,902       147,155       162,336  
   SK Energy Co., Ltd.        5,097       8,189       252       351       —         —    
   SK hynix Semiconductor (China) Ltd.        22,873       45,445       —         —         —         —    
   SK Global Chemical International Trading
(Shanghai) Co., Ltd.
       3,419       6,395       31       69       —         —    
   Others        21,184       38,758       15,378       31,332       18,538       20,663  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          78,134       134,861       271,687       555,206       181,655       203,881  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
      W       106,912       403,585       384,150       994,504       188,646       214,626  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*1)

Operating expense and others include lease payments by the Group.

  (*2)

Operating expense and others include W194,617 million of dividends paid by the Parent Company.

  (*3)

Operating revenue and others include W219,151 million of dividends received from SK hynix Inc. which was deducted from the investment in associates.

  (*4)

Operating revenue and others include W8,131 million of dividends declared by Korea IT Fund which was deducted from the investment in associates.

  (*5)

Operating expenses and others include costs for handset purchases amounting to W438,876 million.

 

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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, 2020 and 2019

 

31.

Transactions with Related Parties, Continued

 

  (4)

Account balances with related parties as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)          June 30, 2020  
                Receivables      Payables  

Scope

  

Company

         Loans      Accounts receivable
– trade, etc.
     Accounts payable
– other, etc.
 

Ultimate Controlling Entity

   SK Holdings Co., Ltd.    W       —          6,726        40,229  
       

 

 

    

 

 

    

 

 

 

Associates

   F&U Credit information Co., Ltd.        —          14        5,191  
   SK hynix Inc.        —          13,503        63  
   Wave City Development Co., Ltd.        —          31,523        —    
   Daehan Kanggun BcN Co., Ltd.(*)        22,147        4,738        —    
   KEB HanaCard Co., Ltd.        —          919        103,838  
   Contents Wavve Co., Ltd.        —          126        1,765  
   Others        204        3,300        121  
       

 

 

    

 

 

    

 

 

 
          22,351        54,123        110,978  
       

 

 

    

 

 

    

 

 

 

Others

   SK Engineering & Construction Co., Ltd.        —          2,358        110  
   SK Innovation Co., Ltd.        —          7,711        21,214  
   SK Networks Co., Ltd.        —          2,226        65,043  
   SK Networks Services Co., Ltd.        —          826        13,192  
   SK Telesys Co., Ltd.        —          31        11,498  
   SK TNS Co., Ltd.        —          9        183,052  
   SK Energy Co., Ltd.        —          1,877        2,533  
   SK hystec Co., Ltd.        —          954        73  
   SK hynix Semiconductor (China) Ltd.        —          6,020        —    
   SK Battery Hungary Kft.        —          2,999        —    
   SK Global Chemical Co., Ltd.        —          2,287        —    
  

SK Global Chemical International

Trading (Shanghai) Co., Ltd.

       —          1,912        23  
   Others        —          11,943        31,748  
       

 

 

    

 

 

    

 

 

 
          —          41,153        328,486  
       

 

 

    

 

 

    

 

 

 
      W       22,351        102,002        479,693  
       

 

 

    

 

 

    

 

 

 

 

  (*)

As of June 30, 2020, the Parent Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.

 

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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, 2020 and 2019

 

31.

Transactions with Related Parties, Continued

 

  (4)

Account balances with related parties as of June 30, 2020 and December 31, 2019 are as follows, Continued:

 

(In millions of won)           December 31, 2019  
                 Receivables      Payables  

Scope

  

Company

          Loans      Accounts receivable
– trade etc.
     Accounts payable
– other etc.
 

Ultimate Controlling Entity

   SK Holdings Co., Ltd.    W        —          7,941        87,519  
        

 

 

    

 

 

    

 

 

 

Associates

   F&U Credit information Co., Ltd.         —          2        4,869  
   SK hynix Inc.         —          21,510        48  
   Wave City Development Co., Ltd.         —          31,523        —    
   Daehan Kanggun BcN Co., Ltd.(*)         22,147        5,359        —    
   KEB HanaCard Co., Ltd.         —          1,025        9,474  
   Others         204        2,490        2,262  
        

 

 

    

 

 

    

 

 

 
           22,351        61,909        16,653  
        

 

 

    

 

 

    

 

 

 

Others

   SK Engineering & Construction Co., Ltd.         —          4,422        97  
   SK Innovation Co., Ltd.         —          7,496        22,673  
   SK Networks Co., Ltd.         —          3,469        85,421  
   SK Networks Services Co., Ltd.         —          —          10,820  
   SK Telesys Co., Ltd.         —          30        16,319  
   SK TNS Co., Ltd.         —          14        200,703  
   SK Energy Co., Ltd.         —          2,757        1,886  
   SK hystec Co., Ltd.         —          848        687  
   SK hynix Semiconductor (China) Ltd.         —          8,556        —    
   SK Battery Hungary Kft.         —          1,249        —    
   SK Global Chemical Co., Ltd.         —          1,265        —    
  

SK Global Chemical International

Trading (Shanghai) Co., Ltd.

        —          1,738        62  
   Others         —          18,277        40,011  
        

 

 

    

 

 

    

 

 

 
           —          50,121        378,679  
        

 

 

    

 

 

    

 

 

 
      W        22,351        119,971        482,851  
        

 

 

    

 

 

    

 

 

 

 

  (*)

As of December 31, 2019, the Parent Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.

  (5)

SK Infosec Co., Ltd., a subsidiary of the Parent Company, provided a blank note to SK Holdings Co., Ltd. with regards to performance guarantee.

  (6)

SK Telink Co., Ltd., a subsidiary of the Parent Company, is holding a blank note provided by SK Holdings Co., Ltd. with regards to a performance guarantee.

  (7)

The details of additional investments and disposal of associates and joint ventures for the six-month period ended June 30, 2020 are described in note 11.

 

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SK TELECOM CO., LTD. and Subsidiaries

Notes to the Condensed Consolidated Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

32.

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 W3,968 million as of June 30, 2020.

In addition, Life & Security Holdings Co., Ltd., a subsidiary of the Parent Company, has pledged its shares of ADT CAPS Co., Ltd., CAPSTEC Co., Ltd. for the long-term borrowings with a face value of W1,900,000 million as of June 30, 2020, and W18,902 million of short-term financial instruments held by Incross Co., Ltd., a subsidiary of the Parent Company, are pledged for the purpose with regards to performance guarantee.

 

  (2)

Legal claims and litigations

As of June 30, 2020, the Group is involved in various legal claims and litigations. Provision recognized in relation to these claims and litigations is immaterial. In connection with those legal claims and litigations for which no provision was recognized, management does not believe the Group has a present obligation, nor is it expected that any of these claims or litigations will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

Meanwhile, the pending litigation over the validity of partnership contract that SK Planet Co., Ltd., a subsidiary of the Parent Company, was involved as the defendant (Plaintiff: Nonghyup Bank) was settled by the agreement between the parties for the year ended December 31, 2018. As a result of the settlement, the credit card business partnership between the SK Planet Co., Ltd. and Nonghyup Bank will be maintained until April 2021, and the SK Planet Co., Ltd. is obligated to pay the commission fees based on the customers’ credit card usage until September 2021, the expiration date of the credit cards. The Group determined that the contract and the subsidiary agreements meet the definition of an onerous contract according to K-IFRS No.1037, for which the Group recognized provisions with the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. In this regard, W29,610 million and W3,828 million are recognized as current provisions and non-current provisions, respectively, as of June of 30, 2020.

 

  (3)

Accounts receivable from sale of handsets

The sales agents of the Parent Company sell handsets to the Parent Company’s subscribers on an installment basis. The Parent Company entered into comprehensive agreements to purchase accounts receivable from handset sales with retail stores and authorized dealers and to transfer the accounts receivable from handset sales to special purpose companies which were established with the purpose of liquidating receivables, respectively.

The accounts receivable from sale of handsets amounting to W464,225 million as of June 30, 2020, which the Parent Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable – other and long-term accounts receivable – other.

 

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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, 2020 and 2019

 

33.

Statements of Cash Flows

 

  (1)

Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)          For the six-month period ended  
           June 30, 2020     June 30, 2019  

Interest income

   W       (24,443     (29,095

Dividends

       (1,008     (9,924

Gain on foreign currency translations

       (7,093     (5,013

Gain on valuation of derivatives

       (14,696     (465

Gain on settlement of derivatives

       (7,589     (389

Gain on sale of accounts receivable – other

       (7,513     (11,987

Gain relating to investments in associates and joint ventures, net

       (407,899     (359,421

Gain on disposal of property and equipment and intangible assets

       (4,399     (7,493

Gain on business transfer

       (12,451     —    

Gain relating to financial assets at FVTPL

       (747     (2,083

Gain relating to financial liabilities at FVTPL

       —         (56

Other income

       (2,467     (157

Interest expense

       192,436       201,774  

Loss on foreign currency translations

       6,018       4,340  

Loss on disposal of long-term investment securities

       101       —    

Loss on sale of accounts receivable – other

       —         561  

Income tax expense

       179,265       188,340  

Expense related to defined benefit plan

       98,880       86,111  

Share option

       1,600       436  

Depreciation and amortization

       2,050,580       1,903,819  

Bad debt for account receivables – trade

       30,230       15,253  

Loss on disposal of property and equipment and intangible assets

       25,587       26,028  

Impairment loss on property and equipment and intangible assets

       12,700       1,337  

Bad debt for accounts receivable – other

       2,176       2,095  

Loss on settlement of derivatives

       2,179       317  

Loss relating to financial assets at FVTPL

       793       367  

Loss relating to financial liabilities at FVTPL

       —         43  

Loss on impairment of investment assets

       —         1,398  

Other expenses

       21,127       14,096  
    

 

 

   

 

 

 
   W       2,133,367       2,020,232  
    

 

 

   

 

 

 

 

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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, 2020 and 2019

 

33.

Statements of Cash Flows, Continued

 

  (2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           For the six-month period ended  
            June 30, 2020     June 30, 2019  

Accounts receivable – trade

   W        (42,738     (133,548

Accounts receivable – other

        85,870       88,102  

Advance payments

        (6,502     (23,145

Prepaid expenses

        67,675       (125,452

Inventories

        (36,670     (9,683

Long-term accounts receivable – other

        112,175       (16,518

Contract assets

        47,183       (18,180

Guarantee deposits

        11,450       11,298  

Accounts payable – trade

        (13,166     (79,452

Accounts payable – other

        (4,192     1,340  

Withholdings

        (96,671     (169,220

Contract liabilities

        3,391       6,537  

Deposits received

        (809     49  

Accrued expenses

        (142,076     (65,365

Provisions

        (13,599     (18,657

Long-term provisions

        (2,792     (2,215

Plan assets

        13,643       10,972  

Retirement benefit payment

        (40,164     (46,225

Others

        35,371       39,335  
     

 

 

   

 

 

 
   W        (22,621     (550,027
     

 

 

   

 

 

 

 

  (3)

Significant non-cash transactions for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           For the six-month period ended  
            June 30, 2020     June 30, 2019  

Decrease in accounts payable – other relating to the acquisition of property and equipment and intangible assets

   W        (165,269     (57,036

Increase of right-of-use assets

        263,503       242,670  

Contribution in kind for investments

        4,702       19,039  

 

34.

Subsequent Events

 

  (1)

The board of directors of the Parent Company resolved to pay the interim dividend at the board meeting on July 21, 2020, and the details are as follows:

 

Interim dividend amount    W1,000 per share (Total amount: W73,136 million)
Dividend rate    0.5%
Dividend date    June 30, 2020
Date of distribution    According to Article 464 Commercial Act 2-1, the Group is to distribute dividends by August 21, 2020.

 

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SK TELECOM CO., LTD.

Condensed Separate Interim Financial Statements

(Unaudited)

June 30, 2020 and 2019

(With Independent Auditors’ Review Report Thereon)


Table of Contents


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, 2020, the condensed separate statements of income and comprehensive income for the three and six-month periods ended June 30, 2020 and 2019, the condensed separate statements of changes in equity and cash flows for the six-month periods ended June 30, 2020 and 2019, 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 is necessary to enable the preparation of condensed separate interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ review 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 information consists principally of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

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


Table of Contents

Other matters

The separate statement of financial position of the Company as of December 31, 2019, 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 March 10, 2020, expressed an unqualified opinion. The accompanying condensed separate statement of financial position of the Company as of December 31, 2019, 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, 2020

 

This report is effective as of August 13, 2020, 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.

 

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Table of Contents

SK TELECOM CO., LTD. (the “Company”)

CONDENSED SEPARATE INTERIM FINANCIAL STATEMENTS

AS OF JUNE 30, 2020, AND DECEMBER 31, 2019, AND

FOR THE THREE AND SIX-MONTH PERIODS ENDED JUNE 30, 2020 AND 2019

 

The accompanying condensed separate interim financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the Company.

Park, Jung-ho

Chief Executive Officer

SK TELECOM CO., LTD.

 

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Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Statements of Financial Position

As of June 30, 2020 and December 31, 2019

 

(In millions of won)                          
     Note           June 30, 2020      December 31, 2019  

Assets

           

Current Assets:

           

Cash and cash equivalents

     27,28      W      379,055        497,282  

Short-term financial instruments

     27,28           259,000        234,000  

Short-term investment securities

     7,27,28           31,873        31,920  

Accounts receivable – trade, net

     4,27,28,29           1,503,023        1,479,971  

Short-term loans, net

     4,27,28,29           68,518        57,751  

Accounts receivable – other, net

     4,27,28,29,30           400,599        507,680  

Contract assets

     6,28           8,193        7,173  

Prepaid expenses

     5           2,017,239        1,970,982  

Guarantee deposits

     4,27,28,29           66,900        73,345  

Prepaid income taxes

     25           —          70,528  

Derivative financial assets

     16,27,28           —          26,253  

Inventories, net

           5,453        11,125  

Advance payments and others

     4,27,28           15,119        43,353  
        

 

 

    

 

 

 
           4,754,972        5,011,363  
        

 

 

    

 

 

 

Non-Current Assets:

           

Long-term financial instruments

     27,28           354        382  

Long-term investment securities

     7,27,28           743,827        510,633  

Investments in subsidiaries, associates and joint ventures

     8           10,800,207        10,578,158  

Property and equipment, net

     9,10,29           8,424,982        8,264,888  

Goodwill

           1,306,236        1,306,236  

Intangible assets, net

     11           3,175,727        3,461,152  

Long-term loans, net

     4,27,28,29           7,026        7,474  

Long-term accounts receivable – other

     4,27,28,30           241,503        332,220  

Long-term contract assets

     6,28           25,366        23,724  

Long-term prepaid expenses

     5           975,082        1,134,749  

Guarantee deposits

     4,27,28,29           107,453        108,141  

Long-term derivative financial assets

     16,27,28           175,668        99,998  

Other non-current assets

           349        249  
        

 

 

    

 

 

 
           25,983,780        25,828,004  
        

 

 

    

 

 

 
      W      30,738,752        30,839,367  
        

 

 

    

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Statements of Financial Position, Continued

As of June 30, 2020 and December 31, 2019

 

(In millions of won)                          
     Note           June 30, 2020      December 31, 2019  

Liabilities and Shareholders’ Equity

 

        

Current Liabilities:

           

Accounts payable – other

     27,28,29      W      2,056,581        2,266,958  

Contract liabilities

     6           76,310        88,257  

Withholdings

     27,28           569,887        685,822  

Accrued expenses

     27,28           670,976        793,669  

Income tax payable

     25           118,473        —    

Provisions

     14           56,498        50,912  

Current installments of long-term debt, net

     12,27,28           373,427        520,292  

Lease liabilities

     27,28,29           210,627        207,710  

Current installments of long-term payables – other

     13,27,28           422,284        423,839  

Other current liabilities

     27,28           5,431        20,019  
        

 

 

    

 

 

 
           4,560,494        5,057,478  
        

 

 

    

 

 

 

Non-Current Liabilities:

           

Debentures, excluding current installments, net

     12,27,28           6,458,371        5,900,829  

Long-term borrowings, excluding current installments, net

     12,27,28           13,671        19,777  

Long-term payables – other

     13,27,28           1,133,538        1,544,699  

Long-term contract liabilities

     6           10,746        11,342  

Long-term derivative financial liabilities

     16,27,28           15,090        —    

Long-term lease liabilities

     27,28,29           237,033        203,179  

Long-term provisions

     14           16,202        16,359  

Deferred tax liabilities

     25           709,433        644,754  

Defined benefit liabilities

     15           63,908        25,093  

Other non-current liabilities

     27,28           47,324        26,118  
        

 

 

    

 

 

 
           8,705,316        8,392,150  
        

 

 

    

 

 

 

Total Liabilities

           13,265,810        13,449,628  
        

 

 

    

 

 

 

Shareholders’ Equity:

           

Share capital

     1,17           44,639        44,639  

Capital surplus and others

     17,18           715,722        715,619  

Retained earnings

     19           16,576,694        16,678,787  

Reserves

     20           135,887        (49,306
        

 

 

    

 

 

 

Total Shareholders’ Equity

           17,472,942        17,389,739  
        

 

 

    

 

 

 
      W      30,738,752        30,839,367  
        

 

 

    

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Statements of Income

For the three and six-month periods ended June 30, 2020 and 2019

 

(In millions of won)  
                   2020     2019  
     Note             Three-month
period ended
June 30
    Six-month
period ended
June 30
    Three-month
period ended
June 30
    Six-month
period ended
June 30
 

Operating revenue:

     21,29              

Revenue

      W        2,939,832       5,862,677       2,847,717       5,659,925  

Operating expenses:

     29              

Labor

           193,517       398,044       193,985       384,047  

Commission

     5           1,153,420       2,293,903       1,088,968       2,165,476  

Depreciation and amortization

           696,990       1,394,308       661,089       1,287,013  

Network interconnection

           149,101       293,195       141,786       282,146  

Leased lines

           52,969       106,136       51,453       103,614  

Advertising

           22,937       39,362       36,590       57,649  

Rent

           50,075       100,378       57,493       112,664  

Cost of goods sold

           102,756       210,092       113,623       221,190  

Others

     22           247,739       499,055       227,505       465,166  
        

 

 

   

 

 

   

 

 

   

 

 

 
           2,669,504       5,334,473       2,572,492       5,078,965  
        

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

           270,328       528,204       275,225       580,960  

Finance income

     24           29,713       317,258       24,667       548,528  

Finance costs

     24           (63,076     (129,131     (67,594     (133,055

Other non-operating income

     23           23,838       38,039       3,777       7,469  

Other non-operating expenses

     23           (26,308     (38,968     (18,497     (24,692

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

     8           (14,498     (6,857     —         —    
        

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

           219,997       708,545       217,578       979,210  

Income tax expense

     25           51,348       133,803       55,564       173,203  
        

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

      W        168,649       574,742       162,014       806,007  
        

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

     26              

Basic and diluted earnings per share(in won)

      W        2,255       7,758       2,203       11,112  

See accompanying notes to the condensed separate interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2020 and 2019

 

(In millions of won)  
                 2020     2019  
     Note           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      168,649        574,742       162,014       806,007  

Other comprehensive income (loss):

               

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

               

Remeasurement of defined benefit liabilities

     15           2,909        (11,224     666       (1,491

Valuation gain (loss) on financial assets at fair value through other comprehensive income

     20           184,838        171,194       (8,823     (7,258

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

               

Net change in unrealized fair value of derivatives

     20           10,728        13,999       12,000       21,617  
        

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income for the period, net of taxes

           198,475        173,969       3,843       12,868  
        

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income

      W      367,124        748,711       165,857       818,875  
        

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

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Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Statements of Changes in Equity

For the six-month periods ended June 30, 2020 and 2019

 

(In millions of won)               Share
capital
    Capital surplus and others           Retained
earnings
    Reserves        
    Note           Paid-in
surplus
    Treasury
shares
    Hybrid
bonds
    Share
option
    Other     Sub-total     Total
equity
 

Balance, December 31, 2018

    W       44,639       2,915,887       (1,979,475     398,759       1,007       (920,854     415,324       16,467,789       (40,265     16,887,487  

Impact of adopting K-IFRS No. 1116

        —         —         —         —         —         —         —         (25,999     —         (25,999
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2019

    W       44,639       2,915,887       (1,979,475     398,759       1,007       (920,854     415,324       16,441,790       (40,265     16,861,488  

Total comprehensive income:

                       

Profit for the period

        —         —         —         —         —         —         —         806,007       —         806,007  

Other comprehensive income (loss)

    15,16,20         —         —         —         —         —         —         —         28,582       (15,714     12,868  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —         —         —         —         —         —         —         834,589       (15,714     818,875  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                       

Annual dividends

        —         —         —         —         —         —         —         (646,828     —         (646,828

Share option

    18         —         —         —         —         157       —         157       —         —         157  

Interest on hybrid bonds

        —         —         —         —         —         —         —         (7,383     —         (7,383
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —         —         —         —         157       —         157       (654,211     —         (654,054
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2019

    W       44,639       2,915,887       (1,979,475     398,759       1,164       (920,854     415,481       16,622,168       (55,979     17,026,309  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 1, 2020

    W       44,639       2,915,887       (1,696,997     398,759       1,302       (903,332     715,619       16,678,787       (49,306     17,389,739  

Total comprehensive income:

                       

Profit for the period

        —         —         —         —         —         —         —         574,742       —         574,742  

Other comprehensive income (loss)

    15,16,20         —         —         —         —         —         —         —         (11,224     185,193       173,969  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —         —         —         —         —         —         —         563,518       185,193       748,711  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transactions with owners:

                       

Annual dividends

        —         —         —         —         —         —         —         (658,228     —         (658,228

Share option

    18         —         —         —         —         103       —         103       —         —         103  

Interest on hybrid bonds

        —         —         —         —         —         —         —         (7,383     —         (7,383
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        —         —         —         —         103       —         103       (665,611     —         (665,508
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2020

    W       44,639       2,915,887       (1,696,997     398,759       1,405       (903,332     715,722       16,576,694       135,887       17,472,942  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

8


Table of Contents

SK TELECOM CO., LTD.

Condensed Separate Interim Statements of Cash Flows

For the six-month periods ended June 30, 2020 and 2019

 

(In millions of won)    Note             June 30, 2020     June 30, 2019  

Cash flows from operating activities:

          

Cash generated from operating activities:

          

Profit for the period

      W        574,742       806,007  

Adjustments for income and expenses

     31           1,504,932       1,157,854  

Changes in assets and liabilities related to operating activities

     31           (33,071     (308,800
        

 

 

   

 

 

 
           2,046,603       1,655,061  

Interest received

           9,171       10,947  

Dividends received

           284,666       506,050  

Interest paid

           (109,631     (125,583

Income tax refund(paid)

           44,273       (164,157
        

 

 

   

 

 

 

Net cash provided by operating activities

           2,275,082       1,882,318  
        

 

 

   

 

 

 

Cash flows from investing activities:

          

Cash inflows from investing activities:

          

Collection of short-term loans

           54,650       51,453  

Decrease in long-term financial instrument, net

           28       —    

Proceeds from disposals of long-term investment securities

           200       221,646  

Proceeds from disposals of investments in subsidiaries, associates and joint ventures

           659       —    

Proceeds from disposals of property and equipment

           1,315       3,017  

Proceeds from disposals of intangible assets

           1,946       2,348  

Collection of lease receivables

           —         6,954  
        

 

 

   

 

 

 
           58,798       285,418  

Cash outflows for investing activities:

          

Increase in short-term financial instruments, net

           (25,000     (40,000

Increase in short-term loans

           (65,176     (66,515

Acquisitions of long-term investment securities

           (327     (13,804

Acquisitions of investments in subsidiaries, associates and joint ventures

           (212,105     (237,262

Acquisitions of property and equipment

           (1,269,114     (969,820

Acquisitions of intangible assets

           (45,851     (8,864
        

 

 

   

 

 

 
           (1,617,573     (1,336,265
        

 

 

   

 

 

 

Net cash used in investing activities

      W        (1,558,775     (1,050,847
        

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

9


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SK TELECOM CO., LTD.

Condensed Separate Interim Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2020 and 2019

 

(In millions of won)    Note             June 30, 2020     June 30, 2019  

Cash flows from financing activities:

          

Cash inflows from financing activities:

          

Proceeds from issuance of debentures

      W        773,727       398,345  

Cash inflows from settlement of derivatives

           41,182       11,931  
        

 

 

   

 

 

 
           814,909       410,276  

Cash outflows for financing activities:

          

Repayments of long-term borrowings

           (6,670     (6,441

Repayments of long-term payables – other

           (425,349     (425,349

Repayments of debentures

           (424,590     (220,000

Payments of cash dividends

           (658,228     (646,828

Payments of interest on hybrid bonds

           (7,383     (7,383

Repayments of lease liabilities

           (126,934     (135,177
        

 

 

   

 

 

 
           (1,649,154     (1,441,178
        

 

 

   

 

 

 

Net cash used in financing activities

           (834,245     (1,030,902
        

 

 

   

 

 

 

Net decrease in cash and cash equivalents

           (117,938     (199,431

Cash and cash equivalents at beginning of the period

           497,282       877,823  

Effects of exchange rate changes on cash and cash equivalents

           (289     —    
        

 

 

   

 

 

 

Cash and cash equivalents at end of the period

      W        379,055       678,392  
        

 

 

   

 

 

 

See accompanying notes to the condensed separate interim financial statements.

 

10


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

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, 2020, the Company’s total issued shares are held by the following shareholders:

 

     Number of shares      Percentage of
total shares issued (%)
 

SK Holdings Co., Ltd.

     21,624,120        26.78  

National Pension Service

     9,502,565        11.77  

Institutional investors and other shareholders

     40,743,143        50.46  

Kakao Co., Ltd.

     1,266,620        1.57  

Treasury shares

     7,609,263        9.42  
  

 

 

    

 

 

 
     80,745,711        100.00  
  

 

 

    

 

 

 

 

2.

Basis of Preparation

 

  (1)

Statement of compliance

These condensed separate interim financial statements were prepared in accordance with Korean International Financial Reporting Standard (“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, 2019. 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 separate financial statements as of and for the year ended December 31, 2019.

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

2.

Basis of Preparation, Continued

 

  (2)

Use of estimates and judgments, Continued

1) Critical judgments, assumptions and estimation uncertainties, Continued

 

Meanwhile, the spread of COVID-19 pandemic is having a significant impact on domestic and foreign economies, and its duration and severity are highly uncertain and unpredictable. As of the end of the reporting period, the Company’s management cannot reasonably estimate the impact of COVID-19 pandemic on the Company’s operations and financial results.

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 established policies and processes with respect to the measurement of fair values, including Level 3 fair values, and the measurement of fair value is reviewed and is directly reported to the finance executives.

The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Company 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.

 

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, 2019.

 

12


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

4.

Trade and Other Receivables

 

  (1)

Details of trade and other receivables as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)           June 30, 2020  
            Gross amount      Loss allowance      Carrying amount  

Current assets:

           

Accounts receivable – trade

   W        1,614,164        (111,141      1,503,023  

Short-term loans

        69,210        (692      68,518  

Accounts receivable – other(*)

        435,234        (34,635      400,599  

Guarantee deposits

        66,900        —          66,900  

Accrued income

        259        —          259  
     

 

 

    

 

 

    

 

 

 
        2,185,767        (146,468      2,039,299  

Non-current assets:

           

Long-term loans

        48,132        (41,106      7,026  

Long-term accounts receivable – other(*)

        241,503        —          241,503  

Guarantee deposits

        107,453        —          107,453  
     

 

 

    

 

 

    

 

 

 
        397,088        (41,106      355,982  
     

 

 

    

 

 

    

 

 

 
   W        2,582,855        (187,574      2,395,281  
     

 

 

    

 

 

    

 

 

 

 

  (*)

Gross and carrying amounts of accounts receivable – other as of June 30, 2020 include W386,177 million of financial instruments classified as FVTPL.

 

(In millions of won)           December 31, 2019  
            Gross amount      Loss allowance      Carrying amount  

Current assets:

           

Accounts receivable – trade

   W        1,583,727        (103,756      1,479,971  

Short-term loans

        58,334        (583      57,751  

Accounts receivable – other(*)

        542,444        (34,764      507,680  

Guarantee deposits

        73,345        —          73,345  

Accrued income

        336        —          336  
     

 

 

    

 

 

    

 

 

 
        2,258,186        (139,103      2,119,083  

Non-current assets:

           

Long-term loans

        48,585        (41,111      7,474  

Long-term accounts receivable – other(*)

        332,220        —          332,220  

Guarantee deposits

        108,141        —          108,141  
     

 

 

    

 

 

    

 

 

 
        488,946        (41,111      447,835  
     

 

 

    

 

 

    

 

 

 
   W        2,747,132        (180,214      2,566,918  
     

 

 

    

 

 

    

 

 

 

 

  (*)

Gross and carrying amounts of accounts receivable – other as of December 31, 2019 include W532,225 million of financial instruments classified as FVTPL.

 

13


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

4.

Trade and Other Receivables, Continued

 

  (2)

Changes in the loss allowance on trade and other receivables measured at amortized cost for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)  
            January 1, 2020      Impairment      Write-offs(*)     Collection of
receivables
previously
written- off
     June 30,
2020
 

Accounts receivable – trade

   W        103,756        15,310        (12,833     4,908        111,141  

Accounts receivable – other

        76,458        1,822        (2,775     928        76,433  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   W        180,214        17,132        (15,608     5,836        187,574  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
(In millions of won)  
            January 1, 2019      Impairment      Write-offs(*)     Collection of
receivables
previously
written- off
     June 30,
2019
 

Accounts receivable – trade

   W        119,842        3,023        (18,142     4,705        109,428  

Accounts receivable – other

        92,084        1,648        (18,430     5,745        81,047  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   W        211,926        4,671        (36,572     10,450        190,475  
     

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

  (*)

The Company writes off the trade and other receivables that are determined to be uncollectable due to reasons such as termination of operations or bankruptcy.

 

  (3)

The Company applies the practical expedient that allows the Company to estimate the loss allowance for accounts receivable – trade at an amount equal to the lifetime expected credit losses. The expected credit losses include the forward-looking information. To make the assessment, the Company uses its historical credit loss experience over the past three years and classifies 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 primarily consist of receivables from numerous individual customers, and, therefore, no significant credit concentration risk arises.

Receivables related to other revenue mainly consist of receivables from corporate customers. The Company transacts only with corporate customers with credit ratings that are considered to be low at credit risk. In addition, the Company is not exposed to significant credit concentration risk as the Company regularly assesses their credit risk by monitoring their credit rating. While the contract assets are under the impairment requirements, no significant credit risk has been identified.

 

14


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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

5.

Prepaid Expenses

 

The Company pays commissions to its retail stores and authorized dealers for wireless telecommunications services and for each service contract and installation contract secured. The Company capitalized certain costs associated with commissions paid to retail stores and authorized dealers to obtain new and retained customer contracts as prepaid expenses. These prepaid expenses are amortized on a straight-line basis over the periods that the Company expects to maintain its customers.

 

  (1)

Details of prepaid expenses as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Current assets:

 

Incremental costs of obtaining contracts

   W        1,960,008        1,920,023  

Others

        57,231        50,959  
     

 

 

    

 

 

 
   W        2,017,239        1,970,982  
     

 

 

    

 

 

 

Non-current assets:

 

Incremental costs of obtaining contracts

   W        954,364        1,112,595  

Others

        20,718        22,154  
     

 

 

    

 

 

 
   W        975,082        1,134,749  
     

 

 

    

 

 

 

 

  (2)

Incremental costs of obtaining contracts

The amortization in connection with incremental costs of obtaining contracts recognized for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            Three-month period
ended June 30
     Six-month period
ended June 30
     Three-month
period ended
June 30
     Six-month period
ended June 30
 

Amortization recognized as commissions

   W        601,909        1,201,435        520,193        1,025,507  

 

15


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

6.

Contract Assets and Liabilities

 

In case of providing both wireless telecommunication services and sales of handsets, the Company allocated the consideration based on relative stand-alone selling prices and recognized unbilled receivables from handset sales as contract assets. The Company recognized receipts in advance for prepaid telecommunications services and unearned revenue for customer loyalty programs as contract liabilities.

 

  (1)

Details of contract assets and liabilities as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)

 

            June 30, 2020      December 31, 2019  

Contract assets:

        

Allocation of consideration between performance obligations

   W        33,559        30,897  

Contract liabilities:

        

Wireless service contracts

        19,355        20,393  

Customer loyalty programs

        18,491        21,945  

Others

        49,210        57,261  
     

 

 

    

 

 

 
   W        87,056        99,599  
     

 

 

    

 

 

 

 

  (2)

The amount of revenue recognized for the six-month period ended June 30, 2020 related to the contract liabilities carried forward from the prior period is W43,626 million.

 

7.

Investment Securities

 

  (1)

Details of short-term investment securities as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)

 

     Category             June 30, 2020      December 31, 2019  

Beneficiary certificates

     FVTPL      W        31,873        31,920  

 

  (2)

Details of long-term investment securities as of June 30, 2020, and December 31, 2019, are as follows:

 

(In millions of won)

 

     Category            June 30, 2020      December 31, 2019  

Equity instruments

     FVOCI (*)    W        668,446        435,210  

Debt instruments

     FVTPL          75,381        75,423  
       

 

 

    

 

 

 
     W        743,827        510,633  
       

 

 

    

 

 

 

 

  (*)

The Company designated W668,446 million of investments in equity instruments that are not held for trading as financial assets at FVOCI.

 

16


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

8.

Investments in Subsidiaries, Associates and Joint Ventures

 

  (1)

Investments in subsidiaries, associates and joint ventures as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)

 

            June 30,
2020
     December 31, 2019  

Investments in subsidiaries

   W        5,478,031        5,408,974  

Investments in associates and joint ventures

        5,322,176        5,169,184  
     

 

 

    

 

 

 
   W        10,800,207        10,578,158  
     

 

 

    

 

 

 

 

  (2)

Details of investments in subsidiaries as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won, except for share data)

 

     June 30, 2020      December 31, 2019  
     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.(*1)

     298,460,212        74.3           1,872,573        1,870,582  

SK Communications Co., Ltd.

     43,427,530        100.0           41,939        41,939  

PS&Marketing Corporation

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

SERVICE ACE Co., Ltd.

     4,385,400        100.0           21,927        21,927  

SK Planet Co., Ltd.

     69,593,562        98.7           404,833        404,833  

Eleven Street Co., Ltd.

     8,224,709        80.3           1,049,403        1,049,403  

DREAMUS COMPANY

     29,246,387        51.4           156,781        156,781  

SK Telecom China Holdings Co., Ltd.

     —          100.0           48,096        48,096  

Life & Security Holdings Co., Ltd.

     740,895        55.0           703,394        703,394  

SKT Americas, Inc.(*2)

     122        100.0           31,203        45,701  

Atlas Investment(*3)

     —          100.0           136,651        130,200  

One Store Co., Ltd.(*4)

     10,409,600        52.1           82,186        82,186  

id Quantique SA

     69,157,505        66.8           94,119        94,119  

SK Infosec Co., Ltd.

     12,636,024        100.0           44,410        44,410  

SK Telecom TMT Investment Corp.(*5)

     50,000        100.0           58,124        33,834  

FSK L&S Co., Ltd.

     2,415,750        60.0           17,757        17,757  

Incross Co., Ltd.(*6)

     2,786,455        34.6           53,722        53,722  

SK stoa Co., Ltd.(*7)

     3,631,355        100.0           40,029        —    

Broadband Nowon Co., Ltd.(*8)

     627,000        55.0           10,421        —    

SK O&S Co., Ltd. and others

     —          —             52,541        52,168  
           

 

 

    

 

 

 
         W        5,478,031        5,408,974  
           

 

 

    

 

 

 

 

17


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

8.

Investments in Subsidiaries, Associates and Joint Ventures, Continued

 

  (2)

Details of investments in subsidiaries as of June 30, 2020 and December 31, 2019 are as follows, Continued:

 

  (*1)

On April 30, 2020, SK Broadband Co., Ltd. merged with Tbroad Co., Ltd., Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co., Ltd. to strengthen competitiveness and enhance synergy as a comprehensive media company. The Company’s ownership interest of SK Broadband Co., Ltd. changed as SK Broadband Co., Ltd. issued new shares to the shareholders of the merged companies as the consideration for the merger.

  (*2)

The Company recognized W14,498 million of impairment loss for the investments in SKT Americas, Inc. during the six-month period ended June 30, 2020.

  (*3)

The Company contributed W6,451 million in cash during the six-month period ended June 30, 2020.

  (*4)

The ownership interest changed as third-party share option of One Store Co., Ltd. was exercised during the six-month period ended June 30, 2020.

  (*5)

The Company contributed W24,290 million in cash during the six-month period ended June 30, 2020.

  (*6)

Although the Company owns less than 50% of the investee, the management has determined that the Company controls Incross Co., Ltd. considering the level of dispersion of remaining voting rights and voting patterns at previous shareholders’ meetings, and the fact that the Company has a right to appoint the majority of the members of the board of directors by the virtue of an agreement with the investee’s other shareholders.

  (*7)

The Company acquired 3,631,355 shares (100%) of SK stoa Co., Ltd. from SK Broadband. Co., Ltd. at W40,029 million in cash during the six-month period ended June 30, 2020.

  (*8)

The Company has obtained control over Tbroad Nowon Broadcasting Co., Ltd. by acquiring 627,000 shares (55%) for W10,421 million in cash and Tbroad Nowon Broadcasting Co., Ltd changed its name to Broadband Nowon Co., Ltd.

 

18


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

8.

Investments in Subsidiaries, Associates and Joint Ventures, Continued

 

  (3)

Details of investments in associates and joint ventures as of June 30, 2020 and December 31, 2019, are as follows:

 

(In millions of won, except for share data)                                   
     June 30, 2020      December 31, 2019  
     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  

Korea IT Fund(*1)

     190        63.3           220,957        220,957  

KEB HanaCard Co., Ltd.(*2)

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

NanoEnTek, Inc.(*3)

     7,600,649        28.4           51,138        51,138  

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  

S.M. Culture & Contents Co., Ltd.

     22,033,898        23.4           65,341        65,341  

SK South East Asia Investment Pte. Ltd.(*4)

     300,000,000        20.0           344,240        224,470  

Pacific Telecom Inc.(*2)

     1,734,109        15.0           36,487        36,487  

Grab Geo Holdings PTE. LTD.

     300        30.0           30,517        30,517  

Content Wavve Co., Ltd.

     1,306,286        30.0           90,858        90,858  

SK Telecom CS T1 Co., Ltd.(*1)

     50,000        54.9           60,305        60,305  

Digital Games International Pte. Ltd.(*5)

     10,000,000        33.3           8,810        —    

Invites Healthcare Co., Ltd.(*6)

     419,999        50.0           28,000        —    

12CM JAPAN and others(*6)

     —          —             84,574        88,162  
           

 

 

    

 

 

 
              5,296,747        5,143,755  
           

 

 

    

 

 

 

Investment in a joint ventures:

              

Finnq Co., Ltd.(*7)

     6,370,000        49.0           25,429        25,429  
           

 

 

    

 

 

 
         W        5,322,176        5,169,184  
           

 

 

    

 

 

 

 

19


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

8.

Investments in Subsidiaries, Associates and Joint Ventures, Continued

 

  (3)

Details of investments in associates and joint ventures as of June 30, 2020 and December 31, 2019, are as follows, Continued:

 

  (*1)

Investments in Korea IT Fund and SK Telecom CS T1 Co., Ltd. were classified as investment in associates as the Company does not have control over the investee 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 the board of directors even though the Company has less than 20% of equity interests.

  (*3)

The ownership interest changed as third-party share option was exercised and convertible bonds were converted during the six-month period ended June 30, 2020.

  (*4)

The Company additionally contributed W119,770 million in cash during the six-month period ended June 30, 2020, but there is no change in the ownership interest.

  (*5)

The Company newly invested W8,810 million in cash in Digital Games International Pte. Ltd. during the six-month period ended June 30, 2020.

  (*6)

The Company transferred the entire shares of Health Connect Co., Ltd. and assets related to the digital disease management business during the six-month period ended June 30, 2020. The Company acquired 279,999 shares of common stock and 140,000 shares of convertible preferred stock of Invites Healthcare Co., Ltd. in consideration of the transfer and recognized W7,641 million of gain on investments in associates and W12,451 million of gain on the business transfer.

  (*7)

This investment was classified as investment in a joint venture as the Company has joint control pursuant to the agreement with the other shareholders.

 

20


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

8.

Investments in Subsidiaries, Associates and Joint Ventures, Continued

 

  (4)

The market value of investments in listed subsidiaries as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won, except for share data)                       
            June 30, 2020      December 31, 2019  
            Market price
per share
(in won)
     Number of
shares
     Market
value
     Market price
per share

(in won)
     Number of
shares
     Market
value
 

DREAMUS COMPANY

   W        5,040        29,246,387        147,402        5,970        29,246,387        174,601  

Incross Co., Ltd.

        33,850        2,786,455        94,322        25,150        2,786,455        70,079  

 

  (5)

The market value of investments in listed associates as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won, except for share data)                       
            June 30, 2020      December 31, 2019  
            Market price
per share

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

(in won)
     Number of
shares
     Market
value
 

NanoEnTek, Inc.

   W        11,050        7,600,649        83,987        5,620        7,600,649        42,716  

SK hynix Inc.

        85,100        146,100,000        12,433,110        94,100        146,100,000        13,748,010  

S.M.Culture & Contents Co., Ltd.

        1,500        22,033,898        33,051        1,530        22,033,898        33,712  

 

21


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

9.

Property and Equipment

 

Changes in property and equipment for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)

 

            For the six-month period ended June 30, 2020  
            Beginning
balance
     Acquisition      Disposal      Transfer      Depreciation      Ending
balance
 

Land

   W        618,012        81        (37      19,295        —          637,351  

Buildings

        600,625        143        (9      16,448        (20,712      596,495  

Structures

        346,734        501        (27      2,856        (18,429      331,635  

Machinery

        5,091,483        43,192        (4,082      881,253        (825,301      5,186,545  

Right-of-use assets

        434,555        237,344        (75,835      —          (150,321      445,743  

Other

        500,887        482,282        (829      (444,558      (47,016      490,766  

Construction in progress

        672,592        629,101        (3,531      (561,715      —          736,447  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        8,264,888        1,392,644        (84,350      (86,421      (1,061,779      8,424,982  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)

                       
            For the six-month period ended June 30, 2019  
            Beginning
balance
     Impact of
adopting

K-IFRS
No. 1116
     Acquisition      Disposal      Transfer      Depreciation      Ending
balance
 

Land

   W        544,419        —          968        —          27,196        —          572,583  

Buildings

        537,000        —          877        (433      25,223        (19,083      543,584  

Structures

        355,739        —          1,554        —          2,803        (17,879      342,217  

Machinery

        4,382,375        —          61,308        (2,120      1,020,969        (775,192      4,687,340  

Right-of-use assets

        —          433,074        196,589        (67,796      —          (125,874      435,993  

Other

        617,837        —          588,770        (793      (731,030      (48,930      425,854  

Construction in progress

        506,120        —          253,463        (744      (383,218      —          375,621  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        6,943,490        433,074        1,103,529        (71,886      (38,057      (986,958      7,383,192  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

10.

Lease

 

  (1)

Details of the right-of-use assets as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Land, buildings and structures

   W        361,664        363,196  

Others

        84,079        71,359  
     

 

 

    

 

 

 
   W        445,743        434,555  
     

 

 

    

 

 

 

 

  (2)

Details of amounts recognized in the condensed separate interim statements of income for the six-month periods ended June 30, 2020 and 2019 as a lessee are as follows:

 

(In millions of won)  
            For the six-month period ended  
            June 30, 2020      June 30, 2019  

Depreciation of right-of-use assets:

        

Land, buildings and structures

   W        124,961        99,321  

Others

        25,360        26,553  
     

 

 

    

 

 

 
        150,321        125,874  
     

 

 

    

 

 

 

Interest expense on lease liabilities

        3,403        3,893  

Expenses related to short-term leases

        21,674        44,373  

Expenses related to leases of low-value assets except for short-term leases

        12        18  

 

  (3)

The total cash outflows due to lease payments for the six-month period ended June 30, 2020 amounts to W152,023 million.

 

  (4)

In December 2019, International Financial Reporting Interpretations Committee(‘IFRIC’) issued its final agenda decision that the concept of penalty that should be considered in determining the enforceable period under IFRS 16, Leases, shall be determined considering broader economics of the contract, and not only contractual termination payments. Further, a lease is no longer enforceable when each of the parties has the right to terminate the lease without permission from the other party with no more than an insignificant penalty.

As of June 30, 2020, the Company assess the lease term based on the assumption that the right to extent or terminate the lease is no longer enforceable if a lease contract requires the counterparty’s consent to be extended. Applying the above mentioned IFRIC interpretation may change the judgement on enforceable period for certain of the Company’s lease contracts.

The Company are currently analyzing the impact of IFRIC’s interpretation on its financial statements and plans to apply the impact as changes in accounting policies when the evaluation is completed.

 

23


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

11.

Intangible Assets

 

  (1)

Changes in intangible assets for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)                                                        
            For the six-month period ended June 30, 2020  
            Beginning
balance
     Acquisition      Disposal      Transfer      Amortization      Impairment      Ending
balance
 

Frequency usage rights(*1)

   W        2,647,501        —          —          —          (260,990      (12,388      2,374,123  

Land usage rights

        5,708        99        —          —          (1,067      —          4,740  

Industrial rights

        12,054        240        (45      —          (1,314      —          10,935  

Facility usage rights

        15,524        766        —          280        (1,318      —          15,252  

Club memberships(*2)

        47,611        123        (1,179      —          —          —          46,555  

Other(*3)

        732,754        44,623        (2,562      102,575        (153,268      —          724,122  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        3,461,152        45,851        (3,786      102,855        (417,957      (12,388      3,175,727  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)                                                      
          For the six-month period ended June 30, 2019  
          Beginning
balance
    Impact of
adopting
K-IFRS
No. 1116
    Acquisition     Disposal     Transfer     Amortization     Impairment     Ending
balance
 

Frequency usage rights

  W       3,139,978       —         —         —         —         (231,488     —         2,908,490  

Land usage rights

      6,498       —         1,248       —         —         (1,578     —         6,168  

Industrial rights

      15,300       —         755       (219     —         (1,452     —         14,384  

Facility usage rights

      16,008       —         824       (10     171       (1,378     —         15,615  

Club memberships(*2)

      47,411       —         1,089       (230     —         —         (63     48,207  

Other(*3)

      785,669       (2,274     4,948       (1,995     54,425       (141,706     —         699,067  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W       4,010,864       (2,274     8,864       (2,454     54,596       (377,602     (63     3,691,931  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (*1)

As Ministry of Science and Information and Communication Technology(ICT) approved the termination of 2G service, the Company recognized an impairment loss for the portion of 800MHz Frequency usage rights used for 2G service during the six-month period ended June 30, 2020.

  (*2)

Club memberships are classified as intangible assets with indefinite useful lives and are not amortized.

  (*3)

Other intangible assets primarily consist of computer software and others.

 

24


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

11.

Intangible Assets, Continued

 

  (2)

Details of frequency usage rights as of June 30, 2020 are as follows:

 

(In millions of won)
            Amount     

Description

  

Commencement
of amortization

  

Completion of
amortization

800 MHz license

   W        28,157      CDMA and LTE service    Jul. 2011    Jun. 2021

1.8 GHz license

        188,430      LTE service    Sept. 2013    Dec. 2021

2.6 GHz license

        789,220      LTE service    Sept. 2016    Dec. 2026

2.1 GHz license

        151,940      W-CDMA and LTE service    Dec. 2016    Dec. 2021

3.5 GHz license(*)

        1,013,693      5G service    Apr. 2019    Nov. 2028

28 GHz license(*)

        202,683      5G service    —      Nov. 2023
     

 

 

          
   W        2,374,123           
     

 

 

          

 

  (*)

The Company participated in the frequency license allocation auction hosted by Ministry of Science and Information and Communication Technology(ICT) and was assigned the 3.5 GHz and 28 GHz bands of frequency licenses during the year ended December 31, 2018. The considerations payable for the bands of frequency are W1,218,500 million and W207,300 million, respectively. These bands of frequency were assigned in December 2018 and the annual payments in installment of the remaining balances will be made for the next ten and five years, respectively. The Company recognized these frequency licenses as intangible assets at the date of initial lump-sum payment and began amortization for 3.5 GHz license in April 2019. The amortization for 28 GHz license will begin when it is in the condition necessary for it to be capable of operating in the manner intended by management.

 

12.

Borrowings and Debentures

 

  (1)

Changes in long-term borrowings for the six-month periods ended June 30, 2020 are as follows:

 

(In millions of won)                                   
     Lender      Annual interest rate
(%)
     Maturity             Carrying
amount
 

Current

            W        13,157  

Non-current

                 19,777  
              

 

 

 

As of January 1, 2020

                 32,934  
              

 

 

 

Borrowings repaid

     Export Kreditnamnden        1.70        Apr. 29, 2022           (6,670

Other changes(*1)

                 1,094  

Current(*2)

                 13,687  

Non-current(*2)

                 13,671  
              

 

 

 

As of June 30, 2020

            W        27,358  
              

 

 

 

 

  (*1)

Other changes include the effects on foreign currency translation of long-term borrowings and changes in present value discount on long-term borrowings for the six-month period ended June 30, 2020.

  (*2)

W7,200 million was reclassified from non-current to current during the six-month period ended June 30, 2020.

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

12.

Borrowings and Debentures, Continued

 

  (2)

Changes in debentures for the six-month period ended June 30, 2020 are as follows:

 

(In millions of won, thousands of U.S dollars)  
     Purpose      Annual interest
rate (%)
     Maturity             Face value      Book value  

Current

            W        507,340        507,135  

Non-current

                 5,922,020        5,900,829  
              

 

 

    

 

 

 

As of January 1, 2020

 

              6,429,360        6,407,964  
           

 

 

    

 

 

 

Debentures newly issued:

 

Unsecured corporate bonds

    
Operating and
refinancing fund
 
 
     1.64        Jan. 13, 2023           170,000        169,368  
     Operating fund        1.75        Jan. 14, 2025           130,000        129,515  
     1.83        Jan. 14, 2030           50,000        49,811  
     1.87        Jan. 14, 2040           70,000        69,737  

Floating rate notes(*1)

     Operating fund        3M LIBOR +0.91        Jun. 4, 2025           357,420        355,296  
                 (USD 300,000      (USD 300,000
              

 

 

    

 

 

 
   W        777,420        773,727  
     

 

 

    

 

 

 

Debentures repaid:

 

Floating rate notes

     Operating fund        3M LIBOR +0.88        Mar. 7, 2020      W        (364,590      (364,590
        (USD 300,000      (USD 300,000

Unsecured corporate bonds

     Refinancing fund        1.93        Apr. 25, 2020           (60,000      (60,000
              

 

 

    

 

 

 
        (424,590      (424,590
     

 

 

    

 

 

 

Other changes(*2)

 

     58,650        61,010  

Current(*3)

                 360,000        359,740  

Non-current(*3)

                 6,480,840        6,458,371  
              

 

 

    

 

 

 

As of June 30, 2020

 

         W        6,840,840        6,818,111  
           

 

 

    

 

 

 

 

  (*1)

As of June 30, 2020, 3M LIBOR rate is 0.30%.

  (*2)

Other changes include the effects on foreign currency translation of debentures and changes in present value discount on debentures for the six-month period ended June 30, 2020.

  (*3)

W259,896 million was reclassed from non-current to current during the six-month period ended June 30, 2020.

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

13.

Long-Term Payables – Other

 

  (1)

As of June 30, 2020 and December 31, 2019, details of long-term payables – other related to the acquisition of frequency usage rights are as follows (See note 11):

 

(In millions of won)  
            June 30, 2020      December 31, 2019  

Long-term payables – other

     W        1,626,040        2,051,389  

Present value discount on long-term payables – other

        (70,218      (82,851

Current installments of long-term payables – other

        (422,284      (423,839
  

 

 

    

 

 

 

Carrying amount at period end

     W        1,133,538        1,544,699  
     

 

 

    

 

 

 

 

  (2)

Principal amount of long-term payables repaid for the six-month period ended June 30, 2020 are W425,349 million. The repayment schedule of the principal amount of long-term payables – other as of June 30, 2020 is as follows:

 

(In millions of won)              
            Amount  

Less than 1 year

     W        425,349  

1 ~ 3 years

        444,480  

3 ~ 5 years

        382,290  

More than 5 years

        373,921  
     

 

 

 
     W        1,626,040  
     

 

 

 

 

14.

Provisions

Changes in provisions for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)      For the six-month period ended June 30, 2020      As of June 30, 2020  
            Beginning
balance
     Increase      Utilization      Reversal      Ending
balance
     Current      Non-current  

Provision for restoration

     W        62,015        1,745        (303      (586      62,871        46,669        16,202  

Emission allowance

        5,256        4,573        —          —          9,829        9,829        —    
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     W        67,271        6,318        (303      (586      72,700        56,498        16,202  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
(In millions of won)      For the six-month period ended June 30, 2019      As of June 30, 2019  
            Beginning
balance
     Increase      Utilization      Reversal      Ending
balance
     Current      Non-current  

Provision for restoration

     W        59,548        1,504        (337      (418      60,297        45,379        14,918  

Emission allowance

        2,238        2,208        —          —          4,446        4,446        —    
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     W        61,786        3,712        (337      (418      64,743        49,825        14,918  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

15.

Defined Benefit Liabilities

 

  (1)

Details of defined benefit liabilities as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Present value of defined benefit obligations

     W        461,880        422,782  

Fair value of plan assets

        (397,972      (397,689
     

 

 

    

 

 

 
     W        63,908        25,093  
     

 

 

    

 

 

 

 

  (2)

Changes in defined benefit obligations for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           For the six-month period ended  
            June 30, 2020      June 30, 2019  

Beginning balance

     W        422,782        332,044  

Current service cost

        28,628        22,503  

Past service cost

        815        —    

Interest cost

        5,059        4,177  

Remeasurement

        

- Adjustment based on experience

        14,656        1,543  

Benefit paid

        (12,887      (10,077

Others

        2,827        3,491  
     

 

 

    

 

 

 

Ending balance

     W        461,880        353,681  
     

 

 

    

 

 

 

 

  (3)

Changes in plan assets for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           For the six-month period ended  
            June 30, 2020      June 30, 2019  

Beginning balance

     W        397,689        363,878  

Interest income

        4,553        4,493  

Remeasurement

        (120      (442

Contribution

        15,000        20,000  

Benefit paid

        (21,419      (20,335

Others

        2,269        (1,987
     

 

 

    

 

 

 

Ending balance

     W        397,972        365,607  
     

 

 

    

 

 

 

 

  (4)

Total cost of benefit plan, which is recognized in profit and loss (included in labor in the condensed separate interim statements of income) and capitalized into construction-in-progress, for the six-month periods ended June 30, 2020 and 2019 is as follows:

 

(In millions of won)           For the six-month period ended  
            June 30, 2020      June 30, 2019  

Current service cost

     W        28,628        22,503  

Past service cost

        815        —    

Net interest cost (income)

        506        (316
     

 

 

    

 

 

 
     W        29,949        22,187  
     

 

 

    

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

16.

Derivative Instruments

 

Changes in derivative contracts for the six-month period ended June 30, 2020 are as follows:

 

(in thousands of other currencies)
    

Hedged items

  

Hedging instruments

    

Date

  

Item

  

Risk type

  

Contract type

  

Financial

institution

  

Duration of

contract

Expired

   Mar. 7, 2013    U.S. dollar-denominated bonds’ face value of USD 300,000    Currency risk and Interest rate risk    Floating-to-fixed cross-currency interest rate swap    DBS Bank    Mar. 7, 2013~
Mar. 7, 2020

Contracted

   Mar. 4, 2020    U.S. dollar-denominated bonds’ face value of USD 300,000    Currency risk and Interest rate risk    Floating-to-fixed cross-currency interest rate swap    Citibank    Mar. 4, 2020~
Jun. 4, 2025

 

17.

Share Capital and Capital Surplus and Others

 

  (1)

The Company’s outstanding share capital consists entirely of common shares with a par value of W500. The number of authorized, issued and outstanding common shares and the details of capital surplus and others as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won, except for share data)                     
            June 30, 2020      December 31, 2019  

Number of authorized shares

        220,000,000        220,000,000  

Number of issued shares

        80,745,711        80,745,711  

Share capital:

        

Common share

     W        44,639        44,639  

Capital surplus and others:

        

Paid-in surplus

        2,915,887        2,915,887  

Treasury shares

        (1,696,997      (1,696,997

Hybrid bonds(*)

        398,759        398,759  

Share option(Note 18)

        1,405        1,302  

Others

        (903,332      (903,332
     

 

 

    

 

 

 
     W        715,722        715,619  
     

 

 

    

 

 

 

 

  (*)

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.

 

  (2)

There were no changes in share capital for the six-month periods ended June 30, 2020 and 2019 and details of shares outstanding as of June 30, 2020 and 2019 are as follows:

 

(In shares)       
     June 30, 2020      June 30, 2019  
     Issued
shares
     Treasury
shares
     Outstanding
shares
     Issued
shares
     Treasury
shares
     Outstanding
shares
 

Shares outstanding

     80,745,711        7,609,263        73,136,448        80,745,711        8,875,883        71,869,828  

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

18.

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    3    4    5

Grant date

   March 24, 2017    February 20,
2018
   February 22,
2019
   March 26,
2019
   March 26,

2020

Types of shares to be issued

         Registered common shares      

Grant method

      Reissue of treasury shares       Reissue of treasury shares, Cash settlement

Number of shares (in share)

   22,168    22,168    22,168    1,358    4,177    1,734    127,643

Exercise price (in won)

   246,750    266,490    287,810    254,120    265,260    254,310    192,260

Exercise period

   Mar. 25, 2019    Mar. 25, 2020    Mar. 25, 2021    Feb. 21, 2020    Feb. 23, 2021    Mar. 27, 2021    Mar. 27, 2023
   ~    ~    ~    ~    ~    ~    ~
   Mar. 24, 2022    Mar. 24, 2023    Mar. 24, 2024    Feb. 20, 2023    Feb. 22, 2024    Mar. 26, 2024    Mar. 26, 2027

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 years’
service from
the grant date
   3 years’

service from

the grant date

 

  (2)

Share compensation expense recognized for the six-month period ended June 30, 2020 and the remaining share compensation expense to be recognized in subsequent periods are as follows:

 

(In millions of won)              
     Share compensation expense  

Accumulated compensation expenses as of December 31, 2019

     W        1,302  

For the six-month period ended June 30, 2020

        103  

In subsequent periods

        191  
     

 

 

 
     W        1,596  
     

 

 

 

 

  (3)

The Company used binomial option-pricing model in the measurement of the fair value of share options at the grant date and the inputs used in the model are as follows:

 

(In won)    Series  
     1-1     1-2     1-3     2     3     4     5  

Risk-free interest rate

     1.86     1.95     2.07     2.63     1.91     1.78     1.52

Estimated option’s life

     5 years       6 years       7 years       5 years       5 years       5 years       7 years  

Share price
(Closing price on the preceding day)

     262,500       262,500       262,500       243,500       259,000       253,000       174,500  

Expected volatility

     13.38     13.38     13.38     16.45     8.30     7.70     8.10

Expected dividends

     3.80     3.80     3.80     3.70     3.80     3.90     5.70

Exercise price

     246,750       266,490       287,810       254,120       265,260       254,310       192,260  

Per-share fair value of the option

     27,015       20,240       15,480       23,988       8,600       8,111       962  

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

19.

Retained Earnings

 

Retained earnings as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Appropriated:

        

Legal reserve

     W        22,320        22,320  

Reserve for business expansion

        11,631,138        11,531,138  

Reserve for technology development

        4,365,300        4,265,300  
     

 

 

    

 

 

 
        16,018,758        15,818,758  

Unappropriated

        557,936        860,029  
     

 

 

    

 

 

 
     W        16,576,694        16,678,787  
     

 

 

    

 

 

 

 

20.

Reserves

 

  (1)

Details of reserves, net of taxes, as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                     
            June 30, 2020      December 31, 2019  

Valuation gain (loss) on FVOCI

     W        129,196        (41,998

Valuation gain (loss) on derivatives

        6,691        (7,308
     

 

 

    

 

 

 
     W        135,887        (49,306
     

 

 

    

 

 

 

 

  (2)

Changes in reserves for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)  
            Valuation gain (loss) on
financial assets at FVOCI
     Valuation gain (loss)
on derivatives
     Total  

Balance at January 1, 2019

     W        2,047        (42,312      (40,265

Changes, net of taxes

        (37,331      21,617        (15,714
     

 

 

    

 

 

    

 

 

 

Balance at June 30, 2019

        (35,284      (20,695      (55,979
     

 

 

    

 

 

    

 

 

 

Balance at January 1, 2020

        (41,998      (7,308      (49,306

Changes, net of taxes

        171,194        13,999        185,193  
     

 

 

    

 

 

    

 

 

 

Balance at June 30, 2020

     W        129,196        6,691        135,887  
     

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

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)           2020      2019  
            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        8,848        24,005        22,650        44,104  

Services transferred over time:

              

Wireless service revenue(*1)

        2,487,070        4,970,517        2,435,799        4,848,472  

Cellular interconnection revenue

        136,364        267,892        132,264        259,657  

Other(*2)

        307,550        600,263        257,004        507,692  
     

 

 

    

 

 

    

 

 

    

 

 

 
        2,930,984        5,838,672        2,825,067        5,615,821  
     

 

 

    

 

 

    

 

 

    

 

 

 
     W        2,939,832        5,862,677        2,847,717        5,659,925  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*1)

Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through usage charges collected from the wireless subscribers.

  (*2)

Other revenue includes revenue from billing and collection services as well as other miscellaneous services.

The Company has a right to consideration from a customer in an amount that corresponds directly with the value to the subscriber of the Company’s performance completed, thus, as a practical expedient, the Company recognizes revenue in the amount to which the Company has a right to invoice.

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, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        7,705        15,352        7,689        14,908  

Utilities

        56,471        123,530        54,172        113,000  

Taxes and dues

        14,037        17,251        12,684        16,822  

Repair

        61,719        113,998        61,196        121,531  

Research and development

        89,369        183,386        78,382        161,285  

Training

        4,257        10,374        4,672        11,858  

Bad debt (reversal of loss allowance) for accounts receivable – trade

        6,081        15,310        (1,304      3,023  

Others

        8,100        19,854        10,014        22,739  
     

 

 

    

 

 

    

 

 

    

 

 

 
     W        247,739        499,055        227,505        465,166  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

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, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        1,280        2,356        1,831        2,699  

Gain on business transfer

        —          12,451        —          —    

Others

        22,558        23,232        1,946        4,770  
     

 

 

    

 

 

    

 

 

    

 

 

 
     W        23,838        38,039        3,777        7,469  
     

 

 

    

 

 

    

 

 

    

 

 

 

Other non-operating Expenses:

              

Loss on disposal of property and equipment and intangible assets

     W        8,561        12,564        6,685        7,644  

Impairment loss on property and equipment and intangible assets

        12,388        12,388        —          63  

Donations

        3,956        10,133        7,376        9,893  

Bad debt for accounts receivable – other

        719        1,822        911        1,648  

Others

        684        2,061        3,525        5,444  
     

 

 

    

 

 

    

 

 

    

 

 

 
     W        26,308        38,968        18,497        24,692  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

24.

Finance Income and Costs

 

  (1)

Details of finance income and costs for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Finance Income:

              

Interest income

     W        5,914        12,074        7,356        14,819  

Gain on sale of accounts receivable – other

        2,834        7,513        4,045        11,987  

Dividends

        18,814        284,666        8,131        514,181  

Gain on foreign currency transactions

        2,151        2,858        3,213        4,412  

Gain on foreign currency translations

        —          2,767        1,086        1,910  

Gain on valuation of derivatives

        —          —          19        465  

Gain on settlement of derivatives

        —          7,380        389        389  

Gain relating to financial assets at FVTPL

        —          —          163        309  

Gain relating to financial liabilities at FVTPL

        —          —          265        56  
     

 

 

    

 

 

    

 

 

    

 

 

 
     W        29,713        317,258        24,667        548,528  
     

 

 

    

 

 

    

 

 

    

 

 

 

Finance Costs:

              

Interest expense

     W        58,571        120,265        61,678        125,883  

Loss on foreign currency transactions

        2,641        3,526        3,038        3,972  

Loss on foreign currency translations

        1,508        2,945        1,776        1,915  

Loss on sale of accounts receivable – other

        —          —          560        560  

Loss on settlement of derivatives

        313        2,179        317        317  

Loss relating to financial assets at FVTPL

        43        216        225        365  

Loss relating to financial liabilities at FVTPL

        —          —          —          43  
     

 

 

    

 

 

    

 

 

    

 

 

 
     W        63,076        129,131        67,594        133,055  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  (2)

Details of interest income included in finance income for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        1,860        3,704        2,748        5,592  

Interest income on loans and others

        4,054        8,370        4,608        9,227  
     

 

 

    

 

 

    

 

 

    

 

 

 
     W        5,914        12,074        7,356        14,819  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

24.

Finance Income and Costs, Continued

 

  (3)

Details of interest expense included in finance costs for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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 expense on borrowings

   W        3,543        5,425        1,810        2,903  

Interest expense on debentures

        46,195        93,149        45,128        89,323  

Others

        8,833        21,691        14,740        33,657  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        58,571        120,265        61,678        125,883  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  (4)

Details of impairment losses (reversal of impairment losses) for financial assets for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           2020      2019  
            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        6,081        15,310        (1,304      3,023  

Other receivables

        719        1,822        911        1,648  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        6,800        17,132        (393      4,671  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

25.

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 expense due to origination and reversal of temporary differences.

 

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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, 2020 and 2019

 

26.

Earnings per Share

 

  (1)

Basic earnings per share

 

  1)

Basic earnings per share for the three and six-month periods ended June 30, 2020 and 2019 are calculated as follows:

 

(In millions of won, except for share data)           2020      2019  
            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        168,649        574,742        162,014        806,007  

Interest on hybrid bonds

        (3,691      (7,383      (3,691      (7,383

Profit for the period on common shares

        164,958        567,359        158,323        798,624  

Weighted average number of common shares outstanding

        73,136,448        73,136,448        71,869,828        71,869,828  
     

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share (in won)

   W        2,255        7,758        2,203        11,112  
     

 

 

    

 

 

    

 

 

    

 

 

 

 

  2)

The weighted average number of common shares outstanding for the three and six-month periods ended June 30, 2020 and 2019 are calculated as follows:

 

(In shares)           Weighted average number of
common shares
 
     Number of
common shares
     Three-month
period ended
June 30
     Six-month period
ended June 30
 

Issued shares at January 1, 2020

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

Effect of treasury shares

     (7,609,263      (7,609,263      (7,609,263
  

 

 

    

 

 

    

 

 

 
     73,136,448        73,136,448        73,136,448  
  

 

 

    

 

 

    

 

 

 

 

(In shares)           Weighted average number of
common shares
 
     Number of
common shares
     Three-month
period ended
June 30
     Six-month period
ended June 30
 

Issued shares at January 1, 2019

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

Effect of treasury shares

     (8,875,883      (8,875,883      (8,875,883
  

 

 

    

 

 

    

 

 

 
     71,869,828        71,869,828        71,869,828  
  

 

 

    

 

 

    

 

 

 

 

  (2)

Diluted earnings per share

For the six-month periods ended June 30, 2020 and 2019, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.

 

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SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

27.

Categories of Financial Instruments

 

  (1)

Financial assets by category as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                                          
            June 30, 2020  
            Financial
assets at
FVTPL
     Equity
instruments

at FVOCI
     Financial assets at
amortized cost
     Derivatives
hedging
instrument
     Total  

Cash and cash equivalents

   W        —          —          379,055        —          379,055  

Financial instruments

        —          —          259,354        —          259,354  

Short-term investment securities

        31,873        —          —          —          31,873  

Long-term investment securities(*)

        75,381        668,446        —          —          743,827  

Accounts receivable – trade

        —          —          1,503,023        —          1,503,023  

Loans and other receivables

        386,177        —          506,081        —          892,258  

Derivative financial assets

        —          —          —          175,668        175,668  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        493,431        668,446        2,647,513        175,668        3,985,058  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

The Company designated W668,446 million of equity instruments that are not held for trading as financial assets at FVOCI.

 

(In millions of won)                                          
            December 31, 2019  
            Financial
assets at
FVTPL
     Equity
instruments at
FVOCI
     Financial assets at
amortized cost
     Derivatives
hedging
instrument
     Total  

Cash and cash equivalents

   W        —          —          497,282        —          497,282  

Financial instruments

        —          —          234,382        —          234,382  

Short-term investment securities

        31,920        —          —          —          31,920  

Long-term investment securities(*)

        75,423        435,210        —          —          510,633  

Accounts receivable – trade

        —          —          1,479,971        —          1,479,971  

Loans and other receivables

        532,225        —          554,722        —          1,086,947  

Derivative financial assets

        —          —          —          126,251        126,251  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        639,568        435,210        2,766,357        126,251        3,967,386  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

The Company designated W435,210 million of equity instruments that are not held for trading as financial assets at FVOCI.

 

37


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

27.

Categories of Financial Instruments, Continued

 

  (2)

Financial liabilities by category as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)  
            June 30, 2020  
            Financial liabilities
at amortized cost
     Derivatives hedging
instrument
     Total  

Derivative financial liabilities

   W        —          15,090        15,090  

Borrowings

        27,358        —          27,358  

Debentures

        6,818,111        —          6,818,111  

Lease liabilities(*)

        447,660        —          447,660  

Accounts payable – other and others

        4,521,480        —          4,521,480  
     

 

 

    

 

 

    

 

 

 
   W        11,814,609        15,090        11,829,699  
     

 

 

    

 

 

    

 

 

 

 

(In millions of won)  
            December 31, 2019  
            Financial liabilities at amortized cost  

Borrowings

   W        32,934  

Debentures

        6,407,964  

Lease liabilities(*)

        410,889  

Accounts payable – other and others

        5,337,980  
     

 

 

 
   W        12,189,767  
     

 

 

 

 

  (*)

Lease liabilities are not applicable on category of financial liabilities, but are classified as financial liabilities measured at amortized cost on consideration of nature for measurement of liabilities.

 

38


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

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, accounts receivable – trade and others, etc. Financial liabilities consist of accounts payable – other, borrowings, debentures, lease liabilities and others.

 

  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, 2020 are as follows:

 

(In millions of won, thousands of foreign currencies)  
     Assets      Liabilities  
     Foreign currencies             Won equivalent      Foreign currencies             Won equivalent  

USD

     45,097      W        54,148        1,217,249      W        1,461,551  

EUR

     1,327           1,791        29           39  

JPY

     14,698           164        122           1  

CHF

     5,000           6,311        —             —    

Others

     —             165        —             —    
        

 

 

          

 

 

 
      W        62,579         W        1,461,591  
        

 

 

          

 

 

 

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, 2020, a hypothetical change in exchange rates by 10% would have increased (decreased) the Company’s income before income taxes as follows:

 

(In millions of won)  
            If increased by 10%      If decreased by 10%  

USD

   W        5,070        (5,070

EUR

        175        (175

JPY

        16        (16

CHF

        631        (631

Others

        17        (17
     

 

 

    

 

 

 
   W        5,909        (5,909
     

 

 

    

 

 

 

 

39


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

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, debentures and long-term payables – other. Since the Company’s interest-bearing assets are mostly fixed-interest bearing assets, the Company’s revenue and operating cash flows from the interest-bearing assets are not influenced by the changes in market interest rates.

The Company performs various analyses 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, 2020, floating-rate debentures amount to W360,210 million, and the Company has entered into interest rate swaps to hedge interest rate risk related to the floating-rate debentures. Therefore, income before income taxes for the six-month period ended June 30, 2020 would not have been affected by the changes in interest rates of floating-rate debentures.

As of June 30, 2020, the floating-rate long-term payables – other are W1,626,040 million. If the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the six-month period ended June 30, 2020, would change by W8,130 million in relation to the floating-rate long-term payables – other that are exposed to interest rate risk.

 

40


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

28.

Financial Risk Management, Continued

 

  (1)

Financial risk management, Continued

 

2) Credit risk

The maximum credit exposure as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)  
            June 30, 2020      December 31, 2019  

Cash and cash equivalents

   W        379,020        497,240  

Financial instruments

        259,354        234,382  

Investment securities

        900        900  

Accounts receivable – trade

        1,503,023        1,479,971  

Contract assets

        33,559        30,897  

Loans and other receivables

        892,258        1,086,947  

Derivative financial assets

        175,668        126,251  
     

 

 

    

 

 

 
   W        3,243,782        3,456,588  
     

 

 

    

 

 

 

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 creditworthiness 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 loss allowance in respect of accounts receivable – trade and other. 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 are expected to occur. The collective loss allowance is determined based on historical data of collection 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, 2020.

 

41


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

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 equivalent 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, 2020 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        27,358        28,418        14,372        14,046        —    

Debentures(*)

        6,818,111        7,962,654        548,654        4,421,617        2,992,383  

Lease liabilities

        447,660        466,328        214,563        229,850        21,915  

Accounts payable – other and others(*)

        4,521,480        4,612,485        3,368,168        868,064        376,253  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        11,814,609        13,069,885        4,145,757        5,533,577        3,390,551  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

Includes interest payables.

The Company does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

As of June 30, 2020, 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        175,668       178,471       21,210       121,220       36,041  

Liabilities

        (15,090     (15,186     (1,576     (13,610     —    
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W        160,578       163,285       19,634       107,610       36,041  
     

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

42


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

28.

Financial Risk Management, Continued

 

  (2)

Capital management

The Company manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall strategy of the Company is the same as that for the year ended December 31, 2019.

The Company monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity; both are from the condensed separate interim financial statements.

Debt-equity ratio as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                    
            June 30,
2020
    December 31,
2019
 

Total liabilities

   W        13,265,810       13,449,628  

Total equity

        17,472,942       17,389,739  

Debt-equity ratios

        75.92     77.34

 

43


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

28.

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, 2020 and December 31, 2019 are as follows:

 

(In millions of won)           June 30, 2020  
            Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

                 

FVTPL

   W        493,431        —          418,050        75,381        493,431  

Derivative hedging instruments

        175,668        —          175,668        —          175,668  

FVOCI

        668,446        618,234        —          50,212        668,446  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        1,337,545        618,234        593,718        125,593        1,337,545  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are measured at fair value:

                 

Derivative hedging instruments

   W        15,090        —          15,090        —          15,090  

Financial liabilities that are not measured at fair value:

                 

Borrowings

   W        27,358        —          28,324        —          28,324  

Debentures

        6,818,111        —          7,364,782        —          7,364,782  

Long-term payables – other

        1,555,822        —          1,575,693        —          1,575,693  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        8,401,291        —          8,968,799        —          8,968,799  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)           December 31, 2019  
            Carrying
amount
     Level 1      Level 2      Level 3      Total  

Financial assets that are measured at fair value:

                 

FVTPL

   W        639,568        —          564,145        75,423        639,568  

Derivative hedging instrument

        126,251        —          126,251        —          126,251  

FVOCI

        435,210        384,721        —          50,489        435,210  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        1,201,029        384,721        690,396        125,912        1,201,029  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities that are not measured at fair value:

                 

Borrowings

   W        32,934        —          33,755        —          33,755  

Debentures

        6,407,964        —          6,848,312        —          6,848,312  

Long-term payables – other

        1,968,538        —          2,003,025        —          2,003,025  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W        8,409,436        —          8,885,092        —          8,885,092  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

44


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

28.

Financial Risk Management, Continued

 

  (3)

Fair value, Continued

 

  1)

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of June 30, 2020 and December 31, 2019 are as follows, Continued:

 

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.

Fair value of the financial instruments that are traded in an active market (financial assets at FVOCI) 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 for such valuation methods include swap rate, interest rate and risk premium, and the Company performs valuation using the inputs which are consistent with natures of assets and liabilities measured.

Interest rates used by the Company for the fair value measurement as of June 30, 2020 are as follows:

 

     Interest rate  

Derivative instruments

     0.26% ~ 1.84%  

Borrowings and debentures

     1.10% ~ 1.46%  

Long-term payables – other

     1.06% ~ 1.61%  

 

  2)

There have been no transfers between Level 2 and Level 1 for the six-month period ended June 30, 2020. The changes of financial assets classified as Level 3 for the six-month period ended June 30, 2020 are as follows:

 

(In millions of won)  
            Balance at
January 1, 2020
     Valuation     Acquisition      Disposal     Balance at
June 30, 2020
 

FVTPL

   W        75,423        (169     327        (200     75,381  

FVOCI

        50,489        —         —          (277     50,212  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
   W        125,912        (169     327        (477     125,593  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

45


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

28.

Financial Risk Management, Continued

 

  (4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of June 30, 2020 and December 31, 2019 are as follows:

 

(In millions of won)  
            June 30, 2020  
            Gross financial
instruments
recognized
     Amount offset      Net financial instruments
presented on the condensed
separate interim statement of
financial position
 

Financial assets:

           

Accounts receivable – trade and others

   W        80,084        (80,084      —    
     

 

 

    

 

 

    

 

 

 

Financial liabilities:

           

Accounts payable –other and others

        80,808        (80,084      724  
     

 

 

    

 

 

    

 

 

 

 

(In millions of won)  
            December 31, 2019  
            Gross financial
instruments
recognized
     Amount offset      Net financial instruments
presented on the

separate statement
of financial position
 

Financial assets:

           

Accounts receivable – trade and others

   W        77,958        (77,958      —    
     

 

 

    

 

 

    

 

 

 

Financial liabilities:

           

Accounts payable – other and others

        78,133        (77,958      175  
     

 

 

    

 

 

    

 

 

 

 

46


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

29.

Transactions with Related Parties

 

  (1)

List of related parties

 

Relationship

  

Company

Ultimate Controlling Entity

   SK Holdings Co., Ltd.

Subsidiaries

   SK Planet Co., Ltd. and 48 others(*)

Joint ventures

   Dogus Planet, Inc. and 3 others

Associates

   SK hynix Inc. and 47 others

Others

   The Ultimate Controlling Entity’s other subsidiaries and associates

 

  (*)

As of June 30, 2020, subsidiaries of the Company are as follows:

 

Subsidiary

  

Ownership
percentage(%)(*1)

  

Primary business

Subsidiaries owned by the Company

  SK Telink Co., Ltd.    100.0   

Telecommunication and Mobile Virtual Network

Operator service

  SK Communications Co., Ltd.    100.0    Internet website services
  SK Broadband Co., Ltd.(*2)    74.3    Telecommunication services
  PS&Marketing Corporation    100.0    Communications device retail business
  SERVICE ACE Co., Ltd.    100.0    Call center management service
  SERVICE TOP Co., Ltd.    100.0    Call center management service
  SK O&S Co., Ltd.    100.0    Base station maintenance service
  SK Telecom China Holdings Co., Ltd.    100.0    Investment(Holdings company)
  SK Global Healthcare Business Group., Ltd.    100.0    Investment
  YTK Investment Ltd.    100.0    Investment association
  Atlas Investment    100.0    Investment association
  SKT Americas, Inc.    100.0    Information gathering and consulting
  One Store Co., Ltd.    52.1    Telecommunication services
  SK Planet Co., Ltd.    98.7   

Telecommunication services, system software

development and supply services

  Eleven Street Co., Ltd.    80.3    E-commerce
  DREAMUS COMPANY    51.4   

Manufacturing digital audio players and other

portable media devices

  SK Infosec Co., Ltd.    100.0    Information security service
  Life & Security Holdings Co., Ltd.    55.0    Investment(Holdings company)
  Quantum Innovation Fund I    59.9    Investment
  SK Telecom Japan Inc.    100.0    Information gathering and consulting
  id Quantique SA    66.8   

Quantum information and communications

service

  SK Telecom TMT Investment Corp.    100.0    Investment
  FSK L&S Co., Ltd.    60.0    Freight and logistics consulting business
  Incross Co., Ltd.    34.6    Media representative business
  Happy Hanool Co., Ltd.    100.0    Service
  SK stoa Co., Ltd.(*3)    100.0    Other telecommunication retail business
  Broadband Nowon Co., Ltd.(*4)    55.0    Cable broadcasting services

Subsidiaries owned by SK Planet Co., Ltd.

  SK m&service Co., Ltd.    100.0    Database and internet website service
  SK Planet Global Holdings Pte. Ltd.    100.0    Investment(Holdings company)
  SKP America LLC.    100.0    Digital contents sourcing service
  K-net Culture and Contents Venture Fund    59.0    Capital investing in startups

Subsidiaries owned by DREAMUS COMPANY

  iriver Enterprise Ltd.    100.0    Management of Chinese subsidiaries
  iriver China Co., Ltd.    100.0    Sales and manufacturing of MP3 and 4
  Dongguan iriver Electronics Co., Ltd.    100.0    Sales and Manufacturing of e-book devices
  LIFE DESIGN COMPANY Inc.    100.0    Sales of goods in Japan

 

47


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (1)

List of related parties, Continued

 

Subsidiary

  

Ownership
percentage(%)(*1)

  

Primary business

Subsidiary owned by SK Infosec Co., Ltd.

  SKinfosec Information Technology(Wuxi) Co., Ltd.    100.0    System software development and supply services

Subsidiaries owned by Life & Security Holdings Co., Ltd.

  ADT CAPS Co., Ltd.    100.0    Unmanned security
  CAPSTEC Co., Ltd.    100.0    Manned security

Subsidiary owned by SK Telink Co., Ltd.

  SK TELINK VIETNAM Co., Ltd.    100.0    Communications device retail business

Subsidiary owned by SK Broadband Co., Ltd.

  Home & Service Co., Ltd.    100.0    Operation of information and communication facility

Subsidiary owned by id Quantique SA

  Id Quantique LLC    100.0    Quantum information and communications service

Subsidiaries owned by FSK L&S Co., Ltd.

  FSK L&S(Shanghai) Co., Ltd.    66.0    Logistics business
  FSK L&S(Hungary) Co., Ltd.    100.0    Logistics business
  FSK L&S VIETNAM COMPANY LIMITED(*5)    100.0    Logistics business

Subsidiaries owned by Incross Co., Ltd.

  Infra Communications Co., Ltd.    100.0    Service operation
  Mindknock Co., Ltd.    100.0    Software development

Subsidiary owned by SK Telecom Japan Inc.

  SK Planet Japan, K. K.    79.8    Digital Contents sourcing service

Others(*6)

  SK Telecom Innovation Fund, L.P    100.0    Investment
  SK Telecom China Fund I L.P.    100.0    Investment

 

48


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (1)

List of related parties, Continued

 

  (*1)

The ownership interest represents direct ownership interest in subsidiaries either by the Company or subsidiaries of the Company.

  (*2)

On April 30, 2020, SK Broadband Co., Ltd. merged with Tbroad Co., Ltd., Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co., Ltd. to strengthen competitiveness and enhance synergy as a comprehensive media company. The Company’s ownership interest of SK Broadband Co., Ltd. changed as SK Broadband Co., Ltd. issued new shares to the shareholders of the merged companies as the consideration for the merger.

  (*3)

The Company acquired 3,631,355 shares (100%) of SK stoa Co., Ltd. from SK Broadband. Co., Ltd. at W40,029 million in cash during the six-month period ended June 30, 2020.

  (*4)

The Company has obtained control over Tbroad Nowon Broadcasting Co., Ltd. by acquiring 627,000 shares (55%) for W10,421 million in cash and Tbroad Nowon Broadcasting Co., Ltd. changed its name to Broadband Nowon Co., Ltd.

  (*5)

FSK L&S Co., Ltd. newly established FSK L&S VIETNAM COMPANY LIMITED as its subsidiary for the six-month period ended June 30, 2020.

  (*6)

Others are owned by Atlas Investment and another subsidiary of the Company.

As of June 30, 2020, the Company is included in SK Group, a conglomerate as defined in the Monopoly Regulation and Fair Trade Act. All of the other entities included in SK Group are considered related parties of the Company.

 

  (2)

Compensation to the key management

The Company considers registered directors (3 executive and 5 non-executive directors) who have substantial role and responsibility in planning, operations and relevant controls of the business as key management. The compensation given to such key management for the three and six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)  
            2020      2019  
            Three-month
period ended
June 30
     Six-month
period ended
June 30
     Three-month
period ended
June 30
     Six-month
period ended
June 30
 

Salaries

   W        672        5,521        547        4,875  

Defined benefits plan expenses

        175        3,108        142        953  

Share option

        61        93        64        194  
     

 

 

    

 

 

    

 

 

    

 

 

 
   W        908        8,722        753        6,022  
     

 

 

    

 

 

    

 

 

    

 

 

 

Compensation for the key management 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, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2020 and 2019, are as follows:

 

(In millions of won)           For the six-month period ended June 30, 2020  
                 Operating revenue
and others
     Operating expense
and others (*1)
     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.(*2)    W        3,592        7,419        64,888        334,187        3,886        4,537  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subsidiaries

   SK Broadband Co., Ltd.         30,065        60,108        131,244        262,056        794        794  
   PS&Marketing Corporation(*3)         3,584        7,080        309,714        618,445        —          —    
   SK O&S Co., Ltd.         1,084        2,087        54,759        107,454        12,790        14,248  
   SK Planet Co., Ltd.         1,423        2,038        18,877        39,596        2,532        2,776  
   SK Telink Co., Ltd.(*4)         13,448        115,899        8,356        14,876        —          2  
   SERVICE ACE Co., Ltd.(*5)         2,659        6,545        34,666        70,415        —          —    
   SERVICE TOP Co., Ltd.         2,265        4,538        36,722        74,397        —          —    
   Eleven Street Co., Ltd.         791        1,914        3,622        5,971        —          —    
   Life & Security Holdings Co., Ltd.(*6)         3,619        13,810        759        782        449        583  
   One Store Co., Ltd.         3,505        7,308        70        132        —          —    
   SK Infosec Co., Ltd.(*7)         78        20,150        8,230        15,673        1,845        1,887  
   DREAMUS COMPANY         577        968        16,659        31,168        —          —    
   Others         1,481        3,636        8,319        17,085        1,420        1,719  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           64,579        246,081        631,997        1,258,050        19,830        22,009  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Associates

   F&U Credit information Co., Ltd.         204        428        11,624        22,754        —          —    
   SK hynix Inc. (*8)         10,956        165,084        77        114        —          —    
   KEB HanaCard Co., Ltd.         257        408        768        1,555        —          —    
   SK Wyverns Co., Ltd.         299        597        2,634        12,038        —          —    
   Content Wavve Co., Ltd.         1        10        15,308        25,144        —          —    
   Others(*9)         25,461        32,195        2,813        4,800        —          —    
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           37,178        198,722        33,224        66,405        —          —    
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Others

   SK Engineering & Construction Co., Ltd.         1,853        4,157        100        101        —          —    
   SK Innovation Co., Ltd.         3,330        6,910        2,765        6,100        —          —    
   SK Networks Co., Ltd.         517        1,064        2,514        6,401        —          —    
   SK Networks Service Co., Ltd.         249        386        9,761        19,627        424        427  
   SK Telesys Co., Ltd.         62        123        87        307        7,541        8,049  
   SK TNS Co., Ltd.         49        100        8,778        10,758        129,853        141,736  
   SK Energy Co., Ltd.         856        1,769        141        148        —          —    
   SKC Infra Service Co., Ltd.         7        15        1,889        3,828        —          —    
   SK ENS Co., Ltd.         569        1,139        53        53        —          —    
   UbiNS Co., Ltd.         —          —          301        444        5,215        6,598  
   Others         3,407        6,459        2,339        3,987        3,094        3,094  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           10,899        22,122        28,728        51,754        146,127        159,904  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
      W        116,248        474,344        758,837        1,710,396        169,843        186,450  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

50


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2020 and 2019 are as follows, Continued:

 

  (*1)

Operating expense and others include lease payments by the Company.

  (*2)

Operating expense and others include W194,617 million of dividends paid by the Company.

  (*3)

Operating expense and others include W357,061 million paid to PS&Marketing Corporation relating to purchase of accounts receivables resulting from sale of handsets.

  (*4)

Operating revenue and others include W89,969 million of dividend income received.

  (*5)

Operating revenue and others include W2,000 million of dividend income received.

  (*6)

Operating revenue and others include W7,039 million of dividend income received.

  (*7)

Operating revenue and others include W20,028 million of dividend income received.

  (*8)

Operating revenue and others include W146,100 million of dividend income received.

  (*9)

Operating revenue and others include W18,537 million of dividend income received from Korea IT Fund and Pacific Telecom Inc.

 

51


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2020 and 2019 are as follows, Continued:

 

(In millions of won)           For the period ended June 30, 2019  
                 Operating revenue
and others
     Operating expense
and others(*1)
     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.(*2)      W        3,154        4,706        71,317        337,362        4,455        5,726  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subsidiaries

   SK Broadband Co., Ltd.         27,875        53,582        136,500        263,928        3,760        3,760  
   PS&Marketing Corporation(*3)         2,964        6,365        383,423        715,278        242        242  
   SK O&S Co., Ltd.         1,196        2,354        55,961        109,275        7,508        7,508  
   SK Planet Co., Ltd.         1,307        1,570        22,415        44,839        4,213        6,512  
   SK Telink Co., Ltd.(*4)         12,313        224,263        7,027        12,496        —          —    
   SERVICE ACE Co., Ltd.(*5)         1,972        11,412        32,560        64,572        —          —    
   SERVICE TOP Co., Ltd.(*6)         2,168        13,163        35,135        65,712        —          —    
   Eleven Street Co., Ltd.         1,072        5,523        1,262        3,068        —          —    
   Others(*7)         7,975        76,083        30,147        53,992        822        1,513  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           58,842        394,315        704,430        1,333,160        16,545        19,535  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Associates

  

F&U Credit information

Co., Ltd.

        285        584        10,345        21,775        —          —    
   SK hynix Inc.(*8)         4,985        232,398        119        176        —          —    
   KEB HanaCard Co., Ltd.         181        594        673        1,066        —          —    
   SK Wyverns Co., Ltd.         296        590        —          15,000        —          —    
   Others(*9)         8,131        8,131        3,092        6,160        —          37  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           13,878        242,297        14,229        44,177        —          37  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Others

   SK Engineering & Construction Co., Ltd.         720        1,237        —          —          2,600        5,000  
   SK Innovation Co., Ltd.         2,696        5,240        38        393        —          —    
   SK Networks Co., Ltd.         1,372        1,971        1,635        7,816        —          443  
   SK Networks Service Co., Ltd.         182        347        8,989        19,282        10        10  
   SK Telesys Co., Ltd.         57        101        290        443        7,137        7,294  
   SK TNS Co., Ltd.         47        101        10,904        11,035        113,316        114,055  
   SK Energy Co., Ltd         588        1,130        145        150        —          —    
   SKC Infra Services Co., Ltd         7        14        2,190        4,209        186        186  
   SK E&S Co., Ltd.         471        966        101        101        —          —    
   Others         2,743        4,996        1,496        2,848        —          —    
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
           8,883        16,103        25,788        46,277        123,249        126,988  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        W        84,757        657,421        815,764        1,760,976        144,249        152,286  
        

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

52


Table of Contents

SK TELECOM CO., LTD.

Notes to the Condensed Separate Interim Financial Statements

For the six-month periods ended June 30, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (3)

Transactions with related parties for the three and six-month periods ended June 30, 2020 and 2019 are as follows, Continued:

 

  (*1)

Operating expense and others include lease payments by the Company.

 

  (*2)

Operating expense and others include W194,617 million of dividends paid by the Company.

 

  (*3)

Operating expense and others include W404,413 million paid to PS&Marketing Corporation relating to purchase of accounts receivables resulting from sale of handsets.

 

  (*4)

Operating revenue and others include W199,995 million of dividend income received.

 

  (*5)

Operating revenue and others include W7,499 million of dividend income received.

 

  (*6)

Operating revenue and others include W8,900 million of dividend income received.

 

  (*7)

Operating revenue and others include W60,597 million of dividend income received from Life & Security Holdings Co., Ltd. and SK Infosec Co., Ltd.

 

  (*8)

Operating revenue and others include W219,151 million of dividend income received.

 

  (*9)

Operating revenue and others include W8,131 million of dividend income accrued from Korea IT Fund.

 

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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, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (4)

Account balances with related parties as of June 30, 2020, and December 31, 2019 are as follows:

 

(In millions of won)           June 30, 2020  
                 Receivables      Payables  

Scope

  

Company

          Loans      Accounts receivable –
trade, etc.
     Accounts payable –
other, etc.
 

Ultimate Controlling Entity

   SK Holdings Co., Ltd.      W        —          2,005        28,626  
        

 

 

    

 

 

    

 

 

 

Subsidiaries

   SK Broadband Co., Ltd.         —          10,884        71,515  
   PS&Marketing Corporation         —          1,433        62,001  
   SK O&S Co., Ltd.         —          228        42,032  
   SK Planet Co., Ltd.         —          881        13,888  
   SK Telink Co., Ltd.         —          10,094        5,374  
   SERVICE ACE Co., Ltd.         —          201        22,804  
   SERVICE TOP Co., Ltd.         —          38        21,438  
   Eleven Street Co., Ltd.         —          346        2,526  
   One Store Co., Ltd.         —          267        23,856  
   SK m&service Co., Ltd.         —          659        5,710  
   SK Infosec Co., Ltd.         —          81        7,357  
   SK Communications Co., Ltd.         —          61        11,112  
   Others         —          2,706        8,950  
        

 

 

    

 

 

    

 

 

 
           —          27,879        298,563  
        

 

 

    

 

 

    

 

 

 

Associates

   F&U Credit information Co., Ltd.         —          13        4,509  
   SK hynix Inc.         —          6,478        63  
   Wave City Development Co., Ltd.         —          31,523        —    
   Daehan Kanggun BcN Co., Ltd.(*)         22,147        4,738        —    
   KEB HanaCard Co., Ltd.         —          919        103,820  
   Others         204        334        1,880  
        

 

 

    

 

 

    

 

 

 
           22,351        44,005        110,272  
        

 

 

    

 

 

    

 

 

 

Other

   SK Engineering and Construction Co., Ltd.         —          1,728        110  
   SK Innovation Co., Ltd.         —          4,088        20,697  
   SK Networks Co., Ltd.         —          444        6,521  
   SK Networks services Co., Ltd.         —          11        7,922  
   SK Telesys Co., Ltd.         —          31        8,739  
   SK TNS Co., Ltd.         —          8        172,673  
   SK Energy Co., Ltd         —          348        238  
   Others         —          2,871        9,321  
        

 

 

    

 

 

    

 

 

 
           —          9,529        226,221  
        

 

 

    

 

 

    

 

 

 
        W        22,351        83,418        663,682  
        

 

 

    

 

 

    

 

 

 

 

(*)

As of June 30, 2020, the Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.

 

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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, 2020 and 2019

 

29.

Transactions with Related Parties, Continued

 

  (4)

Account balances with related parties as of June 30, 2020 and December 31, 2019 are as follows, Continued:

 

(In millions of won)           December 31, 2019  
                 Receivables      Payables  

Scope

  

Company

          Loans      Accounts receivable –
trade, etc.
     Accounts payable –
other, etc.
 

Ultimate Controlling Entity

   SK Holdings Co., Ltd.      W        —          1,869        53,280  
        

 

 

    

 

 

    

 

 

 

Subsidiaries

   SK Broadband Co., Ltd.         —          9,812        54,368  
   PS&Marketing Corporation         —          122        67,029  
   SK O&S Co., Ltd.         —          15        54,902  
   SK Planet Co., Ltd.         —          949        100,412  
   SK Telink Co., Ltd.         —          10,591        2,709  
   SERVICE ACE Co., Ltd.         —          348        25,035  
   SERVICE TOP Co., Ltd.         —          15        26,837  
   Eleven Street Co., Ltd.         —          131        4,730  
   One Store Co., Ltd.         —          263        27,409  
   SK m&service Co., Ltd.         —          3,220        8,006  
   SK Infosec Co., Ltd.         —          24        8,136  
   SK Communications Co., Ltd.         —          31        11,574  
   Others         —          1,062        10,252  
        

 

 

    

 

 

    

 

 

 
           —          26,583        401,399  
        

 

 

    

 

 

    

 

 

 

Associates

   F&U Credit information Co., Ltd.         —          —          4,742  
   SK hynix Inc.         —          5,602        48  
   Wave City Development Co., Ltd.         —          31,523        —    
   Daehan Kanggun BcN Co., Ltd.(*)         22,147        5,359        —    
   KEB HanaCard Co., Ltd.         —          1,025        9,474  
   Others         204        25        2,261  
        

 

 

    

 

 

    

 

 

 
           22,351        43,534        16,525  
        

 

 

    

 

 

    

 

 

 

Other

   SK Engineering and Construction Co., Ltd.         —          3,527        97  
   SK Innovation Co., Ltd.         —          5,542        22,492  
   SK Networks Co., Ltd.         —          333        20,430  
   SK Networks Services Co., Ltd.         —          —          7,739  
   SK Telesys Co., Ltd.         —          26        3,573  
   SK TNS Co., Ltd.         —          9        193,946  
   SK Energy Co., Ltd         —          215        149  
   UbiNS Co., Ltd.         —          —          16,741  
   Others         —          1,690        8,813  
        

 

 

    

 

 

    

 

 

 
           —          11,342        273,980  
        

 

 

    

 

 

    

 

 

 
        W        22,351        83,328        745,184  
        

 

 

    

 

 

    

 

 

 

 

(*)

As of December 31, 2019, the Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.

 

  (5)

The details of additional investments and disposal of subsidiaries and associates for the six-month period ended June 30, 2020 are described in note 8.

 

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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, 2020 and 2019

 

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. The Company entered into comprehensive agreements to purchase accounts receivable from handset sales with retail stores and authorized dealers and to transfer the accounts receivable from handset sales to special-purpose companies which were established with the purpose of liquidating receivables, respectively.

The accounts receivable from sale of handsets amounting to W464,225 million as of June 30, 2020, 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, 2020, the Company is involved in various legal claims and litigations. Provision recognized in relation to these claims and litigations is immaterial. In connection with those legal claims and litigations for which no provision was recognized, management does not believe the Company has a present obligation, nor is it expected that any of these claims or litigations will have a significant impact on the Company’s financial position or operating results in the event an outflow of resources is ultimately necessary.

 

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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, 2020 and 2019

 

31.

Statements of Cash Flows

 

  (1)

Adjustments for income and expenses from operating activities for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           For the six-month period ended  
            June 30, 2020      June 30, 2019  

Gain on foreign currency translations

     W        (2,767      (1,910

Interest income

        (12,074      (14,819

Dividends

        (284,666      (514,181

Gain relating to financial assets at FVTPL

        —          (309

Gain relating to financial liabilities at FVTPL

        —          (56

Gain on disposal of property and equipment and intangible assets

        (2,356      (2,699

Gain on business transfer

        (12,451      —    

Gain on valuation of derivatives

        —          (465

Gain on settlement of derivatives

        (7,380      (389

Gain on sale of accounts receivable – other

        (7,513      (11,987

Other income

        (550      (105

Loss on foreign currency translations

        2,945        1,915  

Bad debt for accounts receivable – trade

        15,310        3,023  

Bad debt for accounts receivable – other

        1,822        1,648  

Loss relating to financial assets at FVTPL

        216        365  

Loss relating to financial liabilities at FVTPL

        —          43  

Depreciation and amortization

        1,479,736        1,364,560  

Loss on disposal of property and equipment and intangible assets

        12,564        7,644  

Impairment loss on property and equipment and intangible assets

        12,388        63  

Interest expense

        120,265        125,883  

Loss on settlement of derivatives

        2,179        317  

Loss relating to investments in subsidiaries and associates

        6,857        —    

Loss on sale of accounts receivable – other

        —          560  

Expense related to defined benefit plan

        29,949        22,187  

Share option

        103        157  

Income tax expense

        133,803        173,203  

Other expenses

        16,552        3,206  
     

 

 

    

 

 

 
     W        1,504,932        1,157,854  
     

 

 

    

 

 

 

 

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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, 2020 and 2019

 

31.

Statements of Cash Flows, Continued

 

  (2)

Changes in assets and liabilities from operating activities for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           For the six-month period ended  
            June 30, 2020      June 30, 2019  

Accounts receivable – trade

     W        (38,338      (93,675

Accounts receivable – other

        121,991        68,429  

Advance payments

        (2,974      (11,477

Prepaid expenses

        (46,257      (38,234

Inventories

        5,672        (1,384

Long-term accounts receivable – other

        95,913        (16,518

Long-term prepaid expenses

        157,727        (80,958

Guarantee deposits

        9,549        (1,169

Contract assets

        (2,662      (2,873

Accounts payable – other

        (98,305      8,640  

Withholdings

        (115,935      (109,613

Deposits received

        1,916        (372

Accrued expenses

        (128,108      (37,581

Provisions

        (303      (337

Plan assets

        6,419        335  

Retirement benefit payment

        (12,887      (10,077

Contract liabilities

        (12,543      9,773  

Others

        26,054        8,291  
     

 

 

    

 

 

 
     W        (33,071      (308,800
     

 

 

    

 

 

 

 

  (3)

Significant non-cash transactions for the six-month periods ended June 30, 2020 and 2019 are as follows:

 

(In millions of won)           For the six-month period
ended
 
            June 30, 2020     June 30, 2019  

Decrease in accounts payable – other relating to the acquisition of property and equipment and intangible assets

     W        (113,814     (59,804

Increase of right-of-use assets

        237,344       193,513  

Contribution in kind for investments

        4,702       19,039  

 

32.

Subsequent Events

The board of directors of the Company resolved to pay the interim dividend at the board meeting on July 21, 2020, and the details are as follows:

 

Interim dividend amount

   W1,000 per share (Total amount: W73,136 million)

Dividend rate

   0.5%

Dividend date

   June 30, 2020

Date of distribution

   According to Article 464 Commercial Act 2-1, the Company is to distribute dividends by August 21, 2020.

 

58