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SKM SK Telecom

Filed: 12 Mar 21, 6:05am
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF MARCH 2021

Commission File Number: 333-04906

 

 

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

 

 

65 Euljiro, Jung-gu

Seoul 04539, Korea

(Address of principal executive office)

 

 

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

Form 20-F  ☒            Form 40-F  ☐

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

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

 

 

 


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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/ Joong Suk Oh

(Signature)
Name: Joong Suk Oh
Title: Senior Vice President

Date: March 12, 2021


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SK TELECOM CO., LTD.

Separate Financial Statements

December 31, 2020 and 2019

(With Independent Auditors’ Report Thereon)


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Independent Auditors’ Report

Based on a report originally issued in Korean

To the Board of Directors and Shareholders of

SK Telecom Co., Ltd.:

Opinion

We have audited the accompanying separate financial statements of SK Telecom Co., Ltd. (the “Company”) which comprise the separate statements of financial position as of December 31, 2020 and 2019 and the separate statements of income, comprehensive income, changes in equity and cash flows for the years then ended, and notes to the separate financial statements, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2020 and 2019, and its separate financial performance and its separate cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

We also have audited, in accordance with the Korean Standards on Auditing, the Company’s Internal Control over Financial Reporting as of December 31, 2020, based on the criteria established in Conceptual Framework for Designing and Operating Internal Control over Financial Reporting issued by the Operating Committee of Internal Control over Financial Reporting in the Republic of Korea, and our report dated March 11, 2021 expressed an unmodified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

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

As described in Note 3 to the separate financial statements, the Company retrospectively applied changes in accounting policies regarding the method of determining lease term and restated the comparative financial statements as of and for the year then ended December 31, 2019.

Key Audit Matter

Key audit matter communicated below is a matter that, in our professional judgment, was of most significance in our audit of the separate financial statements as of and for the year ended December 31, 2020. This matter was addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.

 

1.

Revenue Recognition

As described in note 4 (21) and 27 of the separate financial statements, the Company’s revenue from cellular services is primarily generated from the provision of a variety of telecommunications services at various rate plans and products. Revenue from wireless service amounted toW9,989,461 million in 2020. It is recognized based on data from complex information technology systems that process large volume of transactions with subscribers. Therefore, we have identified revenue recognition related to the Company’s wireless service as a key audit matter due to the complexity of information technology systems involved and the revenue recognition standard applied.

 

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The primary procedures we performed to address this key audit matter included:

 

  

Testing certain internal controls relating to the Company’s revenue recognition process, including information technology (IT) systems used for the purposes of revenue recognition. Specifically, we assessed the IT system environment for data records, rating and billing systems, which aggregate data used for revenue recognition for voice usage, text and mobile data services, generate customer bills and support measurement of revenue.

 

  

Comparing a sample of revenue transactions to supporting evidence, such as customer bills, rating system information, subscriber contracts, and cash received where applicable.

 

  

Inspecting major contracts with subscribers to assess the Group’s revenue recognition policies based on the terms and conditions as set out in the contracts, with reference to the requirements of K-IFRS No. 1115.

Other Matter

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

Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

 

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Auditors’ Responsibilities for the Audit of the Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

  

Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

  

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.

 

  

Evaluate the appropriateness of accounting policies used in the preparation of the separate financial statements and the reasonableness of accounting estimates and related disclosures made by management.

 

  

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

  

Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

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From the matters communicated with those charged with governance, we determine this matter that was of most significant in the audit of the separate financial statements of the current period and is therefore the key audit matter. We describe this matter in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors’ report is In Hye Kang.

KPMG Samjong Accounting Corp.

Seoul, Korea

March 11, 2021

 

This report is effective as of March 11, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

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SK TELECOM CO., LTD. (the “Company”)

SEPARATE FINANCIAL STATEMENTS

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

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

 

 

The accompanying separate financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the Company.

Park, Jung-Ho

Chief Executive Officer

 

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SK TELECOM CO., LTD.

Separate Statements of Financial Position

As of December 31, 2020 and 2019

 

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

Assets

      

Current Assets:

      

Cash and cash equivalents

   34,35   W329,208    497,282 

Short-term financial instruments

   5,34,35    516,000    234,000 

Short-term investment securities

   9,34,35    31,854    31,920 

Accounts receivable – trade, net

   6,34,35,36    1,503,552    1,479,971 

Short-term loans, net

   6,34,35,36    89,280    57,751 

Accounts receivable – other, net

   3,6,34,35,36,37    434,713    506,642 

Contract assets

   8,35    8,388    7,173 

Prepaid expenses

   3,7    2,052,515    1,959,122 

Guarantee deposits

   6,34,35,36    51,069    73,345 

Prepaid income taxes

   31    —      70,528 

Derivative financial assets

   19,34,35,38    8,704    26,253 

Inventories, net

     5,181    11,125 

Advanced payments and others

   6,34,35    16,651    43,353 
    

 

 

   

 

 

 
       5,047,115   4,998,465 
    

 

 

   

 

 

 

Non-Current Assets:

      

Long-term financial instruments

   5,34,35    354    382 

Long-term investment securities

   9,34,35    983,688    510,633 

Investments in subsidiaries, associates and joint ventures

   10,39    11,357,504    10,578,158 

Property and equipment, net

   3,11,12,36    9,157,548    9,052,709 

Goodwill

   13    1,306,236    1,306,236 

Intangible assets, net

   14    2,665,083    3,461,152 

Long-term loans, net

   6,34,35,36    6,518    7,474 

Long-term accounts receivable – other

   3,6,34,35,37    348,335    335,574 

Long-term contract assets

   8,35    22,844    23,724 

Long-term prepaid expenses

   3,7    903,961    1,134,737 

Guarantee deposits

   6,34,35,36    110,555    108,141 

Long-term derivative financial assets

   19,34,35,38    76,461    99,998 

Other non-current assets

     249    249 
    

 

 

   

 

 

 
       26,939,336   26,619,167 
    

 

 

   

 

 

 
    W31,986,451    31,617,632 
    

 

 

   

 

 

 

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Financial Position, Continued

As of December 31, 2020 and 2019

 

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

Liabilities and Shareholders’ Equity

      

Current Liabilities:

      

Accounts payable – other

   34,35,36   W1,955,472    2,266,958 

Contract liabilities

   8    83,216    88,257 

Withholdings

   34,35    659,181    685,822 

Accrued expenses

   3,34,35    724,992    793,252 

Income tax payable

   31    154,144    —   

Provisions

   3,17    43,437    47,786 

Current installments of long-term debt, net

   15,34,35,38    712,105    520,292 

Lease liabilities

   3,34,35,36,38    313,422    319,519 

Current installments of long-term payables – other

   16,34,35,38    424,600    423,839 

Other current liabilities

   34,35    5,835    20,019 
    

 

 

   

 

 

 
       5,076,404   5,165,744 
    

 

 

   

 

 

 

Non-Current Liabilities:

      

Debentures, excluding current installments, net

   15,34,35,38    6,175,576    5,900,829 

Long-term borrowings, excluding

current installments, net

   15,34,35,38    6,167    19,777 

Long-term payables – other

   16,34,35,38    1,141,723    1,544,699 

Long-term contract liabilities

   8    8,110    11,342 

Long-term derivative financial liabilities

   19,34,35,38    362,002    —   

Long-term lease liabilities

   3,34,35,36,38    999,776    856,385 

Long-term provisions

   3,17    55,953    41,145 

Deferred tax liabilities

   3,31    756,873    642,601 

Defined benefit liabilities

   18    7,421    25,093 

Other non-current liabilities

   34,35    46,588    26,118 
    

 

 

   

 

 

 
       9,560,189   9,067,989 
    

 

 

   

 

 

 

Total Liabilities

     14,636,593    14,233,733 
    

 

 

   

 

 

 

Shareholders’ Equity:

      

Share capital

   1,20    44,639    44,639 

Capital surplus and others

   20,21,22,23    289,134    715,619 

Retained earnings

   3,24,25    16,684,640    16,672,947 

Reserves

   26    331,445    (49,306
    

 

 

   

 

 

 

Total Shareholders’ Equity

     17,349,858    17,383,899 
    

 

 

   

 

 

 
    W31,986,451    31,617,632 
    

 

 

   

 

 

 

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Income

For the years ended December 31, 2020 and 2019

 

(In millions of won)  Note   2020  2019 

Operating revenue:

   3,27,36    

Revenue

    W11,746,630   11,421,342 

Operating expenses:

   3,36    

Labor

     804,982   783,124 

Commission

   7    4,647,773   4,419,845 

Depreciation and amortization

   3    2,841,755   2,776,140 

Network interconnection

     555,846   565,084 

Leased lines

     215,878   213,673 

Advertising

     114,794   154,124 

Rent

   3    121,032   123,517 

Cost of goods sold

     436,013   479,605 

Others

   28    985,490   954,427 
    

 

 

  

 

 

 
     10,723,563   10,469,539 
    

 

 

  

 

 

 

Operating profit

     1,023,067   951,803 

Finance income

   3,30    377,947   615,571 

Finance costs

   3,30    (256,737  (280,247

Other non-operating income

   3,29    82,673   76,928 

Other non-operating expenses

   3,29    (273,655  (110,627

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

   10    (11,840  (68,550
    

 

 

  

 

 

 

Profit before income tax

     941,455   1,184,878 

Income tax expense

   3,31    182,663   204,987 
    

 

 

  

 

 

 

Profit for the year

    W758,792   979,891 
    

 

 

  

 

 

 

Earnings per share:

   3,32    

Basic earnings per share (in won)

    W10,221   13,393 

Diluted earnings per share (in won)

     10,219   13,393 

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Comprehensive Income

For the years ended December 31, 2020 and 2019

 

(In millions of won)  Note   2020  2019 

Profit for the year

    W758,792   979,891 

Other comprehensive income (loss):

     

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

     

Remeasurement of defined benefit liabilities

   18    (2,325  (40,720

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

   26,30    366,600   (13,972

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

     

Net change in unrealized fair value of derivatives

   19,26,30    15,507   35,004 
    

 

 

  

 

 

 

Other comprehensive income (loss) for the year, net of taxes

     379,782   (19,688
    

 

 

  

 

 

 

Total comprehensive income

    W1,138,574   960,203 
    

 

 

  

 

 

 

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Changes in Equity

For the years ended December 31, 2020 and 2019

 

(In millions of won)                           
        Capital surplus and others  Retained
earnings
  Reserves    
  Note  Share
capital
  Paid-in
surplus
  Treasury
shares
  Hybrid bonds  Share option  Other  Sub-total  Total
equity
 

Balance, January 1, 2019
(As reported)

  W44,639   2,915,887   (1,979,475  398,759   1,007   (920,854  415,324   16,442,560   (40,265  16,862,258 

Changes in Accounting Policies

  3   —     —     —     —     —     —     —     (5,393  —     (5,393
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, January 1, 2019 (Restated)

   44,639   2,915,887   (1,979,475  398,759   1,007   (920,854  415,324   16,437,167   (40,265  16,856,865 

Total comprehensive Income (loss):

           

Profit for the year

   —     —     —     —     —     —     —     979,891   —     979,891 

Other comprehensive loss

  18,19,26,30   —     —     —     —     —     —     —     (10,647  (9,041  (19,688
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —     —     —     —     —     —     —     969,244   (9,041  960,203 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Transactions with owners:

           

Annual dividends

  33   —     —     —     —     —     —     —     (646,828  —     (646,828

Interim dividends

  33   —     —     —     —     —     —     —     (71,870  —     (71,870

Share option

  23   —     —     —     —     295   —     295   —     —     295 

Interest on hybrid bonds

  22   —     —     —     —     —     —     —     (14,766  —     (14,766

Disposal of treasury shares

  21   —     —     282,478   —     —     17,522   300,000   —     —     300,000 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —     —     282,478   —     295   17,522   300,295   (733,464  —     (433,169
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, December 31, 2019

  W 44,639   2,915,887   (1,696,997  398,759   1,302   (903,332  715,619   16,672,947   (49,306  17,383,899 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, January 1, 2020

  W 44,639   2,915,887   (1,696,997  398,759   1,302   (903,332  715,619   16,672,947   (49,306  17,383,899 

Total comprehensive Income (loss):

           

Profit for the year

   —     —     —     —     —     —     —     758,792   —     758,792 

Other comprehensive income (loss)

  18,19,26,30   —     —     —     —     —     —     —     (969  380,751   379,782 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —     —     —     —     —     —     —     757,823   380,751   1,138,574 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Transactions with owners:

           

Annual dividends

  33   —     —     —     —     —     —     —     (658,228  —     (658,228

Interim dividends

  33   —     —     —     —     —     —     —     (73,136  —     (73,136

Share option

  23   —     —     —     —     179   —     179   —     —     179 

Interest on hybrid bonds

  22   —     —     —     —     —     —     —     (14,766  —     (14,766

Acquisition of treasury shares

  21   —     —     (426,664  —     —     —     (426,664  —     —     (426,664
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —     —     (426,664  —     179   —     (426,485  (746,130  —     (1,172,615
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance, December 31, 2020

  W 44,639   2,915,887   (2,123,661  398,759   1,481   (903,332  289,134   16,684,640   331,445   17,349,858 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to the separate financial statements

 

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SK TELECOM CO., LTD.

Separate Statements of Cash Flows

For the years ended December 31, 2020 and 2019

 

(In millions of won)  Note   2020  2019 

Cash flows from operating activities:

     

Cash generated from operating activities:

     

Profit for the year

    W758,792   979,891 

Adjustments for income and expenses

   38    3,361,118   2,898,842 

Changes in assets and liabilities related to operating activities

   38    169,589   (703,093
    

 

 

  

 

 

 
     4,289,499   3,175,640 

Interest received

     20,283   28,388 

Dividends received

     285,040   525,045 

Interest paid

     (212,921  (226,652

Income tax refund(paid)

     5,908   (311,680
    

 

 

  

 

 

 

Net cash provided by operating activities

     4,387,809   3,190,741 
    

 

 

  

 

 

 

Cash flows from investing activities:

     

Cash inflows from investing activities:

     

Decrease in short-term investment securities, net

     —     16,217 

Collection of short-term loans

     69,754   107,996 

Decrease in long-term financial instruments

     28   —   

Proceeds from disposals of long-term investment securities

     790   223,619 

Proceeds from disposal of investments in subsidiaries, associates and joint ventures

     659   —   

Proceeds from disposal of property and equipment

     89,922   10,767 

Proceeds from disposal of intangible assets

     4,475   3,843 

Collection of lease receivables

     —     6,881 
    

 

 

  

 

 

 
     165,628   369,323 

Cash outflows for investing activities:

     

Increase in short-term financial instruments, net

     (282,000  (135,000

Increase in short-term loans

     (100,739  (111,686

Acquisition of long-term investment securities

     (827  (321,124

Acquisition of investments in subsidiaries, associates and joint ventures

     (277,465  (379,821

Acquisition of property and equipment

     (2,480,297  (2,304,512

Acquisition of intangible assets

     (81,352  (109,853

Cash outflow for spin-off

     (121,100  —   
    

 

 

  

 

 

 
     (3,343,780  (3,361,996
    

 

 

  

 

 

 

Net cash used in investing activities

    W(3,178,152  (2,992,673
    

 

 

  

 

 

 

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Separate Statements of Cash Flows, Continued

For the years ended December 31, 2020 and 2019

 

(In millions of won)  Note   2020  2019 

Cash flows from financing activities:

     

Cash inflows from financing activities:

     

Proceeds from issuance of debentures

    W1,062,500   1,195,274 

Cash inflows from settlement of derivatives

     36,691   12,426 

Proceeds from disposal of treasury shares

     —     300,000 
    

 

 

  

 

 

 
     1,099,191   1,507,700 

Cash outflows for financing activities:

     

Repayments of long-term borrowings

     (13,624  (12,882

Repayments of long-term payables – other

     (425,349  (425,349

Repayments of debentures

     (515,500  (550,000

Payments of cash dividends

     (731,364  (718,698

Payments of interest on hybrid bonds

     (14,766  (14,766

Repayments of lease liabilities

     (349,656  (364,614

Acquisition of treasury shares

     (426,664  —   
    

 

 

  

 

 

 
     (2,476,923  (2,086,309
    

 

 

  

 

 

 

Net cash used in financing activities

     (1,377,732  (578,609
    

 

 

  

 

 

 

Net decrease in cash and cash equivalents

     (168,075  (380,541

Cash and cash equivalents at beginning of the year

     497,282   877,823 

Effects of exchange rate changes on cash and cash equivalents

     1   —   
    

 

 

  

 

 

 

Cash and cash equivalents at end of the year

    W329,208   497,282 
  

 

 

  

 

 

 

See accompanying notes to the separate financial statements.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 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 December 31, 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

   8,853,906    10.97 

Institutional investors and other shareholders

   39,582,507    49.02 

Kakao Co., Ltd.

   1,266,620    1.57 

Treasury shares

   9,418,558    11.66 
  

 

 

   

 

 

 
   80,745,711    100.00 
  

 

 

   

 

 

 

 

2.

Basis of Preparation

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

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

The separate financial statements were authorized for issuance by the Board of Directors on February 2, 2021, which will be submitted for approval at the shareholders’ meeting to be held on March 25, 2021.

 

 (1)

Basis of measurement

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

 

  

derivative financial instruments measured at fair value;

 

  

financial instruments measured at fair value through profit or loss (“FVTPL”);

 

  

financial instruments measured at fair value through other comprehensive income (“FVOCI”);

 

  

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

2.

Basis of Preparation, Continued

 

 (2)

Functional and presentation currency

These separate financial statements are presented in Korean won, which is the currency of the primary economic environment in which the Company operates.

 

 (3)

Use of estimates and judgments

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

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

1) Critical judgments

Information about critical judgments in applying accounting policies that have most significant effects on the amounts recognized in the separate financial statements is included in notes for the following areas: financial risk management.

2) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is included in the following notes: loss allowance (notes 6 and 35), estimated useful lives of costs to obtain a contract (notes 4 (21), and 7), property and equipment and intangible assets (notes 4 (7), (9), 11 and 14), impairment of goodwill (notes 4 (11) and 13), recognition of provision (notes 4 (16) and 17), measurement of defined benefit liabilities (notes 4 (15) and 18), and recognition of deferred tax assets (liabilities) (notes 4 (23) and 31).

3) Fair value measurement

A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established policies and processes with respect to the measurement of fair values including Level 3 fair values, and the measurement of fair value is reviewed 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, are 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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

2.

Basis of Preparation, Continued

 

 (3)

Use of estimates and judgments, Continued

 

 3)

Fair value measurement, Continued

 

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 35.

 

3.

Changes in accounting policies

The Company has initially adopted Interest Rate Benchmark Reform (Amendments to K-IFRS No. 1109, Financial Instruments, K-IFRS No. 1039, Financial Instrument- Recognition and Measurement, K-IFRS No. 1107, Financial Instruments: Disclosures) from January 1, 2020. A number of other new standards are effective from January 1, 2020, but they do not have a material effect on the Company’s separate financial statements.

The Company applied the interest rate benchmark reform amendments retrospectively to hedging relationships that existed at January 1, 2020 or were designated thereafter and that are directly affected by interest rate benchmark reform. These amendments also apply to the gain or loss accumulated in the cash flow hedging reserve that existed at January 1, 2020. The details of the accounting policies are disclosed in note 4 (6). See also note 35 for related disclosures about risk and hedge accounting.

During the annual period ended December 31, 2020, the Company changed its accounting policy by applying agenda decision, Lease Term and Useful Life of Leasehold Improvements (IFRS 16 Leases and IAS 16 Property, Plant and Equipment)—November 2019, published by International Financial Reporting Interpretations Committee (“IFRIC”) on December 16, 2019.

Prior to the changes in accounting principles, the Company determined 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. The Company now determines the lease term as the non-cancellable period of a lease, together with both: periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. In the assessing the periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option, the Company considered if it would incur a penalty on termination that is more than insignificant.

The Company has retrospectively applied the changes in its accounting policies in connection with the IFRIC agenda decision in accordance with K-IFRS No. 1008 Accounting Policies, Changes in Accounting Estimates and Errors and restated its comparative financial statements.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

3.

Changes in accounting policies, Continued

 

The following table summarizes the impacts of the change in accounting policy on the Company’s separate financial statements on the current and prior periods.

 

 (1)

Statements of financial position

 

(In millions of won)    
(Unaudited)  As of September 30, 2020 (*) 
   As reported   Adjustments   Restated 

Assets

      

Accounts receivable – other, net

  W702,082    6,179    708,261 

Prepaid expenses

   2,958,517    (10,922   2,947,595 

Property and equipment, net

   8,131,623    919,163    9,050,786 
  

 

 

   

 

 

   

 

 

 
  W11,792,222    914,420    12,706,642 
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Accrued expenses

  W689,679    (273   689,406 

Provisions

   71,230    23,953    95,183 

Lease liabilities

   454,739    904,759    1,359,498 

Deferred tax liabilities

   765,218    (3,732   761,486 
  

 

 

   

 

 

   

 

 

 
  W1,980,866    924,707    2,905,573 
  

 

 

   

 

 

   

 

 

 

Shareholder’s Equity

      

Retained earnings

  W16,662,589    (10,287   16,652,302 

 

(*)

Subsequent to the adoption of the change in accounting policy, the Company does not maintain the information necessary to prepare financial statements using the previous accounting policy. Therefore, the Company presented the impact on unaudited interim financial information using available information.

 

(In millions of won)    
   As of December 31, 2019 
   As reported   Adjustments   Restated 

Assets

      

Accounts receivable – other, net

  W839,900    2,316    842,216 

Prepaid expenses

   3,105,731    (11,872   3,093,859 

Property and equipment, net

   8,264,888    787,821    9,052,709 
  

 

 

   

 

 

   

 

 

 
  W12,210,519    778,265    12,988,784 
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Accrued expenses

  W793,669    (417   793,252 

Provisions

   67,271    21,660    88,931 

Lease liabilities

   410,889    765,015    1,175,904 

Deferred tax liabilities

   644,754    (2,153   642,601 
  

 

 

   

 

 

   

 

 

 
  W1,916,583    784,105    2,700,688 
  

 

 

   

 

 

   

 

 

 

Shareholder’s Equity

      

Retained earnings

  W16,678,787    (5,840   16,672,947 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

3.

Changes in accounting policies, Continued

 

 (1)

Statements of financial position, Continued

 

 

(In millions of won)    
   As of January 1, 2019 
   As reported(*)   Adjustments   Restated 

Assets

      

Accounts receivable – other, net

  W809,707    (1,147   808,560 

Prepaid expenses

   2,387,807    (35,377   2,352,430 

Property and equipment, net

   7,360,042    345,266    7,705,308 
  

 

 

   

 

 

   

 

 

 
  W10,557,556    308,742    10,866,298 
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Accrued expenses

  W664,286    —      664,286 

Provisions

   61,786    19,485    81,271 

Lease liabilities

   412,407    296,639    709,046 

Deferred tax liabilities

   514,427    (1,989   512,438 
  

 

 

   

 

 

   

 

 

 
  W1,652,906    314,135    1,967,041 
  

 

 

   

 

 

   

 

 

 

Shareholder’s Equity

      

Retained earnings

  W16,442,560    (5,393   16,437,167 

 

(*)

Includes impact of initial adoption of K-IFRS No.1116.

 

(2)

Statement of income

 

(In millions of won)    
(Unaudited)  For the nine-month period ended
September 30, 2020 (*)
 
   As reported   Adjustments   Restated 

Operating revenue

  W8,803,310    4,939    8,808,249 

Operating expenses:

      

Depreciation and amortization

   2,079,602    65,048    2,144,650 

Rent

   147,917    (58,095   89,822 

Others

   5,783,522    (197   5,783,325 
  

 

 

   

 

 

   

 

 

 
   8,011,041    6,756    8,017,797 
  

 

 

   

 

 

   

 

 

 

Operating profit

   792,269    (1,817   790,452 

Finance income

   332,051    (7   332,044 

Finance costs

   184,862    9,507    194,369 

Other non-operating income

   43,822    (751   43,071 

Other non-operating expenses

   51,597    (6,056   45,541 

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

   11,840    —      11,840 
  

 

 

   

 

 

   

 

 

 

Profit before income tax

  W919,843    (6,026   913,817 

Income tax expense

   186,721    (1,578   185,143 
  

 

 

   

 

 

   

 

 

 

Profit for the year

  W733,122    (4,448   728,674 
  

 

 

   

 

 

   

 

 

 

Earnings per share:

      

Basic earnings per share (in won)

  W9,877    (61   9,816 

Diluted earnings per share (in won)

   9,876    (61   9,815 

 

(*)

Subsequent to the adoption of the change in accounting policy, the Company does not maintain the information necessary to continue to prepare financial statements using the previous accounting policy. Therefore, the Company presented the impact on unaudited interim financial information using available information.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

3.

Changes in accounting policies, Continued

 

 (2)

Statement of income, Continued

 

(In millions of won)    
   December 31, 2019 
   As reported   Adjustments   Restated 

Operating revenue

  W11,416,215    5,127    11,421,342 

Operating expenses:

      

Depreciation and amortization

   2,672,597    103,543    2,776,140 

Rent

   223,439    (99,922   123,517 

Others

   7,570,070    (188   7,569,882 
  

 

 

   

 

 

   

 

 

 
   10,466,106    3,433    10,469,539 
  

 

 

   

 

 

   

 

 

 

Operating profit

   950,109    1,694    951,803 

Finance income

   615,589    (18   615,571 

Finance costs

   270,795    9,452    280,247 

Other non-operating income

   78,212    (1,284   76,928 

Other non-operating expenses

   119,075    (8,448   110,627 

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

   68,550    —      68,550 
  

 

 

   

 

 

   

 

 

 

Profit before income tax

  W1,185,490    (612   1,184,878 

Income tax expense

   205,152    (165   204,987 
  

 

 

   

 

 

   

 

 

 

Profit for the year

  W980,338    (447   979,891 
  

 

 

   

 

 

   

 

 

 

Earnings per share:

      

Basic earnings per share (in won)

  W13,399    (6   13,393 

Diluted earnings per share (in won)

   13,399    (6   13,393 

 

(3)

Statement of changes in equity

The statement of changes in equity has been restated as a result of restated statement of financial position and statement of income.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

3.

Changes in accounting policies, Continued

 

 (4)

Statement of cash flows

 

(In millions of won)    
(Unaudited)  For the nine-month period ended
September 30, 2020 (*1)
 
   As reported
(Unaudited)
   Adjustments   Restated 

Cash flows from operating activities(*2)

  W3,474,526    47,975    3,522,501 

Cash flows from investing activities

   (2,391,980   —      (2,391,980

Cash flows from financing activities(*3)

   (904,561   (47,975   (952,536

 

(*1)

Subsequent to the adoption of the change in accounting policy, the Company does not maintain the information necessary to continue prepare financial statements using the previous accounting policy. Therefore, the Company presented the impact on unaudited interim financial information using available information.

(*2)

Adjustments are mainly due to increase in depreciation expense and decrease in prepaid expense.

(*3)

The effect of changes in accounting policies resulted in an increase in repayment of lease liabilities fromW205,966 million toW253,941 million.

 

(In millions of won)    
   2019 
   As reported   Adjustments   Restated 

Cash flows from operating activities(*1)

  W3,115,408    75,333    3,190,741 

Cash flows from investing activities(*2)

   (2,984,059   (8,614   (2,992,673

Cash flows from financing activities(*3)

   (511,890   (66,719   (578,609

 

(*1)

Adjustments are mainly due to increase in depreciation expense and decrease in prepaid expense.

(*2)

The effect of changes in accounting policies resulted in a decrease in collection of lease receivables fromW15,495 million toW6,881 million.

(*3)

The effect of changes in accounting policies resulted in increase in repayment of lease liabilities fromW297,895 million toW364,614 million.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies

The significant accounting policies applied by the Company in the preparation of its separate financial statements in accordance with K-IFRS are included below. The significant accounting policies applied by the Company in these separate 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, except for the changes in accounting policies described in note 3.

 

 (1)

Operating segments

The Company presents disclosures relating to operating segments on its consolidated financial statements in accordance with K-IFRS No. 1108, Operating Segments, and such disclosures are not separately disclosed on these separate financial statements.

 

 (2)

Investments in subsidiaries, associates, and joint ventures

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027, Separate Financial Statements. The Company applies the cost method to investments in subsidiaries, associates and joint ventures in accordance with K-IFRS No. 1027. Dividends from subsidiaries, associates, and joint ventures are recognized in profit or loss when the right to receive the dividends is established.

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

 

 (3)

Cash and cash equivalents

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

 

 (4)

Inventories

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

 

 (5)

Non-derivative financial assets

 

 1)

Recognition and initial measurement

Accounts receivable – trade and debt investments issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless an accounts receivable – trade without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. An accounts receivable – trade without a significant financing component is initially measured at the transaction price.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (5)

Non-derivative financial assets, Continued

 

 2)

Classification and subsequent measurement

On initial recognition, a financial asset is classified as measured at:

 

  

FVTPL

 

  

FVOCI – equity investment

 

  

FVOCI – debt investment

 

  

Financial assets at amortized cost

A financial asset is classified based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

 

  

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

 

  

its contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

 

  

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

 

  

its contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (5)

Non-derivative financial assets, Continued

 

 2)

Classification and subsequent measurement, Continued

 

The following accounting policies are applied to the subsequent measurement of financial assets.

 

       Financial assets at FVTPL           These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
 Financial assets at amortized cost   These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
 Debt investments at FVOCI   These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
 Equity investments at FVOCI   These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

 

 3)

Impairment

The Company estimates the expected credit losses (ECL) for the debt instruments measured at amortized cost and FVOCI based on the Company’s historical experience and informed credit assessment that includes forward-looking information. The impairment approach is decided based on the assessment of whether the credit risk of a financial asset has increased significantly since initial recognition. However, the Company applies a practical expedient and recognizes impairment losses equal to lifetime ECLs for accounts receivable – trade and lease receivables from the initial recognition.

ECL is a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive).

At each reporting date, the Company assesses whether financial assets measured at amortized cost and debt investments at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Loss allowance on financial assets measured at amortized cost is deducted from the carrying amount of the respective assets, while loss allowance on debt instruments at FVOCI is recognized in OCI, instead of reducing the carrying amount of the assets.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (5)

Non-derivative financial assets, Continued

 

 4)

Derecognition

Financial assets are derecognized if the Company’s contractual rights to the cash flows from the financial assets expire or if the Company transfers the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset.

The transferred assets are not derecognized when the Company enters into transactions whereby it transfers assets recognized in its statement of financial position but retains substantially all of the risks and rewards of the transferred assets.

 

 5)

Offsetting

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position when the Company currently has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis or to settle the liability and realize the asset simultaneously.

A financial asset and a financial liability are offset only when the right to set off the amount is not contingent on future event and legally enforceable even on the event of default, insolvency or bankruptcy.

 

 (6)

Derivative financial instruments and hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value at the end of each reporting period, and changes therein are accounted for as described below.

 

 1)

Hedge accounting

The Company holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Company designates derivatives as hedging instruments to hedge the variability in cash flow associated with highly probable forecasted transactions or firm commitments (a cash flow hedge).

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (6)

Derivative financial instruments, including hedge accounting, Continued

 

 1)

Hedge accounting, Continued

 

Hedges directly affected by interest rate benchmark reform

For the purpose of evaluating whether there is an economic relationship between the hedged items and the hedging instruments, the Company assumes that the interest rate benchmark on which the hedged items and the hedging instruments are based is not altered as a result of interest rate benchmark reform.

For a cash flow hedge of a forecast transaction, the Company assumes that the benchmark interest rate will not be altered as a result of interest rate benchmark reform for the purpose of assessing whether the forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss. In determining whether a previously designated forecast transaction in a discontinued cash flow hedge is still expected to occur, the Company assumes that the interest rate benchmark cash flows designated as a hedge will not be altered as a result of interest rate benchmark reform.

The Company will cease applying the specific policy for assessing the economic relationship between the hedged item and the hedging instrument (i) to a hedged item or hedging instrument when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the respective item or instrument or (ii) when the hedging relationship is discontinued.

For its highly probable assessment of the hedged item, the Company will no longer apply the specific policy when the uncertainty arising from interest rate benchmark reform about the timing and the amount of the interest rate benchmark-based future cash flows of the hedged item is no longer present, or when the hedging relationship is discontinued.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (6)

Derivative financial instruments, including hedge accounting, Continued

 

 1)

Hedge accounting, Continued

 

Cash flow hedge

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

 

 2)

Other derivative financial instruments

Other derivative financial instrument not designated as a hedging instrument are measured at fair value, and the changes in fair value of the derivative financial instrument is recognized immediately in profit or loss.

 

 (7)

Property and equipment

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

Property and equipment, subsequently, are carried at cost less accumulated depreciation and accumulated impairment losses.

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

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

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (7)

Property and equipment, Continued

 

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

 

   Useful lives (years)

Buildings and structures

  15, 30

Machinery

  3 ~ 8, 15, 30

Other property and equipment

  4 ~10

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

 

 (8)

Borrowing costs

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

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (9)

Intangible assets

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

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

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

 

   Useful lives (years)

Frequency usage rights

  5 ~ 10

Land usage rights

  5

Industrial rights

  5, 10

Facility usage rights

  10, 20

Other

  3 ~ 20

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

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

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (10)

Government grants

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

 

 1)

Grants related to assets

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

 

 2)

Grants related to income

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

 

 (11)

Impairment of non-financial assets

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

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

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

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (12)

Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

 1)

As a lessee

At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

Lease payments included in the measurement of the lease liability comprise the following:

 

  

fixed payments, including in-substance fixed payments;

 

  

variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

 

  

amounts expected to be payable under a residual value guarantee; and

 

 ��

the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (12)

Leases, Continued

 

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in -substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Company presents right-of-use assets that do not meet the definition of investment property in ‘property and equipment’ in the statement of financial position.

The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

 2)

As a lessor

At inception or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.

If an arrangement contains lease and non-lease components, then the Company applies K-IFRS No. 1115 to allocate the consideration in the contract.

The Company applies the derecognition and impairment requirements in K-IFRS No. 1109 to the net investment in the lease. The Company further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.

The Company recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (13)

Non-current assets held for sale

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

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

 

 (14)

Non-derivative financial liabilities

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

 

 1)

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, these liabilities are measured at fair value. The amount of change in fair value of financial liability that is attributable to changes in the credit risk of that liability shall be presented in other comprehensive income, and the remaining amount of change in the fair value of the liability shall be presented in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issue of the financial liability are recognized in profit or loss as incurred.

 

 2)

Other financial liabilities

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

 

 3)

Derecognition of financial liability

The Company extinguishes a financial liability only when the contractual obligation is fulfilled, canceled or expires. The Company recognizes new financial liabilities at fair value based on new contracts and eliminates existing liabilities when the contractual terms of the financial liabilities change and the cash flows change substantially.

When a financial liability is derecognized, the difference between the carrying amount and the consideration paid (including any transferred non-cash assets or liabilities assumed) is recognized in profit or loss.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (15)

Employee benefits

 

 1)

Short-term employee benefits

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

 

 2)

Other long-term employee benefits

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

 

 3)

Retirement benefits: defined contribution plans

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

 

 4)

Retirement benefits: defined benefit plans

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

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

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

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (15)

Employee benefits, Continued

 

 5)

Termination benefits

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

 

 (16)

Provisions

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

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

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

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

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

 

 (17)

Transactions in foreign currencies

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

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

 

 (18)

Share capital

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

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

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (19)

Hybrid bond

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

 

 (20)

Share-based payment

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

 

 (21)

Revenue

 

 1)

Identification of performance obligations in contracts with customers

The Company identifies the distinct services or goods as performance obligations in contracts with customers such as (1) providing wireless telecommunications services and (2) sale other goods and services. In the case of providing both wireless telecommunications service and selling a handset together to one customer, the Company allocates considerations from the customer between the separate performance obligations for handset sale and wireless telecommunications service. The handset sale revenue is recognized when handset is delivered, and the wireless telecommunications service revenue is recognized over the period of the contract term as stated in the subscription contract.

 

 2)

Allocation of the transaction price to each performance obligation

The Company allocates the transaction price of a contract to each performance obligation identified on a relative stand-alone selling price basis. The Company uses “adjusted market assessment approach” for estimating the stand-alone selling price of a good or service.

 

 3)

Incremental costs of obtaining a contract

The Company pays commissions to its retail stores and authorized dealers in connection with acquiring service contracts. The commissions paid to these parties constituted a significant portion of the Company’s operating expenses. These commissions would not have been paid if there have been no binding contracts with subscribers and, therefore, the Company capitalizes certain costs associated with commissions paid to obtain new customer contracts and amortize them over the expected contract periods

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (21)

Revenue, Continued

 

 4)

Customer loyalty programs

The Company provides customer loyalty points to customers based on the usage of the service to which the Company allocates a portion of consideration received as a performance obligation distinct from wireless telecommunications services. The amount to be allocated to the loyalty program is measured according to the relative stand-alone selling price of the customer loyalty points. The amount allocated to the loyalty program is deferred as a contract liability and is recognized as revenue when loyalty points are redeemed.

 

 5)

Consideration payable to a customer

Based on the subscription contract, a customer who uses the Company’s wireless telecommunications services may receive a discount for purchasing goods or services from a designated third party. The Company pays a portion of the price discounts that the customer receives to the third party which is viewed as consideration payable to a customer. The Company accounts for the amounts payable to the third party as a reduction of the wireless telecommunications service revenue.

 

 (22)

Finance income and finance costs

Finance income comprises interest income on funds invested (including financial assets measured at fair value), dividend income, gains on disposal of financial assets at FVTPL, changes in fair value of financial instruments at FVTPL, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss by using the effective interest rate method. Dividend income is recognized in profit or loss when the right to receive the dividend is established.

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (23)

Income taxes

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

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

 

 1)

Current tax

In accordance with the tax-consolidation system, the Company calculates current taxes on the consolidated taxable income for the Company and its subsidiaries that meet the criteria for the consolidated income tax returns and recognizes the income tax payable as current tax liabilities of the Company.

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and includes interests and fines related to income taxes paid or payable. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

 

 2)

Deferred tax

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

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

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (23)

Income taxes, Continued

 

 2)

Deferred tax, Continued

 

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

Deferred tax assets and liabilities are offset only if the Company has a legally enforceable right to offset the amount recognized and intends to settle the current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

 

 3)

Uncertainty over income tax treatments

The Company assesses the uncertainty over income tax treatments pursuant to K-IFRS No. 1012. If the Company concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the Company reflects the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the entity expects to better predict the resolution of the uncertainty:

 

  

the most likely amount - the single most likely amount in a range of possible outcomes.

 

  

the expected value - the sum of the probability-weighted amounts in a range of possible outcomes.

 

 (24)

Earnings per share

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

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (25)

Standards issued but not yet effective

The following new standards are effective for annual periods beginning after January 1, 2020 and earlier application is permitted. However, the Company has not adopted the following new standards early in preparing the accompanying separate financial statements.

Interest Rate Benchmark Reform - Phase 2

(Amendments to K-IFRS No. 1109, Financial Instruments, K-IFRS No. 1039, Financial Instrument-Recognition and Measurement, K-IFRS No. 1107, Financial Instruments-Disclosures, K-IFRS No. 1104 Insurance Contracts and K-IFRS No. 1116, Leases)

The amendments address issues that might affect financial reporting as a result of the reform of an interest rate benchmark, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate. The amendments provide practical relief from certain requirements in K-IFRS No. 1109, Financial Instruments, K-IFRS No. 1039, Financial Instrument-Recognition and Measurement, K-IFRS No. 1107, Financial Instruments-Disclosures, K-IFRS No. 1104 Insurance Contracts and K-IFRS No. 1116, Lease.

The amendments will require the Company to account for a change in the basis for determining the contractual cash flows of a financial asset or financial liability that is required by interest rate benchmark reform by updating the effective interest rate of the financial asset or financial liability.

As of December 31, 2020, the Company has LIBOR floating rate notes amounting toW326,400 million that will be subject to IBOR reform. The Company has not determined an alternative interest rate benchmark to LIBOR for these notes as of December 31, 2020 and these amendments are not expected to have a significant impact on the Company’s statement of income.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

4.

Significant Accounting Policies, Continued

 

 (25)

Standards issued but not yet effective, Continued

 

The amendments provide exceptions to the hedge accounting requirements in the following areas.

 

  

Allow amendment of the designation of a hedging relationship to reflect changes that are required by the reform.

 

  

When a hedged item in a cash flow hedge is amended to reflect the changes that are required by the reform, the amount accumulated in the cash flow hedge reserve will be deemed to be based on the alternative benchmark rate on which the hedged future cash flows are determined.

 

  

When a group of items is designated as a hedged item and an item in the Company is amended to reflect the changes that are required by the reform, the hedged items are allocated to sub-groups based on the benchmark rates being hedged.

 

  

If an entity reasonably expects that an alternative benchmark rate will be separately identifiable within a period of 24 months, it is not prohibited from designating the rate as a non-contractually specified risk component if it is not separately identifiable at the designation date.

As of December 31, 2020, the Company has cash flow hedges of LIBOR risk. The Company has not identified the alternative interest rate benchmark to LIBOR for indexation of the hedged items and hedging instruments. When LIBOR is replaced by the alternative interest rate, the Company expects to apply the amendments related to hedge accounting. However, there is uncertainty about when and how replacement may occur. When the change occurs to the hedged item or the hedging instrument, the Company will remeasure the cumulative change in fair value of the hedged item or the fair value of the interest rate swap, respectively, based on the alternative interest rate to LIBOR. Hedging relationships may experience hedge ineffectiveness if there is a timing or other mismatch between the transition. The Company does not expect that the amounts accumulated in the cash flow hedge reserve will be immediately reclassified to profit or loss because of IBOR transition.

The amendments will require the Company to disclose additional information about the Company’s exposure to risks arising from interest rate benchmark reform and related risk management activities.

The Company plans to apply the amendments from January 1, 2021. Application will not impact amounts reported for 2020 or prior periods.

The following new and amended standards are not expected to have a significant impact on the Company’s separate financial statements.

 

  

COVID-19-Related Rent Concessions (Amendment to K-IFRS No. 1116).

 

  

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to K-IFRS No. 1016).

 

  

Reference to Conceptual Framework (Amendments to K-IFRS No. 1103).

 

  

Classification of Liabilities as Current or Non-current (Amendments to K-IFRS No. 1001).

 

  

K-IFRS No. 1117 Insurance Contracts and amendments to K-IFRS No. 1117 Insurance Contracts.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

5.

Restricted Deposits

Deposits which are restricted in use as of December 31, 2020 and 2019 are summarized as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Short-term financial instruments(*)

  W79,000    79,000 

Long-term financial instruments(*)

   354    382 
  

 

 

   

 

 

 
  W 79,354    79,382 
  

 

 

   

 

 

 
    

 

(*)

Financial instruments include charitable trust fund established by the Company where profits from the fund are donated to charitable institutions. As of December 31, 2020 the funds cannot be withdrawn before maturity.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

6.

Trade and Other Receivables

 

 (1)

Details of trade and other receivables as of December 31, 2020 and 2019 are as follows:

 

                                                                                 
(In millions of won)  December 31, 2020 
   Gross amount   Loss allowance   Carrying
amount
 

Current assets:

      

Accounts receivable – trade

  W1,605,860    (102,308   1,503,552 

Short-term loans

   90,182    (902   89,280 

Accounts receivable – other(*)

   468,880    (34,167   434,713 

Guarantee deposits

   51,069    —      51,069 

Accrued income

   518    —      518 
  

 

 

   

 

 

   

 

 

 
   2,216,509    (137,377   2,079,132 

Non-current assets:

      

Long-term loans

   47,619    (41,101   6,518 

Long-term accounts receivable – other(*)

   348,335    —      348,335 

Guarantee deposits

   110,555    —      110,555 
  

 

 

   

 

 

   

 

 

 
   506,509    (41,101   465,408 
  

 

 

   

 

 

   

 

 

 
  W2,723,018    (178,478   2,544,540 
  

 

 

   

 

 

   

 

 

 

 

(*)

Gross and carrying amounts of accounts receivable – other as of December 31, 2020 includeW517,175 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

  W1,583,727    (103,756   1,479,971 

Short-term loans

   58,334    (583   57,751 

Accounts receivable – other(*)

   541,406    (34,764   506,642 

Guarantee deposits

   73,345    —      73,345 

Accrued income

   336    —      336 
  

 

 

   

 

 

   

 

 

 
   2,257,148    (139,103   2,118,045 

Non-current assets:

      

Long-term loans

   48,585    (41,111   7,474 

Long-term accounts receivable – other(*)

   335,574    —      335,574 

Guarantee deposits

   108,141    —      108,141 
  

 

 

   

 

 

   

 

 

 
   492,300    (41,111   451,189 
  

 

 

   

 

 

   

 

 

 
  W2,749,448    (180,214   2,569,234 
  

 

 

   

 

 

   

 

 

 

 

(*)

Gross and carrying amounts of accounts receivable – other as of December 31, 2019 includeW532,225 million of financial instruments classified as FVTPL.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

6.

Trade and Other Receivables, Continued

 

 (2)

Changes in the loss allowance on accounts receivable – trade measured at amortized costs during the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)                      
   Beginning balance   Impairment   Write-offs (*)  Collection of
receivables
previously
written-off
   Spin-off  Ending
Balance
 

2020

  W103,756    23,611    (34,687  9,699    (71  102,308 

2019

   119,842    4,036    (29,972  9,850    —     103,756 

 

(*)

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 classified the accounts receivable – trade by their credit risk characteristics and days overdue. Details of loss allowance on accounts receivable – trade as of December 31, 2020 are as follows:

 

(In millions of won)                
   Less than 6
months
   6 months ~
1 year
   1 ~ 3
years
   More than 3
years
 

Telecommunications service revenue

  

Expected credit loss rate

  W0.89   50.77   70.22   99.02
  

Gross amount

   1,095,863    18,455    45,318    21,126 
  

Loss allowance

   9,778    9,369    31,821    20,919 
    

 

 

   

 

 

   

 

 

   

 

 

 

Other revenue

  

Expected credit loss rate

   2.13   5.53   16.36   46.15
  

Gross amount

   373,224    976    3,558    47,340 
  

Loss allowance

   7,937    54    582    21,848 
    

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

7.

Prepaid expenses

The Company pays commissions to its retail stores and authorized dealers for wireless telecommunications services and for each service contract and installation 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 December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Current assets:

    

Incremental costs of obtaining contracts

  W2,022,314    1,920,023 

Others

   30,201    39,099 
  

 

 

   

 

 

 
  W2,052,515    1,959,122 
  

 

 

   

 

 

 

Non-current assets:

    

Incremental costs of obtaining contracts

  W885,951    1,112,595 

Others

   18,010    22,142 
  

 

 

   

 

 

 
  W903,961    1,134,737 
  

 

 

   

 

 

 

 

 (2)

Incremental costs of obtaining contracts

The amortization in connection with incremental costs of obtaining contracts recognized during the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)  2020   2019 

Amortization recognized

  W2,422,977    2,196,482 

 

8.

Contract assets and liabilities

In case of providing both wireless telecommunications 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 December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Contract assets:

    

Allocation of consideration between performance obligations

  W31,232    30,897 

Contract liabilities:

    

Wireless service contracts

   22,026    20,393 

Customer loyalty programs

   16,709    21,945 

Others

   52,591    57,261 
  

 

 

   

 

 

 
  W91,326    99,599 
  

 

 

   

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

8.

Contract assets and liabilities, Continued

 

 

 (2)

The amount of revenue recognized during the year ended December 31, 2020 related to the contract liabilities carried forward from the prior period isW73,016 million and during the year ended December 31, 2019 related to the contract liabilities carried forward from the prior period isW36,890 million. Details of revenue expected to be recognized from contract liabilities as of December 31, 2020 are as follows:

 

(In millions of won)                
   Less than 1 year   1~2 years   More than 2
years
   Total 

Wireless service contracts

  W22,026    —      —      22,026 

Customer loyalty programs

   13,704    2,123    882    16,709 

Others

   47,486    1,798    3,307    52,591 
  

 

 

   

 

 

   

 

 

   

 

 

 
  W83,216    3,921    4,189    91,326 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9.

Investment Securities

 

 (1)

Details of short-term investment securities as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   

Category

  December 31, 2020   December 31, 2019 

Beneficiary certificates

  FVTPL  W31,854    31,920 

 

(2)   Details of long-term investment securities as of December 31, 2020 and 2019 are as follows:

 

    

(In millions of won)        
   

Category

  December 31, 2020   December 31, 2019 

Equity instruments

  FVOCI(*)  W916,387    435,210 

Debt instruments

  FVTPL   67,301    75,423 
    

 

 

   

 

 

 
    W983,688    510,633 
  

 

 

   

 

 

 

 

(*)

The Company designated investments in equity instruments that are not held for trading as financial assets at FVOCI, the amounts to those FVOCI as of December 31, 2020 and 2019 areW916,387 million andW 435,210 million, respectively. During the year ended December 31, 2019, the Company disposed of 6,109,000 common shares issued by Hana Financial Group Inc. in exchange forW 221,146 million in cash. The valuation gain on financial assets at FVOCI ofW30,073 million was reclassified from reserves to retained earnings. Also, the Company acquired 2,177,401 shares of Kakao Co., Ltd. in exchange forW302,321 million in cash and designated the investments as financial assets at FVOCI. In relation to this transaction, the Company disposed 1,266,620 of its treasury shares to Kakao Co., Ltd. in exchange forW300,000 million in cash. (See note 21) As this transaction is considered as a forward transaction, the Company recognizedW28,787 million of gain of settlement of derivatives, the difference of fair value between the contract date and the transaction date.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

10.

Investments in Subsidiaries, Associates and Joint Ventures

 

 (1)

Investments in subsidiaries, associates and joint ventures as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Investments in subsidiaries

  W6,014,367    5,408,974 

Investments in associates and joint ventures

   5,343,137    5,169,184 
  

 

 

   

 

 

 
  W11,357,504    10,578,158 
  

 

 

   

 

 

 

 

 (2)

Details of investments in subsidiaries as of December 31, 2020 and 2019 are as follows:

 

(In millions of won, except for share data)  December 31, 2020   December 31, 2019 
   Number of
shares
   Ownership
(%)
   Carrying
amount
   Carrying
amount
 

SK Telink Co., Ltd.

   1,432,627    100.0   W243,988    243,988 

SK Broadband Co., Ltd.(*1)

   298,460,212    74.3    2,195,452    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.(*2)

   —      —      —      703,394 

SKT Americas, Inc.(*3)

   122    100.0    31,203    45,701 

Atlas Investment(*4)

   —      100.0    143,097    130,200 

One Store Co., Ltd.(*5)

   10,409,600    52.1    82,186    82,186 

id Quantique SA(*6)

   73,324,172    68.1    100,527    94,119 

SK Infosec Co., Ltd.(*2)

   46,836,584    62.6    747,804    44,410 

SK Telecom TMT Investment Corp.(*7)

   80,000    100.0    94,136    33,834 

FSK L&S Co., Ltd.

   2,415,750    60.0    17,757    17,757 

Incross Co., Ltd.(*8)

   2,786,455    34.6    53,722    53,722 

SK stoa Co., Ltd.(*9)

   3,631,355    100.0    40,029    —   

Broadband Nowon Co., Ltd.(*10)

   627,000    55.0    10,463    —   

Quantum Innovation Fund I(*11)

   —      59.9    15,969    4,807 

T map Mobility Co., Ltd.(*12)

   10,000,000    100.0    155,408    —   

SK O&S Co., Ltd. and others

   —      —      45,713    47,361 
      

 

 

   

 

 

 
      W6,014,367    5,408,974 
      

 

 

   

 

 

 

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

10.

Investments in Subsidiaries, Associates and Joint ventures, Continued

 

 (2)

Details of investments in subsidiaries as of December 31, 2020 and 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. has changed as SK Broadband Co., Ltd. issued new shares to the shareholders of the merged companies as the consideration for the merger. The Company has entered into a shareholder’s agreement with the acquiree’s shareholders andW320,984 million of derivative financial liabilities are recognized for drag-along right of the acquiree’s shareholders and for call option of the Company as of December 31, 2020. (See note 19)

(*2)

SK Infosec Co., Ltd. merged with Life & Security Holdings Co., Ltd. to improve business management efficiency on December 30, 2020. The Company acquired 34,200,560 shares of SK Infosec Co., Ltd. based on the exchange ratio on December 30, 2020. As a result of the merger, the Company’s ownership interest of SK Infosec Co., Ltd. has changed from 100% to 62.6%.

(*3)

The Company recognizedW14,498 million of impairment loss for the investments in SKT Americas, Inc. during the year ended December 31, 2020.

(*4)

The Company additionally contributedW12,897 million in cash during the year ended December 31, 2020.

(*5)

The ownership interest has changed as third-party share option of One Store Co., Ltd. was exercised during the year ended December 31, 2020.

(*6)

The Company additionally acquired 4,166,667 shares of id Quantique SA by contributingW6,408 million in cash in terms of an unequal paid-in capital increase during the year ended December 31, 2020.

(*7)

The Company additionally contributedW60,302 million in cash during the year ended December 31, 2020.

(*8)

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.

(*9)

The Company acquired 3,631,355 shares (100%) of SK stoa Co., Ltd. from SK Broadband Co., Ltd. atW40,029 million in cash during the year ended December 31, 2020.

(*10)

The Company has obtained control over Tbroad Nowon Broadcasting Co., Ltd. by acquiring 627,000 shares (55%) forW10,463 million in cash and Tbroad Nowon Broadcasting Co., Ltd. changed its name to Broadband Nowon Co., Ltd.

(*11)

The Company additionally contributedW11,162 million in cash during the year ended December 31, 2020, but there is no change in the ownership interest.

(*12)

The Company incorporated and acquired equity interest in T map Mobility Co., Ltd. on December 29, 2020 by spin-off in order to enhance business efficiency and expertise of the mobility business. (See note 39)

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

10.

Investments in Subsidiaries, Associates and Joint ventures, Continued

 

 (3)

Details of investments in associates and joint ventures as of December 31, 2020 and 2019 are as follows:

 

(In millions of won, except for share data) 
   December 31, 2020   December 31,
2019
 
   Number of
shares
   Ownership
(%)
   Carrying
amount
   

Carrying

amount

 

Investments in associates:

        

SK China Company Ltd.

   10,928,921    27.3   W601,192    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.(*4)

   22,033,898    23.3    65,341    65,341 

SK South East Asia Investment Pte. Ltd.(*5)

   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.(*6)

   10,000,000    33.3    8,810    —   

Invites Healthcare Co., Ltd.(*7)

   419,999    43.5    28,000    —   

SK Telecom Smart City Management Co., Ltd.(*8)

   —      —      —      12,642 

Carrot General Insurance Co., Ltd.
(formerly, Carrot Co., Ltd.)(*9)

   4,000,000    21.4    20,000    6,800 

12CM JAPAN and others(*7)

   —      —      79,926    68,720 
      

 

 

   

 

 

 
      W5,312,099    5,143,755 
      

 

 

   

 

 

 

Investment in a joint venture:

        

Finnq Co., Ltd.(*10)

   6,370,000    49.0   W25,429    25,429 

Techmaker GmbH(*10)

   12,500    50.0    5,609    —   
      

 

 

   

 

 

 
       31,038    25,429 
      

 

 

   

 

 

 
      W5,343,139    5,169,184 
      

 

 

   

 

 

 

 

47


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

10.

Investments in Subsidiaries, Associates and Joint ventures, Continued

 

 (3)

Details of investments in associates and joint ventures as of December 31, 2020 and 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 has changed as third-party share option was exercised and convertible bonds were converted during the year ended December 31, 2020.

(*4)

The ownership interest has changed as S.M. Culture & Contents Co., Ltd. issued 549,094 shares of common stock as a result of the merger with Hoteltrees Co., Ltd. during the year ended December 31, 2020.

(*5)

The Company additionally contributedW119,770 million in cash during the year ended December 31, 2020, but there is no change in the ownership interest.

(*6)

The Company newly investedW8,810 million in cash in Digital Games International Pte. Ltd. during the year ended December 31, 2020.

(*7)

The Company transferred the entire shares of Health Connect Co., Ltd. and assets related to the digital disease management business during the year ended December 31, 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 recognizedW7,641 million of gain on investments in associates andW12,451 million of gain on the business transfer. After the transaction, Invites Healthcare Co., Ltd. increased its capital by a third-party allotment which changed the Company’s ownership interest.

(*8)

The Company disposed the entire shares of SK Telecom Smart City Management Co., Ltd. during the year ended December 31, 2020.

(*9)

The Company acquired 1,360,000 shares of common stock and 2,640,000 shares of preferred stock of Carrot General Insurance Co., Ltd. (formerly, Carrot Co., Ltd.) atW6,800 million andW13,200 million, respectively, during the year ended December 31, 2019, and has converted the entire preferred stock into common stock during the year ended December 31, 2020.

(*10)

This investment was classified as investment in a joint venture as the Company has joint control pursuant to the agreement with the other shareholders.

 

48


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

10.

Investments in Subsidiaries, Associates and Joint ventures, Continued

 

 (4)

The market value of investments in listed subsidiaries as of December 31, 2020 and 2019 are as follows:

 

(In millions of won, except for share data)

 

   December 31, 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

  W5,280    29,246,387    154,421    5,970    29,246,387    174,601 

Incross Co., Ltd.

   54,000    2,786,455    150,469    25,150    2,786,455    70,079 

 

(5)   The market value of investments in listed associates as of December 31, 2020 and 2019 are as follows:

 

    

(In millions of won, except for share data)

 

   December 31, 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.

  W8,620    7,600,649    65,518    5,620    7,600,649    42,716 

SK hynix Inc.

   118,500    146,100,000    17,312,850    94,100    146,100,000    13,748,010 

S.M.Culture & Contents Co., Ltd.

   1,630    22,033,898    35,915    1,530    22,033,898    33,712 

 

49


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

11.

Property and Equipment

 

 (1)

Property and equipment as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)                
   December 31, 2020 
   Acquisition cost   Accumulated
depreciation
   Accumulated
impairment
   Carrying
amount
 

Land

  W638,371    —      —      638,371 

Buildings

   1,258,656    (670,248   (450   587,958 

Structures

   912,496    (594,000   (1,601   316,895 

Machinery

   26,263,114    (20,906,377   (1,745   5,354,992 

Right-of-use assets

   1,703,195    (380,084   —      1,323,111 

Other

   1,402,064    (996,924   —      405,140 

Construction in progress

   531,081    —      —      531,081 
  

 

 

   

 

 

   

 

 

   

 

 

 
  W32,708,977    (23,547,633   (3,796   9,157,548 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of won)                
   December 31, 2019 
   Acquisition cost   Accumulated
depreciation
   Accumulated
impairment
   Carrying
amount
 

Land

  W618,012    —      —      618,012 

Buildings

   1,243,945    (642,870   (450   600,625 

Structures

   908,504    (560,169   (1,601   346,734 

Machinery

   25,007,286    (19,911,504   (21,117   5,074,665 

Right-of-use assets

   1,533,430    (294,236   —      1,239,194 

Other

   1,480,921    (980,034   —      500,887 

Construction in progress

   672,592    —      —      672,592 
  

 

 

   

 

 

   

 

 

   

 

 

 
  W31,464,690    (22,388,813   (23,168   9,052,709 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

50


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

11.

Property and Equipment, Continued

 

 (2)

Changes in property and equipment for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won) 
   2020 
   Beginning
balance
   Acquisition   Disposal  Transfer  Depreciation  Impairment(*)  Spin-off  Ending
balance
 

Land

  W618,012    84    (17,256  37,531   —     —     —     638,371 

Buildings

   600,625    1,607    (20,810  48,203   (41,667  —     —     587,958 

Structures

   346,734    2,393    (4,417  9,167   (36,982  —     —     316,895 

Machinery

   5,074,665    99,659    (19,180  1,845,507   (1,635,430  (1,745  (8,484  5,354,992 

Right-of-use assets

   1,239,194    514,681    (55,743  —     (374,974  —     (47  1,323,111 

Other

   500,887    824,205    (4,908  (822,401  (92,051  —     (592  405,140 

Construction in progress

   672,592    1,149,751    (5,573  (1,283,223  —     —     (2,466  531,081 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  W9,052,709    2,592,380    (127,887  (165,216  (2,181,104  (1,745  (11,589  9,157,548 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(In millions of won) 
   2019 
   Beginning
balance
   Acquisition   Disposal  Transfer  Depreciation  Impairment(*)  Ending
balance
 

Land

  W544,419    34,246    (150  39,497   —     —     618,012 

Buildings

   537,000    53,298    (1,126  50,738   (38,835  (450  600,625 

Structures

   355,739    18,200    (2  10,536   (36,138  (1,601  346,734 

Machinery

   4,364,805    256,819    (8,755  2,079,119   (1,596,206  (21,117  5,074,665 

Right-of-use assets

   779,388    880,013    (43,541  —     (376,666  —     1,239,194 

Other

   617,837    1,335,828    (1,046  (1,355,841  (95,891  —     500,887 

Construction in progress

   506,120    1,089,126    (5,847  (916,807  —     —     672,592 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  W7,705,308    3,667,530    (60,467  (92,758  (2,143,736  (23,168  9,052,709 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(*)

The Company recognized impairment losses for obsolete assets during the years ended December 31, 2020 and 2019.

 

51


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

12.

Lease

 

 (1)

As a lessee

 

 1)

Details of the right-of-use assets as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Land, buildings and structures

  W1,095,216    962,483 

Others

   227,895    276,711 
  

 

 

   

 

 

 
  W1,323,111    1,239,194 
  

 

 

   

 

 

 

 

 2)

Details of amounts recognized in the separate statements of income for the years ended December 31, 2020 and 2019 as a lessee are as follows:

 

(In millions of won)        
   2020   2019 

Depreciation of right-of-use assets:

    

Land, buildings and structures

  W291,883    293,488 

Others

   83,091    83,178 
  

 

 

   

 

 

 
  W374,974    376,666 
  

 

 

   

 

 

 

Interest expense on lease liabilities

  W18,875    17,519 

Expenses related to short-term leases and low-value assets leases are immaterial.

 

 3)

The total cash outflows due to lease payments for the years ended December 31, 2020 and 2019 amount toW368,542 million andW382,140 million, respectively.

 

52


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

12.

Lease, Continued

 

 (2)

As a lessor

 

 1)

Finance lease

The Company recognized interest income ofW428 million andW 287 million for lease receivables for the years ended December 31, 2020 and 2019, respectively.

The following table sets out a maturity analysis of lease receivables, presenting the undiscounted lease payments to be received subsequent to December 31, 2020.

 

(In millions of won)    
   Amount 

Less than 1 year

  W12,039 

1 ~ 2 years

   8,584 

2 ~ 3 years

   8,145 

3 ~ 4 years

   8,349 

4 ~ 5 years

   2,479 
  

 

 

 

Undiscounted lease payments

  W39,596 
  

 

 

 

Unrealized finance income

   845 

Net investment in the lease

   38,751 

 

 2)

Operating lease

The Company recognized lease income ofW113,400 million andW88,934 million for the year ended December 31, 2020 and 2019, respectively, of which variable lease payments received areW21,715 million andW25,228 million, respectively.

The following table sets out a maturity analysis of lease payments, presenting the undiscounted lease payments to be received subsequent to December 31, 2020.

 

(In millions of won)    
   Amount 

Less than 1 year

  W45,870 

1 ~ 2 years

   15,081 

2 ~ 3 years

   4,043 

3 ~ 4 years

   1,211 

4 ~ 5 years

   12 

More than 5 year

   5 
  

 

 

 
  W66,222 
  

 

 

 

 

53


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

13.

Goodwill

Goodwill as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Goodwill related to merger of Shinsegi Telecom, Inc.

  W1,306,236    1,306,236 

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 6.3(4.9% of 2019) to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of (-)0.2%((-)0.6% of 2019) was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Company’s long-term wireless telecommunication industry growth rate. Management of the Company does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

 

14.

Intangible Assets

 

 (1)

Intangible assets as of December 31, 2020 and 2019 are as follows:

 

(In millions of won) 
   December 31, 2020 
   Acquisition
cost
   Accumulated
amortization
  Accumulated
impairment
  Carrying
amount
 

Frequency usage rights(*1)

  W6,210,882    (4,079,729  (198,388  1,932,765 

Land usage rights

   43,192    (39,089  —     4,103 

Industrial rights

   41,110    (31,451  —     9,659 

Facility usage rights

   58,638    (43,577  —     15,061 

Club memberships(*2)

   77,917    —     (27,219  50,698 

Other(*3)

   3,345,627    (2,692,830  —     652,797 
  

 

 

   

 

 

  

 

 

  

 

 

 
  W9,777,366    (6,886,676  (225,607  2,665,083 
  

 

 

   

 

 

  

 

 

  

 

 

 

 

(In millions of won) 
   December 31, 2019 
   Acquisition
cost
   Accumulated
amortization
  Accumulated
impairment
  Carrying
amount
 

Frequency usage rights(*1)

  W6,210,882    (3,563,381  —     2,647,501 

Land usage rights

   45,930    (40,222  —     5,708 

Industrial rights

   41,485    (29,431  —     12,054 

Facility usage rights

   56,479    (40,955  —     15,524 

Club memberships(*2)

  ��75,496    —     (27,885  47,611 

Other(*3)

   3,245,063    (2,512,309  —     732,754 
  

 

 

   

 

 

  

 

 

  

 

 

 
  W9,675,335    (6,186,298  (27,885  3,461,152 
  

 

 

   

 

 

  

 

 

  

 

 

 

 

54


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

14.

Intangible Assets, Continued

 

 (1)

Intangible assets as of December 31, 2020 and 2019 are as follows, Continued:

 

(*1)

During the year ended December 31, 2020, the Ministry of Science and Information and Communication Technology approved the discontinuance of 2G service. The Company recognized an impairment loss ofW12,388 million related to 800MHz frequency usage rights used for 2G service. In addition, as of December 31, 2020, due to the change in its business environment, the Company expects that it is no longer probable that its 28GHz frequency usage rights will be in the condition necessary for it to be capable of operating in the manner intended by management. As a result, the Company performed impairment test over the frequency usage rights. As a result, the recoverable amount (determining based on value in use) exceeded the carrying value, and an impairment loss ofW186,000 million was recognized.

(*2)

Club memberships are classified as intangible assets with indefinite useful life and are not amortized.

(*3)

Other intangible assets primarily consist of computer software and others.

(2)

Changes in intangible assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    
   2020 
   Beginning
balance
   Acquisition   Disposal  Transfer   Amortization  Impairment  Spin-off  Ending
balance
 

Frequency usage rights

  W2,647,501    —      —     —      (516,348  (198,388  —     1,932,765 

Land usage rights

   5,708    550    (88  —      (2,067  —     —     4,103 

Industrial rights

   12,054    750    (81  —      (2,415  —     (649  9,659 

Facility usage rights

   15,524    1,665    (3  537    (2,662  —     —     15,061 

Club memberships

   47,611    6,472    (1,999  —      —     —     (1,386  50,698 

Other

   732,754    71,915    (9,064  196,280    (307,030  —     (32,058  652,797 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
  W  3,461,152    81,352    (11,235  196,817    (830,522  (198,388  (34,093  2,665,083 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

 

(In millions of won) 
   2019 
   Beginning
balance
   Acquisition   Disposal  Transfer   Amortization  Impairment  Ending
balance
 

Frequency usage rights

  W3,139,978    —      —     —      (492,477  —     2,647,501 

Land usage rights

   6,498    2,017    (14  —      (2,793  —     5,708 

Industrial rights

   15,300    759    (1,206  —      (2,799  —     12,054 

Facility usage rights

   16,008    2,093    (25  177    (2,729  —     15,524 

Club memberships

   47,411    1,113    (850  —      —     (63  47,611 

Other

   783,395    103,871    (2,464  134,525    (286,573  —     732,754 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
  W  4,008,590    109,853    (4,559  134,702    (787,371  (63  3,461,152 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

 

55


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

14.

Intangible Assets, Continued

 

 

 (3)

Research and development expenditures recognized as expense for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Research and development costs expensed as incurred

  W352,907    324,053 

 

 (4)

Details of frequency usage rights as of December 31, 2020 are as follows:

 

(In millions of won) 
   Amount   

Description

  Commencement
of amortization
  Completion of
amortization
 

800 MHz license

  W13,515   CDMA and LTE service  Jul. 2011   Jun. 2021 

1.8 GHz license

   125,620   LTE service  Sept. 2013   Dec. 2021 

2.6 GHz license

   728,510   LTE service  Sept. 2016   Dec. 2026 

2.1 GHz license

   94,963   W-CDMA and LTE service  Dec. 2016   Dec. 2021 

3.5 GHz license(*)

   953,474   5G service  Apr. 2019   Nov. 2028 

28 GHz license(*)

   16,683   5G service  —     Nov. 2023 
  

 

 

       
  W1,932,765       
  

 

 

       

 

(*)

The Company participated in the frequency license allocation auction hosted by Ministry of Science and Information and Communication Technology and was assigned the 3.5GHz and 28GHz bands of frequency license during the year ended December 31, 2018. The considerations payable for the bands of frequency areW1,218,500 million andW207,300 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 license as intangible assets at the date of initial lump sum payment and began amortization for 3.5GHz frequency license in April 2019. The amortization for 28GHz frequency 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)

Long-term borrowings as of December 31, 2020 and 2019 are as follows:

 

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

Lender

  Annual interest
rate (%)
   Maturity   December 31,
2020
  December 31,
2019
 

Export Kreditnamnden(*)

   1.70    Apr. 29, 2022   W

 

18,726

(USD 17,211

 

  

33,266

(USD 28,732

 

      

 

 

  

 

 

 

Less present value discount

 

   (118  (332
  

 

 

  

 

 

 
   18,608   32,934 

Less current installments

 

   (12,441  (13,157
  

 

 

  

 

 

 
  W6,167   19,777 
  

 

 

  

 

 

 

 

(*)

The long-term borrowings are to be repaid by installments on an annual basis from 2014 to 2022.

 

56


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

15.

Borrowings and Debentures, Continued

 

 (2)

Debentures as of December 31, 2020 and 2019 are as follows:

 

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

Purpose

  Maturity   Annual
interest rate
(%)
   December 31,
2020
   December 31,
2019
 

Unsecured corporate bonds

  Operating fund   2021    4.22    190,000    190,000 

Unsecured corporate bonds

  Operating and refinancing fund   2022    3.30    140,000    140,000 

Unsecured corporate bonds

     2032    3.45    90,000    90,000 

Unsecured corporate bonds

  Operating fund   2023    3.03    230,000    230,000 

Unsecured corporate bonds

     2033    3.22    130,000    130,000 

Unsecured corporate bonds

     2024    3.64    150,000    150,000 

Unsecured corporate bonds

  Refinancing fund   2021    2.66    150,000    150,000 

Unsecured corporate bonds

     2024    2.82    190,000    190,000 

Unsecured corporate bonds

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

Unsecured corporate bonds

     2025    2.49    150,000    150,000 

Unsecured corporate bonds

     2030    2.61    50,000    50,000 

Unsecured corporate bonds

  Operating fund   2025    2.66    70,000    70,000 

Unsecured corporate bonds

     2030    2.82    90,000    90,000 

Unsecured corporate bonds

  Operating and refinancing fund   2025    2.55    100,000    100,000 

Unsecured corporate bonds

     2035    2.75    70,000    70,000 

Unsecured corporate bonds

  Operating fund   2021    1.80    100,000    100,000 

Unsecured corporate bonds

     2026    2.08    90,000    90,000 

Unsecured corporate bonds

     2036    2.24    80,000    80,000 

Unsecured corporate bonds

     2021    1.71    50,000    50,000 

Unsecured corporate bonds

     2026    1.97    120,000    120,000 

Unsecured corporate bonds

     2031    2.17    50,000    50,000 

Unsecured corporate bonds

  Refinancing fund   2020    1.93    —      60,000 

Unsecured corporate bonds

     2022    2.17    120,000    120,000 

Unsecured corporate bonds

     2027    2.55    100,000    100,000 

Unsecured corporate bonds

  Operating and refinancing fund   2032    2.65    90,000    90,000 

Unsecured corporate bonds

  Refinancing fund   2020    2.39    —      100,000 

Unsecured corporate bonds

  Operating and refinancing fund   2022    2.63    80,000    80,000 

Unsecured corporate bonds

  Refinancing fund   2027    2.84    100,000    100,000 

Unsecured corporate bonds

     2021    2.57    110,000    110,000 

Unsecured corporate bonds

     2023    2.81    100,000    100,000 

Unsecured corporate bonds

     2028    3.00    200,000    200,000 

Unsecured corporate bonds

     2038    3.02    90,000    90,000 

Unsecured corporate bonds

  Operating and refinancing fund   2021    2.10    100,000    100,000 

Unsecured corporate bonds

     2023    2.33    150,000    150,000 

Unsecured corporate bonds

     2038    2.44    50,000    50,000 

Unsecured corporate bonds

  Operating fund   2022    2.03    180,000    180,000 

Unsecured corporate bonds

     2024    2.09    120,000    120,000 

Unsecured corporate bonds

     2029    2.19    50,000    50,000 

Unsecured corporate bonds

     2039    2.23    50,000    50,000 

Unsecured corporate bonds

  Operating and refinancing fund   2022    1.40    120,000    120,000 

Unsecured corporate bonds

     2024    1.49    60,000    60,000 

Unsecured corporate bonds

     2029    1.50    120,000    120,000 

Unsecured corporate bonds

     2039    1.52    50,000    50,000 

Unsecured corporate bonds

     2049    1.56    50,000    50,000 

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

15.

Borrowings and Debentures, Continued

 

 (2)

Debentures as of December 31, 2020 and 2019 are as follows, Continued:

 

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

Purpose

  Maturity   Annual interest rate
(%)
   December 31,
2020
  December 31,
2019
 

Unsecured corporate bonds

  Operating fund   2022    1.69    230,000   230,000 

Unsecured corporate bonds

     2024    1.76    70,000   70,000 

Unsecured corporate bonds

     2029    1.79    40,000   40,000 

Unsecured corporate bonds

     2039    1.81    60,000   60,000 

Unsecured corporate bonds

  Operating and refinancing fund   2023    1.64    170,000   —   

Unsecured corporate bonds

  Operating fund   2025    1.75    130,000   —   

Unsecured corporate bonds

     2030    1.83    50,000   —   

Unsecured corporate bonds

     2040    1.87    70,000   —   

Unsecured corporate bonds

  refinancing fund   2025    1.40    140,000   —   

Unsecured corporate bonds

     2030    1.59    40,000   —   

Unsecured corporate bonds

     2040    1.76    110,000   —   

Unsecured global bonds

  Operating fund   2027    6.63    

435,200

(USD 400,000

 

  

463,120

(USD 400,000

 

Unsecured global bonds

     2023    3.75    

544,000

(USD 500,000

 

  

578,900

(USD 500,000

 

Floating rate notes(*)

     2020    3M LIBOR +0.88    —     

347,340

(USD 300,000

 

        

 

 

  

 

 

 

Floating rate notes (*)

     2025    3M LIBOR +0.91    

326,400

(USD 300,000

 

  —   
        

 

 

  

 

 

 
   6,895,600   6,429,360 

Less discounts on bonds

 

   (20,360  (21,396
  

 

 

  

 

 

 
   6,875,240   6,407,964 

Less current installments of bonds

 

   (699,664  (507,135
  

 

 

  

 

 

 
  W6,175,576   5,900,829 
  

 

 

  

 

 

 

 

(*)

3M LIBOR rates are 0.24% and 1.91% as of December 31, 2020 and 2019, respectively.

 

58


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

16.

Long-term Payables - other

 

 (1)

As of December 31, 2020 and 2019, details of long-term payables – other related to the acquisition of frequency usage rights are as follows (See note 14):

 

(In millions of won)        
   December 31,
2020
   December 31,
2019
 

Long-term payables – other

  W1,626,040    2,051,389 

Present value discount on long-term payables – other

   (59,717   (82,851

Current installments of long-term payables – other

   (424,600   (423,839
  

 

 

   

 

 

 

Carrying amount at December 31

  W1,141,723    1,544,699 
  

 

 

   

 

 

 

 

 (2)

Principal amounts of long-term payables repaid during the year ended December 31, 2020 and 2019 areW425,349 million, respectively. The repayment schedule of the principal amount of long-term payables – other as of December 31, 2020 is as follows:

 

(In millions of won)    
   Amount 

Less than 1 year

  W425,349 

1~3 years

   444,480 

3~5 years

   382,290 

More than 5 years

   373,921 
  

 

 

 
  W1,626,040 
  

 

 

 

 

17.

Provisions

Changes in provisions for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   For the year ended December 31, 2020   As of December 31,
2020
 
   Beginning
balance
   Increase   Utilization  Reversal  Spin-off  Ending
balance
   Current   Non-current 

Provision for restoration

  W83,675    8,939    (588  —     (60  91,966    36,013    55,953 

Emission allowance

   5,256    7,400    —     (5,232  —     7,424    7,424    —   
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

   

 

 

   

 

 

 
  W88,931    16,339    (588  (5,232  (60  99,390    43,437    55,953 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

   

 

 

   

 

 

 

 

(In millions of won)        
   For the year ended December 31, 2019   As of December 31,
2019
 
   Beginning
balance
   Increase   Utilization  Reversal  Ending
balance
   Current   Non-current 

Provision for restoration

  W79,033    5,772    (656  (474  83,675    42,530    41,145 

Emission allowance

   2,238    5,036    (1,086  (932  5,256    5,256    —   
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

 
  W81,271    10,808    (1,742  (1,406  88,931    47,786    41,145 
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

   

 

 

   

 

 

 

 

59


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

18.

Defined Benefit Liabilities

 

 (1)

Details of defined benefit liabilities as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Present value of defined benefit obligations

  W464,846    422,782 

Fair value of plan assets

   (457,425   (397,689
  

 

 

   

 

 

 
  W7,421    25,093 
  

 

 

   

 

 

 

 

 (2)

Principal actuarial assumptions as of December 31, 2020 and 2019 are as follows:

 

   December 31, 2020  December 31, 2019 

Discount rate for defined benefit obligations

   2.41  2.36

Expected rate of salary increase

   4.67  4.69

Discount rate for defined benefit obligation is determined based on market yields of high-quality corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Company’s historical promotion index, inflation rate and salary increase ratio.

 

 (3)

Changes in defined benefit obligations for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    
   2020   2019 

Beginning balance

  W422,782    332,044 

Current service cost

   57,480    45,664 

Past service cost

   815    —   

Interest cost

   10,364    8,638 

Remeasurement

    

- Demographic assumption

   —      19,746 

- Financial assumption

   (1,686   28,774 

- Adjustment based on experience

   3,038    5,105 

Benefit paid

   (26,066   (21,875

Spin-off

   (5,605   —   

Others (*)

   3,724    4,686 
  

 

 

   

 

 

 

Ending balance

  W464,846    422,782 
  

 

 

   

 

 

 

 

(*)

Others include changes in liabilities due to employee’s transfers among affiliates for the years ended December 31, 2020 and 2019.

 

60


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

18.

Defined Benefit Liabilities, Continued

 

 

 (4)

Changes in plan assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    
   2020   2019 

Beginning balance

  W397,689    363,878 

Interest income

   9,249    9,073 

Remeasurement

   (1,297   (2,023

Contributions

   83,000    51,500 

Benefit paid

   (28,188   (22,951

Spin-off

   (5,316   —   

Others

   2,288    (1,788
  

 

 

   

 

 

 

Ending balance

  W457,425    397,689 
  

 

 

   

 

 

 

The Company expects to contributeW93,909 million to the defined benefit plans in 2021.

 

 (5)

Total cost of benefit plan, which is recognized in profit and loss (included in labor in the statement of income) and capitalized into construction-in-progress, for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    
   2020   2019 

Current service cost

  W57,480    45,664 

Past service cost

   815    —   

Net interest cost(income)

   1,115    (435
  

 

 

   

 

 

 
  W59,410    45,229 
  

 

 

   

 

 

 

Costs related to the defined benefit except for the amounts transferred to construction in progress are included labor expenses and Research and development expenses.

 

 (6)

Details of plan assets as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)    
   2020   2019 

Equity instruments

  W1,879    342 

Debt instruments

   150,485    123,951 

Short-term financial instruments, etc.

   305,061    273,396 
  

 

 

   

 

 

 
  W457,425    397,689 
  

 

 

   

 

 

 

 

 (7)

As of December 31, 2020, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:

 

(In millions of won)        
   0.5% Increase   0.5% Decrease 

Discount rate

  W(20,600)    22,155 

Expected salary increase rate

   22,151    (20,790

The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

A weighted average duration of defined benefit obligations as of December 31, 2020 and 2019 are 9.98 years and 10.35 years, respectively.

 

61


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

 

19.

Derivative Instruments

 

 (1)

Currency and interest rate swap contracts under cash flow hedge accounting as of December 31, 2020 are as follows:

 

(In thousands of foreign currencies)

Borrowing

date

  

Hedging Instrument (Hedged item)

  

Hedged risk

  

Financial
institution

  

Duration of
contract

Jul. 20, 2007  

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

  Foreign currency risk  Morgan Stanley and four other banks  Jul. 20, 2007 ~
Jul. 20, 2027
Dec. 16, 2013  

Fixed-to-fixed cross currency swap

(U.S. dollar borrowing amounting to USD 17,211)

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

Apr. 16,

2018

  

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds face value of USD 500,000)

  Foreign currency risk  The Export-Import Bank of Korea and three other banks  Apr. 16, 2018~ Apr. 16, 2023
Mar. 4, 2020  

Floating-to-fixed cross-currency interest rate swap

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

  Foreign currency risk and interest rate risk  Citibank  Mar. 4, 2020~
Jun. 4, 2025

 

 (2)

In relation to the merger of SK Broadband Co., Ltd. in 2020, the Company has entered into a shareholders’ agreement with the shareholders of the acquirees. Pursuant to the agreement, when certain conditions are met within a period of time subsequent to the merger, the shareholders of the acquirees can exercise their drag-along rights and require the Company to sell its shares in SK Broadband Co., Ltd. Should the shareholders exercise their drag-along rights, the Company also can exercise its call options over the shares held by those shareholders. The Company recognized a derivative financial liability ofW320,984 million for the rights included in the shareholders’ agreement as of December 31, 2020.

The fair value of SK Broadband Co., Ltd.’s common stock (post-merger) was estimated using 5-year projected cash flows discounted at 6.9% per annum. The fair value of the derivative financial liability was determined by using the Binomial Model based on various assumptions including the price of common stock and its price fluctuations. The difference in fair values between the date of merger and the December 31, 2020 is insignificant. The significant unobservable inputs used in the fair value measurement and inter-relationship between significant unobservable inputs and fair value measurement are as below:

 

Significant unobservable inputs

  

Correlations between inputs

and fair value measurements

Fair value of SK Broadband Co., Ltd.’s common stock  

The estimated fair value of derivative liabilities would decrease (increase) if the fair value of common stock would increase (decrease)

Volatility  

The estimated fair value of derivative liabilities would decrease (increase) if the volatility of stock price increase (decrease)

 

 (3)

The Company has entered into the agreement with Newberry Global Limited, whereby the Company has been granted subscription right and contingent subscription right to acquire Newberry series-C RCPS. The Company recognized long-term derivative financial assets ofW14,155 million and derivative financial assets ofW8,704 million, respectively, for subscription right and contingent subscription right.

 

62


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

19.

Derivative Instruments, Continued

 

 

 (4)

The fair value of derivative financial instruments to which the Company applies cash flow hedge is recorded in the financial statements as long-term derivative financial assets and long-term derivative financial liabilities. As of December 31, 2020, details of fair values of the derivatives assets and liabilities are as follows:

 

(In millions of won, thousands of foreign currencies)

    

Hedging instrument (Hedged item)

  Cash flow hedge   Fair value 

Non-current assets:

    

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

  W32,059    32,059 

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

   30,247    30,247 
  

 

 

   

 

 

 
   62,306    62,306 
  

 

 

   

 

 

 

Non-current liabilities:

    

Fixed-to-fixed cross currency swap
(U.S. dollar borrowing amounting to USD 17,211)

   453    453 

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

   40,565    40,565 
  

 

 

   

 

 

 
  W41,018    41,018 
  

 

 

   

 

 

 

 

 (5)

The fair value of derivatives held for trading is recorded in the financial statements as derivative financial assets, long-term derivative financial assets and long-term derivative financial liabilities. As of December 31, 2020, details of fair values of the derivative assets and liabilities are as follows:

 

(In millions of won)

    
   Held for trading   Fair value 

Current assets:

    

Contingent subscription right

  W8,704    8,704 

Non-current assets:

    

Subscription right

   14,155    14,155 
  

 

 

   

 

 

 
   22,859   22,859 
  

 

 

   

 

 

 

Non-current liabilities:

    

Drag-along and call option rights

  W320,984    320,984 

 

63


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

20.

Share Capital and Capital Surplus and Others

 

The Company’s outstanding share capital consists entirely of common shares with a par value ofW500. The number of authorized, issued and outstanding common stocks and the details of capital surplus and others as of December 31, 2020 and 2019 are as follows:

 

(In millions of won, except for share data)        
   December 31, 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

  W44,639    44,639 

Capital surplus and others:

    

Paid-in surplus

   2,915,887    2,915,887 

Treasury shares (Note 21)

   (2,123,661   (1,696,997

Hybrid bonds (Note 22)

   398,759    398,759 

Share option (Note 23)

   1,481    1,302 

Others

   (903,332   (903,332
  

 

 

   

 

 

 
  W289,134    715,619 
  

 

 

   

 

 

 

 

(*) 

In 2002 and 2003, the Company retired treasury shares with reduction of its retained earnings before appropriation. As a result, the Company’s outstanding shares have decreased without change in share capital.

There were no changes in share capital during the years ended December 31, 2020 and 2019 and details of shares outstanding as of December 31, 2020 and 2019 are as follows:    

 

(In shares)        
   2020   2019 
   Issued
shares
   Treasury
shares
   Outstanding
shares
   Issued
shares
   Treasury
shares
   Outstanding
shares
 

Shares outstanding

   80,745,711    9,418,558    71,327,153    80,745,711    7,609,263    73,136,448 

 

64


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

21.

Treasury Shares

Treasury shares as of December 31, 2020 and 2019 are as follows:

 

(In millions of won, except for share data)        
   December 31, 2020   December 31, 2019 

Number of shares (*)

   9,418,558    7,609,263 

Acquisition cost

  W2,123,661    1,696,997 

 

(*)

The Company acquired 1,809,295 of its treasury shares forW426,664 million in an effort to increase shareholder value by stabilizing its stock price during the year ended December 31, 2020 and disposed 1,266,620 of its treasury shares to Kakao Co., Ltd. in exchange forW300,000 million in cash and acquired 2,177,401 shares of Kakao Co., Ltd. forW302,321 million during the year ended December 31, 2019 in order to solidify the future ICT business cooperation.

 

22.

Hybrid Bonds

Hybrid bonds classified as equity as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)                      
   

Type

  Issuance date   Maturity(*1)   Annual
interest
rate

(%)(*2)
   December 31,
2020
  December 31,
2019
 

Series 2-1 hybrid bonds

  

Unsecured subordinated bearer bond

   June 7, 2018    June 7, 2078    3.70   W300,000   300,000 

Series 2-2 hybrid bonds

  

Unsecured subordinated bearer bond

   June 7, 2018    June 7, 2078    3.65    100,000   100,000 

Issuance costs

           (1,241  (1,241
          

 

 

  

 

 

 
          W398,759   398,759 
          

 

 

  

 

 

 

As there is no contractual obligation to deliver financial assets to the holders of hybrid bonds, the Company classified the hybrid bonds as equity.

These are subordinated bonds which rank before common shares in the event of a liquidation or reorganization of the Parent Company.

 

(*1)

The Company has a right to extend the maturity without any notice or announcement.

(*2)

Annual interest rate is determined as yield rate of 5 year national bond plus premium. According to the step-up clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.

 

65


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

23.

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,

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. 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

 

 

 

 

(*)

Parts of the grant that have not met the vesting conditions have been forfeited during the year ended December 31, 2019.

 

 (2)

Share compensation expense recognized during the year ended December 31, 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

  W1,302 

During the year ended December 31, 2020

   179 

In subsequent periods

   115 
  

 

 

 
  W1,596 
  

 

 

 

 

 (3)

The Company used binomial option pricing model 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)  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 Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

24.

Retained Earnings

 

 (1)

Retained earnings as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Appropriated:

    

Legal reserve

  W22,320    22,320 

Reserve for business expansion

   11,631,138    11,531,138 

Reserve for technology development

   4,365,300    4,265,300 
  

 

 

   

 

 

 
   15,996,438    15,796,438 

Unappropriated

   665,882    854,189 
  

 

 

   

 

 

 
  W16,684,640    16,672,947 
  

 

 

   

 

 

 

 

 (2)

Legal reserve

The Korean Commercial Act requires the Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. The legal reserve may not be utilized for cash dividends, but may only be used to offset a future deficit, if any, or may be transferred to share capital.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

25.

Statements of Appropriation of Retained Earnings

Details of statements of appropriation of retained earnings for the years ended December 31, 2020 and 2019 are as follows:

Date of appropriation for 2020: March 25, 2021

Date of appropriation for 2019: March 26, 2020

 

(In millions of won)        
   2020   2019 

Unappropriated retained earnings:

    

Unappropriated retained earnings

  W1,801    2,203 

Changes in accounting policies

   (5,840   (25,229

Remeasurement of defined benefit liabilities

   (2,325   (40,720

Reclassification of valuation gain on FVOCI

   1,356    30,073 

Interim dividends:

    2020:W1,000 per share,

               200% on par value

    2019:W1,000 per share,

               200% on par value

   (73,136   (71,870

Interest on hybrid bonds

   (14,766   (14,766

Profit for the year

   758,792    980,338 
  

 

 

   

 

 

 
   665,882    860,029 
  

 

 

   

 

 

 

Appropriation of retained earnings:

    

Reserve for business expansion

   —      100,000 

Reserve for technology development

   —      100,000 

Cash dividends:

    2020:W 9,000 per share,

               1,800% on par value

    2019:W 9,000 per share,

               1,800% on par value

   641,944    658,228 
  

 

 

   

 

 

 
   641,944    858,228 
  

 

 

   

 

 

 

Unappropriated retained earnings to be carried over to subsequent year

  W23,938    1,801 
  

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

26.

Reserves

 

 (1)

Details of reserves, net of taxes, as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Valuation gain(loss) on FVOCI

  W323,246    (41,998

Valuation gain(loss) on derivatives

   8,199    (7,308
  

 

 

   

 

 

 
  W331,445    (49,306
  

 

 

   

 

 

 

 

 (2)

Changes in reserves for the years ended December 31, 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

  W2,047    (42,312   (40,265

Changes, net of taxes

   (44,045   35,004    (9,041
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

   (41,998   (7,308   (49,306

Balance at January 1, 2020

   (41,998   (7,308   (49,306

Changes, net of taxes

   365,244    15,507    380,751 
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2020

  W323,246    8,199    331,445 
  

 

 

   

 

 

   

 

 

 

 

 (3)

Changes in valuation gain (loss) on financial assets at FVOCI for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won) 
   2020   2019 

Balance at January 1

  W(41,998   2,047 

Amount recognized as other comprehensive income (loss) during the year, net of taxes

   366,600    (13,972

Amount reclassified to retained earnings, net of taxes

   (1,356   (30,073
  

 

 

   

 

 

 

Balance at December 31

  W323,246    (41,998
  

 

 

   

 

 

 

 

 (4)

Changes in valuation gain (loss) on derivatives for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Balance at January 1

  W(7,308   (42,312

Amount recognized as other comprehensive income during the year, net of taxes

   11,163    28,532 

Amount reclassified to profit or loss, net of taxes

   4,344    6,472 
  

 

 

   

 

 

 

Balance at December 31

  W8,199    (7,308
  

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

27.

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 

Products transferred at a point in time:

 

Product sales

  W43,014    111,065 

Services transferred over time:

 

Wireless service revenue(*1)

   9,989,461    9,721,569 

Cellular interconnection revenue

   502,252    518,810 

Others(*2)

   1,211,903    1,069,898 
  

 

 

   

 

 

 
   11,703,616    11,310,277 
  

 

 

   

 

 

 
   W11,746,630   11,421,342 
  

 

 

   

 

 

 

 

(*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.

 

28.

Other Operating Expenses

Details of other operating expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Communication

  W29,730    30,613 

Utilities

   256,095    247,263 

Taxes and dues

   20,872    26,307 

Repair

   241,076    246,840 

Research and development

   352,907    324,053 

Training

   25,727    27,272 

Bad debt for accounts receivable – trade

   23,611    4,036 

Other

   35,472    48,043 
  

 

 

   

 

 

 
   W985,490   954,427 
  

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

29.

Other Non-operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Other Non-operating Income:

    

Gain on disposal of property and equipment and intangible assets

  W31,711    5,281 

Gain on business transfer

   12,451    59,375 

Others

   38,511    12,272 
  

 

 

   

 

 

 
   W82,673   76,928 
  

 

 

   

 

 

 

Other Non-operating Expenses:

    

Loss on disposal of property and equipment and intangible assets

  W18,882    12,232 

Impairment loss on property and equipment and intangible assets

   200,133    23,231 

Donations

   15,144    16,441 

Bad debt for accounts receivable – other

   3,767    3,295 

Others

   35,729    55,428 
  

 

 

   

 

 

 
   W273,655   110,627 
  

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

30.

Finance Income and Costs

 

 (1)

Details of finance income and costs for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Finance Income:

    

Interest income

  W26,463    35,463 

Gain on sale of accounts receivable – other

   22,605    15,855 

Dividends

   285,040    525,045 

Gain on foreign currency transactions

   7,606    6,782 

Gain on foreign currency translations

   38    1,870 

Gain on valuation of derivatives

   22,859    465 

Gain on settlement of derivatives

   7,380    29,176 

Gain relating to financial assets at FVTPL

   5,956    859 

Gain relating to financial liabilities at FVTPL

   —      56 
  

 

 

   

 

 

 
  W377,947    615,571 
  

 

 

   

 

 

 
(In millions of won)        
   2020   2019 

Finance Costs:

    

Interest expenses

  W244,037    256,186 

Loss on foreign currency transactions

   9,157    7,853 

Loss on foreign currency translations

   317    2,253 

Loss on sale of accounts receivable – other

   —      5,823 

Loss on settlement of derivatives

   2,637    641 

Loss relating to financial assets at FVTPL

   589    7,448 

Loss relating to financial liabilities at FVTPL

   —      43 
  

 

 

   

 

 

 
  W256,737    280,247 
  

 

 

   

 

 

 

 

 (2)

Details of interest income included in finance income for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Interest income on cash equivalents and short-term financial instruments

  W7,391    10,537 

Interest income on loans and others

   19,072    24,926 
  

 

 

   

 

 

 
  W26,463    35,463 
  

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

30.

Finance Income and Costs, Continued

 

 (3)

Details of interest expenses included in finance costs for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Interest expense on borrowings

  W7,974    7,260 

Interest expense on debentures

   186,262    180,474 

Others

   49,801    68,452 
  

 

 

   

 

 

 
  W244,037    256,186 
  

 

 

   

 

 

 

 

 (4)

Finance income and costs by category of financial instruments for the years ended December 31, 2020 and 2019 are as follows. Bad debt expense (reversal of loss allowance) for accounts receivable – trade, loans and receivables are presented and explained separately in notes 6 and 35.

 

 1)

Finance income and costs

 

(In millions of won)        
   2020 
   Finance
income(*)
   Finance
costs
 

Financial Assets:

    

Financial assets at FVTPL

  W51,559    589 

Financial assets at FVOCI

   993    —   

Financial assets at amortized cost

   30,368    8,391 

Derivatives designated as hedging instrument

   —      1,867 
  

 

 

   

 

 

 
   82,920    10,847 
  

 

 

   

 

 

 

Financial Liabilities:

    

Financial liabilities at amortized cost

   3,762    245,120 

Derivatives designated as hedging instrument

   7,380    770 
  

 

 

   

 

 

 
   11,142    245,890 
  

 

 

   

 

 

 
  W94,062    256,737 
  

 

 

   

 

 

 

 

(*)

Finance income does not includeW283,885 million of dividends received from subsidiaries, associates and joint ventures for the year ended December 31, 2020.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

30.

Finance Income and Costs, Continued

 

 (4)

Finance income and costs by category of financial instruments for the years ended December 31, 2020 and 2019 are as follows. Bad debt expense (reversal of loss allowance) for accounts receivable – trade, loans and receivables are presented and explained separately in notes 6 and 35, Continued.

 

 1)

Finance income and costs, Continued

 

(In millions of won)    
   2019 
   Finance
income(*)
   Finance
costs
 

Financial Assets:

    

Financial assets at FVTPL

  W47,435    13,271 

Financial assets at FVOCI

   9,909    —   

Financial assets at amortized cost

   43,122    10,106 
  

 

 

   

 

 

 
   100,466    23,377 
  

 

 

   

 

 

 

Financial Liabilities:

    

Financial liabilities at FVTPL

   56    43 

Financial liabilities at amortized cost

   —      256,186 

Derivatives designated as hedging instrument

   —      641 
  

 

 

   

 

 

 
   56    256,870 
  

 

 

   

 

 

 
  W100,522    280,247 
  

 

 

   

 

 

 

 

(*)

Finance income does not includeW515,049 million of dividends received from subsidiaries, associates and joint ventures for the year ended December 31, 2019.

 

 2)

Other comprehensive income (loss)

 

(In millions of won)        
   2020   2019 

Financial Assets:

    

Financial assets at FVOCI

  W366,600    (13,972

Derivatives designated as hedging instrument

   21,732    35,004 
  

 

 

   

 

 

 
   388,332    21,032 
  

 

 

   

 

 

 

Financial Liabilities:

    

Derivatives designated as hedging instrument

   (6,225   —   
  

 

 

   

 

 

 
  W382,107    21,032 
  

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

30.

Finance Income and Costs, Continued

 

 (5)

Details of impairment losses for financial assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Accounts receivable – trade

  W23,611    4,036 

Other receivables

   3,767    3,295 
  

 

 

   

 

 

 
  W27,378    7,331 
  

 

 

   

 

 

 

 

31.

Income Tax Expense

 

 (1)

Income tax expenses for the years ended December 31, 2020 and 2019 consist of the following:

 

(In millions of won)        
   2020   2019 

Current tax expense:

    

Current year

  W193,646    77,518 

Current tax of prior years

   13,282    (10,385
  

 

 

   

 

 

 
   206,928    67,133 
  

 

 

   

 

 

 

Deferred tax expense:

    

Changes in net deferred tax assets

   (24,265   137,854 
  

 

 

   

 

 

 

Income tax expense

  W182,663    204,987 
  

 

 

   

 

 

 

 

 (2)

The difference between income taxes computed using the statutory corporate income tax rates and the recorded income taxes for the years ended December 31, 2020 and 2019 is attributable to the following:

 

(In millions of won)        
   2020   2019 

Income taxes at statutory income tax rate

  W248,538    315,648 

Non-taxable income

   (40,358   (90,160

Non-deductible expenses

   9,601    7,433 

Tax credit and tax reduction

   (36,091   (22,163

Changes in unrecognized deferred taxes

   29,122    (1,434

Income tax refund

   (212   3,633 

Changes in tax rate and other

   (27,937   (7,970
  

 

 

   

 

 

 

Income tax expense

  W182,663    204,987 
  

 

 

   

 

 

 

 

 (3)

Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   2020   2019 

Valuation gain (loss) on financial assets at fair value

  W(133,199   5,681 

Valuation loss on derivatives

   (5,663   (12,917

Remeasurement of defined benefit liabilities

   325    14,928 
  

 

 

   

 

 

 
  W(138,537   7,692 
  

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

31.

Income Tax Expense, Continued

 

 (4)

Changes in deferred tax assets (liabilities) for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won) 2020 
  Beginning  Deferred tax
expense
(income)
  Directly charged
to (credited
from) equity
  Ending 

Deferred tax assets (liabilities) related to temporary differences:

    

Loss allowance

 W51,941   (2,494  ��     49,447 

Accrued interest income

  (90  (48  —     (138

Financial assets measured at fair value

  78,144   (1,446  (133,199  (56,501

Investments in subsidiaries, associates and joint ventures

  21,755   (20,441  —     1,314 

Property and equipment

  (107,708  (43,244  —     (150,952

Retirement benefit obligation

  25,039   (15,658  325   9,706 

Valuation gain on derivatives

  19,545   2,005   (5,663  15,887 

Gain or loss on foreign currency translation

  21,995   (231  —     21,764 

Incremental costs to acquire a contract

  (823,973  42,449   —     (781,524

Right-of-use assets

  (333,298  (18,895  —     (352,193

Lease liabilities

  316,275   33,280   —     349,555 

Others

  86,475   10,704   —     97,179 
 

 

 

  

 

 

  

 

 

  

 

 

 
 W(643,900  (14,019  (138,537  (796,456
 

 

 

  

 

 

  

 

 

  

 

 

 

Tax credit

  1,299   38,284   —     39,583 
 

 

 

  

 

 

  

 

 

  

 

 

 
  (642,601  24,265   (138,537  (756,873
 

 

 

  

 

 

  

 

 

  

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

31.

Income Tax Expense, Continued

 

 (4)

Changes in deferred tax assets (liabilities) for the years ended December 31, 2020 and 2019 are as follows, Continued:

 

(In millions of won) 2019 
  Beginning  Deferred tax
expense
(income)
  Directly charged
to (credited
from) equity
  Ending 

Deferred tax assets (liabilities) related to temporary differences:

    

Loss allowance

 W62,935   (10,994  —     51,941 

Accrued interest income

  (111  21   —     (90

Financial assets measured at fair value

  65,570   6,893   5,681   78,144 

Investments in subsidiaries, associates and joint ventures

  15,905   5,850   —     21,755 

Property and equipment

  (141,656  33,948   —     (107,708

Retirement benefit obligation

  14,711   (4,600  14,928   25,039 

Valuation gain on derivatives

  30,287   2,175   (12,917  19,545 

Gain or loss on foreign currency translation

  21,938   57   —     21,995 

Incremental costs to acquire a contract

  (621,372  (202,601  —     (823,973

Right-of-use assets

  (210,006  (123,292  —     (333,298

Lease liabilities

  191,052   125,223   —     316,275 

Others

  58,308   28,167   —     86,475 
 

 

 

  

 

 

  

 

 

  

 

 

 
 W(512,439  (139,153  7,692   (643,900
 

 

 

  

 

 

  

 

 

  

 

 

 

Tax credit

  —     1,299   —     1,299 
 

 

 

  

 

 

  

 

 

  

 

 

 
  (512,439  (137,854  7,692   (642,601
 

 

 

  

 

 

  

 

 

  

 

 

 

 

 (5)

Details of temporary differences not recognized as deferred tax assets(liabilities) in the statements of financial position as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Loss allowance

  W77,405    77,405 

Investments in subsidiaries, associates and joint ventures

   1,320,231    1,531,810 

Other temporary differences

   372,134    51,150 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

32.

Earnings per Share

 

 (1)

Basic earnings per share

 

 1)

Basic earnings per share for the years ended December 31, 2020 and 2019 are calculated as follows:

 

(In millions of won, except for share data)        
   2020   2019 

Profit for the year

  W758,792    979,891 

Interest on hybrid bonds

   (14,766   (14,766
  

 

 

   

 

 

 

Profit for the year on common shares

   744,026    965,125 

Weighted average number of common shares outstanding

   72,795,431    72,064,159 
  

 

 

   

 

 

 

Basic earnings per share (in won)

  W10,221    13,393 
  

 

 

   

 

 

 

 

 2)

The weighted average number of common shares outstanding for the years ended December 31, 2020 and 2019 are calculated as follows:

 

(In shares)  2020 
   Number of common
shares
   Weighted average
number of common
shares
 

Issued shares at January 1, 2020

   80,745,711    80,745,711 

Treasury shares at January 1, 2020

   (7,609,263   (7,609,263

Acquisition of treasury shares

   (1,809,295   (341,017
  

 

 

   

 

 

 
   71,327,153    72,795,431 
  

 

 

   

 

 

 
(In shares)  2019 
   Number of common
shares
   Weighted average
number of common
shares
 

Issued shares at January 1, 2019

   80,745,711    80,745,711 

Treasury shares at January 1, 2019

   (8,875,883   (8,875,883

Disposal of treasury shares

   1,266,620    194,331 
  

 

 

   

 

 

 
   73,136,448    72,064,159 
  

 

 

   

 

 

 

 

78


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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

32.

Earnings per Share, Continued

 

 (2)

Diluted earnings per share

 

 1)

Diluted earnings per share for the year ended December 31, 2020 is calculated as follows:

 

(In millions of won, except for share data)    
   2020 

Profit for the year on common shares

  W744,026 

Adjusted weighted average number of common shares outstanding

   72,808,379 
  

 

 

 

Diluted earnings per share (in won)

  W10,219 

 

 2)

The adjusted weighted average number of common shares outstanding for the year ended December 31, 2020 is calculated as follows:

 

(In shares)    
   2020 

Outstanding shares at January 1, 2020

   73,136,448 

Effect of treasury shares

   (341,017

Effect of stock option

   12,948 
  

 

 

 

Adjusted weighted average number of common shares outstanding

   72,808,379 
  

 

 

 

For the year ended December 31, 2019, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.

 

79


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

33.

Dividends

 

 (1)

Details of dividends declared

Details of dividend declared for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won, except for face value and share data) 

Year

  

Dividend type

  Number of shares
outstanding
   Face value
(in won)
   Dividend ratio  Dividends 

2020

  

Cash dividends

(interim)

   73,136,448    500    200 W73,136 
  

Cash dividends

(year-end)

   71,327,153    500    1,800  641,944 
         

 

 

 
         W715,080 
         

 

 

 

2019

  

Cash dividends

(interim)

   71,869,828    500    200 W71,870 
  

Cash dividends

(year-end)

   73,136,448    500    1,800  658,228 
         

 

 

 
         W730,098 
         

 

 

 

 

 (2)

Dividends yield ratio

Dividends yield ratios for the years ended December 31, 2020 and 2019 are as follows:

 

(In won)     

Year

  

Dividend type

  Dividend per share   Closing price at
year-end
   Dividend yield ratio 

2020

  Cash dividends   10,000    238,000    4.20

2019

  Cash dividends   10,000    238,000    4.20

 

80


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

34.

Categories of Financial Instruments

 

 (1)

Financial assets by category as of December 31, 2020 and 2019 are as follows:

 

(In millions of won) 
   December 31, 2020 
   Financial
assets at
FVTPL
   Equity
instruments at
FVOCI
   Financial assets at
amortized cost
   Derivatives-
hedging
instrument
   Total 

Cash and cash equivalents

  W—      —      329,208    —      329,208 

Financial instruments

   —      —      516,354    —      516,354 

Short-term investment securities

   31,854    —      —      —      31,854 

Long-term investment securities(*)

   67,301    916,387    —      —      983,688 

Accounts receivable – trade

   —      —      1,503,552    —      1,503,552 

Loans and other receivables

   517,175    —      523,813    —      1,040,988 

Derivative financial assets

   22,859    —      —      62,306    85,165 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W639,189    916,387    2,872,927    62,306    4,490,809 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

The Company designatedW916,387 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    —      557,038    —      1,089,263 

Derivative financial assets

   —      —      —      126,251    126,251 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W639,568    435,210    2,768,673    126,251    3,969,702 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

The Company designatedW435,210 million of equity instruments that are not held for trading as financial assets at FVOCI.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

34.

Categories of Financial Instruments, Continued

 

 (2)

Financial liabilities by category as of December 31, 2020 and 2019 are as follows:

 

(In millions of won) 
   December 31, 2020 
   Financial
liabilities at
FVTPL
   Financial
liabilities at
amortized cost
   Derivatives
hedging
instrument
   Total 

Derivative financial liabilities

  W320,984    —      41,018    362,002 

Borrowings

   —      18,608    —      18,608 

Debentures

   —      6,875,240    —      6,875,240 

Lease liabilities(*)

   —      1,313,198    —      1,313,198 

Accounts payable – other and others

   —      4,446,539    —      4,446,539 
  

 

 

   

 

 

   

 

 

   

 

 

 
  W320,984    12,653,585    41,018    13,015,587 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of won) 
   December 31, 2019 
   Financial liabilities at amortized cost 

Borrowings

  W32,934 

Debentures

   6,407,964 

Lease liabilities(*)

   1,175,904 

Accounts payable – other and others

   5,337,563 
  

 

 

 
  W12,954,365 
  

 

 

 

 

(*)

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.

 

82


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

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 December 31, 2020 are as follows:

 

(In millions of won, thousands of foreign currencies) 
   Assets   Liabilities 
   Foreign
currencies
   Won
equivalent
   Foreign
currencies
   Won
equivalent
 

USD

   11,437   W12,444    1,210,411   W1,316,927 

EUR

   463    619    32    42 

Others

   —      158    —      32 
    

 

 

     

 

 

 
    W13,221     W1,317,001 
    

 

 

     

 

 

 

In addition, the Company has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures.

As of December 31, 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  1,155    (1,155

EUR

   58    (58

Others

   13    (13
  

 

 

   

 

 

 
  W  1,226    (1,226
  

 

 

   

 

 

 

 

83


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

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 analysis 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 December 31, 2020, the floating-rate bonds areW326,400 million, and the Company has entered into interest rate swaps to hedge interest rate risk related to the floating-rate debentures as described in note 19. Therefore, income before income taxes for the year ended December 31, 2020 would not have been affected by the changes in interest rates of floating-rate borrowings and debentures.

As of December 31, 2020, the floating-rate long-term payables – other areW1,626,040 million. If the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the year ended December 31, 2020 would change byW 16,260 million in relation to floating-rate long-term payables – other that are exposed to interest rate risk.

A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (“IBOR”s) with alternative nearly risk-free rates (referred to as “IBOR reform”). The Company has exposures to IBORs on its financial instruments that will be replaced or reformed as part of these market-wide initiatives. There is uncertainty over the timing and the methods of transition in some jurisdictions that the Company operates in. The Company anticipates that IBOR reform will impact its risk management and hedge accounting.

Derivatives

The Company holds interest rate swaps for risk management purposes which are designated in cash flow hedging relationships. The interest rate swaps have floating legs that are indexed to LIBOR. The Company’s derivative instruments are governed by contracts based on the International Swaps and Derivatives Association (“ISDA”)’s master agreements.

ISDA is currently reviewing its standardized contracts in the light of IBOR reform and plans to amend certain floating-rate options in the 2006 ISDA definitions to include fallback clauses that would apply on the permanent discontinuation of certain key IBORs. ISDA is expected to publish an IBOR fallback supplement to amend the 2006 ISDA definitions and an IBOR fallback protocol to facilitate multilateral amendments to include the amended floating-rate options in derivative transactions that were entered into before the date of the supplement. The Company currently plans to adhere to the protocol if and when it is finalized and to monitor whether its counterparties will also adhere. If this plan changes or there are counterparties who will not adhere to the protocol, the Company will negotiate with them bilaterally about including new fallback clauses.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

Financial Risk Management, Continued

 

 (1)

Financial risk management, Continued

 

 1)

Market risk, Continued

 

 (ii)

Interest rate risk, Continued

 

Hedge accounting

The Company has evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by IBOR reform as of December 31, 2020. The Company’s hedged items and hedging instruments continue to be indexed to LIBOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual.

However, the Company’s LIBOR cash flow hedging relationships extend beyond the anticipated cessation date for LIBOR. The Company expects that LIBOR will be discontinued after the end of 2021. As of December 31, 2020, the Company has not determined the alternative interest rate benchmark to LIBOR and there is uncertainty about when and how replacement may occur with respect to the relevant hedged items and hedging instruments. Such uncertainty may impact the hedging relationship. The Company applies the amendments to K-IFRS No.1109, Financial Instruments issued in 2020 to those hedging relationships directly affected by IBOR reform.

Hedging relationships impacted by IBOR reform may experience ineffectiveness attributable to market participants’ expectations of when the shift from the existing IBOR benchmark rate to an alternative benchmark interest rate will occur. This transition may occur at different times for the hedged item and hedging instrument, which may lead to hedge ineffectiveness. The Company has measured its hedging instruments indexed to LIBOR using available quoted market rates for LIBOR-based instruments of the same tenor and similar maturity and has measured the cumulative change in the present value of hedged cash flows attributable to changes in LIBOR on a similar basis.

 

85


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

Financial Risk Management, Continued

 

 (1)

Financial risk management, Continued

 

 2)

Credit risk

The maximum credit exposure as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)        
   December 31, 2020   December 31, 2019 

Cash and cash equivalents

  W329,176    497,240 

Financial instruments

   516,354    234,382 

Investment securities

   900    900 

Accounts receivable – trade

   1,503,552    1,479,971 

Contract assets

   31,232    30,897 

Loans and other receivables

   1,040,988    1,089,263 

Derivative financial assets

   85,165    126,251 
  

 

 

   

 

 

 
  W    3,507,367    3,458,904 
  

 

 

   

 

 

 

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. To manage credit risk, the Company evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors. Based on such information, the Company establishes credit limits for each customer or counterparty.

 

86


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

Financial Risk Management, Continued

 

 (1)

Financial risk management, Continued

 

 2)

Credit risk, Continued

 

 (i)

Accounts receivable – trade and contract assets

The Company establishes a loss allowance in respect of account 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. Details of changes in loss allowance during the year ended December 31, 2020 are included in note 6.

 

 (ii)

Debt investments

The credit risk arises from debt investments included inW516,354 million of financial instruments,W900 million of investment securities, andW1,040,988 million of loans and other receivables. To limit the exposure to this risk, the Company transacts only with financial institutions with credit ratings that are considered to be low credit risk.

Most of the Company’s debt investments are considered to have a low risk of default and the borrower has a strong capacity to meet its contractual cash flow obligations in the near term. Thus the Company measured the loss allowance for the debt investments at an amount equal to 12-month expected credit losses.

Meanwhile, the Company monitors changes in credit risk at each reporting date. The Company recognized the loss allowance at an amount equal to lifetime expected credit losses when the credit risk on the debt investments is assumed to have increased significantly if it is more than 30 days past due.

The Company’s maximum exposure to credit risk is equal to each financial asset’s carrying amount. The gross carrying amounts of each financial asset except for the accounts receivable – trade and derivative financial assets as of December 31, 2020 are as follows:

 

(In millions of won)      At amortized cost 
   Financial
assets at
FVTPL
   12-month ECL   Lifetime ECL –not
credit impaired
   Lifetime ECL –
credit impaired
 

Gross carrying amount

  W518,075    1,021,908    28,442    65,987 

Loss allowance

   —      (2,771   (7,412   (65,987
  

 

 

   

 

 

   

 

 

   

 

 

 

Carrying amount

  W518,075    1,019,137    21,030    —   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

87


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

Financial Risk Management, Continued

 

 (1)

Financial risk management, Continued

 

 2)

Credit risk, Continued

 

 (ii)

Debt investments, Continued

 

Changes in the loss allowance for the debt investments during the year ended December 31, 2020 are as follows:

 

(In millions of won)       
   12-month ECL  Lifetime ECL –
not credit impaired
  Lifetime ECL –
credit impaired
  Total 

December 31, 2019

  W3,252   7,114   66,092   76,458 

Remeasurement of loss allowance, net

   (147  2,321   1,593   3,767 

Transfer to lifetime ECL – not credit impaired

   (334  334   —     —   

Transfer to lifetime ECL – credit impaired

   —     (2,357  2,357   —   

Amounts written off

   —     —     (5,871  (5,871

Recovery of amounts written off

   —     —     1,816   1,816 
  

 

 

  

 

 

  

 

 

  

 

 

 

December 31, 2020

  W2,771   7,412   65,987   76,170 
  

 

 

  

 

 

  

 

 

  

 

 

 

 

 (iii)

Cash and cash equivalents

The Company hasW329,176 million as of December 31, 2020 (W497,240 million as of December 31, 2019) cash and cash equivalents with banks and financial institutions above specific credit ratings.

Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Company considered that its cash and cash equivalents have low credit risk based on the credit ratings of the counterparties assigned by external credit rating agencies.

 

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Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

Financial Risk Management, Continued

 

 (1)

Financial risk management, Continued

 

 3)

Liquidity risk

The Company’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Company maintains enough liquidity within credit lines through active operating activities.

Contractual maturities of financial liabilities as of December 31, 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(*)

  W18,608    19,211    12,912    6,299    —   

Debentures(*)

   6,875,240    7,947,895    883,026    4,152,711    2,912,158 

Lease liabilities

   1,313,198    1,383,551    316,531    824,701    242,319 

Accounts payable – other and others(*)

   4,446,539    4,523,435    3,282,618    864,969    375,848 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W12,653,585    13,874,092    4,495,087    5,848,680    3,530,325 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

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 December 31, 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

  W62,306   63,057   15,217   55,065   (7,225

Liabilities

   (41,018  (42,033  (1,663  (40,370  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  W21,288   21,024   13,554   14,695   (7,225
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

89


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

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 of the Company as of and 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 financial statements.

Debt-equity ratio as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
   December 31, 2020  December 31, 2019 

Total liabilities

  W14,636,593   14,233,733 

Total equity

   17,349,858   17,383,899 
  

 

 

  

 

 

 

Debt-equity ratios

   84.36  81.88
  

 

 

  

 

 

 

 

 (3)

Fair value

 

 1)

Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)  December 31, 2020 
   Carrying
amount
   Level 1   Level 2   Level 3   Total 

Financial assets that are measured at fair value:

          

FVTPL

  W639,189    —      549,029    90,160    639,189 

Derivative hedging instruments

   62,306    —      62,306    —      62,306 

FVOCI

   916,387    881,135    —      35,252    916,387 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W1,617,882   881,135   611,335   125,412   1,617,882 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities that are measured at fair value:

          

Derivative financial liabilities

  W320,984    —      —      320,984    320,984 

Derivative hedging instruments

   41,018    —      41,018    —      41,018 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   362,002    —      41,018    320,984    362,002 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities that are not measured at fair value:

          

Borrowings

  W18,608    —      19,131    —      19,131 

Debentures

   6,875,240    —      7,316,314    —      7,316,314 

Long-term payables – other

   1,566,323    —      1,582,174    —      1,582,174 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W8,460,171    —      8,917,619    —      8,917,619 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

90


Table of Contents

SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

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 December 31, 2020 and 2019 are as follows, Continued:

 

(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

  W639,568    —      564,145    75,423    639,568 

Derivatives hedging instrument

   126,251    —      126,251    —      126,251 

FVOCI

   435,210    384,721    —      50,489    435,210 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   W1,201,029   384,721   690,396   125,912   1,201,029 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities that are not measured at fair value:

          

Borrowings

  W32,934    —      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 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  W8,409,436    —      8,885,092    —      8,885,092 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 to such valuation methods include swap rate, interest rate, and risk premium, and the Company performs valuation using the inputs which are consistent with natures of assets and liabilities measured.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

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 December 31, 2020 and 2019 are as follows, Continued:

 

 

Interest rates used by the Company for the fair value measurement as of December 31, 2020 are as follows:

 

   Interest rate
  

 

Derivative instruments

  0.14% ~ 1.36%

Borrowings and debentures

  0.99% ~ 1.55%

Long-term payables - other

  0.90% ~ 1.72%

 

 2)

There have been no transfers between Level 2 and Level 1 for year ended December 31, 2020. The changes of financial assets classified as Level 3 for the year ended December 31, 2020 are as follows:

 

(In millions of won)  Balance at
January 1, 2020
   Valuation  Acquisition   Disposal  Transfer  Balance at
December 31, 2020
 

FVTPL

  W75,423    27,772   627    (270  (13,392  90,160 

FVOCI

   50,489    (1,889  200    (277  (13,271  35,252 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
  W125,912    25,883   827    (547  (26,663  125,412 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

 

 (4)

Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)  December 31, 2020 
   Gross financial
instruments
recognized
   Amount
offset
  Net financial
instruments
presented on the
statement of
financial position
   Relevant financial
instruments not
offset
  Net
amount
 

Financial assets:

        

Derivative (*)

  W8,015    —     8,015    (453  7,562 

Accounts receivable – trade and others

   79,127    (77,714  1,413    —     1,413 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
   87,142    (77,714  9,428    (453  8,975 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Financial liabilities:

        

Derivative (*)

  W453    —     453    (453  —   

Accounts payable – other and others

   77,714    (77,714  —      —     —   
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
   78,167    (77,714  453    (453  —   
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

 

(*)

The balance represents the net amount under the standard terms and conditions of International Swaps and Derivatives Association.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

35.

Financial Risk Management, Continued

 

 (4)

Enforceable master netting agreement or similar agreement, Continued

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2020 and 2019 are as follows, Continued:

 

 

(In millions of won)  December 31, 2019 
   Gross financial
instruments
recognized
   Amount
offset
  Net financial
instruments
presented on the
statement of
financial position
 

Financial assets:

     

Accounts receivable – trade and others

  W77,958    (77,958  —   

Financial liabilities:

     

Accounts payable – other and others

  W78,133    (77,958  175 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

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 4 others
Associates  SK hynix Inc. and 55 others
Others  The Ultimate Controlling Entity’s other subsidiaries and associates, etc

 

(*)

As of December 31, 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.(*3)

   62.6   

Information security service

  

Quantum Innovation Fund I

   59.9   

Investment

  

SK Telecom Japan Inc.

   100.0   

Information gathering and consulting

  

id Quantique SA(*4)

   68.1   

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.(*5)

   100.0   

Other telecommunication retail business

  

Broadband Nowon Co., Ltd.(*6)

   55.0   

Cable broadcasting services

  

T Map Mobility Co., Ltd.(*7)

   100.0   

Mobility business

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

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

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

  

ADT CAPS Co., Ltd.

   100.0   

Unmanned security

  

CAPSTEC Co., Ltd.

   100.0   

Manned security

Subsidiary owned by SK Broadband Co., Ltd.

  

Home & Service Co., Ltd.

   100.0   

Operation of information and communication facility

Subsidiary owned by Quantum Innovation Fund I

  

PanAsia Semiconductor Materials LLC(*8)

   66.4   

Investment

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(*9)

   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(*10)

  

SK Telecom Innovation Fund, L.P.

   100.0   

Investment

  

SK Telecom China Fund I L.P.

   100.0   

Investment

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

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. has changed as SK Broadband Co., Ltd. issued new shares to the shareholders of the merged companies as the consideration for the merger. The Company has entered into a shareholders’ agreement with the shareholders of the merged company and recognizedW320,984 million of derivative financial liabilities for drag-along right of the shareholders of the merged company and call option of the Company as of December 31, 2020. (See Note 19)

(*3)

SK Infosec Co., Ltd. merged with Life & Security Holdings Co., Ltd. to improve management efficiency on December 30, 2020 with the Company acquiring 34,200,560 shares of SK Infosec Co., Ltd. based on the exchange ratio on December 30, 2020. As a result of the merger, the Company’s ownership interest of SK Infosec Co., Ltd. has changed from 100% to 62.6%.

(*4)

The Company acquired additional 4,166,667 shares of id Quantique SA by contributingW6,408 million in cash, in terms of an unequal paid-in capital increase during the year ended December 31, 2020.

(*5)

The Company acquired 3,631,355 shares (100%) of SK stoa Co., Ltd. from SK Broadband. Co., Ltd. atW40,029 million in cash during the year ended December 31, 2020.

(*6)

The Company has obtained control over Tbroad Nowon Broadcasting Co., Ltd. by acquiring 627,000 shares (55%) forW10,463 million in cash and Tbroad Nowon Broadcasting Co., Ltd. changed its name to Broadband Nowon Co., Ltd.

(*7)

The Company incorporated and acquired T map Mobility Co., Ltd. on December 29, 2020 by spin-off. (See Note 39)

(*8)

Quantum Innovation Fund I newly established PanAsia Semiconductor Materials LLC. as its subsidiary during the year ended December 31, 2020.

(*9)

FSK L&S Co., Ltd. newly established FSK L&S VIETNAM COMPANY LIMITED as its subsidiary during the year ended December 31, 2020.

(*10)

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

As of December 31, 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.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

Transactions with Related Parties, Continued

 

 (2)

Compensation for 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 years ended December 31, 2020 and 2019 are as follows:

��

(In millions of won)        
   2020   2019 

Salaries

  W10,029    5,969 

Defined benefits plan expenses

   3,459    1,237 

Share option

   158    325 
  

 

 

   

 

 

 
  W13,646    7,531 
  

 

 

   

 

 

 

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.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

Transactions with Related Parties, Continued

 

 (3)

Transactions with related parties for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)     2020 

Scope

  

Company

  Operating
revenue

and others
   Operating
expense and
others (*1)
   Acquisition of
property and
equipment
 

Ultimate Controlling Entity

  

SK Holdings Co., Ltd.(*2)

  W14,953    498,282    35,744 
    

 

 

   

 

 

   

 

 

 

Subsidiaries

  

SK Broadband Co., Ltd.

   133,512    542,581    13,310 
  

PS&Marketing Corporation(*3)

   12,224    1,338,394    932 
  

SK O&S Co., Ltd.

   4,189    221,380    56,663 
  

SK Planet Co., Ltd.

   3,352    88,155    12,730 
  SK Telink Co., Ltd.(*4)   146,146    31,711    2 
  SERVICE ACE Co., Ltd.(*5)   11,474    136,517    —   
  SERVICE TOP Co., Ltd.   8,156    144,393    —   
  

Eleven Street Co., Ltd.

   3,274    19,264    —   
  

Life & Security Holdings Co., Ltd.(*6)

   22,194    2,807    8,052 
  

One Store Co., Ltd.

   14,669    270    —   
  

SK Infosec Co., Ltd.(*7)

   20,340    32,144    4,166 
  

DREAMUS COMPANY

   2,421    74,218    465 
  

Others

   9,975    33,523    5,960 
    

 

 

   

 

 

   

 

 

 
     391,926    2,665,357    102,280 
    

 

 

   

 

 

   

 

 

 

Associates

  

F&U Credit information

   1,420    45,495    —   
  

Co., Ltd.

      
  

SK hynix Inc. (*8)

   252,271    151    —   
  

KEB HanaCard Co., Ltd.

   683    3,065    —   
  

SK Wyverns Co., Ltd.

   1,195    19,329    —   
  

Content Wavve Co., Ltd.

   161    56,631    —   
  

Others(*9)

   47,777    12,096    78 
    

 

 

   

 

 

   

 

 

 
     303,507    136,767    78 
    

 

 

   

 

 

   

 

 

 

Others

  

SK Engineering & Construction

   4,777    238    —   
  

Co., Ltd.

      
  

SK Innovation Co., Ltd.

   13,844    14,715    —   
  

SK Networks Co., Ltd.

   2,040    11,217    7 
  

SK Networks Service Co., Ltd.

   786    41,065    1,543 
  

SK Telesys Co., Ltd.

   239    634    23,004 
  SK TNS Co., Ltd.   344    42,470    332,955 
  

SK Energy Co., Ltd.

   3,584    234    —   
  SKC Infra Service Co., Ltd.   29    7,885    137 
  

SK ENS Co., Ltd.

   2,246    53    —   
  

UbiNS Co., Ltd.

   —      2,316    25,100 
  

Happy Narae Co., Ltd.

   105    13,212    117,198 
  

Others

   10,738    8,016    8,020 
    

 

 

   

 

 

   

 

 

 
     38,732    142,055    507,964 
    

 

 

   

 

 

   

 

 

 
    W749,118    3,442,461    646,066 
    

 

 

   

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

Transactions with Related Parties, Continued

 

 (3)

Transactions with related parties for the years ended December 31, 2020 and 2019 are as follows, Continued:

 

(*1)

Operating expense and others include lease payments by the Company.

(*2)

Operating expense and others includeW216,241 million of dividends paid by the Company.

(*3)

Operating expense and others includeW778,230 million paid to PS&Marketing Corporation relating to purchase of accounts receivables resulting from sale of handsets.

(*4)

Operating revenue and others includeW89,969 million of dividend income received.

(*5)

Operating revenue and others includeW2,000 million of dividend income received.

(*6)

Operating revenue and others includeW7,039 million of dividend income received. Amount represents transaction amounts with Life & Security Holdings prior to its merger with SK Infosec Co., Ltd.

(*7)

Operating revenue and others includeW20,028 million of dividend income received.

(*8)

Operating revenue and others includeW146,100 million of dividend income received andW70,495 million of disposal amounts of Yongin SK Academy training facility.

(*9)

Operating revenue and others includeW18,749 million of dividend income received from Korea IT Fund, Pacific Telecom Inc. and UniSK.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

Transactions with Related Parties, Continued

 

 (3)

Transactions with related parties for the years ended December 31, 2020 and 2019 are as follows, Continued:

 

(In millions of won)     2019 

Scope

  

Company

  Operating
revenue
and others
   Operating
expense and
others (*1)
   Acquisition of
property and
equipment
 

Ultimate Controlling Entity

  SK Holdings Co., Ltd.(*2)  W29,130    508,255    47,789 
    

 

 

   

 

 

   

 

 

 

Subsidiaries

  SK Broadband Co., Ltd.   109,663    542,715    22,255 
  PS&Marketing Corporation(*3)   12,408    1,595,661    985 
  

SK O&S Co., Ltd.

   4,493    220,585    60,801 
  SK Planet Co., Ltd.   2,963    89,026    92,477 
  SK Telink Co., Ltd. (*4)   249,464    22,612    —   
  SERVICE ACE Co., Ltd. (*5)   15,399    133,717    —   
  SERVICE TOP Co., Ltd. (*6)   17,695    138,971    —   
  Eleven Street Co., Ltd.   7,202    7,990    —   
  Life & Security Holdings Co., Ltd. (*7)   33,111    1,257    222 
  One Store Co., Ltd.   14,963    1,461    —   
  SK Infosec Co., Ltd. (*8)   50,149    31,267    4,812 
  DREAMUS COMPANY   1,185    49,214    —   
  Others   8,095    39,575    5,799 
    

 

 

   

 

 

   

 

 

 
     526,790    2,874,051    187,351 
    

 

 

   

 

 

   

 

 

 

Associates

  F&U Credit information Co., Ltd.   1,108    46,824    —   
  SK hynix Inc. (*9)   246,522    255    —   
  KEB HanaCard Co., Ltd.   832    1,901    —   
  SK Wyverns Co., Ltd.   1,313    21,145    —   
  Others (*10)   11,049    14,208    457 
    

 

 

   

 

 

   

 

 

 
     260,824    84,333    457 
    

 

 

   

 

 

   

 

 

 

Others

  SK Engineering & Construction Co., Ltd.   5,722    253    7,400 
  SK Innovation Co., Ltd.   14,470    2,748    —   
  SK Networks Co., Ltd.   3,061    15,981    443 
  SK Networks Service Co., Ltd.   733    45,942    2,569 
  SK Telesys Co., Ltd.   215    965    25,886 
  SK TNS Co., Ltd.   197    34,115    426,273 
  SK Energy Co., Ltd.   2,914    248    —   
  SKC Infra Service Co., Ltd.   64    8,573    2,008 
  SK ENS Co., Ltd.   1,991    145    —   
  UbiNS Co.,Ltd.   —      1,907    45,814 
  Happy Narae Co., Ltd.   82    13,019    157,593 
  Others   12,105    6,088    10,130 
    

 

 

   

 

 

   

 

 

 
     41,554    129,984    678,116 
    

 

 

   

 

 

   

 

 

 
    W858,298    3,596,623    913,713 
    

 

 

   

 

 

   

 

 

 

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

Transactions with Related Parties, Continued

 

 (3)

Transactions with related parties for the years ended December 31, 2020 and 2019 are as follows, Continued:

 

(*1)

Operating expenses and others include lease payments by the Company.

(*2)

Operating expenses and others includeW216,241 million of dividends paid by the Company.

(*3)

Operating expenses and others includeW890,529 million paid to PS&Marketing Corporation relating to purchase of accounts receivables resulting from sale of handsets.

(*4)

Operating revenue and others includeW199,995 million of dividend income received.

(*5)

Operating revenue and others includeW7,499 million of dividend income received.

(*6)

Operating revenue and others includeW8,900 million of dividend income received.

(*7)

Operating revenue and others includeW21,117 million of dividend income received.

(*8)

Operating revenue and others includeW50,039 million of dividend income received.

(*9)

Operating revenue and others includeW219,150 million of dividend income received.

(*10)

Operating revenue and others includeW8,350 million of dividend income received from Korea IT Fund and UniSK.

 

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SK TELECOM CO., LTD.

Notes to the Separate Financial Statements

For the years ended December 31, 2020 and 2019

36.     Transactions with Related Parties, Continued

 

 

 (4)

Account balances with related parties as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)  December 31, 2020 
      Receivables   Payables 

Scope

  

Company

  Loans   Accounts receivable –
trade, etc.
   Accounts payable –
other, etc.
 

Ultimate Controlling Entity

  SK Holdings Co., Ltd.  W—      1,593    44,035 
    

 

 

   

 

 

   

 

 

 

Subsidiaries

  SK Broadband Co., Ltd.   —      12,035    224,714 
  PS&Marketing Corporation   —      1,686    69,301 
  SK O&S Co., Ltd.   —      78    38,220 
  SK Planet Co., Ltd.   —      412    23,886 
  SK Telink Co., Ltd.   —      11,994    26,621 
  SERVICE ACE Co., Ltd.   —      210    28,111 
  SERVICE TOP Co., Ltd.   —      158    28,215 
  Eleven Street Co., Ltd.   —      545    8,182 
  One Store Co., Ltd.   —      267    12,320 
  SK m&service Co., Ltd.   —      2,688    15,046 
  SK Infosec Co., Ltd.   —      921    13,998 
  SK Communications Co., Ltd.   —      28    11,052 
  Others   —      1,791    25,729 
    

 

 

   

 

 

   

 

 

 
     —      32,813    525,395 
    

 

 

   

 

 

   

 

 

 

Associates

  F&U Credit information Co., Ltd.   —      5    4,005 
  SK hynix Inc.   —      6,991    127 
  Wave City Development Co., Ltd.(*1)   —      25,782    —   
  Daehan Kanggun BcN Co., Ltd.(*2)   22,147    2,779    —   
  KEB HanaCard Co., Ltd.   —      352    145,328 
  Others   —      7,398    4,150 
    

 

 

   

 

 

   

 

 

 
     22,147    43,307    153,610 
    

 

 

   

 

 

   

 

 

 

Others

  SK Engineering and Construction Co., Ltd.   —      410    152 
  SK Innovation Co., Ltd.   —      4,277    42,896 
  SK Networks Co., Ltd.   —      371    4,533 
  SK Networks Services Co., Ltd.   —      —      6,328 
  SK Telesys Co., Ltd.   —      33    4,331 
  SK TNS Co., Ltd.   —      19    89,370 
  SK Energy Co., Ltd   —      525    233 
  Others   —      2,192    26,640 
    

 

 

   

 

 

   

 

 

 
     —      7,827    174,483 
    

 

 

   

 

 

   

 

 

 
    W22,147    85,540    897,523 
    

 

 

   

 

 

   

 

 

 

 

(*1)

As of December 31, 2020, the Company recognized loss allowance ofW10,880 million on the receivable – trade.

(*2)

As of December 31, 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 Separate Financial Statements

For the years ended December 31, 2020 and 2019

 

36.

Transactions with Related Parties, Continued

 

 (4)

Account balances with related parties as of December 31, 2020 and 2019 are as follows, Continued: