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Youngone Corporation and SubsidiariesConsolidated Financial StatementsDecember 31, 2012 and 2011
Youngone Corporation and SubsidiariesIndexDecember 31, 2012 and 2011
Page(s)
Report of Independent Auditors ………………………………………………. 1 - 2
Consolidated Financial Statements
Consolidated Statements of Financial Position………………………………… 3
Consolidated Statements of Income …………………………………………… 4
Consolidated Statements of Comprehensive Income ……..………………….. 5
Consolidated Statements of Changes in Equity …..……………...…………… 6
Consolidated Statements of Cash Flows ………..…………………………….. 7
Notes to Consolidated Financial Statements………….……….………………. 8 - 60
Samil PricewaterhouseCoopers, LS Yongsan Tower, 191, Hangangno 2Seoul 140-702, Korea (Yongsan P.O Box 266, 140
Samil PricewaterhouseCoopers is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). “PricewaterhouseCoopers” and “PwC” refernetwork of member firms of PwCIL. Each member firm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.
Report o
To the Board of Directors and
Youngone Corporation
We have audited the accompanying consolidated statements of financial position of Youngone
Corporation and its subsidiaries (the
consolidated statements of income, comprehensive income, changes in equ
years then ended expressed in Korean won. These financial statements are t
Group’s management. Our responsibility is to express an opinion on these financia
on our audits. We did not audit the financial statement of
and 26 other subsidiaries(including two
and 51.74% of the consolidated total assets as of December 31, 2012 a
11.86% and 10.61% of the consolidated sales for the respective years then ended. These statements
were audited by other auditors whose reports have been furnished us, and our opinion, insofar as it
relates to the amounts included for these subsidiaries and jointly controlled entities, is based solely on
the reports of other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of
Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the
audits and the reports of other auditors provide a reasonable basis for our opinion.
, LS Yongsan Tower, 191, Hangangno 2-ga, Yongsan-gu,(Yongsan P.O Box 266, 140-600), www.samil.com
is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). “PricewaterhouseCoopers” and “PwC” referrm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.
Report of Independent Auditors
Board of Directors and Shareholders of
We have audited the accompanying consolidated statements of financial position of Youngone
(the Group) as of December 31, 2012 and 2011, and
consolidated statements of income, comprehensive income, changes in equity and cash flows for the
ended expressed in Korean won. These financial statements are the responsibi
’s management. Our responsibility is to express an opinion on these financia
dit the financial statement of TITAS SPORTSWEAR INDUSTRIES LTD
and 26 other subsidiaries(including two jointly controlled entities), whose statements reflect 48.97%
and 51.74% of the consolidated total assets as of December 31, 2012 and 2011, respectively, and
% and 10.61% of the consolidated sales for the respective years then ended. These statements
were audited by other auditors whose reports have been furnished us, and our opinion, insofar as it
relates to the amounts included for these subsidiaries and jointly controlled entities, is based solely on
audits in accordance with auditing standards generally accepted in the Republic of
Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
and the reports of other auditors provide a reasonable basis for our opinion.
gu,
is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). “PricewaterhouseCoopers” and “PwC” refer to therm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.
We have audited the accompanying consolidated statements of financial position of Youngone
, and the related
ity and cash flows for the
he responsibility of the
’s management. Our responsibility is to express an opinion on these financial statements based
TITAS SPORTSWEAR INDUSTRIES LTD
jointly controlled entities), whose statements reflect 48.97%
nd 2011, respectively, and
% and 10.61% of the consolidated sales for the respective years then ended. These statements
were audited by other auditors whose reports have been furnished us, and our opinion, insofar as it
relates to the amounts included for these subsidiaries and jointly controlled entities, is based solely on
audits in accordance with auditing standards generally accepted in the Republic of
Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance
audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
overall financial statement presentation. We believe that our
and the reports of other auditors provide a reasonable basis for our opinion.
Youngone Corporation and SubsidiariesConsolidated Statements of Financial Position
December 31, 2012 and 2011
(in Korean won) Notes
AssetsCurrent assets
Cash and cash equivalents 4,6,7,8 \ 145,026,772,199 \ 175,007,226,359Short-term financial assets 4,6,7 30,862,656,000 -Accounts receivable 4,6,7,10 107,151,731,573 115,567,087,742Inventories 13 159,149,475,143 157,724,832,709Other receivables, net 4,6,11 41,346,469,744 34,593,290,710Other current assets 12 25,005,623,750 25,621,309,348
508,542,728,409 508,513,746,868Assets of disposal group classifiedas held for sale - 2,703,854,656
Non-current assetsLong-term financial assets 4,6,7,8 12,000,000 512,000,000Available-for-sale financial assets 4,6,9 56,979,391,926 12,416,503,446Investments in jointly controlled entity 5,18 11,128,805,584 10,102,345,165Property, plant and equipment 14,17 351,978,702,581 261,860,578,225Intangible assets 15 3,905,748,906 2,164,392,627Investment property 16,17 54,625,738,138 34,591,510,788Other receivables, net 4,6,11 9,671,132,411 9,678,402,524Other non-current assets 12 1,676,673,529 2,043,793,826
489,978,193,075 333,369,526,601Total assets \ 998,520,921,484 \ 844,587,128,125
LiabilitiesCurrent liabilities
Accounts payable 4,6,19 \ 59,281,375,364 \ 53,133,852,309Borrowings 4,6,21 53,140,370,326 80,831,503,584Current income tax liabilities 11,744,783,637 14,740,464,924Provisions for other liabilities and charges 2,134,620,357 1,451,885,715Other payables 4,6,19 25,208,565,867 30,005,051,059Other current liabilities 20 3,687,456,263 6,569,412,082
155,197,171,814 186,732,169,673Non-current liabilities
Debentures 4,6,21 49,784,114,500 -Borrowings 4,6,21 13,000,000,000 -Retirement benefit obligations 22 2,471,281,188 4,188,418,506Deferred income tax liabilities 23 97,252,758,885 76,483,750,593Other payables 4,19 264,570,545 314,062,139
162,772,725,118 80,986,231,238Total liabilities 317,969,896,932 267,718,400,911
Equity attributable to owners of the ParentCapital stock 24 20,405,734,000 20,405,734,000Capital surplus 334,814,957,228 334,814,957,228Retained earnings 26 335,664,601,659 225,098,610,686Other components of equity 25 (49,178,904,337) (31,244,028,377)
641,706,388,550 549,075,273,537Non-controlling interest 38,844,636,002 27,793,453,677Total equity 680,551,024,552 576,868,727,214Total liabilities and equity \ 998,520,921,484 \ 844,587,128,125
The accompanying notes are an integral part of these consolidated financial statements.
2012 2011
3
Youngone Corporation and SubsidiariesConsolidated Statements of Income
Years Ended December 31, 2012 and 2011
(in Korean won) Notes
Revenue 5 \ 1,059,149,339,989 \ 990,188,523,096
Cost of sales 29 764,552,885,271 706,603,034,991
Gross profit 294,596,454,718 283,585,488,105
Selling and administrative expenses 5,27,29,30 108,802,202,552 101,297,024,994
Operating profit 5 185,794,252,166 182,288,463,111
Other income 28 28,506,150,817 32,831,286,802Other expenses 28 34,878,532,344 29,788,780,952Finance income 31 3,086,631,986 2,616,532,566Finance costs 31 3,818,773,632 2,765,786,872Profit of jointly controlled entity accounted for
using the equity method 18 1,357,719,920 576,427,367Loss of jointly controlled entity accounted for
using the equity method 18 1,619,171,534 2,001,946,995Profit of associates accounted for
using the equity method 18 - 1,064,553,705Profit before income tax 178,428,277,379 184,820,748,732Income tax expense 32 47,144,250,621 56,304,325,077Profit for the year \ 131,284,026,758 \ 128,516,423,655
Profit attributable to:Owners of the parent 118,728,226,773 117,092,853,544Non-controlling interests 12,555,799,985 11,423,570,111
Earnings per share attributableto the equity holders of the company
Basic earnings per share 2,33 \ 2,909 \ 2,869
The accompanying notes are an integral part of these consolidated financial statements.
2012 2011
4
Youngone Corporation and SubsidiariesConsolidated Statements of Comprehensive Income
Years Ended December 31, 2012 and 2011
(in Korean won) Note
Profit for the year \ 131,284,026,758 \ 128,516,423,655
Other comprehensive income(loss)
Change in value of available-for-sale financial assets 9 4,486,003,710 3,155,011,337
Currency translation differences (23,534,181,154) (26,887,235,963)
Valuation of investments in jointly controlled entity 18 (5,226,603) (180,458,303)
Valuation of investments in associates 18 - (15,944,260)
Disposal of non-current assets held for sale (364,219,993) -
Other comprehensive income (loss)
for the year, net of tax (19,417,624,040) (23,928,627,189)
Total comprehensive income for the year \ 111,866,402,718 \ 104,587,796,466
Attributable to:
Share holders of the Company \ 100,793,350,813 \ 96,110,338,881
Non-controlling interest 11,073,051,905 8,477,457,585
Total comprehensive income for the year \ 111,866,402,718 \ 104,587,796,466
The accompanying notes are an integral part of these consolidated financial statements.
2012 2011
5
Youngone Corporation and SubsidiariesConsolidated Statements of Changes in Equity
Years Ended December 31, 2012 and 2011
(in Korean won)
Note
Balance at January 1, 2011 \ 20,405,734,000 \ 334,814,957,228 \ 116,167,992,942 \ (10,261,513,714) \ 461,127,170,456 \ 19,305,996,092 \ 480,433,166,548
Total comprehensive income
Profit for the year - - 117,092,853,544 - 117,092,853,544 11,423,570,111 128,516,423,655
Change in value of available-for-sale
financial assets 9 - - - 3,155,011,337 3,155,011,337 - 3,155,011,337
Currency translation differences 25 - - - (23,941,123,437) (23,941,123,437) (2,946,112,526) (26,887,235,963)
Share of other comprehensive income of
jointly controlled entity 25 - - - (180,458,303) (180,458,303) - (180,458,303)
Share of other comprehensive income of
associates 25 - - - (15,944,260) (15,944,260) - (15,944,260)
Total transactions with owners of
the Company, recognized directly in equity
Dividends to equity holders of the company 26
(Amount of dividend per share(rate)
:\200 (40.00%)
Acquisition of subsidiaries - - - - - 10,000,000 10,000,000
Balance at December 31, 2011 \ 20,405,734,000 \ 334,814,957,228 \ 225,098,610,686 \ (31,244,028,377) \ 549,075,273,537 \ 27,793,453,677 \ 576,868,727,214
Balance at January 1, 2012 \ 20,405,734,000 \ 334,814,957,228 \ 225,098,610,686 \ (31,244,028,377) \ 549,075,273,537 \ 27,793,453,677 \ 576,868,727,214
Total comprehensive income
Profit for the year - - 118,728,226,773 - 118,728,226,773 12,555,799,985 131,284,026,758
Change in value of available-for-sale
financial assets 9,25 - - - 4,486,003,710 4,486,003,710 - 4,486,003,710
Currency translation differences 25 - - - (22,051,433,074) (22,051,433,074) (1,482,748,080) (23,534,181,154)
Share of other comprehensive income of
jointly controlled entity 25 - - - (5,226,603) (5,226,603) - (5,226,603)
Disposal of non-current assets held for sale 25 - - - (364,219,993) (364,219,993) - (364,219,993)
Total transactions with owners of
the Company, recognized directly in equity
Dividends to equity holders of the company 26
(Amount of dividend per share(rate)
:\200 (40%)
Changes in scope of consolidation - - - - - 1,347 1,347
Disposal of subsidiaries - - - - - (21,870,927) (21,870,927)
Balance at December 31, 2012 \ 20,405,734,000 \ 334,814,957,228 \ 335,664,601,659 \ (49,178,904,337) \ 641,706,388,550 \ 38,844,636,002 \ 680,551,024,552
Non-controlling
Interest
Total
Equity
Attributable to equity holders of the Company
- - (8,162,235,800) - (8,162,235,800)
Capital Stock Capital Surplus
Other
Retained
TotalEarnings
Components
of Equity
- -
The accompanying notes are an integral part of these consolidated financial statements.
(8,162,235,800)-
- (8,162,235,800)(8,162,235,800) - (8,162,235,800)
6
Youngone Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2012 and 2011
(in Korean won) Note
Cash flows from operating activities
Cash generated from operations 34 \ 209,977,957,844 \ 164,234,113,941
Interest received 2,518,812,994 2,197,966,008
Interest paid (3,842,951,187) (2,765,786,872)
Dividends received 603,250,161 228,335,600
Income tax paid (30,701,886,394) (22,389,362,941)
Net cash generated from operating activities 178,555,183,418 141,505,265,736
Cash flows from investing activities
Increase in short-term financial assets (30,862,656,000) -
Decrease in short-term financial assests - 31,000,000,000
Short-term loans (repayments)/proceeds , net (11,796,945,394) (2,102,611,254)
Proceeds from sale of property, plant and equipment 9,467,478,013 982,361,299
Purchases of property, plant and equipment (160,998,235,247) (73,163,345,580)
Purchases of investment property (115,335,500) (8,368,000,000)
Purchases of intangible assets (2,290,092,337) (756,593,067)
Decrease in guarantee deposits 241,612,528 69,857,172
Increase in guarantee deposits (370,000,000) (830,936,540)
Purchases of available-for-sale financial assets (39,519,601,690) -
Proceeds from sale of available-for-sale financial assets 851,983,447 -
Proceeds from sale of investments in subsidiaries 40,000,000 -
Proceeds from sale of non-current assets held for sale 1,800,000,000 -
Acquisition of jointly controlled entity (1,570,937,500) (3,882,125,000)
Proceeds from sale of Investments in jointly contolled entity 332,040,000 -
Decrease in cash due to disposal of subsidiaries (121,745,046) -
Increase in cash due to chages in scope of consolidation 599,049,907 -
Net cash used in investing activities (234,313,384,819) (57,051,392,970)
Cash flows from financing activities
Short-term borrowings (repayments)/proceeds , net (27,355,822,983) 9,969,513,497
Proceeds from long-term borrowings 13,000,000,000 -
Proceeds from issuance of debentures 49,767,600,000 -
Dividends to equity holders of the Company (8,162,235,800) (8,162,235,800)
Proceeds from issuance of ordinary shares - 10,000,000
Net cash generated from financing activities 27,249,541,217 1,817,277,697
Exchange losses on cash and cash equivalents (1,471,793,976) (1,509,531,655)
Net increase(decrease) in cash and cash equivalents (29,980,454,160) 84,761,618,808
Cash and cash equivalents at beginning of year 8 175,007,226,359 90,245,607,551Cash and cash equivalents at the end of year 8 \ 145,026,772,199 \ 175,007,226,359
2012 2011
The accompanying notes are an integral part of these consolidated financial statements.
7
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
8
1. General Information
Youngone Corporation (the “Company”) is a controlling company in accordance with the KoreanIFRS 1027, “Consolidated financial statements and separate financial statements”. The Companyand its 31 subsidiaries (collectively referred to as “the Group”) are subject to consolidation and twoof them, are subject to the equity method of accounting in the preparation of the consolidatedfinancial statements.
1.1 The Parent Company
The Company was established on July 1, 2009, through the spin-off from Youngone Holdings Co.,Ltd.’s distribution and garments manufacturing business. On July 30, 2009, the Company was listedon the Korea Exchange.
As of December 31, 2012, the Company is headquartered in Jung-gu, Seoul, and the Company hasits subsidiaries in Bangladesh and China, and distribution centers and sales office in Seoul,Gyeonggi Province and other regions.
The Company’s capital stock as of December 31, 2012, is ₩ 20,405,734 thousand, and theCompany’s shareholders and their respective percentage of ownership as of December 31, 2012,are as follows:
Numberof shares
Percentage ofownership (%)
Remark
Youngone Holdings Co., Ltd. 22,386,320 54,85 Majority shareholder
Others 18,425,148 45,15 Others
40,811,468 100.00
1.2 Subsidiaries
The Company’s consolidated subsidiaries as of December 31, 2012, are as follows:
(in thousands of Korean won)
SubsidiariesShareholders’
equity
Number of investment shares Percentage ofownership
(%)33
Closingmonth LocationParents Subsidiaries Total
YCL1 \ 58,294,102 893,501 888,510 1,782,011 83.30 December Bangladesh
YSL2
19,960,888 402,550 465,410 867,960 81.67 December Bangladesh
LSL3
16,213,376 773,119 - 773,119 100.00 December Bangladesh
TSL4
62,001,077 821,439 - 821,439 100.00 December Bangladesh
KSL5
32,182,861 41,607 63,457 105,064 89.91 December Bangladesh
YHT6, 35
37,479,998 200,492 - 200,492 46.29 December Bangladesh
SSL7
20,368,540 39,944 - 39,944 100.00 December Bangladesh
YPL8
10,433,292 514,684 - 514,684 100.00 December Bangladesh
YGA9
9,028,371 199,594 - 199,594 100.00 December Bangladesh
SEL10
2,422,401 - 346,802 346,802 100.00 December Bangladesh
SDF11
4,681,643 619,759 619,759 100.00 December Bangladesh
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
9
(in thousands of Korean won)
SubsidiariesShareholders’
equity
Number of investment shares Percentage ofownership
(%)33
Closingmonth LocationParents Subsidiaries Total
YSF12 \ 8,148,261 199,892 253,830 453,722 100.00 December Bangladesh
STL13
2,704,472 1,706,256 - 1,706,256 100.00 December Bangladesh
YSS14
16,802,607 2,143,929 253,830 2,397,759 98.23 December Bangladesh
YSA15
10,863,034 853,980 - 853,980 100.00 December Bangladesh
AAL16
3,402,365 - 2,499,998 2,499,998 100.00 December Bangladesh
KSI17
(2,908,663) - 99,998 99,998 100.00 December Bangladesh
SURMA18
13,520,985 - 3 3 100.00 December Bangladesh
YSP19, 32
35,417,480 - - - 100.00 December China
GMC20, 32
18,705,784 - - - 100.00 December China
QMS21,32
12,130,363 - - - 100.00 December China
YBP22,32,34
5,677,779 - - - 100.00 December China
YNL23,32
61,579,165 - - - 100.00 December Vietnam
SKL24,32
1,979,228 - - - 100.00 December Vietnam
YBL25,32,36
3,197,125 - - - 100.00 December Vietnam
YLS26,36
14,109,223 760,000 - 760,000 100.00 December EL SalvadorEVERSUMMIT
274,732,888 50,000 - 50,000 100.00 December Hong Kong
DTL28
2,907,770 10,000 - 10,000 100.00 December Thailand
YOA29,36
287,129 275,000 - 275,000 100.00 December USA
YTL30,32,36
339,432 - - - 100.00 December Turkey
AAI31,34
19,226,429 8,000 - 8,000 100.00 December IOM
1YOUNGONE (CEPZ) LTD
2YOUNGONE SPORTSWEAR (CEPZ) LTD.
3LALMAI SPORTSWEAR INDUSTRIES LTD.
4TITAS SPORTSWEAR INDUSTRIES LTD.
5KARNAPHULI SPORTSWEAR INDUSTRIES LTD.
6YOUNGONE HI-TECH SPORTSWEAR INDUSTRIES LTD.
7SAVAR SPORTSWEAR CO., LTD.
8YOUNGONE PADDING (CEPZ) LTD.
9YOUNGONE GARMENT ACCESSORIES INDUSTRIES LTD.
10SHINHAN EMULSION CO., LTD.
11SAVAR DYEING & FINISHING INDUSTRIES LTD.
12YOUNGONE SYNTHETIC FIBRE PRODUCTS INDUSTRIES LTD.
13SUNGNAM TEXTILES MILLS LTD.
14YOUNGONE SPORTS SHOES INDUSTRIES LTD.
15YOUNGONE SHOES ACCESSORIES INDUSTRIES LTD.
16ARIRANG AVIATION LTD.
17KARNAPHULI SHOES INDUSTRIES LTD.
18SURMA GARMENT WASHING & FINISHING CO., LTD.
19QINGDAO YOUNGONE SPORTS PRODUCTS CO., LTD.
20QINGDAO YOUNGONE SPORTSWEAR CO., LTD.
21QINGDAO MAN BOK SPORTSWEAR CO., LTD.
22QINGDAO YOUNGONE BROAD PEAK TRADING CO., LTD.
23YOUNGONE NAM DINH CO., LTD.
24SUNGNAM KNITTING MILLS CO., LTD.
25YOUNGONE BAC GIANG CO., LTD.
26YOUNGONE (EL SALVADOR) S.A DE C.V.
27EVER SUMMIT (HK) LTD.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
10
28DONGNAMA TRADING CO., LTD.
29YOUNGONE AMERICA INC.
30YOUNGONE (ISTANBUL) APPAREL SANAYI VE TICARET LTD. SIRKETI.
31ARIRANG AVIATION IOM LTD.
32This subsidiary either does not issue the stock certificates or is not a stock corporation. Thus,there is no stock.
33Based on consolidated shareholding ratio.
34Newly established during current year and incorporated into the subsidiary.
35Share rates of YHT is under 50%. As the Company has substantial control on operating andfinancial decisions, YHT is classified as a subsidiary.
36For subsidiaries above, as their financial statements are difficult to be obtained by the end of thereporting period, the Company uses their unaudited financial statements, which were subject toprocedures to test reliability and reasonableness of their financial statements.
1.3 Summary of Financial information of Subsidiaries
The summarized information of subsidiaries as of and for the years ended December 31, 2012 and2011, follows:
(in thousands of Korean won)2012
Subsidiaries Assets Liabilities Equity SalesNet income
(loss)
Totalcomprehensive
income(loss)
YCL ₩ 89,895,467 ₩ 31,601,365 ₩ 58,294,102 ₩ 133,702,305 ₩ 16,793,161 ₩ 14,411,348
YSL 19,997,799 36,910 19,960,889 - (138) (949,247)
LSL 32,305,663 16,092,287 16,213,376 33,094,789 6,136,904 5,508,497
TSL 122,500,454 60,499,377 62,001,077 115,692,499 12,431,016 9,771,645
KSL 53,514,229 21,331,368 32,182,861 82,428,822 10,645,723 9,362,698
YHT 59,569,691 22,089,693 37,479,998 91,470,380 15,475,755 14,053,024
SSL 20,853,543 485,003 20,368,540 35,888,493 6,512,670 5,695,418
YPL 11,399,358 966,066 10,433,292 3,856,285 806,410 329,052
YGA 9,424,847 396,476 9,028,371 5,234,375 926,540 518,773
SEL 4,251,945 1,829,544 2,422,401 3,100,967 305,306 445,661
SDF 15,469,331 10,787,688 4,681,643 17,501,725 1,071,102 873,371
YSF 10,019,667 1,871,406 8,148,261 10,019,556 1,917,997 1,575,101
STL 9,136,034 6,431,562 2,704,472 7,863,827 566,556 451,120
YSS 30,964,280 14,161,673 16,802,607 69,425,829 5,909,431 5,247,725
YSA 12,022,658 1,159,624 10,863,034 14,314,321 1,664,225 1,186,353
AAL 3,797,755 395,390 3,402,365 426,979 65,834 (94,414)
KSI 33,977,414 36,886,077 (2,908,663) 6,396,516 (2,493,808) (2,409,713)
SURMA 1,370,786 412,531 958,255 694,241 981,032 958,250
YSP 47,539,354 12,121,874 35,417,480 56,287,933 463,392 (1,716,821)
GMC 24,269,670 5,563,886 18,705,784 23,058,150 1,640,434 519,667
QMS(MBA) 21,891,679 9,761,315 12,130,364 38,007,530 2,404,215 1,706,917
YBP 6,070,570 392,791 5,677,779 450,872 180,811 (166,355)
YNL 89,979,556 28,400,392 61,579,164 122,631,443 12,344,665 8,484,989
SKL 7,671,329 5,692,101 1,979,228 2,798,085 (1,885,723) (2,024,316)
YBL 3,298,689 101,563 3,197,126 - (17,274) (125,175)
YLS 14,874,248 765,024 14,109,224 12,379,993 5,073,390 4,109,545
EVER 9,208,091 4,475,203 4,732,888 32,984,368 587,162 250,366
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
11
Subsidiaries Assets Liabilities Equity SalesNet income
(loss)
Totalcomprehensive
income(loss)
DTL 3,655,390 747,620 2,907,770 16,901,918 702,241 591,150
YOA 603,544 316,415 287,129 - 62,799 42,236
YTL 339,432 - 339,432 - - (26,049)
AAI 19,692,198 465,769 19,226,429 884,662 (957,654) (2,183,011)
(in thousands of Korean won)2011
Subsidiaries Assets Liabilities Equity SalesNet income
(loss)
Totalcomprehensive
income(loss)
YCL ₩ 61,284,221 ₩ 17,401,467 ₩ 43,882,754 ₩ 124,653,567 ₩ 19,125,642 ₩ 14,202,607
YSL 20,948,292 38,156 20,910,136 - (150) (3,069,948)
LSL 18,701,415 7,996,537 10,704,878 23,012,657 5,586,485 4,458,704
TSL 101,059,818 48,830,386 52,229,432 117,648,171 9,104,972 2,160,539
KSL 29,848,703 7,028,541 22,820,162 80,034,625 11,257,938 8,802,066
YHT 32,753,431 9,326,457 23,426,974 76,152,409 13,073,095 10,671,017
SSL 16,203,348 1,530,226 14,673,122 40,454,586 8,110,024 6,600,139
YPL 10,887,917 783,677 10,104,240 3,705,580 1,259,691 (123,823)
YGA 8,878,161 368,562 8,509,599 4,987,954 1,414,204 277,266
SEL 4,491,138 1,028,111 3,463,027 3,247,146 520,083 52,997
SDF 16,169,131 12,360,860 3,808,271 16,856,437 1,792,062 1,375,336
YSF 8,141,964 1,568,805 6,573,159 8,879,918 1,861,249 1,044,110
STL 10,732,265 8,478,913 2,253,352 7,378,205 263,647 (46,220)
YSS 28,283,059 16,728,176 11,554,883 71,322,510 4,310,106 2,956,143
YSA 10,183,211 506,530 9,676,681 14,690,561 1,155,606 (173,212)
AAL 3,551,192 54,413 3,496,779 138,535 (29,983) (545,725)
YSP 57,433,767 20,299,466 37,134,301 55,919,000 704,806 2,746,520
GMC 21,423,347 3,237,229 18,186,118 27,304,072 4,724,169 5,753,068
QMS 23,559,184 13,135,738 10,423,446 33,397,355 2,593,696 3,181,168
YBP 6,159,269 315,134 5,844,135 340,877 64,857 385,765
YNL 74,749,561 21,655,385 53,094,176 109,465,921 13,198,819 11,081,549
SKL 8,683,948 6,715,124 1,968,824 3,665,229 (1,968,254) (2,156,799)
YLS 11,311,695 1,312,017 9,999,678 11,337,955 3,830,484 4,261,662
EVER SUMMIT 9,567,422 5,084,900 4,482,522 34,633,332 954,642 1,036,463
DTL 5,196,247 2,879,627 2,316,620 22,981,948 918,669 861,686
YOA 585,591 340,698 244,893 - 63,225 68,040
KSI 13,028,817 13,658,009 (629,192) 22,296 (675,955) (637,282)
YTL 365,481 - 365,481 - - (10,715)
CRD Cooperation 40,121 7,296 32,825 115,000 (17,175) (17,175)
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1.4 Changes in scope of consolidation
The following subsidiaries were newly included in the scope of consolidation for the year endedDecember 31, 2012:
Subsidiary ReasonAAI Newly incorporatedYBL Newly incorporatedSURMA Acquisition of shares
1
1Included in consolidation as the changes in net assets is significant.
The following subsidiary was excluded in the scope of consolidation for the year ended December31, 2012:
2. Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financialstatements are set out below. These policies have been consistently applied to all the yearspresented, unless otherwise stated.
2.1 Basis of Preparation
The Group maintains its accounting records in Korean won and prepares statutory financialstatements in the Korean language (Hangul) in accordance with the International FinancialReporting Standards as adopted by the Republic of Korea (“Korean IFRS”). The accompanyingconsolidated financial statements have been condensed, restructured and translated into Englishfrom the Korean language financial statements.
Certain information attached to the Korean language financial statements, but not required for a fairpresentation of the Group's financial position, financial performance or cash flows, is not presentedin the accompanying consolidated financial statements.
The Group’s financial statements for the annual period beginning on January 1, 2011, have beenprepared in accordance with Korean IFRS. These are the standards, subsequent amendments andrelated interpretations issued by the International Accounting Standards Board ("IASB") that havebeen adopted by the Republic of Korea.
The preparation of the consolidated financial statements requires the use of certain criticalaccounting estimates. It also requires management to exercise judgment in the process of applyingthe Group’s accounting policies. The areas involving a higher degree of judgment or complexity, orareas where assumptions and estimates are significant to the consolidated financial statements aredisclosed in Note 3.
2.1.1 Changes in Accounting Policy and Disclosures
(a) New and amended standards adopted by the Group
The Group changed its accounting policy to present the operating income after deducting cost ofsales, and selling and administrative expenses from revenue, in accordance with the amendmentof Korean IFRS 1001, Presentation of Financial Statements.
The Group applies the accounting policy retroactively in accordance with the amended standardsand the comparative consolidated statement of the comprehensive income is restated by reflecting
Subsidiary ReasonCRD Corporation Disposed of
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adjustments resulting from the retrospective application. As a result of the changes in theaccounting policy, other income and expenses of \28,506,151 thousand and \34,878,532
thousand, respectively, for the year ended December 31, 2012 (2011: \32,831,287 thousand and
\29,788,781 thousand, respectively), which include gain(loss) on disposal of property, plant andequipment, gain(loss) on valuation of available-for-sale financial assets, gain(loss) on disposal ofinvestments in jointly controlled entities and others, classified as operating income under theprevious standard, were excluded from operating profit. Consequently, operating profit for the yearsended December 31, 2012 and 2011, was higher by\6,372,382 thousand and lower by
\3,042,506 thousand, respectively, as compared to the amounts under the previous standard.However, there is no material impact on net income and earnings per share for the years endedDecember 31, 2012 and 2011.
(b) New standards and interpretations not yet adopted
New standards, amendments and interpretations issued but not effective for the financial yearbeginning January 1, 2012, and not early adopted by the Group are as follows:
- Amendment of Korean IFRS 1001, Presentation of Financial Statements
Korean-IFRS 1001, Presentation of Financial Statements, requires other comprehensive incomeitems to be presented into two groups on the basis of whether they are potentially reclassifiable toprofit or loss subsequently. This is effective for annual periods beginning on or after July 1, 2012,with early adoption permitted. The Group expects that the application of this amendment would nothave a material impact on its consolidated financial statements.
- Amendments to Korean IFRS 1019, Employee Benefits
According to the amendments to Korean IFRS 1019, Employee Benefits, the use of a ‘corridor’approach is no longer permitted, and therefore all actuarial gains and losses incurred areimmediately recognized in other comprehensive income. All past service costs incurred fromchanges in pension plan are immediately recognized, and expected returns on interest costs andplan assets that used to be separately calculated are now changed to calculating net interestexpense (income) by applying discount rate used in measuring defined benefit obligation in netdefined benefit liabilities (assets). This amendment will be effective for annual periods beginning onor after January 1, 2013, and the Group is assessing the impact of application of the amendedKorean IFRS 1019 on its consolidated financial statements.
- Enactment of Korean IFRS 1113, Fair Value Measurement
Korean IFRS 1113, Fair Value Measurement, aims to improve consistency and reduce complexityby providing a precise definition of fair value and a single source of fair value measurement anddisclosure requirements for use across Korean IFRSs. Korean IFRS 1113 does not extend the useof fair value accounting but provides guidance on how it should be applied where its use is alreadyrequired or permitted by other standards within the Korean IFRSs. This amendment will beeffective for annual periods beginning on or after January 1, 2013, and the Group expects that theapplication of this enactment would not have a material impact on its consolidated financialstatements.
- Enactment of Korean IFRS 1110, Consolidated Financial Statements
Korean IFRS 1110, Consolidated Financial Statements, builds on existing principles by identifyingthe concept of control as the determining factor in whether an entity should be included in theconsolidated financial statements of the Parent Company. An investor controls an investee when itis exposed, or has rights, to variable returns from its involvement with the investee and has theability to affect those returns through its power over the investee. The standard provides additionalguidance to assist in the determination of control where this is difficult to assess. This enactmentwill be effective for annual periods beginning on or after January 1, 2013, and the Group is
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reviewing the impact of this standard.
- Enactment of Korean IFRS 1111, Joint Arrangements
Korean IFRS 1111, Joint Arrangements, aims to reflect the substance of joint arrangements byfocusing on the contractual rights and obligations that each party to the arrangement has ratherthan its legal form. Joint arrangements are classified as either joint operations or joint ventures. Ajoint operation is when joint operators have rights to the assets and obligations for the liabilities,and account for the assets, liabilities, revenues and expenses, while parties to the joint venturehave rights to the net assets of the arrangement and account for their interest in the joint ventureusing the equity method. This enactment will be effective for annual periods beginning on or afterJanuary 1, 2013, and the Group is reviewing the impact of this standard.
- Enactment of Korean IFRS 1112, Disclosures of Interests in Other Entities
Korean IFRS 1112, Disclosures of Interests in Other Entities, provides the disclosure requirementsfor all forms of interests in other entities, including a subsidiary, a joint arrangement, an associate,a consolidated structured entity and an unconsolidated structured entity. This enactment will beeffective for annual periods beginning on or after January 1, 2013, and the Group is reviewing theimpact of this standard.
2.2 Consolidation
The Company, the parent company accordance with Korean-IFRS1027, has invested in 31subsidiaries and two jointly controlled entities such as DTI.
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Company has thepower to govern the financial and operating policies generally accompanying a shareholding ofmore than one-half of the voting rights. The existence and effect of potential voting rights that arecurrently exercisable or convertible are considered when assessing whether the Company controlsanother entity. The Group also assesses existence of control where it does not have more than 50%of the voting power but is able to govern the financial and operating policies by virtue of de-factocontrol. De-facto control may arise in circumstances where the size of the Group’s voting rightsrelative to the size and dispersion of holdings of other shareholders give the Group the power togovern the financial and operating policies and others.
Subsidiaries are fully consolidated from the date on which control is transferred to the Company.They are de-consolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The considerationtransferred for the acquisition of a subsidiary is measured as the fair values of the assetstransferred, the liabilities incurred to the former owners of the acquiree and the equity interestsissued by the Company. The consideration transferred includes the fair value of any asset orliability resulting from a contingent consideration arrangement. Identifiable assets acquired andliabilities and contingent liabilities assumed in a business combination are measured initially at theirfair values at the acquisition date. The Group recognizes any non-controlling interest in theacquiree on an acquisition- by-acquisition basis, either at fair value or at the non-controllinginterest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’spreviously held equity interest in the acquiree is remeasured to fair value at the acquisition dateand the resulting gain or loss is recognized in profit or loss.Any contingent consideration to be transferred by the Group is recognized at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration that is
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
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deemed to be an asset or liability is recognized in accordance with Korean-IFRS1039, either inprofit or loss or as a change to other comprehensive income. Contingent consideration that isclassified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred andthe fair value of non-controlling interest over the net identifiable assets acquired and liabilitiesassumed. If this consideration is lower than the fair value of the net assets of the subsidiaryacquired, the difference is recognized in profit or loss.
Intercompany transactions, balances, income and expenses on transactions between Groupcompanies are eliminated. Unrealized losses are also eliminated after recognizing impairment oftransferred assets. Accounting policies of subsidiaries have been changed where necessary toensure consistency with the policies adopted by the Group.
(b) Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for asequity transactions; that is, as transactions with the owners in their capacity as owners. Thedifference between fair value of any consideration paid and the relevant share acquired of thecarrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals tonon-controlling interests are also recorded in equity.
(c) Disposal of subsidiaries
When the Group ceases to have control any retained interest in the entity is re-measured to its fairvalue at the date when control is lost, with the change in carrying amount recognized in profit orloss. The fair value is the initial carrying amount for the purposes of subsequently accounting forthe retained interest as an associate, joint venture or financial asset. In addition, any amountspreviously recognized in other comprehensive income in respect of that entity are accounted for asif the Group had directly disposed of the related assets or liabilities. This may mean that amountspreviously recognized in other comprehensive income (except for revaluation surplus) arereclassified to profit or loss (revaluation surplus is reclassified to retained earnings).
(d) Associates
Associates are all entities over which the Group has significant influence but not control, generallyaccompanying a shareholding of between 20% and 50% of the voting rights. Investments inassociates are accounted for using the equity method of accounting. Under the equity method, theinvestment is initially recognized at cost, and the carrying amount is increased or decreased torecognize the investor’s share of the profit or loss of the investee after the date of acquisition. TheGroup’s investment in associates includes goodwill identified on acquisition, net of anyaccumulated impairment loss.
If the ownership interest in an associate is reduced but significant influence is retained, only aproportionate share of the amounts previously recognized in other comprehensive income isreclassified to profit or loss where appropriate.
The Group’s share of post-acquisition profit or loss is recognized in the income statement, and itsshare of post-acquisition movements in other comprehensive income is recognized in othercomprehensive income with a corresponding adjustment to the carrying amount of the investment.When the Group’s share of losses in an associate equals or exceeds its interest in the associate,including any other unsecured receivables, the Group does not recognize further losses, unless ithas incurred legal or constructive obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that theinvestment in the associate is impaired. If this is the case, the Group calculates the amount ofimpairment as the difference between the recoverable amount of the associate and its carryingvalue and recognizes the amount as ‘impairment loss on investment in an associate’ in the income
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statement.
Unrealized gains on transactions between the Group and its associates are eliminated to the extentof the Group’s interest in the associates. Unrealized losses are also eliminated unless thetransaction provides evidence of an impairment of the asset transferred. Accounting policies ofassociates have been changed where necessary to ensure consistency with the policies adoptedby the Group. Dilution gains and losses arising in investments in associates are recognized in theincome statement.
(e) Joint ventures
A joint venture is a contractual arrangement whereby two or more parties (venturers) exercise jointcontrol. As with associates, investments in jointly controlled entities are accounted for using theequity method of accounting and are initially recognized at cost. The Group’s investment in jointlycontrolled entities includes goodwill identified on acquisition, net of accumulated impairment loss.The Group does not recognize its share of profits or losses from the joint venture that result fromthe Group’s purchase of assets from the joint venture until it re-sells the assets to an independentparty. However, a loss on the transaction is recognized immediately if the loss provides evidence ofa reduction in the net realizable value of current assets, or an impairment loss.
2.3 Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to thechief operating decision-maker (Note 5). The chief operating decision-maker, who is responsible forallocating resources and assessing performance of the operating segments, has been identified asthe board of directors that makes strategic decisions.
2.4 Foreign Currency Translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (“the functionalcurrency”). The consolidated financial statements are presented in Korean won, which is thecontrolling entity’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange ratesprevailing at the dates of the transactions or valuation where items are re-measured. Foreignexchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognized in the income statement, except when deferred in other comprehensiveincome as qualifying cash flow hedges and qualifying net investment hedges.
Changes in the fair value of monetary securities denominated in foreign currency classified asavailable-for-sale are analyzed between translation differences resulting from changes in theamortized cost of the security and other changes in the carrying amount of the security. Translationdifferences related to changes in amortized cost are recognized in profit or loss, and other changesin carrying amount are recognized in other comprehensive income.
Translation differences on non-monetary financial assets and liabilities such as equities held at fairvalue through profit or loss are recognized in profit or loss as part of the fair value gain or loss.Translation differences on non-monetary financial assets, such as equities classified as available-for-sale, are included in other comprehensive income.
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(c) Translation to presentation currency
The results and financial position of all Group entities that have a functional currency different fromthe presentation currency are translated into the presentation currency as follows:
Assets and liabilities for each statement of financial position presented are translated atthe closing rate at the end of the reporting period;
Income and expenses for each income statement are translated at average exchangerates; and
All resulting exchange differences are recognized in other comprehensive income.
Exchange differences arising from the translation of borrowings designated for hedging theinvestment and other currency instruments are recognized in other comprehensive income. Whenforeign operations are wholly or partially sold, exchange differences recognized in equity aretransferred to profit or loss in the income statement. When the Company ceases to control thesubsidiary, exchange differences that were recorded in equity are recognized in the incomestatement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated asassets and liabilities of the foreign entity and translated at the closing rate.
2.5 Cash and Cash Equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.
2.6 Financial Assets
2.6.1 Classification
The Group classifies its financial assets in the following categories: at fair value through profit orloss, loans and receivables, available-for-sale, and held-to-maturity. The classification depends onthe purpose for which the financial assets were acquired. Management determines theclassification of its financial assets at initial recognition.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financialasset is classified in this category if acquired principally for the purpose of selling in the short term.Derivatives or embedded derivatives are also categorized as held for trading unless they aredesignated as hedges. Assets in this category are classified as current assets.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. They are included in current assets, except for maturitiesgreater than 12 months after the end of the reporting period. These are classified as non-currentassets. The Group’s loans and receivables comprise ‘cash and cash equivalents’, ‘accountreceivables’, and ‘other financial assets’ in the statement of financial position.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category ornot classified in any of the other categories. They are included in non-current assets unless theinvestment matures or management intends to dispose of it within 12 months after the end of thereporting period.
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2.6.2 Recognition and Measurement
Regular purchases and sales of financial assets are recognized on the trade date. Investments areinitially recognized at fair value plus transaction costs for all financial assets not carried at fair valuethrough profit or loss. Financial assets carried at fair value through profit or loss are initiallyrecognized at fair value, and transaction costs are expensed in the income statement. Financialassets are derecognized when the rights to receive cash flows from the investments have expiredor have been transferred and the Group has transferred substantially all risks and rewards ofownership. Available-for-sale financial assets and financial assets at fair value through profit or lossare subsequently carried at fair value. Loans and receivables are subsequently carried atamortized cost using the effective interest rate method.
When securities classified as available-for-sale are sold or impaired, the accumulated fair valueadjustments recognized in equity are included in the income statement as ‘financeincome(expenses)’.
Interest on available-for-sale and held-to-maturity securities calculated using the effective interestmethod is recognized in the income statement as part of ‘finance income’. Dividends on available-for-sale equity instruments are recognized in the income statement as part of ‘finance income’when the Group’s right to receive dividend payments is established.
2.6.3 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financialposition when there is a legally enforceable right to offset the recognized amounts and there is anintention to settle on a net basis or realize the asset and settle the liability simultaneously.
2.6.4 Derecognition
Financial assets are derecognized when the contractual rights to receive cash flows from theinvestments have expired or have been transferred and the Group has substantially transferred allrisks and rewards of ownership. If the risk and rewards of ownership of transferred assets have notbeen substantially transferred, the Group reviews the level of control retained over that asset andthe extent of its continuing involvement to determine if transfers do not qualify for derecognition.
Collaterals (trade receivables and other) provided in transactions of discount and factoring of tradereceivables do not meet the requirements for asset derecognition if risks and rewards do notsubstantially transfer in the event the debtor defaults. Financial liabilities recognized in relation tothese transactions are included as ‘borrowings’ in the Group’s statement of financial position.
2.7 Impairment of Financial Assets
(a) Assets carried at amortized cost
The Group assesses at the end of each reporting period whether there is objective evidence that afinancial asset or a group of financial assets is impaired. A financial asset or a group of financialassets is impaired and impairment losses are incurred only if there is objective evidence ofimpairment as a result of one or more events that occurred after the initial recognition of the asset(a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows ofthe financial asset or a group of financial assets that can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment lossinclude:
Significant financial difficulty of the issuer or obligor; Delinquency in interest or principal payments for more than three months; For economic or legal reasons relating to the borrower’s financial difficulty, granting to the
borrower a concession that the lender would not otherwise consider;
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It becomes probable that the borrower will enter bankruptcy or other financial reorganization; The disappearance of an active market for that financial asset because of financial difficulties;
or Observable data suggesting that there is a measurable decrease in the estimated future
cash flows from a portfolio of financial assets since the initial recognition of those assets,even though the decrease cannot be identified with respect to individual financial assets inthe portfolio, such as:
(i) adverse changes in the payment status of borrowers in the portfolio;(ii) national or local economic conditions that correlate with defaults on the assets in the
portfolio.
Impairment loss is measured as the difference between the assets’ carrying amount and thepresent value of estimated future cash flows (excluding future credit losses that have not beenincurred) discounted using the initial effective interest rate. The carrying amount of the asset isreduced by the impairment loss amount and the amount of the loss is recognized in the incomestatement. In practice, the Group may measure impairment loss based on the fair value of financialasset using an observable market price.
If, in a subsequent period, the amount of impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized (for example, animprovement in debtor’s credit rating), the reversal of the previously recognized impairment loss isrecognized in the income statement.
(b) Assets classified as available-for-sale
The Group assesses at the end of each reporting period whether there is objective evidence that afinancial asset or a group of financial assets is impaired. For debt securities, the Group uses thecriteria refer to in (a) above. In the case of equity investments classified as available-for-sale, asignificant or prolonged decline in the fair value of the security below its cost is objective evidencethat the asset is impaired. If any such evidence exists for available-for-sale financial assets, thecumulative loss – measured as the difference between the acquisition cost and the current fairvalue, less any impairment loss on that financial asset previously recognized in profit or loss – isremoved from equity and recognized in the income statement. Impairment losses recognized in theconsolidated income statement on equity instruments are not reversed through the incomestatement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after theimpairment loss was recognized in profit or loss, the impairment loss is reversed through theincome statement.
2.8 Derivative Financial Instruments and Hedging Activities
Derivatives are initially recognized at fair value on the date a derivative contract is entered into andare subsequently re-measured at their fair value. The method of recognizing the resulting gain orloss depends on whether the derivative is designated as a hedging instrument, and if so, the natureof the item being hedged. The resulting gain or loss is recognized in 'finance income (expenses)'according to the nature of transactions.
2.9 Accounts Receivable
Accounts receivable are amounts due from customers for merchandise sold or services performedin the ordinary course of business. If collection is expected in one year or less, they are classifiedas current assets. If not, they are presented as non-current assets. Account receivables arerecognized initially at fair value and subsequently measured at amortized cost using the effectiveinterest method, less allowance for doubtful accounts.
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2.10 Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using thegross average method and moving average method. Net realizable value is the estimated sellingprice in the ordinary course of business, less applicable variable selling expenses.
A subsidiary regularly reviews future product demands that can possibly trigger importantfluctuations of inventory valuation reserve. The inventory valuation reserves are recognized whenthere has been any obsolescence or decline in the market value. The subsidiary treats inventoryvaluation loss as cost of goods sold.
2.11 Non-current Assets (or disposal group) Held for Sale
Non-current assets (or disposal group) are classified as assets held for sale when their carryingamount is to be recovered principally through a sale transaction and a sale is considered highlyprobable. They are stated at the lower of carrying amount and fair value less costs to sell.
2.12 Property, Plant and Equipment
All property, plant and equipment are stated at historical cost less depreciation and accumulatedimpairment loss. Historical cost includes expenditures directly attribute to the acquisition of theitems.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset,as appropriate, only when it is probable that future economic benefits associated with the item willflow to the Group and the cost of the item can be measured reliably. The carrying amount of thereplaced part is derecognized. All other repairs and maintenance are charged to the incomestatement during the financial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line methodto allocate the difference between their cost and their residual values over their estimated usefullives, as follows:
Buildings 22 - 59 yearsStructures 13 - 30 yearsMachinery 13 - 30 yearsTools and fixtures 6 - 13 yearsEquipment 3 - 13 yearsOther 3 - 13 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end ofeach reporting period. An asset’s carrying amount is written down immediately to its recoverableamount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains andlosses on disposals are determined by comparing the proceeds with the carrying amount and arerecognized within ‘other income and expenses’ in the income statement.
2.13 Borrowing Costs
General and specific borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take a substantial period of timeto get ready for their intended use or sale, are added to the cost of those assets, until such time asthe assets are substantially ready for their intended use or sale. Investment income earned on thetemporary investment of specific borrowings pending their expenditure on qualifying assets isdeducted from the borrowing costs eligible for capitalization. All other borrowing costs arerecognized in profit or loss in the period in which they are incurred.
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2.14 Government Grants
Grants from a government are recognized at their fair value where there is a reasonable assurancethat the grant will be received and the Group will comply with all attached conditions.
Government grants related to assets are presented as a deduction of related assets and arecredited to depreciation over the expected lives of the related assets.
Government grants related to income are deferred and recognized in the statement of income overthe period necessary to match them with the costs that they are intended to compensate.
2.15 Intangible Assets
(a) Membership rights
Membership rights are regarded as intangible assets with indefinite useful life and not amortizedbecause there is no foreseeable limit to the period over which the asset is expected to be utilized.
(b) Other Intangible Assets
Patent, trademark-rights and software for the purpose of internal use are calculated using thestraight-line method to allocate the cost of trademarks and licenses over their estimated useful livesof five years. Once certain events occur causing impairment, the carrying amount of asset isreduced to recoverable amount when the book value of the asset exceeds recoverable amount.
2.16 Investment Property
Investment property is held to earn rentals or for capital appreciation or both. Investment propertyalso includes property that is being constructed or developed for future use as investment property.Investment property is measured initially at its cost including transaction costs incurred in acquiringthe asset. After recognition as an asset, investment property is carried at cost less accumulateddepreciation and impairment losses.
Subsequent costs are include in the asset’s carrying amount or recognized as a separate asset,only when it is probable that future economic benefits associated with the item will flow to theGroup and the cost of the item can be measured reliably. The carrying amount of the replaced partis derecognized. All other repairs and maintenance are charged to the income statement during thefinancial period in which they are incurred.
Land held for investment is not depreciated. Investment property, except for land, is depreciatedusing straight-line method over their useful lives of 40 years.
The depreciation method, the residual value and the useful life of an asset are reviewed at the endof each financial year and, if management judges that previous estimates should be adjusted, thechange is accounted for as a change in an accounting estimate.
Gains and losses on disposals are determined by comparing the proceeds with the carryingamount and are recognized within ‘other income and expenses’ in the income statements.
The fair value of investment property disclosed in Note 16 reflects market conditions at the end ofthe reporting period, with adjustment that reflects specific asset’s characteristics, condition andlocation. The book value for financial reporting purpose is determined based on the evaluation ofthe investment property by an independent valuer, who holds a recognized and relevantprofessional qualification and has recent experience in the location and category of the investmentproperty being valued.
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2.17 Impairment of Non-financial Assets
Goodwill or intangible assets with indefinite useful lives are not subject to amortization and aretested annually for impairment. Assets that are subject to amortization are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognized for the amount by which the asset’s carrying amountexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value lesscosts to sell and value in use. For the purposes of assessing impairment, assets are grouped at thelowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that suffered an impairment are reviewed for possible reversalof the impairment at each reporting date.
2.18 Financial Liabilities
(a) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss are financial instruments held for trading.Financial liabilities are classified as financial liabilities at fair value through profit or loss whenincurred principally for the purpose of repurchasing it in the near term. Derivatives or embeddedderivatives are also categorized as this category unless they are designated as hedges.
(b) Financial liabilities carried at amortized cost
The Group classifies non-derivative financial liabilities, except for financial liabilities at fair valuethrough profit or loss, financial guarantee contracts and financial liabilities that arise when atransfer of a financial asset does not qualify for derecognition, as financial liabilities carried atamortized cost and as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statementof financial position. In case when a transfer of a financial asset does not qualify for derecognition,the transferred asset is continuously recognized as asset and the consideration received isrecognized as financial liabilities. Financial liabilities carried at amortized cost are included in non-current liabilities, except for liabilities with maturities less than 12 months after the end of thereporting period, which are classified as current liabilities.
2.19 Accounts Payable
Accounts payable are obligations to pay for goods or services that have been acquired in theordinary course of business from suppliers. Accounts payable are classified as current liabilities ifpayment is due within one year or less. If not, they are presented as non-current liabilities.Accounts payable are recognized initially at fair value and subsequently measured at amortizedcost using the effective interest method.
2.20 Financial Guarantee Contract
Financial guarantee contracts are contracts that require the issuer to make specified payments toreimburse the holder for a loss it incurs because a specified debtor fails to make payments whendue, in accordance with the terms of a debt instrument.
Financial guarantees are initially measured at fair value on the date the guarantee was given.Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at thehigher of the amounts below and recognized as ‘other financial liabilities’.
Amount calculated in accordance with Korean-IFRS 1037, Provisions, Contingent Liabilitiesand Contingent Assets; or
The initial amount, less accumulated amortization recognized in accordance with Korean-IFRS1018, Revenue.
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2.21 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings aresubsequently carried at amortized cost; any difference between the proceeds (net of transactioncosts) and the redemption value is recognized in the income statement over the period of theborrowings using the effective interest method. The Group recognizes borrowings as currentliabilities unless it has an unconditional right to delay the settlement of the borrowing over 12months after the end of the period.
2.22 Provisions
Provisions are recognized when: the Group has a present legal or constructive obligation as aresult of past events; it is probable that an outflow of resources will be required to settle theobligation; and the amount has been reliably estimated. Provisions are not recognized for futureoperating losses.
Provisions are measured at the present value of the expenditures expected to be required to settlethe obligation using a pre-tax rate that reflects current market assessments of the time value ofmoney and the risks specific to the obligation. The increase in the provision due to passage of timeis recognized as interest expense.
2.23 Current and Deferred Income Tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in the incomestatement, except to the extent that it relates to items recognized in other comprehensive incomeor directly in equity. In this case, the tax is also recognized in other comprehensive income ordirectly in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantivelyenacted at the statement of financial position date in the countries where the Group operates andgenerates taxable income. Management periodically evaluates positions taken in tax returns withrespect to situations in which applicable tax regulation is subject to interpretation. It establishesprovisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the consolidatedfinancial statements. However, deferred tax assets and liabilities are not recognized if they arisefrom initial recognition of an asset or liability in a transaction other than a business combination thatat the time of the transaction affects neither accounting nor taxable profit or loss. Deferred incometax is determined using tax rates and laws that have been enacted or substantially enacted by thestatement of financial position date and are expected to apply when the related deferred incometax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxableprofit will be available against which the temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on investments in subsidiariesand associates, except for deferred income tax liability where the timing of the reversal of thetemporary difference is controlled by the Group and it is probable that the temporary difference willnot reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right tooffset current tax assets against current tax liabilities and when the deferred income tax assets andliabilities relate to income taxes levied by the same taxation authority on either the same taxableentity or different taxable entities where there is an intention to settle the balances on a net basis.
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2.24 Employee Benefits
(a) Defined benefit liability
The pension schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The Group has defined benefitplans.
A defined benefit plan is a pension plan that is not a defined contribution plan. Typically definedbenefit plans define an amount of pension benefit that an employee will receive on retirement,usually dependent on one or more factors such as age, years of service and compensation. Theliability recognized in the statement of financial position in respect of defined benefit pension plansis the present value of the defined benefit obligation at the end of the reporting period less the fairvalue of plan assets, together with adjustments for unrecognized past-service costs. The definedbenefit obligation is calculated annually by independent actuaries using the projected unit creditmethod. The present value of the defined benefit obligation is determined by discounting theestimated future cash outflows using interest rates of high-quality corporate bonds that aredenominated in the currency in which the benefits will be paid, and that have terms to maturityapproximating to the terms of the related pension obligation.
(b) Short-term employee benefits
Short-term employee benefits which are recognized in the income statement are due to be settledwithin 12 months after the end of the period in which the employees render the related service. Theshort term employee benefits are estimated with undiscounted amount. As the result of providingservice, if the Group has legal or constructive obligation to pay and the amount is reliably estimated,the amount that will be paid as profit-share and bonus is recognized in liabilities.
2.25 Share Capital
Ordinary shares are classified as equity. Where the Company purchases its own equity sharecapital (treasury shares), the consideration paid, including any directly attributable incrementalcosts is deducted from equity attributable to the Company’s equity holders until the shares arecancelled or reissued. Where such ordinary shares are subsequently reissued, any considerationreceived is included in equity attributable to the Company’s equity holders.
2.26 Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable, and representsamounts receivable for goods and services supplied, stated net of discounts, returns and valueadded taxes, after elimination of intra-company transactions.
The Group recognizes revenue when the amount of revenue can be reliably measured; when it isprobable that future economic benefits will flow to the entity; and when specific criteria have beenmet for each of the Group’s activities, as described below. The Group bases its estimate onhistorical results, taking into consideration the type of customer, the type of transaction and thespecifics of each arrangement.
(a) Sales of goods
Revenue from the sale of goods is recognized when the significant risks and rewards of ownershipof goods are transferred to the buyer.
Revenue represents amounts receivable for goods, stated net of discounts and returns estimatedbased on historical data.
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(b) Dividend income
Dividend income is recognized when the right to receive payment is established.
(c) Customer loyalty programme
The Group operates a customer loyalty programme in which customers are granted rewards toreceive discounts on future purchases when purchasing products. The granted reward isrecognized as a separately identifiable component of the sale transaction (initial sale transaction)that grants the reward. The fair value of consideration to give or given for the initial sale is allocatedto the reward points and remaining of initial sale, and the consideration allocated to the rewardpoints is measured based on the fair value of reward in exchange of reward points, which is the fairvalue of reward points considered the proportion of reward points that are not expected to beredeemed. Revenue from the award credits is recognized when it is redeemed.
2.27 Lease
A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment orseries of payments, the right to use an asset for an agreed period of time.
Lease income from operating leases is recognized in income on a straight-line basis over the leaseterm. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease isadded to the carrying amount of the leased asset and recognized as an expense over the leaseterm on the same basis as the lease income.
2.28 Dividend Distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the financialstatements in the period in which the dividends are approved by the Company’s shareholders.
2.30 Approval of Issuance of the Financial Statements
The issuance of the December 31, 2012 consolidated financial statements of the Company wasapproved by the Board of Directors on February 25, 2013.
3. Critical Accounting Estimates and Judgments
The Group makes estimates and assumptions concerning the future. The resulting accountingestimates will, by definition, seldom equal the related actual results. Estimations and assumptionsare continuously evaluated with consideration to factors such as events reasonably predictable inthe foreseeable future within the present circumstance according to historical experience. Theestimates and assumptions that have a significant risk of causing a material adjustment to thecarrying amounts of assets and liabilities within the next financial year are addressed below.
(a) Income taxes
The Group is operating in numerous countries and the income generated from these operations issubject to income taxes based on tax laws and interpretations of tax authorities in numerousjurisdictions. There are many transactions and calculations for which the ultimate tax determinationis uncertain. The Group recorded, based on its best estimate, current taxes and deferred taxes thatthe Group will be liable in the future for the operating results as of the financial year end. However,the final tax outcome in the future may be different from the amounts that were initially recorded.Such differences will impact the current and deferred income tax assets and liabilities in the periodin which such determination is made.
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(b) Fair value of financial instruments
The fair value of financial instruments that are not traded in an active market is determined byusing valuation techniques. The Group uses its judgment to select a variety of methods and makeassumptions that are mainly based on market conditions existing at the end of each reportingperiod.
(c) Point deferred revenue
The Group grants points in accordance with sales of products. A part of consideration whichconsists of consideration for sales of product is recognized as unearned revenue. Unearnedrevenue is recognized in income statement when the obligation is fulfilled in accordance with use ofpoints.
(d) Defined benefit liability
The present value of the defined benefit liability depends on a number of factors that aredetermined on an actuarial basis using a number of assumptions. The assumptions used indetermining the net cost (income) for pensions include the discount rate. Any changes in theseassumptions will impact the carrying amount of the defined benefit liability. The Group determinesthe appropriate discount rate at the end of each year. This is the interest rate that is used todetermine the present value of estimated future cash outflows expected to be required to settle thedefined benefit liability. In determining the appropriate discount rate, the Group considers theinterest rates of high-quality corporate bonds that are denominated in the currency in which thepension benefits will be paid, and that have terms to maturity approximating to the terms of therelated pension liability. Other key assumptions for defined benefit liability are based in part oncurrent market conditions. Additional information is disclosed in Note 22.
4. Financial Risk Management
4.1 Financial Risk Factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk,fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.The Group’s overall risk management program focuses on the unpredictability of financial marketsand seeks to minimize potential adverse effects on the Group’s financial performance.
The financial assets of the Group subject to the financial risk management are cash and cashequivalents, short/long-term financial instruments, available-for-sale financial assets, accountsreceivable and other receivables. The Group’s financial liabilities consist of accounts payable, otherpayables and borrowings.
4.1.1 Market risk
i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from variouscurrency exposures, primarily with respect to the US dollar. Also, subsidiaries regularly valuates,manages and reports on the foreign exchange risks for the receivables and payables in foreigncurrencies.
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The Group’s financial instruments denominated in major foreign currencies except for functionalcurrency as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won)
Cash and cash equivalents 2012 2011
USD ₩ 83,214,708 ₩ 81,991,715
CNY 6,310 6,591
EUR 2,291,698 3,685,297
HKD 2,075 490
JPY 16,205 10,634
₩ 85,530,996 ₩ 85,694,727
(in thousands of Korean won)
Accounts receivable and other receivables 2012 2011
USD ₩ 126,018,870 ₩ 134,813,195
EUR 83,537 825,520
NZD 5,386 897,704
₩ 126,107,793 ₩ 136,536,419
(in thousands of Korean won)
Accounts payable and other payables 2012 2011
USD ₩ 53,101,290 ₩ 52,967,893
EUR 295,109 50,708
CNY 1,723 5,742
₩ 53,398,122 ₩ 53,024,343
(in thousands of Korean won)
Short-term borrowings 2012 2011
USD ₩ 17,830,202 ₩ 80,831,504
As of December 31, 2012 and 2011, if the foreign exchange rate fluctuated by 5% while othervariables are fixed, the effects on income before tax would be as follows:
2012 2011
(in thousands of Korean won) Increase Decrease Increase Decrease
USD ₩ 6,915,104 ₩ (6,915,104) ₩ 4,536,829 ₩ (4,536,829)
CNY 229 (229) 42 (42)
EUR 104,006 (104,006) 223,006 (223,006)
HKD 104 (104) 24 (24)
JPY 810 (810) 532 (532)
NZD 539 (539) 44,885 (44,885)
₩ 7,020,792 ₩ (7,020,792) ₩ 4,805,318 ₩ (4,805,318)
ii) Price risk
The Group acquires equity securities (including both listed and unlisted) to manage a liquidity riskand for trading. The Group invests in more than one investment vehicle either directly or indirectly,and the fair values of equity securities (excluding subsidiaries and associates) as of December 31,2012, is\56,454,565 thousand (\11,891,676 thousand) (Note 9).
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As of December 31, 2012 and 2011, if the price of equity securities fluctuated by 10%, the effectson other comprehensive income would be as follows:
2012 2011
(in thousands of Korean won) Increase Decrease Increase Decrease
Effects on other comprehensive income
Available-for-sale financial assets ₩ 4,279,256 ₩ (4,279,256) ₩ 1,038,583 ₩ (1,038,583)
iii) Cash flow and fair value interest rate risk
The Group is exposed to interest rate risk through changes in interest income(expense) generatedfrom investments and borrowings. The risk mainly arises from investments of floating ratereceivables and borrowings of floating rate payables.
As of December 31, 2012 and 2011, if the interest rate fluctuated by 0.1% while other variables arefixed, the effects on profit before income tax would be as follows:
2012 2011
(in thousands of Korean won) Increase Decrease Increase Decrease
Short-term borrowings ₩ (131,970) ₩ 131,970 ₩ (125,680) ₩ 125,680
4.1.2 Credit Risk
Credit risk is the risk of possible loss to portfolio due to counterparty’s default, breach of covenantand loss of credibility. The Group controls the credit concentration risk exposure by applying andmanaging total exposure limits to prevent the excessive risk concentration to industry andborrowers.
There has been no loan or receivable included in the accounts receivable or other receivables thatare past due or have any sign of doubtful collection. The subsidiary expects low probability ofdefault at the end of the reporting period.
Credit risk can arise from transaction with financial institution such as cash and cash equivalents,deposits with banks, derivative financial instruments. The Group has transactions withcounterparties that are above certain credit rating in order to mitigate risks of default.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
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The Group’s maximum exposures of financial assets to credit risk without consideration ofcollaterals’ values as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won)
2012
Book value
without deduction
Accumulated
impairment loss Book value
Cash and cash equivalents1
\ 144,554,016 \ - \ 144,554,016
Short-term financial assets 30,862,656 - 30,862,656
Long-term financial assets 12,000 - 12,000
Accounts receivable 108,108,886 (957,154) 107,151,732
Other receivables 51,024,296 (6,694) 51,017,602
Guarantee contract 4,927,060 - 4,927,060
\ 339,488,914 \ (963,848) \ 338,525,066
(in thousands of Korean won)
2011
Book value
without deduction
Accumulated
impairment loss Book value
Cash and cash equivalents1
\ 173,569,205 \ - \ 173,569,205
Short-term financial assets - - -
Long-term financial assets 512,000 - 512,000
Accounts receivable 116,583,220 (1,016,132) 115,567,088
Other receivables 44,278,388 (6,694) 44,271,694
Guarantee contract 7,905,180 - 7,905,180
\ 342,847,993 \ (1,022,826) \ 341,825,167
1Cash on hand is not included in cash and cash equivalents.
4.1.3 Liquidity Risk
Liquidity risk is defined as the risk that the Group is unable to meet its short-term paymentobligations on time due to deterioration of its business performance or inability to access financing.
The Group forecasts its cash flow and liquidity status, and sets action plans on a regular basis tomanage liquidity risk proactively.
Repayment schedule for financial liabilities as of December 31, 2012 and 2011, are as follows:
2012
(in thousands of Korean won)Within
3 months3 months ~
1 years1 years ~2 years
Over2 years
Total
Short-term borrowings \ 17,709,835 \ 36,111,962 \ - \ - \ 53,821,797
Long-term borrowings 149,175 447,525 596,700 13,447,525 14,640,925
Debentures 490,000 1,470,000 1,960,000 55,390,000 59,310,000
Accounts payable 59,281,375 - - - 59,281,375
Other payables 21,408,112 3,748,522 5,105 264,571 25,426,310
Guarantee contract1
4,927,060 - - - 4,927,060
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2011
(in thousands of Korean won)Within
3 months3 months ~
1 years1 years ~2 years
Over2 years
Total
Borrowings \ 54,734,120 \ 26,165,883 \ - \ - \ 80,900,003
Accounts payable 53,133,852 - - - 53,133,852
Other payables 24,349,177 5,420,231 236,849 305,725 30,311,982
Guarantee contract1
7,305,180 600,000 - - 7,905,180
1The cash flows are classified on the basis of the earliest period that the agreement can be carried
out as stated on the financial guaranty agreement.
4.2 Capital Risk Management
The Group’s capital risk management purpose is to maximize shareholders’ value throughmaintaining a sound capital structure. The Group uses debt/equity ratio as indicator of capitalmanagement. This ratio is calculated from total liabilities divided by total equity which are posted inthe financial statements.
Debt/equity ratios as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Total liabilities \ 317,969,897 \ 267,718,401
Total equity 680,551,025 576,868,727
Debt/equity ratio 46.72% 46.41%
4.3 Fair Value Estimation
The table below analyzes financial instruments carried at fair value, by valuation method. Thedifferent levels have been defined as follows:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly(that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is,
unobservable inputs) (Level 3).
The following table presents the Group’s financial instruments that are measured at fair value as ofDecember 31, 2012 and 2011.
(in thousands of Korean won) 2012
Level 1 Level 2 Level 3 Total
Assets
Available-for-sale financial assets \56,454,565 \ - \ - \56,454,565
(in thousands of Korean won) 2011
Level 1 Level 2 Level 3 Total
Assets
Available-for-sale financial assets \11,891,676 \ - \ - \11,891,676
The fair value of financial instruments traded in active markets is based on quoted market prices atthe statement of financial position date. A market is regarded as active if quoted prices are readily
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
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and regularly available from an exchange, dealer, broker, an entity from the same industry, pricingservice, or regulatory agency, and those prices represent actual and regularly occurring markettransactions on an arm’s length basis. The quoted market price used for financial assets held bythe Group is the current bid price. These instruments are included in Level 1.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniquesmaximize the use of observable market data where it is available and rely as little as possible onentity specific estimates. If all significant inputs required to fair value an instrument are observable,the instrument is included in Level 2.
If one or more of the significant inputs is not based on observable market data, the instrument isincluded in Level 3.
Specific valuation techniques used to value financial instruments include:
Quoted market prices or dealer quotes for similar instruments. The fair value of forward foreign exchange contracts is determined using forward exchange
rates at the statement of financial position date, with the resulting value discounted back topresent value.
Other methods such as discount method for cash flows are used for he remaining financialinstruments.
The book value are estimated to a reasonable approximate value for the financial instruments,excluding available-for-sale financial assets, and financial liabilities.
The following table presents available for sale financial assets that are valued at historical cost asof December 31, 2012 and 2011:
(in thousands ofKorean won
Category2012 2011
Available-for -salefinancial assets
MAXPEED CARGO (BD) LTD. \ 24,826 \ 24,826KOFAD 500,000 500,000MXF TECHNOLOGIES, INC.
1 1 1\ 524,827 \ 524,827
1 Impairment on financial assets is recognized as their net asset value fell below their acquisitioncost in the previous year (Note 9).
Above available-for-sale financial assets are unlisted equities associated with project financing.Because the related projects are in their initial phase of business operation, the range ofreasonable fair value estimates is significant and the probabilities of the various estimates cannotbe reasonably assessed and therefore these instruments are measured at cost.
The Group does not have any plans to dispose of the above-mentioned equities in the near future.These instruments will be measured at fair value when the Group can develop a reliable estimateof the fair value.
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5. Segment Information
The Group’s reportable segments are organized into clothes, shoes and other business segmentsdepending on the type of each selling product.
Income and loss of each business segment for the years ended December 31, 2012 and 2011, areas follows:
2012(in thousands ofKorean won)
Clothes Shoes Others2 Consolidation
adjustmentBalance
Sales \1,596,727,642 \156,659,354 \ 238,721,313 \ (932,958,969) \1,059,149,340Operating income
1163,561,699 5,308,914 17,755,320 (831,681) 185,794,252
Depreciation andamortization
223,079,213 2,937,335 4,747,613 - 30,764,161
2011(in thousands ofKorean won)
Clothes Shoes Others2 Consolidation
adjustmentBalance
Sales \1,505,387,552 \ 148,494,602 \ 236,982,384 \ (900,676,015) \ 990,188,523Operating income
1165,524,737 6,310,154 14,491,966 (4,038,394) 182,288,463
Depreciation andamortization
221,019,335 2,381,749 3,681,118 - 27,082,202
1Management of the Group evaluates the performance of business segments based on operatingincome of each segment.
2Portions of depreciation and amortization not distributed into main business segments areincluded in others.
Assets and liabilities by business segment as of December 31, 2012 and 2011, are as follows:
2012(in thousands of Korean
won)Clothes Shoes Others Adjustment3,4 Consolidation
adjustmentBalance
Assets1\1,256,551,916 \50,216,345 \206,913,652 \89,435,571 \(604,596,563) \998,520,921
Investments inassociates and jointlycontrolled entity
232,912,057 11,332,317 57,828,588 - (290,944,156) 11,128,806
Purchase ofnon-current assets2 119,104,913 19,351,393 42,321,819 115,336 (15,918,860) 164,974,601
Liabilities1
361,134,586 16,315,391 41,348,162 160,105,080 (260,933,322) 317,969,897
2011(in thousands of Korean
won)Clothes Shoes Others Adjustment3,4 Consolidation
adjustmentBalance
Assets1
\1,067,936,875 \ 63,355,535 \151,231,185 \ 48,333,360 \(486,269,827) \844,587,128Investments inassociates and jointlycontrolled entity
217,960,749 11,197,719 47,901,391 - (266,957,515) 10,102,345
Purchase ofnon-current assets2 62,423,532 11,422,438 13,190,704 8,368,000 (9,234,610) 86,170,064
Liabilities1
254,150,907 33,179,419 37,454,724 131,428,701 (188,495,350)267,718,401
1The segment’s assets and liabilities reported to the Board are calculated with the same methodused for the assets and liabilities on the financial statements and distributed based on thedepartmental sales.
2The financial instruments are excluded from the acquisition cost of non-current assets.
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3Assets that are not distributed to the reporting business such as deferred income tax, available-for-sale financial assets and others.
4Liabilities that are not distributed to the reporting business such as deferred income tax, incometax expense, short-term and long-term borrowings.
The following table presents segment information as of and for the years ended December 31,2012 and 2011:
Sales and Non-current assets:
(in thousands of Korean won)
Sales Non-current assets1
2012 2011 2012 2011
Korea \ 1,054,611,445 \ 998,633,690 \ 193,521,799 \ 131,253,909
Bangladesh 631,111,910 593,185,159 76,555,459 85,189,007
Vietnam 125,429,527 113,131,150 55,838,659 34,915,726
China 117,804,486 116,961,304 38,647,574 42,505,109
Other 63,150,941 68,953,235 48,679,301 5,321,259
Consolidation adjustment (932,958,969) (900,676,015) 8,396,203 9,533,817
\ 1,059,149,340 \ 990,188,523 \ 421,638,995 \ 308,718,827
1Financial instrument was excluded from acquisition cost of non-current asset.
The Group’s sales from major customers of clothing and footwear businesses amount to about\ 172 billion.
6. Financial Instruments by Category
Categorizations of financial instruments as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012
Loans andreceivables
Assets classifiedas available-for-
sale
Financialliabilities at
amortized cost Total
Financial assets
Cash and cash equivalents \ 145,026,772 \ - \ - \ 145,026,772Long-term and short-termfinancial instruments 30,874,656 - - 30,874,656
Financial assets as available-for-sale - 56,979,392 - 56,979,392
Accounts receivable 107,151,732 - - 107,151,732
Other receivables 51,017,602 - - 51,017,602
\ 334,070,762 \ 56,979,392 \ - \ 391,050,154
Financial liabilities
Accounts payable \ - \ - \ 59,281,375 \ 59,281,375
Short-term borrowings - - 53,140,370 53,140,370
Other payables - - 25,473,136 25,473,136
Debentures - - 49,784,115 49,784,115
Long-term borrowings - - 13,000,000 13,000,000
\ - \ - \ 200,678,996 \ 200,678,996
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(in thousands of Korean won) 2011
Loans andreceivables
Assets classifiedas available-for-
sale
Financialliabilities at
amortized cost Total
Financial assets
Cash and cash equivalents \ 175,007,226 \ - \ - \ 175,007,226Long-term and short-termfinancial instruments 512,000 - - 512,000
Financial assets as available-for-sale - 12,416,503 - 12,416,503
Accounts receivable 115,567,088 - - 115,567,088
Other receivables 44,271,693 - - 44,271,693
\ 335,358,007 \ 12,416,503 \ - \ 347,774,510
Financial liabilities
Accounts payable \ - \ - \ 53,133,852 \ 53,133,852
Short-term borrowings - - 80,831,504 80,831,504
Other payables - - 30,319,113 30,319,113
\ - \ - \ 164,284,469 \ 164,284,469
Income and loss of financial instruments by category for the years ended December 31, 2012 and2011, are as follows:
(in thousands of Korean won) 2012 2011
Loans and receivables
Interest income \ 2,483,382 \ 2,333,358
Foreign exchange gain and losses (7,298,209) 3,851,584
Available-for-sale financial assetsGain(Loss) on valuation (Other comprehensive
income(loss)) 4,486,004 3,155,011
Gain(Loss) on disposal (Profit or loss) (22,941) (21,746)
Dividend income 603,250 135,436Financial asset or financial liability at fair value
through profit or loss
Gain(Loss) on transaction of derivatives - 147,739
Financial liabilities at amortized cost
Interest expense (3,818,774) (2,765,787)
Foreign exchange gain and losses (259,817) (2,074,713)
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
35
7. Credit Quality of Financial Assets
The credit quality of financial assets that are neither past due nor impaired can be assessed byreference to external credit ratings (if available) or to historical information about counterpartydefault rates as of December 31, 2012 and 2011:
(in thousands of Korean won) 2012 2011
Accounts receivable
Counterparties without external credit rating
Group 11 \ 5,134,531 \ 6,041,448
Group 22
102,974,355 110,541,772
Group 33
- -
Sum of unimpaired accounts receivable \ 108,108,886 \ 116,583,220
1New customers/related parties (less than 12 months).
2Existing customers/related parties (more than 12 months) with no defaults in the past.
3Existing customers with some defaults in the past. All defaults were fully recovered.
(in thousands of Korean won) 2012 2011
Cash at bank and short-term bank deposits1
Counterparties with external credit rating (Moody’s)
A1 \ 94,626,563 \ 117,693,825
A2 21,165,648 35,099,559
A3 210 -
Baa2 28,811,997 20,775,821
\ 144,604,418 \ 173,569,205
1All other ‘cash and cash equivalents’ in the statement of financial position are cash on hand.
(in thousands of Korean won) 2012 2011
Short-term financial assets
Counterparties with external credit rating (Moody’s)
A1 \ 25,862,656 \ -
A2 5,000,000 -
\ 30,862,656 \ -
(in thousands of Korean won) 2012 2011
Long-term financial assets
Counterparties with external credit rating (Moody’s)
A1 \ 9,500 \ 509,500
A2 2,500 2,500
\ 12,000 \ 512,000
None of normal financial assets was readjusted during the year 2011. None of the loans to relatedparties is past due nor impaired.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
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8. Cash and Cash Equivalents
Cash and cash equivalents as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Cash in hand \ 472,756 \ 1,438,021
Short-term bank deposits 144,604,418 173,569,205
Government grants (50,402) -
\ 145,026,772 \ 175,007,226
Restricted financial instruments as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) Financial institution 2012 2011Reason ofrestriction
Long-term financial assetsShinhan Bank and
others ₩ 12,000 ₩ 12,000 Guarantee deposit
9. Available-for-sale Financial Assets
The changes in available-for-sale financial assets for the years ended December 31, 2012 and2011, are as follows:
(in thousands of Korean won) 2012 2011
At January 1 \ 12,416,503 \ 8,040,141
Additions 39,519,602 -
Disposals (874,924) -
Evaluations 5,918,211 4,376,362
At December 31 \ 56,979,392 \ 12,416,503
Available-for-sale financial assets as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Marketable financial assets1
(except for Investments in subsidiary,
associates, jointly controlled entity)
\ 56,454,565 \ 11,891,676
Unmarketable financial assets2
(except for Investments in subsidiary,
associates, jointly controlled entity)
524,827 524,827
\ 56,979,392 \ 12,416,503
1The details of marketable financial assets as of December 31, 2012 and 2011, are as follows:
2012 2011
(in thousands ofKorean won)
Number ofshares
Percentageof ownership
Acquisitioncost
Fair Value Book value Book value
GOLDWIN INC. 8,856,000 15.17% \45,489,450 \56,454,565 \56,454,565 \ 11,891,676
2The Group measured the fair value of marketable equity securities which are included in available-for-sale financial assets at market prices that are used in the active market.Unlisted equity securities which are included in available-for-sale equity securities that cannot bereliably measured at fair value and are not traded in an active market are measured at acquisition
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
37
cost (Note 4).
None of the available-for sale financial assets as of December 31, 2012 and 2011, is either pastdue or impaired. Losses of unlisted equity securities in the amount of ₩ 129,233 thousand beforeDecember 31, 2011, were due to impairment.
10. Accounts Receivable
Accounts receivable as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Accounts receivable \ 108,108,886 \ 116,583,220Less: provision for impairment of account
receivables(957,154) (1,016,132)
Accounts receivable ,net \ 107,151,732 \ 115,567,088
The Group transferred receivable balances to a bank in exchange for cash during the year endedDecember 31, 2012. The transaction has been accounted for as a collateralized borrowing (Note21). In case of that the entities default under the loan agreement, the bank has the right to receivethe cash flows from the Company.
Details of transferred accounts receivable that are not derecognized in their entirety as ofDecember 31, 2012, are as follows:
(in thousands of Korean won) 2012 2011
Carrying amount of the transferred assets1 \ 17,704,209 \ 75,072,421
Carrying amount of the associated liabilities 17,704,209 75,072,421
1Accounts receivable before elimination of consolidation
The aging analyses of accounts receivable as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Receivables not past due \ 108,108,886 \ 116,583,220
Past due but not impaired1
Up to 3 months - -
3 to 6 months - -
Impaired
Over 6 months - -
\ 108,108,886 \ 116,583,220
1Accounts receivable past due but not impaired relate to a number of independent customers forwhom there is no recent history of default.
Movements on the provision for impairment of accounts receivable for the years ended December31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Beginning \ 1,016,132 \ 1,025,868
Unused amounts reversed (58,978) (9,736)
Ending \ 957,154 \ 1,016,132
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
38
The provision and reverse of provision for impaired receivables have been included in ‘selling andadministrative expenses’ in the income statement (Note 27).
11. Other Receivables
Other receivables as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011Current
Short-term loans \ 34,823,689 \ 28,099,154Accrued income 295,597 314,385Non-trade receivables 6,233,878 6,011,004Provision for receivables impairment (6,694) (6,694)Import margin money - 175,442
41,346,470 34,593,291Non current
Long-term loans 828,189 889,660Rent deposits 7,744,669 7,418,385Other deposits 1,098,274 1,370,358
9,671,132 9,678,403
\ 51,017,602 \ 44,271,694
There are no impaired or past due receivables as of December 31, 2012 and 2011.
Movements on the provision for impairment of trade receivables for the years ended December 31,2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Beginning \ 6,694 \ 129,483Provision(reversal) - (122,789)
Ending \ 6,694 \ 6,694
The provision and reversal of provision for impaired receivables have been included in ‘selling andadministrative expenses’ (Note 27) in the income statement.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
39
12. Other Assets
Other assets as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2011 2011
Current
Advances \ 21,593,534 \ 22,707,359
Provision for advances (81,189) (160,791)
Prepaid expenses 928,237 571,564
Prepaid VAT 2,444,834 2,407,980
Prepaid income tax 110,476 95,004
Others 9,732 193
25,005,624 25,621,309
Non-current
Prepaid expenses 1,670,549 2,037,381
Others 6,125 6,413
1,676,674 2,043,794
\ 26,682,298 \ 27,665,103
13. Inventories
Inventories as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012
Before valuation Valuation allowance Book value
Merchandise \ 37,936,524 \ (17,655,892) \ 20,280,632
Finished goods 29,508,726 (1,221,332) 28,287,394
Raw materials 74,150,488 (5,037,918) 69,112,570
Work in progress 24,398,106 - 24,398,106
Supplies 10,265,632 - 10,265,632
Goods in transit 6,805,141 - 6,805,141
\183,064,617 \ (23,915,142) \159,149,475
(in thousands of Korean won) 2011
Before valuation Valuation allowance Book value
Merchandise \ 27,839,422 \ (7,028,364) \ 20,811,058
Finished goods 32,161,934 (1,058,908) 31,103,026
Raw materials 74,150,790 (4,251,867) 69,898,923
Work in progress 21,511,740 - 21,511,740
Supplies 7,110,352 - 7,110,352
Goods in transit 7,289,734 - 7,289,734
\ 170,063,972 \ (12,339,139) \ 157,724,833
As of December 31, 2012, inventories are pledged as collateral in relation to borrowings (Note 21).
The cost of inventories recognized as expense amounted to\ 541,699,360 thousand (2011:
\ 497,692,338 thousand).
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
40
14. Property, Plant and Equipment
Changes in property, plant and equipment for the years ended December 31, 2012 and 2011, areas follows:
(in thousands ofKorean won) 2012
Land Buildings Structures Machinery VehiclesTools andequipment Facilities
Constructionin progress Total
Beginningbalance (net) \ 31,969,564 \ 102,139,253 \ 337,375 \ 67,083,375 \ 20,216,066 \ 9,276,219 \ 1,395,944 \ 29,442,783 \ 261,860,579
Acquisitions 36,622,970 4,585,370 - 25,049,329 22,030,466 4,224,840 246,162 68,239,097 160,998,234
Disposals (5,982,087) (908,450) - (2,551,724) (41,878) (88,135) (38,855) - (9,611,129)
Depreciation - (4,268,016) (20,533) (17,125,455) (4,214,039) (3,599,055) (646,741) - (29,873,839)
Transfer (7,834,709) (8,365,231) - 2,241,060 - 72,044 20,437 (6,384,177) (20,250,576)Currencytranslationdifferences (237,097) (3,038,822) - (3,461,609) (2,311,764) (169,623) (98,850) (2,180,384) (11,498,149)
Changes in scopeof consolidation - 197,029 - 33,874 33,792 88,887 - - 353,582
Endingbalance(net) 54,538,641 90,341,133 316,842 71,268,850 35,712,643 9,805,177 878,097 89,117,319 351,978,702
Cost 54,538,641 112,549,098 605,740 153,558,553 46,382,582 29,038,252 4,395,076 89,117,319 490,185,261Accumulateddepreciation - (22,207,965) (288,898) (82,289,703) (10,669,939) (19,233,075) (3,516,979) - (138,206,559)
Net book amount \ 54,538,641 \ 90,341,133 \ 316,842 \ 71,268,850 \ 35,712,643 \ 9,805,177 \ 878,097 \ 89,117,319 \ 351,978,702
(in thousands ofKorean won) 2011
Land Buildings Structures Machinery VehiclesTools andequipment Facilities
Constructionin progress Total
Beginningbalance (net) \ 31,040,744 \ 89,549,510 \ 266,551 \ 68,275,066 \ 13,044,181 \ 9,465,380 \ 1,575,589 \ 12,708,734 \ 225,925,755
Acquisitions 902,376 7,032,439 90,860 19,837,972 11,808,561 4,221,561 286,900 28,982,677 73,163,346
Disposals - (64,176) - (837,570) (9,603) (57,390) - - (968,739)
Depreciation - (3,927,967) (20,037) (15,652,409) (2,606,984) (3,816,696) (287,221) - (26,311,314)
Transfer - 11,112,641 - 449,592 - 20,987 - (11,831,317) (248,097)Currencytranslationdifferences 26,444 (1,563,193) - (4,989,276) (2,020,089) (557,624) (179,324) (417,311) (9,700,373)
Endingbalance(net) 31,969,564 102,139,254 337,374 67,083,375 20,216,066 9,276,218 1,395,944 29,442,783 261,860,578
Cost 31,969,564 123,984,473 605,740 137,290,991 26,569,929 27,366,538 3,055,587 29,442,783 380,285,605Accumulateddepreciation - (21,845,219) (268,366) (70,207,616) (6,353,863) (18,090,320) (1,659,643) - (118,425,027)
Net book amount \ 31,969,564 \ 102,139,254 \ 337,374 \ 67,083,375 \ 20,216,066 \ 9,276,218 \ 1,395,944 \ 29,442,783 \ 261,860,578
Depreciation expense of \ 20,831,360 thousand (2011: \ 17,962,771 thousand) has been
charged to ‘cost of goods sold’ and \ 9,042,479 thousand (2011: \ 8,698,504 thousand) to‘selling and administrative expenses’.
Details of capitalized borrowing costs as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Construction-in-progress \ 506,251 \ -
Borrowing costs were capitalized at the weighted average rate of its general borrowings of 3.92%.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
41
15. Intangible Assets
Intangible assets for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012Industrialproperty Software
Membershiprights Total
Beginning balance \ 98,408 \ 1,144,301 \ 921,684 \ 2,164,393
Acquisitions 4,686 2,285,406 - 2,290,092
Amortization (34,217) (524,420) - (558,637)
Disposals - - - -
Currency translation differences - 9,901 - 9,901
Ending balance 68,877 2,915,188 921,684 3,905,749
Cost 173,034 5,249,467 921,684 6,344,185
Accumulated amortization (104,157) (2,334,279) - (2,438,436)
Net book amount \ 68,877 \ 2,915,188 \ 921,684 \ 3,905,749
(in thousands of Korean won) 2011Industrialproperty Software
Membershiprights Total
Beginning balance \ 132,716 \ 1,277,117 \ 390,244 \ 1,800,077
Acquisitions 436 224,717 531,440 756,593
Amortization (34,744) (386,183) - (420,927)
Disposals - - - -
Currency translation differences - 28,650 - 28,650
Ending balance 98,408 1,144,301 921,684 2,164,393
Cost 185,592 3,093,711 921,684 4,200,987
Accumulated amortization (87,184) (1,949,410) - (2,036,594)
Net book amount \ 98,408 \ 1,144,301 \ 921,684 \ 2,164,393
Amortization of \ 28,225 thousand (2011: \ 178,952 thousand) is included in the ‘cost of sales’
in the income statement; and \ 530,412 thousand (2011: \ 241,975 thousand) in ‘selling andadministrative expenses’.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
42
16. Investment Property
Changes in investment property for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Beginning acquisition cost \ 38,445,886 \ 29,762,007
Beginning accumulated depreciation (3,854,375) (3,436,631)
Net book value \ 34,591,511 \ 26,325,376
Beginning net book value \ 34,591,511 \ 26,325,376
Acquisition 115,336 8,368,000
Depreciation (331,685) (349,961)
Transfer 20,250,576 248,096
Ending net book value \ 54,625,738 \ 34,591,511
Ending acquisition cost \ 61,078,207 \ 38,445,886
Ending accumulated depreciation (6,452,469) (3,854,375)
Ending net book value \ 54,625,738 \ 34,591,511
Fair value of investment property as of December 31, 2012, is\ 87,344,093 thousand (2011:
\ 53,565,249 thousand).
Rent income from investment property during the year ended December 31, 2012, is\ 2,810,467
thousand (2011: \ 1,769,989 thousand).
17. Collateralized Assets
Collateralized assets related to the Group’s borrowings as of December 31, 2012, are as follows:
(only Korean won in thousands)Collateralized assets Location Financial institution Collateralized amount
Geumgwang-dong
Company building
(Land and buildings)
Geumgwang-dong 12st,Jungwong-gu, Sungnam
Shinhan Bank\ 57,500,000
USD 2,400,000
Banyeo-dong Company
building
(Land and buildings)
Banyeo-dong 1486st,Haeundae-gu,Pusan
NongHyup \ 3,900,000
Hawolgok-dong Company
building
(Land and buildings)
70st Hawolgok-dong,Seongbuk-gu, Seoul
Woori Bank \ 8,460,000
Collateralized assets include investment property.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
43
18. Associates and Jointly Controlled Entity
The Group’s investments in associates and jointly controlled entity as of December 31, 2012 and2011, are as follows:
2012 2011(in thousands
of Koreanwon) Location
Percentageof shares
ownedAcquisition
cost Net assets Book valueAcquisition
cost Net assets Book value
DTI New Zealand 50.00% \ 5,984,936 \ 8,789,612 \ 8,789,612 \ 5,984,936 \ 7,253,036 \ 7,253,036
GGL Hong Kong 55.00% 8,583,528 2,339,193 2,339,193 5,664,352 2,440,028 2,440,028Scott North
Asia Ltd. Korea 60.00% - - - 600,000 409,281 409,281
\14,568,464 \11,128,805 \11,128,805 \12,249,288 \10,102,345 \10,102,345
Changes in investments in associates and jointly controlled entity for the years ended December31, 2012 and 2011, are as follows:
2012
(in thousands ofKorean won)
Beginningbalance Acquisition Dividends
Share ofprofit(loss)
Shares of othercomprehensive
income ofassociates
accounted forusing the equity
method DisposalEndingbalance
GGL \ 7,253,036 \ - \ - \ 1,357,720 \ 178,856 \ - \ 8,789,612
DTI 2,440,027 1,570,938 - (1,487,689) (184,083) - 2,339,193Scott North Asia
Ltd. 409,281 - - (131,483) - (277,798) -
\10,102,344 \1,570,938 \ - \ (261,452) \ (5,227) \ (277,798) \11,128,805
2011
(in thousands ofKorean won)
Beginningbalance Acquisition Dividends
Share ofprofit(loss)
Shares of othercomprehensive
income ofassociates
accounted forusing the equity
method
Reclassificationto non-currentasset held for
saleEndingbalance
Wondo Apparel \ 1,748,145 \ - \ (92,900) \1,064,554 \ (15,944) \ (2,703,855) \ -
GGL 6,526,215 - - 576,427 150,394 - 7,253,036
DTI 1,299,983 3,282,125 - (1,811,228) (330,852) - 2,440,028Scott North Asia
Ltd. - 600,000 - (190,719) - - 409,281
\ 9,574,343 \ 3,882,125 \ (92,900) \ (360,966) \ (196,402) \ (2,703,855) \10,102,345
The summary of financial information on its principal associates and jointly controlled entity as ofand for the years ended December 31, 2012 and 2011, follows:
(in thousands of Korean won) 2012
Assets Liabilities Revenues Profit/(loss)
Wondo Apparel \ - \ - \ - \ -
DTI2
24,595,696 7,016,472 51,501,336 2,714,646
GGL1, 2
19,723,909 366,173 - (7,306)
Scott North Asia Ltd.2
- - - -
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
44
(in thousands of Korean won) 2011
Assets Liabilities Revenues Profit/(loss)
Wondo Apparel \ 37,188,590 \ 26,601,728 \ 75,401,426 \ 2,964,037
DTI2
22,538,590 8,032,517 38,219,475 1,043,568
GGL1, 2
18,121,779 221,065 - (9,040)
Scott North Asia Ltd.2
3,586,607 2,904,472 656,214 (317,864)
1The effects on the financial statements and content of the equity method applied to reconcileGGL’s accounting policy with the parent company are as follows:
(in thousands of Korean won)Net assets
before adjustment AdjustmentNet assets
after adjustment
Application of equity method \ 19,357,736 \ (15,104,657) \ 4,253,079
2The ratio of shareholding is over 50%. However, it is not classified as subsidiary, as it is a jointcontrolled entity.
19. Accounts Payable and Other Payables
Accounts payable and other payables as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Current
Accounts payable \ 59,281,375 \ 53,133,852
Other payables 2,657,157 3,463,423
Accrued expense 18,850,280 21,405,068
Rent deposits 2,574,357 3,984,099
Operation deposits 1,107,826 1,112,275
Financial guarantee contract1
18,946 40,186
84,489,941 83,138,903
Non-current liabilities
Accrued expenses 264,571 314,062
\ 84,754,512 \ 83,452,965
1As of December 31, 2012, the Group provides payment guarantee in relation to the associatesand jointly controlled entities’ borrowings (Note 36).
20. Other Liabilities
Details of other liabilities as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Current
Customer advances \ 900,655 \ 4,253,001
Unearned revenue 2,187,332 1,902,626
Returnable deposits 550,351 387,482
Deposits for value added tax 24,870 13,935
Others 24,248 12,368
\ 3,687,456 \ 6,569,412
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
45
21. Borrowings
Details of borrowings as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Current
Bank overdrafts \ 1,089,009 \ 9,197
Collateralized borrowings 17,704,209 75,072,421
Bank borrowings 34,321,407 5,749,886
Other borrowings 25,745 -
53,140,370 80,831,504
Non-current
Debentures 49,784,115 -
Bank borrowings 13,000,000 -
62,784,115 -
\ 115,924,485 \ 80,831,504
Details of bank borrowings as of December 31, 2012 and 2011, are as follows:
(in thousands ofKorean won) Creditor
Latestmaturity date
Annual interestrate(%)
December 31,2012 2012 2011
Current
OverdraftsStandard Chartered
and others- 6M Libor + 2.00 \ 1,089,009 \ 9,197
Korean won Shinhan Bank 2013.04.30 3M CD + 1.3 30,000,000 -
Foreign currency1
Citibank and others - 6M Libor + 2.0~2.3 4,321,407 5,749,886
Accounts receivablecollateralized loan
2Woori Bank and
others- 6M Libor + 1.89 17,704,209 75,072,421
Borrowings in foreigncurrency
KEPZ and others - - 25,745 -
53,140,370 80,831,504
Non-current
Long-term borrowings Woori Bank 2015.04.27 3M CD + 1.74 13,000,000 -
\ 66,140,370 \ 80,831,504
1Borrowings are collateralized with inventories (Note 13).
2Borrowings are collateralized with land and buildings (Notes 14 and 16).
Details of debentures as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) Issue dateLatest
maturity date
Annual interestrate(%)
December 31,2012 2012 2011
1st
non-guaranteed debenture 2012-06-29 2017-06-29 3.92 \ 50,000,000 \ -
Less: Discount on debenture (215,885) -
\ 49,784,115 \ -
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
46
22. Defined Benefit Liability
Defined benefit liability recognized on the statements of financial position as of December 31,2012 and 2011, is as follows:
(in thousands of Korean won) 2012 2011
Present value defined benefit liability \ 15,455,883 \ 14,227,619
Fair value of plan assets1
(12,984,602) (10,039,200)
Liability on the statement of financial position \ 2,471,281 \ 4,188,419
1 Contributions to the National Pension Fund of \41,408 thousand (2011:\ 43,758 thousand),are included to fair value of plan assets.
Changes in the carrying amount of defined benefit obligations for the years ended December 31,2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Beginning balance \ 14,227,619 \ 12,869,908
Current service cost 2,036,620 2,064,527
Interest expense 622,745 648,078
Actuarial gains 431,009 598,005
Benefits paid (2,402,472) (1,895,492)
Past service cost 603,726 -
Liability from associates 20,912 846
Liability to associates (84,276) (58,253)
Ending balance \ 15,455,883 \ 14,227,619
The movements in the fair value of plan assets for the years ended December 31, 2012 and 2011,are as follows:
(in thousands of Korean won) 2012 2011
Beginning balance \ 10,039,200 \ 8,585,412
Expected return on plan assets 464,619 437,490
Actuarial losses (59,760) (125,982)
Employer contribution 3,700,000 2,500,000
Benefits paid (1,156,265) (1,357,720)
Asset to associates (3,192) -
Ending balance \ 12,984,602 \ 10,039,200
The amounts recognized on the income statements for the years ended December 31, 2012 and2011, are as follows:
(in thousands of Korean won) 2012 2011
Current service cost \ 2,036,620 \ 2,064,527
Interest expenses 622,745 648,078
Past service cost 603,726 -
Expected return on plan assets (464,619) (437,490)
Actuarial losses 490,769 723,986
Total expenses included in salaries \ 3,289,241 \ 2,999,101
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
47
Total expenses are included in ‘selling and administrative expenses’.
Actual return of plan assets is\ 404,859 thousand (2011:\ 311,508 thousand).
The principal actuarial assumptions as of December 31, 2012 and 2011, are as follows:
2012 2011
Discount rate 4.00% 5.00%
Expected return on plan assets 4.56% 4.56%
Future salary increases1 5.15% 7.63%
1inflation rate included.
Plan assets as of December 31, 2012 and 2011, consist of the following:
(in thousands of Korean won) 2012 2011
Equity instruments \ 856,984 \ 545,129
Debt instruments 4,853,644 3,702,457
Bank deposits and others 7,273,974 5,791,614
\ 12,984,602 \ 10,039,200
The expected return on plan assets is determined by considering the expected returns on eachcomponent of plan assets. Expected rate of return on plan assets are based on rate of return onreserve in guaranteed interest instruments(1 year) provided by the asset management institution.
Adjustments for the differences between initial assumptions and actual figures as of December 31,2012, 2011 and 2010, and January 1, 2010, are as follows:
(in thousands of Korean won)December 31,
2012December 31,
2011December 31,
2010January 1,
2010
Present value of defined benefit liability \ 15,455,883 \ 14,227,619 \ 12,869,908 \ 9,559,854
Fair value of plan assets (12,984,602) (10,039,200) (8,585,412) (7,678,360)
Deficit(Surplus) of the funded plans 2,471,281 4,188,419 4,284,496 1,881,494
Defined benefit liability adjustments 431,009 598,005 1,649,777 -
Defined benefit asset adjustments (59,760) (125,982) (70,416) -
23. Deferred Income Tax
Deferred tax assets and deferred tax liabilities as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Deferred tax assetsDeferred tax asset to be recoveredafter more than 12 months
\ 9,021,547 \ 6,360,841
Deferred tax asset to be recoveredwithin 12 months
4,865,526 4,170,410
13,887,073 10,531,251
Deferred tax liabilitiesDeferred tax liability to be recoveredafter more than 12 months
(2,859,476) (2,574,970)
Deferred tax liability to be recoveredwithin 12 months
(108,280,356) (84,440,032)
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
48
(111,139,832) (87,015,002)
Deferred tax assets(liabilities), net \ (97,252,759) \ (76,483,751)
The gross movement on the deferred income tax account for the years ended December 31, 2012and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Beginning balance \ (76,483,751) \ (46,862,903)
Exchange differences 35,926 (4,254)
Income statement charge (Note 32) (19,372,727) (28,395,243)
Tax charged/(credited) directly to equity (Note 32) (1,432,207) (1,221,351)
Ending balance \ (97,252,759) \ (76,483,751)
The movements in deferred income tax assets and liabilities during the year, without taking intoconsideration the offsetting of balances within the same tax jurisdiction, are as follows:
(in thousands of Korean won)January 1,
2012Income
statement Equity
Foreigncurrency
translationDecember 31,
2012
Deferred tax assets
Provision for sales promotion \ 460,436 \ 68,899 \ - \ - \ 529,334
Agent sales 3,875,683 5,875 - - 3,881,558
Loss on valuation of inventories 1,700,864 2,571,862 - - 4,272,726
Service fees 3,651 - - - 3,651
Bad debts expense 182,884 - - - 182,884Impairment loss of available-for-
sale financial assets 31,274 - - - 31,274
Payment guarantee 624,785 10,672 - - 635,456Interest related to loan for
construction 31,136 (1,038) - - 30,098
Retirement benefit obligation 2,694,779 613,835 - - 3,308,614
Receivables 787,525 59,451 - - 846,976
Accrued expenses 137,325 14,070 - - 151,394
Others 910 12,197 - - 13,108
\ 10,531,252 \ 3,355,822 \ - \ - \ 13,887,073
Deferred tax liabilities
Accrued income \ (46,985) \ (30,506) \ - \ - \ (77,491)
Agent cost of goods sold (2,527,985) (254,000) - - (2,781,986)
Advanced depreciation provision (2,767,789) - - - (2,767,789)Investments in subsidiaries and
jointly controlled entity (77,639,769) (21,235,695) - - (98,875,464)Gain on valuation of available-
for-sale financial assets (1,221,351) - (1,432,207) - (2,653,558)
Insurance for retirement (2,420,415) (706,948) - - (3,127,364)
Depreciation (50,010) (501,399) - 11,644 (539,765)
Others (340,698) - - 24,283 (316,415)
\(87,015,002) \(22,728,550) \ (1,432,207) \ 35,926 \(111,139,832)
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
49
(in thousands of Korean won)January 1,
2011Income
statementEquity
December 31,2011
Deferred tax assets
Provision for sales promotion \ 372,261 \ 88,175 \ - \ 460,436
Agent sales 2,437,890 1,437,793 - 3,875,683
Loss on valuation of inventories 1,393,478 307,386 - 1,700,864
Foreign currency losses 470,909 (470,909) - -
Service fees 3,651 - - 3,651
Bad debts expense 182,884 - - 182,884
Allowance for doubtful accounts 87,743 (87,743) - -Impairment loss of available-for-
sale financial assets 28,431 2,843 - 31,274
Payment guarantee 562,418 62,367 - 624,785Interest related to loan for
construction 29,249 1,887 - 31,136
Retirement benefit obligation 2,132,571 562,208 - 2,694,779
Receivables 685,770 101,755 - 787,525
Accrued expenses 24,094 113,231 - 137,325
Others - 910 - 910
\ 8,411,349 \ 2,118,903 \ - \ 10,531,252
Deferred tax liabilities
Accrued income \ (56,127) \ 9,142 \ - \ (46,985)
Agent cost of goods sold (1,522,440) (1,005,545) - (2,527,985)Gains on foreign currency
translation (323,081) 323,081 - -
Advanced depreciation provision (2,516,172) (251,617) - (2,767,789)Investments in subsidiaries and
jointly controlled entity (48,451,197) (29,188,572) - (77,639,769)Gain on valuation of available-
for-sale financial assets (147,519) 147,519 (1,221,351) (1,221,351)
Insurance for retirement (1,875,807) (544,608) - (2,420,415)
Depreciation (45,464) (4,546) - (50,010)
Others (336,444) - (4,254) (340,698)
\ (55,274,251) \ (30,515,146) \ (1,225,605) \ (87,015,002)
Deferred income tax assets are recognized for tax loss carryforwards to the extent that therealization of the related tax benefit through future taxable profits is probable. Deferred income taxassets not recognized for the deductible temporary difference, because it is not probable that thetemporary differences will reverse in the foreseeable future as of December 31, 2012 and 2011,are as follows:
(in thousands of Korean won) 2012 2011
Accumulated deficit \ 5,772,998 \ 4,218,682
Tax loss forwards carry 278,953 248,010
As of December 31, 2012, deferred tax assets amounting to \6,930,249 thousand (2011:
\7,683,741 thousand) were not recognized due to the remote possibility of realization, which are
related to deductible temporary differences amounting to \28,637,394 thousand (2011:
\31,750,996 thousand) included in other comprehensive income of subsidiaries deemed to bedisposed of.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
50
24. Capital Stock
The details of capital stock as of December 31, 2012 and 2011, are as follows:
(in Korean won, number of shares) 2012 2011
Number of shares authorized to issue 100,000,000 100,000,000
Par value per share \ 500 \ 500
Number of shares outstanding 40,811,468 40,811,468
Capital stock \ 20,405,734,000 \ 20,405,734,000
25. Other Components of Equity
The details of other components of equity as of December 31, 2012 and 2011, are as follows:
(in Korean won, number of shares) 2012 2011
Capital surplus
Other capital adjustment \ (825,155) \ (825,155)
Other comprehensive income
Gain on valuation of available-for-salefinancial assets 8,311,557 3,825,553
Shares of other comprehensive income ofassociates accounted for using the equitymethod 465,367
650,731
Negative shares of other comprehensiveincome of associates accounted for usingthe equity method (1,390,812)
(1,206,729)
Currency translation differences (55,737,447) (33,686,014)
(48,351,335) (30,416,459)
Capital adjustments
Treasury shares1
(2,414) (2,414)
\ (49,178,904) \ (31,244,028)
1Details of treasury shares whose voting power is limited by regulations as of December 31, 2012,are as follows:
Owner Number of shares Ownership Reason for restriction
Treasury shares 289 0.0007% Commercial Law Article 369, Part II
Changes in accumulated other comprehensive income for the year ended December 31, 2012, isas follows:
(in thousands of Korean won)Beginning
Increase(Decrease) Ending
Available-for-sale assets \ 3,825,553 \ 4,486,004 \ 8,311,557
Shares of other comprehensive incomeof associates accounted for using theequity method
650,731 (185,364) 465,367
Share in other comprehensive loss ofassociates accounted for using theequity method
(1,206,729) (184,083) (1,390,812)
Currency translation differences (33,686,014) (22,051,433) (55,737,447)
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
51
\ (30,416,459) \ (17,934,876) \ (48,351,335)
Changes in accumulated other comprehensive income represent net of tax effect amounts.
26. Retained Earnings
Retained earnings as of December 31, 2012 and 2011, consist of:
(in thousands of Korean won) 2012 2011
Legal reserves1 \ 2,420,000 \ 1,520,000
Voluntary reserves2
110,000,000 100,000,000
Unappropriate retained earnings 223,244,602 123,578,611
\ 335,664,602 \ 225,098,611
1The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legalreserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals50% of its issued capital stock. The reserve is not available for the payment of cash dividends,but may be transferred to capital stock or used to reduce accumulated deficit, if any, with theratification of the Company’s majority shareholders.
2Voluntary reserves are the retained earnings that are allowed with the approval of theshareholders.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
52
27. Selling and Administrative Expenses
Selling and administrative expenses for the years ended December 31, 2012 and 2011, are asfollows:
(in thousands of Korean won)
2012 2011
Salaries \ 37,036,912 \ 33,270,897
Severance benefits 3,289,241 3,065,524
Employee benefits 5,038,568 4,591,930
Travel expense 481,315 464,672
Communications 1,764,631 1,801,876
Utilities 795,409 666,787
Tax and duties 958,089 1,149,922
Rent expenses 9,803,769 6,677,675
Depreciation 9,374,164 8,348,543
Repairs 1,205,249 1,296,845
Vehicle maintenance 2,425,161 1,997,220
Entertainment 926,733 829,314
Supplies 749,430 763,008
Insurance 2,171,403 917,462
Publications 80,501 68,609
Training 148,858 105,454
Service fees 11,706,493 13,711,297
Samples 180,589 149,205
Advertising costs 3,027,886 1,602,886
Bad debts expense - 49,522
Transportation 886,748 715,461
Exports 3,529,219 3,734,057
Shipping 3,291,456 5,006,350
Amortization 530,412 241,975
Overseas marketing 4,132,902 4,236,583
Packaging 244,780 245,422
Overseas trips 2,507,315 3,060,992
Sales promotion 170,267 251,406
Miscellaneous expenses 2,424,305 2,276,131
Reversal of allowance for bad debts (79,602) -
\ 108,802,203 \ 101,297,025
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
53
28. Other Income and Expenses
Other income for the years ended December 31, 2012 and 2011, consists of:
(in thousands of Korean won)
2012 2011Gain on disposal of available-for-salefinancial assets \ 66,452 \ 39,465
Gain on disposal investment in associates 3,833,054 6,339,826
Gain on disposal of plant, property and equipment 12,825,558 21,195,056
Foreign currency gains 2,160,365 -
Foreign currency transaction gains 9,734 -
Import fees 54,242
Rental income 3,526,359 2,811,207
Claim income 409,584 320,132
Miscellaneous revenue 507,823 661,668Gain on disposal of available-for-salefinancial assets 5,112,980 1,463,933
\ 28,506,151 \ 32,831,287
Other expenses for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won)
2012 2011Loss on disposals of available-for-salefinancial assets
\ 32,675 \ 21,746
Loss on disposal of plant, property and equipment 47,484 -
Foreign currency losses 210,101 25,731
Foreign currency transaction losses 6,081,056 4,557,554
Donations 18,135,582 21,200,458
Claim expenses 8,820,589 2,634,700
Miscellaneous expenses 609,183 785,940Loss on disposals of available-for-salefinancial assets 941,862 562,652
\ 34,878,532 \ 29,788,781
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
54
29. Expenses by Nature
Expenses by nature for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011Changes in inventories of finished goods
and work in progress \ (1,424,642) \ (31,820,272)
Raw materials and consumables used 543,124,002 529,512,610
Employee benefit expense (Note 30) 155,481,563 147,061,908
Welfare benefit expenses 10,140,697 9,128,517
Depreciation (Notes 14,16) 30,205,524 26,661,275
Amortization (Note 15) 558,637 420,927
Service fees 52,757,838 54,303,253
Shipping 10,154,400 12,815,635
Overseas marketing 4,132,902 4,236,583
Advertising costs 3,027,886 2,603,984
Exports 3,768,586 3,922,479
Sales promotion 170,267 251,406
Other expenses 61,257,428 48,801,755
\ 873,355,088 \ 807,900,060
30. Employee Benefit Expense
Employee benefit expense for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Wages and salaries \ 151,471,272 \ 143,428,927
Short-term employee benefits 721,050 567,457
Severance benefits (Defined benefit plans) 3,289,241 3,065,524
\ 155,481,563 \ 147,061,908
31. Financial Income and Costs
Financial income for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Interest income on short-term bank deposits \ 1,848,580 \ 1,343,304
Interest income on loans 634,802 990,054Dividend income 603,250 135,436Transaction income on derivatives - 147,739
\ 3,086,632 \ 2,616,533
Financial costs for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Interest expense on bank borrowings \ 2,480,118 \ 812,473
Interest expense on collateralized borrowings 1,338,656 1,953,314
\ 3,818,774 \ 2,765,787
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
55
32. Income Tax Expense
Income tax expense for the years ended December 31, 2012 and 2011, consists of:
(in thousands of Korean won)2012 2011Current tax:
Current tax on profits for the year \ 27,728,271 \ 27,730,770Adjustments in respect of prior years 43,252 178,312
Total current tax \ 27,771,523 \ 27,909,082
Deferred tax (Note 23):Origination and reversal of temporary
differences 20,804,935 26,129,452Income tax recognized directly in equity (1,432,207) (1,221,351)Effects from change in tax rate - 3,487,142
Income tax expense \ 47,144,251 \ 56,304,325
The reconciliation between of the net profit before income tax and income tax expense for theyears ended December 31, 2012 and 2011, follows:
(in thousands of Korean won) 2012 2011
Profit before tax \ 178,428,277 \ 184,820,749
Tax at the applicable tax rate \ 25,303,751 \ 26,844,132
Tax effects of:
Expenses not deductible for tax purposes 152,536 115,750
Additional payment of income taxes 43,252 178,312
Tax credit and tax exemption (780,852) (855,081)
Tax effect of investments in subsidiaries 22,167,395 26,580,087
Other 109,403 (187,404)Temporary difference for which no deferred
tax is recognized 148,766 141,387
Effects from change in tax rate - 3,487,142
Income tax expense \ 47,144,251 \ 56,304,325
The income tax (charged)/credited directly to equity as of December 31, 2012 and 2011, are asfollows:
2012 2011
(in thousands of Korean won)Before tax
Tax(charge)credit After tax Before tax
Tax(charge)credit After tax
Fair value gains from available-for-sale financial assets \5,918,211 \ (1,432,207) \4,486,004 \4,376,362 \ (1,221,351) \3,155,011
The tax rates of subsidiaries at the end of the reporting period are applied differently for each taxauthority and the weighted average applicable tax rate is 14.18%. The weighted averageapplicable tax rate has decreased since the previous year (14.52%) due to changes in applicabletax rate of the Parent Company.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
56
33. Earnings per Share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of theCompany by the weighted average number of ordinary shares in issue during the year excludingordinary shares purchased by the Company and held as treasury shares. Meanwhile, theCompany has not issue dilutive securities. Thus, earnings per share and dilutive earnings pershare are the same.
Basic earnings per share for the years ended December 31, 2012 and 2011, is as follows:
2012 2011
Profit attributable to equity holders of the Company ₩118,728,226,773 ₩117,092,853,544
Weighted average number of ordinary shares in issue1
40,811,179 40,811,179
Basic earnings per share ₩ 2,909 ₩ 2,869
1 Weighted average number of common stock outstanding
(in number of shares) 2012 2011
Number of common stock outstanding 40,811,468 40,811,468Weighted average number of treasury shares 289 289Weighted average number of common stock
outstanding 40,811,179 40,811,179
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
57
34. Cash Generated from Operations
Cash generated from operations for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Net income ₩ 131,284,027 ₩ 128,516,424
Adjustments for
Tax expense 47,144,251 56,304,325
Interest income (2,483,382) (2,333,358)
Dividend income (603,250) (135,436)
Interest expense 3,818,774 2,765,787
Depreciation 30,205,524 26,661,275
Amortization 558,637 420,927
Provision for severance benefits 3,289,241 2,999,101
Gain on disposal of property, plant and equipment (66,452) (39,465)
Loss on disposal of property, plant and equipment 210,101 25,731
Bad debts expense - 49,521
Reversal of allowance for bad debt (79,602) -
Gain on foreign currency translation (3,833,054) (6,339,826)
Loss on foreign currency translation 6,081,056 4,557,554
Gain on investments in joint ventures (1,357,720) (576,427)
Loss on investments in joint ventures 1,619,172 2,001,947
Gain on disposal of investments in joint ventures (54,241) -
Gain on investments in associates - (1,064,554)Gain on disposal of available-for-sale
financial assets (9,734) -Loss on disposal of available-for-sale
financial assets 32,675 -
Loss on disposal of investments in subsidiaries 47,484 -Gain on disposal of non-current assets
held for sale (2,160,365) -
Changes in scope of consolidation (689,253) -
81,669,862 85,297,102Changes in operating assets and liabilities
Decrease(increase) in accounts receivables 1,976,000 (13,682,796)
Increase in inventories (7,484,502) (43,127,342)
Increase in other receivables (888,612) (2,790,857)
Decrease(increase) in other current assets (47,971) 6,647,992
Decrease in other non-current assets 244,714 324,227
Increase in accounts payable 11,046,602 4,597,520Increase in provisions for other liabilities and
charges 767,297 257,273
Increase(decrease) in other current payables (3,448,772) 4,830,117
Decrease in other current liabilities (104,268) (2,993,423)
Decrease in retirement benefit obligations (5,006,378) (2,894,775)
Increase(decrease) in other non-current payables (30,041) 314,062
Decrease in other non-current liabilities - (1,061,410)
(2,975,931) (49,579,412)
Cash generated from operations ₩ 209,977,958 ₩ 164,234,114
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
58
Significant non-cash transactions for the years ended December 31, 2012 and 2011, are asfollows:
(in thousands of Korean won) 2012 2011
Gain on valuation of available-for-sale financial
assets ₩ 5,918,211 ₩ 4,376,362Reclassification from construction-in-progress to
plant6,384,177 11,831,317
Reclassification from investments in associates to
assets of disposal group classified as held for sale500,000 -
Investment in kind - 2,703,855
Reclassification from investment property to plant,
property and equipment 25,506,731 315,879Disposal of investments in associates(advances) 2,700,000 -
35. Contingencies and Commitment
The Group’s major agreements with financial institutions as of December 31, 2012, are as follows:
(only Korean won in the thousands)
Financial institution Credit line Balance
Overdrafts
Woori Bank and others
KRW 7,000,000 KRW -
Borrowings KRW 80,000,000 KRW 43,000,000
Trade finance KRW 3,000,000 KRW -
L/C USD 32,900,000 USD 4,259,076
D/A,O/A USD 203,000,000 USD 16,528,997
FX USD 15,000,000 USD -
Stand-by credit USD 3,100,000 USD 3,100,000
E-bill KRW 10,000,000 KRW 2,936,644
Payment guarantees USD 134,500,000 USD 113,500,000
The subsidiary’s major agreements with financial institutions as of December 31, 2012, are asfollows:
(in US dollars )
Financial institution Credit line Balance
Short-term borrowings
Standard Chartered Bankand others
USD 4,000,000Overdrafts USD
1 133,000,000 USD 1,016,720L/C USD 710,413FX USD 2,400,000 USD -
1 USD 18,000,000 and USD 24,000,000 out of USD 133,000,000 is only available for overdraftsand short-term borrowing, respectively, and USD 91,000,000 is available for overdrafts, L/C andshort-term borrowings.
Joint venture agreements
The Company jointly established Green Ground Limited with L.L. Bean, Inc. in 2008. The contractrequires satisfying the minimum requirement in year 2012 and 2019 in accordance with jointventure agreement.
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
59
36. Related Party Transactions
Related parties of the Group as of December 31, 2012 and 2011, are as follows:
Name
Parent Company Youngone Holdings Co., Ltd.
Subsidiaries TSL, LSL, SSL, SDF, YSS, YSA, YSP, GMC, YNL, QMS, STL,
YLS, YPL, YSL, YCL, KSL, AAL, KSI, SEL, YHT, YSF, YGA, YBP,SKL,
DTL, EVER SUMMIT, YOA, YTL, AAI, YBL, SURMA
Jointly controlled entities GGL, DTI.
Other related parties GOLDWIN KOREA, SA POIVRE BLANC-S13, KEPZ, Qweto GmbH,
YMSA, MBD, DTV, CRD, Scott North Asia Ltd.
1For the year ended December 31, 2012, a subsidiary, CRD Corporation, and jointly controlledentity, Scott North Asia Ltd., were sold to YMSA and Youngwon Holdings Corporation,respectively.
Significant transactions with related parties for the years ended December 31, 2012 and 2011, areas follows:
(in thousands of Korean won) Sales Purchases Others
2012 2011 2012 2011 2012 2011
Parent company \ 182 \ 1,364 \ - \ - \ 6,201,232 \ 4,566,486
Associates - - - - - 92,900
Jointly controlled entities - 45,226 511,410 5,361,795 1,655,936 3,941,490
Other 102,411,175 99,556,868 55,316,916 43,209,014 82,882,522 72,135,511
\102,411,357 \ 99,603,458 \ 55,828,326 \ 48,570,809 \ 90,739,690 \ 80,736,387
The balances of significant transactions as of December 31, 2012 and 2011, are as follows:
(in thousands of Koreanwon)
Receivables Payables
2012 2011 2012 2011
Parent company \ 1,250,146 \ 1,250,066 \ 152,573 \ 2,800,981
Jointly controlled entities 861,588 902,852 66,574 106,555
Other 36,087,711 29,257,262 15,015,810 18,688,363
\ 38,199,445 \ 31,410,180 \ 15,234,957 \ 21,595,899
Loans to related parties as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Jointly controlled entities \ 850,913 \ 889,660
Other 22,723,689 20,729,684
\ 23,574,602 \ 21,619,344
Youngone Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012 and 2011
60
Key management compensation for the years ended December 31, 2012 and 2011, consist of:
(in thousands of Korean won) 2012 2011
Salaries \ 1,524,567 \ 807,473
Retirement benefits 724,212 149,357
The pledges and guarantees for related parties provided by the Group as of December 31, 2012and 2011, are as follows:
(in thousands of Koreanwon and in US dollars)
Guaranteed amount Guarantee for
2012 2011MBD USD 100,000 USD 100,000 Stand-by creditDTI USD 3,000,000 USD 3,000,000 Stand-by creditDTV USD 1,500,000 USD 1,500,000 BorrowingsScott KOREA Co., Ltd. KRW - KRW 2,600,000 Borrowings
37. Event after the Reporting Period
The Company issued 3,500,000 new shares as Global Depositary Receipts amounting to USD113,750,000 and listed them on the Singapore Exchange Securities Trading Ltd. on February 14,2013.