Companies: 10,660     total market cap: $140.341 T
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SK Telecom
SKM
#1897
Rank
$10.90 B
Marketcap
๐Ÿ‡ฐ๐Ÿ‡ท South Korea
Country
$28.42
Share price
-5.61%
Change (1 day)
39.11%
Change (1 year)
๐Ÿ“ก Telecommunication
Categories
  1. SK Telecom
  2. Annual Reports (20-F)
  3. Financial Year 2021

SK Telecom - 20-F annual report 2021


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LIBOR rate 3MMarch 26, 20192018-08-132018-04-16Mar. 25, 2019 ~ Mar. 24, 2022Mar. 25, 2020 ~ Mar. 24, 2023Mar. 25, 2021 ~ Mar. 24, 2024Feb. 21, 2020 ~ Feb. 20, 2023Feb. 23, 2021 ~ Feb. 22, 2024Mar. 27, 2021 ~ Mar. 26, 2024Mar. 27, 2023 ~ Mar. 26, 2027Mar. 26, 2023 ~ Mar. 25, 2026Mar.19, 2019 ~ Dec.14, 2023Dec. 21, 2017 ~ Dec. 21, 2022Mar.4, 2020 ~ Jun. 4, 2025falseFYSK TELECOM CO LTD0001015650KRKR2 years’ service from the grant date3 years’ service from the grant date2 years’ service from the grant date2 years’ service from the grant date2 years’ service from the grant date3 years’ service from the grant date2 years’ service from the grant date6M financial I (bank) + 1.596M financial I (bank) + 1.35 2021-072021-122016-092021-122019-042021-012026-062026-122026-122026-122028-112023-11M5SK Telecom Co., Ltd.SK Square Co., Ltd. 0001015650 2019-01-01 2019-12-31 0001015650 2020-01-01 2020-12-31 0001015650 2021-01-01 2021-12-31 0001015650 2021-12-31 0001015650 2020-12-31 0001015650 2018-01-01 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Table of Contents
As filed with the Securities and Exchange Commission on April 28, 2022
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
Form 20-F
 
 
(Mark One)
 
 ☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
 ☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
  
For the fiscal year ended December 31, 2021
OR
 
 ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
 ☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from                to
             
Commission file number
1-14418
SK Telecom Co., Ltd.
(Exact name of Registrant as specified in its charter)
 
 
SK Telecom Co., Ltd.
(Translation of Registrant’s name into English)
The Republic of Korea
(Jurisdiction of incorporation or organization)
SK
T-Tower
65, Eulji-ro,
Jung-gu,
Seoul 04539
, Korea
(Address of principal executive offices)
Ms. Bomi Kang
65, Eulji-ro,
Jung-gu,
Seoul 04539
, Korea
Telephone No.:
+82-2-6100-2114
Facsimile No.:
+82-2-6100-7830
(Name, telephone, email and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
American Depositary Shares, each representing
five-ninths
 of one share of Common Stock
 
SKM
 New York Stock Exchange
Common Stock, par value
￦100
per share
 
SKM
 New York Stock Exchange*
* Not for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
217,582,152
shares of common stock, par value ￦100 per share (not including 1,250,992 shares of common stock held by the company as treasury shares).
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
    Yes  
☒
    
No  
☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    
Yes
  
☐
    
No  
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes  
☒
    
No  
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Yes  
☒
    
No
  
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer or an emerging growth company. See definitions of “accelerated filer,” “large accelerated filer” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
Large accelerated filer  
☒
                Accelerated filer  
☐
                Non-accelerated
filer  
☐
                Emerging growth company  
☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    
Yes
  
☒
    
No  
☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP  
☐
    International Financial Reporting Standards as issued by the International Accounting Standards Board  
☒
    Other  
☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ☐     Item 18  ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    
Yes
  
☐
    
No  
☒
 
Auditor Name: KPMG Samjong Accounting Corp.
  
Auditor Location: Seoul, Korea
  
Auditor Firm ID: 01357
 
 
 
Table of Contents
TABLE OF CONTENTS
 
CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT
  
 
1
 
FORWARD-LOOKING STATEMENTS
  
 
2
 
Part I
  
 
4
 
Item 1.
 
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 
4
 
Item 1.A.
 
Directors and Senior Management
  
 
4
 
Item 1.B.
 
Advisers
  
 
4
 
Item 1.C.
 
Auditors
  
 
4
 
Item 2.
 
OFFER STATISTICS AND EXPECTED TIMETABLE
  
 
4
 
Item 3.
 
KEY INFORMATION
  
 
4
 
Item 3.A.
 
[Reserved]
  
 
4
 
Item 3.B.
 
Capitalization and Indebtedness
  
 
4
 
Item 3.C.
 
Reasons for the Offer and Use of Proceeds
  
 
4
 
Item 3.D.
 
Risk Factors
  
 
4
 
Item 4.
 
INFORMATION ON THE COMPANY
  
 
21
 
Item 4.A.
 
History and Development of the Company
  
 
21
 
Item 4.B.
 
Business Overview
  
 
24
 
Item 4.C.
 
Organizational Structure
  
 
45
 
Item 4.D.
 
Property, Plants and Equipment
  
 
46
 
Item 4A.
 
UNRESOLVED STAFF COMMENTS
  
 
46
 
Item 5.
 
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  
 
46
 
Item 5.A.
 
Operating Results
  
 
46
 
Item 5.B.
 
Liquidity and Capital Resources
  
 
58
 
Item 5.C.
 
Research and Development, Patents and Licenses, etc.
  
 
64
 
Item 5.D.
 
Trend Information
  
 
65
 
Item 5.E.
 
Critical Accounting Estimates
  
 
65
 
Item 6.
 
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
  
 
65
 
Item 6.A.
 
Directors and Senior Management
  
 
65
 
Item 6.B.
 
Compensation
  
 
70
 
Item 6.C.
 
Board Practices
  
 
72
 
Item 6.D.
 
Employees
  
 
73
 
Item 6.E.
 
Share Ownership
  
 
74
 
Item 7.
 
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
  
 
76
 
Item 7.A.
 
Major Shareholders
  
 
76
 
Item 7.B.
 
Related Party Transactions
  
 
77
 
Item 7.C.
 
Interests of Experts and Counsel
  
 
78
 
Item 8.
 
FINANCIAL INFORMATION
  
 
78
 
Item 8.A.
 
Consolidated Statements and Other Financial Information
  
 
78
 
Item 8.B.
 
Significant Changes
  
 
80
 
Item 9.
 
THE OFFER AND LISTING
  
 
80
 
Item 9.A.
 
Offering and Listing Details
  
 
80
 
Item 9.B.
 
Plan of Distribution
  
 
81
 
Item 9.C.
 
Markets
  
 
81
 
Item 9.D.
 
Selling Shareholders
  
 
81
 
Item 9.E.
 
Dilution
  
 
81
 
Item 9.F.
 
Expenses of the Issue
  
 
81
 
Item 10.
 
ADDITIONAL INFORMATION
  
 
81
 
Item 10.A.
 
Share Capital
  
 
81
 
Item 10.B.
 
Memorandum and Articles of Association
  
 
81
 
Item 10.C.
 
Material Contracts
  
 
87
 
Item 10.D.
 
Exchange Controls
  
 
87
 
 
(i)
Table of Contents
Item 10.E.
 
Taxation
  
 
91
 
Item 10.F.
 
Dividends and Paying Agents
  
 
97
 
Item 10.G.
 
Statements by Experts
  
 
97
 
Item 10.H.
 
Documents on Display
  
 
97
 
Item 10.I.
 
Subsidiary Information
  
 
98
 
Item 11.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 
98
 
Item 12.
 
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 
99
 
Item 12.A.
 
Debt Securities
  
 
99
 
Item 12.B.
 
Warrants and Rights
  
 
99
 
Item 12.C.
 
Other Securities
  
 
99
 
Item 12.D.
 
American Depositary Shares
  
 
100
 
Part II
  
 
101
 
Item 13.
 
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 
101
 
Item 14.
 
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 
101
 
Item 15.
 
CONTROLS AND PROCEDURES
  
 
101
 
Item 16.
 
RESERVED
  
 
102
 
Item 16A.
 
AUDIT COMMITTEE FINANCIAL EXPERT
  
 
102
 
Item 16B.
 
CODE OF ETHICS
  
 
102
 
Item 16C.
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 
102
 
Item 16D.
 
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 
103
 
Item 16E.
 
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 
103
 
Item 16F.
 
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
  
 
103
 
Item 16G.
 
CORPORATE GOVERNANCE
  
 
104
 
Item 16H.
 
MINE SAFETY DISCLOSURE
  
 
105
 
Item 16I.
 
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
  
 
105
 
Part III
  
 
106
 
Item 17.
 
FINANCIAL STATEMENTS
  
 
106
 
Item 18.
 
FINANCIAL STATEMENTS
  
 
106
 
Item 19.
 
EXHIBITS
  
 
107
 
 
 
(ii)
Table of Contents
CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT
All references to “Korea” contained in this annual report shall mean The Republic of Korea. All references to the “Government” shall mean the government of The Republic of Korea. All references to “we,” “us,” or “our” shall mean SK Telecom Co., Ltd. and, unless the context otherwise requires, its consolidated subsidiaries. References to “SK Telecom” shall mean SK Telecom Co., Ltd., but shall not include its consolidated subsidiaries. All references to “U.S.” shall mean the United States of America.
All references to “MHz” contained in this annual report shall mean megahertz, a unit of frequency denoting one million cycles per second. All references to “GHz” shall mean gigahertz, a unit of frequency denoting one billion cycles per second. All references to “Mbps” shall mean one million bits per second and all references to “Gbps” shall mean one billion bits per second. All references to “GB” shall mean gigabytes, which is one billion bytes. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.
All references to “Won,” or “￦” in this annual report are to the currency of Korea and all references to “Dollars,” “U.S. dollar” or “US$” are to the currency of the United States of America.
The Ministry of Science and ICT (the “MSIT”) is charged with regulating information and telecommunications, and the Korea Communications Commission (the “KCC”) is charged with regulating the public interest aspects of and fairness in broadcasting. Subscriber information for the wireless and fixed-line telecommunications industry set forth in this annual report are derived from information published by the MSIT unless expressly stated otherwise.
The consolidated financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”). As such, we make an explicit and unreserved statement of compliance with IFRS, as issued by the IASB, with respect to our consolidated financial statements as of December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019 included in this annual report.
Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.
Effective as of November 1, 2021, we conducted a horizontal
spin-off
(the
“Spin-off”)
of our businesses related to the management of our equity interests in certain subsidiaries and investees (the
“Spin-off
Portfolio Companies”) engaged in the semiconductor and certain other
non-telecommunications
businesses, including security,
e-commerce
and other new information and communications technologies (“ICT”) businesses (the
“Spin-off
Businesses”). The
Spin-off
was accomplished through the establishment of a new company named SK square Co., Ltd. (“SK Square”), to which our equity interests in the
Spin-off
Portfolio Companies were transferred, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock. As a result of the
Spin-off,
our business operations relating to the
Spin-off
Businesses have been accounted for as discontinued operations in our consolidated financial statements as of and for the year ended December 31, 2021 included in this annual report. Similarly, our consolidated statements of income for the years ended December 31, 2019 and 2020 included in this annual report have been restated to present such businesses as discontinued operations. However, our consolidated statements of financial position as of December 31, 2020 included in this annual report have not been so restated. Accordingly, in general, our financial information as of December 31, 2021 appearing in this annual report does not include financial data with respect to such discontinued operations, while our financial information as of December 31, 2020 appearing in this annual report does include financial data with respect to such discontinued operations.
As part of the
Spin-off,
all of our equity interests in SK hynix Co., Ltd. (“SK Hynix”) were transferred to SK Square, effective as of November 1, 2021. As a result, the consolidated financial statements of SK Hynix included in this annual report are as of December 31, 2020 and October 31, 2021 and for the years ended December 31, 2019 and 2020 and for the ten months ended October 31, 2021, in each case pursuant to, and in accordance with, the requirements of Rule 3.09 of Regulation
S-X
of the U.S. Securities Act of 1933, as amended (the “Securities Act”). Accordingly, the financial information of SK Hynix contained in the consolidated financial statements of SK Hynix included in this annual report for the ten months ended October 31, 2021 is not directly comparable to such financial information for the years ended December 31, 2019 and 2020.
 
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FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements,” as defined in Section 27A of the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “considering,” “depends,” “estimate,” “expect,” “intend,” “plan,” “planning,” “planned,” “project” and similar expressions, or that certain events, actions or results “may,” “might,” “should” or “could” occur, be taken or be achieved.
Forward-looking statements in this annual report include, but are not limited to, statements about the following:
 
 • 
our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors;
 
 • 
our continued implementation of fifth generation wireless technology, which we refer to as “5G” technology;
 
 • 
our plans for capital expenditures in 2022 for a range of projects, including investments to expand and improve our 5G network, investments to maintain our fourth generation long-term evolution (“LTE”) network and long-term evolution advanced
(“LTE-A”)
services, investments to improve and expand our
Wi-Fi
network, investments to develop our Internet of Things (“IoT”) solutions and platform services business portfolio, including artificial intelligence (“AI”) solutions, investments in data infrastructure, investments in research and development of 5G technology, investments in businesses that can potentially leverage our 5G network, and funding for
mid-
to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course;
 
 • 
our efforts to make significant investments to build, develop and broaden our businesses, including developing our next-generation growth businesses in cloud computing, data centers, smart factories, subscription services, metaverse, media and other innovative products and services and to create synergies among our businesses, including through the adaptation of AI technology;
 
 • 
our ability to comply with governmental rules and regulations, including the regulations of the Government related to telecommunications providers, the Mobile Device Distribution Improvement Act (“MDDIA”), rules related to our status as a “market-dominating business entity” under the Korean Monopoly Regulation and Fair Trade Act (the “Fair Trade Act”) and the effectiveness of steps we have taken to comply with such regulations;
 
 • 
our ability to effectively manage our bandwidth and to timely and efficiently implement new bandwidth-efficient technologies and our intention to participate in, and acquire additional bandwidth pursuant to, frequency bandwidth auctions held, or other allocations of bandwidth, by the MSIT;
 
 • 
our expectations and estimates related to interconnection fees, rates charged by our competitors, regulatory fees, operating costs and expenditures, working capital requirements, principal repayment obligations with respect to long-term borrowings, bonds and short-term borrowings, and research and development expenditures and other financial estimates;
 
 • 
the success of our various joint ventures, investments, strategic alliances and cooperation efforts as well as other corporate restructuring activities, including the
Spin-off;
 
 • 
our ability to successfully attract and retain subscribers of our telecommunications-related businesses and customers of our other businesses; and
 
 • 
the growth of the telecommunications and other industries in which we operate in Korea and other markets and the effect that economic, political or social conditions have on our number of subscribers and customers and results of operations.
 
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We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. Risks and uncertainties associated with our business include, but are not limited to, risks related to changes in the regulatory environment, technology changes, potential litigation and governmental actions, changes in the competitive environment, political changes, foreign exchange currency risks, foreign ownership limitations, credit risks and other risks and uncertainties that are more fully described under the heading “Item 3.D. Risk Factors” and elsewhere in this annual report. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.
 
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PART I
 
Item 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Item 1.A.
Directors and Senior Management
Not applicable.
 
Item 1.B.
Advisers
Not applicable.
 
Item 1.C.
Auditors
Not applicable.
 
Item 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
 
Item 3.
KEY INFORMATION
 
Item 3.A.
[Reserved]
 
Item 3.B.
Capitalization and Indebtedness
Not applicable.
 
Item 3.C.
Reasons for the Offer and Use of Proceeds
Not applicable.
 
Item 3.D.
Risk Factors
Risks Relating to Our Business
Competition may reduce our market share and harm our business, financial condition and results of operations.
We face substantial competition across all of our businesses, including our wireless telecommunications business. We expect competition to intensify as a result of the development of new technologies, products and services. We expect that such trends will continue to put downward pressure on the rates we can charge our subscribers.
Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, us, KT Corporation (“KT”) and LG Uplus Corp. (“LG U+”). Each of our competitors has substantial financial, technical, marketing and other resources to respond to our business offerings. As of December 31, 2021, the collective market share of KT and LG U+ amounted to approximately 55.7% in terms of number of wireless subscribers (including an aggregate of 11.4% attributable to mobile virtual network operators (“MVNOs”) that lease KT’s and LG U+’s respective networks).
Our competitors for subscriber activations include MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. In addition, other companies may enter the wireless network services market. While new entries into such market have historically required obtaining requisite licenses from the MSIT, pursuant to an amendment to the Telecommunications Business Act that went into effect in June
 
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2019, companies meeting certain regulatory criteria may become a network service provider by registering with the MSIT without a separate license requirement. Although such amendment has not yet resulted in any new entries into the Korean wireless network services market, it may have the effect of encouraging new entries in the future.
We believe that an increase in market share of MVNOs and the entrance of new mobile network operators, if any, in the wireless telecommunications market may further increase competition in the telecommunications sector, as well as cause downward price pressure on the fees we charge for our services, which, in turn, may have a material adverse effect on our business, financial position and results of operations.
Our fixed-line telephone service competes with KT and LG U+, as well as other providers of voice over Internet protocol (“VoIP”) services. As of December 31, 2021, our market share of the fixed-line telephone and VoIP service market was 15.7% (including the services provided by SK Broadband Co., Ltd. (“SK Broadband”)) in terms of number of subscribers compared to KT with 56.3% and LG U+ with 19.0%. In addition, our broadband Internet access, Internet protocol TV (“IPTV”) and cable TV services provided through SK Broadband compete with other providers of such services, including KT, LG U+ and cable companies. Furthermore, our IPTV and cable TV services are facing an increasing level of competition from global operators of online video streaming platforms, such as YouTube, Netflix, Disney Plus and Amazon Video, leading domestic video streaming platforms such as TVING, Watchaa and Wavve, and the video services offered by leading domestic online and mobile search and communications platforms including NAVER and Kakao, as such services continue to become increasingly popular to serve as a substitute to traditional television programming. As of December 31, 2021, our market share of the broadband Internet market was 28.7% in terms of number of subscribers compared to KT with 41.2% and LG U+ with 20.7%. As of December 31, 2021, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 25.0% compared to KT with 36.2% (including its IPTV, cable TV and satellite TV services) and LG U+ with 25.3% (including its IPTV and cable TV services), and the collective market share of other pay TV providers was 13.4%.
Recently, the Korean fixed-line telecommunications industry has been going through significant consolidation involving major pay television service providers. In April 2020, we completed the merger of Tbroad Co., Ltd., a former leading cable television and other fixed-line telecommunications services provider in Korea, and two of its subsidiaries, Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co. Ltd. (collectively, “Tbroad”), with and into SK Broadband. As a result of the merger and the issuance of SK Broadband’s shares to the former shareholders of Tbroad with an aggregate fair value of Won 862.1 billion as of April 30, 2020, we owned approximately 74.3% of SK Broadband’s total outstanding shares as of December 31, 2021. In the same month, SK Telecom acquired a 55.0% equity interest in Broadband Nowon Co., Ltd. (formerly known as Tbroad Nowon Broadcasting Co., Ltd.), another subsidiary of Tbroad Co., Ltd., for a purchase price of Won 10.4 billion in cash. As a result of such transactions (the “Tbroad Merger”), we became the third-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2021. In December 2019, LG U+ acquired a majority equity stake in CJ Hello Co., Ltd. and changed the acquired company’s name to LG HelloVision Co., Ltd. (“LG HelloVision”) to collectively become the second-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2021. In August 2021, KT acquired HCN Co., Ltd. (“HCN”), a major Korean cable TV service provider, through its subsidiary KT Skylife Co., Ltd. (“KT Skylife”).
Such transactions, as well as further consolidation in the fixed-line telecommunications industry, may result in increased competition, as the entities emerging from such consolidation and other remaining players in the industry may actively pursue expanding or protecting their respective market shares.
Furthermore, the Government has historically enforced regulations on cable TV and IPTV service providers that prohibited them from having a market share of more than
one-third
of the total number of subscribers in the relevant pay TV market on each of their respective platforms. In June 2015, the Government amended the regulation to impose the same limit on the market share of the entire pay TV market, including satellite TV service providers as well. Such amended regulation, however, expired in June 2018. There are bills currently pending in the National Assembly to abolish the previous market share regulations on cable TV and IPTV service providers. It is uncertain whether such bills will be passed.
Continued competition from other wireless and fixed-line telecommunications service providers has also resulted in, and may continue to result in, a substantial level of deactivations among our subscribers. Subscriber deactivations, or churn, may significantly harm our business, financial condition and results of operations. In 2021,
 
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the monthly churn rate in our wireless telecommunications business ranged from 0.7% to 0.9%, with an average monthly churn rate of 0.8%, which decreased from 1.2% in 2020.
Intensification of competition in the future may cause our churn rates to increase, which in turn may cause us to increase our marketing expenses as a percentage of sales to attract and retain subscribers.
As we continue to expand our business into areas beyond the traditional wireless and fixed-line telecommunications businesses, we also face competition from major players in the relevant sectors, such as television shopping
(“T-commerce”),
cloud services, data center services and smart factories. Some of our competitors may have stronger brand recognition, more robust technological capabilities and/or more significant financial resources than us in their respective areas of business.
Our ability to compete successfully in all of the businesses in which we operate will depend on our ability to anticipate and respond to various competitive factors affecting the respective industries, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors.
Inability to successfully implement or adapt our network and technology to meet the continuing technological advancements affecting the wireless telecommunications industry will likely have a material adverse effect on our business, financial condition and results of operations.
The telecommunications industry has been characterized by continual improvement and advances in technology, and this trend is expected to continue. We and our competitors have continually implemented technology upgrades from our basic code division multiple access (“CDMA”) network to our wideband code division multiple access (“WCDMA”) network, and subsequently to the currently dominant LTE and 5G technologies. Our business could be harmed if we fail to implement, or adapt to, future technological advancements in the telecommunications sector in a timely manner, such as the continued implementation and enhancement of 5G technology. We launched wireless service plans using the 5G network in April 2019 following the commencement of sales of the first
5G-compatible
smartphones, and we are in the process of further expanding our 5G network coverage, which we expect to substantially complete within the next several years. KT and LG U+ have also rolled out their respective 5G wireless service plans in April 2019. The more successful operation of a 5G network or development of improved 5G technology by a competitor, including better market acceptance of a competitor’s 5G services, could materially and adversely affect our existing wireless telecommunications businesses as well as the returns on future investments we may make in our 5G network or our other businesses.
In addition to introducing new technologies and offerings, we must phase out outdated and unprofitable technologies and services. For example, as of January 2019, we discontinued our wireless broadband Internet access (“WiBro”) services, and we also terminated our second generation CDMA wireless services in July 2020. If we are unable to do so on a cost-effective basis, our business, financial condition and results of operations could be adversely affected.
Implementation of new wireless technology and enhancement of existing wireless technology have required, and may continue to require, significant capital and other expenditures, which we may not recoup.
We have made, and intend to continue to make, capital investments to develop, launch and enhance our wireless service. In 2021, 2020 and 2019, we spent Won 1,850.9 billion, Won 1,878.6 billion and 2,514.3 billion, respectively, in capital expenditures to build and enhance our wireless networks. Our continued implementation and expansion of 5G services, which use a higher frequency spectrum than our LTE services, will require additional base stations (which are also commonly referred to as “cell sites”) and other infrastructure, which may result in an increase in our capital expenditures in the future.
We also plan to make further capital investments related to our wireless services in the future, including services that can potentially leverage our 5G network. In addition, we plan to continue maintaining our LTE network, which we expect will continue to be used by a significant portion of our subscriber base during the near future, as we and our competitors further expand 5G networks and services and wireless service users continue to migrate to the 5G network over time.
Our wireless technology-related investment plans are subject to change, and will depend, in part, on market demand for 5G and LTE services, the competitive landscape for provision of such services and the development of competing technologies. There may not be
 
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sufficient demand for services based on our latest wireless technologies, as a result of competition or otherwise, to permit us to recoup or profit from our wireless technology-related capital investments.
Our businesses are subject to various types of Government regulation, and any change in Government policy relating to the telecommunications industry could have an adverse effect on our business, financial condition and results of operations.
Our businesses are generally subject to governmental supervision and various types of regulation.
Rate Regulation.
The Government has periodically reviewed the rates charged by wireless telecommunications service providers and has, from time to time, released public policy guidelines or suggested rate reductions. Although these guidelines or suggestions were not binding, we have implemented some rate reductions in response to them. For example, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. In June 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the applicable discount rate offered to subscribers from 20% to 25%, which we adopted in September 2017, and to offer additional discounts to low income customers, including those on government welfare programs and senior citizen recipients of the basic pension, which we implemented in December 2017 and July 2018, respectively. See “Item 4.B. Business Overview — Law and Regulation — Rate Regulation” and “Item 5.A. Operating Results — Overview — Rate Regulations.” Such discounts have contributed to a general decrease in the monthly revenue per subscriber of our wireless telecommunications services. See “Item 5.A. Operating Results — Overview — Decrease in Monthly Revenue per Subscriber.” The Government may suggest other policy initiatives relating to rate plans of wireless telecommunications service providers in the future, including more affordable subscription plans for 5G wireless services for different customer segments such as those with lower volumes of data usage, and any further changes to our rate plans we make in response to such suggestion may adversely affect our profitability and results of operations.
Technology Standards.
The Government also plays an active role in setting the timetable and quality standards for the adoption and implementation of new technologies to be used by telecommunications operators in Korea. For example, the Government provided such guidance in connection with the introduction of LTE and 5G technologies in the past. The Government may provide similar guidance or recommendations in connection with the adoption and implementation of technologies to be used in future telecommunications services, and it is possible that adherence to such guidance or recommendations promoted by the Government in the future may not provide us with the best commercial returns.
Frequency Allocation.
The Government sets the policies regarding the use of frequencies and allocates the spectrum of frequencies used for wireless telecommunications. See “Item 4.B. Business Overview — Law and Regulation — Frequency Allocation.” The reallocation of the spectrum to our existing competitors could increase competition among wireless telecommunications service providers, which may have an adverse effect on our business, financial condition and results of operations.
MVNOs.
Pursuant to the Telecommunications Business Act, certain wireless telecommunications service providers designated by the MSIT, which included only us, were required to lease their networks or allow use of their networks (collectively, a “wholesale lease”) to other network service providers, such as an MVNO, that have requested such a wholesale lease in order to provide their own services using the leased networks until September 2022. Currently, 13 MVNOs provide wireless telecommunications services using the networks leased from us. We believe that leasing a portion of our bandwidth capacity to an MVNO impairs our ability to use our bandwidth in ways that would generate maximum revenues and strengthens our MVNO competitors by granting them access and lowering their costs to enter into and operate in our markets. Accordingly, our profitability has been, and may continue to be, adversely affected.
Interconnection.
Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Our interconnection arrangements, including the interconnection rates we pay and interconnection rates we charge, affect our revenues and operating results. The MSIT determines the basic framework for interconnection arrangements, including
 
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policies relating to interconnection rates in Korea. The KCC, which determined such basic framework under the previous Government, changed the basic framework for interconnection arrangements several times. We cannot assure you that we will not be adversely affected by the MSIT’s interconnection policies and future changes to such policies. See “Item 4.B. Business Overview — Interconnection — Domestic Calls.”
Regulatory Action.
The MSIT may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIT or, depending on the subject matter of the violation, the KCC may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. For information about the penalties imposed on us for violating Governmental regulations, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC Proceedings.” Such penalties, which may include the revocation of cellular licenses, suspension of business or imposition of monetary penalties by the KCC, could have a material adverse effect on our business. We believe we are currently in compliance with the material terms of all of our cellular licenses.
We are subject to additional regulations as a result of our dominant market position in the wireless telecommunications sector, which could harm our ability to compete effectively.
The Government endeavors to promote competition in the Korean telecommunications markets through measures designed to prevent a dominant service provider from exercising its market power and deterring the emergence and development of viable competitors. We have been designated by the MSIT as the “dominant network service provider” in respect of our wireless telecommunications business. As such, we are subject to additional regulations to which certain of our competitors are not subject. For example, the MSIT has fifteen days to object to any new rates and terms of service reported by us. See “Item 4.B. Business Overview — Law and Regulation — Rate Regulation.”
The MSIT could also require us to charge higher usage rates than our competitors for future services or to take certain actions earlier than our competitors, as when the KCC required us to introduce number portability earlier than our competitors, KT and LG U+.
We also qualify as a “market-dominating business entity” under the Fair Trade Act, which subjects us to additional regulations and we are prohibited from engaging in any act of abusing our position as a market-dominating entity. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation.” The additional regulations to which we are subject has affected our competitiveness in the past and may materially hurt our profitability and impede our ability to compete effectively against our competitors in the future.
The ongoing global pandemic of a new strain of coronavirus
(“COVID-19”)
and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition and results of operations.
COVID-19,
an infectious disease caused by severe acute respiratory syndrome coronavirus 2 that was first reported to have been transmitted to humans in late 2019 and has since spread globally, has materially and adversely affected the global economy and caused significant volatility and uncertainty in global financial markets to date as well as disrupted our business operations. The World Health Organization declared
COVID-19
as a pandemic in March 2020. We have implemented remote work arrangements for most of our employees at our headquarters and certain other locations from time to time in light of the Government’s recommendation for social distancing. In addition, the travel restrictions imposed by governments in response to the
COVID-19
pandemic has resulted in a decrease in revenue from roaming services, and the pandemic also contributed to lower customer demand for new wireless devices, resulting in a decrease in our wireless device sales revenue.
While we do not believe that the
COVID-19
pandemic and the resulting temporary remote work arrangements or such decreases in revenue have had a material adverse impact on our business to date,
a prolonged outbreak of
COVID-19
may result in further disruption in the normal operations of our business, including implementation of further work arrangements requiring employees to work remotely and/or temporary closures of our facilities, which may, among others, lead to a reduction in labor productivity, as well as further decrease in revenue from roaming services or wireless device sales.
 
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Other risks associated with a prolonged outbreak of
COVID-19
or other types of widespread infectious diseases include:
 
 • 
an increase in unemployment among, and/or a decrease in disposable income of, our customers, who may not be able to meet payment obligations or otherwise choose to decrease their spending levels, which in turn may decrease demand for some of our products and services or cause an increase in delinquent subscriber accounts;
 
 • 
a slowdown in the rate of subscriber migration to our 5G service, which generally entails higher-priced subscription plans and wireless devices;
 
 • 
disruptions in operations, and/or a decrease in the demand for products and services, of our corporate customers, which in turn may decrease such customers’ demand for our services and products;
 
 • 
service disruptions, outages and performance problems due to capacity constraints caused by an overwhelming number of people accessing our services simultaneously;
 
 • 
disruptions in the supply of mobile handsets or telecommunications equipment from our vendors (or components of such mobile handsets and equipment such as semiconductors) as well as in the installation of our network infrastructure;
 
 • 
unstable global and Korean financial markets, which may adversely affect our ability to meet capital funding needs on a timely and cost-effective basis;
 
 • 
a decrease in the fair value of our investments in companies that may be adversely affected by the pandemic; and
 
 • 
depreciation of the Won against major foreign currencies, which in turn may increase the cost of imported equipment necessary for expansion and enhancement of our telecommunications infrastructure.
It is not possible to predict the duration or full magnitude of harm from
COVID-19.
In the event that
COVID-19
or other types of widespread infectious diseases cannot be effectively and timely contained, our business, financial condition and results of operations may be adversely affected.
We may fail to successfully complete, integrate or realize the anticipated benefits of our new acquisitions, joint ventures or other strategic alternatives or corporate reorganizations, including the
Spin-off,
and such transactions may negatively impact our business.
We continue to seek opportunities to develop new businesses that we believe are complementary to our existing product and service portfolio and expand our global business through selective acquisitions. We also continue to seek ways to optimize our corporate structure to maximize the value of our traditional businesses on the one hand and newly developed businesses on the other hand. Accordingly, we are often engaged in evaluating potential transactions and other strategic alternatives as well as corporate reorganizations, some of which may be significant in size.
For example, we completed the Tbroad Merger in April 2020 and became the third-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2020. In addition, in June 2019, we acquired a 34.6% interest in Incross Co., Ltd. (“Incross”), a digital advertising company, for an aggregate purchase price of Won 53.7 billion, in light of potential synergies with our media and commerce businesses. Furthermore, in order to strengthen our security business and explore potential synergies with our wireless and fixed-line business portfolio, we acquired a 55.0% interest in Life & Security Holdings Co., Ltd. (“LSH”), which owned 100% of ADT CAPS Co., Ltd. (“Former ADT CAPS”), a leading Korean physical security service company, and two sister companies, CAPSTEC Co., Ltd. and ADT SECURITY Co., Ltd. (which subsequently merged with and into Former ADT CAPS), for Won 696.7 billion in October 2018; a 100% interest in SK Infosec Co., Ltd. (“SK Infosec”), Korea’s leading information security company, in a share exchange transaction pursuant to which we issued 1,260,668 treasury shares with an aggregate book value of Won 281.2 billion in exchange for all of the outstanding common shares of SK Infosec in December 2018 from SK Inc., our largest shareholder; and additional shares of id Quantique SA (“id Quantique”), a leading provider of quantum cryptography solutions for data security based in Switzerland,
 
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with Won 55.2 billion in cash and Won 5.7 billion in
contribution-in-kind
in 2018 and through our participation in its capital increases in 2019 and 2020. We subsequently combined LSH, Former ADT CAPS and SK Infosec into a single entity through a series of mergers that were completed in March 2021, and the surviving entity, SK Infosec, changed its name to ADT CAPS Co., Ltd. (“ADT CAPS”) in March 2021 and then to SK shieldus Co., Ltd. (“SK shieldus”) in November 2021.
We have also pursued other strategic alternatives, such as forming a strategic alliance in October 2019 with Kakao Corp. (“Kakao”), a Korean Internet company and the operator of Korea’s most popular mobile messaging application, to collaborate in the ICT sector through the sale of 1,266,620 of our treasury shares to Kakao, representing a 1.6% interest, for approximately Won 300.0 billion and a concurrent issuance by Kakao of 2,177,401 of its shares, representing a 2.5% interest, to us for approximately Won 302.3 billion.
In addition, in September 2019, in furtherance of our efforts to enhance the competitiveness of our media business and to promote its future growth, we acquired a minority equity stake in Content Wavve Co., Ltd. (formerly known as Content Alliance Platform Inc.) (“Content Wavve”), a joint venture established by the three major terrestrial broadcasters in Korea that operated the mobile
over-the-top
(“OTT”) service “POOQ,” by investing Won 90.9 billion in cash and transferring our former mobile OTT service business “oksusu” to Content Wavve. Content Wavve combined oksusu and POOQ to launch a new integrated mobile OTT service “wavve” in September 2019. For a more detailed description of our recent investments in new businesses, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Investments in New Growth Businesses.”
Furthermore, in December 2020, we spun off our mobility business into a new wholly-owned subsidiary, T map Mobility Co., Ltd. (“T Map Mobility”), in order to enhance its competitiveness and promote its future growth, and we have also formed a strategic partnership with Uber Technologies, Inc. (“Uber”) pursuant to which Uber has invested approximately US$50 million in T Map Mobility and approximately US$100 million in UT LLC, a joint venture formed in April 2021 between T Map Mobility and Uber. In April 2021, we launched through UT LLC a taxi hailing service that integrated our affiliated taxi driver network and mapping and AI technologies with Uber’s ride hailing technology.
In order to pursue enhancement of shareholder value and acceleration of growth of the
Spun-off
Businesses, we effected the
Spin-off
in November 2021. Following the
Spin-off,
we have become primarily focused on our core wireless and fixed-line telecommunications businesses, as our equity interests in the
Spin-off
Portfolio Companies (including our interest in, among others, SK Hynix, SK shieldus, Eleven Street, T Map Mobility, Incross, Content Wavve and id Quantique) comprising our previous semiconductor and new ICT businesses were transferred to SK Square pursuant to the
Spin-off.
Our business operations relating to the
Spin-off
Businesses have been accounted for as discontinued operations in our consolidated financial statements as of December 31, 2021 and for the years ended December 31, 2019, 2020 and 2021 included elsewhere in this annual report.
More recently, in January 2022, we spun off our
AI-enabled
semiconductor business into a new subsidiary, Sapeon Inc. (“Sapeon”), in which we hold a majority equity interest and each of SK Square and SK Hynix holds a minority equity interest. Through Sapeon, we expect to actively collaborate with SK Square and SK Hynix to develop and commercialize next-generation
AI-enabled
semiconductors for applicable-specific uses. Furthermore, in February 2022, we unveiled our new vision entitled “SKT 2.0,” pursuant to which we announced our plan to reorganize our operations into five major business groups, comprising (i) wireless and fixed-line telecommunications, (ii) media (consisting of broadcast and advertising platform, content and
T-commerce
businesses), (iii) enterprise (consisting of data center, cloud and artificial intelligence of things (“AIoT”)), (iv) “AIVERSE” (consisting of subscription, metaverse and AI agent businesses) and (v) “Connected Intelligence” (consisting of future technology areas such as urban air mobility (“UAM”) and autonomous driving). By
re-defining
the areas of our business focus and optimizing our customer groups, services and technology for each business group, we intend to pursue the maximization of our overall growth and enterprise value.
While we are hoping to benefit from a range of synergies and efficiencies from the
Spin-off
and our other recent or future acquisitions and corporate reorganizations as well as develop new businesses, we may not be able to successfully complete or integrate such acquisitions, new businesses or reorganized entities and may fail to realize the expected benefits in the near term, or at all. For example, in June 2019, we disposed of our entire interest in our consolidated subsidiaries Shopkick Management Company, Inc. (“SMC”) and Shopkick, Inc. (“Shopkick”), a wholly-owned subsidiary of SMC which operates “shopkick,” a mobile reward points-based
in-store
shopping
 
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application, which we had acquired in October 2014, following a prolonged period of unprofitability of the shopkick business. Previously in 2018, we also recognized Won 153.4 billion and Won 52.4 billion of impairment losses for goodwill and intangible assets, respectively, in connection with Shopkick. In addition, when we enter into new businesses with partners through joint ventures or other strategic alliances, we and those partners may have disagreements with respect to strategic directions or other aspects of business, or may otherwise be unable to coordinate or cooperate with each other, any of which could materially and adversely affect our operations in such businesses. Our business may be negatively impacted if we fail to successfully integrate or realize the anticipated benefits of such transactions.
Due to the existing high penetration rate of wireless telecommunications services in Korea, we are unlikely to maintain our subscriber growth rate, which could adversely affect our business, financial condition and results of operations.
According to data published by the MSIT and the historical population data published by the Ministry of the Interior and Safety, the penetration rate for the Korean wireless telecommunications industry as of December 31, 2021 was approximately 139.3%, which was relatively high compared to many industrialized countries. Therefore, we expect that the penetration rate for wireless telecommunications service in Korea will remain relatively stable. As a result of the already high penetration rate in Korea for wireless telecommunications services coupled with our leading market share, we expect our subscriber growth rate to decrease.
Slowed growth in the penetration rate without a commensurate increase in revenues through the introduction of new services and increased use of our services by existing subscribers would likely have a material adverse effect on our business, financial condition and results of operations.
Our business, financial condition and results of operations may be adversely affected if we fail to acquire adequate additional frequency usage rights or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.
One of the principal limitations on a wireless network’s subscriber capacity is the amount of frequency spectrum available for use by the network. We have acquired a number of frequency usage rights to secure bandwidth capacity to provide our broad range of services, for which we typically make an initial payment as well as pay usage fees during the license period. We made frequency usage right fee payments of Won 120.8 billion in 2021, Won 136.6 billion in 2020 and Won 133.1 billion in 2019. For more information regarding the various bandwidths that we use and the usage right fees for such bandwidths, see “Item 4.B. Business Overview — Law and Regulation — Frequency Allocation,” “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures” and note 17 of the notes to our consolidated financial statements.
The growth of our wireless data businesses has been a significant factor in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice services. In particular, the increasing popularity of smartphones and data intensive applications among smartphone users has been a major factor for the high utilization of our bandwidth in recent years. Although such trend has been offset in part by the implementation of new technologies that enable more efficient usage of our bandwidth, we expect that the current trend of increased data transmission use by our subscribers will continue to accelerate in the near future as more subscribers migrate to our 5G network and the volume and sophistication of the multimedia content we offer through our wireless data services continue to grow in the 5G environment.
While we believe that we can address the capacity constraint issue through system upgrades and efficient allocation of bandwidth, inability to address such capacity constraints in a timely manner may adversely affect our business, financial condition and results of operations. In the event we are unable to maintain sufficient bandwidth capacity, our subscribers may perceive a general slowdown of wireless telecommunications services. Growth of our wireless telecommunications business will depend in part upon our ability to effectively manage our bandwidth capacity and to implement efficiently and in a timely manner new bandwidth-efficient technologies if they become available. We cannot assure you that bandwidth constraints will not adversely affect the growth of our wireless telecommunications business.
In November 2020, the MSIT announced plans to reallocate a total of 310 MHz of frequency bandwidths whose usage terms were due to expire in 2021 to KT, LG U+ and us, 95 MHz of which was allocated to us in 2021.
 
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See “Item 5.B. Liquidity and Capital Resources — Capital Requirements.” We may be required to pay a substantial amount to acquire additional bandwidth capacity in the future in order to meet increasing bandwidth demand or renew the rights to use our existing bandwidth, and we may not be successful in acquiring the necessary bandwidth to meet such demand at commercially attractive terms or at all, which may adversely affect our business, financial condition and results of operations.
We rely on key technology professionals and senior management, and the loss of the services of any such personnel or the inability to attract and retain them may negatively affect our business.
Our success depends to a significant extent on the continued service of our research and development and engineering personnel, and our ability to continue to attract, retain and motivate qualified technology professionals including researchers and engineers. In particular, our focus on leading the market in introducing new services has meant that we must aggressively recruit technology professionals with expertise in cutting-edge technologies. Such employees are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. Competition for these individuals could cause us to offer higher compensation and other benefits to attract and retain them. We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult to find and integrate replacement personnel in a timely manner, or at all.
The loss of the services of any of our key technology professionals or senior management without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our results of operations.
We need to observe certain financial and other covenants under the terms of our debt instruments, the failure to comply with which would put us in default under those instruments.
Certain of our debt instruments contain financial and other covenants with which we are required to comply on an annual and semi-annual basis. The financial covenants with respect to SK Telecom’s debt instruments include, but are not limited to, a maximum net
debt-to-EBITDA
ratio of 3.50 and a minimum
EBITDA-to-total
interest expense ratio of 4.00, each as determined on a separate financial statement basis.
The debt arrangements also contain negative pledge provisions limiting our ability to provide liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts due under such debt if an event of default or acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing.
If we breach our financial or other covenants, our financial condition will be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt.
We may have to make further financing arrangements to meet our capital expenditure requirements and debt payment obligations.
We have had, and expect to continue to have, significant capital expenditure requirements as we continue to build out, maintain and upgrade our networks and invest in businesses that complement our wireless and fixed-line telecommunications businesses. We spent Won 2,915.9 billion for capital expenditures in 2021.
We expect to spend a similar amount for capital expenditures in 2022 compared to 2021 for a range of projects, including investments to expand and improve our 5G network, investments to maintain our LTE network and
LTE-A
services, investments to improve and expand our
Wi-Fi
network, investments to develop our IoT solutions and platform services business portfolio, including AI solutions, investments in data infrastructure, investments in research and development of 5G technology, investments in businesses that can potentially leverage our 5G network, and investments in funding for
mid-
to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. In November 2020, the MSIT announced plans to reallocate a total of 310 MHz of frequency bandwidths whose usage terms were due to expire in 2021 to KT, LG U+ and us, 95 MHz of which was allocated to us in 2021. See “Item 5.B. Liquidity and Capital Resources — Capital Requirements.” We would be required to spend additional amounts on capital expenditures in connection with building out our networks on such reallocated bandwidths.
 
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In particular, we continue to make significant capital investments to expand and upgrade our wireless networks in response to growing bandwidth demand by our subscribers. Bandwidth usage by our subscribers has rapidly increased in recent years primarily due to the increasing number of data intensive mobile applications and use of such applications by smartphone users. If heavy usage of bandwidth-intensive services grows beyond our current expectations, we may need to invest more capital than currently anticipated to expand the bandwidth capacity of our networks or our customers may have a suboptimal experience when using our services. Any of these events could adversely affect our competitive position and have a material adverse effect on our business, financial condition and results of operations. For a more detailed discussion of our capital expenditure plans and a discussion of other factors that may affect our future capital expenditures, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures.”
As of December 31, 2021, we had Won 2,461.0 billion in contractual payment obligations due in 2022, which mostly involved repayment of debt obligations, payments related to lease liabilities and other short-term leases and leases of
low-value
assets and payments related to frequency licenses. See “Item 5.B. Liquidity and Capital Resources — Contractual Obligations and Commitments.”
We have not arranged firm financing for all of our current or future capital expenditure plans and contractual payment obligations. We have, in the past, obtained funds for our proposed capital expenditure and payment obligations from various sources, including our cash flow from operations as well as from financings, primarily debt and equity financings. Any material adverse change in our operational or financial condition could impact our ability to fund our capital expenditure plans and contractual payment obligations. Volatile financial market conditions may also curtail our ability to obtain adequate funding. Inability to fund such capital expenditure requirements may have a material adverse effect on our business, financial condition and results of operations. In addition, although we currently anticipate that the capital expenditure levels estimated by us will be adequate to meet our business needs, such estimates may need to be adjusted based on developments in technology and markets. Failure to meet any such increased expenditure requirements or to obtain adequate financing for such requirements on terms acceptable to us, or at all, may have a material adverse effect on our business, financial condition and results of operations.
Termination or impairment of our relationship with a small number of key suppliers for network equipment and for leased lines could adversely affect our business, financial condition and results of operations.
We purchase wireless network equipment from a small number of suppliers. To date, we have purchased substantially all of the equipment for our networks from Samsung Electronics Co., Ltd. (“Samsung Electronics”),
Ericsson-LG
Co., Ltd.
(“Ericsson-LG”)
and Nokia Corporation (“Nokia”). We believe Samsung Electronics currently manufactures more than half of the wireless handsets sold to our subscribers. Although other manufacturers sell the equipment we require, sourcing such equipment from other manufacturers could result in unanticipated costs in the maintenance and enhancement of our wireless networks. Inability to obtain the equipment needed for our networks in a timely manner may have an adverse effect on our business, financial condition and results of operations.
We cannot assure you that we will be able to continue to obtain the necessary equipment from one or more of our suppliers. Any discontinuation or interruption in the availability of equipment from our suppliers for any reason could have an adverse effect on our business, financial condition and results of operations. In addition, inability to lease adequate lines at commercially reasonable rates may impact the quality of the services we offer and may also damage our reputation and our business.
Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.
We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries. In addition to active research and development efforts, our success depends in part on our ability to obtain patents and other intellectual property rights covering our services.
We may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although we have not experienced any significant patent or other intellectual property disputes, we cannot
 
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be certain that any significant patent or other intellectual property disputes will not occur in the future. Defending our patent and other proprietary rights could require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could result in our loss of rights to employ certain technologies to provide services.
Malicious and abusive Internet practices could impair our services and we may be subject to significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers.
Our business involves the storage and transmission of large amounts of confidential information, and cybersecurity breaches expose us to a risk of loss of this information, which may lead to improper use or disclosure of such information, ensuing potential liability and litigation, any of which could harm our reputation and adversely affect our business.
Our cybersecurity measures may also be breached due to employee error, malfeasance or otherwise. Instituting appropriate access controls and safeguards across all of our information technology infrastructure is challenging. Furthermore, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our data or our customers’ data or accounts, or may otherwise obtain access to such data or accounts. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until attacks are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our cybersecurity occurs or the market perception of the effectiveness of our cybersecurity measures is harmed, we may incur significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputation and a loss of confidence of our customers, which could have an adverse effect on our business, financial condition and results of operations.
In addition, our wireless and fixed-line subscribers utilize our network to access the Internet and, as a consequence, we or they may become victim to common malicious and abusive Internet activities, such as unsolicited mass advertising (
i.e.
, “spam”), hacking of personal information, distributed
denial-of-service
attacks and dissemination of viruses, worms and other destructive or disruptive software. These activities could have adverse consequences on our network and our customers, including degradation of service, excessive call volume to call centers and damage to our or our customers’ equipment and data. Significant incidents could lead to customer dissatisfaction and, ultimately, loss of customers or revenue, in addition to increased costs to us to service our customers and protect our network. Any significant loss of our subscribers or revenue due to incidents of malicious and abusive Internet practices or significant increase in costs of serving those subscribers could adversely affect our business, financial condition and results of operations.
Labor disputes may disrupt our operations.
Although we have never experienced any significant labor disputes, there can be no assurance that we will not experience labor disputes in the future, including protests and strikes, which could have an adverse effect on our business, financial condition and results of operations.
Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has a
two-year
duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Although we consider our relationship with our employees to be good, there can be no assurance that we will be able to maintain such a working relationship with our employees and will not experience labor disputes resulting from disagreements with the labor union in the future.
Concerns that radio frequency emissions may be linked to various health concerns could adversely affect our business and we could be subject to litigation relating to these health concerns.
In the past, allegations that serious health risks may result from the use of wireless telecommunications devices or other transmission equipment have adversely affected share prices of some wireless telecommunications companies in the United States. In May 2011, the International Agency for Research on Cancer (the “IARC”), a part of the World Health Organization, announced that it has classified radiofrequency electromagnetic fields associated with wireless phone use as possibly carcinogenic to humans, based on an increased risk for glioma, a malignant type
 
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of brain cancer. The IARC conducts research on the causes of human cancer and the mechanisms of carcinogenesis and aims to develop scientific strategies for cancer control. We cannot assure you that these health concerns will not adversely affect our business. Several class action and personal injury lawsuits have been filed in the United States against several wireless phone manufacturers and carriers, asserting product liability, breach of warranty and other claims relating to radio transmissions to and from wireless phones. Certain of these lawsuits have been dismissed. We could be subject to liability or incur significant costs defending lawsuits brought by our subscribers or other parties who claim to have been harmed by or as a result of our services. In addition, the actual or perceived risk of wireless telecommunications devices could have an adverse effect on our business by reducing the number of our subscribers or the usage per subscriber.
Our ability to deliver services may be disrupted due to a systems failure, shutdown in our networks or natural disaster.
Our services are currently carried through our wireless and fixed-line networks, which could be vulnerable to damage or interruptions in operations due to fires, floods, earthquakes, power losses, telecommunication failures, network software flaws, unauthorized access, computer viruses and similar events, which may occur from time to time. The occurrence of any of these events could impact our ability to deliver services, we may be liable for damages to our customers caused by such interruptions, our reputation may be damaged and our customers may lose confidence in us, which could have a negative effect on our business, financial condition and results of operations.
Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on our results of operations and the market value of our common shares and ADSs.
Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect our results of operations because, among other things, it causes:
 
 • 
an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt; and
 
 • 
an increase, in Won terms, of the costs of equipment that we purchase from overseas sources which we pay for in Dollars or other foreign currencies.
Fluctuations in the exchange rate between the Won and the Dollar will affect the Dollar equivalent of the Won price of the our common shares on the KRX KOSPI Market. These fluctuations will also affect:
 
 • 
the amounts a registered holder or beneficial owner of ADSs will receive from the American Depositary Receipt (“ADR”) depositary in respect of dividends, which will be paid in Won to the ADR depositary and converted by the ADR depositary into Dollars;
 
 • 
the Dollar value of the proceeds that a holder will receive upon sale in Korea of our common shares; and
 
 • 
the secondary market price of our ADSs.
If SK Inc. causes us to breach the foreign ownership limitations on our common shares by being deemed to be a foreign entity, we may experience a change of control.
The Telecommunications Business Act currently sets a 49.0% limit on the aggregate foreign ownership of our issued shares. Under the Telecommunications Business Act, as amended, a Korean entity, such as SK Inc., is deemed to be a foreign entity if its largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreigner and such shareholder (together with the shareholdings of its related parties) holds 15.0% or more of the issued voting stock of the Korean entity.
Notwithstanding the above, pursuant to a recent amendment to the Telecommunications Business Act which became effective on April 20, 2022, a Korean entity, so long as (i) such entity’s largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreign entity specifically designated by the MSIT incorporated in a country that has entered into a bilateral or multilateral free trade agreement with Korea, and (ii) such shareholder (together with the shareholdings of its related parties) owns 15.0% or more of the
 
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issued voting stock of such entity, may own more than 49.0% of our issued shares but may not exercise its voting rights with respect to the shares held in excess of the 49% ceiling until the end of the MSIT’s Public Interest Review (see “Item 4.B Business Overview — Foreign Ownership and Investment Restrictions and Requirements”).
As of December 31, 2021, SK Inc. owned 65,668,397
shares of our common stock, or 30.0%, of our issued shares. SK Inc. is currently not deemed to be a foreign entity. However, should SK Inc. be considered to be a foreign shareholder in the future, then its shareholding in us would be included in the calculation of our aggregate foreign shareholding and our aggregate foreign shareholding (based on our foreign ownership level as of December 31, 2021, which we believe was 43.6%) would exceed the 49.0% ceiling on foreign shareholding. As of December 31, 2021, the two largest foreign shareholders of SK Inc. each held a 3.3% stake therein.
If our aggregate foreign shareholding limit is exceeded, the MSIT may issue a corrective order to us, the breaching shareholder (including SK Inc. if the breach is caused by an increase in foreign ownership of SK Inc.) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Inc. Furthermore, if SK Inc. is considered a foreign shareholder, it will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIT will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. For a description of further actions that the MSIT could take, see “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.”
Risks Relating to Korea
Unfavorable financial and economic developments in Korea may have an adverse effect on us.
We are incorporated in Korea, and a substantial portion of our operations and assets are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea, and our performance and successful fulfillment of our operational strategies are dependent in large part on the overall Korean economy. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and starting in 2020, the overall Korean economy and the economies of Korea’s major trading partners have shown signs of deterioration due to the debilitating effects of the
COVID-19
pandemic. See “— The ongoing global pandemic of a new strain of coronavirus
(“COVID-19”)
and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition and results of operations.” As a result, future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.
In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices, supply chain disruptions and the increasing weakness of the global economy, in particular due to the
COVID-19
pandemic and more recently Russia’s invasion of Ukraine and ensuing sanctions against Russia, have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to major foreign currencies has fluctuated significantly and, as a result of uncertain global and Korean economic conditions, there has been significant volatility in the stock prices of Korean companies recently. Future declines in the Korea Composite Stock Price Index (the “KOSPI”), and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.
Developments that could have an adverse impact on Korea’s economy include:
 
 • 
declines in consumer confidence and a slowdown in consumer spending, including as a result of the ongoing global
COVID-19
pandemic;
 
 • 
adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United
 
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States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union;
 
 • 
adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets;
 
 • 
the occurrence of severe health epidemics in Korea and other parts of the world (such as the ongoing global
COVID-19
pandemic);
 
 • 
a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail or small- and medium-sized enterprise borrowers in Korea;
 
 • 
the economic impact of any pending or future free trade agreements or any changes to existing free trade agreements;
 
 • 
a deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy;
 
 • 
increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;
 
 • 
a deterioration in the financial condition or performance of small- and
medium-sized
enterprises and other companies in Korea due to the Government’s policies to increase minimum wages and limit working hours of employees;
 
 • 
investigations of large Korean conglomerates and their senior management for possible misconduct;
 
 • 
social and labor unrest;
 
 • 
substantial changes in the market prices of Korean real estate;
 
 • 
a substantial decrease in tax revenues and a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs, in particular in light of the Government’s ongoing efforts to provide emergency relief payments to households and emergency loans to corporations in need of funding in light of the ongoing
COVID-19
pandemic, which together would likely lead to a national budget deficit as well as an increase in the Government’s debt;
 
 • 
financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector;
 
 • 
loss of investor confidence arising from corporate accounting irregularities and corporate governance issues concerning certain Korean conglomerates;
 
 • 
increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;
 
 • 
geopolitical uncertainty and the risk of further attacks by terrorist groups around the world;
 
 • 
political uncertainty or increasing strife among or within political parties in Korea;
 
 • 
hostilities, political or social tensions involving Russia (including the invasion of Ukraine by Russia and ensuing actions that the United States and other countries may take) and the resulting adverse effects on the global supply of oil and other natural resources and the global financial markets;
 
 • 
hostilities or political or social tensions involving oil producing countries in the Middle East (including a potential escalation of hostilities between the United States and Iran) and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;
 
 • 
natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners; and
 
 • 
an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.
 
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Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common shares and ADSs.
Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:
 
 • 
North Korea renounced its obligations under the Nuclear
Non-Proliferation
Treaty in January 2003 and has conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs and warheads that can be mounted on ballistic missiles. Over the years, North Korea has continued to conduct a series of missile tests, including ballistic missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the Government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.
 
 • 
In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.
North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea.
Although bilateral summit meetings were held between the two Koreas in April, May and September 2018 and between the United States and North Korea in June 2018, February 2019 and June 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material adverse effect on our business, financial condition and results of operations and the market value of our common shares and ADSs.
Korea’s legislation allowing class action suits related to securities transactions may expose us to additional litigation risk.
The Securities-related Class Action Act of Korea enacted in January 2004 allows class action suits to be brought by shareholders of companies (including us) listed on the KRX KOSPI Market for losses incurred in connection with purchases and sales of securities and other securities transactions arising from (1) false or inaccurate statements provided in the registration statements, prospectuses, annual reports, audit reports, semi-annual or quarterly reports and material fact reports and omission of material information in such documents, (2) insider trading, (3) market manipulation and (4) unfair trading. This law permits 50 or more shareholders who collectively hold 0.01% of the shares of a company to bring a class action suit against, among others, the issuer and its directors and officers. Because of the relatively recent enactment of the act, there is not enough judicial precedent to predict how the courts will apply the law. Litigation can be time-consuming and expensive to resolve, and can divert management time and attention from the operation of a business. We are not aware of any basis upon which such suit may be brought against us, nor are any such suits pending or threatened. Any such litigation brought against us could have a material adverse effect on our business, financial condition and results of operations.
 
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There are special risks involved with investing in securities of Korean companies, including the possibility of restrictions being imposed by the Government in emergency circumstances.
As we are a Korean company and operate in a business and cultural environment that is different from that of other countries, there are risks associated with investing in our securities that are not typical for investments in securities of companies in other jurisdictions.
Under the Korean Foreign Exchange Transactions Act, if the Government deems that certain emergency circumstances, including a significant disruption in the international balance of payments and international financial markets or extreme difficulty in carrying out currency, exchange rate or other macroeconomic policies due to the movement of capital between Korea and other countries, are likely to occur, it may impose any necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Ministry of Economy and Finance (the “MOEF”) for the acquisition of Korean securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities or from disposition of such securities or other transactions involving foreign exchange. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”
Risks Relating to Securities
Sales of our shares by SK Inc. and/or other large shareholders may adversely affect the market value of our common shares and ADSs.
Sales of substantial amounts of our common shares, or the perception that such sales may occur, could adversely affect the prevailing market value of our common shares or ADSs or our ability to raise capital through an offering of our common shares.
As of December 31, 2021, SK Inc. owned 30.0% of our total issued common shares and has not agreed to any restrictions on its ability to dispose of our shares. See “Item 7.A. Major Shareholders.” We can make no prediction as to the timing or amount of any sales of our common shares. We cannot assure you that future sales of our common shares, or the availability of our common shares for future sale, will not adversely affect the prevailing market value of our common shares or ADSs from time to time.
We believe that we may be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable year ending December 31, 2021, which could subject U.S. investors in our common shares or ADSs to significant adverse U.S. federal income tax consequences.
Due to fluctuations in our stock price and changes in the value and composition of our assets, including our substantial investment in the stock of SK Hynix prior to the
Spin-off,
we believe that we may be classified as a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax purposes for our taxable year ending December 31, 2021. We do not expect, however, to be classified as a PFIC for the current taxable year or in the reasonably foreseeable future. See “Item 10.E. Additional Information — Taxation — United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules” for additional details.
A
non-U.S.
corporation will be a PFIC if, in any particular taxable year, either (a) 75% or more of its gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income.
If we are classified as a PFIC in any taxable year, a U.S. holder (as defined in “Item 10.E. Additional Information — Taxation — United States Federal Income Tax Considerations”) may incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of the common shares or ADSs and on the receipt of distributions on the common shares or ADSs to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules, and such U.S. holder may be subject to burdensome reporting requirements. The amount of income tax on any excess distributions will be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period that the U.S. holder holds its common shares or ADSs. Further, if we are a PFIC for any year during which a U.S. holder holds our commons shares or ADSs, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. holder holds our common shares or ADSs unless we cease to be a PFIC and the U.S. holder makes a special election.
 
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A U.S. holder may be able to avoid the unfavorable rules described above by electing to mark its ADSs to market, provided the ADSs are treated as “marketable stock.” The ADSs generally will be treated as marketable stock if the ADSs are “regularly traded” on a “qualified exchange or other market” (which includes the New York Stock Exchange (“NYSE”)). Further, it should be noted that only the ADSs and not the common shares are listed on the NYSE. Consequently, a U.S. holder that holds common shares that are not represented by ADSs may not be eligible to make a
mark-to-market
election in respect of those common shares.
U.S. holders are strongly urged to consult their own tax advisors regarding our potential classification as a PFIC and regarding the U.S. federal income tax consequences of acquiring, holding, and disposing of our common shares or ADSs if we are so classified, including the advisability of making a
“mark-to-market”
election, if available. See “Item 10.E. Additional Information — Taxation — United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules” for more details.
If an investor surrenders his or her ADSs to withdraw the underlying shares, he or she may not be allowed to deposit the shares again to obtain ADSs.
Under the deposit agreement, holders of our common shares may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the ADR depositary and receive our common shares. However, under the terms of the deposit agreement, as amended, the depositary bank is required to obtain our prior consent to any such deposit if, after giving effect to such deposit, the total number of our common shares represented by ADSs, which was 14,653,598 shares as of March 31, 2022, exceeds a specified maximum, which was 59,712,216 shares as of March 31, 2022, subject to adjustment under certain circumstances.
In addition, the depositary bank or the custodian may not accept deposits of our common shares for issuance of ADSs under certain circumstances, including (1) if it has been determined by us that we should block the deposit to prevent a violation of applicable Korean laws and regulations or our articles of incorporation or (2) if a person intending to make a deposit has been identified as a holder of at least 4.0% of our common shares. It is possible that we may not give the consent. Consequently, an investor who has surrendered his or her ADSs and withdrawn the underlying shares may not be allowed to deposit the shares again to obtain ADSs.
An investor in our ADSs may not be able to exercise preemptive rights for additional new shares and may suffer dilution of his or her equity interest in us.
The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer a right to subscribe for additional new common shares or any other rights of similar nature, the ADR depositary, after consultation with us, may make the rights available to an ADS holder or use reasonable efforts to dispose of the rights on behalf of the ADS holder and make the net proceeds available to the ADS holder. The ADR depositary, however, is not required to make available to an ADS holder any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:
 
 • 
a registration statement filed by us under the Securities Act is in effect with respect to those shares; or
 
 • 
the offering and sale of those shares is exempt from, or is not subject to, the registration requirements of the Securities Act.
We are under no obligation to file any registration statement with respect to any ADSs. If a registration statement is required for an ADS holder to exercise preemptive rights but is not filed by us, the ADS holder will not be able to exercise his or her preemptive rights for additional shares. As a result, ADS holders may suffer dilution of their equity interest in us.
Short selling of our ADSs by purchasers of securities convertible or exchangeable into our ADSs could materially adversely affect the market price of our ADSs.
SK Inc., through one or more special purpose vehicles, has engaged and may in the future engage in monetization transactions relating to its ownership interest in us. These transactions have included and may include
 
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offerings of securities that are convertible or exchangeable into our ADSs. Many investors in convertible or exchangeable securities seek to hedge their exposure in the underlying equity securities at the time of acquisition of the convertible or exchangeable securities, often through short selling of the underlying equity securities or similar transactions. Since a monetization transaction could involve debt securities linked to a significant number of our ADSs, we expect that a sufficient quantity of ADSs may not be immediately available for borrowing in the market to facilitate settlement of the likely volume of short selling activity that would accompany the commencement of a monetization transaction. This short selling and similar hedging activity could place significant downward pressure on the market price of our ADSs, thereby having a material adverse effect on the market value of ADSs owned by you.
A holder of our ADSs may not be able to enforce a judgment of a foreign court against us.
We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this annual report reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this annual report and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of our ADSs to effect service of process within the United States, or to enforce against us any judgments obtained from the United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.
We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries.
Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies, which may differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the SEC and listed on the NYSE, we are subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the NYSE. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or
non-public
companies in other countries. Such differences in corporate governance standards and less public information available could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.
 
Item 4.
INFORMATION ON THE COMPANY
 
Item 4.A.
History and Development of the Company
As Korea’s first wireless telecommunications service provider, we have a recognized history of leadership and innovation in the domestic telecommunications sector. Today, we remain Korea’s leading wireless telecommunications services provider and have continued to pioneer the commercial development and implementation of
state-of-the-art
wireless technologies. We had 31.9 million wireless subscribers, including MVNO subscribers leasing our networks, as of December 31, 2021, representing a market share of 44.3%, the largest market share among Korean wireless telecommunications service providers. We believe we are also a leader in developing new products and services that reflect the increasing convergence of telecommunications technologies, as well as the growing synergies between the telecommunications sector and other industries.
In February 2012, we acquired an equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of Won 3.4 trillion, and became its largest shareholder. In November 2021, we transferred all of our 20.1% equity interest in SK Hynix to SK Square pursuant to the
Spin-off,
as further described below.
Effective as of November 1, 2021, we conducted the
Spin-off,
pursuant to which we spun off our equity interests in certain subsidiaries and investees (collectively comprising the
Spin-off
Portfolio Companies) engaged in the semiconductor and certain other
non-telecommunications
businesses, including our security,
e-commerce
and
 
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other new ICT businesses (collectively comprising the
Spin-off
Businesses) to SK Square, a newly established holding company, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock.
In connection with the
Spin-off,
we also engaged in a
5-to-1
stock split of our common stock (the “Stock Split”), pursuant to which the par value of our common stock changed from Won 500 per share to Won 100 per share and the number of issued shares of our common stock increased from 72,060,143 shares to 360,300,715 shares, in each case effective as of October 28, 2021. Immediately following, and as a result of, the Stock Split, each ADS outstanding as of October 28, 2021 represented five-ninths of one share of our common stock. On March 31, 2022, we had a market capitalization of approximately Won 13.2 trillion (US$10.7 billion, as translated at the noon buying rate of March 31, 2022) or approximately 0.1% of the total market capitalization on the KRX KOSPI Market, making us the 26th largest company listed on the KRX KOSPI Market based on market capitalization on that date. Our ADSs, each representing five-ninths of one share of our common stock, have traded on the NYSE since June 27, 1996.
We are a corporation with limited liability organized under the laws of Korea.
We established our telecommunications business in March 1984 under the name Korea Mobile Telecommunications Co., Ltd. We changed our name to SK Telecom Co., Ltd., effective March 21, 1997. In January 2002, we merged with Shinsegi Telecom Co., Ltd. (“Shinsegi”), which was then the third-largest wireless telecommunications service provider in Korea. Our registered office is at SK
T-Tower,
65,
Eulji-ro,
Jung-gu,
Seoul 04539, Korea and our telephone number is
+82-2-6100-2114.
Our website address is http://www.sktelecom.com.
The SEC maintains a website (http://www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Korean Telecommunications Industry
Established in March 1984, we became the first wireless telecommunications service provider in Korea. We remained the sole provider of wireless telecommunications services until April 1996, when Shinsegi commenced cellular service. The Government began to introduce competition into the fixed-line and wireless telecommunications services markets in the early 1990’s. During this period, the Government allowed new competitors to enter the fixed-line sector, sold a controlling stake in us to the SK Group, and granted a cellular license to our first competitor, Shinsegi. In October 1997, three additional companies began providing wireless telecommunications services under Government licenses to provide wireless telecommunications services. In 2000 and 2001, the Korean wireless telecommunications market experienced significant consolidation. In January 2002, Shinsegi was merged into us. Additionally, two of the other wireless telecommunications services providers merged.
There are currently three mobile network operators in Korea: us, KT and LG U+. As of December 31, 2021, the market share of the Korean wireless telecommunications market, in terms of number of subscribers, of KT and LG U+ was approximately 31.0% and 24.7%, respectively (compared to our market share of 44.3%), each including MVNO subscribers leasing the respective networks. As of December 31, 2021, MVNOs had a combined market share of 14.4%, of which MVNOs leasing our networks represented 3.0%, MVNOs leasing KT’s networks represented 7.4% and MVNOs leasing LG U+’s networks represented 3.9%.
 
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Telecommunications industry growth in Korea has been among the most rapid in the world, with fixed-line penetration being under five lines per 100 population in 1978 and increasing to 47.9 lines per 100 population as of December 31, 2006 before decreasing to 23.6 lines per 100 population as of December 31, 2021, and wireless penetration increasing from 7.0 subscribers per 100 population in 1996 to 139.3 subscribers per 100 population as of December 31, 2021. The table below sets forth certain subscription and penetration information regarding the Korean telecommunications industry as of the dates indicated:
 
   
As of December 31,
 
   
2021
   
2020
   
2019
 
   
(In thousands, except for per population amounts)
 
Population of Korea
(1)
   51,639    51,829    51,850 
Wireless Subscribers
(2)
   71,920    69,542    67,937 
Wireless Subscribers per 100 Population
   139.3    134.2    131.0 
Telephone Lines in Service
   12,212    12,859    13,600 
Telephone Lines per 100 Population
   23.6    24.8    26.2 
 
 
(1)
Source: The Ministry of the Interior and Safety.
(2)
Includes subscribers of
non-mobile
phone wireless services, including services for tablet computers, wearable devices, IoT devices and others.
Since the introduction of short text messaging in 1998, Korea’s wireless data market has grown rapidly. This growth has been driven, in part, by the rapid development of wireless Internet service since its introduction in 1999 and the implementation of LTE and 5G technologies providing for fast data transmission speeds and large data transmission capacity. As of December 31, 2021, approximately 60.7 million Korean wireless subscribers owned Internet-enabled handsets capable of accessing wireless Internet services, including 53.5 million subscribers that own smartphones that had direct access to the Internet using mobile Internet technology.
The table below sets forth certain penetration information regarding the number of Internet-enabled handsets, smartphones and wireless subscribers in Korea as of the dates indicated:
 
   
As of December 31,
 
   
2021
  
2020
  
2019
 
   
(In thousands, except for percentage data)
 
Number of Wireless Internet-Enabled Handsets
   60,689   59,886   58,812 
Number of Smartphones
   53,465   52,223   51,132 
Total Number of Wireless Subscribers
(1)
   71,920   69,542   67,937 
Penetration of Wireless Internet-Enabled Handsets
   84.4%   86.1%   86.6% 
Penetration of Smartphones
   74.3%   75.1%   75.3% 
 
 
(1)
Includes subscribers of
non-mobile
phone wireless services, including services for tablet computers, wearable devices, IoT devices and others.
In addition to its well-developed wireless telecommunications sector, Korea has one of the largest Internet markets in the Asia Pacific region. From the end of 2010 to the end of 2021, the number of broadband Internet access subscribers increased from approximately 17.2 million to approximately 22.9 million.
In connection with such growth in broadband Internet usage, the number of IPTV subscribers has also increased rapidly. The table below sets forth certain information regarding broadband Internet access subscribers and IPTV subscribers as of the dates indicated:
 
   
As of December 31,
 
   
2021
   
2020
   
2019
 
   
(In thousands)
 
Number of Broadband Internet Access Subscribers
(1)
   22,944    22,327    21,762 
Number of IPTV Subscribers
   20,628    19,364    18,021 
 
 
(1)
Includes subscribers accessing Internet service using digital subscriber line, or xDSL, connections; cable modem connections; local area network, or LAN, connections;
fiber-to-the-home,
or FTTH, connections and satellite connections.
 
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Item 4.B.
Business Overview
Overview
We are Korea’s leading wireless telecommunications services provider and continue to pioneer the commercial development and implementation of
state-of-the-art
wireless and fixed-line technologies and services as well as other new services and products utilizing our AI and digital infrastructure capabilities and our telecommunications platforms, including a broad range of IoT solutions, platform services, cloud services, smart factory solutions, subscription services and metaverse platform-based services.
Our operations are reported in three segments:
 
 • 
cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions, platform services, cloud services, smart factory solutions, subscription services and metaverse platform-based services;
 
 • 
fixed-line telecommunications services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV and cable TV services) and business communications services; and
 
 • 
other businesses, which include our
T-commerce
business and certain other miscellaneous businesses.
Our Business Strategy
We believe that the current trends in the Korean telecommunications industry are characterized by technological change, evolving consumer needs and increasing digital convergence. Against the backdrop of these industry trends, we aim to maintain our leading position in the Korean market for wireless telecommunications services and actively develop our next-generation growth businesses by leveraging our AI and digital infrastructure technologies. In pursuit of such objectives, we plan to further utilize our big data analysis capabilities to create products and services that are tailored to our customers’ evolving needs, as well as incorporate AI capabilities directly into many of the products and services we offer, and offer a variety of subscription-based marketing services and meterverse platform services. In doing so, we plan to actively collaborate with the new ICT businesses operated by the
Spin-off
Portfolio Companies (comprising our former subsidiaries and investees that were spun off to SK Square pursuant to the
Spin-off)
as well as other affiliates of the SK Group and third parties. By doing so, we strive to become a socially respected “AI & Digital Infrastructure Service Company” as universally recognized by our customers, business partners and shareholders. To take advantage of evolving industry trends and further realize our corporate vision to become a socially respected “AI & Digital Infrastructure Service Company,” we have undertaken the following strategic initiatives:
 
 • 
Maintain our leadership in the wireless services business by offering innovative 5G services and customer-oriented products and services and evolve into a subscription-based marketing company
. We plan to maintain our leadership in the wireless services business by offering innovative 5G services that provide differentiated subscriber experiences. We also plan to promote the proliferation of 5G services by offering services and content that are specialized for the 5G environment, such as cloud gaming,
hands-on
experience services, metaverse platform-based services and
e-sports.
In addition, we will continue to analyze the needs of our subscribers leveraging our AI technology and provide products and services that meet such needs. Furthermore, we intend to broaden the range of our product and service offerings for subscription to new business areas such as rental, gaming and overseas shipment and further expand our subscriber base to promote our growth and evolve into a “subscription-based marketing company.”
 
 • 
Develop our next-generation growth businesses through hyper-collaboration
. We believe that we have evolved from being a domestic telecommunications provider in Korea to possessing the fundamental capabilities that enable us to pursue a broad range of collaboration in the field of ICT with both domestic and international partners, including the
Spin-off
Portfolio Companies. We have formed strategic partnerships with industry leaders to create synergies in various areas, such as 5G cloud gaming, mobile edge computing (“MEC”) and
e-sports,
and we are continually expanding the areas for collaboration. We aim to create an environment for “hyper-collaboration” to develop and foster our next-generation growth businesses, including media (consisting of broadcast and advertising platform, content and
T-commerce
businesses), enterprise (consisting of data center, cloud and AIoT businesses), AIVERSE (consisting of
 
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subscription, metaverse and AI agent businesses) and Connected Intelligence (consisting of future technology areas such as UAM and autonomous driving).
 
 • 
Develop our technological capabilities and new products and services to support our 5G network.
We aim to continue developing cutting-edge technologies that will be adopted as the technological standard for 5G services. In addition, we will seek to apply our 5G infrastructure and capabilities to our various other key businesses such as media, enterprise, AIVERSE and Connected Intelligence to create unique new products and services geared to serve evolving customer needs. Furthermore, we aim to collaborate with various partners to identify new business opportunities that can potentially leverage our 5G network.
 
 • 
Pursue sustainable management to seek mutual growth with the broader society
. The SK Management System, which is the business philosophy and foundation of corporate culture of the SK Group, includes as a key component the goal of growing together with the broader society by contributing to its economic growth, creating social value and promoting environmentally friendly technology. Based on a socially accountable governance system led by the Corporate Citizenship Committee of our board of directors, we aim to pursue the “double bottom line” of achieving long-term shareholder value while creating social value by leveraging our business capabilities, thereby contributing to the well-being of all stakeholders and the enhancement of our corporate value in the long-term.
As part of our ongoing efforts to pursue such strategies, effective as of November 1, 2021, we conducted the
Spin-off,
pursuant to which we spun off our equity interests in certain subsidiaries and investees (comprising the
Spin-off
Portfolio Companies) engaged in semiconductor and certain other
non-telecommunications
businesses, including our security,
e-commerce
and other new ICT businesses (collectively comprising the
Spin-off
Businesses) to SK Square, a newly established holding company, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock. See “Certain Defined Terms and Conventions Used in this Annual Report” for the accounting treatment of the
Spin-off
in our consolidated financial statements included in this annual report.
Furthermore, in February 2022, we unveiled our new vision entitled “SKT 2.0,” pursuant to which we announced our plan to reorganize our operations into five major business groups, comprising wireless and fixed-line telecommunications, media, enterprise, AIVERSE and Connected Intelligence. By
re-defining
the areas of our business focus and optimizing our customer groups, services and technology for each business group, we intend to pursue the maximization of our overall growth and enterprise value.
Cellular Services
We offer wireless voice and data transmission services, sell wireless devices and provide IoT solutions and innovative platform services through our cellular services segment. Our wireless voice and data transmission services are offered through our backbone networks that collectively can be accessed by approximately 99.0% of the Korean population. We had 31.9 million wireless subscribers, including MVNO subscribers leasing our networks, as of December 31, 2021, representing a market share of 44.3%, the largest market share among Korean wireless telecommunications service providers. We launched our wireless services using our 5G network in April 2019, and we are continually expanding our 5G network coverage and enhancing service quality. The table below sets forth the number of subscribers, including subscribers of MVNOs that lease our wireless networks, using our various digital wireless networks as of the dates indicated:
 
   
As of December 31,
 
   
2021
   
2020
   
2019
 
   
(in thousands)
 
Network
      
5G
   9,911    5,476    2,084 
LTE
   20,198    22,848    25,022 
WCDMA
   1,660    2,920    3,986 
CDMA
(1)
   115    139    443 
  
 
 
   
 
 
   
 
 
 
Total
   31,884    31,384    31,535 
 
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(1)
In July 2020, we terminated our second generation wireless services using our CDMA network. CDMA subscribers as of December 31, 2021 consist of subscribers who have not upgraded to our other networks or terminated their subscriptions as of such date.
In 2021, 2020 and 2019, our cellular services segment revenue was Won 12,718.5 billion, Won 12,348.0 billion and Won 12,223.8 billion, respectively, representing 75.9%, 76.8% and 79.3%, respectively, of our consolidated revenue from continuing operations.
Wireless Services
We offer wireless voice transmission and data transmission services to our subscribers through our backbone networks. Our wireless telecommunications services are available to our subscribers receiving service under the SK Telecom brand. In addition, customers can obtain wireless telecommunications services that operate on our network from MVNOs that lease our wireless networks. We derive revenues from our wireless telecommunications service principally through monthly plan-based fees as described in “— Rate Plans” below.
We provide a
voice-over-LTE
service, known as our “HD Voice” service, to all of our LTE and 5G subscribers featuring high-quality voice transmission, fast call connection,
voice-to-video
call switching and digital content sharing during calls. We also offer our subscribers a wide range of wireless data transmissions services. Our messaging service allows our subscribers to send and receive text, graphic, audio and video messages. In addition, our subscribers can access a wide variety of digital content and services through mobile applications providing music, video, gaming, news, commerce, metaverse community and financial services as well as solutions that enable subscribers to access the Internet and
e-mail.
We intend to continue to build our wireless data services as a platform for growth, extending our portfolio of wireless data services and developing new content for our subscribers.
Through service agreements with various foreign wireless telecommunications service providers, we offer cellular global roaming services, branded as our
“T-Roaming”
service. Global roaming services allow subscribers traveling abroad to make and receive calls using their regular mobile phone numbers. In addition, we provide global roaming service to foreigners traveling to Korea. In such cases, we generally receive a fee from the traveler’s local wireless telecommunications service provider.
Through our subsidiary SK Telink Co., Ltd. (“SK Telink”), we also operate our MVNO business under the brand “SK 7Mobile,” which we believe offers excellent quality at reasonable rates utilizing SK Telecom’s wireless networks. SK Telink is focused on developing
low-cost
distribution channels and targeting niche customer segments that have a lower average revenue per user than that of SK Telecom’s subscriber base.
In addition, we provide interconnection service to connect our networks to domestic and international fixed-line and other wireless networks. See “— Interconnection” below.
Wireless Device Sales
We offer several categories of wireless devices, including smartphones and basic phones, tablets and other Internet access devices and wearable devices that are sold through an extensive distribution network, which consists of authorized exclusive dealers and independent retailers, as well as branch offices and stores directly operated by us through our wholly-owned subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”). As of December 31, 2021, approximately 24.5 million, or 76.9%, of our subscribers (including MVNO subscribers leasing our networks) owned smartphones that have direct access to the Internet compared to approximately 23.9 million subscribers, or 76.3%, as of December 31, 2020. We purchase a substantial majority of our wireless devices from Samsung Electronics and Apple.
Smartphones and Basic Phones
.    We offer smartphones that are enabled to utilize our digital wireless networks and run on various operating systems, such as Apple iOS and Google Android. We also offer basic phones that have the ability to access wireless Internet services.
Tablets and Other Internet Devices.    
We offer tablets which can access the Internet via our digital wireless networks and a
Wi-Fi
connection. The tablets run primarily on the Apple iOS and Google Android operating
 
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systems. In addition, we also offer “T
Pocket-Fi”
devices that provide a mobile LTE connection and are capable of connecting multiple
Wi-Fi
enabled devices to the Internet at one time. We offer targeted rate plans for our
T Pocket-Fi
device. See “— Rate Plans” below.
Wearable Devices
.    We offer various wearable devices, which primarily comprise smart watches. These devices utilize our digital wireless networks and have specific features for the relevant target customer. We offer targeted rate plans that are specific to these wearable devices. See “— Rate Plans” below.
IoT Solutions
Through our IoT solutions business, we provide network access and enhanced services to support telemetry-type applications, which are characterized by massive machine-type communication (“mMTC”) wireless connections, to business customers. In order to promote the growth of our IoT solutions business, we deployed networks nationwide that are designed to support IoT devices, namely our high-speed
LTE-M
network in March 2016 and our
low-cost
Low-Power
Wide-Area network based on LoRa technology (our “LoRa network”) in July 2016. In April 2018, we increased the battery efficiency of our IoT devices by launching our LTE Cat.M1 technology, and we have further enhanced our competitiveness in this business with our newly deployed 5G network.
We provide network access and customized IoT solutions to our business customers. Our IoT services support devices that are used in a variety of market segments, including retail, utilities, security, automotive, agriculture and data analytics. For example, our Cloud Energy Management Solution (“Cloud EMS”) business provides a
one-stop
cloud computing-based energy management platform that collects and analyzes energy usage data from business customers and offers solutions to optimize and reduce their energy consumption. As of December 31, 2021, Cloud EMS had more than 200 customers, mostly from energy-intensive industries such as the petrochemical industry as well as the luxury retail industry.
Platform Services
Through our platform services business, we seek to provide innovative AI products and services that meet our customers’ evolving needs in an increasingly connected world. In September 2016, we launched NUGU, the first intelligent AI service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. Through cloud-based deep-learning technology, NUGU is designed to evolve on its own as it collects more data about its users over time.
We offer a variety of smart devices based on NUGU, such as the NUGU Candle series, an AI speaker which offers NUGU-based services, “NUGU nemo,” a smart speaker with a touchscreen, “NUGU CHIPS,” a wireless charging dock compatible with certain Samsung Galaxy smartphones that automatically converts the smartphone being charged into a NUGU-capable device, and “albert AI,” an educational device that teaches children how to code.
We have also integrated NUGU into our B tv service as further discussed in “— Fixed-line Telecommunications Services — Advanced Media Platform (including IPTV and Cable TV Services).” In addition, we integrated NUGU into our “T phone” service, which offers our customers a number of convenient call functions, such as a spam-call blocking function and a search function that informs customers of the phone numbers of shops, hospitals and other facilities closest to the customer’s current location.
In 2018, we launched “NUGU developers,” a platform on which third-party manufacturers and developers can create and launch new services based on NUGU technology and incorporate NUGU capabilities into their applications or devices. In 2020, we launched “NUGU carecall” in response to the
COVID-19
pandemic, which is a service that tracks and records symptoms of persons subject to monitoring through mobile phones. We continue to explore ways in which we can leverage our NUGU technology to launch new, and enhance our existing, products and services.
 
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Other New Businesses
In recent periods, we have launched a variety of new businesses leveraging our capabilities in telecommunications technology and ICT, and we are continuing to invest in these and other emerging new business areas, including the following:
 
 • 
Cloud services
. We are developing a variety of integrated cloud services based on our advanced 5G MEC technology and platform for business customers that require secure and
ultra-low
latency communications, focusing on the media, logistics, healthcare, finance and manufacturing industries. We completed the construction of MEC infrastructure at four strategic locations during 2020 and we launched our first
MEC-based
cloud service, “5GX Edge Cloud,” in collaboration with Amazon Web Services in December 2020. We have also entered into strategic partnerships with a number of other leading cloud service providers to pursue further collaboration on
MEC-based
cloud services.
 
 • 
Smart Factory Solutions
. We provide tailored smart factory solutions that leverage our 5G and other wireless technology infrastructure as well as our capabilities in AIoT technology and big data analysis to cater primarily to businesses in high-tech industries. Our smart factory solutions cater to the various needs of our customers including those related to manufacturing process, quality control, equipment management, industrial safety and logistics.
 
 • 
Subscription service
. In August 2021, we launched a subscription-based membership service under our “T Universe” brand name. T Universe currently offers two types of subscription packages, T Universe Pass Mini and T Universe Pass All, both of which offer free shipping and discount coupons on merchandise purchases made on the Amazon Global Store, which operates on Eleven Street’s 11st
e-commerce
platform. T Universe Pass All offers an additional membership benefit of the subscriber’s choice among various options, including discounts from one of several participating food and beverage store chains and delivery service providers, online video streaming and music services, and access to a cloud storage service. In order to continue expanding our T Universe membership base, we plan to pursue additional business partnerships with popular consumer brands and service providers to increase the number and appeal of the businesses that participate in the T Universe subscription program and continue to invest in improving our customers’ user experience.
 
 • 
Metaverse.
In July 2021, we launched a metaverse community platform called “Ifland.” Ifland, which is available as a mobile application on the Google Android and the Apple iOS operating systems, allows users to create personal avatars and communicate with other users by joining one or more of Ifland’s thousands of active virtual communities. Users can also create their own communities. In addition, businesses and public institutions have been actively promoting their services, products and events on the Ifland platform. Since its launch, our Ifland mobile application has been able to quickly increase its user base, reaching over 975,000 monthly active users in December 2021, and we plan to further enhance our customers’ user experience by adopting an open-ended platform structure and supporting economic transactions on the platform through the use of block chain and
non-fungible
token technologies.
Rate Plans
We offer our wireless telecommunications services on both a postpaid and prepaid basis. Substantially all of our subscribers received our wireless telecommunications services on a postpaid basis as of December 31, 2021. Postpaid accounts primarily represent retail subscribers under contract with SK Telecom pursuant to which a subscriber is billed in advance a monthly fixed service fee in return for a monthly network service allowance and usage for outgoing voice calls and wireless data services beyond the allowance is billed in arrears, where payment of the total amount of the bill is due at the end of the month. The standard contract period for our rate plans is 24 months, although our subscribers have the option to enter into shorter term contracts or no fixed-term contract at all. We provide various subsidies and discounts, including handset subsidies, depending on the length of the contract and the subscriber’s chosen rate plan. Our prepaid service enables individuals to obtain wireless telecommunications services without a fixed-term contract by paying for all services in advance according to expected usage. We do not charge our customers for incoming calls, although we do receive interconnection charges from KT and other companies for calls from the fixed-line network terminating on our networks and interconnection revenues from other wireless network operators. See “— Interconnection” below.
 
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We also charge our customers a 10.0% value-added tax, which is included in the price of all of our rate plans. We can offset the value-added tax we collect from our customers against value-added tax refundable to us by the Korean tax authorities. We remit taxes we collect from our customers to the Korean tax authorities. We record revenues in our financial statements net of such taxes.
Basic Rate Plans.    
We offer various postpaid account plans for smartphones and basic phones that are designed to meet a wide range of subscriber needs and interests. Our 5G services are provided through the “5GX” plans, which offer unlimited domestic voice minutes and text messaging and a fixed or unlimited data transmission allowance per month and range from Won 55,000 to Won 125,000 per month. As of December 31, 2021, approximately 7.0 million subscribers had subscribed to the “5GX” plans. Our representative smartphone rate plans for our LTE services are the “T” plans, which feature unlimited domestic voice minutes and text messaging and a fixed or unlimited data transmission allowance per month and range from Won 33,000 to Won 100,000 per month. In 2021, a majority of our new LTE subscribers subscribed to the “T” plans. In January 2021, we also launched
“Un-tact”
plans that are exclusively available through our online distribution channel, ranging from Won 38,000 to Won 62,000 per month for 5G services and from Won 22,000 to Won 48,000 per month for LTE services.
Our “Voice Free” plans are available for our basic phones and feature a fixed allowance of voice minutes and 50 text messages per month with rates that range from Won 20,900 to Won 103,400 per month.
We also offer a standard rate plan for Won 12,100 per month, through which the subscriber is charged per usage amount, other than on text message usage up to 50 messages per month.
In addition, we provide a variety of differentiated rate plans for our customer segments such as our “0” plans for smartphone users who are 24 years old or younger tailored for younger demographics, our “0 Teen” plans for teenagers who are 18 years old or younger, our “ZEM” plans for children who are 12 years old or younger and our “5G Happiness (
Haengbok-nuri
)” discounted plans for customers with visual impairment or hearing loss.
For our T
Pocket-Fi
device, we provide a fixed monthly data transmission allowance of 10GB for Won 16,500 per month and 20GB for Won 24,750 per month.
With respect to the wearable devices that we offer, we offer targeted rate plans for smart watches that range from Won 11,000 to Won 12,100 per month.
Data
Add-on
Rate Plans.    
We offer a variety of optional
“add-on”
rate plans that are designed to meet a wide range of subscriber needs with respect to increased data usage that followed the widespread use of smartphones and faster transmission speeds. For example, we offer specialized
add-on
data plans such as our “Subway Free” plan, which offers unlimited wireless data usage on subway platforms and inside subways, and our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour, each for a fixed rate of Won 9,900 per month.
For certain rate plan subscribers, we also offer unlimited access to the wavve video streaming service through our “wavve and Data Plus” plan at no additional cost or at a discounted rate of Won 2,400 or Won 12,300 per month, depending on the subscribers’ basic rate plan. “Safe Option Premium” offers an additional daily data transmission allowance of 50MB to subscribers who have used the maximum data transmission on their existing plan without incurring additional data transmission fees for a fixed rate of Won 8,800 per month. We also offer “T Data Coupons,” through which subscribers can purchase a fixed amount of data for a fixed price and can also be sent as “gifts” to family and friends that need additional data allowance.
Roaming Plans.    
Our representative international roaming service plans include our “baro 3GB,” “baro 4GB and “baro 7GB” plans for long-term travel, which provide fixed data transmission allowances of 3GB, 4GB or 7GB that can be used over a specified number of days in approximately 125 countries for Won 29,000, Won 39,000 and Won 59,000, respectively, as well as our “baro OnePass 300” and “baro OnePass 500” plans suitable for short-term travel, which are fixed rate plans that provide data roaming of 300MB for Won 9,900 per day and 500MB for Won 16,500 per day, respectively, and are available in 185 countries. We also offer our “baro OnePass VIP”plan, which provides unlimited data roaming for Won 19,000 per day in 102 countries. All of our “baro” plans include free high-quality data voice calls to Korea through our T phone application. We also provide to all of our roaming service subscribers an automatic roaming service called “Safe Automatic T Roaming,” which provides 30 minutes of voice calls per day (including three minutes of free voice calls) for a maximum of Won 10,000 (with voice calls in excess of 30 minutes per day incurring additional charges).
 
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Digital Wireless Network
We offer wireless voice and data transmission services throughout Korea using digital wireless networks, primarily consisting of our 5G network, LTE network, WCDMA network,
Wi-Fi
network and LoRa network. We continually upgrade and increase the capacity of our wireless networks to keep pace with advancements in technology, the growth of our subscriber base and the increased usage of voice and wireless data services by our subscribers. For more information about our capital expenditures relating to our wireless networks, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures.”
5G Network.
    
5G is the
state-of-the-art
wireless network that enables data to be transmitted at speeds faster than our LTE network with lower latency. We began the operation of our 5G network in December 2018 on a limited basis for business customers, beginning with a few major commercial districts in Seoul and other metropolitan areas. In April 2019, we launched wireless service plans using the 5G network following the commencement of sales of the first
5G-compatible
smartphones, and we are in the process of further expanding our 5G network coverage, which we expect to substantially complete within the next several years. Our 5G services provided a maximum data transmission speed of 2.75 Gbps, and our 5G penetration was 41.6% as of December 31, 2021. We have also deployed our 5G network for mMTC connections relating to our IoT solutions.
We believe that our 5G technology and network infrastructure enable us to provide the fastest 5G data transmission network nationwide. In December 2021, the MSIT announced that our 5G network provided the fastest upload and download speeds among the three mobile network operators, KT, LG U+ and us. The nationwide average download speed of our 5G network was 930 Mbps compared to 763 Mbps for KT’s 5G network and 712 Mbps for LG U+’s 5G network.
LTE Network.
    
LTE technology has become widely accepted globally as the standard fourth generation technology and enables data to be transmitted at speeds faster than our WCDMA network. Since first commencing our LTE services in July 2011 and
LTE-A
services, which use carrier aggregation technology that combines spectrum frequencies to improve data transmission speeds, in June 2013, we have developed and launched various upgraded LTE networks and services providing faster network speeds, enhanced connectivity and broader coverage areas. In February 2018, we launched four-band
LTE-A
services utilizing 4x4 multiple-input multiple-output (“MIMO”) technology providing for data transmission speeds of up to 1 Gbps, and we commenced five-band
LTE-A
services using 4x4 MIMO technology that provide data transmission speeds of up to 1.15 Gbps in March 2019 and up to 1.25 Gbps in March 2020. With these developments in LTE technology, our LTE penetration increased to a peak of 79.3% as of December 31, 2019 compared to 49.3% as of December 31, 2013, before decreasing to 63.3% as of December 31, 2021 as a result of the ongoing customer migration to the 5G network. We expect that wireless services based on LTE technology will continue to be used by a significant portion of our users in the near future, as we and our competitors further expand 5G networks and services and wireless service users continue to migrate to the 5G network over time, and plan to continue to deploy improved
LTE-A
technology to increase the maximum data transmission speed of our services.
For
machine-to-machine
connections relating to our IoT solutions, we launched our LTE-M services at speeds of up to 10 Mbps in March 2016, as well as our LTE Cat.M1 services at speeds of up to 0.03 Mbps in April 2018. Upgrades to our LTE technology in recent years have enabled even faster data transmission speeds, as shown below.
 
Wireless network technology
  
Date of commencement of services
  
Maximum data transmission speed
 
LTE
  July 2011   75 Mbps 
LTE-A
  June 2013   150 Mbps 
Wideband
LTE-A
  June 2014   225 Mbps 
Tri-band
LTE-A
  December 2014   300 Mbps 
Five-band
LTE-A
  June 2017   700 Mbps 
Tri-band
LTE-A
with 4x4 MIMO
  June 2017   900 Mbps 
Four-band
LTE-A
with 4x4 MIMO
  February 2018   1 Gbps 
Five-band
LTE-A
with 4x4 MIMO
  March 2019   1.15 Gbps 
Five-band
LTE-A
with 4x4 MIMO
  March 2020   1.25 Gbps 
We believe that our advanced LTE technology and dense network infrastructure enable us to provide the fastest LTE data transmission network nationwide. In December 2021, the MSIT announced that our LTE network
 
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provided the fastest upload and download speeds among the three mobile network operators, KT, LG U+ and us.
The nationwide average download speed of our LTE network was 208.2 Mbps compared to 138.2 Mbps for KT’s LTE network and 104.4 Mbps for LG U+’s LTE network.
WCDMA and CDMA Networks.    
WCDMA technology enables us to offer significantly faster and higher-quality voice and data transmission and supports more sophisticated wireless data transmission services than is possible through our former CDMA network. Since first commencing our WCDMA services in Seoul in 2003, we have expanded our WCDMA network nationwide and implemented various technologies to improve data transmission speeds within our WCDMA network.
CDMA technology is a continuous digital transmission technology that accommodates higher throughput than analog technology by using various coding sequences to allow concurrent transmission of voice and data signals for wireless communication. In January 1996, we launched our first wireless network based on CDMA technology and became the world’s first to commercialize second generation cellular services using the CDMA network. As a result of declining usage and the increasing difficulty of maintaining the network, we terminated our second generation CDMA wireless services in July 2020.
Wi-Fi
Network.    
Wi-Fi
technology enables our subscribers with
Wi-Fi-capable
devices such as smartphones, laptops and tablet computers to access mobile Internet. We started to build
Wi-Fi
access points in 2010 and, as of December 31, 2021, we had more than 104,000
Wi-Fi
access points in public areas such as shopping malls, restaurants, coffee shops, subways and airports where, generally, the demand for high-speed wireless Internet service is high. While each
Wi-Fi
access point typically has a radius of approximately
20-30
meters, some of our
Wi-Fi
hot zones, which have multiple
Wi-Fi
access points, including those installed at public transportation facilities and amusement parks, have much wider service areas.
LoRa Networks
.    A
Low-Power
Wide-Area network based on LoRa technology is a type of telecommunications network designed to support communication among IoT devices. It can transmit data over tens of kilometers while consuming much less power than LTE networks, lowering costs for connectivity as well as lowering battery power usage. We completed the nationwide deployment of our LoRa network in July 2016. We expect that our LoRa network will provide the infrastructure necessary for the growth of not only our own IoT solutions business but also the IoT industry as a whole.
Network Infrastructure
The principal components of our wireless networks are:
 
 • 
base stations (or cell sites)
,
which are physical locations equipped with transmitters, receivers and other equipment that communicate by radio signals with wireless handsets within range of the cell (typically a 3 to 40 kilometer radius);
 
 • 
switching stations
,
which switch voice and data transmissions to their proper destinations, which may be, for instance, a mobile phone of one of our subscribers (for which transmissions would originate and terminate on our wireless networks), a mobile phone of a KT or LG U+ subscriber (for which transmissions would be routed to KT’s or LG U+’s wireless networks, as applicable), a fixed-line telephone number (for which calls would be routed to the public switched telephone network of a fixed-line network operator), an international number (for which calls would be routed to the network of a long distance service provider) or an Internet site; and
 
 • 
transmission lines
,
which link base stations to switching stations and switching stations with other switching stations.
As of December 31, 2021, our 5G, LTE and WCDMA networks had an aggregate of 58,385
base stations. As we continue to expand our 5G network coverage, the number of our base stations is expected to increase accordingly.
We have purchased substantially all of the equipment for our networks from Samsung Electronics, Ericsson–LG and Nokia. Most of the transmission lines we use, including virtually all of the lines linking switching stations, as well as a portion of the lines linking base stations to switching stations, comprise optical fiber lines that we own
 
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and operate directly. However, we have not undertaken to install optical fiber lines to link every base station and switching station. In places where we have not installed our own transmission lines, we have leased lines from KT and LG U+.
We intend to increase the efficiency of our network utilization and provide optimal services by internalizing transmission lines.
We use a wireless network surveillance system. This system oversees the operation of base stations and allows us to monitor our main equipment located throughout the country from one monitoring station. The automatic inspection and testing provided to the base stations lets the system immediately rebalance to the most suitable setting, and the surveillance system provides for automatic dispatch of repair teams and quick recovery in emergency situations.
Marketing, Distribution and Customer Service
Marketing.    
Our marketing strategy is focused on offering solutions tailored to the needs of our various customer segments, promoting our brand and leveraging our extensive distribution network. Our marketing plan includes a coordinated program of television, print, radio, outdoor signage, Internet and
point-of-sale
media promotions designed to relay a consistent message across all of our markets. We market our wireless products and services under the “T” brand, which signifies the centrality of “Telecommunications” and “Technology” to our business and also seeks to emphasize our commitment to providing “Top” quality, “Trustworthy” products and services to our customers.
We have implemented certain information technology improvements in connection with our marketing strategy, including customer management systems, as well as more effective information security controls. We believe these upgrades have enhanced our ability to process and utilize marketing- and subscriber-related data, which, in turn, has helped us to develop more effective and targeted marketing strategies. We currently operate a customer information system designed to provide us with an extensive customer database. Our customer information system includes a billing system that provides us with comprehensive account information for internal purposes and enables us to efficiently respond to customer requests. Our customers can also change their rate plans, verify the charges accrued on their accounts, receive their bills online and send text messages to our other subscribers through our website at www.tworld.co.kr and through our “T world” mobile application.
We strive to improve subscriber retention through our T Membership program, which is a membership service available to our wireless subscribers. Our T Membership program provides various membership benefits to its members such as discounts with our membership partners for dining, shopping, entertainment and travel, membership points accumulation, access to our online membership shopping mall and invitations to various promotional events. Although our competitors also have similar membership programs, we believe that our T Membership program has a competitive advantage over our competitors’ membership programs due to our large subscriber base and breadth of membership benefits.
Distribution.    
We use a combination of an extensive network, including branch offices and stores, directly operated by us through our subsidiary, PS&Marketing, more than 3,140 authorized exclusive dealers and an extensive network of independent retailers in order to increase subscriber growth while reducing subscriber acquisition costs.
As part of our initiative to provide a differentiated customer service experience, we operate T Premium Stores that allow our potential and existing subscribers to receive detailed information on our subscription services and “T Factory” stores to further experience certain of our services such as our services that are available through our IoT solutions and platform services. In October 2020, we opened the first T Factory, a facility that offers a wide range of experiences with wireless devices as well as our subscription services and also includes an unmanned store that is open seven days a week and 24 hours a day.
As of December 31, 2021, we operated 790 T Premium Stores and 50 T Factory stores.
In addition, we operate an online distribution channel, “T Direct Shop,” through which subscribers can conveniently purchase wireless devices and subscribe to our services online. We also operate a dedicated online shop on 11st, our former subsidiary Eleven Street’s
e-commerce
marketplace. In light of increasing customer preference for online service amid the ongoing
COVID-19
pandemic, the level of distribution of our wireless
 
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devices and our services through online channels has significantly increased in recent years. We intend to continue to develop our online distribution channel to leverage our offline distribution capabilities to provide convenience and additional value to our subscribers. For example, subscribers purchasing wireless devices through T Direct Shop can opt to pick up their devices at one of our offline stores.
Currently, authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer, as well as an average ongoing commission calculated as a percentage of that subscriber’s monthly plan-based rate for the first five years. In order to strengthen our relationships with our exclusive dealers, we offer a dealer financing plan, pursuant to which we provide to each authorized dealer a loan of up to Won 4.0 billion with a repayment period of up to three years. As of December 31, 2021, we had an aggregate of Won 63.6 billion outstanding in loans to authorized dealers.
Customer Service.    
We provide high-quality customer service directly through our two subsidiaries, Service Ace Co., Ltd. and Service Top Co., Ltd., rather than rely on outsourcing. SK O&S Co., Ltd. operates our switching stations and related transmission and power facilities and offers quality customer service primarily to our business customers. We have held the top position with respect to our telecommunications service in Korea’s leading three customer satisfaction indices, the National Customer Satisfaction Index, the Korean Customer Satisfaction Index and the Korean Standard-Service Quality Index, for 24 years, 24 years and 22 years, respectively.
Fixed-line Telecommunications Services
We offer fixed-line telephone, broadband Internet and advanced media platform services (including IPTV and cable TV services) and business communications services through our fixed-line telecommunications services segment. Our fixed-line telecommunications services are provided by our subsidiary, SK Broadband. The following table sets forth historical information about our subscriber base for our fixed-line telecommunications services for the periods indicated:
 
   
As of December 31,
 
   
2021
   
2020
   
2019
 
   
(in thousands)
 
Fixed-Line Telephone (including VoIP)
(1)
   3,634    3,753    3,913 
Broadband Internet
(2)
   6,581    6,476    5,469 
IPTV
(3)
   6,137    5,657    5,193 
Cable TV
   2,863    2,929    — 
 
 
(1)
Includes subscribers to VoIP services of SK Broadband and, in the cases of as of December 31, 2019 and 2020, SK Telink Co., Ltd. (“SK Telink”). SK Broadband acquired SK Telink’s VoIP and ancillary service business in April 2021.
 
(2)
Excludes dedicated broadband Internet lines for Internet cafes.
 
(3)
Includes subscribers to SK Broadband’s B tv service and
video-on-demand
only service subscribers.
In 2021, 2020 and 2019, our fixed-line telecommunications services segment revenue was Won 3,677.7 billion, Won 3,432.2 billion and Won 2,959.3 billion, respectively, representing 22.0%, 21.3% and 19.2%, respectively, of our consolidated revenue from continuing operations.
As part of our efforts to enhance our capabilities and increase our market share in the fixed-line business, we completed the Tbroad Merger in April 2020. We currently own approximately 74.3% of SK Broadband’s total outstanding shares. See “Item 3.D. Risk Factors — Risks Relating to Our Business — We may fail to successfully complete, integrate or realize the anticipated benefits of our new acquisitions, joint ventures or other strategic alternatives or corporate reorganizations, including the
Spin-off,
and such transactions may negatively impact our business.”
Fixed-line Telephone Services
Our fixed-line telephone services comprise local, domestic long distance, international long distance and VoIP services. VoIP is a technology that transmits voice data through an Internet Protocol network. As of December 31,
 
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2021, we had approximately 3.6 million fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband). Our fixed-line telephone services are primarily offered under the “B phone” brand name. A portion of our fixed-line telephone services were previously provided through the VoIP services of our subsidiary SK Telink that targeted corporate customers, which business was acquired by SK Broadband in April 2021.
Broadband Internet Access Services
Our broadband Internet access network covered more than 86% of households in Korea as of December 31, 2021. As of December 31, 2021, we had approximately 6.5 million broadband Internet access subscribers. We offer broadband Internet access products with various throughput speeds, ranging from “Giga Premium,” which is up to 10 times faster than data transmission speeds on networks utilizing FTTH technology and allows for data transmission at a maximum speed of 1 Gbps, to “Giga Premium×10,” which provides data transmission speeds of up to 10 Gbps.
Advanced Media Platform (including IPTV and Cable TV Services)
As part of our initiative to be the leading next-generation platform provider, we provide an advanced media platform with various media content and service offerings.
We have offered
video-on-demand
services since 2006 and launched real-time IPTV services in 2009. We currently offer IPTV services under the brand name “B tv” with access to as many as 267 high definition channels depending on the subscription service as of December 31, 2021, as well as
pay-per-view
and subscription-based
video-on-demand
services providing a wide range of media content, including recent box office movie releases, popular U.S. and other foreign TV shows and various children’s TV programs. We also offer “B tv UHD,” which is an ultra-high definition IPTV service and has a resolution that is four times as high as the standard high definition broadcasting service in the IPTV industry. As of December 31, 2021, we had approximately 6.1 million IPTV subscribers. In January 2018, we launched B tv × NUGU, which is an
all-in-one
set top box that incorporates NUGU voice recognition technology and can search for and play media content as well as connect to our Smart Home service through voice commands. In July 2019 and August 2019, respectively, we launched an updated set top box called “Smart 3” set top box, which provides Google Assistant capabilities in addition to our NUGU technology, and “AI 2,” which integrates a stereo system with enhanced audio quality and improved NUGU voice recognition capabilities using beam forming technology.
In November 2021, we launched our “Apple TV 4K” set top box in collaboration with Apple, which offers a convenient solution for customers to experience our high definition IPTV services as well as other types of Apple
iOS-based
entertainment services (such as the Apple TV+ video streaming service) while providing seamless integration with other Apple
iOS-based
hardware. The Apple TV+ video streaming service is also available on other types of our latest set top boxes. In January 2022, we introduced “Play Z,” an innovative home entertainment platform supported by a portable set top box that can be connected to television sets and personal computers. Play Z allows customers to search for and purchase content offerings from a variety of popular online video streaming services, and also offers free advertising-supported television streaming contents and other
video-on-demand
offerings as well as other forms of home entertainment including video games and karaoke.
Following the Tbroad Merger, we also offer cable TV services under the “B tv Cable” brand with access to as many as 220 channels. As of December 31, 2021, we had approximately 2.9 million cable TV subscribers.
In order to strengthen our content generation capabilities, we established a new subsidiary, Media S Co., Ltd. (“Media S”), which currently operates two TV channels, “Channel S,” which primarily broadcasts entertainment contents, and “Channel S
Dong-neh-bang-neh
,” which specializes in regional contents. Some of the contents broadcasted on these two channels are original contents
co-produced
by Media S and leading entertainment production companies. We plan to further invest in developing additional original video contents to increase the attractiveness of the channels operated by Media S.
We continue to expand the scope of our media services and content offerings to provide our subscribers with a vast library of high-quality content that can be accessed through our wireless networks and our fixed-line network.
 
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Business Communications Services
We offer other business communications services to our business customers, including corporations and government entities. Our business communications services include leased line solutions, Internet data center solutions and network solution services.
Our leased line solutions are exclusive lines that allow
point-to-point
connection for voice and data traffic between two or more geographically separate points. We hold a license to operate leased line services on a nationwide basis in Korea and also use international transmission lines to provide leased line services to other countries. Our leased line services enable high volumes of data to be transmitted swiftly and reliably. We also provide
back-up
storage for transmitted data. Through our Internet data centers, we provide our business subscribers with server-based support including
co-location,
dedicated server hosting and cloud computing services. Our network solution service utilizes our network infrastructure and voice platform to provide
24-hour
monitoring and control of our customers’ networks. Through this service, we conduct remote monitoring of our customers’ data and voice communications infrastructure and network and traffic conditions, and carry out preventive examinations and
on-site
visits.
Rate Plans
For our residential customers, we offer both bundled rate plans for a combination of our fixed-line service offerings as well as individual rate plans for each separate service offering. Bundled rate plans are offered at a discount compared to subscribing to the same services through individual rate plans. Approximately 86% of subscribers to our broadband Internet services subscribe to two or more of our services through our bundled rate plans. Bundled rate plans for a combination of fixed-line telephone, broadband Internet access and IPTV or cable TV services, which are subject to a contract of one to three years, range from Won 30,800 to Won 67,650 per month, depending on the services included and the length of the contract. We also offer bundled rate plans combining our fixed-line communication services with our wireless services and physical security services, respectively.
Our “5,000 minute” plan for subscribers to our fixed-line telephone service features 5,000 voice minutes for domestic
land-to-land
calls for a fixed rate and range from Won 7,700 to Won 11,550 per month depending on whether or not the subscriber opts for a contract and if so, the length of the contract period. We offer individual fixed-rate plans for our broadband Internet access service that range from Won 25,410 to Won 104,500 per month depending on the data throughput speed and existence and length of a contract. We offer individual fixed-rate plans for our IPTV and cable TV services that range from Won 4,400 to Won 25,300 per month depending on the number of channels provided and existence and length of a contract. In addition, subscribers can purchase individual videos on demand or subscribe to certain paid content on a periodic basis.
With respect to our business communications services, we offer rates that are tailored to the specific needs of our business customers. We also charge certain installation fees and equipment rental fees as well as other ancillary fees with respect to certain of our fixed-line telecommunications services.
Marketing, Distribution and Customer Service
We focus on bringing our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV and cable TV services) to residential users, and various business communications services to corporate users. We market our fixed-line telecommunications products and services under the “B” brand. Our “B” brand signifies the centrality of “Broadband” to our business and also seeks to emphasize our commitment to providing the “Best” quality products and services to our customers that go “Beyond” expectations, leading to a “Bravo” response. Our “B” brand also strengthens our shared identity with our wireless service’s “T” brand.
We currently outsource a significant portion of our retail sales force needs. We market our services and provide after-sales service support to customers through more than 60 customer centers and a network of more than 310 authorized exclusive dealers located throughout Korea. In addition, SK Telecom’s direct retail stores and authorized dealers for wireless telecommunications services also market our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV and cable TV services), which we believe has
 
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contributed to the increase in the number of subscribers to such services.
We have contracts with our customer centers to sell our services exclusively. These centers receive a commission for each service contract and installation contract secured. In addition, we pay these centers for the maintenance and repair work that they perform for our subscribers. Customer and service centers often enter into
sub-contracts
with smaller distribution outlets within their area to increase their sales coverage and engage in telemarketing efforts. Authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer.
Sales to business subscribers are handled through our
in-house
sales group. Our sales teams focus on securing contracts with large commercial complexes, allowing us to install our remote terminals at their premises. After installation, sales teams direct their attention to individual business clients within these premises. Sales teams that have secured contracts with business clients remain the primary contacts for all aspects of the client’s needs, including further installation and customer and
follow-up
service.
Other Businesses
We strive to continually diversify our products and services and develop new businesses that we believe are complementary to our existing products and services, which we include in our other businesses segment. In 2021, 2020 and 2019, the revenue of our other businesses segment, which primarily consisted of our
T-commerce
and portal service businesses following the elimination of our discontinued operations and
re-segmentation
of certain of our businesses reflecting the effect of the
Spin-off
(see “Item 4.A. History and Development of the Company” and “Item 5.A. Operating Results—Overview”), was Won 352.4 billion, Won 307.6 billion and Won 233.3 billion, respectively, representing 2.1%, 1.9% and 1.5%, respectively, of our consolidated revenue from continuing operations.
T Commerce
We operate a
T-commerce
network, “SK stoa,” through our consolidated subsidiary SK Stoa, which offers a broad assortment of goods and services through
pre-recorded
television programming. The goods and services promoted on SK stoa’s
T-commerce
programming can be purchased through telephone orders, SK stoa’s mobile application or online open marketplace, or a virtual application appearing on the television screen using the viewer’s remote controller. In March 2019, SK Stoa launched “SK stoa ON,” which offers searchable shopping programming that is available to viewers at their convenience by utilizing
video-on-demand
capabilities. SK Stoa launched its own fashion brands, “Hellen Karen” and “indicode,” in September 2019 and February 2021, respectively. SK stoa also acts as the exclusive
T-commerce
distributor for certain products and services of SK Group companies, such as food, electronics, home appliances and car rentals.
Portal Service
We offer a portal service under our “Nate” brand name through SK Communications. Nate can be accessed through its website, www.nate.com, or through its mobile application. Nate offers a wide variety of content and services, including Nate Search, an Internet search engine, Nate News, which provides a library of articles about current events, sports, entertainment and culture, and Nate Pann, a user-generated content service as well as access to free
e-mail
accounts through Nate Mail.
Interconnection
Our wireless and fixed-line networks interconnect with the public switched telephone networks operated by KT and SK Broadband and, through their networks, with the international gateways of KT and LG U+, as well as the networks of the other wireless telecommunications service providers in Korea. These connections enable our subscribers to make and receive calls from telephones outside our networks. Under Korean law, certain service providers, including us, are required to permit other service providers to interconnect to their networks. If a new service provider desires interconnection with the networks of an existing service provider but the parties are unable to reach an agreement within 90 days, the new service provider can appeal to the KCC.
Domestic Calls
Guidelines issued by the MSIT require that all interconnection charges levied by a regulated carrier take into account (i) the actual costs to that carrier of carrying a call or (ii) imputed costs. The MSIT determines
 
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interconnection rates applicable to each carrier based on changes in traffic volume, taking into account other factors such as research results, competition and trends in technology development.
Wireless-to-Fixed-line.
    According to our interconnection arrangement with KT, for a call from our wireless network to KT’s fixed-line network, we collect the usage rate from our wireless subscriber and in turn pay KT the interconnection charges. Similarly, KT pays interconnection charges to SK Broadband for a call from KT’s wireless network to SK Broadband’s fixed-line network. The interconnection rate applicable to both KT and SK Broadband was Won 7.96 per minute, Won 8.56 per minute and Won 9.15 per minute for 2021, 2020 and 2019, respectively.
Fixed-line-to-Wireless.
    The MSIT determines interconnection arrangements for calls from a fixed-line network to a wireless network. For a call initiated by a fixed-line user to one of our wireless subscribers, the fixed-line network operator collects our usage fee from the fixed-line user and remits to us an interconnection charge. Interconnection with KT accounts for substantially all of our
fixed-line-to-wireless
interconnection revenue and expenses. The interconnection rate paid by fixed-line network service providers to each wireless network service provider was Won 10.33 per minute, Won 10.61 per minute and Won 11.64 per minute for 2021, 2020 and 2019, respectively.
Wireless-to-Wireless.
    Interconnection charges also apply to calls between wireless telephone networks in Korea. Under these arrangements, the operator originating the call pays an interconnection charge to the operator terminating the call. The applicable interconnection rate is the same as the
fixed-line-to-wireless
interconnection rate set out in the table above.
Our revenues from the
wireless-to-wireless
interconnection charges were Won 458.6 billion in 2021, Won 449.1 billion in 2020 and Won 463.8 billion in 2019. Our expenses from these charges were Won 459.6 billion in 2021, Won 451.6 billion in 2020 and Won 464.1 billion in 2019.
International Calls and International Roaming Arrangements
With respect to international calls, if a call is initiated by our wireless subscribers, we bill the wireless subscriber for the international charges of KT, LG U+ or SK Broadband, and we receive interconnection charges from such operators. If an international call is received by our subscriber, KT, LG U+ or SK Broadband pays interconnection charges to us based on our imputed costs.
To complement the services we provide to our subscribers in Korea, we offer international voice and data roaming services. We charge our subscribers usage fees for global roaming service and, in turn, pay foreign wireless network operators fees for the corresponding usage of their network. For a more detailed discussion of our global roaming services, see “— Wireless Services” above.
Competition
We operate in highly saturated and competitive markets, and we believe that our subscriber growth is affected by many factors, including the expansion and technical enhancement of our networks, the development and deployment of new technologies, the effectiveness of our marketing and distribution strategy, the quality of our customer service, the introduction of new products and services, competitive pricing of our rate plans, new market entrants and regulatory changes.
Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, KT, LG U+ and us. Each of our competitors has substantial financial, technical, marketing and other resources to respond to our business offerings.
 
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The following table shows the market share information, based on number of subscribers, as of December 31, 2021, for the following markets.
 
   
Market Share (%)
 
   
SK Telecom
  
KT
  
LG U+
  
Others
 
Wireless Service
(1)
   44.3%   31.0%   24.7%   —% 
LTE Service
(1)
   42.1   30.4   27.6   — 
5G Service
(1)
   50.7   25.6   23.7   — 
Fixed-Line Telephone (including VoIP)
   15.7   56.3   19.0   9.1 
Broadband Internet
   28.7   41.2   20.7   9.4 
Pay TV
(2)
   25.0
(3)
 		  36.2
(4)
 		  25.3
(5)
 		  13.4 
 
 
(1)
Includes MVNO subscribers that lease the wireless networks of the respective mobile network operator.
 
(2)
Includes
video-on-demand
only service subscribers. Market share is expressed as a percentage of the pay TV market (which includes IPTV, cable TV and satellite TV).
 
(3)
Consists of 17.1% from our IPTV service and 8.0% from our cable TV service.
 
(4)
Consists of 25.4% from KT’s IPTV service, 7.2% from its satellite TV service provided through KT Skylife and 3.5% from KT’s cable TV service provided through HCN, which was acquired by KT in August 2021.
 
(5)
Consists of 14.9% from LG U+’s IPTV service and 10.5% from its cable TV service provided through LG HelloVision, a subsidiary of LG U+.
Cellular Services
As of December 31, 2021, we had 31.9 million subscribers, representing a market share of approximately 44.3%, including MVNO subscribers leasing our networks. As of December 31, 2021, KT and LG U+ had 22.3 million and 17.7 million subscribers, respectively, representing approximately 31.0% and 24.7%, respectively, of the total number of wireless subscribers in Korea on such date, each including MVNO subscribers leasing its networks. As of December 31, 2021, we had 9.9 million 5G subscribers and KT and LG U+ had 5.0 million and 4.6 million 5G subscribers, respectively, each including MVNO subscribers leasing its networks. As of December 31, 2021, we had 20.2 million LTE subscribers and KT and LG U+ had 14.7 million and 13.3 million LTE subscribers, respectively, each including MVNO subscribers leasing its networks.
In 2021, we had 4.9 million activations and 4.4 million deactivations. For 2021, our monthly churn rate ranged from 0.7% to 0.9%, with an average monthly churn rate of 0.8%, which decreased from 1.2% in 2020. In 2020, we gained 40.5% of the total number of new wireless subscribers and subscribers that migrated to a different wireless telecommunications service provider, compared to KT with 27.1% and LG U+ with 32.4%.
Our competitors for subscriber activations include MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. Currently, 13 MVNOs provide wireless telecommunications services using the networks leased from us. As of December 31, 2021, MVNOs had a combined market share of 14.4%, of which MVNOs leasing our networks represented 3.0%, MVNOs leasing KT’s networks represented 7.4% and MVNOs leasing LG U+’s networks represented 3.9%.
In addition, other companies may enter the wireless network services market. New entries in such market have historically required obtaining requisite licenses from the MSIT. However, pursuant to an amendment to the Telecommunications Business Act that went into effect in June 2019, companies meeting certain regulatory criteria may become a network service provider by registering with the MSIT without a separate license requirement, which may have the effect of encouraging new entries into the Korean wireless network services market in the future. For a description of the risks associated with the competitive environment in which we operate, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Competition may reduce our market share and harm our business, financial condition and results of operations.”
Historically, competition in the wireless telecommunications business had caused us to significantly increase our marketing and advertising expenses from time to time depending on the prevailing competitive landscape, with
 
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our marketing expenses as a percentage of SK Telecom’s revenue, on a separate basis, reaching a peak of 28.2% in 2012. Such percentage was 25.6% in 2019, 26.1% in 2020 and 26.6% in 2021. While our marketing expenses as a percentage of SK Telecom’s revenue, on a separate basis, have slightly increased in each of the last two years primarily due to increased marketing activities following the introduction of our 5G wireless services, we believe that the maturity of the overall wireless telecommunication market and the implementation of the MDDIA, which prohibits wireless telecommunications service providers from unfairly providing discriminatory subsidies based on certain criteria, have contributed to the general stabilization of our marketing expenses in recent years. For a more detailed discussion of the MDDIA, see “— Law and Regulation — Rate Regulation” below.
We face competition from KT and LG U+ as well as other platform service providers in our other cellular service businesses. For example, our Smart Home service competes with KT’s Giga IoT Home service and LG U+’s IoT@Home service.
Fixed-Line Telecommunications Services
Our fixed-line telephone service competes with KT and LG U+ as well as providers of other VoIP services. As of December 31, 2021, our market share of the fixed-line telephone and VoIP service market was 15.7% (including the services provided by SK Broadband) in terms of number of subscribers compared to KT with 56.3% and LG U+ with 19.0%.
We are the second largest provider of broadband Internet access services in Korea in terms of both revenue and subscribers, and our network covered more than 86% of households in Korea as of December 31, 2020. As of December 31, 2021, our market share of the broadband Internet market was 28.7% in terms of number of subscribers compared to KT with 41.2% and LG U+ with 20.7%.
Our IPTV and cable TV services compete with other providers of pay TV services, including KT, LG U+ and cable companies. As of December 31, 2021, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) in terms of number of subscribers was 25.0% compared to KT with 36.2% (including its IPTV, cable TV and satellite TV services) and LG U+ with 25.3% (including its IPTV and cable TV services), and the collective market share of other pay TV providers was 13.4%. Furthermore, our IPTV and cable TV services are facing an increasing level of competition from global operators of online video streaming platforms, such as YouTube, Netflix, Disney Plus and Amazon Video, leading domestic video streaming platforms such as TVING, Watchaa and Wavve, and the video services offered by leading domestic online and mobile search and communications platforms including NAVER and Kakao, as such services continue to become increasingly popular to serve as a substitute to traditional television programming.
Recently, the Korean fixed-line telecommunications industry has been going through significant consolidation involving major pay television service providers. We completed the Tbroad Merger in April 2020, as a result of which we have become the third-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2020. In December 2019, LG U+ acquired a majority equity stake in LG HelloVision to become the second-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2021. In August 2021, KT acquired HCN, a major Korean cable TV service provider, through its subsidiary KT Skylife. Such transactions, as well as further consolidation in the fixed-line telecommunications industry, may result in increased competition, as the entities emerging from such consolidation and other remaining players in the industry may actively pursue expanding or protecting their respective market shares.
Furthermore, the Government has historically enforced regulations on cable TV and IPTV service providers that prohibited them from having a market share of more than
one-third
of the total number of subscribers in the relevant pay TV market on each of their respective platforms. In June 2015, the Government amended the regulation to impose the same limit on the market share of the entire pay TV market, including satellite TV service providers as well. Such amended regulation, however, expired in June 2018. There are bills currently pending in the National Assembly to abolish the previous market share regulations on cable TV and IPTV service providers. It is uncertain whether such bills will be passed.
 
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Other Investments and Relationships
We have investments in several other businesses and companies and have entered into various business arrangements with other companies. As of December 31, 2021, our principal investments included our 15.0% equity interest in KEB HanaCard Co., Ltd. (“KEB HanaCard”), a leading credit card company in Korea. KEB HanaCard offers certain credit card products that provide for discounts on some of our wireless network services and integrate T Membership benefits, among other features.
Law and Regulation
Overview
Korea’s telecommunications industry is subject to comprehensive regulation by the MSIT, which is responsible for information and telecommunications policies. The MSIT regulates and supervises a broad range of communications issues, including:
 
 • 
entry into the telecommunications industry;
 
 • 
scope of services provided by telecommunications service providers;
 
 • 
allocation of radio spectrum;
 
 • 
setting of technical standards and promotion of technical standardization;
 
 • 
rates, terms and practices of telecommunications service providers;
 
 • 
interconnection and revenue-sharing between telecommunications service providers;
 
 • 
research and development of policy formulation for information and telecommunications; and
 
 • 
competition among telecommunications service providers.
The MSIT is charged with regulating information and telecommunications and the KCC is charged with regulating the public interest aspects of and fairness in broadcasting.
Telecommunications service providers are currently classified into two categories: network service providers and value-added service providers. We are classified as a network service provider because we provide telecommunications services with our own telecommunications networks and related facilities. As a network service provider, we were previously required to obtain a license from the MSIT for the services we provide. However, an amendment to the Telecommunications Business Act, pursuant to which companies meeting certain regulatory criteria may become a network service provider without a separate license requirement, went into effect in June 2019. Our licenses permit us to provide cellular services, third generation wireless telecommunications services using WCDMA and WiBro technologies, fourth generation wireless telecommunications services using LTE technology and fifth generation wireless telecommunications services using 5G technology.
The MSIT may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control and corrective orders issued in connection with any violation of rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIT or, depending on the subject matter of the violation, the KCC may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. A network service provider that wants to cease its business or dissolve must notify its users 60 days prior to the scheduled date of cessation or dissolution and obtain MSIT approval.
In the past, the Government has stated that its policy was to promote competition in the Korean telecommunications market through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. While all network service providers are subject to MSIT regulation, we are subject to increased regulation because of our position as the dominant wireless telecommunications services provider in Korea.
 
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Competition Regulation
The KCC is charged with ensuring that network service providers engage in fair competition and has broad powers to carry out this goal. If a network service provider is found to be in violation of the fair competition requirement, the KCC may take corrective measures it deems necessary, including, but not limited to, prohibiting further violations, requiring amendments to the articles of incorporation or to service contracts with customers, requiring the execution or performance of, or amendments to, interconnection agreements with other network service providers and prohibiting advertisements to solicit new subscribers. The KCC is required to notify the Minister of the MSIT upon ordering certain corrective measures.
In addition, we qualify as a “market-dominating business entity” under the Fair Trade Act. Accordingly, we are prohibited from engaging in any act of abusing our position as a market-dominating entity, such as unreasonably determining, maintaining or altering service rates, unreasonably controlling the rendering of services, unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers.
Because we are a member company of the SK Group, which is a large business group as designated by the FTC, we are subject to the following restrictions under the Fair Trade Act:
 
 • 
Restriction on debt guarantee among affiliates.
    Any affiliate within the SK Group may not guarantee the debts of another domestic affiliate, except for certain guarantees prescribed in the Fair Trade Act, such as those relating to the debts of a company acquired for purposes of industrial rationalization, bid deposits for overseas construction work or technology development funds.
 
 • 
Restriction on cross-investment.
    A member company of the SK Group may not acquire or hold shares in an affiliate belonging to the SK Group that owns shares in the member company.
 
 • 
Restrictions on circular investments.    
A member company of the SK Group may not acquire or hold shares which would constitute “circular investments” in an affiliate company which also forms part of the SK Group where “circular investments” refer to a cross-affiliate shareholding relationship under which three or more affiliate companies become connected through cross affiliate shareholdings by owning shares in other affiliates or by becoming an entity whose shares are owned by other affiliates.
 
 • 
Public notice of board resolution on large-scale transactions with specially related persons.
    If a member company of the SK Group engages in a transaction with a specially related person in the amount of 5.0% or more of the member company’s capital or
paid-in
capital or for Won 5.0 billion or more, the transaction must be approved by a resolution of the member company’s board of directors and the member company must publicly disclose the transaction.
 
 • 
Restrictions on investments by subsidiaries and
sub-subsidiaries
of holding companies.
    The Fair Trade Act prohibits subsidiaries of holding companies from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless such domestic affiliates are their own subsidiaries. Furthermore, any subsidiaries of a holding company’s subsidiaries
(“sub-subsidiaries”)
are prohibited from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless all shares issued by the affiliates are held by the
sub-subsidiary.
Therefore, we and other subsidiaries of SK Inc. may not invest in any domestic affiliate that is also a member company of the SK Group, except in the case where we invest in our own subsidiary or where another subsidiary of SK Inc. invests in its own subsidiary.
 
 • 
Public notice of the current status of a business group.
    Under the Fair Trade Act and the Enforcement Decree thereof, a member company of the SK Group must publicly disclose the general status of the SK Group, including the name, business scope and financial status of affiliates, information on the officers of affiliates, information on shareholding and cross-investments between member companies of the SK Group, information on transactions with certain related persons and, if a member company engages in a transaction with an affiliated company in the amount of 5.0% or more of the member company’s quarterly sales or Won 5.0 billion or more, information on transactions with such affiliated company on a quarterly basis.
 
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Rate Regulation
Network service providers whose sales proceeds exceed the amount prescribed by law must report to the MSIT the rates and contractual terms for each type of service they provide. Prior to December 2020, as the dominant network service provider for specific services (based on having the largest market share in terms of number of subscribers and meeting certain revenue thresholds), we had to obtain prior approval of the MSIT on our rates and terms of service; provided, however, that such
pre-approval
of the MSIT was not required to reduce the rates for any type of services provided under the MSIT-approved contractual terms. The MSIT’s policy was to approve rates if they were appropriate, fair and reasonable (that is, if the rates had been reasonably calculated, considering supply costs, profits, classification of costs and profits for each service, cost savings through changes in the way services were provided and the influence on fair competition, among others). The MSIT could order changes in the submitted rates if it deemed the rates to be significantly unreasonable or against public policy. In December 2020, however, the Telecommunications Business Act was amended to change such approval requirement to a reporting requirement. Under the new reporting requirement, which does not apply to other network service providers, the MSIT has fifteen days to object to any new rates and terms of service reported by us, and we may implement such new rates and terms of service after the
fifteen-day
period expires in the absence of the MSIT’s objection.
Furthermore, in 2007, the Government announced a “road map” highlighting revisions in regulations to promote deregulation of the telecommunications industry. In accordance with the road map and pursuant to the Combined Sales Regulation, promulgated in May 2007, telecommunications service providers are now permitted to bundle their services, such as wireless data transmission service, wireless voice transmission service, broadband Internet access service, fixed-line telephone service and IPTV service, at a discounted rate; provided, however, that we and KT, as market-dominating business entities under the Telecommunications Business Act, allow other competitors to employ the services provided by us and KT, respectively, so that such competitors can provide similar discounted package services. In September 2007, the regulations and provisions under the Telecommunications Business Act were amended to permit licensed transmission service providers to offer local, domestic long-distance and international telephone services, as well as broadband Internet access and Internet phone services, without additional business licenses.
Moreover, an MVNO system under which the MSIT may designate and obligate certain wireless telecommunications services providers to allow an MVNO, at such MVNO’s request, to use their telecommunications network facilities at a rate mutually agreed upon that complies with the standards set by the MSIT became effective on March 14, 2017 under the amended Telecommunications Business Act. We were designated as the only wireless telecommunications services provider obligated to allow the other wireless telecommunications services provider to use our telecommunications network facilities. The expiration of such system has been extended to September 22, 2022 pursuant to an amendment to the Telecommunications Business Act. Currently, 13 MVNOs provide wireless telecommunications services using the networks leased from us.
On October 1, 2014, the MDDIA, enacted for the purpose of establishing a transparent and fair mobile distribution practice, became effective. The MDDIA limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber and (ii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. See “Item 5.A. Operating Results — Overview — Rate Regulations.”
In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. In June 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the applicable discount rate offered to subscribers from 20% to 25%, which we adopted in September 2017, and to offer additional discounts to low income customers, including those on government welfare programs and senior citizen recipients of the basic pension, which we implemented in December 2017 and July 2018, respectively. We cannot provide assurance that we will not provide other rate discounts or lower-priced subscription plans in the future to comply with the Government’s public policy guidelines or suggestions.
 
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Interconnection
Dominant network service providers such as ourselves that own essential infrastructure facilities or possess a certain market share are required to provide interconnection of their telecommunications network facilities to other service providers upon request. The MSIT sets and announces the standards for determining the scope, procedures, compensation and other terms and conditions of such provision, interconnection or
co-use.
We have entered into interconnection agreements with KT, LG U+ and other network service providers permitting these entities to interconnect with our network. We expect that we will be required to enter into additional agreements with new operators as the MSIT grants permits to additional telecommunications service providers.
Frequency Allocation
The MSIT has the discretion to allocate and adjust the frequency bandwidths for each type of service and may auction off the rights to certain frequency bandwidths. Upon allocation of new frequency bandwidths or adjustment of frequency bandwidths, the MSIT is required to give a public notice. The MSIT also regulates the frequency to be used by each radio station, including the transmission frequency used by equipment in our base stations. All of our frequency allocations are for a definite term. We pay fees to the MSIT for our frequency usage that are determined based upon our number of subscribers, frequency usage by our networks and other factors. For 2021, 2020 and 2019, the fee amounted to Won 120.8 billion, Won 136.6 billion and Won 133.1 billion, respectively.
We currently use 10 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 30 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum, 35 MHz of bandwidth in the 1.8 GHz spectrum and 60 MHz of bandwidth in the 2.6 GHz spectrum for our LTE services, as well as 100 MHz of bandwidth in the 3.5 GHz spectrum and 800 MHz of bandwidth in the 28 GHz spectrum for our 5G services. In 2020, we recognized an impairment loss of Won 186.0 billion in connection with the frequency usage rights for the 800 MHz of bandwidth in the 28 GHz spectrum as the carrying amount exceeded the recoverable amount. For more information regarding the license fees for the various bandwidths that we use, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures” and note 17 of the notes to our consolidated financial statements.
In November 2020, the MSIT announced plans to reallocate a total of 310 MHz of frequency bandwidths whose usage terms were due to expire in 2021 to KT, LG U+ and us, 95 MHz of which was allocated to us in 2021. See “Item 5.B. Liquidity and Capital Resources — Capital Requirements.”
For risks relating to the maintenance of adequate bandwidth capacity, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business, financial condition and results of operations may be adversely affected if we fail to acquire adequate additional frequency usage rights or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.”
Mandatory Contributions and Obligations
All telecommunications service providers other than value-added service providers and regional paging service providers or any telecommunications service providers whose net annual revenue is less than an amount determined by the MSIT (currently set at Won 30.0 billion) are required to provide “universal” telecommunications services including local telephone services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships and telephone services for handicapped and
low-income
citizens, or contribute toward the supply of such universal services. The MSIT designates universal services and the service provider who is required to provide each service. Currently, under the MSIT guidelines, we are required to offer a discount of between 30.0% to 50.0% of our monthly fee for wireless telecommunications services to handicapped and
low-income
citizens.
In addition to such universal services for handicapped and
low-income
citizens, we are also required to make certain annual monetary contributions to compensate for other service providers’ costs for the universal services. The size of a service provider’s contribution is based on its net annual revenue for the previous year (calculated pursuant to the MSIT guidelines, which differ from our accounting practices).We paid such contributions amounting to Won 18.9 billion, Won 17.4 billion and Won 16.1 billion in 2021, 2020 and 2019, respectively. As a
 
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wireless telecommunications services provider, we are not considered a provider of universal telecommunications services and do not receive funds for providing universal service. Other network service providers that do provide universal services make all or a portion of their “contribution” in the form of expenses related to the universal services they provide.
Foreign Ownership and Investment Restrictions and Requirements
Because we are a network service provider, and the exception for the foreign shareholding limit under the amended Telecommunications Business Act, which became effective on August 13, 2013, does not apply to us, foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) are prohibited from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of the outstanding voting stock of such Korean entities are also deemed foreigners. If this 49.0% ownership limitation is violated, certain of our foreign shareholders will not be permitted to exercise voting rights in excess of the limitation, and the MSIT may require other corrective action.
Notwithstanding the above, pursuant to a recent amendment to the Telecommunications Business Act which became effective on April 20, 2022, a Korean entity, so long as (i) such entity’s largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreign entity specifically designated by the MSIT incorporated in a country that has entered into a bilateral or multilateral free trade agreement with Korea, and (ii) such shareholder (together with the shareholdings of its related parties) owns 15.0% or more of the issued voting stock of such entity, may own more than 49.0% of our issued shares but may not exercise its voting rights with respect to the shares held in excess of the 49.0% ceiling until the end of the MSIT’s Public Interest Review.
As of December 31, 2021, SK Inc. owned 65,668,397 shares of our common stock, or 30.0% of our issued shares. As of December 31, 2021, the two largest foreign shareholders of SK Inc. each held a 3.3% stake therein. If such foreign shareholders increase their shareholdings in SK Inc. to 15% or more and any such foreign shareholder constitutes the largest shareholder of SK Inc., SK Inc. will be considered a foreign shareholder, and its shareholding in us would be included in the calculation of our aggregate foreign shareholding. If SK Inc.’s shareholding in us is included in the calculation of our aggregate foreign shareholding, then our aggregate foreign shareholding, assuming the foreign ownership level as of December 31, 2021 (which we believe was 43.6%), would reach 73.6%, exceeding the 49.0% ceiling on foreign shareholding.
If our aggregate foreign shareholding limit is exceeded, the MSIT may issue a corrective order to us, the breaching shareholder (including SK Inc. if the breach is caused by an increase in foreign ownership of SK Inc.) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Inc. Furthermore, SK Inc. will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIT will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. If a corrective order is issued to us by the MSIT arising from the violation of the foregoing foreign ownership limit, and we do not comply within the prescribed period under such corrective order, the MSIT may:
 
 • 
revoke our business license;
 
 • 
suspend all or part of our business; or
 
 • 
if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose a
one-time
administrative penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years.
Additionally, the Telecommunications Business Act also authorizes the MSIT to assess monetary penalties of up to 0.3% of the purchase price of the shares for each day the corrective order is not complied with, as well as a prison term of up to three years or a penalty of Won 150 million. See “Item 3.D. Risk Factors — Risks Relating to Our Business — If SK Inc. causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.”
We are required under the Foreign Exchange Transaction Act to file a report with a designated foreign exchange bank or with the MOEF, in connection with any issue of foreign currency denominated securities by us in
 
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foreign countries. Issuances of US$30 million or less require the filing of a report with a designated foreign exchange bank, and issuances that are over US$30 million in the aggregate within one year from the filing of a report with a designated foreign exchange bank require the filing of a report with the MOEF.
The Telecommunications Business Act provides for the creation of a Public Interest Review Committee under the MSIT to review investments in or changes in the control of network service providers. The following events would be subject to review by the Public Interest Review Committee:
 
 • 
the acquisition by an entity (and its related parties) of 15.0% or more of the equity of a network service provider;
 
 • 
a change in the largest shareholder of a network service provider;
 
 • 
agreements by a network service provider or its shareholders with foreign governments or parties regarding important business matters of such network service provider, such as the appointment of officers and directors and transfer of businesses;
 
 • 
a deemed foreigner (as discussed above) from a country whose government has entered into a bilateral or multilateral free trade agreement designated by the MSIT with the Government owning in excess of 49.0% of the outstanding voting stock of a network service provider (which became effective on April 20, 2022); and
 
 • 
a change in the shareholder that actually controls a network service provider.
If the Public Interest Review Committee determines that any of the foregoing transactions or events would be detrimental to the public interest, then the MSIT may issue orders to stop the transaction, amend any agreements, suspend voting rights, or divest the shares of the relevant network service provider. Additionally, if a dominant network service provider (which would currently include us and KT), together with its specially related persons (as defined under the FSCMA), holds more than 5.0% of the equity of another dominant network service provider, the voting rights on the shares held in excess of the 5.0% limit may not be exercised.
Patents and Licensed Technology
Access to the latest relevant technology is critical to our ability to offer the most advanced wireless telecommunications services and to design and manufacture competitive products. In addition to active internal and external research and development efforts as described in “Item 5.C. Research and Development, Patents and Licenses, etc.,” our success depends in part on our ability to obtain patents, licenses and other intellectual property rights covering our products. We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries. Our patents are mainly related to LTE, 5G and
Wi-Fi
technology, video codec and wireless Internet applications. There are no licensed patents that are material to our business.
We are not currently involved in any material litigation regarding patent infringement. For a description of the risks associated with our reliance on intellectual property, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.”
Seasonality of the Business
Our business is not affected by seasonality.
 
Item 4.C.
Organizational Structure
Organizational Structure
We are a member of the SK Group, based on the definition of “group” under the Fair Trade Act. As of December 31, 2021, SK Group members owned in aggregate 30.0% of the shares of our issued common stock.
The SK Group is a diversified group of companies incorporated in Korea with interests in, among other things, telecommunications, trading, energy, chemicals, engineering and leisure industries.
 
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Significant Subsidiaries
For information regarding our subsidiaries, see note 1(2) of the notes to our consolidated financial statements.
 
Item 4.D.
Property, Plants and Equipment
The following table sets forth certain information concerning our principal properties as of December 31, 2021:
 
Location
  
Primary Use
  
Approximate Area
in Square Feet
 
Seoul Metropolitan Area
  
Corporate Headquarters
   921,727 
  
Regional Headquarters
   608,670 
  
Customer Service Centers
   107,277 
  
Training Centers
   279,372 
  
Central Research and Development Center
   319,789 
  
Others
(1)
   2,156,633 
Gyeongsang Provinces
  
Regional Headquarters
   384,399 
  
Others
(1)
   1,133,791 
Jeolla and Jeju Provinces
  
Regional Headquarters
   265,614 
  
Others
(1)
   768,884 
Chungcheong Province
  
Regional Headquarters
   566,386 
  
Others
(1)
   674,387 
 
 
(1)
Includes base stations.
Our registered office and corporate headquarters are located at SK
T-Tower,
65, Eulji-ro,
Jung-gu,
Seoul 04539, Korea, which occupy a total land area of approximately 64,515 square feet. We own 93.25% of SK
T-Tower,
while the remaining 6.75% is owned by SK Square following the transfer of such interest to it by us pursuant to the
Spin-off.
In addition, we own or lease various locations for base stations and switching equipment. We do not anticipate that we will encounter material difficulties in meeting our future needs for any existing or prospective leased space for our base stations. See “Item 4.B. Business Overview — Cellular Services — Network Infrastructure.”
We maintain a range of insurance policies to cover our assets and employees, including our directors and officers. We are insured against business interruption, fire, lightning, flooding, theft, vandalism, public liability and certain other risks that may affect our assets and employees. We believe that the types and amounts of our insurance coverage are in accordance with general business practices in Korea.
 
Item 4A.
UNRESOLVED STAFF COMMENTS
We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Exchange Act.
 
Item 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion together with our consolidated financial statements and the related notes thereto which appear elsewhere in this annual report. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. In addition, you should read carefully notes 2(4) and 3 of the notes to our consolidated financial statements which provide summaries of certain critical accounting estimates that require our management to make difficult, complex or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our financial conditions and results of operations.
 
Item 5.A.
Operating Results
Unless otherwise indicated, the amounts set forth below in this Item 5.A. exclude the results of operations of our former businesses comprising the
Spin-off
Businesses, which are classified as discontinued operations. See “Item 4.A. History and Development of the Company” and “— Overview.”
 
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Overview
Our operations are reported in three segments: (1) cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services as well as certain other new growth businesses and other miscellaneous cellular services,
(2) fixed-line
telecommunication services, which include
fixed-line
telephone services, broadband Internet services, advanced media platform services (including IPTV and cable TV services) and business communications services, and (3) other businesses, which include our
T-commerce,
portal service, and certain other miscellaneous businesses that do not meet the quantitative thresholds to be separately considered reportable segments.
In our cellular services segment, we earn revenue principally from our wireless voice and data transmission services through monthly
plan-based
fees, usage charges for outgoing voice calls, usage charges for wireless data services and
value-added
service fees paid by our wireless subscribers as well as interconnection fees paid to us by other telecommunications operators for use of our wireless network by their customers and subscribers. We also derive revenue from sales of wireless devices by PS&Marketing. Other sources of revenue include revenue from our IoT solutions and platform services, including AI solutions, as well as other miscellaneous cellular services and our new services and products utilizing our AI and digital infrastructure capabilities and our telecommunications platforms, including a broad range of IoT solutions, platform services, cloud services, smart factory solutions, subscription services and metaverse platform-based services.
In our
fixed-line
telecommunication services segment, we earn revenue principally from our
fixed-line
telephone services and broadband Internet services and advanced media platform services (including IPTV and cable TV services) through monthly
plan-based
fees and usage charges as well as interconnection fees paid to us by other telecommunications operators for use of our
fixed-line
network by their customers and subscribers. In addition, we derive revenue from international calling services and our business communications services through customized fee arrangements with our business customers. Following the Tbroad Merger in April 2020, the cable TV and broadband Internet services of the former Tbroad have become a part of our fixed-telecommunication services segment.
In our others segment, we principally earn revenue from the
T-commerce
business of SK Stoa, which derives revenue through
third-party
seller fees earned (including commissions) for transactions in which it acts as a selling agent on SK stoa, its
T-commerce
network, and our “Nate” portal service operated by SK Communications.
Pursuant to the
Spin-off,
our former businesses comprising the
Spin-off
Businesses were transferred to SK Square, including businesses that were included in our former security services segment, former commerce segment and a substantial majority of the businesses that were formerly part of our others segment for the years ended December 31, 2019 and 2020, and such businesses have been accounted for as discontinued operations in our consolidated financial statements as of and for the year ended December 31, 2021 included in this annual report. Similarly, our consolidated statements of income for the years ended December 31, 2019 and 2020 included in this annual report have been restated to present such businesses as discontinued operations. See “Certain Defined Terms and Conventions Used in this Annual Report.” As a result, our former security services segment and commerce services segment were eliminated from our operating segments, and SK Stoa’s
T-commerce
business (which was previously part of our former commerce services segment) was reclassified as part of our others segment for the year ended December 31, 2021. The breakdown of our results of operations by operating segment for the years ended December 31, 2019 and 2020 in our consolidated audited financial statements have been recast to retroactively apply such changes in segmentation.
Our cellular service revenue and
fixed-line
telecommunications service revenue depend principally upon the number of our subscribers, the rates we charge for our services, the frequency and volume of subscriber usage of our services and the terms of our interconnection with other telecommunications operators. Our others revenue depends principally upon the gross merchandise volume, which is the total monetary value of customer purchases of goods and services, net of estimated refunds, of SK stoa and the number of merchants that utilize SK stoa and the Nate Portal to advertise and promote their products and services and the extent of such advertisement and promotion.
Among other factors, management uses operating profit of each reportable segment presented in accordance with
K-IFRS
(“segment operating profit”) in its assessment of the profitability of each reportable segment. The sum
 
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of segment operating profit for all three reportable segments differs from our operating profit presented in accordance with IFRS as issued by the IASB as segment operating profit does not include certain items such as donations, gain and loss from disposal of property and equipment and intangible assets and impairment loss on property and equipment and intangible assets. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with
K-IFRS,
see “— Explanatory Note Regarding Presentation of Certain Financial Information under
K-IFRS.”
In addition to the information set forth below, see note 4 of the notes to our consolidated financial statements for more detailed information regarding each of our reportable segments.
A number of recent developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:
Rate Regulations
.    Under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving handset subsidies. Handset subsidies are provided to subscribers who agree to use our service for a predetermined service period and purchase handsets on an installment basis. In June 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the applicable discount rate offered to subscribers from 20% to 25%, which we adopted in September 2017, and to offer additional discounts to low income customers, including those on government welfare programs and senior citizen recipients of the basic pension, which we implemented in December 2017 and July 2018, respectively.
These Government measures have adversely affected our revenues and results of operations as more subscribers elected to receive the 25% rate discount in recent years. On the other hand, this has also led to a reduction of, or partially offset increases in, our marketing expenses as the number of subscribers who have elected to receive handset subsidies has generally declined in recent years, and has contributed to maintaining a stable churn rate.
Failure to comply with the MDDIA may lead to suspension of our business or imposition of monetary penalties. For more information about the MDDIA and the penalties imposed for violating Government regulations, see “Item 4.B. Business Overview — Law and Regulation — Rate Regulation” and “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC Proceedings.”
Decrease in Interconnection Fees
.    Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international
fixed-line
and other wireless networks. Charges for interconnection affect our revenues and operating results. The MSIT determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. Under our interconnection agreements, we are required to make payments in respect of calls which originate from our networks and terminate in the networks of other Korean telecommunications operators, and the other operators are required to make payments to us in respect of calls which originate in their networks and terminate in our network. The MSIT has continued to gradually decrease the interconnection rates in Korea, which has led to an overall decrease in our interconnection revenue as well as interconnection expenses from 2012 to 2021 and any further reduction in interconnection rates by the MSIT may continue to impact our results of operations. Beginning in 2017, a single interconnection rate paid by fixed-line network service providers for fixed-line to wireless calls applies to all wireless telecommunications service providers. For more information about our interconnection revenue and expenses, see “Item 4.B. Business Overview — Interconnection.”
Fluctuations in Monthly Revenue per Subscriber
.    We measure monthly average revenue per subscriber using two metrics: average monthly revenue per subscriber excluding MVNO subscribers leasing our networks (“ARPU”) and average monthly revenue per subscriber including such MVNO subscribers (“ARPU including MVNO”). ARPU is derived by dividing the sum of total SK Telecom revenues on a separate basis from voice service and data service for the period (excluding revenue derived from MVNO subscribers leasing our networks) by the monthly average number of subscribers (excluding the number of MVNO subscribers) for the period, then dividing that number by the number of months in the period. ARPU including MVNO is derived by dividing the sum of total SK Telecom revenues on a separate basis from voice service and data service for the period (including revenue derived from MVNO subscribers) by the monthly average number of subscribers (including the number of MVNO subscribers) for the period, then dividing that number by the number of months in the period.
 
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Our ARPU increased by 0.7% to Won 30,517 in 2021 from Won 30,314 in 2020, which represented a decrease of 1.0% from Won 30,630 in 2019. Our ARPU including MVNO increased by 2.1% to Won 28,485 in 2021 from Won 27,895 in 2020, which represented an increase of 1.8% from Won 27,412 in 2019. The decrease in ARPU in 2020 was primarily due to an increase in subscriptions for IoT solutions by corporate customers, from which we derive lower revenue per subscriber. Such decreases were offset in part by an increase in subscribers that subscribe to our higher-priced unlimited data usage plans and 5G plans. The increase in ARPU including MVNO in 2020 was primarily attributable to the decrease in the proportion of MVNO subscribers, from whom we derive lower revenue per subscriber. The increases in our ARPU and our ARPU including MVNO in 2021 were primarily due to an increase in the number of subscribers who subscribe to our higher-priced 5G plans.
Effects of
COVID-19
.    Demand for our products and services may fluctuate in light of the overall economic conditions in Korea. The overall prospects for the Korean economy and, in turn, the market conditions for the industries in which we operate, remain uncertain, especially in light of the ongoing global
COVID-19
pandemic, which has had, and will likely continue to have, a significant negative effect on the Korean economy. For example, the travel restrictions imposed by governments in response to the
COVID-19
pandemic have resulted in a decrease in revenue from roaming services, and the pandemic has contributed to lower customer demand for new wireless devices, resulting in a decrease in our wireless device sales revenue. In addition, an increase in unemployment among, and/or a decrease in disposable income of, our customers resulting from a deterioration of the Korean economy due to
COVID-19
may decrease demand for some of our products and services or cause an increase in delinquent subscriber accounts. While it is not possible to predict the duration or full magnitude of harm from
COVID-19,
a continued and prolonged outbreak of
COVID-19
may have a material adverse effect on our business, financial condition and results of operations. See “Item 3.D. Risk Factors — Risks Relating to Our Business — The ongoing global pandemic of
COVID-19
and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition and results of operations.”
Explanatory Note Regarding Presentation of Certain Financial Information under
K-IFRS
In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with
K-IFRS
as adopted by the KASB, which we are required to file with the FSC and the Korea Exchange under the FSCMA.
 
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K-IFRS
requires operating profit, which is calculated as operating revenue less operating expenses, to be separately presented on the consolidated statement of income. The presentation of operating profit in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating profit in the consolidated statements of income prepared in accordance with
K-IFRS
for the corresponding periods in certain respects. The table below sets forth a reconciliation of our operating profit as presented in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB for each of the three years ended December 31, 2021 to the operating profit as presented in the consolidated statements of income prepared in accordance with
K-IFRS.
 
   
For the Year Ended December 31,
 
   
2021
  
2020
  
2019
 
   
(In billions of Won)
 
Operating profit pursuant to IFRS as issued by the IASB
  ￦1,432.4  ￦1,035.0  ￦987.1 
Differences:
    
Other income pursuant to IFRS that are classified as other
non-operating
income pursuant to
K-IFRS:
    
Gain on disposal of property and equipment and intangible assets
   (39.1)   (34.6)   (7.8) 
Others
   (76.6)   (61.1)   (87.8) 
   (115.8)   (95.8)   (95.6) 
  
 
 
  
 
 
  
 
 
 
Other operating expenses pursuant to IFRS that are classified as other
non-operating
expenses pursuant to
K-IFRS:
    
Loss on impairment of property and equipment and intangible assets
   3.1   200.7   42.8 
Loss on disposal of property and equipment and intangible assets
   28.2   25.6   23.8 
Donations
   12.8   16.1   16.8 
Bad debt for accounts receivable ( other
   4.0   6.6   3.6 
Others
   22.5   60.3   60.2 
  
 
 
  
 
 
  
 
 
 
   70.6   309.3   147.2 
  
 
 
  
 
 
  
 
 
 
Operating profit pursuant to
K-IFRS
  ￦1,387.2  ￦1,248.6  ￦1,038.7 
  
 
 
  
 
 
  
 
 
 
See note 4(2) of the notes to our consolidated financial statements. However, there is no impact on profit for the year or earnings per share for each of the three years ended December 31, 2021, 2020 and 2019.
Operating Results
The following table sets forth summary consolidated income statement information, including that expressed as a percentage of operating revenue and other income, for the periods indicated:
 
   
For the year ended December 31,
 
   
2021
(1)
  
2020
(1)
  
2019
(1)
 
   
(In billions of Won, except percentages)
 
From continuing operations:
        
Operating revenue and other income
  ￦16,864.3    100.0%  ￦16,183.5   100.0%  ￦15,512.0   100.0% 
Revenue
   16,748.6    99.3   16,087.7   99.4   15,416.4   99.4 
Other income
   115.8    0.7   95.8   0.6   95.6   0.6 
Operating expenses
   15,432.0    91.5   15,148.5   93.6   14,525.0   93.6 
Operating profit
   1,432.4    8.5   1,035.0   6.4   987.1   6.4 
Profit before income tax
   1,718.2    10.2   905.2   5.6   807.0   5.2 
Income tax expense
   446.8    2.6   221.3   1.4   262.9   1.7 
Profit from continuing operations
   1,271.4    7.5   684.0   4.2   544.1   3.5 
Profit from discontinued operations
   1,147.6    6.8   816.6   5.0   316.6   2.0 
Profit for the year
   2,419.0    14.3   1,500.5   9.3   860.7   5.5 
Attributable to:
        
Owners of the Parent Company
   2,407.5    14.3   1,504.4   9.3   888.7   5.7 
Non-controlling
interests
   11.5    0.1   (3.8)   (0.0)   (28.0)   (0.2) 
 
(1)
Pursuant to the Spin-off, the Spin-off Businesses were transferred to SK Square, and such businesses have been accounted for as discontinued operations in our consolidated statement of income for the year ended December 31, 2021 included in this annual report. Similarly, our consolidated statements of income for the years ended December 31, 2019 and 2020 included in this annual report have been restated to present such businesses as discontinued operations. See “Certain Defined Terms and Conventions Used in this Annual Report.”
 
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The following table sets forth additional information about our operations with respect to our reportable segments during the periods indicated:
 
   
For the year ended December 31,
 
   
2021
  
2020
  
2019
 
   
Amount
   
Percentage of
Total Revenue
  
Amount
  
Percentage of
Total Revenue
  
Amount
  
Percentage of
Total Revenue
 
   
(In billions of Won, except percentages)
 
Cellular Services Revenue
        
Wireless Service
(1)
  ￦10,100.4    60.3%  ￦9,806.7   61.0%  ￦9,538.2   61.9% 
Cellular Interconnection
   493.8    2.9   472.2   2.9   494.3   3.2 
Wireless Device Sales
   959.9    5.7   983.4   6.1   1,151.2   7.5 
Miscellaneous
(2)
   1,164.4    7.0   1,085.7   6.7   1,040.1   6.7 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total Cellular Services Revenue
   12,718.5    75.9   12,348.0   76.8   12,223.8   79.3 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Fixed-line
Telecommunication Services Revenue
        
Fixed-line
Telephone Service
   217.0    1.3   230.4   1.4   225.6   1.5 
Fixed-line
Interconnection
   69.8    0.4   83.8   0.5   92.4   0.6 
Broadband Internet Service and Advanced Media Platform Service
(3)
   2,443.9    14.6   2,210.7   13.7   1,822.4   11.8 
International Calling Service
   162.4    1.0   160.3   1.0   137.9   0.9 
Miscellaneous
(4)
   784.6    4.7   747.0   4.6   681.0   4.4 
Total
Fixed-line
Telecommunication Services Revenue
   3,677.7    22.0   3,432.2   21.3   2,959.3   19.2 
Others Revenue
        
T-commerce
(5)
   316.2    1.9   268.5   1.7   191.5   1.2 
Portal Service
(6)
   27.0    0.2   30.7   0.2   36.1   0.2 
Miscellaneous
   9.2    0.1   8.3   0.1   5.7   0.0 
Total Other Revenue
   352.4    2.1   307.6   1.9   233.3   1.5 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total Revenue
   16,748.6    100.0   16,087.7   100.0   15,416.4   100.0 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Segment Operating Expenses
(7)
        
Cellular Services
   11,643.4    69.5   11,341.2   70.5   11,327.7   73.5 
Fixed-line
Telecommunication Services
   3,380.2    20.2   3,189.3   19.8   2,802.0   18.2 
Others
   337.8    2.0   308.6   1.9   248.0   1.6 
Total Segment Operating Expenses
   15,361.4    91.7   14,839.1   92.2   14,377.7   93.3 
Segment Operating Profit (Loss)
(8)
        
Cellular Services
   1,075.1    6.4   1,006.8   6.3   896.1   5.8 
Fixed-line
Telecommunication Services
   297.5    1.8   242.9   1.5   157.3   1.0 
Others
   14.6    0.1   (1.1)   (0.0)   (14.7)   (0.1) 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total Segment Operating Profit
  ￦1,387.2    8.3%  ￦1,248.6   7.8%  ￦1,038.7   6.7% 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
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(1)
Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly
plan-based
fees, usage charges for outgoing voice calls, usage charges for wireless data services and
value-added
service fees such as fees for our cloud services and T Universe subscription program paid by wireless subscribers.
 
(2)
Miscellaneous cellular services revenue includes revenue from our IoT and other solutions as well as other miscellaneous cellular services.
 
(3)
Broadband internet service and advanced media platform service revenue includes revenues from our broadband Internet services as well as IPTV and cable TV services.
 
(4)
Miscellaneous
fixed-line
telecommunication services revenue includes revenues from business communications services (other than
fixed-line
telephone service) provided by SK Broadband.
 
(5)
T-commerce
services revenue includes revenues from SK Stoa.
 
(6)
Portal service revenue includes revenues from Nate, our online portal service operated by SK Communications.
 
(7)
“Segment operating expenses” mean operating expenses for each reportable segment presented in accordance with
K-IFRS
and therefore does not include certain expenses that are classified as other
non-operating
expenses under
K-IFRS.
For more information on the differences between our consolidated operating expenses pursuant to
K-IFRS
and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under
K-IFRS.”
 
(8)
Segment operating profit (loss) for each of the segments above is presented net of consolidation adjustments. Accordingly, they do not reconcile with the segment operating profit (loss) for each of such segments set forth in Note 4(1) of the notes to our consolidated financial statements, which is expressed prior to making such consolidation adjustments.
2021 Compared to 2020
Operating Revenue and Other Income.
Our consolidated operating revenue and other income increased by 4.2% to Won 16,864.3 billion in 2021 from Won 16,183.5 billion in 2020 due to increases in operating revenue and other income, as discussed below.
Our consolidated operating revenue increased by 4.1% to Won 16,748.6 billion in 2021 from Won 16,087.7 billion in 2020, primarily due to increases in cellular services revenue and fixed-line telecommunications services revenue, and to a smaller extent, an increase in others revenue.
Our consolidated other income increased by 20.9% to Won 115.8 billion in 2021 from Won 95.8 billion in 2020, primarily due to the difference in the previously estimated and actual amounts of certain regulatory fines.
The following sets forth additional information about our operating revenues with respect to each of our reportable segments.
 
 • 
Cellular services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, wireless device sales and miscellaneous cellular services, increased by 3.0% to Won 12,718.5 billion in 2021 from Won 12,348.0 billion in 2020. The increase in our cellular services revenue was due to increases in wireless service revenue, miscellaneous cellular services revenue and cellular interconnection revenue, partially offset by a decrease in wireless device sales revenue.
 
 • 
Wireless service revenue increased by 3.0% to Won 10,100.4 billion in 2021 from Won 9,806.7 billion in 2020, primarily attributable to the continued increase in the number of subscribers who subscribe to our higher-priced 5G plans.
The impact of such increase was partially offset by an increase in the cumulative percentage of wireless service subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA as well as a continued decrease in the usage of our roaming services, mainly reflecting the continued negative impact of the ongoing
COVID-19
pandemic on outbound international travel from Korea.
 
 • 
Miscellaneous cellular services revenue increased by 7.2% to Won 1,164.4 billion in 2021 from Won 1,085.7 billion in 2020, primarily due to an increase in revenue from our IoT solutions,
 
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platform services and other new businesses as well as revenue from leasing our network to MVNO service providers.
 
 • 
Cellular interconnection revenue increased by 4.6% to Won 493.8 billion in 2021 from Won 472.2 billion in 2020. The increase was primarily attributable to an increase in the volume of mobile to mobile calls, partially offset by a decrease in interconnection rates.
 
 • 
Wireless device sales revenue decreased by 2.4% to Won 959.9 billion in 2021 from Won 983.4 billion in 2020, primarily due to a decrease in sales of handsets as a result of a limited supply of new flagship devices of the leading device manufacturers being available in 2021 as a whole.
 
 • 
Fixed-line
telecommunications services: The revenue of our
fixed-line
telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IPTV and cable TV services),
fixed-line
telephone service, international calling service,
fixed-line
interconnection and miscellaneous
fixed-line
telecommunication services, increased by 7.2% to Won 3,677.7 billion in 2021 from Won 3,432.2 billion in 2020, primarily due to increases in our broadband Internet service and advanced media platform service revenue and miscellaneous fixed-line telecommunication services revenue, partially offset by decreases in fixed-line interconnection revenue and fixed-line telephone service revenue.
 
 • 
Revenue from our broadband Internet service and advanced media platform service (including our IPTV and cable TV services) increased by 10.5% to Won 2,443.9 billion in 2021 from Won 2,210.7 billion in 2020, primarily due to increases in the number of IPTV subscribers to 6.1 million subscribers as of December 31, 2021 from 5.7 million subscribers as of December 31, 2020 and the number of subscribers who subscribe to our higher-priced plans.
 
 • 
Miscellaneous
fixed-line
telecommunication services revenue increased by 5.0% to Won 784.6 billion in 2021 from Won 747.0 billion in 2020, primarily due to an increase in revenue from our business communications services.
 
 • 
Fixed-line
interconnection revenue decreased by 16.7% to Won 69.8 billion in 2021 from Won 83.8 billion in 2020, primarily due to a decrease in interconnection rates, as well as decreases in the number of fixed-line telephone subscribers and residential calling volume as described above.
 
 • 
Fixed-line
telephone service revenue decreased by 5.8% to Won 217.0 billion in 2021 from Won 230.4 billion in 2020, primarily due to decreases in the number of fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband, which in turn included such services formerly provided by SK Telink that were acquired by SK Broadband in April 2021) to 3.6 million as of December 31, 2021 from 3.8 million as of December 31, 2020 and residential calling volume as a result of a continued shift in consumer preference toward wireless communication.
 
 • 
Others: The revenue of our others segment increased by 14.6% to Won 352.4 billion in 2021 from Won 307.6 billion in 2020, primarily due to a 17.8% increase in revenue of SK Stoa’s
T-commerce
business to Won 316.2 billion in 2021 from Won 268.5 billion in 2020, which mainly reflected an increase in the volume of merchandise sold.
Operating Expenses.
    Our consolidated operating expenses increased by 1.9% to Won 15,432.0 billion in 2021 from Won 15,148.5 billion in 2020, primarily due to a 6.3% increase in commissions to Won 5,426.1 billion in 2021 from Won 5,103.0 billion in 2020, a 9.1% increase in labor costs to Won 2,300.8 billion in 2021 from Won 2,108.5 billion in 2020 and a 5.6% increase in cost of goods sold to Won 1,167.4 billion in 2021 from Won 1,106.0 billion in 2020, partially offset by a 13.7% decrease in other operating expenses to Won 1,431.6 billion in 2021 from Won 1,658.4 billion in 2020.
The increase in commissions was primarily due to increases in the sales of our 5G wireless service and IPTV service subscriptions through our authorized dealers and independent retailers.
 
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The increase in labor costs was primarily due to the transfer of our treasury shares to certain of our officers and employees as bonus payments in 2021, the fair value of which was recognized as part of our labor costs.
The increase in cost of goods sold was primarily due to an increase in the volume of merchandise sold by SK Stoa’s
T-commerce
business.
The decrease in other operating expenses was primarily due to a significant decrease in impairment loss on property and equipment and intangible assets to Won 3.1 billion in 2021 from Won 200.7 billion in 2020, which mainly reflected impairment losses we recognized on frequency usage rights in 2020.
The following sets forth additional information about our segment operating expenses with respect to each of our reportable segments, which do not include certain expenses that are classified as other
non-operating
expenses under
K-IFRS.
For more information on the difference between our consolidated operating expenses pursuant to
K-IFRS
and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under
K-IFRS”
and note 4(2) of the notes to our consolidated financial statements.
 
 • 
Cellular services: The segment operating expenses for our cellular services segment increased by 2.7% to Won 11,643.4 billion in 2021 from Won 11,341.2 billion in 2020, mainly attributable to the transfer of our treasury shares to certain of our officers and employees as bonus payments in 2021, the fair value of which was recognized as part of labor costs for this segment, and an increase in commissions, primarily reflecting an increase in the sale of our 5G wireless service subscriptions through our authorized dealers and independent retailers.
 
 • 
Fixed-line
telecommunication services: The segment operating expenses for our
fixed-line
telecommunication services segment increased by 6.0% to Won 3,380.2 billion in 2021 from Won 3,189.3 billion in 2020, primarily due to an increase in SK Broadband’s marketing expenses and commissions, primarily reflecting an increase in the sale of IPTV service subscriptions, and the transfer of SK Broadband’s treasury shares to certain of SK Broadband’s officers and employees as bonus payments in 2021.
 
 • 
Others: The segment operating expenses for our others segment increased by 9.5% to Won 337.8 billion in 2021 from Won 308.6 billion in 2020, primarily due to an increase in the cost of goods sold of SK Stoa, which mainly reflected a corresponding increase in the revenue generated by SK Stoa’s
T-commerce
business.
Operating Profit.
Our consolidated operating profit increased by 38.4% to Won 1,432.4 billion in 2021 from Won 1,035.0 billion in 2020, as the increase in operating revenue and other income outpaced the increase in operating expenses in 2021.
The following sets forth additional information about our segment operating profit (loss) with respect to each of our reportable segments. Our segment operating profit (loss) with respect to each of our reportable segments is based on
K-IFRS
and the sum of segment operating profit for all three reportable segments differs from our consolidated operating profit presented in accordance with IFRS as issued by the IASB. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with
K-IFRS,
see “— Explanatory Note Regarding Presentation of Certain Financial Information under
K-IFRS”
and note 4(2) of the notes to our consolidated financial statements.
 
 • 
Cellular services: The segment operating profit of our cellular services segment increased by 6.8% to Won 1,075.1 billion in 2021 from Won 1,006.8 billion in 2020, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses, for the various reasons described above.
The segment operating margin (which, with respect to each reportable segment, is segment operating profit (loss) divided by revenue from such segment, expressed as a percentage) of our cellular services segment increased to 8.5% in 2021 from 8.2% in 2020.
 
 • 
Fixed-line
telecommunication services: The segment operating profit of our
fixed-line
telecommunication services segment increased by 22.5% to Won 297.5 billion in 2021 from Won 242.9 billion in 2020, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses, for the reasons described above.
The segment operating margin of our
fixed-line
telecommunication services segment increased to 8.1% in 2021 from 7.1% in 2020.
 
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 • 
Others: Our others segment recorded operating profit of Won 14.6 billion in 2021 compared to operating loss of Won 1.1 billion in 2020, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses as described above. As a result, the segment operating margin of our others segment improved to 4.1% in 2021 from (0.4)% in 2020.
Finance Income and Finance Costs.
Our finance income increased by 10.2% to Won 155.1 billion in 2021 from Won 140.7 billion in 2020, primarily due to an increase in dividends to Won 12.0 billion in 2021 (which mainly related to shares of PanAsia Semiconductor Materials LLC) from Won 1.2 billion in 2020.
Our finance costs decreased by 2.3% to Won 315.6 billion in 2021 from Won 322.9 billion in 2020, primarily due to a 3.2% decrease in interest expense to Won 279.7 billion in 2021 from Won 289.0 billion in 2020, which primarily reflected lower market interest rates. The effect of such decrease was partially offset by a 21.7% increase in loss relating to financial instruments at fair value through profit or loss to Won 16.8 billion in 2021 from Won 13.8 billion in 2020, mainly related to our investments in certain fund products.
Gains (Losses) Related to Investments in Associates and Joint Ventures.
Gains related to investments in associates and joint ventures increased by 750.1% to Won 446.3 billion in 2021 from Won 52.5 billion in 2020, primarily due to an increase of Won 270.3 billion in our share of profits of SK China Company Ltd., as well as gain of Won 100.0 billion from disposal of our equity interest in SK Wyverns Co., Ltd.
Income Tax.
Income tax expense increased by 101.9% to Won 446.8 billion in 2021 from Won 221.3 billion in 2020 primarily due to an 89.8% increase in profit before income tax to Won 1,718.2 billion in 2021 from Won 905.2 billion in 2020. Our effective tax rate in 2021 increased to 26.0% from 24.4% in 2020. Our effective tax rates in 2021 and 2020 were lower than the maximum statutory tax rate of 27.5% for both years, primarily due to changes in unrecognized deferred taxes and tax credits and tax reductions in both years.
Profit from Continuing Operations.
Principally as a result of the factors discussed above, our profit from continuing operations increased by 85.9% to Won 1,271.4 billion in 2021 from Won 684.0 billion in 2020.
Profit from Discontinued Operations.
Our profit from discontinued operations, net of taxes, increased by 40.5% to Won 1,147.6 billion in 2021 from Won 816.6 billion in 2020, primarily due to an increase in our share of profits of SK Hynix, our equity interest in which was transferred to SK Square as of November 1, 2021 pursuant to the
Spin-off.
Profit for the Year.
Principally as a result of the factors discussed above, our profit for the year increased by 61.2% to Won 2,419.0 billion in 2021 from Won 1,500.5 billion in 2020. Profit for the year as a percentage of operating revenue and other income was 14.3% in 2021 compared to 9.3% in 2020.
2020 Compared to 2019
Operating Revenue and Other Income.
Our consolidated operating revenue and other income increased by 4.3% to Won 16,183.5 billion in 2020 from Won 15,512.0 billion in 2019 primarily due to an increase in operating revenue, as discussed below.
Our consolidated operating revenue increased by 4.4% to Won 16,087.7 billion in 2020 from Won 15,416.4 billion in 2019, primarily due to increases in fixed-line telecommunications services revenue and cellular services revenue, and to a smaller extent, increases in others revenue.
Our consolidated other income increased slightly by 0.2% to Won 95.8 billion in 2020 from Won 95.6 billion in 2019.
The following sets forth additional information about our operating revenues with respect to each of our reportable segments.
 
 • 
Cellular services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, wireless device sales and miscellaneous cellular services, increased by 1.0% to Won 12,348.0 billion in 2020 from Won 12,223.8 billion in 2019. The increase in our cellular services revenue was due to increases in wireless service revenue and miscellaneous revenue, in significant part offset by decreases in wireless device sales revenue and cellular interconnection revenue.
 
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 • 
Wireless service revenue increased by 2.8% to Won 9,806.7 billion in 2020 from Won 9,538.2 billion in 2019, primarily attributable to an increase in the number of subscribers who subscribe to our higher-priced 5G plans. The impact of such increase was partially offset by an increase in the cumulative percentage of wireless service subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA as well as a decrease in MVNO subscribers.
 
 • 
Miscellaneous cellular services revenue increased by 4.4% to Won 1,085.7 billion in 2020 from Won 1,040.1 billion in 2019, primarily due to an increase in revenue from our IoT solutions business.
 
 • 
Wireless device sales revenue decreased by 14.6% to Won 983.4 billion in 2020 from Won 1,151.2 billion in 2019, primarily due to a decrease in sales of handsets as a result of lower customer demand for new devices, which was partly attributable to the
COVID-19
pandemic.
 
 • 
Cellular interconnection revenue decreased by 4.5% to Won 472.2 billion in 2020 from Won 494.3 billion in 2019. The decrease was primarily attributable to continued decreases in interconnection rates and
land-to-mobile
call volume.
 
 • 
Fixed-line
telecommunications services: The revenue of our
fixed-line
telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IPTV and cable TV services),
fixed-line
telephone service, international calling service,
fixed-line
interconnection and miscellaneous
fixed-line
telecommunication services, increased by 16.0% to Won 3,432.2 billion in 2020 from Won 2,959.3 billion in 2019, primarily due to increases in our broadband Internet service and advanced media platform service revenue and miscellaneous fixed-line telecommunication services revenue, in small part offset by a decrease in fixed-line interconnection revenue.
 
 • 
Revenue from our broadband Internet service and advanced media platform service (including our IPTV and cable TV services) increased by 21.3% to Won 2,210.7 billion in 2020 from Won 1,822.4 billion in 2019, primarily due to the inclusion of revenue of the former Tbroad following the Tbroad Merger as well as an increase in the number of IPTV subscribers to 5.7 million subscribers as of December 31, 2020 from 5.2 million subscribers as of December 31, 2019.
 
 • 
Miscellaneous
fixed-line
telecommunication services revenue increased by 9.7% to Won 747.0 billion in 2020 from Won 681.0 billion in 2019, primarily due to an increase in revenue from our business communications services.
 
 • 
Fixed-line
interconnection revenue decreased by 9.3% to Won 83.8 billion in 2020 from Won 92.4 billion in 2019, primarily due to a decrease in interconnection rates, as well as decreases in the number of fixed-line telephone subscribers and residential calling volume.
 
 • 
Others: The revenue of our others segment increased by 31.8% to Won 307.6 billion in 2020 from Won 233.3 billion in 2019, primarily due to a 40.2% increase in SK Stoa’s
T-commerce
business to Won 268.5 billion in 2020 from Won 191.5 billion in 2019, which mainly reflected an increase in the volume of merchandise sold.
Operating Expenses.
Our consolidated operating expenses increased by 4.3% to Won 15,148.5 billion in 2020 from Won 14,525.0 billion in 2019, primarily due to a 7.1% increase in commissions to Won 5,103.0 billion in 2020 from Won 4,766.7 billion in 2019, a 17.6% increase in other operating expenses to Won 1,658.4 billion in 2020 from Won 1,410.3 billion in 2019, a 6.4% increase in labor costs to Won 2,108.5 billion from Won 1,981.9 billion in 2019 and a 3.5% increase in depreciation and amortization expenses to Won 3,664.7 billion in 2020 from Won 3,541.0 billion in 2019, partially offset by a 19.7% decrease in cost of goods sold to Won 1,106.0 billion in 2020 from Won 1,378.1 billion in 2019.
The increase in commissions was primarily due to the inclusion of commissions of the former Tbroad following the Tbroad Merger in April 2020.
 
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The increase in other operating expenses was primarily due to an increase in impairment loss on property and equipment and intangible assets to Won 200.7 billion in 2020 from Won 42.8 billion in 2019, which amount in 2020 mainly reflected impairment losses we recognized on frequency usage rights.
The increase in labor costs was primarily due to the additional personnel on payroll in connection with the Tbroad Merger.
The increase in depreciation and amortization expenses was primarily related to our equipment and frequency usage rights for our 5G network.
The decrease in cost of goods sold was primarily due to a decrease in the number of wireless devices sold in 2020.
The following sets forth additional information about our segment operating expenses with respect to each of our reportable segments, which do not include certain expenses that are classified as other
non-operating
expenses under
K-IFRS.
For more information on the difference between our consolidated operating expenses pursuant to
K-IFRS
and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under
K-IFRS”
and note 4(2) of the notes to our consolidated financial statements.
 
 • 
Cellular services: The segment operating expenses for our cellular services segment slightly increased by 0.1% to Won 11,341.2 billion in 2020 from Won 11,327.7 billion in 2019, mainly attributable to an increase in marketing costs to promote our 5G services and increases in depreciation and amortization expenses of our equipment and frequency usage rights for our 5G network.
 
 • 
Fixed-line
telecommunication services: The segment operating expenses for our
fixed-line
telecommunication services segment increased by 13.8% to Won 3,189.3 billion in 2020 from Won 2,802.0 billion in 2019, primarily due to the inclusion of operating expenses of the former Tbroad following the Tbroad Merger.
 
 • 
Others: The segment operating expenses for our others segment increased by 24.4% to Won 308.6 billion in 2020 from Won 248.0 billion in 2019, primarily due to an increase in the cost of sales of SK Stoa, which mainly reflected a corresponding increase in the revenue generated by SK Stoa’s
T-commerce
business.
Operating Profit.
Our consolidated operating profit increased by 4.9% to Won 1,035.0 billion in 2020 from Won 987.1 billion in 2019, as the increase in operating revenue and other income outpaced the increase in operating expenses in 2020.
The following sets forth additional information about our segment operating profit (loss) with respect to each of our reportable segments. Our segment operating profit (loss) with respect to each of our reportable segments is based on
K-IFRS
and the sum of segment operating profit for all three reportable segments differs from our consolidated operating profit presented in accordance with IFRS as issued by the IASB. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with
K-IFRS,
see “— Explanatory Note Regarding Presentation of Certain Financial Information under
K-IFRS”
and note 4(2) of the notes to our consolidated financial statements.
 
 • 
Cellular services: The segment operating profit of our cellular services segment increased by 12.4% to Won 1,006.8 billion in 2020 from Won 896.1 billion in 2019, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses, for the various reasons described above.
The segment operating margin (which, with respect to each reportable segment, is segment operating profit (loss) divided by revenue from such segment, expressed as a percentage) of our cellular services segment increased to 8.2% in 2020 from 7.3% in 2019.
 
 • 
Fixed-line
telecommunication services: The segment operating profit of our
fixed-line
telecommunication services segment increased by 54.4% to Won 242.9 billion in 2020 from Won 157.3 billion in 2019, mainly due to the aggregate impact of the Tbroad Merger as described above.
As a result, the segment operating margin of our
fixed-line
telecommunication services segment increased to 7.1% in 2020 from 5.3% in 2019.
 
 • 
Others: The segment operating loss of our others segment significantly decreased by 92.5% to Won 1.1 billion in 2020 from Won 14.7 billion in 2019, due to the greater increase in segment operating revenue
 
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as compared to the increase in segment operating expenses as described above. As a result, the segment operating margin of our others segment improved to (0.4)% in 2020 from (6.3)% in 2019.
Finance Income and Finance Costs.
Our finance income increased by 15.6% to Won 140.7 billion in 2020 from Won 121.7 billion in 2019, primarily due to an 83.7% increase in gain relating to financial instruments at fair value through profit or loss to Won 63.0 billion in 2020 from Won 34.3 billion in 2019, primarily relating to shares of Oceanbridge Co., Ltd. held by Quantum Innovation Fund I. The effect of such increase was partially offset by a 23.9% decrease in interest income to Won 37.0 billion in 2020 from Won 48.6 billion in 2019, mainly reflecting a decrease in interest rates.
Our finance costs decreased by 3.6% to Won 322.9 billion in 2020 from Won 334.9 billion in 2019, primarily due to a decrease in interest expense to Won 289.0 billion in 2020 from Won 306.7 billion in 2019 as a result of a decrease in interest rates, as well as a loss on sale of other accounts receivable related to handset installment payments of Won 5.8 billion in 2019 compared to no such loss in 2020. The effect of such decreases was partially offset by a 70.4% increase in loss relating to financial instruments at fair value through profit or loss to Won 13.8 billion in 2020 from Won 8.1 billion in 2019 mainly related to our investments in certain fund products.
Gains (Losses) Related to Investments in Associates and Joint Ventures.
Gains related to investments in associates and joint ventures increased by 58.1% to Won 52.5 billion in 2020 from Won 33.2 billion in 2019, primarily due to an increase in our share of profits of KEB HanaCard.
Income Tax.
Income tax expense decreased by 15.8% to Won 221.3 billion in 2020 from Won 262.9 billion in 2019 notwithstanding a 12.2% increase in profit before income tax to Won 905.2 billion in 2020 from Won 807.0 billion in 2019 mainly due to changes in unrecognized deferred taxes and tax credits and tax reductions.
Our effective tax rate in 2020 decreased to 24.4% from 32.6% in 2019. Our effective tax rate in 2020 was lower than the maximum statutory tax rate of 27.5%, primarily due to changes in unrecognized deferred taxes and tax credits and tax reductions. Our effective tax rate in 2019 was higher than the maximum statutory tax rate of 27.5%, also primarily due to changes in unrecognized deferred taxes.
Profit from Continuing Operations.
Principally as a result of the factors discussed above, our profit from continuing operations increased by 25.7% to Won 684.0 billion in 2020 from Won 544.1 billion in 2019.
Profit from Discontinued Operations.
Our profit from discontinued operations, net of taxes, increased by 157.9% to Won 816.6 billion in 2020 from Won 316.6 billion in 2019, primarily due to an increase in our share of profits of SK Hynix, our equity interest in which was transferred to SK Square as of November 1, 2021 pursuant to the
Spin-off.
Profit for the Year.
Principally as a result of the factors discussed above, our profit for the year increased by 74.3% to Won 1,500.5 billion in 2020 from Won 860.7 billion in 2019. Profit for the year as a percentage of operating revenue and other income was 9.3% in 2020 compared to 5.5% in 2019.
 
Item 5.B.
Liquidity and Capital Resources
Liquidity
We had a working capital deficit (current liabilities in excess of current assets) of Won 607.8 billion as of December 31, 2021 and a working capital surplus (current assets in excess of current liabilities) of Won 597.1 billion as of December 31, 2020. The decrease in our working capital as of December 31, 2021 compared to December 31, 2020 was mainly due to the
Spin-off
and working capital needs in the ordinary course of business. We plan to fund our current liabilities with the cash flow generated by our operations, proceeds from the disposal of investment securities or property and equipment that are no longer deemed profitable and proceeds from additional borrowings, as necessary.
We had cash and cash equivalents,
short-term
financial instruments and
short-term
investment securities of Won 1,386.4 billion as of December 31, 2021 and Won 2,947.0 billion as of December 31, 2020. We had outstanding
short-term
borrowings and current portion of long-term debt of Won 1,443.3 billion as of December 31, 2021 and Won 1,049.2 billion as of December 31, 2020. As of December 31, 2021, we had credit lines with several local banks that provided for borrowing of up to Won 480.0 billion, all of which was available for borrowing.
 
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For the presentation of the statement of cash flows in our financial statements, we elected to combine cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category. The absence of cash flows from discontinued operations is not expected to affect our future liquidity and capital resources.
Cash flows from operating activities and debt financing have been our principal sources of liquidity. We had cash and cash equivalents of Won 872.7 billion as of December 31, 2021 and Won 1,369.7 billion as of December 31, 2020. We believe that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings.
 
   
Year ended December 31,
  
Change
 
   
2021
  
2020
  
2019
  
2020 to 2021
  
2019 to 2020
 
   
(In billions of Won, except percentages)
 
Net cash provided by operating activities
  ￦5,031.3  ￦5,821.9  ￦4,035.0  ￦(790.6)   (13.6)%  ￦1,786.9   44.3% 
Net cash used in investing activities
   (3,486.2)   (4,250.4)   (3,581.6)   764.2   (18.0)   (668.8)   18.7 
Net cash used in financing activities
   (2,053.6)   (1,457.6)   (686.7)   (596.0)   40.9   (770.9)   112.3 
Net increase (decrease) in cash and cash equivalents
   (508.5)   113.9   (233.3)   (622.4)   N.A.   347.2   N.A. 
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies
   11.6   (15.1)   (2.6)   26.7   (176.8)   (12.5)   480.8 
Cash and cash equivalents at beginning of period
   1,369.7   1,270.8   1,506.7   98.9   7.8   (235.9)   (15.7) 
Cash and cash equivalents at end of period
   872.7   1,369.7   1,270.8   (497.0)   (36.3)   98.8   7.8 
 
N.A.
= Not available
Cash Flows from Operating Activities.    
Net cash provided by operating activities was Won 5,031.3 billion in 2021 (which includes Won 59.3 billion of net cash provided by operating activities of our discontinued operations), Won 5,821.9 billion in 2020 (which includes Won 495.7 billion of net cash provided by operating activities of our discontinued operations) and Won 4,035.0 billion in 2019 (which includes Won 196.5 billion of net cash provided by operating activities of our discontinued operations). Profit for the year was Won 2,419.0 billion in 2021 (of which Won 1,147.6 billion was from discontinued operations), Won 1,500.5 billion in 2020 (of which Won 816.6 billion was from discontinued operations) and Won 860.7 billion in 2019 (of which Won 316.6 billion was from discontinued operations). Net cash provided by operating activities in 2021 decreased by 13.6% from 2020, primarily due to increases in income tax paid and payments of costs associated with obtaining customer contracts in 2021.
Net cash provided by operating activities in 2020 increased by 44.3% from 2019, primarily due to an increase in profit for the year and a decrease in payments of costs associated with obtaining customer contracts in 2020.
Cash Flows from Investing Activities.    
Net cash used in investing activities was Won 3,486.2 billion in 2021 (which includes Won 967.1 billion of net cash used in investing activities of our discontinued operations), Won 4,250.4 billion in 2020 (which includes Won 483.6 billion of net cash used in investing activities of our discontinued operations) and Won 3,581.6 billion in 2019 (which includes Won 189.1 billion of net cash used in investing activities of our discontinued operations). Cash inflows from investing activities were Won 600.2 billion in 2021, Won 428.9 billion in 2020 and Won 755.2 billion in 2019. Cash inflows in 2021 reflected a net decrease in short-term financial instruments, mainly related to SK Broadband’s disposal of certain investment securities, and collection of short-term loans, primarily related to SK Telecom’s collection of short-term loans that were made to authorized dealers. Cash inflows in 2020 reflected net cash inflows from business combinations, which mainly related to the Tbroad Merger, as well as proceeds from disposals of property and equipment, primarily related to the
 
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disposal of certain training facilities to SK Hynix. Cash inflows in 2019 reflected a decrease in short-term financial instruments, net of Won 254.0 billion, which was mainly in connection with funding our investments in property and equipment, and proceeds from disposals of long-term investment securities of Won 234.7 billion, which was primarily in connection with the disposal of 6,109,000 common shares of Hana Financial Group Inc. for Won 221.1 billion in cash.
Cash outflows for investing activities were Won 4,086.4 billion in 2021, Won 4,679.4 billion in 2020 and Won 4,336.7 billion in 2019. Cash outflows in 2021, 2020 and 2019 were primarily attributable to expenditures related to the acquisition of property and equipment of Won 2,915.9 billion, Won 3,557.8 billion and Won 3,375.9 billion, respectively, primarily in connection with the acquisition of 5G and LTE equipment, the expansion of our 5G network and the maintenance of our LTE network.
Cash Flows from Financing Activities.    
Net cash used in financing activities was Won 2,053.6 billion in 2021 (which includes Won 88.9 billion of net cash used in financing activities of our discontinued operations), Won 1,457.6 billion in 2020 (which includes Won 22.9 billion of net cash used in financing activities of our discontinued operations) and Won 686.7 billion in 2019 (which includes Won 35.4 billion of net cash used in financing activities of our discontinued operations). Cash inflows from financing activities were Won 1,796.8 billion in 2021, Won 3,499.6 billion in 2020 and Won 2,047.3 billion in 2019. Such inflows were primarily driven by the issuance of debentures, which provided cash of Won 873.2 billion in 2021, Won 1,421.0 billion in 2020 and Won 1,633.4 billion in 2019, and proceeds from
long-term
borrowings, which provided cash of Won 350.0 billion in 2021, Won 1,947.8 billion in 2020 and nil in 2019.
Cash outflows for financing activities were Won 3,850.4 billion in 2021, Won 4,957.2 billion in 2020 and Won 2,733.9 billion in 2019. Cash outflows for financing activities included repayments of debentures, repayments of long-term borrowings, payments of dividends and repayments of other long-term payables, among other items. Repayments of debentures were Won 890.0 billion in 2021, Won 975.5 billion in 2020 and Won 940.0 billion in 2019. Repayments of long-term borrowings were Won 286.9 billion in 2021, Won 1,950.9 billion in 2020 and Won 89.9 billion in 2019. Payments of dividends were Won 1,028.5 billion in 2021, Won 742.1 billion in 2020 and Won 718.7 billion in 2019. Repayments of other
long-term
payables were Won 426.3 billion in 2021, Won 428.1 billion in 2020 and Won 428.2 billion in 2019. In addition, repayments of lease liabilities were Won 431.7 billion in 2021, Won 412.7 billion in 2020 and Won 443.2 billion in 2019. Acquisition of treasury shares was Won 76.1 billion in 2021 and Won 426.7 billion in 2020. Cash outflows for
spin-off
were Won 626.0 billion in 2021.
As of December 31, 2021, we had total long term debt (excluding current portion) outstanding of Won 7,390.5 billion, which included debentures in the amount of Won 7,037.4 billion and bank and institutional borrowings in the amount of Won 353.1 billion. As of December 31, 2020, we had total
long-term
debt (excluding current portion) outstanding of Won 9,669.4 billion, which included debentures in the amount of Won 7,690.2 billion and bank and institutional borrowings in the amount of Won 1,979.3 billion. For a description of our
long-term
debt, see note 18 of the notes to our consolidated financial statements.
As of December 31, 2021, we had (i) Won 6,670.0 billion aggregate principal amount of Korean
Won-denominated
debentures outstanding, of which SK Telecom issued Won 5,400.0 billion and SK Broadband issued Won 1,270.0 billion, and (ii) Won 1,778.2 billion aggregate principal amount of debentures outstanding denominated in U.S. dollars. The fixed interest rates of our debentures range from 1.17% to 6.63% depending on the offering size, maturity, interest rate environment at the time of the offering and currency, among other factors. We have a diversified maturity profile with respect to our debentures. See “— Contractual Obligations and Commitments” for more details.
As of December 31, 2021, substantially all of our foreign
currency-denominated
long-term
borrowings and debentures, which in the aggregate amounted to 20.4% of our total outstanding
long-term
debt, including the current portion and present value discount as of such date, was denominated in Dollars. However, substantially all of our revenue and operating expenses are denominated in Won. We generally pay for imported capital equipment in Dollars. Appreciation of the Won against the Dollar will result in net foreign currency transaction and translation gains, while depreciation of the Won against the Dollar will result in net foreign currency transaction and translation losses. Changes in foreign currency exchange rates will also affect our liquidity because of the effect of such changes on the amount of funds required for us to make interest and principal payments on our foreign
 
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currency-denominated
debt. For a description of swap or derivative transactions we have entered into, among other transactions, to mitigate the effects of such losses, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
Capital Requirements
Historically, capital expenditures, repayment of outstanding debt, frequency usage payments and lease payments have represented our most significant use of funds. In recent years, we have also increasingly dedicated capital resources to develop and invest in new ICT businesses (some of which were transferred to SK Square as of November 1, 2021 pursuant to the
Spin-off)
as well as other innovative services and products utilizing our AI and digital infrastructure capabilities and our telecommunications platforms.
To fund our scheduled debt repayment and planned capital expenditures over the next several years, we intend to rely primarily on cash flows from operating activities, as well as bank and institutional borrowings, and offerings of debt or equity in the domestic or international markets. We believe that these sources will be sufficient to fund our planned capital expenditures for 2022.
Our ability to rely on these alternatives could be affected by the liquidity of the Korean financial markets or by Government policies regarding Won and foreign currency borrowings and the issuance of equity and debt. Our failure to make needed expenditures would adversely affect our ability to sustain subscriber growth and provide quality services and, consequently, our results of operations.
Capital Expenditures.
The following table sets forth our actual capital expenditures for 2021, 2020 and 2019, in each case including capital expenditures relating to discontinued operations:
 
   
Year ended December 31,
 
   
2021
   
2020
   
2019
 
   
(In billions of Won)
 
Wireless Networks
(1)
  ￦1,850.9   ￦1,878.6   ￦2,514.3 
Fixed-line
Network
(2)
   822.8    818.3    815.8 
Others
(3)
   242.2    860.9    45.8 
  
 
 
   
 
 
   
 
 
 
Total
  ￦2,915.9   ￦3,557.8   ￦3,375.9 
  
 
 
   
 
 
   
 
 
 
 
 
(1)
Includes investments in wireless networks, primarily our 5G, LTE and
Wi-Fi
networks, as well as other capital expenditures related to our networks.
 
(2)
Includes all capital expenditures made by SK Broadband.
 
(3)
Includes
non-network
related investments such as capital expenditures for product development, upgrades of our information technology systems and equipment and investments in data infrastructure, including certain investments made in connection with our discontinued operations.
We set our capital expenditure budget for each upcoming year on an annual basis. Our actual capital expenditures in 2021, 2020 and 2019 were Won 2,915.9 billion, Won 3,557.8 billion and Won 3,375.9 billion, respectively. Of such amounts, we spent approximately 63.5%, 52.8% and 74.5% in 2021, 2020 and 2019, respectively, on capital expenditures related to building and enhancing our wireless networks. Our other
non-network
related capital expenditures in 2021, 2020 and 2019 primarily related to developing new products, upgrades to our information technology systems and equipment and investments in data infrastructure, which included certain capital expenditures made in connection with our discontinued operations.
In particular, we have been making capital expenditures to build and expand our 5G network. We commenced commercial 5G services in April 2019. We have also been making capital expenditures to maintain our LTE network.
For a more detailed description of our 5G and LTE networks, see “Item 4.B. Business Overview — Cellular Services — Digital Wireless Network.” We plan to continue to make capital investments in 2022 to build and expand our 5G network and develop related technologies, as well as to further improve and maintain our LTE network.
 
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The following table sets forth our payment obligations relating to our acquisitions of frequency usage rights.
 
Spectrum
 
Technology (width)
 
Date of Acquisition
(including renewals)
  
Initial Payment
Amount
(in billions of Won)
  
Initial
Payment Year
  
Annual Payment
Amount
(in billions of Won)
  
Annual
Payment Term
 
800 MHz
 LTE (20 MHz)  Jul. 2021  ￦56.8   2021  ￦34.1   
2022-2026
 
1.8 GHz
 LTE (20 MHz + 15 MHz)  Dec. 2021   136.9   2021   82.2   2022-2026 
2.1 GHz
 
 LTE (30 MHz)  Dec. 2021   102.9   2021   61.8   2022-2026 
 WCDMA (10 MHz)
2.6 GHz
 LTE (40 MHz + 20 MHz)  Aug. 2016   332.5   2016   99.8   2017-2026 
3.5 GHz
 5G (100 MHz)  Dec. 2018   304.6   2018   91.4   2019-2028 
28 GHz
 5G (800 MHz)  Dec. 2018   51.8   2018   31.1   2019-2023 
We expect to spend a similar amount for capital expenditures in 2022 compared to 2021 for a range of projects, including investments to expand and improve our newly implemented 5G network, investments to maintain our LTE network and
LTE-A
services, investments to improve and expand our
Wi-Fi
network, investments to develop our IoT solutions and platform services business portfolio, including AI solutions, investments in data infrastructure, investments in research and development of 5G technology, investments in businesses that can potentially leverage our 5G network, and funding for
mid-
to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. In November 2020, the MSIT announced plans to reallocate a total of 310 MHz of frequency bandwidths whose usage terms were due to expire in 2021 to KT, LG U+ and us, 95 MHz of which was allocated to us in 2021. We would be required to spend additional amounts on capital expenditures in connection with building out our networks on such reallocated bandwidths. However, our overall expenditure levels and our allocation among projects remain subject to many uncertainties. We may increase, reduce or suspend our planned capital expenditures for 2022 or change the timing and area of our capital expenditure spending from the estimates described above in response to market conditions or for other reasons. We may also make additional capital expenditure investments as opportunities arise. Accordingly, we periodically review the amount of our capital expenditures and may make adjustments based on the current progress of capital expenditure projects and market conditions. No assurance can be given that we will be able to meet any such increased expenditure requirements or obtain adequate financing for such requirements, on terms acceptable to us, or at all.
Repayment of Outstanding Debt.
    As of December 31, 2021, our principal repayment obligations with respect to
long-term
borrowings, bonds and short-term borrowings outstanding were as follows for the periods indicated:
 
Year Ending December 31,
  
Total
 
   
(In billions of Won)
 
2022
  ￦1,444.1 
2023
   1,803.4 
2024
   1,432.5 
2025 and thereafter
   4,175.5 
 
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Lease Payments.
    Pursuant to IFRS 16, Leases, we recognize
right-of-use
assets representing our rights to use the underlying assets and lease liabilities representing our obligation to make lease payments in relation to substantially all of our lease arrangements, except for certain short-term leases and leases of
low-value
assets. As of December 31, 2021, our aggregate current and long-term lease liabilities amounted to Won 1,534.3 billion, which primarily related to land, buildings and structures we leased from third parties in the ordinary course of our business. As of December 31, 2021, our principal payment obligations with respect to our lease liabilities were as follows for the periods indicated:
 
Year Ending December 31,
  
Total
 
   
(In billions of Won)
 
2022
  ￦351.2 
2023
   318.2 
2024
   232.3 
2025 and thereafter
   652.1 
Investments in New Growth Businesses.
    We may also require capital for investments to support our development of new growth businesses.
We increased our interest in id Quantique through capital contributions in cash amounting to Won 12.2 billion in 2019 and Won 6.4 billion in 2020, respectively.
In June 2019, we acquired a 34.6% interest in Incross, a digital advertising company, for an aggregate purchase price of Won 53.7 billion, in light of potential synergies with our media and commerce businesses.
From time to time, we may make other investments in telecommunications or other businesses in Korea or abroad, where we perceive attractive opportunities for investment. From time to time, we may also dispose of existing investments when we believe that doing so would be in our best interest. Effective as of November 1, 2021, we conducted the
Spin-off,
pursuant to which we spun off our equity interests in the
Spin-off
Portfolio Companies (including id Quantique and Incross, among others) engaged in the semiconductor and certain other
non-telecommunications
businesses to SK Square, a newly established holding company, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock. See “Item 4.A. History and Development of the Company.”
Severance Payments.
    The defined benefit obligation, which is the total accrued and unpaid retirement and severance benefits for our employees, as of December 31, 2021, was Won 13.2 billion. This amount was reflected in our consolidated financial statements as a liability, which is net of deposits with insurance companies totaling Won 1,040.3 billion to fund a portion of the employees’ severance indemnities.
Also see “Item 6.D. Employees — Employee Benefits” and note 21 of the notes to our consolidated financial statements.
Dividends.
    Total cash outflows for payments of dividends amounted to Won 1,028.5 billion in 2021, Won 742.1 billion in 2020 and Won 718.7 billion in 2019.
In April 2022, we distributed annual dividends at Won 1,660 per share (exclusive of interim dividends of Won 5,000 per share) to our shareholders for an aggregate payout amount of Won 361.2 billion.
 
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Contractual Obligations and Commitments
The following summarizes our contractual cash obligations at December 31, 2021, and the effect such obligations are expected to have on liquidity and cash flow in future periods:
 
  
Payments Due by Period
(1)
 
  
Total
  
Less Than
1 Year
  
1-3 Years
  
4-5 Years
  
More Than

5 Years
 
  
(In billions of Won)
 
Bonds
     
Principal
 ￦8,448.3  ￦1,390.0  ￦2,898.4  ￦1,615.7  ￦2,544.2 
Interest
  1,031.8   213.8   286.0   187.9   344.1 
Long-term
borrowings
     
Principal
  394.2   41.1   337.5   15.6   — 
Interest
  13.2   5.7   7.3   0.2   — 
Lease liabilities
     
Principal
  1,553.6   351.2   550.5   374.2   277.9 
Interest
  99.6   8.1   31.1   33.8   26.6 
Short-term leases and leases of
low-value
assets
  29.2   29.2   —   —   — 
Facility deposits
  5.8   1.2   —   —   4.6 
Derivatives
  0.1   0.1   0.1   —   — 
Other
long-term
payables
(2)
     
Principal
  2,090.7   400.2   769.4   738.3   182.8 
Interest
  30.4   7.4   14.5   7.2   1.3 
Short-term
borrowings
  13.0   13.0   —   —   — 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total contractual cash obligations
 ￦13,710.1  ￦2,461.0  ￦4,894.8  ￦2,972.9  ￦3,381.5 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(1)
We are contractually obligated to make severance payments to eligible employees we have employed for more than one year, upon termination of their employment, regardless of whether such termination is voluntary or involuntary. Accruals for severance indemnities are recorded based on the amount we would be required to pay in the event the employment of all our employees were to terminate at the balance date. However, we have not yet estimated cash flows for future periods. Accordingly, payments due in connection with severance indemnities have been excluded from this table.
 
(2)
Related to acquisition of frequency licenses. See note 19 of the notes to our consolidated financial statements.
See note 37 of the notes to our consolidated financial statements for details related to our other commitments and contingencies.
 
Item 5.C.
Research and Development, Patents and Licenses, etc.
We maintain a high level of spending on our research and development activity. We also donate funds to several Korean research institutes and educational organizations that focus on research and development activity. We believe that we must maintain a substantial
in-house
technology capability to achieve our strategic goals.
 
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The main focus of our research and development activity is the development of new wireless technologies and services and value-added technologies and services for our 5G network and LTE network, such as wireless data communications, as well as the development of new technologies that reflect the growing convergence between telecommunications and other industries, such as AI, big data analytics, media, security and mobility. SK Telecom’s research and development activity is centered at our T3K Center, located at our SK
T-Tower
corporate headquarters in Seoul and our Bundang office in
Bundang-gu,
Seongnam-si,
Gyeonggi-do,
Korea, which we established in May 2020 by reorganizing our former AIX Center. To more efficiently manage our research and development resources, our T3K Center is organized as follows:
 
Organization
  
Recent Areas of Focus
Media Tech  Development and standardization of new media technologies through content discovery, media processing, media streaming and deep learning
AI Transformation  Transformation of mobile network operation business based on AI technology; planning and development of products based on AI and big data
T3K Innovation  Development of vertical full-stack products and vision AI technologies; discovery of new growth opportunities based on technology and enhancement of technological and corporate value
Each business unit also has its own research team that can concentrate on specific short-term research needs, and some of our consolidated subsidiaries also have their own research and development organizations to focus on activities related to their respective business areas. Such research teams permit our research center to concentrate on long-term, technology-intensive research projects. We aim to establish strategic alliances with selected domestic and foreign companies with a view to exchanging or jointly developing technologies, products and services.
 
Item 5.D.
Trend Information
These matters are discussed under “Item 5.A. Operating Results” and “Item 5.B. Liquidity and Capital Resources” above where relevant.
 
Item 5.E.
Critical Accounting Estimates
Our financial statements are prepared in accordance with IFRS as issued by the IASB. See notes 2(4) and 3 of the notes to our consolidated financial statements which provide summaries of certain critical accounting estimates that require our management to make difficult, complex or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our financial conditions and results of operations.
 
Item 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
Item 6.A.
Directors and Senior Management
Directors and Senior Management
Our board of directors has ultimate responsibility for the management of our affairs. Under our articles of incorporation, our board is to consist of at least three but no more than twelve directors, more than half of whom must be independent
non-executive
directors. We currently have a total of eight directors, five of whom are independent
non-executive
directors. We elect our directors at a general meeting of shareholders with the approval of at least a majority of those shares present or represented at such meeting. Such majority must represent at least
one-fourth
of our total issued and outstanding shares with voting rights.
As required under relevant Korean laws and our articles of incorporation, we have a committee for recommendation of independent
non-executive
directors within the board of directors, the Independent Director Nomination Committee. Independent
non-executive
directors are appointed from among those candidates recommended by the Independent Director Nomination Committee.
The term of offices for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms. The total term of office of
 
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independent directors may not exceed six years, and when combined with the term of office at our affiliates, may not exceed nine years. Our shareholders may remove them from office by a resolution at a general meeting of shareholders adopted by the holders of at least
two-thirds
of the voting shares present or represented at the meeting, and such affirmative votes also represent at least
one-third
of our total voting shares then issued and outstanding.
Representative directors are directors elected by the board of directors with the statutory power to represent our company.
The following are the names and positions of our standing and
non-standing
directors. The business address of all of our directors is the address of our registered office at SK
T-Tower,
65, Eulji-ro,
Jung-gu,
Seoul 04539, Korea.
Standing directors are our directors who also serve as our executive officers, and they also comprise the senior management, or the key personnel who manage us. Their names, dates of birth and positions at our company, other positions and business experience are set forth below:
 
Name
 
Month and
Year of
Birth
   
Director
Since
   
Expiration
of Term
   
Position
  
Other Positions
  
Business Experience
Young Sang Ryu
  May 1970    2018    2024   Executive Director, President and Chief Executive Officer  —  President of Mobile Network Operations Division, SK Telecom; Executive Vice President of Business Development Group, SK Inc.; Head of Corporate Center, SK Telecom
Jong Ryeol Kang
  Oct. 1964    2022    2025   Head of ICT Infrastructure  —  Head of Corporate Culture Center, SK Telecom
Our current
non-standing
directors are as set forth below:
 
Name
  
Month and
Year of
Birth
   
Director
Since
   
Expiration
of Term
   
Position
  
Other Positions
  
Business Experience
Kyu Nam Choi
   Apr. 1964    2021    2024   
Non-executive
Director		  Head of Global Business Development, SK SUPEX Council  Representative Director and President, Jeju Air
Jung Ho Ahn
   Feb. 1978    2017    2023   Independent
Non-executive
Director		  Professor, Graduate School of Convergence Science and Technology, Seoul National University  Visiting Scholar, Google Inc.; Senior Research Scientist, Exascale Computing Lab, HP Labs
Youngmin Yoon
   Dec. 1963    2018    2024   Independent
Non-executive
Director		  Dean of School of Media and Communications and Graduate School of Journalism and Mass Communication, Korea University  Professor, School of Media & Communication, Korea University; Vice-chair, Korean Academic Society for Public Relations; Advisor, Ministry of Land, Infrastructure and Transport Public Relations Division; Advisor, Korea Media Rating Board
Seok-Dong Kim
   May 1953    2019    2025   Independent
Non-executive
Director		  Chairman, JIPYONG Institute of Humanities and Society  Chairman, Financial Services Commission; Vice Minister, Ministry of Finance and Economy; Vice Chairman, Financial Supervisory Commission
 
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Name
  
Month and
Year of
Birth
   
Director
Since
   
Expiration
of Term
   
Position
  
Other Positions
  
Business Experience
Yong-Hak
Kim
   Jan. 1953    2020    2023   Independent
Non-executive
Director		  Professor Emeritus, Yonsei University  President, Yonsei University; BK Planning Committee, Ministry of Education; Member, Presidential Advisory Council of Policy Planning; Professor of Sociology, Yonsei University
Junmo Kim
   Sept. 1976    2020    2023   Independent
Non-executive
Director		  Associate Professor of Electrical Engineering, KAIST  Assistant Professor of Electrical Engineering, KAIST; Senior Researcher, Samsung Advanced Institute of Technology
Other Executive Officers
In addition to our standing directors, we currently have the following executive officers:
 
Name
 
Month and
Year of
Birth
 
Position
 
Business Experience
Jong Ryeol Kang Oct. 1964 Head of ICT Infrastructure Head of Corporate Culture Division
Chungsik Kang Nov. 1971 PR Officer, Public Relations Office Project Leader, Communication Committee PR Team
Yeong Sang Kwon Mar. 1971 Head of Corporate Relations Strategy Team Leader, Corporate Relations Office
Seong Joon Kim Jul. 1970 Head of Untact CP Representative, Service Top
Yeong Joon Kim Sept. 1972 Head of AI Technology, AI&CO Voice Recognition Technology Cell Leader, AI Technology Unit
Jeong Gyu Kim Sept. 1976 Officer of Malaysia Regional HQ Project Leader, Global Business Development, SUPEX Council Project
Jeong Tae Kim Aug. 1972 Head of Learning Center Assessment Team Leader, Leadership Development Center
Jung Hoon Kim Nov. 1963 Head of Cloud Infrastructure Head of Platform Infrastructure Group
Jiwon Kim Jun. 1985 Head of T3K Innovation Meta AI Professional Researcher, Samsung Advanced Institute of Technology
Jihoon Kim Sept. 1978 Officer of Future Business Team, SUPEX Council Project Leader, Bundled Product Offering Team
Jinwoo Kim Feb. 1971 Head of Global Business Office Head of Global Business Office, SK Planet
Jinwon Kim Sept. 1966 Head of Corporate Planning Group Representative, SK USA
Hyuk Kim Sept. 1967 Global Media Support, Media/Contents CO Head of Media Business Support Group
Heesup Kim Oct. 1968 Head of Communications Head of Public Relations Office
SukKwon Na Nov. 1966 PD of SK Research Institute for SUPEX Management Director of Statistical Policy, Statistics Korea
Jung Hwan Ryu Jun. 1970 Head of Infrastructure Strategy Head of Infrastructure Support Group
Gap In Moon May 1969 Head of Smart Device Head of Service Strategy Division Policy Group
Myung Soon Park Feb. 1969 Head of Infrastructure Value Innovation Head of AI Business Unit
 
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Name
 
Month and
Year of
Birth
 
Position
 
Business Experience
Yong Joo Park May 1965 Head of ESG Seoul Central District Prosecutor’s Office
Jung Ho Park May 1963 Vice Chairman Vice Chairman and CEO, SK Square and SK Hynix
Jong Kwan Park Jul. 1970 Head of Infrastructure Technology Head of 5GX Technology Group
Ji Soo Park Jun. 1976 Officer of Talent Development CoE, SUPEX Council Project Project Leader, HR Support Team, SUPEX Council Project
Jin Woo So Dec. 1961 Chairman of Talent Development Committee, SUPEX Council Project Representative, SK Planet
Suk Ham Sung Apr. 1970 Head of Policy Cooperation Office Evaluation Manager of Performance Evaluation Office, MSIT
Jin Soo Seong May 1968 Head of Infrastructure Engineering Head of Daegu Infrastructure Office
Yongsik Shin Aug. 1971 Head of Connect Infrastructure CO Head of Energy Business Team
Sang Soo Sim Aug. 1965 Head of Western Infrastructure Head of Infrastructure Business Group
Jeong Yeol Ahn Aug. 1969 Head of Supply Chain Management Head of Corporate Center, Eleven Street
Junehyeon Ahn Nov. 1969 Officer of Public Relations Team, SUPEX Council Project Corporate Relations Team, SUPEX Council Project Communication Committee
Maeng Seog Yang Mar. 1969 Head of Metaverse Business, Metaverse CO Head of 5GX MNO Business Group
Ji Young Yeo Sept. 1966 ESG Alliance, ESG Promotion Head of TTS Unit
Sung Jin Yeum Oct. 1972 Officer of Corporate Culture Center Head of CR Support
Yong-Seop Yum Oct. 1962 Head of SK Research Institute for SUPEX Management Head of Future Research Office
Hui Gang Ye Oct. 1970 Head of Brand Strategy Head of Brand 2 Office, Hyundai Card
Kyung Sik Oh Mar. 1966 Head of Sports Marketing Sports Communications Team Leader, Sports Marketing Group
Sehyeon Oh Jul. 1963 Head of Digital Asset CO Head of C&C DT Business Development Division
Jaeho Yoo Dec. 1973 Head of Portfolio Management Growth Business Group, Eleven Street
Sung Eun Yoon Jan. 1973 Officer of PR, Public Relations Office Head of Corporate Relations Strategy Office Policy System Team
Yong Chul Yoon May 1965 Officer of Communication Team, SUPEX Council Project Head of Department, MBC Newsroom
Gab Jae Lee Feb. 1973 Head of Regional CP Head of Central Marketing Office
Gwan Woo Lee Jun. 1973 Head of Cloud Application Group Head of Data Development Operations Group
Gyu Sik Lee Jan. 1970 Head of ICT Support Office Leader, Change 1 Cell, Change Office
Kiyoon Lee Dec. 1969 Head of Change Management 2 PL of Customer Value Innovation Office
Sang Gu Lee Jul. 1970 Head of Messaging CO Head of MNO Data Business Team
Sang Heon Lee Aug. 1965 Head of Policy Development Head of Corporate Relations Strategy Office
Yong Seok Lee Nov. 1961 Head of ESG Group, SK Research Institute for SUPEX Management PD, SK Research Institute for SUPEX Management
Jeong Hoon Lee May 1974 SKTA Business Development Investment Center 2 Group, SK Inc.
Jongmin Lee Jul. 1978 Head of T3K Innovation Head of Media Technology Institute
Joon Ho Lee Aug. 1968 Head of ESG Promotion Head of Public Relation Office 2
Joong Ho Lee Nov. 1967 Head of Metropolitan Area CP Head of Busan Marketing Office
 
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Name
 
Month and
Year of
Birth
 
Position
 
Business Experience
HyunA Lee Aug. 1971 Head of AI&CO Head of Conversational Commerce Division, SK Planet
Bong Ho Lim Dec. 1966 Head of Mobile CO Head of Metropolitan Area Marketing Office
Jong Pil Lim Nov. 1960 ICT Advisory Group Officer Head of Essencore
Hyoung Do Lim Jun. 1968 Head of Change Management 1 Head of Policy Cooperation Office
Hong Sung Chang Mar. 1969 Head of Advertising/Data CO Head of Data Technology Institute
Dae Dug Jeong Sept. 1967 Head of Finance Head of Tax Team
Doh Hee Jung Sept. 1974 Head of AI Transformation Intelligence Service Head of Data CoE Data Analysis Team 2
Chang Gweon Chung Jul. 1970 Head of Infrastructure Business Head of Infrastructure Engineering Group
Hui Yong Jeong Mar. 1973 Head of Business Development Head of Strategic Planning Office, SK Inc.
Dong Hwan Cho Nov. 1970 Head of Cloud Technology Head of Data CoE
Young Log Cho Jun. 1971 Head of CR Innovation Assistant to Head of External Cooperation Office
Zonggeun Chai Jul. 1968 Head of Ethics Management Head of Compliance Team
Nag Hun Choi Nov. 1972 Head of Smart Factory CO Head of IoT Business Support Group
Yong Jin Choi Feb. 1977 Head of AI Transformation Head of MNO DT Labs, AI/DT Technology Group
Woo Seong Chey Jan. 1974 Representative, SK Telecom Japan PL of Unicorn Labs Tokyo Office
Il Gyu Choi Nov. 1970 Head of Digital Infrastructure CO Head of Public Business Unit
Jeong Hwan Choi Jun. 1968 Strategic Investment, Business Development Head of IR, Corporate Development Center
Chang Won Chey Aug. 1964 Vice President of SK Research Institute for SUPEX Management Chief Executive Officer, SK Chemical
Myung Bok Ha Mar. 1971 Central Regional CP Head of Service Ace
Min Yong Ha Sept. 1970 Head of Corporate Development Head of Global Alliance Group
Seong Ho Ha Sept. 1968 Head of Corporate Relations Head of Corporate Relations Strategy Office
Myung Jin Han Oct. 1973 Head of Corporate Strategy Head of Global Alliance Group
Geunman Heo Aug. 1966 Head of Metropolitan Infrastructure Head of Infrastructure Engineering Group
Seung Tae Hong Jul. 1971 Head of Client Value Innovation Portfolio Innovation Team Leader, Business Strategy Group
Eric Hartman Davis Oct. 1980 Head of Apollo TF Head of Global AI Development Group
Hyuncheol Ku Dec. 1971 Head of Policy, Mobile CO Head of Policy Cell
Dae Sung Kim Dec. 1971 Head of Customer Planning, Business Planning Head of MNO Support
Ji Hyung Kim Oct. 1971 Head of Bundled Marketing Strategy Head of Untact CP
Sang Wook Shin Jun. 1979 Head of AI Service, AI&CO Head of AI Service Unit
Jae Woong Yoon Nov. 1972 Head of Subscription Marketing, Marketing CO Head of Marketing 5GX Cluster
Hyeongsig Yoon Apr. 1968 Head of Infrastructure Operation Head of Infrastructure DT Team
Dong Kee Lee Jan. 1982 Head of Cloud MEC Technology, Digital Infrastructure CO Head of 5GX MEC Product
 
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Name
 
Month and
Year of
Birth
 
Position
 
Business Experience
Seoungyeoll Lee Feb. 1970 Head of PR1 Head of Public Relations Planning, Public Relations Office
Jeongyeon Lim May 1976 Head of Media Technology Head of Media Processing Development Team
Ikhwan Cho Oct. 1977 Head of Metaverse Development, Metaverse CO Head of 5GX Service Development
Hwasik Choi Jul. 1971 Head of Safety and Health Head of Growth SCM
Hwan Seok Choi Aug. 1971 Head of Business Strategy Head of IPO Promotion
Byong Jun Kim Feb. 1970 PD of SK Research Institute for SUPEX Management Head of mySUNI Innovation Design College
Jee Hyun Kim Oct. 1972 PD of SK Research Institute for SUPEX Management Deep Change Research Officer, SK Research Institute for SUPEX Management
Jungwhan Ahn Jul. 1966 Head of Corporate Culture Head of HR Support Division, SK shieldus
Man Seog Ryu May 1966 Director of SK Academy Head of Corporate Culture, SK Hynix
Joo Young Lee May 1975 PD of SK Research Institute for SUPEX Management RF Researcher, Deep Change
Hyuk Joon Chang Jun. 1967 Head of Business Planning Head of Finance, SK Hynix
Jae Hyun Chung Dec. 1959 Officer of ICT Advisory Group Officer of Corporate Growth, SK Square
Hui Young Jeong Mar. 1973 Head of Corporate Development Head of Business Strategy Office, SK Inc.
Jin Hur Jan. 1971 PD of SK Research Institute for SUPEX Management Deep Change Research Officer, SK Research Institute for SUPEX Management
Tae-won
Chey		 Dec. 1960 Chairman Representative Director of SK Innovation and SK Hynix
 
Item 6.B.
Compensation
The aggregate of the remuneration paid and
in-kind
benefits granted to our directors (all standing directors, who also serve as our executive officers, and
non-standing
directors) during the year ended December 31, 2021 totaled approximately Won 6.0 billion.
The compensation of our directors who received total annual compensation exceeding Won 500 million in 2021 was as follows:
 
Name
 
Position
 
Composition of Total Compensation
  
Total
Compensation
 
 
Salary
  
Bonus
  
Other Earned
Income
  
Severance
 
    
(in millions of Won)
 
Jung Ho Park
(1)
 Executive Director ￦ 1,625  ￦2,170  ￦32   —  ￦ 3,827 
Young Sang Ryu
 Executive Director  792   730   31   —   1,553 
 
 
(1)
On November 1, 2021, Jung Ho Park resigned from the board of directors following the Spin-off. His compensation amount set forth above includes only the amount with respect to his time as a member of our board of directors.
 
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Remuneration for our directors is determined by shareholder resolution. Severance allowances for our directors are determined by the board of directors in accordance with our regulation on severance allowances for officers, which was adopted by shareholder resolution. The regulation provides for monthly salary, performance bonus, severance payment and fringe benefits. The amount of performance bonuses is independently decided by a resolution of the board of directors.
The aggregate of the remuneration paid and
in-kind
benefits granted to our executive officers (excluding all standing directors, who also serve as our executive officers) during the year ended December 31, 2021 totaled approximately Won 49.8 billion.
The compensation of the five individuals who received the highest compensation among those who received total annual compensation exceeding Won 500 million in 2021 was as follows:
 
Name
  
Position
 
Composition of Total Compensation
  
Total
Compensation
 
 
Salary
  
Bonus
  
Other Earned
Income
  
Severance
 
     
(in millions of Won)
 
Jung Ho Park
  Executive Director ￦1,630  ￦ 2,170  ￦32  ￦—  ￦3,832 
Jin Woo So
  Chairman of Talent Development Committee  1,286   1,699   1   —   2,986 
Yoon Kim
  Head of T3K  440   795   114   471   1,820 
Hyeong Chan Kim
  PD of SK Research Institute for SUPEX Management  361   315   39   899   1,614 
Dae Hwan Ko
  Director of SK Academy  369   303   4   895   1,571 
On February 20, 2020, our board of directors resolved to grant options to purchase shares of our common stock to certain directors and executive officers, which was approved by shareholder resolution on March 26, 2020. On February 25, 2021, our board of directors resolved to grant options to purchase shares of our common stock to certain directors and executive officers, which was approved by shareholder resolution on March 25, 2021. The following table summarizes the exercisable stock options granted to our current and former directors and executive officers as of March 31, 2022:
 
Recipient
 
Position
 
Grant date
 
Exercise period
 
Exercise price
(per share)
  
Number of
shares issuable
 
 
From
 
To
Jung Ho Park
 Former Executive
Director, President
and Chief
Executive Officer		 March 24, 2017 March 25, 2019 March 24, 2022 ￦ 49,350   67,320 
 March 25, 2020 March 24, 2023  53,298   67,320 
 March 25, 2021 March 24, 2024  57,562   67,320 
 March 26, 2020 March 27, 2023 March 26, 2027  38,452   337,408 
Young Sang Ryu
 Executive Director,
President and
Chief Executive
Officer		 February 20, 2018 February 21, 2020 February 20, 2023  50,824   4,123 
 March 26, 2019 March 27, 2021 March 26, 2024  50,862   5,265 
 March 26, 2020 March 27, 2023 March 26, 2027  38,452   7,145 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   18,190 
 March 25, 2022 March 26, 2025 March 25, 2029  56,860   295,275 
Seong Ho Ha
 Head of Corporate
Relations Center		 February 22, 2019 February 23, 2021 February 22, 2024  53,052   4,157 
 March 26, 2020 March 27, 2023 March 26, 2027  38,452   5,028 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   5,830 
 March 25, 2022 March 26, 2025 March 25, 2029  56,860   9,341 
Hyoung Il Ha
 Head of Corporate
Development		 February 22, 2019 February 23, 2021 February 22, 2024  53,052   4,749 
 March 26, 2020 March 27, 2023 March 26, 2027  38,452   5,955 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   11,418 
 March 25, 2022 March 26, 2025 March 25, 2029  56,860   10,737 
Poong Young Yoon
 Head of Corporate
Center 1		 February 22, 2019 February 23, 2021 February 22, 2024  53,052   3,777 
 March 26, 2020 March 27, 2023 March 26, 2027  38,452   5,293 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   10,203 
Jong Ryeol Kang
 Head of ICT
Infrastructure
Center		 March 26, 2020 March 27, 2023 March 26, 2027  38,452   6,219 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   7,136 
 March 25, 2022 March 26, 2025 March 25, 2029  56,860   21,743 
 
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Recipient
 
Position
 
Grant date
 
Exercise period
 
Exercise price
(per share)
  
Number of
shares issuable
 
 
From
 
To
Yoon Kim
 Head of T3K March 26, 2020 March 27, 2023 March 26, 2027  38,452   5,690 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   6,407 
Seok Joon Huh
 Head of Private
Placement Group		 March 26, 2020 March 27, 2023 March 26, 2027  38,452   5,624 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   6,863 
Dong Hwan Cho
 Head of Cloud
Transformation
Center		 March 26, 2020 March 27, 2023 March 26, 2027  38,452   4,631 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   5,375 
 March 25, 2022 March 26, 2025 March 25, 2029  56,860   8,697 
HyunA Lee
 Head of AI&CO March 26, 2020 March 27, 2023 March 26, 2027  38,452   4,631 
 March 25, 2021 March 26, 2023 March 25, 2026  50,276   8,746 
  March 25, 2022 March 26, 2025 March 25, 2029  56,860   12,884 
Sang Kyu Shin
 Head of Corporate
Culture Center		 March 25, 2021 March 26, 2023 March 25, 2026  50,276   4,646 
Jae Seung Song
 Head of Corporate
Development
Croup		 March 25, 2021 March 26, 2023 March 25, 2026  50,276   8,047 
Myung Jin Han
 Head of
Subscription
Service CO		 March 25, 2021 March 26, 2023 March 25, 2026  50,276   4,403 
 March 25, 2022 March 26, 2025 March 25, 2029  56,860   11,274 
     
Byung Hoon Ryu
 Head of Corporate
Strategy Group		 March 25, 2021 March 26, 2023 March 25, 2026  50,276   3,796 
Bong Ho Lim
 Head of Mobile
CO		 March 25, 2022 March 26, 2025 March 25, 2029  56,860   12,884 
Jinwon Kim
 Head of Corporate
Planning Group		 March 25, 2022 March 26, 2025 March 25, 2029  56,860   10,629 
Yong Joo Park
 Head of ESG March 25, 2022 March 26, 2025 March 25, 2029  56,860   10,334 
Heesup Kim
 Head of
Communications		 March 25, 2022 March 26, 2025 March 25, 2029  56,860   7,086 
Jungwhan Ahn
 Head of Corporate
Culture		 March 25, 2022 March 26, 2025 March 25, 2029  56,860   8,858 
 
Item 6.C.
Board Practices
For information regarding the expiration of each director’s term of appointment, as well as the period from which each director has served in such capacity, see the table set out under “Item 6.A. Directors and Senior Management” above.
Termination of Directors’ Services
Directors are given a retirement and severance payment upon termination of employment in accordance with our internal regulations on severance payments. Upon retirement, directors who have made significant contributions to our company during their term may be appointed to serve either as an advisor to us or as an officer of an affiliate company.
Audit Committee
Under relevant Korean laws and our articles of incorporation, we are required to have an audit committee under the board of directors. The committee is composed of at least three members,
two-thirds
of whom must be independent
non-executive
directors in accordance with applicable rules. The members of the audit committee are appointed annually by a resolution of the general meeting of shareholders. They are required to:
 
 • 
examine the agenda for the general meeting of shareholders;
 
 • 
examine financial statements and other reports to be submitted by the board of directors to the general meeting of shareholders;
 
 • 
review the administration by the board of directors of our affairs; and
 
 • 
examine the operations and asset status of us and our subsidiaries.
 
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In addition, the audit committee must appoint independent auditors to examine our financial statements. An audit and review of our financial statements by independent auditors is required for the purposes of a securities report. Listed companies must provide such report on an annual, semi-annual and quarterly basis to the FSC and the KRX KOSPI Market.
Our audit committee is composed of four independent
non-executive
directors: Seok-Dong Kim,
Yong-Hak
Kim, Jung Ho Ahn and Youngmin Yoon, each of whom is financially literate and independent under the rules of the NYSE as applicable. Seok-Dong Kim is the chairman of the committee. The board of directors has determined that Seok-Dong Kim is an “audit committee financial expert” as defined under the applicable rules of the SEC. See “Item 16A. Audit Committee Financial Expert.”
Independent Director Nomination Committee
This committee is devoted to recommending independent
non-executive
directors for the board of directors. The objective of the committee is to help promote fairness and transparency in the nomination of candidates for these positions. The board of directors decides from time to time who will comprise the members of this committee. The committee is comprised of one executive director, Young Sang Ryu, and two independent directors,
Yong-Hak
Kim and Jung Ho Ahn.
Yong-Hak
Kim is the chairman of the committee.
Capex Review Committee
This committee is responsible for reviewing our business plan (including the budget). It also examines major capital expenditure revisions, and routinely monitors capital expenditure decisions that have already been executed. The committee is comprised of one executive director, Young Sang Ryu, one
non-independent
director, Kyu Nam Choi, and five independent directors,
Yong-Hak
Kim, Seok-Dong Kim, Jung Ho Ahn, Youngmin Yoon and Junmo Kim. Youngmin Yoon is the chairwoman of the committee.
Compensation Review Committee
This committee oversees our overall compensation scheme for
top-level
executives and directors. It is responsible for reviewing both the criteria for and level of compensation. It is comprised of one
non-independent
director, Kyu Nam Choi, and three independent directors,
Yong-Hak
Kim, Seok-Dong Kim and Junmo Kim.
Yong-Hak
Kim is the chairman of the committee.
Corporate Citizenship Committee
This committee was established to help us achieve world-class sustainable growth and to help us fulfill our corporate social responsibilities. It is comprised of three independent directors, Jung Ho Ahn, Youngmin Yoon and Junmo Kim. Jung Ho Ahn is the chairman of the committee.
 
Item 6.D.
Employees
The following table sets forth the numbers of our regular employees, temporary employees and total employees as of the dates indicated:
 
   
Regular
Employees
   
Temporary
Employees
   
Total
 
December 31, 2019
(1)
   34,548    5,995    40,543 
December 31, 2020
(1)
   34,847    6,250    41,097 
December 31, 2021
   23,457    668    24,125 
 
 
(1)
Includes employees of our former subsidiaries that were spun off pursuant to the
Spin-off
in November 2021.
Labor Relations
As of December 31, 2021, SK Telecom had a company union consisting of 2,453 regular employees out of 23,457 total regular employees. We have never experienced a work stoppage of a serious nature. Every two years,
 
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the union and management negotiate and enter into a new collective bargaining agreement that has a
two-year
duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Our wage negotiations for 2019 were completed in September 2019 and resulted in an average monthly wage increase of 2.0% for SK Telecom employees. Our wage negotiations for 2020 were completed in September 2020 and resulted in an average monthly wage increase of 2.0% for SK Telecom employees.
Our wage negotiations for 2021 were completed in March 2021 and resulted in an average monthly wage increase of 3.0% for SK Telecom employees. We consider our relations with our employees to be good.
Employee Benefits
Since April 1999, we have been required to contribute an amount equal to 4.5% of employee wages toward a national pension plan. Employees are eligible to participate in an employee stock ownership association. We are not required to, and we do not, make any contributions to the employee stock ownership association, although we subsidize the employee stock ownership association through the Employee Welfare Fund by providing low interest rate loans to employees who desire to purchase our stock through the plan in the event of a capitalization by the association.
We are required to pay a severance amount to eligible employees who voluntarily or involuntarily cease employment with us, including through retirement. This severance amount is based upon the employee’s length of service with us and the employee’s salary level at the time of severance. As of December 31, 2021, the defined benefit obligation, which is the accrued and unpaid retirement and severance benefits, of Won 1,035.0 billion for all of our employees is reflected in our consolidated financial statements as a liability, of which a total of Won 1,040.3 billion was funded. Under Korean laws and regulations, we are prevented from involuntarily terminating a full-time employee except under certain limited circumstances. In September 2000, we entered into an employment stabilization agreement with the union. Among other things, in the event that we reorganize a department into a separate entity or we outsource an employee to a separate entity where the wage is lower, this agreement provides for a guarantee of the same wage level for the year that such an event occurs.
Under the Basic Labor Welfare Act, we may also contribute up to 5.0% of our annual earnings before tax for employee welfare. Contribution amounts are determined annually following negotiation with the union. The contribution amount for 2021 was set at 4.09% of SK Telecom’s profit before income tax on a separate basis, or Won 56.0 billion. The contribution amount for 2020 was set at 5.00% of SK Telecom’s profit before income tax on a separate basis, or Won 50.0 billion. The contribution amount for 2019 was set at 3.63% of SK Telecom’s profit before income tax on a separate basis, or Won 43.0 billion.
In addition, we provide our employees with miscellaneous other fringe benefits including medical cost subsidies, family camp programs and sabbatical programs for long-term employees.
 
Item 6.E.
Share Ownership
The following table sets forth the share ownership by our directors and executive officers as of March 31, 2022:
 
Name
 
Position
 
Number of
Shares
Owned
   
Percentage of
Total Shares
Outstanding
  
Special
Voting
Rights
  
Options
 
Directors:
      
Young Sang Ryu
 Executive Director, President and Chief Executive Officer  7,340    *   None   329,998 
Jong Ryeol Kang
 Head of ICT Infrastructure  3,484    *   None   35,098 
Executive Officers:
      
Seong Joon Kim
 Head of Untact CP  2,514    *   None   — 
Yeong Joon Kim
 Head of AI Technology Unit  1,411    *   None   — 
Jung Hoon Kim
 Head of Cloud Infrastructure  1,759    *   None   — 
Jiwon Kim
 Head of T3K Innovation Meta AI  1,714    *   None   — 
Jinwoo Kim
 Head of Global Business Office  1,759    *   None   — 
Jinwon Kim
 Head of Corporate Planning Group  3,429    *   None   10,629 
 
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Name
 
Position
 
Number of
Shares
Owned
   
Percentage of
Total Shares
Outstanding
  
Special
Voting
Rights
  
Options
 
Hyuk Kim
 Global Media Support, Media/Contents CO  1,714    *   None   — 
Heesup Kim
 Head of Communications  2,411    *   None   7,086 
Jung Hwan Ryu
 Head of Infrastructure Strategy  2,420    *   None   — 
Gap In Moon
 Head of Smart Device  2,911    *   None   — 
Myung Soon Park
 Head of Infrastructure Value Innovation  1,459    *   None   — 
Yong Joo Park
 Head of ESG  5,527    *   None   10,334 
Jong Kwan Park
 Head of Infrastructure Technology  1,911    *   None   — 
Suk Ham Sung
 
Head of Policy Cooperation Office
  2,822    *   None   — 
Jin Soo Seong
 Head of Infrastructure Engineering  5,449    *   None   — 
Yongsik Shin
 Head of Connect Infrastructure CO  2,642    *   None   — 
Sang Soo Sim
 Head of Western Infrastructure  2,714    *   None   — 
Jeong Yeol Ahn
 Head of Supply Chain Management   2,182    *   None   — 
Maeng Seog Yang
 Head of Metaverse Business, Metaverse CO  1,911    *   None   — 
Ji Young Yeo
 
ESG Alliance, ESG Promotion
  1,763    *   None   — 
Sung Jin Yeum
 
Officer of Corporate Culture Center
  4,340    *   None   — 
Hui Gang Ye
 Head of Brand Strategy  2,411    *   None   — 
Kyung Sik Oh
 Head of Sports Marketing  1,866    *   None   — 
Sehyeon Oh
 Head of Digital Asset CO  1,107    *   None   — 
Sung Eun Yoon
 Officer of Communications, SUPEX Council Project  1,911    *   None   — 
Gab Jae Lee
 Head of Regional CP  2,214    *   None   — 
Kiyoon Lee
 Head of Change Management 2  3,126    *   None   — 
Sang Gu Lee
 Head of Messaging CO  2,366    *   None   — 
Sang Heon Lee
 Head of Policy Development  2,148    *   None   — 
Jongmin Lee
 Head of T3K Innovation  1,911    *   None   — 
Joon Ho Lee
 
Head of ESG Promotion
  2,014    *   None   — 
Joong Ho Lee
 Head of Metropolitan Area CP  1,511    *   None   — 
HyunA Lee
 Head of AI&CO  1,107    *   None   26,261 
Bong Ho Lim
 Head of Mobile CO  1,759    *   None   8,858 
Hyoung Do Lim
 Head of Change Management 1  1,638    *   None   — 
Hong Sung Chang
 Head of Advertising/Data CO  2,562    *   None   — 
Dae Dug Jeong
 Head of Finance  1,866    *   None   — 
Doh Hee Jung
 Head of AI Transformation Intelligence Service  1,607    *   None   — 
Chang Gweon Chung
 Head of Infrastructure Business  2,370    *   None   — 
Dong Hwan Cho
 
Head of Cloud Technology
  2,929    *   None   14,072 
Young Log Cho
 Head of CR Innovation  4,429    *   None   — 
Zonggeun Chai
 Head of Ethics Management  4,036    *   None   — 
Nag Hun Choi
 Head of Smart Factory CO  2,625    *   None   — 
Il Gyu Choi
 Head of Digital Infrastructure CO  1,509    *   None   — 
Jeong Hwan Choi
 Strategic Investment, Business Development  2,018    *   None   — 
Min Yong Ha
 Head of Corporate Development  2,714    *   None   — 
Seong Ho Ha
 Head of Corporate Relations  5,340    *   None   19,328 
Hyoung Il Ha
 Head of Corporate Development  7,340    *   None   26,904 
Geunman Heo
 Head of Metropolitan Infrastructure  2,514    *   None   — 
Myung Jin Han
 Head of Corporate Strategy  5,340    *   None   15,677 
Seung Tae Hong
 Head of Client Value Innovation  1,759    *   None   — 
Gyu Sik Lee
 Head of ICT Support Office  2,411    *   None   — 
Gwan Woo Lee
 Head of Cloud Application Group  2,062    *   None   — 
Yeong Sang Kwon
 Head of Corporate Relations Strategy  2,062    *   None   — 
Yong Jin Choi
 Head of Apollo TF  1,411    *   None   — 
 
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Name
 
Position
 
Number of
Shares
Owned
   
Percentage of
Total Shares
Outstanding
  
Special
Voting
Rights
  
Options
 
Yong Chul Yoon
 Officer of Communication Team, SUPEX Council Project  303    *   None   — 
Eric Hartman Davis
 Head of Apollo TF  803    *   None   — 
Woo Seong Chey
 Representative, SK Telecom Japan  303    *   None   — 
Jihoon Kim
 Officer of Future Business Team, SUPEX Council Project  203    *   None   — 
Jungwhan Ahn
 Head of Corporate Culture  —    *   None   8,858 
Jaeho Yoo
 Head of Portfolio Mgmt  2,168    *   None   — 
Hyuncheol Ku
 Head of Policy, Mobile CO  1,107    *   None   — 
Dae Sung Kim
 Head of Customer Planning, Business Planning  1,107    *   None   — 
Ji Hyung Kim
 Head of Bundled Marketing Strategy  955    *   None   — 
Sang Wook Shin
 Head of AI Service, AI&CO  1,607    *   None   — 
Jae Woong Yoon
 Head of Subscription Marketing, Marketing CO  1,107    *   None   — 
Hyeongsig Yoon
 Head of Infrastructure Operation  1,501    *   None   — 
Dong Kee Lee
 Head of Cloud MEC Technology, Digital Infrastructure CO  1,107    *   None   — 
Seoungyeoll Lee
 Head of PR1  803    *   None   — 
Jeongyeon Lim
 Head of Media Technology  825    *   None   — 
Hyuk Joon Chang
 Head of Business Planning  500    *   None   — 
Jae Hyun Chung
 Officer of ICT Advisory Group  303    *   None   — 
Ikhwan Cho
 Head of Metaverse Development, Metaverse CO  1,046    *   None   — 
Hwasik Choi
 Head of Safety and Health  1,107    *   None   — 
Hwan Seok Choi
 Head of Business Strategy  1,000    *   None   — 
Jin Hur
 PD of SK Research Institute for SUPEX Management  197    *   None   — 
Tae-won Chey
 Chairman  303    *   None   — 
Jung Ho Park
 Vice-chairman  21,530    *   None   539,368 
  
 
 
   
 
 
   
 
 
 
Total
  191,464    *    1,052,471 
 
 
*
Less than 1%.
See “Item 6.B. Compensation” for information regarding the exercisable stock options granted to our directors and executive officers.
 
Item 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
Item 7.A.
Major Shareholders
As of the close of our shareholders’ registry on December 31, 2021, approximately 56.4% of our issued shares were held in Korea by approximately 18,648,100 shareholders. According to Citibank, N.A. (“Citibank”), depositary for our ADRs, as of December 31, 2021, there were at least 35,232 record holders of our ADRs evidencing ADSs resident in the United States to the best of Citibank’s knowledge, and 14,653,598 shares of our common stock were held in the form of ADSs.
As of such date, outstanding ADSs represented approximately 6.7% of our outstanding common shares.
The following table sets forth certain information as of December 31, 2021 with respect to any person known to us to be the beneficial owner of more than 5.0% of our common shares:
 
Shareholder
  
Number of
Shares
   
Percentage of

Total Shares

Issued
(1)
  
Percentage of

Total Shares

Outstanding
(2)
 
SK Inc.
   65,668,397    30.0%   30.2% 
National Pension Service
   21,076,493    9.6   9.7 
 
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(1)
Calculated based on 218,833,144 total issued shares, which include 1,250,992 treasury shares, as of December 31, 2021.
 
(2)
Calculated based on 217,582,152 total outstanding shares as of December 31, 2021.
The following table sets forth significant changes in the percentage ownership held by our major shareholders during the past three years:
 
   
As of December 31,
 
Shareholder
  
2021
  
2020
  
2019
 
   
(As a percentage of total
issued shares)
(1)
 
SK Group
(2)
   30.0%   26.8%   26.8% 
SK Inc.
   30.0   26.8   26.8 
National Pension Service
   9.6   11.0   11.1 
 
 
(1)
Includes 1,250,992 shares, 9,418,558 shares and 7,609,263 shares held in treasury as of December 31, 2021, 2020 and 2019, respectively. In November 2019, we sold 1,266,620 treasury shares to Kakao for approximately Won 300.0 billion. In 2020, we repurchased 1,809,295 common shares under the Share Repurchase Agreement. In 2021, we repurchased 288,000 common shares under the Share Repurchase Agreement and transferred 626,740 treasury shares as bonus payments to certain of our officers and employees, in each case prior to the effectiveness of the Stock Split. The Share Repurchase Agreement was terminated on April 30, 2021.
 
(2)
SK Group’s ownership interest as of December 31, 2021, 2020 and 2019 consisted of the ownership interest of SK Inc. only.
Except as described above, other than companies in the SK Group, no other persons or entities known by us to be acting in concert, directly or indirectly, jointly or severally, own in excess of 5.0% of our total shares outstanding or exercise control or could exercise control over our business.
As of March 31, 2022, SK Inc. held 30.0% of our total issued shares of common stock. For a description of our foreign ownership limitation, see “Item 3.D. Risk Factors — Risks Relating to Our Business — If SK Inc. causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.” and “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In the event that SK Inc. announces plans of a sale of our shares, we expect to be able to discuss the details of such sale with them in advance and will endeavor to minimize any adverse effects on our share prices as a result of such sale.
As of March 31, 2022, the total number of our common shares outstanding was 218,002,830.
Other than as disclosed herein, there are no other arrangements, to the best of our knowledge, which would result in a material change in the control of us. Our major shareholders do not have different voting rights.
 
Item 7.B.
Related Party Transactions
We are part of the SK Group of affiliated companies. See “Item 7.A. Major Shareholders.” As disclosed in note 36 of the notes to our consolidated financial statements, we had related party transactions with a number of affiliated companies of the SK Group during the year ended December 31, 2021
.
SK Networks
As of December 31, 2021, we had Won 0.2 billion of accounts receivable from SK Networks. As of the same date, we had Won 198.6 billion of accounts payable to SK Networks, mainly relating to payments for wireless devices by PS&Marketing. The aggregate fees we paid to SK Networks for dealer commissions amounted to Won 1,055.5 billion in 2021, Won 1,023.0 billion in 2020 and Won 1,088.4 billion in 2019.
 
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SK Inc.
We enter into agreements with SK Inc. from time to time for specific information technology-related projects, and we also pay SK Inc. for use of the SK brand. The aggregate fees we paid to SK Inc. for such information technology services and the use of the SK brand amounted to Won 385.2 billion in 2021, Won 380.3 billion in 2020 and Won 396.0 billion in 2019. We also purchase various information technology-related equipment from SK Inc. from time to time. The total amount of such purchases was Won 82.2 billion in 2021, Won 76.5 billion in 2020 and Won 95.4 billion in 2019. We are a party to several service agreements with SK Inc. relating to the development and maintenance of our information technologies systems.
In December 2018, we acquired SK Infosec from SK Inc. in a share exchange transaction, pursuant to which we transferred 1,260,668 treasury shares with an aggregate book value of Won 281.2 billion to SK Inc. in exchange for all of the issued and outstanding common shares of SK Infosec.
SK TNS
SK TNS Co., Ltd. (“SK TNS”) provides us with network construction and maintenance services and related equipment. The total amount of network equipment purchased from SK TNS was Won 57.9 billion in 2021, Won 496.5 billion in 2020 and Won 607.5 billion in 2019. As of December 31, 2021, we had Won 89.4 billion of accounts payable to SK TNS, mainly relating to payments for such services and equipment.
 
Item 7.C.
Interests of Experts and Counsel
Not applicable.
 
Item 8.
FINANCIAL INFORMATION
 
Item 8.A.
Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements” and pages
F-1
through
G-98.
Legal Proceedings
FTC Proceedings
In March 2021, the FTC imposed a fine of Won 3.2 billion on each of SK Telecom and SK Broadband (which SK Telecom and SK Broadband have paid in full) and issued a correctional order in connection with the payment by SK Telecom of a portion of sales commissions for SK Broadband’s IPTV services in the course of bundling and selling services that combine SK Telecom’s wireless and high-speed wireless Internet services with SK Broadband’s IPTV services in violation of the Fair Trade Act. In April 2021, we initiated an administrative proceeding, which is currently pending, requesting the revocation of the fine and the correctional order.
KCC Proceedings
On March 20, 2019, the KCC imposed a fine of Won 975 million on us and issued a correctional order for providing discriminatory subsidies in violation of the MDDIA. On June 26, 2019, the KCC imposed a fine of Won 231 million on us and issued a correctional order relating to restrictions on subscription cancelations. On July 9, 2019, the KCC imposed a fine of Won 1.5 million on us and issued a correctional order for failing to maintain the amount of subsidies for the minimum period in violation of the MDDIA.
On June 4, 2020, the KCC imposed a fine of Won 4 million on us and issued a correctional order for obtaining consent from subscribers for collection of personal information through contracts with material omissions in violation of the Location Information Act of Korea. On July 8, 2020, the KCC imposed a fine of Won 22.3 billion on us and issued a correctional order for providing handset subsidies that were in excess of their officially announced amounts and were discriminatory in nature, as well as unlawfully requiring subscribers to enroll to certain subscription plans or purchase certain value-added services in return, in connection with attracting new subscribers of 5G wireless services during the period between April 2019 and August 2019 in violation of the MDDIA. On September 9, 2020, the KCC imposed a fine of Won 76 million on us and issued a correctional order for false, exaggerated or deceptive advertising in violation of the Telecommunications Business Act.
 
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With respect to the fines imposed by the KCC set forth above, we have paid such fines in full. With respect to the correctional orders issued by the KCC set forth above, we have implemented remedial measures pursuant to such correctional orders and reported to the KCC on the implementation of such measures.
Except as described above, neither we nor any of our subsidiaries are involved in any litigation, arbitration or administrative proceedings relating to claims which may have, or have had during the twelve months preceding the date hereof, a significant effect on our financial position or the financial position of our subsidiaries taken as a whole, and, so far as we are aware, no such litigation, arbitration or administrative proceedings are pending or threatened.
Dividends
Annual dividends, if any, on our outstanding shares must be approved at the annual general meeting of shareholders. This meeting is generally held in March of the following year, and the annual dividend is generally paid shortly after the meeting. Since our shareholders have discretion to declare annual dividends, we cannot give any assurance as to the amount of dividends per share or that any dividends will be declared at all. Interim dividends, if any, could be approved by a resolution of our board of directors. We replaced the interim dividend system with a quarterly dividend system pursuant to an amendment to our articles of incorporation at our annual general meeting of shareholders held on March 25, 2021. Once declared, dividends must be claimed within five years, after which the right to receive the dividends is extinguished and reverted to us.
We pay cash dividends to the ADR depositary in Won. Under the terms of the deposit agreement, cash dividends received by the ADR depositary generally are to be converted by the ADR depositary into Dollars and distributed to the holders of the ADSs, less withholding tax, other governmental charges and the ADR depositary’s fees and expenses. The ADR depositary’s designated bank in Korea must approve this conversion and remittance of cash dividends. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”
The following table sets forth the dividend per share and the aggregate total amount of dividends declared (including any interim dividends), as well as the number of outstanding shares entitled to dividends, with respect to the years ended December 31, 2019 and 2020. The dividends set out for each of the years below were paid in the immediately following year, except interim dividends which were paid in the same year.
 
Year Ended December 31,
  
Dividend

per Share
   
Total Amount of
Dividends
   
Number of

Shares Entitled

to Dividend
 
   
(In Won)
   
(In billions of Won)
     
2019
  ￦10,000   ￦730.1    73,136,448
(1)
 
2020
   10,000    715.1    71,327,153
(2)
 
 
 
(1)
The number of shares entitled to the interim dividend was 71,869,828.
 
(2)
The number of shares entitled to the interim dividend was 73,136,448.
The following table sets forth the interim and annual dividend per share and the aggregate total amount of dividends declared, as well as the number of outstanding shares entitled to dividends, with respect to the year ended December 31, 2021. The annual dividend was paid in the immediately following year, and the interim dividends were paid in the same year.
 
Dividend Type
  
Dividend

per Share
   
Total Amount of
Dividends
   
Number of
Shares Entitled

to Dividend
 
   
(In Won)
   
(In billions of Won)
     
Interim dividend (for the period ended June 30, 2021)
  ￦2,500   ￦177.9    71,160,643 
Interim dividend (for the period ended September 30, 2021)
   2,500    177.9    71,160,643 
Annual dividend (for the year ended December 31, 2021)
   1,660    361.2    217,582,152
(1)
 
 
 
(1)
Reflects the Stock Split, which became effective as of October 28, 2021.
 
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We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our common shares represented by the ADSs have the same dividend rights as other outstanding common shares.
Holders of
non-voting
shares are entitled to receive dividends in priority to the holders of common shares. The dividend on the
non-voting
shares is between 9.0% and 25.0% of the par value as determined by the board of directors at the time of their issuance. If the dividends for common shares exceed the dividends for
non-voting
shares, the holders of
non-voting
shares will be entitled to participate in the distribution of such excess amount with the holders of common shares. If the amount available for dividends is less than the aggregate amount of the minimum required dividend, holders of
non-voting
shares will be entitled to receive such accumulated unpaid dividend from dividends payable in the next fiscal year before holders of common shares. There are no
non-voting
shares issued or outstanding.
We declare dividends annually at the annual general meeting of shareholders which is generally held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record or registered pledges as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in shares. However, a dividend of shares must be distributed at par value. Dividends in shares may not exceed
one-half
of the annual dividend. Our obligation to pay dividend expires if no claim to dividend is made for five years from the payment date.
Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a
non-consolidated
basis, over the sum of (1) our stated capital, (2) the total amount of our capital surplus reserve, (3) legal reserve accumulated up to the end of the relevant dividend period and (4) the increase in our net asset value resulting from the evaluation of our assets and liabilities that has not been offset against unrealized losses. In addition, we may not pay an annual dividend unless we have set aside as a legal reserve an amount equal to at least 10.0% of the cash portion of the annual dividend or until we have accumulated a legal reserve of not less than
one-half
of our stated capital. We may not use our legal reserve to pay cash dividends but may transfer amounts from our legal reserve to capital stock or use our legal reserve to reduce an accumulated deficit.
In addition, the FSCMA and our articles of incorporation provide that, in addition to annual dividends, we may pay quarterly dividends. Unlike annual dividends, the decision to pay quarterly dividends can be made by a resolution of the board of directors and is not subject to shareholder approval. Any quarterly dividends must be paid in cash to the shareholders of record as of March 31, June 30 or September 30 of the relevant fiscal year.
Under the FSCMA, the total amount of quarterly dividends payable in a fiscal year shall not be more than the net assets on the balance sheet of the immediately preceding fiscal year, after deducting (1) a company’s capital in the immediately preceding fiscal year, (2) the aggregate amount of its capital reserves and legal reserves accumulated up to the immediately preceding fiscal year, (3) the amount of earnings for dividend payments confirmed at the general shareholders’ meeting with respect to the immediately preceding fiscal year and (4) the amount of legal reserve that should be set aside for the current fiscal year following the quarterly dividend payment. Furthermore, the rate of quarterly dividends for
non-voting
shares must be the same as that for our common shares. In addition, no quarterly dividends can be paid if there is a concern over the net assets of the current fiscal year falling short of the aggregate sum of (1) our stated capital, (2) the total amount of our capital surplus reserve, (3) legal reserve accumulated up to the end of the current fiscal year and (4) the increase in our net asset value resulting from the evaluation of our assets and liabilities that has not been offset against unrealized losses.
Our obligation to pay quarterly dividends expires if no claims to such dividends are made for a period of five years from the payment date.
 
Item 8.B.
Significant Changes
None.
 
Item 9.
THE OFFER AND LISTING
 
Item 9.A.
Offering and Listing Details
These matters are described under “Item 9.C. Markets” below where relevant.
 
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Item 9.B.
Plan of Distribution
Not applicable.
 
Item 9.C.
Markets
The principal trading market for our common shares is the KRX KOSPI Market. Our common shares are traded on the KRX KOSPI Market under the identification code 017670. As of March 31, 2022, 218,002,830 shares of our common stock were outstanding.
The ADSs are traded on the NYSE and the London Stock Exchange. The ADSs have been issued by the ADR depositary and are traded on the NYSE under the ticker symbol “SKM.” Each ADS represents five-ninths of one share of our common stock. As of March 31, 2022, ADSs representing 14,653,598 shares of our common stock were outstanding.
 
Item 9.D.
Selling Shareholders
Not applicable.
 
Item 9.E.
Dilution
Not applicable.
 
Item 9.F.
Expenses of the Issue
Not applicable.
 
Item 10.
ADDITIONAL INFORMATION
 
Item 10.A.
Share Capital
Not applicable.
 
Item 10.B.
Memorandum and Articles of Association
Description of Capital Stock
This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the FSCMA, the Korean Commercial Code, the Telecommunications Business Act and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the FSCMA, the Korean Commercial Code and the Telecommunications Business Act. We have filed a copy of our articles of incorporation as an exhibit to our annual reports on
Form 20-F.
General
The name of our company is SK Telecom Co., Ltd. We are registered under the laws of Korea under the commercial registry number of 110111-0371346. As specified in Article 2 (Objectives) of our articles of incorporation, as amended, our objectives are the rational management of the telecommunications business, development of telecommunications technology, and contribution to public welfare and convenience. In order to achieve these objectives, we are engaged in the following:
 
 • 
information and communication business;
 
 • 
sale and lease of subscriber handsets;
 
 • 
new media business;
 
 • 
advertising business;
 
 • 
mail order sales business;
 
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 • 
real estate business (development, management and leasing, etc.) and chattel leasing business;
 
 • 
research and technology development relating to the first four items above;
 
 • 
overseas and import/export business relating to the first four items above;
 
 • 
manufacture and distribution business relating to the first four items above;
 
 • 
travel business;
 
 • 
electronic financial services business;
 
 • 
film business (production, import, distribution and screening);
 
 • 
lifetime education and management of lifetime educational facilities;
 
 • 
electric engineering business;
 
 • 
information- and communication-related engineering business;
 
 • 
ubiquitous city construction and related service business;
 
 • 
any related business through investment, management and operation of our Korean or offshore subsidiaries and investment companies;
 
 • 
construction business, including the machine and equipment business;
 
 • 
export/import business and export/import intermediation/agency business;
 
 • 
electrical business such as intelligent electrical grid business; and
 
 • 
any business or undertaking incidental or conducive to the attainment of the objectives stated above.
Currently, our authorized share capital is 670,000,000 shares, which consists of shares of common stock, par value Won 100 per share, and shares of
non-voting
stock, par value Won 100 per share (common shares and
non-voting
shares together are referred to as “shares”). Under our articles of incorporation, we are authorized to issue up to 5,500,000
non-voting
preferred shares. As of March 31, 2022, 218,833,144 common shares were issued, of which 830,314 shares were held by us in treasury. In connection with the
Spin-off,
we also engaged in the Stock Split, pursuant to which the par value of our common stock changed from Won 500 per share to Won 100 per share and the number of issued shares of our common stock increased from 72,060,143 shares to 360,300,715 shares, in each case effective as of October 28, 2021. In 2021, we repurchased 288,000 common shares under the Share Repurchase Agreement and transferred 626,740 treasury shares as bonus payments to certain of our officers and employees, in each case prior to the application of the effects of the Stock Split. In January and February 2022, we transferred an additional 420,678 treasury shares as bonus payments to certain of our officers and employees. We have never issued any
non-voting
preferred shares. All of the issued and outstanding common shares are fully-paid and
non-assessable
and are in registered form.
Board of Directors
Meetings of the board of directors are convened by the representative director as he or she deems necessary or upon the request of three or more directors. The board of directors determines all important matters relating to our business. In addition, the prior approval of the majority of the independent
non-executive
directors is required for certain matters, which include:
 
 • 
investment by us or any of our subsidiaries in a foreign company in equity or acquisition of such foreign company’s other overseas assets in an amount equal to 5.0% or more of our equity under our most recent balance sheet; and
 
 • 
contribution of capital, loans or guarantees, acquisition of our subsidiaries’ assets or similar transactions with our affiliated companies in excess of Won 10.0 billion through one or a series of transactions.
Resolutions of the board are adopted in the presence of a majority of the directors in office and by the affirmative vote of a majority of the directors present. No director who has an interest in a matter for resolution may exercise his or her vote upon such matter.
 
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There are no specific shareholding requirements for director’s qualification. Directors are elected at a general meeting of shareholders if the approval of the holders of the majority of the voting shares present at such meeting is obtained and if such majority also represents at least
one-fourth
of the total number of shares outstanding. Under the Korean Commercial Code, unless otherwise stated in the articles of incorporation, holders of an aggregate of 1.0% or more of the outstanding shares with voting rights may request cumulative voting in any election for two or more directors. Our articles of incorporation do not permit cumulative voting for the election of directors.
The term of office for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms and our shareholders may remove them from office at any time by a special resolution adopted at a general meeting of shareholders. The total term of office of independent directors may not exceed six years, and when combined with the term of office at our affiliates, may not exceed nine years.
Dividends
We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our common shares represented by the ADSs have the same dividend rights as other outstanding common shares. For a detailed discussion of our dividend policy, see “Item 8.A. Consolidated Statements and Other Financial Information — Dividends.”
Distribution of Free Shares
In addition to paying dividends in shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all of our shareholders in proportion to their existing shareholdings.
Preemptive Rights and Issuance of Additional Shares
We may at times issue authorized but unissued shares, unless otherwise provided in the Korean Commercial Code, on terms determined by our board of directors. All of our shareholders are generally entitled to subscribe to any newly-issued shares in proportion to their existing shareholdings. We must offer new shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ registry as of the relevant record date. We must give public notice of the preemptive rights regarding new shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute shares for which preemptive rights have not been exercised or where fractions of shares occur.
Under the Korean Commercial Code and our articles of incorporation, we may issue new shares pursuant to a board resolution to persons other than existing shareholders only if (1) the new shares are issued for the purpose of issuing depositary receipts in accordance with the relevant regulations or through an offering to public investors and (2) the purpose of such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition. If we make an allotment of new shares to persons other than our existing shareholders, we are required by the Korean Commercial Code to notify our existing shareholders of (a) the class and number of new shares, (b) the issuance price of new shares and the date set for the payment thereof, (c) in cases of no par value shares, the amount to be included in the
paid-up
capital out of the issuance price of new shares and (d) the method of subscription to new shares by no later than two weeks before the date of payment of the subscription price, or publicly announce such information. Under our articles of incorporation, only our board of directors is authorized to set the terms and conditions with respect to such issuance of new shares.
In addition, under our articles of incorporation, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 400.0 billion, to persons other than existing shareholders, where such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition.
Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the shares publicly offered pursuant to the FSCMA. This
 
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right is exercisable only to the extent that the total number of shares so acquired and held by members of our employee stock ownership association does not exceed 20.0% of the sum of the number of shares then outstanding and the number of newly-issued shares.
General Meeting of Shareholders
We generally hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:
 
 • 
as necessary;
 
 • 
at the request of holders of an aggregate of 3.0% or more of our outstanding common shares;
 
 • 
at the request of shareholders holding an aggregate of 1.5% or more of our outstanding shares and preferred shares for at least six months; or
 
 • 
at the request of our audit committee.
Holders of
non-voting
preferred shares may request a general meeting of shareholders only after the
non-voting
shares become entitled to vote or “enfranchised,” as described under “— Voting Rights” below.
We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding voting shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use The Korea Economic Daily News and Maeil Business Newspaper, both published in Seoul, for this purpose, but we may give notice in the future through electronic means. Shareholders who are not on the shareholders’ registry as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of
non-voting
preferred shares, unless enfranchised, are not entitled to receive notice of or vote at general meetings of shareholders.
Our general meetings of shareholders have historically been held in or near Seoul.
Voting Rights
Holders of our common shares are entitled to one vote for each common share, except that voting rights of common shares held by us (including treasury shares and shares held by bank trust funds controlled by us), or by a corporate shareholder in which we own more than 10.0% equity interest, either directly or indirectly, may not be exercised. The Korean Commercial Code, unless otherwise stated in the articles of incorporation, permits cumulative voting, which would allow each shareholder to have multiple voting rights corresponding to the number of directors to be appointed in the voting and to exercise all voting rights cumulatively to elect one director. Our articles of incorporation do not permit cumulative voting for the election of directors.
Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting if such affirmative votes also represent at least
one-fourth
of our total voting shares then issued and outstanding. However, under the Korean Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least
two-thirds
of the voting shares present or represented at a meeting, and such affirmative votes must also represent at least
one-third
of our total voting shares then issued and outstanding:
 
 • 
amending our articles of incorporation;
 
 • 
removing a director;
 
 • 
effecting any dissolution, merger or consolidation of us;
 
 • 
transferring the whole or any significant part of our business;
 
 • 
effecting our acquisition of all of the business of any other company or a part of the business of any other company having a material effect on our business;
 
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 • 
reducing our capital; or
 
 • 
issuing any new shares at a price lower than their par value.
In general, holders of
non-voting
preferred shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders.
However, in case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases which affect the rights or interests of the
non-voting
preferred shares, approval of the holders of
non-voting
preferred shares is required. We may obtain the approval by a resolution of holders of at least
two-thirds
of the
non-voting
preferred shares present or represented at a class meeting of the holders of
non-voting
preferred shares, where the affirmative votes also represent at least
one-third
of our total issued and outstanding
non-voting
shares. In addition, if we are unable to pay dividends on
non-voting
preferred shares as provided in our articles of incorporation, the holders of
non-voting
shares will become enfranchised and will be entitled to exercise voting rights beginning at the next general meeting of shareholders to be held after the declaration of
non-payment
of dividends is made until such dividends are paid. The holders of enfranchised
non-voting
preferred shares will have the same rights as holders of common shares to request, receive notice of, attend and vote at a general meeting of shareholders.
Shareholders may exercise their voting rights by proxy. A shareholder may give proxies only to another shareholder, except that a corporate shareholder may give proxies to its officers or employees.
Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying common shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote our common shares underlying their ADSs.
Limitation on Shareholdings
The Telecommunications Business Act prohibits foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) from owning more than 49.0% of our voting stock, subject to certain exceptions. See “Item 4.B Business Overview — Foreign Ownership and Investment Restrictions and Requirements.” Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of such Korean entities’ outstanding voting stock are deemed foreigners. A foreigner who has acquired shares of our voting stock in excess of such limitation may not exercise the voting rights with respect to the shares exceeding such limitation and may be subject to the MSIT’s corrective orders.
Rights of Dissenting Shareholders
Under Financial Investment Services and Capital Market Act, in some limited circumstances, including the transfer of all or a significant part of our business or our merger or consolidation with another company (with certain exceptions), dissenting shareholders have the right to require us to purchase their shares. To exercise this right, shareholders, including holders of
non-voting
shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Then, within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their shares. We are obligated to purchase the shares of such dissenting shareholders within one month after the expiration of the
20-day
period. The purchase price for the shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily share prices on the KRX KOSPI Market for the
two-month
period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant resolution. However, a court may determine the purchase price if we or dissenting shareholders do not accept the purchase price.
 
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Registry of Shareholders and Record Dates
Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It records and registers transfers of shares on the register of shareholders.
The record date for annual dividends is December 31. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the shares, we may set a record date with at least two weeks’ prior public notice by a resolution of our board of directors.
Annual Report
When sending a written notice for the general meeting of shareholders, we must attach our annual report prepared under the FSCMA and audit report prepared under the Act on External Audit of Stock Companies. Alternatively, we may inform the shareholders of the annual report and audit report by email or uploading them to our website one week before the general meeting of shareholders. Furthermore, at least one week before the annual general meeting of shareholders, we must make our business reports and audited
non-consolidated
financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of business reports, the audited
non-consolidated
financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.
Under the FSCMA, we must file with the FSC and the Korea Exchange (1) an annual report within 90 days after the end of our fiscal year, (2) a
mid-year
report within 45 days after the end of the first six months of our fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the ninth month of our fiscal year. Copies of these reports are or will be available for public inspection at the FSC and the Korea Exchange.
Transfer of Shares
Under the Korean Commercial Code and the Act on Electronic Registration of Stocks, Bonds, etc., the transfer of shares is effected by registration on the electronic registration ledger. However, to assert shareholders’ rights against us, the transferee must have his or her name, seal and address registered on our registry of shareholders, maintained by our transfer agent. A
non-Korean
shareholder may file a sample signature in place of a seal, unless he or she is a citizen of a country with a sealing system similar to that of Korea. In addition, a
non-resident
shareholder must appoint an agent in Korea authorized to receive notices on his or her behalf and file his or her mailing address in Korea.
Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of shares by
non-residents
or
non-Korean
citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”
Our transfer agent is Kookmin Bank, located at 24,
Gukjegeumyung-ro,
Yeongdeungpo-gu, Seoul, Korea.
Restrictions Applicable to Shares
Pursuant to the Telecommunications Business Act, the maximum aggregate foreign shareholding in us is limited to 49.0%. See “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In addition, certain foreign exchange controls and securities regulations apply to the acquisition of securities by
non-residents
or
non-Korean
citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”
Acquisition of Shares by Us
We may acquire our own shares pursuant to an approval at the general meeting of shareholders, through purchases on the Korea Exchange or a tender offer, or by acquiring the interests in a trust account holding our own shares through agreements with trust companies and asset management companies. The aggregate purchase price
 
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for the shares may not exceed the total amount available for distribution as dividends as of the end of the preceding fiscal year less the amount of dividends and mandatory reserves required to be set aside for that fiscal year, subject to certain procedural requirements.
Under the Korean Commercial Code, we may resell or transfer any shares acquired by us to a third party pursuant to an approval by the Board of Directors. In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our common stock. Under the FSCMA, we are subject to certain selling restrictions with respect to the shares acquired by us.
Liquidation Rights
In the event of our liquidation, remaining assets after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to their shareholdings. Holders of
non-voting
preferred shares have no preference in liquidation. Holders of debt securities have no preference over other creditors in the event of liquidation.
 
Item 10.C.
Material Contracts
We have not entered into any material contracts during the two years immediately preceding the date of this annual report, other than in the ordinary course of our business. For information regarding our agreements and transactions with entities affiliated with the SK Group, see “Item 7.B. Related Party Transactions” and note 36 of the notes to our consolidated financial statements. For a description of certain agreements entered into during the past three years related to our capital commitments and obligations, see “Item 5.B. Liquidity and Capital Resources.”
 
Item 10.D.
Exchange Controls
Korean Foreign Exchange Controls and Securities Regulations
General
The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree, collectively referred to as the Foreign Exchange Transaction Laws, regulate investment in Korean securities by
non-residents
and issuance of securities outside Korea by Korean companies.
Non-residents
may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The FSC has also adopted, pursuant to its authority under the FSCMA, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.
Subject to certain limitations, the MOEF has authority to take the following actions under the Foreign Exchange Transaction Laws:
 
 • 
if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the MOEF may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange), impose an obligation to deposit, safe-keep or sell any means of payment to The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies or impose an obligation on a resident that holds a claim against a
non-resident
to collect such claim to enable the recovery of the relevant debt back to Korea; and
 
 • 
if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries are likely to adversely affect the Won, exchange rate or other macroeconomic policies, the MOEF may take action to require any person who intends to effect or effects a capital transaction to deposit all or a portion of the means of payment acquired in such transactions with The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies.
Under the regulations of the FSC amended on February 4, 2009, (1) if a company listed on the KRX KOSPI Market or a company listed on the KRX KOSDAQ Market has submitted a public disclosure of material matters to
 
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a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the FSC and the Korea Exchange, and (2) if a KRX KOSPI Market-listed company or KRX KOSDAQ Market-listed company is approved for listing on a foreign stock market or determined to be
de-listed
from the foreign stock market or actually listed on, or
de-listed
from a foreign stock market, then it must submit a copy of any document, which it submitted to or received from the relevant foreign government, foreign financial investment supervisory authority or the foreign stock market, and a Korean translation thereof to the FSC and the Korea Exchange.
Government Review of Issuances of ADSs
In order for us to issue ADSs in excess of US$30 million, we are required to submit a report to the MOEF with respect to the issuance of the ADSs prior to and after such issuance; provided that such US$30 million threshold amount would be reduced by the aggregate principal amount of any foreign currency loans borrowed, and any securities offered and issued, outside Korea during the
one-year
period immediately preceding the report’s submission date. The MOEF may at its discretion direct us to take necessary measures to avoid exchange rate fluctuation in connection with its acceptance of report of the issuance of the ADSs.
 
 • 
Under current Korean laws and regulations, the depositary is required to obtain our prior consent for any proposed deposit of common shares if the number of shares to be deposited in such proposed deposit exceeds the number of common shares initially deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent issuances of ADSs by us or with our consent and stock dividends or other distributions related to the ADSs).
 
 • 
In addition to such restrictions under Korean laws and regulations, there are also restrictions on the deposits of our common shares for issuance of ADSs. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.
We submitted a report to and obtained acceptance thereof by the MOEF for the issuance of ADSs up to an amount corresponding to 24,321,893 common shares. No additional Korean governmental approval is necessary for the issuance of ADSs except that if the total number of our common shares on deposit for conversion into ADSs exceeds 24,321,893 common shares, we may be required to file a report to and obtain acceptance thereof by the MOEF with respect to the increase of such limit and the issuance of additional ADSs.
Reporting Requirements for Holders of Substantial Interests
Under the FSCMA, any person whose direct or beneficial ownership of shares with voting rights, certificates representing the rights to subscribe for shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively referred to as “equity securities”), together with the equity securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5.0% or more of the total outstanding equity securities is required to report the status and purpose (in terms of whether the purpose of shareholding is to affect control over management of the issuer) of the holdings to the FSC and the Korea Exchange within five business days after reaching the 5.0% ownership interest threshold and promptly deliver a copy of such report to the issuer. In addition, any change (1) in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total outstanding equity securities, or (2) in the shareholding purpose is required to be reported to the FSC and the Korea Exchange within five business days from the date of the change. However, the reporting deadline of such reporting requirement is extended for (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control by up to the tenth day of the month immediately following the last month of the quarter in which the share acquisition or change in their shareholding occurred. Those who reported the purpose of shareholding is to affect control over management of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to the report under the FSCMA.
Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the ownership of unreported equity securities exceeding 5.0%. Furthermore, the FSC may issue an order to dispose of such
non-reported
equity securities.
 
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In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our common shares accounts for 10.0% or more of the total issued and outstanding shares with voting rights (a “major shareholder”) must report the status of his or her shareholding to the Securities and Futures Commission and the Korea Exchange within five business days after he or she becomes a major shareholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange by the fifth business day of any changes in his or her shareholding. Violations of these reporting requirements may subject a person to criminal sanctions, such as fines or imprisonment.
Restrictions Applicable to ADSs
No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery of shares in Korea in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the Financial Supervisory Service of Korea (the “FSS”), as described below. The acquisition of the shares by a foreigner must be reported by the foreigner or his or her standing proxy in Korea immediately to the Governor of the FSS (the “Governor”).
Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.
In addition, we are required to file a securities registration statement with the FSC and such securities registration statement has to become effective pursuant to the FSCMA in order for us to issue shares represented by ADSs, except in certain limited circumstances.
Restrictions Applicable to Shares
As a result of amendments to the Foreign Exchange Transaction Laws and the regulations of the FSC, together referred to as the Investment Rules, adopted in connection with the stock market opening from January 1992 and after that date, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including, among others:
 
 • 
odd-lot
trading of shares;
 
 • 
acquisition of shares by a foreign company as a result of a merger;
 
 • 
acquisition or disposal of shares in connection with a tender offer;
 
 • 
acquisition of shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company (“converted shares”);
 
 • 
acquisition of shares through exercise of rights under securities issued outside of Korea;
 
 • 
acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;
 
 • 
over-the-counter
transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded;
 
 • 
acquisition of shares by direct investment under the Foreign Investment Promotion Law;
 
 • 
acquisition and disposal of shares on an overseas stock exchange market, if such shares are simultaneously listed on the KRX KOSPI Market or KRX KOSDAQ Market and such overseas stock exchange;
 
 • 
arm’s length transactions between foreigners in the event all such foreigners belong to an investment group managed by the same person; and
 
 • 
acquisition and disposal of shares through alternative trading systems.
 
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For
over-the-counter
transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a financial investment company with a brokerage license in Korea must act as an intermediary.
Odd-lot
trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a financial investment company with a dealing license in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from financial investment companies with respect to shares which are subject to a foreign ownership limit.
The Investment Rules require a foreign investor who wishes to invest in shares for the first time on the KRX KOSPI Market or the KRX KOSDAQ Market (including converted shares) and shares being publicly offered for initial listing on the KRX KOSPI Market or the KRX KOSDAQ Market to register its identity with the FSS prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire converted shares with the intention of selling such converted shares within three months from the date of acquisition of the converted shares or who acquire the shares in an
over-the-counter
transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Foreign Investment Promotion Law. Upon registration, the FSS will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a financial investment company or financial institution in Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or longer, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by decree promulgated under the FSCMA. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.
Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, where a foreign investor acquires or sells shares outside the KRX KOSPI Market and the KRX KOSDAQ Market, such acquisition or sale of shares must be reported by the foreign investor or such foreign investor’s standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer,
odd-lot
trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transaction. In the event a foreign investor desires to acquire or sell shares outside the KRX KOSPI Market or the KRX KOSDAQ Market and the circumstances in connection with such sale or acquisition do not fall within the exceptions made for certain limited circumstances described above, then the foreign investor must obtain the prior approval of the Governor. In addition, in the event a foreign investor acquires or sells shares outside the KRX KOSPI Market or the KRX KOSDAQ Market, a prior report to the Bank of Korea may also be required in certain circumstances. A foreign investor must appoint one or more standing proxies among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians which will act as a standing proxy to exercise shareholders’ rights, or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than his, her or its standing proxy, to exercise rights relating to its shares or perform any tasks related thereto on his, her or its behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.
Shares of Korean companies must be electronically registered with an eligible custodian in Korea. The Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment
 
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companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians are eligible to act as a custodian of shares for a
non-resident
or foreign investor.
Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person within 3.0% of the total number of shares in their articles of incorporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the outstanding shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance by, the Ministry of Trade, Industry and Energy of Korea, which delegates its authority to foreign exchange banks or the Korea Trade-Investment Promotion Agency under the relevant regulations. The acquisition of our shares by a foreign investor is also subject to the restrictions prescribed in the Telecommunications Business Act. The Telecommunications Business Act generally limits the maximum aggregate foreign shareholdings in us to 49.0% of the outstanding shares. A foreigner who has acquired shares in excess of such restriction described above may not exercise the voting rights with respect to the shares exceeding such limitations and may be subject to corrective orders.
Under the Foreign Exchange Transaction Laws, a foreign investor who intends to make a portfolio investment in shares of a Korean company listed on the KRX KOSPI Market or the KRX KOSDAQ Market must designate a foreign exchange bank at which he, she or it must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a securities company. Funds in the foreign currency account may be remitted abroad without any governmental approval.
Dividends on shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any such shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any such shares held by a
non-resident
of Korea must be deposited either in a Won account with the investor’s financial investment companies with a securities dealing, brokerage or collective investment license or the investor’s Won account. Funds in the investor’s Won account may be transferred to such investor’s foreign currency account or withdrawn for local living expenses, provided that any withdrawal of local living expenses in excess of a certain amount is reported to the tax authorities by the foreign exchange bank at which the Won account is maintained. Funds in the investor’s Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.
Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.
 
Item 10.E.
Taxation
United States Taxation
This summary describes certain U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold our common shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:
 
 • 
a dealer in securities or currencies;
 
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 • 
a trader in securities that elects to use a
mark-to-market
method of accounting for securities holdings;
 
 • 
a bank or other financial institution;
 
 • 
a life insurance company;
 
 • 
a
tax-exempt
organization;
 
 • 
a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks;
 
 • 
a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes;
 
 • 
a person whose functional currency for tax purposes is not the U.S. dollar;
 
 • 
a person that owns or is deemed to own 10.0% or more of any class of our stock (by vote or value); or
 
 • 
an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes (or partners therein).
This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.
Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of common shares or ADSs in your particular circumstances.
For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are:
 
 • 
a citizen or resident of the United States;
 
 • 
a U.S. domestic corporation; or
 
 • 
otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS.
In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common share represented by that ADS.
Dividends
The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source “passive income” dividend income and will not be eligible for the dividends received deduction. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at a preferential rate if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (1) the ADSs are readily tradable on an established securities market in the United States and (2) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company as defined for U.S. federal income tax purposes (“PFIC”), as discussed below under “
—
Passive Foreign Investment Company Rules.” The ADSs are listed on the NYSE, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. As described below under “Passive Foreign Investment Company Rules”, we believe that we may be classified as a PFIC with respect to our taxable year ending December 31, 2021 but do not expect to be classified as a PFIC for the current taxable year or in the
 
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reasonably foreseeable future based on the present composition of our income and assets and our expectations regarding our income and assets in the future. Accordingly, U.S. holders of commons shares or ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate for dividends with respect to our common shares or ADSs.
Distributions of additional shares in respect of common shares or ADSs that are made as part of a
pro-rata
distribution to all of our stockholders generally will not be subject to U.S. federal income tax.
Sale or Other Disposition
Subject to the discussion below under “Passive Foreign Investment Company Rules,” for U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the common shares or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.
Passive Foreign Investment Company Rules
Special U.S. tax rules apply to companies that are considered to be PFICs. We will be classified as a PFIC in a particular taxable year if either (i) 75 percent or more of our gross income for the taxable year is passive income; or (ii) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income. Investments in companies in which we own less than 25 percent of the stock (by value) are considered to be assets that produce passive income.
The determination whether we are a PFIC is made annually based on the particular facts and circumstances, such as the composition of our income and the valuation of our assets. Due to fluctuations in our stock price and changes in the value and composition of our assets, including our substantial investment in the stock of SK Hynix prior to the
Spin-off,
which was treated as a passive asset for this purpose, we believe that we may be classified as a PFIC for U.S. federal income tax purposes for our taxable year ending December 31, 2021. We do not expect to be classified as a PFIC for the current taxable year or in the reasonably foreseeable future, based on the present composition of our income and assets and our expectations regarding our income and assets in the future. Stock market volatility could exacerbate these considerations. See “Item 3.D. Risk Factors — Risks Relating to Our Business — The ongoing global pandemic of a new strain of coronavirus
(“COVID-19”)
and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition and results of operations.”
You should consult your own tax advisors regarding our classification as a PFIC for 2021 or in the current or future years.
If we are classified as a PFIC, and you do not make a
mark-to-market
election, as described in the following paragraph, you will be subject to a special tax at ordinary income tax rates on “excess distributions” (generally, any distributions that you receive in a taxable year that are greater than 125 percent of the average annual distributions that you have received in the preceding three taxable years, or your holding period, if shorter), including gain that you recognize on the sale of your common shares or ADSs. The amount of income tax on any excess distributions will be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period you hold your common shares or ADSs. Classification as a PFIC may also have other adverse tax consequences, including, in the case of individuals, the denial of a
step-up
in the basis of your common shares or ADSs at death.
Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year during which a U.S. holder holds our common shares or ADSs, such U.S. holder will generally be subject to the unfavorable rules described above for that year and for each subsequent year in which such U.S. holder holds the common shares or ADSs (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, a U.S. holder can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if such U.S. holder’s common shares or ADSs had been sold on the last day of the last taxable year during which we were a PFIC. U.S. holders should consult their own tax advisor about the advisability of making this election.
 
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A U.S. holder may be able to avoid the unfavorable rules described above by electing to mark its ADSs to market, provided the ADSs are treated as “marketable stock.” The ADSs generally will be treated as marketable stock if the ADSs are “regularly traded” on a “qualified exchange or other market” (which includes the NYSE). Further, it should also be noted that only the ADSs and not the common shares are listed on the NYSE. Consequently, a U.S. holder that holds common shares that are not represented by ADSs may not be eligible to make a
mark-to-market
election in respect of those common shares. If the U.S. holder makes a
mark-to-market
election, the U.S. holder will be required in any year in which we are a PFIC to include as ordinary income the excess of the fair market value of its ADSs at
year-end
over the U.S. holder’s basis in those ADSs. If at the end of the U.S. holder’s taxable year, the U.S. holder’s basis in the common shares or ADSs exceeds their fair market value, the U.S. holder will be entitled to deduct the excess as an ordinary loss, but only to the extent of the U.S. holder’s net
mark-to-market
gains from previous years. A U.S. holder’s adjusted tax basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the
mark-to-market
rules. In addition, any gain the U.S. holder recognizes upon the sale of the U.S. holder’s ADSs in a year in which we are a PFIC will be taxed as ordinary income in the year of sale and any loss will be treated as an ordinary loss to the extent of the U.S. holder’s net
mark-to-market
gains from previous years. If a U.S. holder makes a
mark-to-market
election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are no longer regularly traded on a “qualified exchange or other market” or the Internal Revenue Service (“IRS”) consents to the revocation of the election. If a U.S. holder makes a
mark-to-market
election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. holder will not be required to take into account the
mark-to-market
gain or loss described above during any period that such corporation is not classified as a PFIC. Because a
mark-to-market
election generally cannot be made for any lower-tier PFICs that we may own (unless shares of such lower-tier PFIC are themselves “marketable”), a U.S. holder who makes a
mark-to-market
election with respect to our common shares may continue to be subject to the general PFIC rules with respect to such U.S. holder’s indirect interest in any of our
non-United
States subsidiaries that is classified as a PFIC. U.S. holders are urged to consult their own tax advisors about the availability of the
mark-to-market
election, the consequences of not making a
mark-to-market
election for the first year during which a U.S. holder holds interests in our common shares or ADSs and we are a PFIC, and whether making the election would be advisable in their particular circumstances.
Although a U.S. holder can also avoid the unfavorable PFIC rules described above by electing to treat its common shares or ADSs as interests in a qualified electing fund (“QEF”), we do not intend to provide the information that would allow a U.S. holder to make such an election. Accordingly, in the event that we are treated as a PFIC, a U.S. holder will not be able to make a “QEF election.”
A U.S. holder that owns an equity interest in a PFIC must annually file IRS Form 8621, and may be required to file other IRS forms. A failure to file one or more of these forms as required may toll the running of the statute of limitations in respect of each of the U.S. holder’s taxable years for which such form is required to be filed. As a result, the taxable years with respect to which the U.S. holder fails to file the form may remain open to assessment by the IRS indefinitely, until the form is filed.
The U.S. federal income tax rules relating to PFICs are complex. U.S. holders are strongly urged to consult their own tax advisors regarding our potential classification as a PFIC and regarding the U.S. federal income tax consequences of acquiring, holding and disposing of our common shares or ADSs if we are so classified, including the advisability of making a
mark-to-market
election, if available.
Foreign Tax Credit Considerations
You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on the common shares or ADSs, so long as you have owned our common shares or ADSs (and not entered into specified kinds of hedging transactions) for at least a
16-day
period that includes the
ex-dividend
date. Instead of claiming a credit, you may, if you so elect, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law.
 
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Any Korean securities transaction tax or agricultural and fishery special surtax that you pay will not be creditable for foreign tax credit purposes.
Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial.
The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.
Specified Foreign Financial Assets
Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of U.S.$50,000 on the last day of the taxable year or U.S.$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a
non-U.S.
financial institution, as well as securities issued by a
non-U.S.
issuer (which would include the common shares or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors should consult their own tax advisers concerning the application of these rules to their investment in the common shares or ADSs, including the application of the rules to their particular circumstances.
U.S. Information Reporting and Backup Withholding Rules
Payments of dividends and sales proceeds that are made within the United States or through certain
U.S.-related
financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient and demonstrates this when required or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its
non-U.S. status
in connection with payments received within the United States or through a U.S.-related financial intermediary.
Korean Taxation
The following is a summary of the principal Korean tax consequences to owners of the common shares or ADSs, as the case may be, who are
non-resident
individuals or
non-Korean
corporations without a permanent establishment in Korea to which the relevant income is attributable or with which the relevant income is effectively connected
(“Non-resident
Holders”). The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This summary is not exhaustive of all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of the common shares or ADSs, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisors.
Tax on Dividends
Dividends on the common shares or ADSs paid (whether in cash or in shares) to a
Non-resident
Holder will be subject to Korean withholding taxes at the rate of 22.0% (including local income tax) or such lower rate as is applicable under a treaty between Korea and such
Non-resident
Holder’s country of tax residence. Free distributions of shares representing a capitalization of certain capital surplus reserves may be subject to Korean withholding taxes.
 
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The tax is withheld by the payer of the dividend. While it is the payer that is required to withhold the tax, Korean law generally entitles the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld upon providing evidence that it was entitled to have tax withheld at a lower rate if certain conditions are met.
Tax on Capital Gains
As a general rule, capital gains earned by
Non-resident
Holders upon transfer of the common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (including local income tax) of the gross proceeds realized or (2) 22.0% (including local income tax) of the net realized gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs), unless exempt from Korean income taxation under the effective Korean tax treaty with the
Non-resident
Holder’s country of tax residence.
However, a
Non-resident
Holder will not be subject to Korean income taxation on capital gains realized upon the sale of the common shares through the KRX KOSPI Market if the
Non-resident
Holder (1) has no permanent establishment in Korea and (2) did not or has not owned (together with any shares owned by any entity with certain special relationship with such
Non-resident
Holder) 25.0% or more of the total issued and outstanding shares of us at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.
It should be noted that capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation, provided that the ADSs are deemed to have been issued overseas. If and when an owner of the underlying common shares transfers the ADSs following the conversion of the underlying shares for ADSs, such person will not be exempt from Korean income taxation.
Inheritance Tax and Gift Tax
Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of his death he was a tax resident of Korea and (2) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. The taxes are imposed if the value of the relevant property is above a certain limit and vary depending on the value of the property and the identity of the parties involved.
Under Korean inheritance and gift tax laws, securities issued by a Korean corporation are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.
Securities Transaction Tax
Securities transaction tax is imposed on the transfer of shares issued by a Korean corporation or the right to subscribe for such shares generally at the rate of 0.43% of the sales price. In the case of the transfer of shares listed on the KRX KOSPI Market (such as our common shares), the securities transaction tax is imposed generally at the rate of (1) 0.23% of the sales price of such shares (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (2) subject to certain exceptions, 0.43% of the sales price of such shares if traded outside the KRX KOSPI Market.
Securities transaction tax or the agricultural and fishery special surtax is not applicable if (1) the shares or rights to subscribe for shares are listed on a designated foreign stock exchange and (2) the sale of the shares takes place on such exchange.
Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay (to the tax authority) the tax, and when such transfer is made through a financial investment company with a brokerage license only, such company is required to withhold and pay the tax. Where the transfer is effected by a
Non-resident
Holder without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company with a brokerage license, the transferee is required to withhold the securities transaction tax. Failure to do so will result in the imposition of penalties equal to the sum
 
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of (1) between 10.0% to 40.0% of the tax amount due, depending on the nature of the improper reporting, and (2) 8.03% per annum on the tax amount due for the default period.
Tax Treaties
Currently, Korea has income tax treaties with a number of countries, inter alia, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Ireland, the Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States under which the rate of withholding tax on dividend and interest is reduced, generally to between 5.0% and 16.5% (including local income tax), and the tax on capital gains derived by a
non-resident
from the transfer of securities issued by a Korean company is often eliminated.
Each
Non-resident
Holder of common shares should inquire for itself whether it is entitled to the benefits of a tax treaty with Korea. It is the responsibility of the party claiming the benefits of a tax treaty in respect of interest, dividend, capital gains or “other income” to submit to us (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, prior to or at the time of payment, such evidence of tax residence of the party claiming the treaty benefit as the Korean tax authorities may require in support of its claim for treaty protection. In the absence of sufficient proof, we (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, must withhold tax at the normal rates.
Furthermore, in order for a
non-resident
of Korea to obtain the benefits of tax exemption on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such
non-resident
(or its agent) to submit to the payer of such Korean source income an application for a tax exemption along with a certificate of tax residency of such
non-resident
issued by a competent authority of the
non-resident’s
country of tax residence, subject to certain exceptions. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.
For a
non-resident
of Korea to obtain the benefits of treaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such
non-resident
(or its agents) to submit to the payer of such Korean source income an application for treaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is a
non-resident
of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository.
At present, Korea has not entered into any tax treaty relating to inheritance or gift tax.
 
Item 10.F.
Dividends and Paying Agents
Not applicable.
 
Item 10.G.
Statements by Experts
Not applicable.
 
Item 10.H.
Documents on Display
We file reports, including annual reports on
Form 20-F,
and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
Any filings we make electronically will be available to the public over the Internet at the SEC’s Website at http://www.sec.gov.
Documents filed with annual reports and documents filed or submitted to the SEC are also available for inspection at our principal business office during normal business hours. Our principal business office is located at SK
T-Tower,
65, Eulji-ro,
Jung-gu,
Seoul 04539, Korea.
 
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Item 10.I.
Subsidiary Information
Not applicable.
 
Item 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities and to equity price risk as a result of our investment in equity instruments.
We have entered into a
floating-to-fixed
cross currency interest rate swap contract to hedge foreign currency and interest rate risks with respect to US$300 million of bonds issued in March 2020. In addition, we have entered into
fixed-to-fixed
cross currency swap contracts to hedge the foreign currency risks of US$400 million of bonds issued in July 2007, US$5.7 million of borrowings from December 2013, US$500 million of bonds issued in April 2018 and US$300 million of bonds issued in August 2018. We also entered into
floating-to-fixed
interest rate swap contracts to hedge interest rate risks with respect to Won 12.5 billion of borrowings from December 2017 and Won 25.0 billion of borrowings from December 2018. See note 22 of the notes to our consolidated financial statements. We may consider in the future entering into other such transactions solely for hedging purposes.
The following discussion and tables, which constitute “forward looking statements” that involve risks and uncertainties, summarize our market-sensitive financial instruments including fair value, maturity and contract terms. These tables address market risk only and do not present other risks which we face in the normal course of business, including country risk, credit risk and legal risk.
Exchange Rate Risk
Korea is our main market and, therefore, substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities. These liabilities relate primarily to foreign currency denominated debt, primarily in Dollars. A 10.0% increase in the exchange rate between the Won and all foreign currencies would result in an increase in profit before income tax of Won 2.8 billion, with a decrease of 10.0% in the exchange rate having the opposite effect, as of December 31, 2021. For a further discussion of our exchange rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.
 
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Interest Rate Risk
We are also subject to market risk exposure arising from changing interest rates. The following table summarizes the carrying amounts and fair values, maturity and contract terms of our exchange rate and interest sensitive short-term and long-term liabilities as of December 31, 2021:
 
  
Maturities
 
  
2022
  
2023
  
2024
  
2025
  
2026
  
Thereafter
  
Total
  
Fair Value
 
  
(In billions of Won, except for percentage data)
 
Local currency:
        
Fixed-rate
 ￦1,402.3  ￦829.0  ￦1,417.6  ￦848.0  ￦458.9  ￦2,063.9  ￦7,019.7  ￦7,008.5 
Average weighted rate
(1)
  2.21%   2.96%   2.03%   1.92%   1.86%   2.38%   
Variable rate
  12.5   25.0   —   —   —   —   37.5   37.5 
Average weighted rate
(1)
  2.78%   2.67%   —   —   —   —   
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Sub-total
  1,414.8   854.0   1,417.6   848.0   458.9   2,063.9   7,057.2   7,046.0 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Foreign currency:
        
Fixed-rate
  6.7   945.2   —   —   —   470.6   1,422.5   1,671.5 
Average weighted rate
(1)
  1.70%   3.88%   —   —   —   6.63%   
Variable rate
  —   —   —   354.2   —   —   354.2   354.2 
Average weighted rate
(1)
  —   —   —   1.12%   —   —   
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Sub-total
  6.7   945.2   —   354.2   —   470.6   1,776.7   2,025.7 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total
 ￦1,421.5  ￦1,799.2  ￦1,417.6  ￦1,202.2  ￦458.9  ￦2,534.5  ￦8,833.9  ￦9,071.7 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(1)
Weighted average rates of the portfolio at the period end.
A 1.0% point increase in interest rates would result in a decrease in profit before income tax of Won 20.9 billion with a 1.0% point decrease in interest rates having the opposite effect, as of December 31, 2021. For a further discussion of our interest rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.
Equity Price Risk
We are also subject to market risk exposure arising from changes in the equity securities market, which affect the fair value of our equity portfolio. As of December 31, 2021, 2020 and 2019, a 10.0% increase in the equity indices where our equity investments at fair value through other comprehensive income are listed, with all other variables held constant, would have increased our total equity by Won 140.0 billion, Won 94.6 billion and Won 40.8 billion, respectively, with a 10.0% decrease in the equity index having the opposite effect.
The foregoing sensitivity analysis assumes that all variables other than changes in the equity index are held constant, and that our equity investments at fair value through other comprehensive income had moved according to the historical correlation to the index, and as such, does not reflect any correlation between the equity index and other variables.
 
Item 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Item 12.A.
Debt Securities
Not applicable.
 
Item 12.B.
Warrants and Rights
Not applicable.
 
Item 12.C.
Other Securities
Not applicable.
 
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Item 12.D.
American Depositary Shares
Fees and Charges under Deposit Agreement
The ADR depositary will charge the party receiving ADSs up to US$5.00 per 100 ADSs (or fraction thereof), provided that the ADR depositary has agreed to waive such fee as would have been payable by us in the case of (1) an offering of ADSs by us or (2) any distribution of shares of common stock or any rights to subscribe for additional shares of common stock. The ADR depositary will not charge the party to whom ADSs are delivered against deposits. The ADR depositary will charge the party surrendering ADSs for delivery of deposited securities up to US$5.00 per 100 ADSs (or fraction thereof) surrendered. The ADR depositary will also charge the party to whom any cash distribution, or for whom the sale or exercise of rights or other corporate action involving distributions to shareholders, is made with respect to ADSs up to US$0.02 per ADS held plus the expenses of the ADR depositary on a
per-ADS
basis. We will pay the expenses of the ADR depositary and any entity acting as registrar for the shares only as specified in the deposit agreement. The ADR depositary will pay any other charges and expenses of the ADR depositary and the entity acting as registrar for the shares.
Holders of ADRs must pay (1) taxes and other governmental charges, (2) share transfer registration fees on deposits of shares of common stock, (3) such cable, telex, facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of persons depositing shares of common stock or holders of ADRs and (4) such reasonable expenses as are incurred by the ADR depositary in the conversion of foreign currency into United States dollars.
Notwithstanding any other provision of the deposit agreement, in the event that the ADR depositary determines that any distribution in property (including shares or rights to subscribe therefor or other securities) is subject to any tax or governmental charges which the ADR depositary is obligated to withhold, the ADR depositary may dispose of all or a portion of such property (including shares and rights to subscribe therefor) in such amounts and in such manner as the ADR depositary deems necessary and practicable to pay such taxes or governmental charges, including by public or private sale, and the ADR depositary will distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes or governmental charges to the holders of ADSs entitled thereto in proportion to the number of ADSs held by them respectively.
All such charges may be changed by agreement between the ADR depositary and us at any time and from time to time, subject to the deposit agreement. The right of the ADR depositary to receive payment of fees, charges and expenses shall survive the termination of this deposit agreement and, as to any depositary, the resignation or removal of such depositary pursuant to the deposit agreement.
Payments made by ADR Depositary
The ADR depositary reimburses us for certain expenses we incur in connection with our ADR program, subject to certain ceilings. These reimbursable expenses currently include expenses relating to the preparation of SEC filings and submissions, listing fees, education and training fees, corporate action expenses and other miscellaneous fees. In the fiscal year 2021, we received US$1,791,012.52, net of taxes, from the ADR depositary in connection with such reimbursements.
 
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PART II
 
Item 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
 
Item 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
 
Item 15.
CONTROLS AND PROCEDURES
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, as of December 31, 2021. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act, as of December 31, 2021. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS, as issued by the IASB. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
Report of the Independent Registered Public Accounting Firm on the Effectiveness of Our Internal Control Over Financial Reporting
The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG Samjong”), on the effectiveness of our internal control over financial reporting as of December 31, 2021 is included in Item 18 of this
Form 20-F.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
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Item 16.
RESERVED
 
Item 16A.
AUDIT COMMITTEE FINANCIAL EXPERT
Seok-Dong Kim is the chairman of our audit committee and determined to be an “audit committee financial expert” within the meaning of this Item 16A by the board of directors. The board of directors have further determined that Seok-Dong Kim is independent within the meaning of applicable SEC rules and the listing standards of the NYSE.
See “Item 6.C. Board Practices — Audit Committee” for additional information regarding our audit committee.
 
Item 16B.
CODE OF ETHICS
Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller
We have a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, senior accounting officers and employees. We also have internal control and disclosure policy designed to promote full, fair, accurate, timely and understandable disclosure in all of our reports and publicly filed documents. A copy of our code of ethics is available on our website at www.sktelecom.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website.
 
Item 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The table sets forth the fees we paid to our independent registered public accounting firm KPMG Samjong and its affiliates for the years ended December 31, 2021 and 2020:
 
   
Year Ended December 31,
 
   
2021
   
2020
 
   
(In millions of Won)
 
Audit Fees
  ￦5,969   ￦5,157 
Audit-Related Fees
   62    16 
Tax Fees
   262    372 
All Other Fees
   —    93 
  
 
 
   
 
 
 
Total
  ￦6,293   ￦5,638 
“Audit Fees”
are the aggregate fees billed by KPMG Samjong for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
“Audit-Related Fees”
are fees charged by KPMG Samjong for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees billed for, in 2021, (i) the provision of documents in connection with the MSIT’s reallocation of certain of our frequency usage rights and (ii) performance of agreed-upon procedures services regarding quarterly financial information relating to the Spin-off Businesses’ presentation as discontinued operations in our consolidated financial statements, and, in 2020, audit services of documents related to the use of certain government grants.
“Tax Fees”
are fees for professional services rendered by KPMG Samjong for tax compliance, tax advice on actual or contemplated transactions and tax planning services.
“All Other Fees”
 are fees billed by KPMG Samjong for benchmarking services related to new types of business association models for the purposes of enhancing social values in 2020.
Pre-Approval
of Audit and
Non-Audit
Services Provided by Independent Registered Public Accounting Firm
Our audit committee
pre-approves
all audit services to be provided by our independent registered public accounting firm. Our audit committee’s policy regarding the
pre-approval
of
non-audit
services to be provided to us by our independent auditors is that all such services shall be
pre-approved
by our audit committee.
Non-audit
services that are prohibited to be provided to us by our independent auditors under the rules of the SEC and applicable law may not be
pre-approved.
In addition, prior to the granting of any
pre-approval,
our audit committee
 
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must be satisfied that the performance of the services in question will not compromise the independence of our independent registered public accounting firm.
Our audit committee did not
pre-approve
any
non-audit
services under the
de minimis
exception of
Rule 2-01
(c)(7)(i)(C) of
Regulation S-X
as promulgated by the SEC.
 
Item 16D.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
 
Item 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table sets forth information regarding purchases by us of our common shares during the fiscal year ended December 31, 2021.
 
Period
  
Total Number of

Shares Purchased
   
Average Price Paid
per Share
(1)
   
Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs
   
Approximate Value
of Shares that May

Yet Be Purchased

Under the Plans or

Programs
 
               
(In billions of Won)
 
January 1, 2021 – April 30, 2021
(2)(3)
   1,440,000   ￦47,647    1,440,000   ￦— 
November 29, 2021
(4)
   54,032    57,900    54,032    — 
  
 
 
     
 
 
   
Total
   1,494,032   ￦48,018    1,494,032   ￦— 
  
 
 
     
 
 
   
 
 
(1)
Average price paid per share is a weighted average calculation using the aggregate price, excluding commissions and fees.
 
(2)
Repurchases made in the open market pursuant to a share repurchase agreement with SK Securities Co., Ltd., a securities brokerage firm, dated August 28, 2020 (the “Share Repurchase Agreement”), which was terminated on April 30, 2021.
 
(3)
Reflects the Stock Split, which became effective as of October 28, 2021.
 
(4)
Represents the fractional shares arising from the Spin-off.
 
Item 16F.
CHANGE IN REGISTRANT
’
S CERTIFYING ACCOUNTANT
On December 20, 2021, our Audit Committee approved the appointment of Ernst & Young Han Young, or E&Y, as our principal accountant to audit our consolidated financial statements prepared in accordance with IFRS, as issued by the IASB for the fiscal years ending December 31, 2022, 2023 and 2024, and, in effect, dismissed KPMG Samjong, our former independent registered public accountants (including for the fiscal years ending December 31, 2019, 2020 and 2021). We provided notice of the expected dismissal to KPMG Samjong on December 10, 2021. E&Y’s appointment was effective as of January 1, 2022, and KPMG Samjong’s dismissal was effective as of April 28, 2022, the date of completion of its audit of our financial statements for the fiscal year ending December 31, 2021 and the issuance of its report thereon.
The decision of our Audit Committee to dismiss KPMG Samjong, and to appoint E&Y, as our principal accountant to audit our financial statements prepared in accordance with IFRS, as issued by the IASB, was largely driven by the FSC’s designation of E&Y as our external auditor in December 2021 pursuant to the requirement of the amended Act on External Audit of Stock Companies, which became effective in November 2018. The Act on External Audit of Stock Companies, as amended, requires that a publicly listed Korean company that was audited by an external auditor of its choice for six consecutive years change its external auditor to one designated by the FSC for a period of three consecutive years.
KPMG Samjong’s reports on our consolidated financial statements for each of the two most recent fiscal years ended December 31, 2021 and 2020 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years
 
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ended December 31, 2021 and 2020 and up until April 28, 2022, there were: (i) no disagreements between us and KPMG Samjong on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG Samjong, would have caused KPMG Samjong to make reference to the subject matter of the disagreements in its reports on our consolidated financial statements; and (ii) no “reportable events” as defined in Item 16F(a)(1)(v) of Form 20-F.
During the two most recent fiscal years ended December 31, 2021 and 2020 and up until April 28, 2022, neither we nor anyone on our behalf consulted E&Y regarding either (i) the application of IFRS, as issued by the IASB to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements (and neither a written report nor oral advice was provided to us that E&Y concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue under IFRS, as issued by the IASB) or (ii) any matter that was either the subject of a “disagreement” (as defined in Item 16F(a)(1)(iv) of Form
20-F
and the related instructions to Item 16F) or a “reportable event” (as described in Item 16F(a)(1)(v) of Form
20-F)
We provided a copy of the disclosure in this Item 16F to KPMG Samjong and requested that KPMG furnish us with a letter addressed to the Securities and Exchange Commission stating whether it agrees with such disclosure, and if it does not agree, stating the respects in which it does not agree. A copy of KPMG’s letter dated April 28, 2022 is filed as Exhibit 15.1 to this annual report for the fiscal year ended December 31, 2021.
 
Item 16G.
CORPORATE GOVERNANCE
The following is a summary of the significant differences between the NYSE’s corporate governance standards and those that we follow under Korean law.
 
NYSE Corporate Governance Standards
  
Our Corporate Governance Practice
Director Independence
  
Listed companies must have a majority of independent directors.  Of the eight members of our board of directors, five are independent directors.
Executive Session
  
Non-management
directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year.		  Our audit committee, which is comprised solely of four independent directors, holds meetings whenever there are matters related to management directors, and such meetings are generally held once every month.
Nomination/Corporate Governance Committee
  
Listed companies must have a nomination/corporate governance committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee.  Although we do not have a separate nomination/corporate governance committee, we maintain an independent director nomination committee composed of two independent directors and one management director.
Compensation Committee
  
Listed companies must have a compensation committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the SEC rules adopted pursuant to Section 952 of the Dodd-Frank Act, the NYSE listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company.  We maintain a compensation review committee comprised of one
non-independent
director and three independent directors.
 
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NYSE Corporate Governance Standards
  
Our Corporate Governance Practice
Audit Committee
  
Listed companies must have an audit committee that satisfies the independence and other requirements of
Rule 10A-3
under the Exchange Act. All members must be independent. The committee must have a charter addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s website.		  We maintain an audit committee comprised solely of four independent directors.
Audit Committee Additional Requirements
  
Listed companies must have an audit committee that is composed of at least three directors.  Our audit committee has four independent directors.
Shareholder Approval of Equity Compensation Plan
  
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan.  We currently have two equity compensation plans: a stock option plan for officers and directors and employee stock ownership plan for employees (“ESOP”). We manage such compensation plans in compliance with the applicable laws and our articles of incorporation, provided that, under certain limited circumstances, the grant of stock options or matters relating to ESOP are not subject to shareholders’ approval under Korean law.
Shareholder Approval of Equity Offerings
  
Listed companies must allow its shareholders to exercise their voting rights with respect to equity offerings that do not qualify as public offerings for cash, and offerings of equity of related parties.  Pursuant to the Korean Commercial Code and the FSCMA, our shareholders are generally entitled to preemptive rights with respect to the issuance of new shares. Exceptions include public offerings as prescribed in the FSCMA and allotments to third parties in cases necessary for the achievement of a business purpose, such as the introduction of new technology and the improvement of our financial condition.
Corporate Governance Guidelines
  
Listed companies must adopt and disclose corporate governance guidelines.  We have adopted a Corporate Governance Charter, which is available (in Korean) on our website at www.sktelecom.com. We are also in compliance with the Korean Commercial Code in connection with such matters, including the governance of the board of directors.
Code of Business Conduct and Ethics
  
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers.  We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees, and such code is also available on our website at www.sktelecom.com
.
 
Item 16H.
MINE SAFETY DISCLOSURE
Not applicable.
 
Item 16I.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
 
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PART III
 
Item 17.
FINANCIAL STATEMENTS
Not applicable.
 
Item 18.
FINANCIAL STATEMENTS
 
Index to Financial Statements
  
F-1
 
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
  
F-2
 
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
  
F-4
 
Consolidated Statements of Financial Position as of December 31, 2021 and 2020
  
F-6
 
Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019
  
F-8
 
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019
  
F-9
 
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019
  
F-10
 
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
  
F-13
 
Notes to the Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
  
F-15
 
Financial Statements of SK Hynix
 
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
  
G-1
 
Consolidated Statements of Financial Position as of October 31, 2021 and December 31, 2020
  
G-
3		 
Consolidated Statements of Comprehensive Income for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019
  
G-
5		 
Consolidated Statements of Changes in Equity for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019
  
G-
6		 
Consolidated Statements of Cash Flows for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019
  
G-
8		 
Notes to the Consolidated Financial Statements for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019
  
G-
9		 
 
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Item 19.
EXHIBITS
 
Number
  
Description
  1.1  Articles of Incorporation
  2.1  Deposit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 dated as of March 15, 1999, Amendment No. 2 dated as of April 24, 2000 and Amendment No. 3 dated as of July 24, 2002, entered into among SK Telecom Co., Ltd., Citibank, N.A., as Depositary, and all Holders and Beneficial Owners of American Depositary Shares (incorporated by reference to Exhibit 2.1 to the Registrant’s Annual Report on Form 20-F filed on June 30, 2006)
  2.2  Description of Capital Stock (See Item 10.B. Memorandum and Articles of Association)
  2.3  Description of American Depositary Shares (incorporated by reference to Exhibit 2.3 to the Registrant’s Annual Report on Form 20-F filed on April 29, 2020)
  8.1  List of Subsidiaries of SK Telecom Co., Ltd.
12.1  Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2  Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1  Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2  Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1  Letter of KPMG Samjong dated April 28, 2022
101.INS  Inline XBRL Instance Document
101.SCH  Inline XBRL Taxonomy Extension Schema Document
101.CAL  Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF  Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB  Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE  Inline XBRL Taxonomy Extension Presentation Linkbase Document
104  The cover page for the Company’s Annual Report on Form 20-F for the year ended December 31, 2021, has been formatted in Inline XBRL
 
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
SK TELECOM CO., LTD.
(Registrant)
/s/ Hee Jun Chung
Name:   Hee Jun Chung
Title:   Vice President, Head of IR
Date: April 28, 2022
 
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INDEX TO FINANCIAL STATEMENTS
 
   
Page
 
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
   F-2 
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
   F-4 
Consolidated Statements of Financial Position
   F-6 
Consolidated Statements of Income
   F-8 
Consolidated Statements of Comprehensive Income
   F-9 
Consolidated Statements of Changes in Equity
   F-10 
Consolidated Statements of Cash Flows
   F-13 
Notes to the Consolidated Financial Statements
   F-15 
Financial Statements of SK Hynix
  
Report of Independent Registered Public Accounting Firm
   G-1 
Consolidated Statements of Comprehensive Income
   G-5 
Consolidated Statements of Changes in Equity
   G-6 
Consolidated Statements of Cash Flows
   G-8 
Notes to the Consolidated Financial Statements
   G-9 
 
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
SK Telecom Co., Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of SK Telecom Co., Ltd. and subsidiaries (the Group) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 28, 2022 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.
Spin-off of Semiconductor and New ICT businesses
As described in Note 3 and Note 41, SK Telecom Co., Ltd. completed the spin-off of certain businesses on November 1, 2021. The spin-off company, namely SK Square Co., Ltd., is engaged in managing investments in semiconductor, new Information and Communication Technologies(“ICT”) and making new investments and the surviving company will continue to engage in the remaining businesses of SK Telecom Co., Ltd. and certain subsidiaries, primarily cellular and fixed-line telecommunications businesses. The spun-off businesses are presented as discontinued operations, and the comparative consolidated statements of income have been re-presented to present the discontinued operations separately from continuing operations.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error of fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee
 
F-2
Table of Contents
and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
(i)    Evaluation of goodwill impairment for the fixed-line telecommunication services cash generating unit
As discussed in Notes 3 (12) and 16 to the consolidated financial statements, the amount of goodwill that is allocated to the fixed-line telecommunication services cash generating unit (“CGU”) amounts to ￦764,082 million as of December 31, 2021. The Group performs impairment test for goodwill at least annually or when there is an indication of possible impairment by comparing the recoverable amount and the carrying amount of a CGU to which goodwill is allocated. The recoverable amount of the fixed-line telecommunication services CGU was determined based on its
value-in-use
(“VIU”).
We identified the evaluation of goodwill impairment for the fixed-line telecommunication services CGU as a critical audit matter. Estimation of certain assumptions involves a high degree of subjectivity and uncertainty and therefore, involved a high degree of subjective and complex auditor judgment. Specifically, estimates of operating revenue, perpetual growth rate and discount rate used to estimate the VIU of the fixed-line telecommunication services CGU were challenging to test.
The following are the primary procedures we performed to address this critical audit matter.
 
 • 
We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s goodwill impairment analysis. This included controls related to the development of operating revenue, perpetual growth rate and discount rate assumptions.
 
 • 
We performed sensitivity analyses over both the discount rate and the perpetual growth rate used in the discounted cash flow forecast to assess the impact of changes in these assumptions on the Group’s determination of the VIU of the fixed-line telecommunication services CGU.
 
 • 
We evaluated estimated operating revenue by comparison with the financial budgets approved by the Group and comparing the forecasted operating cash flow in prior year with the actual results to assess the Group’s ability to accurately forecast.
 
 • 
We involved our valuation professionals with specialized skills and knowledge, who assisted in (1) evaluating estimated operating revenue and perpetual growth rate by comparing them with telecommunication industry reports as well as the Group’s historical performance and (2) evaluating the discount rate by comparing it with a discount rate that was independently developed using publicly available market data for comparable entities.
/s/ KPMG Samjong Accounting Corp.
We have served as the Group’s auditor since 2012.
Seoul, Korea
April 28, 2022
 
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting
To the Shareholders and Board of Directors
SK Telecom Co., Ltd.:
Opinion on Internal Control Over Financial Reporting
We have audited SK Telecom Co., Ltd. and subsidiaries’ (the Group) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Group as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements) and our report dated April 28, 2022, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
F-4
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Samjong Accounting Corp.
Seoul, Korea
April 28, 2022
 
F-5
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2021 and 2020
 
(In millions of won)
  
Note
   
December 31,
2021
   
December 31,
2020
 
Assets
               
Current Assets:
               
Cash and cash equivalents
  
 
34,35
 
  
￦

872,731    1,369,653 
Short-term financial instruments
  
 
5,34,35
 
   508,677    1,426,952 
Short-term investment securities
  
 
10,34,35
 
   5,010    150,392 
Accounts receivable — trade, net
  
 
6,34,35,36
 
   1,913,511    2,188,893 
Short-term loans, net
  
 
6,34,35,36
 
   70,817    97,464 
Accounts receivable — other, net
  
 
6,34,35,36,37
 
   548,362    979,044 
Contract assets
  
 
8,35
 
   76,698    100,606 
Prepaid expenses
  
 
7
 
   1,987,503    2,128,349 
Prepaid income taxes
  
 
31
 
   77    1,984 
Derivative financial assets
  
 
22,34,35,38
 
   30,110    8,704 
Inventories, net
  
 
9
 
   204,637    171,443 
Non-current
assets held for sale
  
 
40
 
   8,734    — 
Advanced payments and others
  
 
6,34,35
 
   125,798    151,602 
        
 
 
   
 
 
 
        
 
6,352,665
 
  
 
8,775,086
 
        
 
 
   
 
 
 
Non-Current
Assets:
               
Long-term financial instruments
  
 
5,34,35
 
   375    893 
Long-term investment securities
  
 
10,34,35
 
   1,715,078    1,648,837 
Investments in associates and joint ventures
  
 
12
 
   2,197,351    14,354,113 
Investment property, net
  
 
14
 
   23,034    — 
Property and equipment, net
  
 
13,15,36,37
 
   12,871,259    13,377,077 
Goodwill
  
 
11,16
 
   2,072,493    3,357,524 
Intangible assets, net
  
 
17
 
   3,869,769    4,436,194 
Long-term contract assets
  
 
8,35
 
   41,580    47,675 
Long-term loans, net
  
 
6,34,35,36
 
   21,979    40,233 
Long-term accounts receivable — other
  
 
6,34,35,36,37
 
   275,238    332,803 
Long-term prepaid expenses
  
 
7
 
   1,069,148    1,063,711 
Guarantee deposits
  
 
6,34,35,36
 
   186,713    172,474 
Long-term derivative financial assets
  
 
22,34,35,38
 
   187,484    155,991 
Deferred tax assets
  
 
31
 
   128    105,088 
Defined benefit assets
  
 
21
 
   18,427    3,557 
Other
non-current
assets
  
 
6,34,35
 
   8,556    35,701 
        
 
 
   
 
 
 
        
 
24,558,612
 
  
 
39,131,871
 
        
 
 
   
 
 
 
Total Assets
       
￦

30,911,277
 
  
 
47,906,957
 
        
 
 
   
 
 
 
 
See accompanying notes to the consolidated financial statements
.
 
F-
6
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Financial Position — (Continued)
As of December 31, 2021 and 2020
 
(In millions of won)
  
Note
   
December 31,
2021
  
December 31,
2020
 
Liabilities and Shareholders’ Equity
              
Current Liabilities:
              
Accounts payable — trade
  
 
34,35,36

 
  
￦

190,559   372,909 
Accounts payable — other
  
 
34,35,36

 
   2,071,870   2,484,466 
Withholdings
  
 
34,35,36

 
   790,489   1,410,239 
Contract liabilities
  
 
8
 
   166,436   229,892 
Accrued expenses
  
 
34,35

 
   1,295,404   1,554,889 
Income tax payable
  
 
3
1
 
   192,221   219,766 
Derivative financial liabilities
  
 
22,34,35,38

 
   52   77 
Provisions
  
 
20,39

 
   61,656   69,363 
Short-term borrowings
  
 
18,34,35,38

 
   12,998   109,998 
Current portion of long-term debt, net
  
 
18,34,35,38

 
   1,430,324   939,237 
Current portion of long-term payables — other
  
 
19,34,35,38

 
   398,823   424,600 
Lease liabilities
  
 
34,35,36,38

 
   349,568   359,936 
Other current liabilities
        35   2,595 
        
 
 
  
 
 
 
        
 
6,960,435
 
 
 
8,177,967
 
        
 
 
  
 
 
 
Non-Current
Liabilities:
              
Debentures, excluding current portion, net
  
 
18,34,35,38
 
   7,037,424   7,690,169 
Long-term borrowings, excluding current portion, net
  
 
18,34,35,38
 
   353,122   1,979,261 
Long-term payables — other
  
 
19,34,35,38
 
   1,611,010   1,142,354 
Long-term lease liabilities
  
 
34,35,36,38

 
   1,184,714   1,076,841 
Long-term contract liabilities
  
 
8
 
   36,531   30,704 
Defined benefit liabilities
  
 
21
 
   13,157   154,944 
Long-term derivative financial liabilities
  
 
22,34,35,38
 
   321,084   375,083 
Long-term provisions
  
 
20
 
   65,339   81,514 
Deferred tax liabilities
  
 
31
 
   941,301   2,709,075 
Other
non-current
liabilities
  
 
34,35,36
 
   52,022   92,802 
        
 
 
  
 
 
 
        
 
11,615,704
 
 
 
15,332,747
 
        
 
 
  
 
 
 
Total Liabilities
       
 
18,576,139
 
 
 
23,510,714
 
        
 
 
  
 
 
 
Shareholders’ Equity:
              
Share capital
  
 
1,23
 
   30,493   44,639 
Capital surplus and others
  
 
11,23,24,26

 
   (12,022,485)   278,444 
Hybrid bonds
  
 
25
 
   398,759   398,759 
Retained earnings
  
 
27
 
   22,437,341   22,981,913 
Reserves
  
 
28
 
   735,238   40,139 
Equity attributable to owners of the Parent Company
        11,579,346   23,743,894 
Non-controlling
interests
        755,792   652,349 
        
 
 
  
 
 
 
Total Shareholders’ Equity
       
 
12,335,138
 
 
 
24,396,243
 
        
 
 
  
 
 
 
Total Liabilities and Shareholders’ Equity
       
￦

30,911,277
 
 
 
47,906,957
 
        
 
 
  
 
 
 
 
See accompanying notes to the consolidated financial statements
.
 
F-
7
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won except for per share data)
 
Note
 
 
2021
 
 
2020
 
 
2019
 
Continuing operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue and other income:
                
Revenue
 
 
4,36
 
 
￦

16,748,585   16,087,747   15,416,431 
Other income
  
4,29,36
   115,763   95,751   95,583 
      
 
 
  
 
 
  
 
 
 
       16,864,348   16,183,498   15,512,014 
      
 
 
  
 
 
  
 
 
 
Operating expenses:
 
 
36
 
            
Labor
      2,300,754   2,108,496   1,981,864 
Commissions
 
 
7
 
  5,426,114   5,103,012   4,766,682 
Depreciation and amortization
 
 
4
 
  3,672,555   3,664,665   3,540,984 
Network interconnection
      749,599   770,712   752,334 
Leased lines
      310,141   293,960   262,268 
Advertising
      233,401   272,091   279,846 
Rent
      140,418   171,179   152,589 
Cost of goods sold
      1,167,417   1,106,001   1,378,105 
Others
 
 
4,29
 
  1,431,587   1,658,362   1,410,288 
      
 
 
  
 
 
  
 
 
 
       15,431,986   15,148,478   14,524,960 
      
 
 
  
 
 
  
 
 
 
Operating profit
 
 
4
 
 
 
1,432,362
 
 
 
1,035,020
 
 
 
987,054
 
Finance income
 
 
4,30
 
  155,133   140,685   121,692 
Finance costs
 
 
4,30
 
  (315,604)   (322,943)   (334,912) 
Gain relating to investments in subsidiaries, associates and joint ventures, net
 
 
4,12
 
  446,300   52,456   33,199 
      
 
 
  
 
 
  
 
 
 
Profit before income tax
 
 
4
 
 
 
1,718,191
 
 
 
905,218
 
 
 
807,033
 
      
 
 
  
 
 
  
 
 
 
Income tax expense
 
 
31
 
  446,796   221,262   262,940 
Profit from continuing operations
     
 
1,271,395
 
 
 
683,956
 
 
 
544,093 
Profit from discontinued operations, net of taxes
 
 
41
 
  1,147,594   816,582   316,640 
      
 
 
  
 
 
  
 
 
 
Profit for the year
     
￦

2,418,989
 
 
 
1,500,538
 
 
 
860,733
 
      
 
 
  
 
 
  
 
 
 
Attributable to:
                
Owners of the Parent Company
     
￦

2,407,523   1,504,352   888,698 
Non-controlling
interests
      11,466   (3,814)   (27,965) 
Earnings per share
 
 
32
 
            
Basic earnings per share (in won)
     
￦

7,191   4,093   2,425 
Basic earnings per share — continuing operations (in won)
      3,614   1,741   1,469 
Diluted earnings per share (in won)
      7,187   4,092   2,425 
Diluted earnings per share — continuing operations (in won)
      3,613   1,741   1,469 
 
See accompanying notes to the consolidated financial statements
.
 
F-
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
 
Note
  
2021
  
2020
  
2019
 
Profit for the year
     
￦

2,418,989
 
 
 
1,500,538
 
 
 
860,733
 
Other comprehensive income (loss)
                
Items that will never be reclassified to profit or loss, net of taxes:
                
Remeasurement of defined benefit liabilities
 
 
21
 
  16,374   (2,637)   (72,605) 
Net change in other comprehensive income (loss) of investments in associates and joint ventures
 
 
1
2
,28
 
  4,796   271   (19,269) 
Valuation gain (loss) on financial assets at fair value through other comprehensive 
income
 
 
28,3
0
 
  920,871   579,678   (17,943) 
Items that are or may be reclassified
subsequently to profit or loss, net of taxes:
                
Net change in other comprehensive income (loss) of investments in associates and joint ventures
 
 
1
2
,28
 
  356,503   (114,478)   75,763 
Net change in unrealized fair value of derivatives
 
 
 22,28,30
 
  16,133   19,138   40,681 
Foreign currency translation differences for foreign operations
 
 
28
 
  47,515   (20,150)   (5,618) 
      
 
 
  
 
 
  
 
 
 
Other comprehensive income for the year, net of taxes
     
 
1,362,192
 
 
 
461,822
 
 
 
1,009
 
      
 
 
  
 
 
  
 
 
 
Total comprehensive income
     
￦

3,781,181
 
 
 
1,962,360
 
 
 
861,742
 
      
 
 
  
 
 
  
 
 
 
Total comprehensive income (loss) attributable to:
 
            
Owners of the Parent Company
     
￦

3,473,445     1,869,075        891,051 
Non-controlling
interests
      307,736   93,285   (29,309) 
 
See accompanying notes to the consolidated financial statements
.
 
F-
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
  
Attributable to owners
  
Non-controlling

interests
  
Total equity
 
   
Share
capital
   
Capital surplus
(deficit)

and others
   
Hybrid bonds
   
Retained
earnings
  
Reserves
  
Sub-total
 
Balance, December 31, 2018
  
￦

44,639
 
  
 
256,325
 
  
 
398,759
 
  
 
22,144,541
 
 
 
(373,442
) 
 
 
22,470,822
 
 
 
(121,572
) 
 
 
22,349,250
 
Impact of adopting IFRS 16 in 2019
   —    —    —    (24,186)   —   (24,186)   (503)   (24,689) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, January 1, 2019(As reported)
  
 
44,639
 
  
 
256,325
 
  
 
398,759
 
  
 
22,120,355
 
 
 
(373,442
) 
 
 
22,446,636
 
 
 
(122,075
) 
 
 
22,324,561
 
Changes in accounting policies
   —    —    —    (5,393)   —   (5,393)   —   (5,393) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, January 1, 2019(Restated)
  
 
44,639
 
  
 
256,325
 
  
 
398,759
 
  
 
22,114,962
 
 
 
(373,442
) 
 
 
22,441,243
 
 
 
(122,075
) 
 
 
22,319,168
 
Total comprehensive income:
                                    
Profit (loss) for the year
   —    —    —    888,698   —   888,698   (27,965)   860,733 
Other comprehensive income (loss) (note 12,21,22,28,30)
   —    —    —    (41,513)   43,866   2,353   (1,344)   1,009 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
    —    —    —    847,185   43,866   891,051   (29,309)   861,742 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transactions with owners:
                                    
Annual dividends (note 33)
   —    —    —    (646,828)   —   (646,828)   (21,150)   (667,978) 
Interim dividends (note 33)
   —    —    —    (71,870)   —   (71,870)   (8,650)   (80,520) 
Share option (note 26)
   —    295    —    —   —   295   764   1,059 
Interest on hybrid bonds (note 25)
   —    —    —    (14,766)   —   (14,766)   —   (14,766) 
Disposal of treasury shares (note 24)
   —     300,000     —    —   —   300,000   —   300,000 
Changes in ownership in subsidiaries (note 1
1
)
   —    51,102    —    —   —   51,102   47,127   98,229 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
    —    351,397    —    (733,464)   —   (382,067)   18,091   (363,976) 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, December 31, 2019
  
￦

44,639
 
  
 
607,722
 
  
 
398,759
 
  
 
22,228,683
 
 
 
(329,576
) 
 
 
22,950,227
 
 
 
(133,293
) 
 
 
22,816,934
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
See accompanying notes to the consolidated financial statements
.
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity — (Continued)
For the years ended December 31, 2021, 2020
and 2019
 
(In millions of won)
  
Attributable to owners
 
 
Non-controlling

interests
 
 
Total equity
 
 
  
Share
capital
 
  
Capital surplus
(deficit)

and others
 
 
Hybrid bonds
 
  
Retained
earnings
 
 
Reserves
 
 
Sub-total
 
Balance, January 1, 2020
  
￦

44,639
 
  
 
607,722
 
 
 
398,759
 
  
 
22,228,683
 
 
 
(329,576
) 
 
 
22,950,227
 
 
 
(133,293
) 
 
 
22,816,934
 
Total comprehensive income:
                                   
Profit
(loss)
for the year
   —    —   —    1,504,352   —   1,504,352   (3,814)   1,500,538 
Other comprehensive income (loss) (note 1
2
,21,22,28,30)
   —    —   —    (4,992)   369,715   364,723   97,099   461,822 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
    —    —   —    1,499,360   369,715   1,869,075   93,285   1,962,360 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transactions with owners:
                                   
Annual dividends (note 33)
   —    —   —    (658,228)   —   (658,228)   (5,771)   (663,999) 
Interim dividends (note 33)
   —    —   —    (73,136)   —   (73,136)   —   (73,136) 
Share option (note 26)
   —    179   —    —   —   179   1,256   1,435 
Interest on hybrid bonds (note 25)
   —    —   —    (14,766)   —   (14,766)   —   (14,766) 
Acquisition of treasury shares (note 24)
   —    (426,664)   —    —   —   (426,664)   —   (426,664) 
Changes in ownership in subsidiaries (note 1
1
)
   —    97,207   —    —   —   97,207   696,872   794,079 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
    —    (329,278)   —    (746,130)   —   (1,075,408)   692,357   (383,051) 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, December 31, 2020
  
￦

44,639
 
  
 
278,444
 
 
 
398,759
 
  
 
22,981,913
 
 
 
40,139
 
 
 
23,743,894
 
 
 
652,349
 
 
 
24,396,243
 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to the consolidated financial statements
.
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
  
Attributable to owners
  
Non-controlling

interests
  
Total equity
 
   
Share
capital
  
Capital surplus
(deficit)

and others
  
Hybrid
bonds
   
Retained
earnings
  
Reserves
  
Sub-total
 
Balance, January 1, 2021
  
￦

44,639
 
 
 
278,444
 
 
 
398,759
 
  
 
22,981,913
 
 
 
40,139
 
 
 
23,743,894
 
 
 
652,349
 
 
 
24,396,243
 
Total comprehensive income:
                                  
Profit for the year
   —   —   —    2,407,523   —   2,407,523   11,466   2,418,989 
Other comprehensive income (loss) (note 1
2
,21,22,28,30)
   —   —   —    26,371   1,039,551   1,065,922   296,270   1,362,192 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
    —   —   —    2,433,894   1,039,551   3,473,445   307,736   3,781,181 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transactions with owners:
                                  
Annual dividends (note 33)
   —   —   —    (641,944)   —   (641,944)   (25,771)   (667,715) 
Interim dividends (note 33)
   —   —   —    (355,804)   —   (355,804)   —   (355,804) 
Share option (note 26)
   —   75,498   —    —   —   75,498   12,124   87,622 
Interest on hybrid bonds (note 25)
   —   —   —    (14,766)   —   (14,766)   —   (14,766) 
Acquisition of treasury shares (note 24)
   —   (76,111)   —    —   —   (76,111)   —   (76,111) 
Disposal of treasury shares (note 24)
   —   57,017   —    —   —   57,017   —   57,017 
Retirement of treasury shares (note 24)
   —   1,965,952   —    (1,965,952)   —   —   —   — 
Changes from
spin-off
(note 41)
   (14,146)   (14,460,588)   —    —   (344,452)   (14,819,186)   (186,211)   (15,005,397) 
Changes in ownership in subsidiaries (note 1
1
)
   —   137,303   —    —   —   137,303   (4,435)   132,868 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
    (14,146)   (12,300,929)   —    (2,978,466)   (344,452)   (15,637,993)   (204,293)   (15,842,286) 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance, December 31, 2021
  
￦

30,493
 
 
 
(12,022,485
) 
 
 
398,759
 
  
 
22,437,341
 
 
 
735,238
 
 
 
11,579,346
 
 
 
755,792
 
 
 
12,335,138
 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
See accompanying notes to the consolidated financial statements
.
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
  
Note
  
2021
  
2020
  
2019
 
Cash flows from operating activities:
                
Cash generated from operating activities
                
Profit for the year
     
￦

2,418,989   1,500,538   860,733 
Adjustments for income and expenses
  
38
   3,473,779   4,256,654   4,435,039 
Changes in assets and liabilities related to operating activities
  
38
   (568,695)   302,458   (856,130) 
      
 
 
  
 
 
  
 
 
 
       5,324,073   6,059,650   4,439,642 
Interest received
      37,403   41,832   56,392 
Dividends received
      327,906   166,019   241,117 
Interest paid
      (306,634)   (397,351)   (360,439) 
Income tax paid
      (351,469)   (48,274)   (341,728) 
      
 
 
  
 
 
  
 
 
 
Net cash provided by operating activities
     
 
5,031,279
 
 
 
5,821,876
 
 
 
4,034,984
 
      
 
 
  
 
 
  
 
 
 
Cash flows from investing activities:
                
Cash inflows from investing activities:
                
Decrease in short-term financial instr
uments, net
      162,565   —   253,971 
Decrease in short-term investment securities, net
      32,544   17,684   29,503 
Collection of short-term loans
      137,196   77,114   113,345 
Decrease in long-term financial instruments
      343   99   231 
Proceeds from disposals of long-term investment securities
      78,261   46,065   234,683 
Proceeds from disposals of investments in associates and joint ventures
      100,634   2,715   220 
Proceeds from disposals of property and equipment
      61,425   102,526   18,478 
Proceeds from disposals of intangible assets
      14,618   39,654   7,327 
Collection of long-term loans
      4,166   4,608   4,435 
Decrease in deposits
      6,941   16,244   9,180 
Proceeds from settlement of derivatives
      1,495   845   601 
Collection of lease receivables
      —   —   27,712 
Proceeds from disposals of subsidiaries
      —   165   4,802 
Cash inflow from business combination, net
      —   115,834   5,016 
Cash inflow from transfers of business, net
      —   5,395   45,658 
      
 
 
  
 
 
  
 
 
 
       600,188   428,948   755,162 
Cash outflows for investing activities:
                
Increase in short-term financial instruments, net
      —   (596,025)   — 
Increase in short-term loans
      (100,209)   (103,604)   (116,320) 
Increase in long-term loans
      (9,877)   (11,044)   (11,541) 
Increase in long-term financial instruments
      (21)   (2)   — 
Acquisitions of long-term investment securities
      (286,566)   (95,474)   (383,976) 
Acquisitions of investments in associates and joint ventures
      (222,765)   (170,292)   (264,015) 
Acquisitions of property and equipment
      (2,915,851)   (3,557,800)   (3,375,883) 
Acquisitions of intangible assets
      (392,588)   (129,976)   (141,010) 
Increase in deposits
      (51,274)   (12,175)   (6,164) 
Cash outflow for business combinations, net
      (107,226)   (2,958)   (36,910) 
Cash outflow for disposal and liquidation of subsidiaries
      —   —   (927) 
      
 
 
  
 
 
  
 
 
 
       (4,086,377)   (4,679,350)   (4,336,746) 
      
 
 
  
 
 
  
 
 
 
Net cash used in investing activities
     
￦

(3,486,189
) 
 
 
(4,250,402
)
 
 
 
(3,581,584
)
 
      
 
 
  
 
 
  
 
 
 
 
See accompanying notes to the consolidated financial statements.
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Cash Flows — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
  
Note
  
2021
  
2020
  
2019
 
Cash flows from financing activities:
                
Cash inflows from financing activities:
  
    
             
Proceeds from short-term borrowings, net
     
￦

—   76,375   — 
Proceeds from issuance of debentures
      873,245   1,420,962   1,633,444 
Proceeds from long-term borrowings
      350,000   1,947,848   — 
Increase in financial liabilities at FVTPL
      129,123   —   — 
Cash inflows from settlement of derivatives
      332   36,691   12,426 
Proceeds from disposals of treasury shares
      —   —   300,000 
Transactions with
non-controlling
shareholders
      444,124   17,766   101,398 
      
 
 
  
 
 
  
 
 
 
       1,796,824   3,499,642   2,047,268 
Cash outflows for financing activities:
                
Repayments of short-term borrowings, net
      (50,823)   —   (59,860) 
Repayments of long-term payables — other
      (426,267)   (428,100)   (428,153) 
Repayments of debentures
      (890,000)   (975,500)   (940,000) 
Repayments of long-term borrowings
      (286,868)   (1,950,874)   (89,882) 
Payments of dividends
      (1,028,520)   (742,136)   (718,698) 
Payments of interest on hybrid bonds
      (14,766)   (14,766)   (14,766) 
Repayments of lease liabilities
      (431,674)   (412,666)   (443,238) 
Acquisition of treasury shares
      (76,111)   (426,664)   — 
Cash outflows resulting from spin-off
      (626,000)   —   — 
Transactions with
non-controlling
shareholders
      (19,406)   (6,515)   (39,345) 
      
 
 
  
 
 
  
 
 
 
       (3,850,435)   (4,957,221)   (2,733,942) 
      
 
 
  
 
 
  
 
 
 
Net cash used in financing activities
     
 
(2,053,611
) 
 
 
(1,457,579
) 
 
 
(686,674
) 
      
 
 
  
 
 
  
 
 
 
Net increase (decrease) in cash and cash equivalents
     
 
(508,521
) 
 
 
113,895
 
 
 
(233,274
) 
Cash and cash equivalents at beginning of the year
      1,369,653   1,270,824   1,506,699 
Effects of exchange rate changes on cash and cash equivalents
      11,599   (15,066)   (2,601) 
      
 
 
  
 
 
  
 
 
 
Cash and cash equivalents at end of the year
     
￦

872,731
 
 
 
1,369,653
 
 
 
1,270,824
 
      
 
 
  
 
 
  
 
 
 
 
See accompanying notes to the consolidated financial statements
.
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2021, 2020 and 2019
 
1.
Reporting Entity
(1)    General
SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications services in Korea. The head office of the Parent Company is located at 65,
Eulji-ro,
Jung-gu,
Seoul, Korea.
The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of December 31, 2021 and 2020, the Parent Company’s total issued shares are held by the following shareholders:
 
 
  
Number of shares
 
  
Percentage of
total shares issued (%)
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
SK Inc.
   65,668,397   
 
21,624,120
 
 
 30.00 
 
 
26.78
 
National Pension Service
   21,076,493   
 
8,853,906
 
 
 9.63 
 
 
10.97
 
Institutional investors and other shareholders
   126,990,775   
 
39,582,507
 
 
 58.04 
 
 
49.02
 
Kakao Co
rp
.
   3,846,487   
 
1,266,620
 
 
 1.76 
 
 
1.57
 
Treasury shares
   1,250,992   
 
9,418,558
 
 
 0.57 
 
 
11.66
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
    218,833,144   
 
80,745,711
 
 
 100.00 
 
 
100.00
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
These
 consolidated financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individually as “Group entity”). SK Inc. is the ultimate controlling entity of the Parent Company.
On November 1, 2021, the date of spin-off, the Parent Company completed the
spin-off
of its business of managing investments in semiconductor, new Information and Communication Technologies(“ICT”) and making new investments. (See note 41)
(2)    List of subsidiaries
The list of subsidiaries as of December 31, 2021 and 2020 is as follows:
 
      
Ownership (%)(*1)
 
Subsidiary
 
Location
 
Primary business
 
Dec. 31,

2021
  
Dec. 31,
2020
 
Subsidiaries
owned by the
Parent Company
  
SK Telink Co., Ltd.
 Korea Telecommunication and Mobile Virtual Network Operator service  100.0   100.0 
  
SK Communications Co., Ltd.
 Korea Internet website services  100.0   100.0 
  
SK Broadband Co., Ltd.
 Korea Telecommunication services  74.3   74.3 
  
PS&Marketing Corporation
 Korea Communications device retail business  100.0   100.0 
  
SERVICE ACE Co., Ltd.
 Korea Call center management service  100.0   100.0 
  
SERVICE TOP Co., Ltd.
 Korea Call center management service  100.0   100.0 
   
SK O&S Co., Ltd.
 Korea Base station maintenance service  100.0   100.0 
   
SK Telecom China Holdings Co., Ltd.
 China Investment (Holdings company)  100.0   100.0 
   
SK Global Healthcare Business Group Ltd.
 Hong Kong Investment  100.0   100.0 
   
YTK Investment Ltd.
 Cayman Islands Investment association  100.0   100.0 
   
Atlas Investment
 Cayman Islands Investment association  100.0   100.0 
   
SKT Americas, Inc.
 USA Information gathering and consulting  100.0   100.0 
   
One Store Co., Ltd.(*2)
 Korea Telecommunication services  —   52.1 
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
      
Ownership (%)(*1)
 
Subsidiary
 
Location
 
Primary business
 
Dec. 31,

2021
  
Dec. 31,
2020
 
   
SK Planet Co., Ltd.(*2)
 Korea Telecommunication services, system software development and supply services  —   98.7 
   
Eleven Street Co., Ltd.(*2)
 Korea 
E-commerce
  —   80.3 
   
DREAMUS COMPANY(*2)
 Korea Manufacturing digital audio players and other portable media devices  —   51.4 
   
SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.)(*2)
 Korea Information security and unmanned security service   —   62.6 
   
Quantum Innovation Fund I
 Korea Investment  59.9   59.9 
   
SK Telecom Japan Inc.
 Japan Information gathering and consulting  100.0   100.0 
   
id Quantique SA(*2)
 Switzerland 
Quantum information and
communications service
  —   68.1 
   
SK Square Americas, Inc. (Formerly, SK Telecom TMT InvestmentCorp.)(*2)
 USA Investment  —   100.0 
   
FSK L&S Co., Ltd.(*2)
 Korea Freight and logistics consulting business  —   60.0 
   
Incross Co., Ltd.(*2)
 Korea Media representative business  —   34.6 
   
Happy Hanool Co., Ltd.
 Korea Service  100.0   100.0 
   
SK stoa Co., Ltd.
 Korea Other telecommunication retail business  100.0   100.0 
   
Broadband Nowon Co., Ltd.(*3)
 Korea Cable broadcasting services  100.0   55.0 
   
T map Mobility Co., Ltd.(*2)
 Korea Mobility business  —   100.0 
      
Subsidiaries owned by SK Planet Co., Ltd.(*2)  
SK m&service Co., Ltd.
 Korea Database and Internet website service  —   100.0 
  
SK Planet Global Holdings Pte. Ltd.
 Singapore Investment (Holdings company)  —   100.0 
  
SKP America LLC.
 USA Digital contents sourcing service  —   100.0 
  
K-net
Culture and Contents Venture Fund
 Korea Capital investing in startups  —   59.0 
      
Subsidiaries owned by DREAMUS COMPANY(*2)  
iriver Enterprise Ltd.
 Hong Kong Management of Chinese subsidiaries  —   100.0 
  
iriver China Co., Ltd.
 China Sales and manufacturing of MP3 and 4  —   100.0 
  
Dongguan iriver Electronics Co., Ltd.
 China Sales and manufacturing of e-book devices  —   100.0 
  
LIFE DESIGN COMPANY Inc.
 Japan Sales of goods in Japan  —   100.0 
      
Subsidiaries owned by SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.)(*2)  
SKinfosec Information Technology(Wuxi) Co., Ltd.
 China 
System software development and
supply services
  —   100.0 
  
ADT CAPS Co., Ltd.
 Korea Unmanned security  —   100.0 
  
CAPSTEC Co., Ltd.
 Korea Manned security  —   100.0 
      
Subsidiaries owned by SK Broadband Co., Ltd.  
Home & Service Co., Ltd.
 Korea 
Operation of information and
communication facility
  100.0   100.0 
  
Media S Co., Ltd.(*2)
 Korea 
Production and supply services of
broadcasting programs
  100.0   — 
      
Subsidiary owned by Quantum Innovation Fund I  
PanAsia Semiconductor Materials LLC.
 Korea Investment  66.4   66.4 
      
Subsidiary owned by SK Telecom Japan Inc.  
SK Planet Japan, K. K.
 Japan Digital contents sourcing service  79.8   79.8 
Subsidiary owned by id Quantique SA(*2)
 
Id Quantique LLC
 
Korea
 
Quantum information and communications service
 
 
— 
 
 
 
100.0
 
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
      
Ownership (%)(*1)
 
Subsidiary
 
Location
 
Primary business
 
Dec. 31,

2021
  
Dec. 31,
2020
 
      
Subsidiaries owned by FSK L&S Co., Ltd.(*2)  
FSK L&S (Shanghai) Co., Ltd.
 China Logistics business  —   66.0 
  
FSK L&S (Hungary) Co., Ltd.
 Hungary Logistics business  —   100.0 
  
FSK L&S VIETNAM COMPANY LIMITED
 Vietnam Logistics business  —   100.0 
      
Subsidiaries owned by Incross Co., Ltd.(*2)  
Infra Communications Co., Ltd.
 Korea Service operation  —   100.0 
  
Mindknock Co., Ltd.
 Korea Software development  —   100.0 
      
Others(*4)  
SK Telecom Innovation Fund, L.P.
 USA Investment  100.0   100.0 
  
SK Telecom China Fund I L.P.
 Cayman Islands Investment  100.0   100.0 
 
 
(*1)
The ownership interest represents direct ownership interest in subsidiaries either by the Parent Company or subsidiaries of the Parent Company.
 
(*2)
Details of changes in the consolidation scope for year ended December 31, 2021 are presented in note
1-(4).
 
(*3)
The Parent Company acquired 513,000 shares (45%) of Broadband Nowon Co., Ltd. at
￦
9,512 million in cash for the year ended December 31, 2021.
 
(*4)
Others are owned by Atlas Investment and another subsidiary of the Parent Company.
(3)    Condensed financial information of subsidiaries
 
 1)
Condensed financial information of significant subsidiaries as of and for the year ended December 31, 2021 is as follows:
 
(In millions of won)
  
As of December 31, 2021
   
2021
 
Subsidiary
  
Total assets
   
Total
liabilities
   
Total
equity
   
Revenue
   
Profit
 
SK Telink Co., Ltd.
  
￦

174,837    52,821    122,016    313,404    8,846 
SK Broadband Co., Ltd.
   5,971,505    3,091,837    2,879,668    4,058,997    213,468 
PS&Marketing Corporation
   478,745    263,457    215,288    1,445,540    3,179 
SERVICE ACE Co., Ltd.
   99,059    66,496    32,563    197,146    2,519 
SERVICE TOP Co., Ltd.
   72,026    46,067     25,959    185,452    2,066 
SK O&S Co., Ltd.
   95,748    58,870    36,878    285,591    69 
Home & Service Co., Ltd.
   131,947    90,775    41,172    405,255    550 
SK stoa Co., Ltd.
   107,943    59,931    48,012    316,249    19,163 
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 2)
Condensed financial information of significant subsidiaries as of and for the year ended December 31, 2020 is as follows:
 
(In millions of won)
  
As of December 31, 2020
 
  
2020
 
Subsidiary
  
Total assets
 
  
Total
liabilities
 
  
Total
equity
 
  
Revenue
 
  
Profit
(loss)
 
SK Telink Co., Ltd.
  
￦

176,872    60,702    116,170    351,334    18,010 
Eleven Street Co., Ltd.
   999,225    542,534    456,691    545,556    (29,623) 
SK m&service Co., Ltd.
   129,738    74,962    54,776    214,949    2,759 
SK Broadband Co., Ltd.
   5,765,808    3,119,489    2,646,319    3,713,021    150,694 
K-net
Culture and Contents Venture Fund
   377,683    65,896    311,787    —    (44,737) 
PS&Marketing Corporation
   470,521    257,809    212,712    1,427,218    (847) 
SERVICE ACE Co., Ltd.
   96,258    71,890    24,368    206,612    2,905 
SERVICE TOP Co., Ltd.
   69,496    51,584    17,912    195,479    2,592 
SK O&S Co., Ltd.
   88,663    54,012    34,651    278,948    778 
SK Planet Co., Ltd.
   536,981    214,846    322,135    276,462    1,305 
DREAMUS COMPANY(*1)
   172,443    76,642    95,801    226,329    (23,068) 
SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.)(*2)
   2,927,396    2,550,936    376,460    1,327,150    14,227 
One Store Co., Ltd.
   243,442    99,943    143,499    155,218    1,952 
Home & Service Co., Ltd.
   124,197    88,740    35,457    397,754    (20) 
SK stoa Co., Ltd.
   107,982    79,339    28,643    268,693    17,154 
FSK L&S Co., Ltd.(*3)
   66,117    35,192    30,925    205,623    3,022 
Incross Co., Ltd.(*4)
   179,308    104,778    74,530    39,440    12,307 
T map Mobility Co., Ltd.
   170,381    17,179    153,202    —    (1,857) 
 
 
(*1)
The condensed financial information of DREAMUS COMPANY is consolidated financial information including iriver Enterprise Ltd. and three other subsidiaries of DREAMUS COMPANY.
 
(*2)
The condensed financial information of SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd.) is consolidated financial information including SKinfosec Information Technology(Wuxi) Co., Ltd. and two other subsidiaries of SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd.) and including profit and loss which Life Security & Holdings Co., Ltd. recognized prior to the merger.
 
(*3)
The condensed financial information of FSK L&S Co., Ltd. is consolidated financial information including FSK L&S (Shanghai) Co., Ltd. and two other subsidiaries of FSK L&S Co., Ltd.
 
(*4)
The condensed financial information of Incross Co., Ltd. is consolidated financial information including Infra Communications Co., Ltd. and another subsidiary of Incross Co., Ltd.
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2019 is as follows:
 
(In millions of won)
  
As of December 31, 2019
   
2019
 
Subsidiary
  
Total assets
   
Total
liabilities
   
Total
equity
   
Revenue
   
Profit
(loss)
 
SK Telink Co., Ltd.(*1)
  
￦

265,725    77,378    188,347    363,627    3,010 
Eleven Street Co., Ltd.
   923,424    446,432    476,992    530,489    (5,077) 
SK m&service Co., Ltd.
   109,699    58,605    51,094    218,848    2,448 
SK Broadband Co., Ltd.
   4,565,732    2,930,482    1,635,250    3,170,691    47,701 
K-net
Culture and Contents Venture Fund
   151,493    21,163    130,330    —    (294) 
PS&Marketing Corporation
   439,947    225,942    214,005    1,684,576    96 
SERVICE ACE Co., Ltd.
   80,844    55,133    25,711    206,080    3,906 
SERVICE TOP Co., Ltd.
   66,932    50,060    16,872    193,377    2,230 
SK O&S Co., Ltd.
   96,446    62,086    34,360    281,634    1,724 
SK Planet Co., Ltd.
   595,838    278,438    317,400    275,544    1,214 
DREAMUS COMPANY(*2)
   171,586    53,669    117,917    196,961    (48,006) 
Life & Security Holdings Co., Ltd.(*3)
   2,639,781    2,330,920    308,861    913,301    12,703 
SK Infosec Co., Ltd.(*4)
   158,424    61,644    96,780    270,423    18,520 
One Store Co., Ltd.
   236,329    93,625    142,704    135,116    (5,415) 
Home & Service Co., Ltd.
   121,202    84,378    36,824    351,154    (427) 
SK stoa Co., Ltd.
   70,754    59,207    11,547    196,063    875 
FSK L&S Co., Ltd.(*5)
   47,550    19,651    27,899    130,872    306 
Incross Co., Ltd.(*6)
   144,263    78,519    65,744    19,787    5,756 
 
 
(*1)
The condensed financial information of SK Telink Co., Ltd. is consolidated financial information including SK TELINK VIETNAM Co., Ltd.
 
(*2)
The condensed financial information of DREAMUS COMPANY is consolidated financial information including iriver Enterprise Ltd. and three other subsidiaries of DREAMUS COMPANY.
 
(*3)
The condensed financial information of Life & Security Holdings Co., Ltd. is consolidated financial information including ADT CAPS Co., Ltd. and two other subsidiaries of Life & Security Holdings Co., Ltd.
 
(*4)
The condensed financial information of SK Infosec Co., Ltd. is consolidated financial information including SKinfosec Information Technology(Wuxi) Co., Ltd.
 
(*5)
The condensed financial information of FSK L&S Co., Ltd. is consolidated financial information including FSK L&S (Shanghai) Co., Ltd. and another subsidiary of FSK L&S Co., Ltd.
 
(*6)
The condensed financial information of Incross Co., Ltd. is consolidated financial information including Infra Communications Co., Ltd. and another subsidiary from the date of acquisition to December 31, 2019.
 
F-
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(4)    Changes in subsidiaries
1)    The list of subsidiaries that were newly included in consolidation for the year ended December 31, 2021 is as follows:
 
Subsidiary
  
Reason
Studio Dolphin Co., Ltd.
  Acquired by DREAMUS COMPANY
  
Media S Co., Ltd.
  Established by SK Broadband Co., Ltd.
  
FSK L&S (Jiangsu) Co., Ltd.
  Established by FSK L&S Co., Ltd.
  
Rokmedia Co., Ltd.
  Acquired by One Store Co., Ltd.
  
YLP Inc.
  Acquired by T map Mobility Co., Ltd.
  
GOOD SERVICE Co., Ltd.
  Acquired by T map Mobility Co., Ltd.
  
CAPS America, Inc.
  Established by SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd.)
2)    The list of subsidiaries that were excluded from consolidation for the year ended December 31, 2021 is as follows:
 
Subsidiary
  
Reason
ADT CAPS Co., Ltd.
  Merged into SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd., at the time of merger, SK Infosec Co., Ltd.)
  
One Store Co., Ltd.
  Transferred to
spin-off
company
  
SK Planet Co., Ltd.
  Transferred to
spin-off
company
  
Eleven Street Co., Ltd.
  Transferred to
spin-off
company
  
DREAMUS COMPANY
  Transferred to
spin-off
company
  
SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.)
  Transferred to
spin-off
company
  
id Quantique SA
  Transferred to
spin-off
company
  
SK Square Americas, Inc. (Formerly, SK Telecom TMT Investment Corp.)
  Transferred to
spin-off
company
  
FSK L&S Co., Ltd.
  Transferred to
spin-off
company
  
Incross Co., Ltd.
  Transferred to
spin-off
company
  
T map Mobility Co., Ltd.
  Transferred to
spin-off
company
  
Rokmedia Co., Ltd.
  Transferred to
spin-off
company
  
SK m&service Co., Ltd.
  Transferred to
spin-off
company
  
SK Planet Global Holdings Pte. Ltd.
  Transferred to
spin-off
company
  
SKP America LLC.
  Transferred to
spin-off
company
  
K-net
Culture and Contents Venture Fund
  Transferred to
spin-off
company
 
F-2
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Subsidiary
  
Reason
  
iriver Enterprise Ltd.
  Transferred to
spin-off
company
  
iriver China Co., Ltd.
  Transferred to
spin-off
company
  
Dongguan iriver Electronics Co., Ltd.
  Transferred to
spin-off
company
  
LIFE DESIGN COMPANY Inc.
  Transferred to
spin-off
company
  
Studio Dolphin Co., Ltd.
  Transferred to
spin-off
company
  
SKinfosec Information Technology(Wuxi) Co., Ltd.
  Transferred to
spin-off
company
  
CAPSTEC Co., Ltd.
  Transferred to
spin-off
company
  
CAPS America, Inc.
  Transferred to
spin-off
company
  
Id Quantique LLC
  Transferred to
spin-off
company
  
FSK L&S (Shanghai) Co., Ltd.
  Transferred to
spin-off
company
  
FSK L&S (Hungary) Co., Ltd.
  Transferred to
spin-off
company
  
FSK L&S VIETNAM COMPANY LIMITED
  Transferred to
spin-off
company
  
FSK L&S (Jiangsu) Co., Ltd.
  Transferred to
spin-off
company
  
Infra Communications Co., Ltd.
  Transferred to
spin-off
company
  
Mindknock Co., Ltd.
  Transferred to
spin-off
company
  
YLP Inc.
  Transferred to
spin-off
company
  
GOOD SERVICE Co., Ltd.
  Transferred to
spin-off
company
 
F-2
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(5)    The financial information of significant
non-controlling
interests of the Group as of and for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
  
SK Broadband
Co., Ltd.
 
Ownership of
non-controlling
interests (%)
   24.9 
  
   
As of
December 31,
2021
 
Current assets
  
￦

1,208,535 
Non-current
assets
   4,762,970 
Current liabilities
   (1,410,823) 
Non-current
liabilities
   (1,681,014) 
Net assets
   2,879,668 
Fair value adjustment and others
   (23,000) 
Net assets on the consolidated financial statements
   2,856,668 
Carrying amount of
non-controlling
interests
   725,540 
  
   
2021
 
Revenue
  
￦

4,058,997 
Profit for the year
   213,468 
Depreciation of the fair value adjustment and others
   — 
Profit for the year on the consolidated financial statements
   213,468 
Total comprehensive income
   224,107 
Profit attributable to
non-controlling
interests
   53,645 
Net cash provided by operating activities
  
￦

1,064,638 
Net cash used in investing activities
   (624,191) 
Net cash used in financing activities
   (237,241) 
Effects of exchange rate changes on cash and cash equivalents
   (59) 
Net increase in cash and cash equivalents
   203,147 
Dividends paid to
non-controlling
interests for the year ended December 31, 2021
  
￦

— 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 

(In millions of won)
 
DREAMUS
COMPANY
  
One Store

Co., Ltd.
  
Eleven Street

Co., Ltd.
  
SK Shieldus
Co., Ltd.(Formerly,

ADT CAPS
Co., Ltd.)(*)
  
Incross Co., Ltd.
  
SK Broadband
Co., Ltd.
 
Ownership of
non-controlling
interests (%)
  48.6   47.4   18.2   37.4   55.2   24.9 
  
  
As of December 31, 2020
 
Current assets
 
￦

146,278   215,672   896,828   306,520   165,668   1,179,743 
Non-current
assets
  26,165   27,770   102,397   2,620,876   13,640   4,586,065 
Current liabilities
  (72,762)   (96,139)   (508,427)   (417,194)   (101,065)   (1,279,132) 
Non-current
liabilities
  (3,880)   (3,804)   (34,107)   (2,133,742)   (3,713)   (1,840,357) 
Net assets
  95,801   143,499   456,691   376,460   74,530   2,646,319 
Fair value adjustment and others
  —   —   (14,297)   (1,227,442)   —   — 
Net assets on the consolidated financial statements
  95,801   143,499   442,394   (850,982)   74,530   2,646,319 
Carrying amount of
non-controlling
interests
  47,452   68,573   81,754   (318,267)   46,010   665,020 
  
  
2020
 
Revenue
 
￦

226,329   155,218   545,556   1,327,150   39,440   3,713,021 
Profit (loss) for the year
  (23,068)   1,952   (29,623)   14,227   12,307   150,694 
Depreciation of the fair value adjustment and others
  —   —   (492)   (19,229)   —   — 
Profit (loss) for the year on the consolidated financial statements
  (23,068)   1,952   (30,115)   (5,002)   12,307   150,694 
Total comprehensive income (loss)
  (22,740)   2,278   (15,793)   (3,758)   12,145   151,417 
Profit (loss) attributable to
non-controlling
interests
  (10,770)   930   (5,565)   (12,432)   7,568   27,240 
       
Net cash provided by operating activities
 
￦

15,223   38,006   65,499   248,524   24,629   1,035,474 
Net cash used in investing activities
  (2,471)   (62,816)   (71,644)   (229,130)   (2,284)   (844,454) 
Net cash provided by (used in) financing activities
  (2,329)   (2,499)   (18,059)   11,134   (4,278)   (93,259) 
Effects of exchange rate changes on cash and cash equivalents
  (2,053)   —   (385)   (554)   —   — 
Net increase (decrease) in cash and cash equivalents
  8,370   (27,309)   (24,589)   29,974   18,067   97,761 
Dividends paid to non-controlling interests for the year ended December 31, 2020
 
￦

—   —   5,000   17,273   —   — 
 
 
(*)
The condensed financial information of SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd.) includes profit and loss, cash flows which Life Security & Holdings Co., Ltd. recognized prior to the merger.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
 
DREAMUS
COMPANY
  
One Store
Co., Ltd.
  
Eleven Street
Co., Ltd.
  
Life & Security
Holdings Co., Ltd.
  
Incross Co., Ltd.
 
Ownership of non-controlling interests (%)
  48.6   47.3   18.2   45.0   65.4 
  
  
As of December 31, 2019
 
Current assets
 
￦

136,269   208,527   779,568   126,437   133,741 
Non-current
assets
  35,317   27,802   143,856   2,513,344   10,522 
Current liabilities
  (49,776)   (88,842)   (420,022)   (279,403)   (77,530) 
Non-current
liabilities
  (3,893)   (4,783)   (26,410)   (2,051,517)   (989) 
Net assets
  117,917   142,704   476,992   308,861   65,744 
Fair value adjustment and others
  —   —   (18,805)   (1,219,701)   — 
Net assets on the consolidated financial statements
  117,917   142,704   458,187   (910,840)   65,744 
Carrying amount of non- controlling interests
  57,175   67,742   84,673   (409,878)   41,074 
  
  
2019
 
Revenue
 
￦

196,961   135,116   530,489   913,301   19,787 
Profit (loss) for the year
  (48,006)   (5,415)   (5,077)   12,703   5,756 
Depreciation of the fair value adjustment and others
  —   —   (614)   (14,913)   — 
Profit (loss) for the year on the consolidated financial statements
  (48,006)   (5,415)   (5,691)   (2,210)   5,756 
Total comprehensive income (loss)
  (47,971)   (5,856)   (13,590)   (5,413)   5,396 
Profit (loss) attributable to
non-controlling
interests
  (23,281)   (2,256)   (1,064)   (978)   3,630 
      
Net cash provided by (used in) operating activities
 
￦

(1,387)   14,426   7,980   238,378   (9,331) 
Net cash provided by (used in) investing activities
  (2,596)   (87,275)   102,366   (194,472)   5,053 
Net cash provided by (used in) financing activities
  (2,965)   96,189   (72,686)   (51,129)   (4,644) 
Effects on exchange rate changes on cash and cash equivalents
  197   2   35   —   — 
Net increase (decrease) in cash and cash equivalents
  (6,751)   23,342   37,695   (7,223)   (8,922) 
Dividend paid to non- controlling interests
for
the year ended December 31, 2019
 
￦

—   —   17,500   28,786   — 
 
2.
Basis of Preparation
(1)    Statement of compliance
These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were authorized for issue by the Board of Directors on February 8, 2022 for statutory shareholders’ approval purpose, and
re-authorized
for issue by management in connection with the filing with the U.S. Securities Exchange Commission on April 2
8
, 2022.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019

(2)     Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statement of financial position:
 
 • 
derivative financial instruments measured at fair value;
 
 • 
financial instruments measured at fair value through profit or loss (“FVTPL”);
 
 • 
financial instruments measured at fair value through other comprehensive income (“FVOCI”);
 
 • 
liabilities (assets) for defined benefit plans recognized at the total present value of defined benefit obligations less the net of the fair value of plan assets
(3)     Functional and presentation currency
Financial statements of Group entities within the Group are prepared in functional currency of each group entity, which is the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.
(4)    Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively
1)    Critical judgments
Information about critical judgments in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is included in notes for the following areas: consolidation (whether the Group has de facto control over an investee), and determination of stand-alone selling prices.
2)    Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: loss allowance (notes 6 and 35), estimated useful lives of costs to obtain a contract (notes 7), property and equipment and intangible assets (notes 3 (7), (9), 13 and 17), impairment of goodwill (notes 3 (12) and 16), recognition of provision (notes 3 (17) and 20), measurement of defined benefit liabilities (notes 3 (16) and 21), transaction of derivative instruments (notes 3 (6) and 22) and recognition of deferred tax assets (liabilities) (notes 3 (25) and 31).
3)    Fair value measurement
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and
non-financial
assets and liabilities. The Group has an established policies and processes with respect to the measurement of fair values including Level 3 fair values, and the measurement of fair values is reviewed and is directly reported to the finance executives.
The Group regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Group assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
 
 
•
 
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
 
 
•
 
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
 
 
•
 
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Information about assumptions used for fair value measurements are included in note 22 and note 35.
 
3.
Significant Accounting Policies
The significant accounting policies applied by the Group in the preparation of its consolidated financial statements in accordance with IFRS are included below. The significant accounting policies applied by the Group in these consolidated financial statements have been consistently applied for all periods presented, except for the changes described below.
The Group has initially adopted Interest Rate Benchmark Reform Phase 2 — Amendments to IFRS 9,
Financial Instruments
, IAS 39,
Financial Instrument: Recognition and Measurement
, IFRS 7,
Financial Instruments: Disclosures
and IFRS 16,
Leases
from January 1, 2021.
Interest Rate Benchmark Reform Phase 2 — Amendments provide exceptions as follows:
 
 
•
 
when the basis of determining the contractual cash flows of a financial asset or financial liability measured at amortized cost changed as a result of interest rate benchmark reform (“IBOR reform”), the Group updates the effective interest rate of the financial asset or financial liability rather than the carry amount and,
 
 
•
 
when the basis for determining the contractual cash flows of the hedged item or hedging instrument changes as a result of the IBOR reform, the exception permits the hedge relationship to be continued while the Group amends the hedge documentation of that hedging relationship to reflect the changes required by IBOR reform.
These amended standards are not expected to have a significant impact on the Group’s consolidated financial statements.
Meanwhile, as described in note 41, the Parent Company carried out
spin-off
of its business of managing investments in semiconductor, new Information and Communication Technologies(“ICT”) and making new investments pursuant to the resolution of the Board of Directors on June 10, 2021 and approval of shareholders’ meeting on October 12, 2021. The Group has applied IFRS 5,
Non-current
assets held for sale and discontinued operations
, and accordingly, presented profit or loss of the spin-off business as discontinued operations. The comparative consolidated statements of income have been re-presented to present the discontinued operations separately from continuing operations.
(1)    Operating segments
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
other components. The Group’s operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has three reportable segments as described in note 4. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
(2)    Basis of consolidation
(a)    Business combination
A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.
In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. The difference between the acquired company’s fair value and the consideration transferred is accounted for goodwill. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received, except if related to the costs to issue debt or equity securities recognized based on IAS 32 and IFRS 9.
Consideration transferred does not include the amount settled in relation to the
pre-existing
relationship. Such amounts are generally recognized through profit or loss.
Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration through profit or loss.
(b)    Non-controlling
interests
Non-controlling
interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.
Changes in a Controlling Company’s ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.
(c)    Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.
(d)    Loss of control
If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.
(e)    Interest in investees accounted for using the equity method
Interest in investees accounted for using the equity method composed of interest in associates and joint ventures.
An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement has rights to the net assets of the arrangement.
The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.
(f)    Intra-group transactions
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.
(g)    Business combinations under common control
SK Inc. is the ultimate controlling entity of the Group. The assets and liabilities acquired under business combination under common control are recognized at the carrying amounts in the ultimate controlling shareholder’s consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from capital surplus and others.
(3)    Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits and investment securities with maturities of three months or less from the acquisition date that are easily convertible to cash and subject to an insignificant risk of changes in their fair value.
(4)    Inventories
Inventories are initially recognized at the acquisition cost and subsequently measured using the weighted average method. During the period, a perpetual inventory system is used to track inventory quantities, which is adjusted based on the physical inventory counts performed at the period end. When the net realizable value of inventories is less than cost, the carrying amount is reduced to the net realizable value, and any difference is charged to current period as operating expenses.
(5)    Non-derivative
financial assets
(a)    Recognition and initial measurement
Accounts receivable — trade and debt investments issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
A financial asset (unless an accounts receivable — trade without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. An accounts receivable — trade without a significant financing component is initially measured at the transaction price.
(b)    Classification and subsequent measurement
On initial recognition, a financial asset is classified as measured at:
 
 • 
FVTPL
 
 • 
FVOCI — equity investment
 
 • 
FVOCI — debt investment
 
 • 
Financial assets at amortized cost
A financial asset is classified based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
 
 • 
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
 
 • 
its contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
 
 • 
it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
 
 • 
its contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an
investment-by-investment
basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
The following accounting policies are applied to the subsequent measurement of financial assets.
 
Financial assets at FVTPL
  These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
  
Financial assets at amortized cost
  These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
  
Debt investments at FVOCI
  These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
  
Equity investments at FVOCI
  These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
(c)    Impairment
The Group estimates the expected credit losses (“ECL”) for the debt instruments measured at amortized cost and FVOCI based on the Group’s historical experience and informed credit assessment that includes forward-looking information. The impairment approach is decided based on the assessment of whether the credit risk of a financial asset has increased significantly since initial recognition. However, the Group applies a practical expedient and recognizes impairment losses equal to lifetime ECLs for accounts receivable – trade and lease receivables from the initial recognition.
ECL is a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).
At each reporting date, the Group assesses whether financial assets measured at amortized cost and debt investments at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Loss allowance on financial assets measured at amortized cost is deducted from the carrying amount of the respective assets, while loss allowance on debt instruments at FVOCI is recognized in OCI, instead of reducing the carrying amount of the transferred assets.
(d)    Derecognition
Financial assets
The Group derecognizes a financial asset when:
 
 • 
the contractual rights to the cash flows from the financial asset expire; or
 
 • 
it transfers the rights to receive the contractual cash flows in a transaction in which either:
 
 • 
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
 
 • 
the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
The Group enters into transactions whereby it transfers assets recognized in its consolidated statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.
Interest rate benchmark reform
When the basis for determining the contractual cash flows of a financial asset or financial liability measured at amortized cost changed as a result of interest rate benchmark reform, the Group updated the effective interest rate of the financial asset or financial liability to reflect the change that is required by the reform. A change in the basis for determining the contractual cash flows is required by interest rate benchmark reform if the following conditions are met:
 
 • 
the change is necessary as a direct consequence of the reform; and
 
 • 
the new basis for determining the contractual cash flows is economically equivalent to the previous basis – i.e. the basis immediately before the change.
When changes were made to a financial asset or financial liability in addition to changes to the basis for determining the contractual cash flows required by interest rate benchmark reform, the Group first updated the effective rate of the financial asset or financial liability to reflect the change that is required by interest rate benchmark reform. After that, the Group applied the policies on accounting for modifications to the additional changes.
(e)    Offsetting
Financial assets and financial liabilities are offset, and the net amount is presented in the statement of financial position when the Group currently has a legally enforceable right to offset the recognized amounts and it intends either to settle on a net basis or to settle the liability and realize the asset simultaneously.
A financial asset and a financial liability are offset only when the right to set off the amount is not contingent on future event and legally enforceable even on the event of default, insolvency or bankruptcy.
(6)    Derivative financial instruments, including hedge accounting
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value at the end of each reporting period, and changes therein are accounted for as described below.
(a)    Hedge accounting
The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designates derivatives as hedging instruments to hedge the variability in cash flow associated with highly probable forecasted transactions or firm commitments (a cash flow hedge).
On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.
Hedges directly affected by interest rate benchmark reform
When uncertainty arises about the interest rate benchmark designated as a hedged risk and the timing or the amount of the interest rate
benchmark-based
cash flows of the hedged item or of the hedging instrument as a result of IBOR reform, for the purpose of evaluating whether there is an economic relationship between the hedged items and the hedging instruments, the Group assumes that the interest rate benchmark on which the hedged items and the hedging instruments are based is not altered as a result of interest rate benchmark reform.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
For a cash flow hedge of a forecast transaction, the Group assumes that the benchmark interest rate will not be altered as a result of interest rate benchmark reform for the purpose of assessing whether the forecast transaction is highly probable and determining whether a previously designated forecast transaction in a discontinued cash flow hedge is still expected to occur.
The Group will cease applying the specific policy for assessing the economic relationship between the hedged item and the hedging instrument
 
 • 
to a hedged item or hedging instrument when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate
benchmark-based
cash flows of the respective item or instrument; or
 
 • 
when the hedging relationship is discontinued.
When the basis for determining the contractual cash flows of the hedged item or hedging instrument changes as a result of IBOR reform and therefore there is no longer uncertainty arising about the cash flows of the hedged item or the hedging instrument, the Group amends the hedge documentation of that hedging relationship to reflect the change(s) required by IBOR reform.
The Group amends the formal hedge documentation by the end of the reporting period during which a change required by IBOR reform is made to the hedged risk, hedged item or hedging instrument. These amendments in the formal hedge documentation do not constitute the discontinuation of the hedging relationship or the designation of a new hedging relationship.
If changes are made in addition to those changes required by interest rate benchmark reform to the financial asset or financial liability designated in a hedging relationship or to the designation of the hedging relationship, the Group determines whether those additional changes result in the discontinuation of hedging accounting. If the additional changes do not result in the discontinuation of hedging accounting, the Group amend the formal designation of the hedging relationship.
When the interest rate benchmark on which the hedged future cash flows had been based is changed as required by IBOR reform, for the purpose of determining whether the hedged future cash flows are expected to occur, the Group deems that the hedging reserve recognized in OCI for that hedging relationship is based on the alternative benchmark rate on which the hedged future cash flows will be based.
Cash flow hedge
When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.
(b)    Other derivative financial instruments
Other derivative financial instrument not designated as a hedging instrument are measured at fair value, and the changes in fair value of the derivative financial instrument is recognized immediately in profit or loss.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(7)    Property and equipment
Property and equipment are initially measured at cost. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Property and equipment, subsequently, are carried at cost less accumulated depreciation and accumulated impairment losses.
Subsequent costs are recognized in the carrying amount of property and equipment at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be reliably measured. The carrying amount of the replaced part is derecognized. The costs of the
day-to-day
servicing are recognized in profit or loss as incurred.
Property and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property and equipment is depreciated over its separate useful life.
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized as other
non-operating
income (loss).
The estimated useful lives of the Group’s property and equipment are as follows:
 
   
Useful lives (years)
Buildings and structures
  15 ~ 40
Machinery
  3 ~ 15, 30
Other property and equipment
  3~10
Right-of-use
assets
  1 ~ 50
Depreciation methods, useful lives, and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.
(8)    Borrowing costs
The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets are not qualifying assets, and assets that are ready for their intended use or sale when acquired are not qualifying assets either.
To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period do not exceed the amount of borrowing costs incurred during the period.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(9)    Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.
Intangible assets, except for goodwill, are amortized on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, club memberships and brand are expected to be available for use as there are no foreseeable limits to the periods. These intangible assets are determined as having indefinite useful lives and, therefore, not amortized.
The estimated useful lives of the Group’s intangible assets are as follows:
 
 
  
Useful lives (years)
Frequency usage rights
  2.9 ~ 10
Land usage rights
  5
Industrial rights
  5, 10
Development costs
  5
Facility usage rights
  10, 20
Customer relations
  3 ~ 15
Other
  3 ~ 20
Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes, if appropriate, are accounted for as changes in accounting estimates.
Expenditures on research activities are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be reliably measured, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.
(10)    Government grants
Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.
1)    Grants related to assets
Government grants whose primary condition is that the Group purchases, constructs, or otherwise acquires a long-term asset are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.
2)    Grants related to income
Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(11)    Investment property
Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are reported at cost less accumulated depreciation and accumulated impairment losses.
Subsequent expenditures are recognized in carrying amount of an asset or as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured reliably. The carrying amount of those parts that are replaced is derecognized. The costs associated with routine maintenance and repairs are recognized in profit or loss as incurred.
Investment property, except for land, is depreciated on a straight-line basis over estimated useful lives of 30 years. In addition,
right-of-use
asset classified as investment property is depreciated using the
straight-line
basis from the commencement date to the end of the lease term.
The depreciation method, estimated useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.
(12)    Impairment of
non-financial
assets
The carrying amounts of the Group’s
non-financial
assets other than contract assets recognized for revenue arising from contracts with a customer, assets recognized for the costs to obtain or fulfill a contract with a customer, employee benefits, inventories, deferred tax assets, and
non-current
assets held for sale are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amounts to their carrying amounts.
The Group estimates the recoverable amount of an individual asset, and if it is impossible to measure the individual recoverable amount of an asset, the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a
pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.
An impairment loss is recognized in profit or loss to the extent the carrying amount of the asset exceeds its recoverable amount.
Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergy arising from the business acquired. Any impairment identified at the CGU level will first reduce the carrying amount of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(13)    Leases
A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(a)    As a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, the Group has elected not to separate
non-lease
components and account for the lease and
non-lease
components as a single lease component.
The Group recognizes a
right-of-use
asset and a lease liability at the lease commencement date. The
right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The
right-of-use
asset is subsequently depreciated using the
straight-line
basis from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the
right-of-use
asset reflects that the Group will exercise a purchase option. In that case the
right-of-use
asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the
right-of-use
asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
 
 
•
 
fixed payments, including
in-substance
fixed payments
 
 
•
 
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
 
 
•
 
amounts expected to be payable under a residual value guarantee
 
 
•
 
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised
in-substance
fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the
right-of-use
asset, or is recorded in profit or loss if the carrying amount of the
right-of-use
asset has been reduced to zero.
The Group presents
right-of-use
assets that do not meet the definition of investment property in ‘property and equipment’ in the statement of financial position.
The Group has elected not to recognize
right-of-use
assets and lease liabilities for leases of
low-value
assets and short-term leases. The Group recognizes the lease payments associated with lease as an expense on a
straight-line
basis over the lease term.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(b)    As a lessor
At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Group is an intermediate lessor, is accounts for its interests in the head lease and the
sub-lease
separately. It assesses the lease classification of a
sub-lease
with reference to the
right-of-use
asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the
sub-lease
as an operating lease.
If an arrangement contains lease and
non-lease
components, then the Group applies IFRS 15 to allocate the consideration in the contract.
The Group applies derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The Group further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.
The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’.
(14)    Non-current
assets held for sale
Non-current
assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sales rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the assets (or disposal groups) must be available for immediate sale in their present condition and their sale must be highly probable. The assets or disposal groups that are classified as
non-current
assets held for sale are measured at the lower of their carrying amounts and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of assets (or disposal groups) to fair value less costs to sell and a gain for any subsequent increase in fair value less costs to sell up to the cumulative impairment loss previously recognized in accordance with IAS 36,
Impairment of Assets
.
A
non-current
asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).
(15)    Non-derivative
financial liabilities
The Group classifies
non-derivative
financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liabilities.
(a)    Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, these liabilities are measured at fair value. The amount of change in fair value of financial liability that is attributable to changes in the credit risk of that liability
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
shall be presented in other comprehensive income, and the remaining amount of change in the fair value of the liability shall be presented in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issue of the financial liability are recognized in profit or loss as incurred.
(b)    Other financial liabilities
Non-derivative
financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the issue of the financial liabilities. Subsequent to initial recognition, other financial liabilities are measured at amortized cost and the interest expenses are recognized using the effective interest method.
(c)    Derecognition of financial liability
The Group extinguishes a financial liability only when the contractual obligation is fulfilled, canceled or expires. The Group recognizes new financial liabilities at fair value based on new contracts and eliminates existing liabilities when the contractual terms of the financial liabilities change and the cash flows change substantially.
When a financial liability is derecognized, the difference between the carrying amount and the consideration paid (including any transferred
non-cash
assets or liabilities assumed) is recognized in profit or loss.
(16)    Employee benefits
(a)    Short-term employee benefits
Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render related services. When an employee has rendered a service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.
(b)    Other long-term employee benefits
Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render related services. The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.
(c)    Retirement benefits: defined contribution plans
When an employee has rendered a service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.
(d)    Retirement benefits: defined benefit plans
At the end of reporting period, defined benefit liabilities relating to defined benefit plans are recognized at present value of defined benefit obligations net of fair value of plan assets.
The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Remeasurements of the net defined benefit liability (asset), which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.
When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes a gain or loss on a settlement when the settlement of defined benefit plan occurs.
(e)    Termination benefits
The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, they are discounted to their present value.
(17)    Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. If the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.
If some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
A provision is used only for expenditures for which the provision was originally recognized.
(18)    Emissions Rights
The Group accounts for greenhouse gases emission right and the relevant liability as below pursuant to the Act on Allocation and Trading of Greenhouse Gas Emission in Korea.
1)    Greenhouse Gases Emission Right
Greenhouse Gases Emission Right consists of emission allowances, which are allocated from the government free of charge or purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business.
The Group derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government in which the future economic benefits are no longer expected to be probable.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
2)    Emissions liability
Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession and the unit price for such emission rights in the market at the end of the reporting period. The emissions liabilities are derecognized when they are surrendered to the government.
(19)    Transactions in foreign currencies
(a)    Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the exchange rate at the reporting date.
Non-monetary
assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
Exchange differences arising from monetary items except for financial liabilities designated cashflow hedging instruments are recognized in profit or loss. If a gain or loss on a non-monetary item is recognized in other comprehensive income, any foreign exchange differences are also recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in profit or loss, any foreign exchange differences are also recognized in profit or loss.
(b)    Foreign operations
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the closing rate at the reporting date.
When a foreign operation is disposed, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to
non-controlling
interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.
(20)    Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.
When the Parent Company repurchases its own shares, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The gains or losses from the purchase, disposal, reissue, or retirement of treasury shares are directly recognized in equity being as transaction with owners.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 

(21)    Hybrid bond
The Group recognizes a financial instrument issued by the Group as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.
(22)    Share-based payment
For equity-
settled share-based payment transaction, if the fair value of the goods or services received cannot be reliably estimated, the Group measures the value indirectly by reference to the fair value of the equity instruments granted. The related expense with a corresponding increase in capital surplus and others is recognized over the vesting period of the awards.
The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and
non-market
performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and
non-market
performance conditions at the vesting date.
The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the share appreciation rights. Any changes in the fair value of the liability are recognized in profit or loss.
(23)    Revenue
(a)    Identification of performance obligations in contracts with customers
The Group identifies the distinct services or goods as performance obligations in contracts with customers such as (1) providing wireless and fixed-line telecommunications services, (2) sale of handsets and (3) providing other goods and services. In the case of providing both wireless telecommunications service and selling a handset together to one customer, the Group allocates considerations from the customer between the separate performance obligations for handset sale and wireless telecommunications service. The handset sale revenue is recognized when handset is delivered, and the wireless telecommunications service revenue is recognized over the period of the contract term as stated in the subscription contract.
(b)    Allocation of the transaction price to each performance obligation
The Group allocates the transaction price of a contract to each performance obligation identified on a relative stand-alone selling price basis. The Group uses “adjusted market assessment approach” for estimating the stand-alone selling price of a good or service.
(c)    Incremental costs of obtaining a contract
The Group pays commissions to its retail stores and authorized dealers in connection with acquiring service contracts. The commissions paid to these parties constituted a significant portion of the Group’s operating expenses. These commissions would not have been paid if there have been no binding contracts with subscribers and, therefore, the Group capitalizes certain costs associated with commissions paid to obtain new customer contracts and amortize them over the expected contract periods.
(d)    Customer loyalty programs
The Group provides customer loyalty points to customers based on the usage of the service to which the Group allocates a portion of consideration received as a performance obligation distinct from wireless telecommunications services. The amount to be allocated to the loyalty program is measured according to the relative stand-alone selling price of the customer loyalty points. The amount allocated to the loyalty program is deferred as a contract liability and is recognized as revenue when loyalty points are redeemed.

 

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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(e)    Consideration payable to a customer
Based on the subscription contract, a customer who uses the Group’s wireless telecommunications services may receive discount for purchasing goods or services from a designated third party. The Group pays a portion of the price discounts that the customer receives to the third party which is viewed as consideration payable to a customer. The Group accounts for the amounts payable to the third party as a reduction of the wireless telecommunications service revenue.
(24)    Finance income and finance costs
Finance income comprises interest income on funds invested (including financial assets measured at fair value), dividend income, gains on disposal of financial assets at FVTPL, changes in fair value of financial instruments at FVTPL, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss when the right to receive the dividend is established.
Finance costs comprise interest expense on borrowings, changes in fair value of financial instruments at FVTPL, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures is recognized as it accrues in profit or loss using the effective interest rate method.
(25)    Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in OCI.
The Group pays income tax in accordance with the
tax-consolidation
system when the Parent Company and its subsidiaries are economically unified.
(a)    Current tax
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and includes interests and fines related to income taxes paid or payable. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and
non-taxable
or
non-deductible
items from the accounting profit.
(b)    Deferred tax
Deferred tax is recognized by using the asset-liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences, except for the difference associated with investments in subsidiaries and associates that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
A deferred tax asset is recognized for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. Future taxable profit is dependent on the reversal of taxable temporary differences. If there are insufficient taxable temporary differences to recognize the deferred tax asset, the business plan of the Group and the reversal of existing temporary differences are considered in determining the future taxable profit.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
The Group reviews the carrying amount of a deferred tax asset at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized, or the liability is settled based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if the Group has a legally enforceable right to offset the amount recognized and intends to settle the current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.
(c)    Uncertainty over income tax treatments
The Group assesses the uncertainty over income tax treatments pursuant to IAS 12. If the Group concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the Group reflects the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the entity expects to better predict the resolution of the uncertainty:
 
 • 
The most likely amount: the single most likely amount in a range of possible outcomes.
 
 • 
The expected value: the sum of the
probability-weighted
amounts in a range of possible outcomes.
(26)    Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees, if any.
(27)    Discontinued operation
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
 
 
•
 
represents a separate major line of business or geographic area of operations;
 
 
•
 
is part of a single
co-ordinated
plan to dispose of a separate major line of business or geographic area of operations; or
 
 
•
 
is a subsidiary acquired exclusively with a view to resale.
When an operation is classified as a discontinued operation, the comparative statements of income are
re-presented
as if the operation had been discontinued from the start of the earliest comparative year.
(28)    Standards issued but not yet effective
The following new and amended standards are effective for annual periods beginning after January 1, 2021. The following new and amended standards are not expected to have a significant impact on the Group’s consolidated financial statements.
 
 
•
 
Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37).
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
•
 
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
 
 
•
 
COVID-19-Related
Rent Concessions beyond 30 June, 2021 (Amendment to IFRS 16).
 
 
•
 
Reference to Conceptual Framework (Amendments to IFRS 3).
 
 
•
 
Annual Improvements to IFRS Standards 2018-2020.
 
 
•
 
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).
 
 
•
 
Classification of Liabilities as Current or
Non-current
(Amendments to IAS 1).
 
 
•
 
IFRS 17
Insurance Contracts
and amendments to IFRS 17
Insurance Contracts
.
 
 
•
 
Disclosure of Accounting Polices (Amendments to IAS 1).
 
 
•
 
Definition of Accounting Estimates (Amendments to IAS 8).
 
4.
Operating Segments
The Group’s operating segments have been identified to be each business unit, by which the Group provides different services and merchandise. The Group’s reportable segments for continuing operations include: cellular services, which include cellular voice service, wireless data service and wireless internet services; fixed-line telecommunication services, which include telephone services, internet services, and leased line services; and all other businesses, which include providing shopping channel and digital platform for selling products and other immaterial operations, each of which does not meet the quantitative threshold to be considered as a reportable segment and are presented collectively as others.
 
(1)
Segment information for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
 
   
2021
 
   
Continuing operations
  
Discontinued

operations
 
   
Cellular

services
   
Fixed-line
telecommunication
services
   
Others(*1)
   
Sub-total
   
Adjustments

(*2)
  
Total
 
Total revenue
  ￦14,214,407    4,790,641    362,978    19,368,026    (2,619,441)   16,748,585   2,845,424 
Inter-segment revenue
   1,495,934    1,112,935    10,572    2,619,441    (2,619,441)   —   462,341 
External revenue
   12,718,473    3,677,706    352,406    16,748,585    —   16,748,585   2,383,083 
Depreciation and amortization
   2,812,827    958,462    11,318    3,782,607    (110,052)   3,672,555   287,412 
Operating profit (loss)
   1,123,147    294,070    14,550    1,431,767    595   1,432,362   73,005 
Finance income and costs, net
                           (160,471)   (222,406) 
Gain relating to investments in subsidiaries, associates and joint ventures, net
                           446,300   1,502,147 
Profit before income tax
                           1,718,191   1,352,746 
 
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and
2019
 
(In millions of won)
 
 
 
2020
 
 
 
Continuing operations
 
 
Discontinued

operations
 
 
 
Cellular

services
 
 
Fixed-line

telecommunication

services
 
 
Others(*1)
 
 
Sub-total
 
 
Adjustments

(*2)
 
 
Total
 
Total revenue
  
￦

13,853,274    4,467,863    317,065    18,638,202    (2,550,455)   16,087,747   3,015,563 
Inter-segment revenue
   1,505,311    1,035,645    9,499    2,550,455    (2,550,455)   —   478,659 
External revenue
   12,347,963    3,432,218    307,566    16,087,747    —   16,087,747   2,536,904 
Depreciation and amortization
   2,892,460    874,562    10,675    3,777,697    (113,032)   3,664,665   326,417 
Operating profit (loss)
   1,031,887    258,973    645    1,291,505    (256,485)   1,035,020   69,614 
Finance income and costs, net
                           (182,258)   (73,739) 
Gain relating to investments in subsidiaries, associates and joint ventures, net
                           52,456   975,947 
Profit before income tax
                           905,218   971,822 
(In millions of won)
                          
 
 
  
2019
 
 
  
Continuing operations
 
 
 
 
 
  
Cellular

services
 
  
Fixed-line
telecommunication
services
 
  
Others(*1)
 
 
Sub-total
 
  
Adjustments

(*2)
 
 
Total
 
 
Discontinued

operations
 
Total revenue
  
￦

13,787,009    3,944,260    250,409    17,981,678    (2,565,247)   15,416,431   2,729,552 
Inter-segment revenue
   1,563,205    984,967    17,075    2,565,247    (2,565,247)   —   405,267 
External revenue
   12,223,804     2,959,293    233,334    15,416,431    —   15,416,431   2,324,285 
Depreciation and amortization
   2,828,285    792,334    9,133    3,629,752    (88,768)   3,540,984   315,678 
Operating profit (loss)
   963,207    144,739    (15,095)   1,092,851    (105,797)   987,054   20,204 
Finance income and costs, net
                           (213,220)   (82,580) 
Gain relating to investments in subsidiaries, associates
and joint ventures, net
                           33,199   416,344 
Profit before income tax
                           807,033   353,968 
 
 
(*1)
The Parent Company carried out
spin-off
of its business of managing investments in semiconductor, new Information and Communication Technologies(“ICT”) and making new investments during the year ended December 31, 2021. Accordingly, the Group reclassified SK stoa Co., Ltd. from Commerce Services segment to Others segment.
 
(*2)
Adjustments for operating profit (loss) are the amount differences from operating profit (loss) included in CODM report which is based on Korean IFRS to operating profit (loss) under IFRS. The reconciliation of these amounts is included in note
4-(2).
Adjustments for depreciation and amortization and operating profit (loss) also included the amount due to the consolidation adjustments, such as internal transactions.
The Group has restated the previously reported segment information for the years ended December 31, 2020 and 2019 to reflect reclassification of operating segments due to spin-off.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
Reconciliation of total segment operating profit to consolidated operating profit from continuing operations for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
          
   
2021
  
2020
  
2019
 
Total segment operating profit (Before adjustments)
  
￦

1,431,767   1,291,505   1,092,851 
Adjustments(*1)
   (44,605)   (42,927)   (54,184) 
   
 
 
  
 
 
  
 
 
 
Total segment operating profit
   1,387,162   1,248,578   1,038,667 
    
Other operating income:
             
Gain on disposal of property and equipment and intangible assets
   39,136   34,625   7,755 
Others(*2)
   76,627   61,126   87,828 
   
 
 
  
 
 
  
 
 
 
    115,763   95,751   95,583 
    
Other operating expenses:
             
Impairment loss on property and equipment and intangible assets
   (3,135)   (200,705)   (42,823) 
Loss on disposal of property and equipment and intangible assets
   (28,158)   (25,633)   (23,821) 
Donations
   (12,800)   (16,051)   (16,782) 
Bad debt for accounts receivable — other
   (3,995)   (6,640)   (3,594) 
Others(*3)
   (22,475)   (60,280)   (60,176) 
   
 
 
  
 
 
  
 
 
 
    (70,563)   (309,309)   (147,196) 
   
 
 
  
 
 
  
 
 
 
Consolidated operating profit from continuing operations
  
￦

1,432,362   1,035,020   987,054 
   
 
 
  
 
 
  
 
 
 
 
 
(*1)
Adjustments for operating profit included the amount due to the consolidation adjustments, such as internal transactions.
 
(*2)
Others for the year ended December 31, 2020 includes
￦
12 billion of gain on business transfer and others for the year ended December 31, 2019 includes
￦
70 billion of gain on business transfer, respectively, various other income with inconsequential amounts.
 
(*3)
Others for the years ended December 31, 2021, 2020 and 2019 include
￦
17.0 billion,
￦
51.2 billion and
￦
42.4 billion of penalties, respectively, and various other expenses with inconsequential amounts.
Since there are no intersegment sales of inventory, there is no unrealized intersegment profit related to sales of inventory to be eliminated on consolidation. Domestic revenue for the years ended December 31, 2021, 2020 and 2019 amounts to
￦
16,734 billion,
￦
16,072 billion and
￦
15,402 billion,
respectively
.
Domestic non-current assets (excluding financial assets, investments in associates and joint ventures and deferred tax assets) as of December 31, 2021, 2020 and 2019 amount t
o
￦
20,227 billion,
￦
22,242 billion and
￦
20,678 billion, and
non-current
assets outside of Korea amount to
￦
4 billion,
￦
63 billion and
￦
63 billion, respectively.
No single customer contributed 10% or more to the Group’s total revenue for the years ended December 31, 2021, 2020 and 2019.
The Group principally operates its businesses in Korea and the revenue amounts earned outside of Korea are immaterial. Therefore, no entity-wide geographical information is presented.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)
Disaggregation of operating revenues considering the economic factors that affect the amounts, timing and uncertainty of the Group’s revenue and future cash flows is as follows:
 
(In millions of won)
               
      
2021
   
2020
   
2019
 
Goods and Services transferred at a point in time:
 
     
Cellular revenue
  Goods(*1)  
￦

959,932    983,431    1,151,236 
Fixed-line telecommunication revenue
  Goods   105,340    90,692    145,876  
Other revenue
  Others(*2)   328,328    284,221    198,732 
      
 
 
   
 
 
   
 
 
 
       1,393,600    1,358,344    1,495,844 
      
 
 
   
 
 
   
 
 
 
Goods and Services transferred over time:
 
     
Cellular revenue
  Wireless service(*3)   10,100,368    9,806,719    9,538,162 
   Cellular interconnection   493,820    472,215    494,267 
   Other(*4)   1,164,353    1,085,598    1,040,139 
Fixed-line telecommunication revenue
  Fixed-line service   217,000    230,401    225,557 
   Cellular interconnection   69,769    83,762    92,396 
   Internet Protocol Television(*5)   1,786,765    1,606,740    1,285,831 
   International calls   162,379    160,293    137,902 
   Internet service and miscellaneous(*6)   1,336,453    1,260,330    1,071,731 
Other revenue
  Miscellaneous   24,078    23,345    34,602 
      
 
 
   
 
 
   
 
 
 
       15,354,985    14,729,403    13,920,587  
      
 
 
   
 
 
   
 
 
 
Continuing operations
      16,748,585    16,087,747    15,416,431 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discontinued operations
      2,383,083    2,536,904    2,324,285 
      
 
 
   
 
 
   
 
 
 
      
￦

19,131,668    18,624,651    17,740,716 
      
 
 
   
 
 
   
 
 
 
 
 
(*1)
Cellular revenue includes revenue from sales of handsets and other electronic accessories.
 
(*2)
Miscellaneous other revenue includes revenue from considerations received for the product sales-type data broadcasting channel use, and sales of goods through data broadcasting.
 
(*3)
Wireless service includes revenue from wireless voice and data transmission services principally derived from usage charges to wireless subscribers.
 
(*4)
Other revenue includes revenue from billing and collection services as well as other miscellaneous services.
 
(*5)
IPTV service revenue includes revenue from IPTV services principally derived from usage charges to IPTV subscribers.
 
(*6)
Internet service includes revenue from the high speed broadband internet service principally derived from usage charges to subscribers as well as other miscellaneous services.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
5.
Restricted Deposits
Deposits which are restricted in use as of December 31, 2021 and 2020 are summarized as follows:
 
(In millions of won)
        
   
December 31, 2021
   
December 31, 2020
 
Short-term financial instruments(*)
  
￦

79,500    98,057 
Long-term financial instruments(*)
   372    890 
   
 
 
   
 
 
 
   
￦

79,872    98,947 
   
 
 
   
 
 
 
 
 
(*)
Financial instruments include charitable trust fund established by the Group where profits from the fund are donated to charitable institutions. As of December 31, 2021, the funds cannot be withdrawn before maturity.
 
6.
Trade and Other Receivables
 
(1)
Details of trade and other receivables as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
           
   
December 31, 2021
 
   
Gross

amount
   
Loss
allowance
  
Carrying

amount
 
Current assets:
              
Accounts receivable — trade
  
￦

2,152,358    (238,847)   1,913,511 
Short-term loans
   71,750    (933)   70,817 
Accounts receivable — other(*)
   593,109    (44,747)   548,362 
Accrued income
   762    —   762 
Guarantee deposits (Other current assets)
   92,046    —   92,046 
   
 
 
   
 
 
  
 
 
 
    2,910,025    (284,527)   2,625,498 
Non-current
assets:
              
Long-term loans
   66,431    (44,452)   21,979 
Long-term accounts receivable — other(*)
   277,116    (1,878)   275,238 
Guarantee deposits
   186,713    —   186,713 
Long-term accounts receivable — trade (Other
non-current
assets)
   8,140    (34)   8,106 
   
 
 
   
 
 
  
 
 
 
    538,400    (46,364)   492,036 
   
 
 
   
 
 
  
 
 
 
   
￦

3,448,425    (330,891)   3,117,534 
   
 
 
   
 
 
  
 
 
 
 
 
(*)
Gross and carrying amounts of accounts receivable – other as of December 31, 2021 include
￦ 
459,959 million of financial instruments classified as FVTPL.
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
           
   
December 31, 2020
 
   
Gross

amount
   
Loss
allowance
  
Carrying

amount
 
Current assets:
              
Accounts receivable — trade
  
￦

2,453,149    (264,256)   2,188,893 
Short-term loans
   98,366    (902)   97,464 
Accounts receivable — other(*)
   1,034,119    (55,075)   979,044 
Accrued income
   3,418    (166)   3,252 
Guarantee deposits (Other current assets)
   112,733    —   112,733 
   
 
 
   
 
 
  
 
 
 
    3,701,785    (320,399)   3,381,386 
Non-current
assets:
              
Long-term loans
   84,355    (44,122)   40,233 
Long-term accounts receivable — other(*)
   332,803    —   332,803 
Guarantee deposits
   172,774    (300)   172,474 
Long-term accounts receivable — trade (Other
non-current
assets)
   25,702    (242)   25,460 
   
 
 
   
 
 
  
 
 
 
    615,634    (44,664)   570,970 
   
 
 
   
 
 
  
 
 
 
   
￦

4,317,419    (365,063)   3,952,356 
   
 
 
   
 
 
  
 
 
 
 
 
(*)
Gross and carrying amounts of accounts receivable — other as of December 31, 2020 include
￦
517,175 million of financial instruments classified as FVTPL.
 
(2)
Changes in the loss allowance on accounts receivable — trade measured at amortized costs
for
 the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
                          
   
Beginning
balance
   
Impairment(*1)
   
Write-offs(*2)
  
Collection of
receivables
previously
written-off
   
Business
combination
   
Spin-off
  
Ending

balance
 
2021
  
￦

264,498    31,546    (65,852)   14,565    878    (6,754)   238,881 
2020
  
￦

249,501    48,625    (48,278)   12,771    1,879    —   264,498 
 
 
(*1)
Includes amounts related to discontinued operations. 
 
(*2)
The Group writes off the trade and other receivables that are determined to be uncollectable due to reasons such as termination of operations or bankruptcy.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)
The Group applies the practical expedient that allows the Group to estimate the loss allowance for accounts receivable — trade at an amount equal to the lifetime expected credit losses. The expected credit losses include the forward-looking information. To make the assessment, the Group uses its historical credit loss experience over the past three years and classifies the accounts receivable — trade by their credit risk characteristics and days overdue. Details of loss allowance on accounts receivable — trade as of December 31, 2021 are as follows:
 
(In millions of won)
                
   
Less than
6 months
  
6 months ~

1 year
  
1 ~ 3 years
  
More than
3 years
 
Telecommunications service revenue
  Expected credit loss rate   2.06%   76.34%   86.51%   99.92% 
  Gross amount  
￦

1,364,899   46,399   132,810   26,540 
  Loss allowance   28,102   35,422   114,891   26,519 
      
 
 
  
 
 
  
 
 
  
 
 
 
Other revenue
  Expected credit loss rate   2.44%   43.30%   70.77%   89.19% 
  Gross amount  
￦

565,378   1,150   6,192   17,130 
  Loss allowance   13,789   498   4,382   15,278 
      
 
 
  
 
 
  
 
 
  
 
 
 
As the Group is a wireless and fixed-line telecommunications service provider, the Group’s financial assets measured at amortized cost primarily consist of receivables from numerous individual customers, and, therefore, no significant credit concentration risk arises.
Receivables related to other revenue mainly consist of receivables from corporate customers. The Group transacts only with corporate customers with credit ratings that are considered to be low at credit risk. In addition, the Group is not exposed to significant credit concentration risk as the Group regularly assesses their credit risk by monitoring their credit rating. While the contract assets are under the impairment requirements, no significant credit risk has been identified.
 
7.
Prepaid expenses
The Group pays commissions to its retail stores and authorized dealers, primarily for wireless and fixed-line telecommunication services. The Group capitalized certain costs associated with commissions paid to retail stores and authorized dealers to obtain new and retained customer contracts as prepaid expenses. These prepaid expenses are amortized on a straight-line basis over the periods that the Group expects to maintain its customers.
(1)    Details of prepaid expenses as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
        
   
December 31, 2021
   
December 31, 2020
 
Current assets:
          
Incremental costs of obtaining contracts
  
￦

1,886,680    2,016,570 
Others
   100,823    111,779 
   
 
 
   
 
 
 
   
￦

1,987,503    2,128,349 
   
 
 
   
 
 
 
Non-current
assets:
          
Incremental costs of obtaining contracts
  
￦

977,236    982,952 
Others
   91,912    80,759 
   
 
 
   
 
 
 
   
￦

1,069,148    1,063,711 
   
 
 
   
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)    Incremental costs of obtaining contracts
The amortization and impairment losses in connection with incremental costs of obtaining contracts recognized for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
            
   
2021
   
2020
   
2019
 
Amortization and impairment losses recognized(*)
  
￦

2,634,134    2,418,947    2,193,333 
 
 
(*)
Includes amounts related to discontinued operations. 
 
8.
Contract Assets and Liabilities 
In case of providing both wireless telecommunication services and sales of handsets, the Group allocated the consideration based on relative stand-alone selling prices and recognized unbilled receivables from handset sales as contract assets. The Group recognized receipts in advance for prepaid telecommunications services and unearned revenue for customer loyalty programs as contract liabilities.
 
(1)
Details of contract assets and liabilities as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
        
   
December 31, 2021
   
December 31, 2020
 
Contract assets:
          
Allocation of consideration between performance obligations
  
￦

118,278    148,281 
Contract liabilities:
          
Wireless service contracts
   18,397    22,026 
Customer loyalty programs
   12,699    16,709 
Fixed-line service contracts
   118,525    106,916 
Security services
   —    30,597 
Others
   53,346    84,348 
   
 
 
   
 
 
 
   
￦

202,967    260,596 
   
 
 
   
 
 
 
 
(2)
The amount of revenue recognized for the years ended December 31, 2021 and 2020 related to the contract liabilities carried forward from the prior periods are
￦
185,515 million and
￦
142,144 million, respectively, those amounts include profit or loss from discontinued operations. Details of revenue expected to be recognized from contract liabilities as of December 31, 2021 are as follows:
 
(In millions of won)
  
 
 
  
 
 
  
 
 
  
 
 
 
  
Less than

1 year
 
  
1 ~ 2 years
 
  
More than

2 years
 
  
Total
 
Wireless service contracts
  
￦

18,397    —    —    18,397 
Customer loyalty programs
   10,650    1,399    650    12,699 
Fixed-line service contracts
   91,143    11,981    15,401    118,525 
Others 
   46,246    2,828    4,272    53,346 

  
￦

166,436    16,208    20,323    202,967 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
9.
Inventories
 
(1)
Details of inventories as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
                      
   
December 31, 2021
   
December 31, 2020
 
   
Acquisition
cost
   
Write-
down
  
Carrying
amount
   
Acquisition
cost
   
Write-
down
  
Carrying
amount
 
Merchandise
  
￦

204,545    (3,419)   201,126    172,762    (10,566)   162,196 
Finished goods
   —    —   —    3,730    (1,879)   1,851 
Work in process
   —    —   —    2,579    (818)   1,761 
Raw materials
   —    —   —    11,921    (6,905)   5,016 
Supplies
   3,511    —   3,511    619    —   619 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
   
￦

208,056    (3,419)   204,637    191,611    (20,168)   171,443 
   
 
 
   
 
 
  
 
 
   
 
 
   
 
 
  
 
 
 
 
(2)
The amount of the inventory write-downs and
write-off
of inventories charged to statement of income are as follows:
 
(In millions of won)
           
   
2021
   
2020
  
2019
 
Charged to cost of products that have been resold(*)
  
￦

(3,287)   (1,560)   15,019 
Write-off
upon sale(*)
   (347)   (3,312)   (1,101) 
 
 
(*)
Includes amounts related to discontinued operations.
There are no significant reversals of inventory write-downs for the periods presented.
 
(3)
Inventories recognized as operating expenses for the years ended December 31, 2021, 2020, and 2019 are
￦
1,417,339 million,
￦
1,385,016 million, and
￦
1,498,249 million, respectively, which are included in the cost of goods sold.
 
Those amounts include profit or loss from discontinued operations. 
 
10.
Investment Securities
 
(1)
Details of short-term investment securities as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
           
   
Category
  
December 31, 2021
   
December 31, 2020
 
Beneficiary certificates
  FVTPL  
￦

5,010    150,392 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
Details of long-term investment securities as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
          
   
Category
 
December 31, 2021
   
December 31, 2020
 
Equity instruments
  FVOCI(*) 
￦

1,510,428    1,454,361 
   FVTPL  57,830    67,833 
     
 
 
   
 
 
 
      1,568,258    1,522,194 
Debt instruments
  FVOCI  1,177    1,080 
   FVTPL  145,643    125,563 
     
 
 
   
 
 
 
      146,820    126,643 
     
 
 
   
 
 
 
     
￦

1,715,078    1,648,837 
     
 
 
   
 
 
 
 
 
(*)
The Group designated investment
s
in equity instruments that are not held for trading as financial assets at FVOCI, the amounts to those FVOCI as of December 31, 2021 and 2020 are
￦
1,510,428 million and
￦
1,454,361 million, respectively. Meanwhile, some of treasury shares held by the Parent Company have been reissued as common shares of SK Square Co., Ltd. amounted to
￦
35,037 million due to
spin-off,
and the Parent Company has designated the investments in equity instruments at FVOCI.
 
11.
Business Combinations
 
(1)
2021
 
 
1
)
Acquisition of Studio Dolphin Co., Ltd. by DREAMUS COMPANY:
DREAMUS COMPANY obtained control by acquiring 10,000 shares(100%) of Studio Dolphin Co., Ltd. for the year ended December 31, 2021. The consideration transferred was
￦
1,500 million in cash and the difference between the fair value of net assets acquired and the consideration transferred amounting to
￦
1,465 million was recognized as goodwill. Subsequent to the acquisition of control, Studio Dolphin Co., Ltd. recognized revenue of
￦
245 million and net loss of
￦
304 million and the amounts are included in profit or loss from discontinued operations.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
(i)
Summary of the acquiree
 
   
Information of Acquiree
Corporate name
  Studio Dolphin Co., Ltd.
Location
  3
rd
floor, 10,
Jandari-ro
7an-gil,
Mapo-gu,
Seoul, Korea
CEO
  Kim,
Dong-Hee
Industry
  Music and sound recording business
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019

(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:
 
(In millions of won)
    
   
Amounts
 
I. Consideration transferred:
     
Cash and cash equivalents
  
￦

1,500 
  
II. Fair value of identifiable assets acquired and liabilities assumed:
     
Cash and cash equivalents
   20 
Accounts receivable — trade and other
   31 
Other assets
   7 
Accounts payable — trade and other
   (4) 
Short-term borrowings
   (2) 
Other liabilities
   (17) 
   
 
 
 
    35 
   
 
 
 
III. Goodwill(I - II)
  
￦

1,465 
   
 
 
 

 
2
)
Acquisition of YLP Inc. by T map Mobility Co., Ltd.:
T map Mobility Co., Ltd. obtained control by acquiring 168,012 shares(100%) of YLP Inc. for the year ended December 31, 2021. The consideration transferred was
￦
79,000 million, among which
￦
55,598 million was paid in cash to acquire 118,242 shares(70.4%) and on June 29, 2021, T map Mobility Co., Ltd. issued 267,700 of its new common shares (with a fair value of
￦
23,402 million) to the shareholders of YLP Inc. in exchange for the remaining 49,770 shares(29.6%) owned by those shareholders. The difference between the fair value of net assets acquired and the consideration transferred amounting to
￦
69,516 million was recognized as goodwill. Subsequent to the acquisition of control, YLP Inc. recognized revenue of
￦
20,488 million and net loss of
￦
1,632 million and the amounts are included in profit or loss from discontinued operations.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
(i)
Summary of the acquiree
 

   
Information of Acquiree
Corporate name
  YLP Inc.
Location
  1740,
Cheongwon-ro,
Pyeongtaek-si,
Gyeonggi-do,
Korea
CEO
  Lee,
Hyeok-Ju
Industry
  Freight forwarders and cargo agents
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:
 
(In millions of won)
  
 
 
 
  
Amounts
 
I. Consideration transferred:
  
   
Cash and cash equivalents
  
￦

55,598 
Fair value of shares of T map Mobility Co., Ltd.
   23,402 
  
II. Fair value of identifiable assets acquired and liabilities assumed:
     
Cash and cash equivalents
   1,897 
Financial instruments
   4,000 
Accounts receivable — trade and other, net
   4,480 
Property and equipment, net
   431 
Intangible assets, net
   3,595 
Other assets
   325 
Borrowings
   (1,000) 
Accounts payable — trade and other
   (3,542) 
Lease liabilities
   (327) 
Other liabilities
   (48) 
Deferred tax liabilities
   (327) 
   
 
 
 
    9,484 
   
 
 
 
III. Goodwill(I - II)
  
￦

69,516 
   
 
 
 
 
3)
Acquisition of Rokmedia Co., Ltd. by One Store Co., Ltd.:
One Store Co., Ltd. obtained control by acquiring 60,000 shares(100%) of Rokmedia Co., Ltd. for the year ended December 31, 2021. The consideration transferred was
￦
40,000 million in cash and the difference between the fair value of net assets acquired and the consideration transferred amounting to
￦
33,641 million was recognized as goodwill. Subsequent to the acquisition of control, Rokmedia Co., Ltd. recognized revenue of
￦
10,915 million and net profit of
￦
1,066 million and the amounts are included in profit or loss from discontinued operation.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
(i)
Summary of the acquiree
 
   
Information of Acquiree
Corporate name
  Rokmedia Co., Ltd.
Location
  3
rd
floor, 330,
Seongam-ro,
Mapo-gu,
Seoul, Korea
CEO
  Kang,
Jun-Gyu
/ Kim,
Jeong-Su
Industry
  Publishing and telecommunications retail business
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:
 
(In millions of won)
  
 
 
 
  
Amounts
 
I. Consideration transferred:
  
   
Cash and cash equivalents
  
￦
40,000 
  
II. Fair value of identifiable assets acquired and liabilities assumed:
     
Cash and cash equivalents
   719 
Financial instruments
   2,170 
Accounts receivable — trade and other, net
   1,374 
Inventories
   933 
Other assets
   3,212 
Short-term loans, net
   30 
Property and equipment, net
   792 
Intangible assets, net
   2,677 
Accounts payable — trade and other
   (1,885) 
Contract liabilities
   (1,401) 
Borrowings
   (1,485) 
Provisions
   (385) 
Lease liabilities
   (56) 
Other liabilities
   (111) 
Deferred tax liabilities
   (135) 
Income tax payable
   (90) 
   
 
 
 
    6,359 
   
 
 
 
III. Goodwill(I - II)
  
￦

33,641 
   
 
 
 
 
4)
Acquisition of GOOD SERVICE Co., Ltd. by T map Mobility Co., Ltd.:
T map Mobility Co., Ltd. obtained control by acquiring 2,000 shares (100%) of GOOD SERVICE Co., Ltd. for the year ended December 31, 2021. The consideration transferred was
￦
10,000 million in cash and the difference between the fair value of net assets acquired and the consideration transferred amounting to
￦
4,844 million was recognized as goodwill. Subsequent to the acquisition of control, GOOD SERVICE Co., Ltd. recognized revenue of
￦
1,063 million and net profit of
￦
621 million and the amounts are included in profit or loss from discontinued operations.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
(i)
Summary of the acquiree
 
   
Information of Acquiree
Corporate name
  GOOD SERVICE Co., Ltd.
Location
  4
th
floor, 54,
Daeheung-ro,
Mapo-gu,
Seoul, Korea
CEO
  Kim, Seung-Wook
Industry
  Surrogate driving service business and related business
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:
 
(In millions of won)
  
 
 
 
  
Amounts
 
I. Consideration transferred:
  
Cash and cash equivalents
  
￦

10,000 
  
II. Fair value of identifiable assets acquired and liabilities assumed:
     
Cash and cash equivalents
   1,328 
Financial instruments
   116 
Accounts receivable — trade and other, net
   1,881 
Property and equipment, net
   116 
Intangible assets, net
   3,492 
Accounts payable — trade and other
   (883) 
Other liabilities
   (85) 
Deferred tax liabilities
   (696) 
Lease liabilities
   (113) 
   
 
 
 
    5,156 
   
 
 
 
III. Goodwill(I - II)
  
￦

4,844 
   
 
 
 
 
(2)
2020
 
1)
Merger of Tbroad Co., Ltd. and two other companies by SK Broadband Co., Ltd.:
On April 30, 2020, SK Broadband Co., Ltd., a subsidiary of the Parent Company, merged with Tbroad Co., Ltd., Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co., Ltd. in order to strengthen the competitiveness and enhance the synergy as a comprehensive media company. The considerations transferred included shares of SK Broadband Co., Ltd. transferred based on the merger ratio and the obligations and rights pursuant to the shareholders’ agreement between the Parent Company and the acquiree’s shareholders, both measured at fair value as of April 30, 2020. The Group recognized the difference between the fair value of net assets acquired and the consideration transferred amounting to
￦
405,639 million as goodwill.
The Group’s consolidated revenue and profit for the year would have been
￦
16,294,243 million and
￦
1,516,857 million, respectively, if the acquisition has occurred on January 1, 2020. The Group cannot reasonably identify the acquiree’s revenue and profit for the year included in the consolidated statement of income, as the business of Tbroad Co., Ltd. and the other two companies were merged with the Group’s subsidiary, SK Broadband Co., Ltd., and no separate financial information post acquisition is available.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:

 
(In millions of won)
  
 
 
 
  
Amounts
 
I. Consideration transferred:
  
Fair value of shares of SK Broadband Co., Ltd.
  
￦

862,147 
Fair value of derivative liability(*1)
   320,984 
  
II. Fair value of identifiable assets acquired and liabilities assumed:
     
Cash and cash equivalents
   110,644 
Short-term financial instruments
   6 
Accounts receivable — trade and other
   66,241 
Prepaid expenses
   36,324 
Contract assets
   14,033 
Long-term investment securities
   6,239 
Investments in associates and joint ventures
   13,637 
Property and equipment, net
   245,654 
Intangible assets, net(*2)
   423,515 
Other assets
   3,261 
Deferred tax assets
   1,296 
Accounts payable — trade and other
   (105,179) 
Contract liabilities
   (1,674) 
Income tax payable
   (18,065) 
Provisions
   (2,755) 
Defined benefit liabilities
   (30) 
Other liabilities
   (15,655) 
   
 
 
 
    777,492 
   
 
 
 
III. Goodwill(I - II)
  
￦

405,639 
   
 
 
 
 
 
(*1)
The Parent Company has recognized fair value of obligations and rights in connection with the shareholders’ agreement with the acquiree’s shareholders as consideration for the business combination. (See note 22)
 
(*2)
Identifiable intangible assets recognized by the Group in the business combination included customer relationships measured at fair value on the acquisition date of ￦374,019 million. Fair value of the customer relationship was estimated based on the multi-period excess earnings method (“MPEEM”). MPEEM is a valuation technique under income approach which estimates fair value by discounting the expected future excess earnings attributable to an intangible asset using risk adjusted discount rate. The following table shows the details of valuation technique used in measuring fair values as well as the significant unobservable inputs used. 
 
F-5
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Type
  
Valuation
technique
  
Significant
unobservable inputs
  
Interrelationship between key unobservable
inputs and
fair value measurement
Customer relationships  MPEEM  
•  Estimated revenue per user
•  Future churn rates
•  Weighted average cost of capital (“WACC”)
(7.7% for Tbroad Co., Ltd. and 8.3% for Tbroad Dongdaemun Broadcasting Co., Ltd.)
  
•  The fair value of customer relationship will increase if expected revenue per subscriber increases and customer churn rate in the future and WACC decrease.
•  The fair value of customer relationship will decrease if expected revenue per subscriber decreases and customer churn rate in the future and WACC increase.
 
2)
Acquisition of Broadband Nowon Co.,Ltd. by the Parent Company:
The Parent Company has obtained control by acquiring 627,000 shares(55%) of Tbroad Nowon Broadcasting Co., Ltd.
,
and Tbroad Nowon Broadcasting Co., Ltd. changed its name to Broadband Nowon Co., Ltd. for the year ended December 31, 2020. The consideration transferred was
￦
10,421 million in cash and the difference between the fair value of net assets acquired and the consideration transferred amounting to
￦
733 million was recognized as other
non-operating
income. Subsequent to the acquisition
,
Broadband Nowon Co., Ltd. recognized revenue of
￦
5,756 million and net profit of
￦
426 million.
 
(i)
Summary of the acquiree
 
   
Information of Acquiree
Corporate name
  Broadband Nowon Co., Ltd.
Location
  21, 81gil,
Dobong-ro,
Gangbuk-gu,
Seoul, Korea
CEO
  Yoo,
Chang-Wan
Industry
  Cable broadcasting services
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:
 
(In millions of won)
  
Amounts
 
I. Consideration transferred:
  
   
Cash and cash equivalents
  
￦

10,421 
 
II. Fair value of identifiable assets acquired and liabilities assumed:
 
Cash and cash equivalents
   18,106 
Accounts receivable — trade and other
   1,122 
Property and equipment, net
   1,784 
Intangible assets, net
   360 
Other assets
   595 
Accounts payable — trade and other
   (1,351) 
Other liabilities
   (336) 
   
 
 
 
    20,280 
  
III.
Non-controlling
interests:
   9,126 
   
 
 
 
IV. Gain on bargain purchase(I - II+III)
  
￦

(733) 
   
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
3)
Acquisition of security equipment construction and security services business of SK hystec inc. by ADT CAPS Co., Ltd.
ADT CAPS Co., Ltd., a subsidiary of the Parent Company before
spin-off,
acquired the security equipment construction and security services business from SK hystec inc., a related party of the Group, in order to strengthen the expertise and the competitiveness of security business for the year ended December 31, 2020. The consideration transferred was
￦
8,047 million, among which
￦
2,958 million was paid in cash for the year ended December 31, 2020 and the remaining balance will be paid at
￦
3,000 million annually in July 2021 and July 2022. The Group recognized the difference between the fair value of net assets acquired and the consideration transferred amounting to
￦
2,892 million as goodwill.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition
date are as follows:
 
(In millions of won)
  
 
 
 
  
Amounts
 
I. Consideration transferred:
  
   
Cash and cash equivalents
  
￦

8,047 
  
II. Fair value of identifiable assets acquired and liabilities assumed:
     
Accounts receivable — trade and other
   6,787 
Property and equipment, net
   363 
Intangible assets, net
   6,460 
Other assets
   4 
Accounts payable — trade and other
   (5,306) 
Defined benefit liabilities
   (1,227) 
Deferred tax liabilities
   (1,554) 
Other liabilities
   (372) 
   
 
 
 
    5,155 
   
 
 
 
III. Goodwill (I - II)
  
￦

2,892 
   
 
 
 
 
4)
Merger of Life & Security Holdings Co., Ltd. by SK Infosec Co., Ltd.
SK Infosec Co., Ltd., a subsidiary of the Parent Company before
spin-off,
merged with Life & Security Holdings Co., Ltd. to improve business management efficiency on December 30, 2020. As this transaction is a business combination under common control, the acquired assets and liabilities were recognized at the carrying amounts in the ultimate controlling entity’s consolidated financial statements and there is no effect on the assets and liabilities of consolidated financial statements. As a result of the merger, the Parent Company’s ownership interest of SK Infosec Co., Ltd. has changed from 100% to 62.6%.
 
(3)
2019
 
1)
Acquisition of Incross Co., Ltd. by the Parent Company
The Parent Company acquired 2,786,455 shares of Incross Co., Ltd. at
￦
53,722 million in cash for the year ended December 31, 2019 in order to expand digital advertising business through the integration of the Group’s technological capabilities. Although the Parent Company owns less than 50% of the investee, the management has determined that the Parent Company controls Incross Co., Ltd. considering the level of dispersion of remaining voting rights and voting patterns at previous shareholders’ meetings, and the fact that the Parent Company has a right to appoint the majority of the members of board of directors by the virtue of an agreement with the investee’s
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
other shareholders. Incross Co., Ltd. reported
￦
19,787 million of revenue and
￦
5,756 million of profit since the Group obtained control. Identifiable assets acquired, liabilities assumed and goodwill were transferred to spin-off company.
 
(i)
Summary of the acquiree
 
   
Information of Acquiree
Corporate name
  Incross Co., Ltd.
Location
  5
th
floor, 1926,
Nambusunhwan-ro,
Gwanak-gu,
Seoul, Korea
CEO
  Lee,
Jae-won
Industry
  Media representative business
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed at the acquisition date are as follows:
 
(In millions of won)
  
 
 
 
  
Amount
 
I. Considerations transferred:
  
Cash and cash equivalents
  
￦

53,722 
  
II. Fair value of identifiable assets acquired and liabilities assumed:
     
Cash and cash equivalents
   17,400 
Short-term financial instruments
   24,941 
Accounts receivable — trade and other
   67,259 
Property and equipment, net
   2,411 
Intangible assets, net
   2,709 
Other assets
   9,254 
Accounts payable — trade and other
   (57,309) 
Other liabilities
   (1,984) 
   
 
 
 
    64,681 
III.
Non-controlling
interests:
   40,592 
   
 
 
 
IV. Goodwill(I - II+III)
  
￦

29,633 
   
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
12.
Investments in Associates and Joint Ventures
(1)    Investments in associates and joint ventures accounted for using the equity method as of December 31, 2021 and 2020 are as follows:
 
       
December 31, 2021
   
December 31, 2020
 
(In millions of won)
  
Country
   
Ownership

(%)
   
Carrying
amount
   
Ownership
(%)
   
Carrying
amount
 
Investments in associates:
                         
SK China Company Ltd.
   China    27.3   
￦

793,754    27.3   
￦

555,133 
Korea IT Fund(*1)
   Korea    63.3    339,976    63.3    323,294 
KEB HanaCard Co., Ltd.(*2)
   Korea    15.0    349,866    15.0    314,930 
SK Telecom CS T1 Co., Ltd.(*3)
   Korea    —    —    54.9    53,010 
NanoEnTek, Inc.(*3)
   Korea    —    —    28.4    43,190 
UniSK
   China    49.0    19,156    49.0    15,700 
SK Technology Innovation Company
   Cayman Islands 
 		   49.0    86,301    49.0    41,579 
SK MENA Investment B.V.
   Netherlands    32.1    15,343    32.1    14,043 
SK hynix Inc.(*3)
   Korea    —    —    20.1    12,251,861 
SK Latin America Investment S.A.
   Spain    32.1    14,004    32.1    13,930 
Grab Geo Holdings PTE. LTD.(*3)
   Singapore    —    —    30.0    30,063 
SK South East Asia Investment Pte. Ltd.
   Singapore    20.0    348,782    20.0    311,990 
Pacific Telecom Inc.(*2)
   USA    15.0    43,789    15.0    39,723 
S.M. Culture & Contents Co., Ltd.(*4)
   Korea    23.1    60,261    23.3    62,248 
Content Wavve Co., Ltd.(*3)
   Korea    —    —    30.0    75,803 
Hello Nature Co., Ltd.(*3)
   Korea    —    —    49.9    11,969 
Digital Games International Pte. Ltd.
   Singapore    33.3    2,208    33.3    6,449 
Invites Healthcare Co., Ltd.(*5)
   Korea    27.1    26,474    43.5    25,536 
Nam Incheon Broadcasting Co., Ltd.
   Korea    27.3    12,525    27.3    10,902 
NANO-X
IMAGING LTD.(*3)
   Israel    —    —    5.6    28,484 
Home Choice Corp.(*2)
   Korea    17.8    3,052    17.8    3,585 
Carrot General Insurance Co., Ltd.(*6)
   Korea    —    —    21.4    13,469 
12CM JAPAN and others(*2,3,7)
   —    —    72,605    —    65,750 
             
 
 
        
 
 
 
              2,188,096         14,312,641 
             
 
 
        
 
 
 
Investments in joint ventures:
                         
Dogus Planet, Inc.(*3)
   Turkey    —    —    50.0    15,071 
Finnq Co., Ltd.(*8)
   Korea    49.0    7,255    49.0    13,342 
NEXTGEN BROADCAST SERVICES CO, LLC(*3)
   USA    —    —    50.0    5,850 
NEXTGEN ORCHESTRATION, LLC(*3)
   USA    —    —    50.0    1,600 
Techmaker GmbH(*3)
   Germany    —    —    50.0    5,609 
UTC
Kakao-SK
Telecom ESG Fund(*8,9)
   Korea    48.2    2,000    —    — 
             
 
 
        
 
 
 
              9,255         41,472 
             
 
 
        
 
 
 
             
￦

2,197,351        
￦

14,354,113 
             
 
 
        
 
 
 
 
 
(*1)
Investment in Korea IT Fund was classified as investment in associates as the Group does not have control over the investee under the contractual agreement with other shareholders.
 
F-6
2
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(*2)
These investments were classified as investments in associates as the Group can exercise significant influence through its right to appoint the members of the Board of Directors even though the Group has less than 20% of equity interests.
 
(*3)
Investments in SK Telecom CS T1 Co., Ltd. and
twenty-
three
 other associates and joint ventures were transferred to the
spin-off
company for the year ended December 31, 2021.
 
(*4)
The ownership interest has changed from 23.3% to 23.1% as third-party share option of S.M. Culture & Contents Co., Ltd. was exercised for the year ended December 31, 2021.
 
(*5)
The Group disposed the entire shares of SK Telecom Smart City Management Co., Ltd. to Invites Healthcare Co., Ltd. for the year ended December 31, 2020 and additionally contributed
￦
7,000 million of accounts receivable — other relating to disposal of the shares for the year ended December 31, 2021. The ownership interest with voting right has changed from 43.5% to 27.1% as convertible preferred stock of Invites Healthcare Co., Ltd. have been converted to common stock.
 
(*6)
The Parent Company has entered into an agreement whereby the entire shares of Carrot General Insurance Co., Ltd. will transfer to T map Mobility Co., Ltd. In accordance with the agreement, the Parent Company reclassified the entire shares of Carrot General Insurance Co., Ltd. as
non-current
assets held for sale. (See note 41)
 
(*7)
The Group disposed the entire shares of SK Wyverns Co., Ltd. and recognized
￦
100,000 million as gain relating to investments in associates for the year ended December 31, 2021. Meanwhile, the Group recognized
￦
174 million
of impairment loss for the investments in TreePay Co. Ltd., for the year ended December 31, 2021. 
 
(*8)
These investments were classified as investments in joint ventures as the Group has a joint control pursuant to the agreement with the other shareholders.
 
(*9)
The Group newly invested
￦
2,000 million in cash for the year ended December 31, 2021.
(2)    The market value of investments in listed associates as of December 31, 2021 and 2020 are as
follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions of won, except for share data)
 
December 31, 2021
 
 
December 31, 2020
 
 
Market price
per share
(in won)
 
 
Number of
shares
 
 
Market value
 
 
Market price

per share

(in won)
 
 
Number of
shares
 
 
Market value
 
NanoEnTek, Inc.(*)
 
￦

—   —   —   8,620   7,600,649   65,518 
SK hynix Inc.(*)
  —   —   —   118,500   146,100,000   17,312,850 
S.M.
 
Culture & Contents Co.,
 
Ltd.
  4,485   22,033,898   98,822   1,630   22,033,898   35,915 
NANO-X
IMAGING LTD.(*)
  —   —   —   
49,678
(USD 45.66
 
) 
  2,607,466   129,534 
 
 
(*)
Investments in NanoEnTek, Inc., SK hynix Inc. and
NANO-X
IMAGING LTD. were transferred to the
spin-off
company for the year ended December 31, 2021.
 
F-6
3
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)    The condensed financial information of significant associates as of and for the years ended December 31, 2021, 2020 and 2019 are as
follows:
 
 
  
 
 
(In millions of won)
  
KEB HanaCard

Co., Ltd. (*)
 
  
Korea IT

Fund
 
 
SK China

Company
Ltd. (*)
 
  
SK South East Asia
Investment Pte.
Ltd. (*)
 
 
  
As of December 31, 2021
 
Current assets
  
￦

9,130,044    117,172   1,124,219    133,110 
Non-current
assets
   465,333    419,632   1,849,102    2,853,184 
Current liabilities
   1,281,783    —   53,199    412,962 
Non-current
liabilities
   6,284,587    —   316,470    — 
  
   
2021
 
Revenue
  
￦
1,270,568    58,741   80,241    9,945 
Profit (loss) for the year
   250,484    50,107   933,475    (188,678) 
Other comprehensive income (loss)
   909    (6,847)   326,661    304,700 
Total comprehensive income
   251,393    43,260   1,260,136    116,022 
 
(In millions of won)
  
SK hynix
Inc. (*)
 
 
KEB HanaCard

Co., Ltd. (*)
 
 
Korea IT

Fund
 
  
SK China

Company
Ltd. (*)
 
  
SK South East Asia
Investment Pte.
Ltd. (*)
 
 
  
As of December 31, 2020
 
Current assets
  
￦

16,570,953   7,910,517   107,652    380,413    797,045 
Non-current
assets
   54,602,900   298,438   402,812    1,706,634    1,672,412 
Current liabilities
   9,072,360   897,594   —    51,025    67 
Non-current
liabilities
   10,192,396   5,531,968   —    308,606    — 
  
   
2020
 
Revenue
  
￦

31,900,418   1,231,815   52,330    107,791    — 
Profit (loss) for the year
   4,758,914   154,521   36,615    20,369    (158,680) 
Other comprehensive income (loss)
   (107,378)   (4,283)   9,647    42,921    (390,851) 
Total comprehensive income (loss)
   4,651,536   150,238   46,262    63,290    (549,531) 
 
(In millions of won)
  
SK hynix
Inc. (*)
 
  
KEB HanaCard

Co., Ltd. (*)
 
 
Korea IT

Fund
 
  
SK China

Company
Ltd. (*)
 
 
SK South East Asia
Investment Pte.
Ltd. (*)
 
 
  
As of December 31, 2019
 
Current assets
  
￦

14,457,602    7,974,407   113,233    615,028   81,065 
Non-current
assets
   50,331,892    207,284   378,691    1,442,748   1,797,239 
Current liabilities
   7,874,033    1,015,657   —    59,395   94 
Non-current
liabilities
   8,972,266    5,537,850   —    215,354   — 
  
   
2019
 
Revenue
  
￦

26,990,733    1,236,678   70,565    116,269   — 
Profit for the year
   2,016,391    56,281   53,867    23,474   1,190 
Other comprehensive income (loss)
   94,023    (4,458)   6,132    (15,093)   97,508 
Total comprehensive income
   2,110,414    51,823   59,999    8,381   98,698 
 
(*)
The financial information of SK hynix Inc., KEB HanaCard Co., Ltd., SK China Company Ltd. and SK South East Asia Investment Pte. Ltd. are consolidated financial information. In addition, the financial information of
 
F-6
4
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
SK hynix Inc. as of and for the year ended 2019 is financial information before the change in accounting policy in connection with the application of interpretations published by International Financial Reporting Interpretations Committee on determining lease term, as the impact on the Group’s consolidated financial statements is immaterial. 
(4)    There are no significant joint ventures as of December 31, 2021, the condensed financial information of significant joint ventures as of and for the years ended December 31, 2020 and 2019 are as
follows:
 
(In millions of won)
  
Dogus Planet, Inc.
 
 
Finnq Co., Ltd.
 
 
  
As of December 31, 2020
 
Current assets
  
￦

55,951   26,781 
Cash and cash equivalents
   9,083   23,936 
Non-current
assets
   30,408   8,530 
Current liabilities
   46,186   7,367 
Accounts payable, other payables and provisions
   28,145   5,094 
Non-current
liabilities
   10,031   879 
  
   
2020
 
Revenue
  
￦

177,084   3,937 
Depreciation and amortization
   (4,642)   (4,417) 
Interest income
   1,878   29 
Interest expense
   (555)   (51) 
Profit (loss) for the year
   7,030   (19,426) 
Total comprehensive loss
   (1,659)   (19,426) 
 
(In millions of won)
  
Dogus Planet, Inc.
 
 
Finnq Co., Ltd.
 
 
  
As of December 31, 2019
 
Current assets
  
￦

59,632   42,995 
Cash and cash equivalents
   13,422   40,619 
Non-current
assets
   25,247   11,389 
Current liabilities
   52,238   6,756 
Accounts payable, other payables and provisions
   35,459   5,062 
Non-current
liabilities
   800   1,099 
  
   
2019
 
Revenue
  
￦

136,777   1,968 
Depreciation and amortization
   (5,487)   (4,769) 
Interest income
   1,455   12 
Interest expense
   (92)   (198) 
Profit (loss) for the year
   9,294   (17,079) 
Total comprehensive income (loss)
   9,294   (17,361) 
F-
65
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
(5)    Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of December 31, 2021 and 2020 are as
follows:
 
(In millions of won)
  
December 31, 2021
 
 
  
Net assets
 
  
Ownership
interests
(%)
 
  
Net assets
attributable to
the ownership
interests
 
  
Cost-book
value
differentials
 
  
Carrying
amount
 
KEB HanaCard Co., Ltd.
  
￦

2,029,007    15.0    304,351    45,515    349,866 
Korea IT Fund
   536,804    63.3    339,976    —    339,976 
SK China Company Ltd.(*1)
   2,603,336    27.3    709,961    83,793    793,754 
SK South East Asia Investment Pte. Ltd.(*1)
   1,743,908    20.0    348,782    —    348,782 
  
(In millions of won)
  
December 31, 2020
 
   
Net assets
   
Ownership
interests
(%)
   
Net assets
attributable to
the ownership
interests
   
Cost-book
value
differentials
   
Carrying
amount
 
SK hynix Inc.(*1,2)
  
￦

51,883,236    20.1    11,082,048    1,169,813    12,251,861 
KEB HanaCard Co., Ltd.
   1,779,393    15.0    266,909    48,021    314,930 
Korea IT Fund
   510,464    63.3    323,294    —    323,294 
SK China Company Ltd.(*1)
   1,725,949    27.3    470,687    84,446    555,133 
SK South East Asia Investment Pte. Ltd.(*1)
   1,559,951    20.0    311,990    —    311,990 
 
 
(*1)
Net assets of these entities represent net assets excluding those attributable to their
non-controlling
interests.
 
(*2)
The ownership interest is based on the number of shares owned by the Parent Company divided by the total shares issued by the investee company. The Group applied the equity method using the effective ownership interest which is based on the number of shares owned by the Parent Company and the investee’s total shares outstanding. The effective ownership interest applied for the equity method is 21.36%.
 
F-6
6
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(6)    Details of the changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2021 and 2020 are as
follows:
 
                  
                  
                  
                  
                  
                  
                  
 
 
2021
 
(In millions of won)
 
Beginning
balance
 
 
Acquisition
and
Disposal
 
 
Share of
profits

(losses)
 
 
Other

compre-
hensive

income
(loss)
 
 
Other
increase
(decrease)
 
 
Spin-off
 
 
Ending
balance
 
Investments in associates:
 
 
 
 
 
 
 
SK China Company Ltd.(*1)
 
￦

555,133
 
 
 
—
 
 
 
274,066
 
 
 
95,696
 
 
 
(131,141
) 
 
 
—
 
 
 
793,754
 
Korea IT Fund(*1)
 
 
323,294
 
 
 
—
 
 
 
31,734
 
 
 
(4,336
) 
 
 
(10,716
) 
 
 
—
 
 
 
339,976
 
KEB HanaCard Co., Ltd.
 
 
314,930
 
 
 
—
 
 
 
35,057
 
 
 
(121
) 
 
 
—
 
 
 
—
 
 
 
349,866
 
SK Telecom CS T1 Co., Ltd.(*2)
 
 
53,010
 
 
 
4,888
 
 
 
(8,769
) 
 
 
(575
) 
 
 
—
 
 
 
(48,554
) 
 
 
—
 
NanoEnTek, Inc.(*2)
 
 
43,190
 
 
 
—
 
 
 
1,836
 
 
 
(86
) 
 
 
—
 
 
 
(44,940
) 
 
 
—
 
UniSK
 
 
15,700
 
 
 
—
 
 
 
1,475
 
 
 
1,981
 
 
 
—
 
 
 
—
 
 
 
19,156
 
SK Technology Innovation Company
 
 
41,579
 
 
 
—
 
 
 
39,256
 
 
 
5,466
 
 
 
—
 
 
 
—
 
 
 
86,301
 
SK MENA Investment B.V.
 
 
14,043
 
 
 
—
 
 
 
2
 
 
 
1,298
 
 
 
—
 
 
 
—
 
 
 
15,343
 
SK hynix Inc.(*1,2)
 
 
12,251,861
 
 
 
19,482
 
 
 
1,542,757
 
 
 
197,473
 
 
 
(170,937
) 
 
 
(13,840,636
) 
 
 
—
 
SK Latin America Investment S.A.
 
 
13,930
 
 
 
—
 
 
 
(49
) 
 
 
123
 
 
 
—
 
 
 
—
 
 
 
14,004
 
Grab Geo Holdings PTE. LTD.(*2)
 
 
30,063
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(30,063
) 
 
 
—
 
SK South East Asia Investment Pte. Ltd.
 
 
311,990
 
 
 
—
 
 
 
(18,218
) 
 
 
55,010
 
 
 
—
 
 
 
—
 
 
 
348,782
 
Pacific Telecom Inc.
 
 
39,723
 
 
 
—
 
 
 
1,598
 
 
 
2,468
 
 
 
—
 
 
 
—
 
 
 
43,789
 
S.M. Culture & Contents Co., Ltd.
 
 
62,248
 
 
 
144
 
 
 
(2,484
) 
 
 
353
 
 
 
—
 
 
 
—
 
 
 
60,261
 
Contents Wavve Co., Ltd.(*2)
 
 
75,803
 
 
 
100,000
 
 
 
(20,716
) 
 
 
—
 
 
 
—
 
 
 
(155,087
) 
 
 
—
 
Hello Nature Co., Ltd.(*2,3)
 
 
11,969
 
 
 
9,980
 
 
 
(10,899
) 
 
 
(1
) 
 
 
(1,730
) 
 
 
(9,319
) 
 
 
—
 
Digital Games International Pte. Ltd.
 
 
6,449
 
 
 
—
 
 
 
(4,529
) 
 
 
288
 
 
 
—
 
 
 
—
 
 
 
2,208
 
Invites Healthcare Co., Ltd.
 
 
25,536
 
 
 
7,000
 
 
 
(5,968
) 
 
 
(94
) 
 
 
—
 
 
 
—
 
 
 
26,474
 
Nam Incheon Broadcasting Co., Ltd.(*1)
 
 
10,902
 
 
 
—
 
 
 
1,759
 
 
 
—
 
 
 
(136
) 
 
 
—
 
 
 
12,525
 
NANO-X
IMAGING LTD.(*2)
 
 
28,484
 
 
 
(47
) 
 
 
(2,049
) 
 
 
—
 
 
 
2,437
 
 
 
(28,825
) 
 
 
—
 
Home Choice Corp.
 
 
3,585
 
 
 
—
 
 
 
(533
) 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
3,052
 
Carrot General Insurance Co., Ltd.(*4)
 
 
13,469
 
 
 
12,289
 
 
 
(6,666
) 
 
 
(358
) 
 
 
(8,734
) 
 
 
(10,000
) 
 
 
—
 
Bertis Inc.(*2)
 
 
—
 
 
 
15,739
 
 
 
(423
) 
 
 
—
 
 
 
—
 
 
 
(15,316
) 
 
 
—
 
UT LLC(*2)
 
 
—
 
 
 
86,319
 
 
 
(7,773
) 
 
 
—
 
 
 
—
 
 
 
(78,546
) 
 
 
—
 
SPARKPLUS Co., Ltd.(*2)
 
 
—
 
 
 
34,166
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(34,166
) 
 
 
—
 
12CM JAPAN and others(*2,5)
 
 
65,750
 
 
 
9,038
 
 
 
(2,869
) 
 
 
7,693
 
 
 
(1,624
) 
 
 
(5,383
) 
 
 
72,605
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
14,312,641
 
 
 
298,998
 
 
 
1,837,595
 
 
 
362,278
 
 
 
(322,581
) 
 
 
(14,300,835
) 
 
 
2,188,096
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
F-6
7
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and
2019
 
                  
                  
                  
                  
                  
                  
                  
 
 
2021
 
(In millions of won)
 
Beginning
balance
 
 
Acquisition
and
Disposal
 
 
Share of
profits

(losses)
 
 
Other

compre-
hensive

income
(loss)
 
 
Other
increase
(decrease)
 
 
Spin-off
 
 
Ending
balance
 
Investments in joint ventures:
                            
Dogus Planet, Inc.(*2)
 
￦

15,071
 
 
 
—
  
 
 
(6,990
) 
 
 
(1,447
) 
 
 
—
 
 
 
(6,634
) 
 
 
—
 
Finnq Co., Ltd.
 
 
13,342
 
 
 
—
 
 
 
(5,969
) 
 
 
(118
) 
 
 
—
 
 
 
—
 
 
 
7,255
 
NEXTGEN BROADCAST SERVICES CO, LLC(*2)
 
 
5,850
 
 
 
9,048
 
 
 
(1,276
) 
 
 
—
 
 
 
892
 
 
 
(14,514
) 
 
 
—
 
NEXTGEN ORCHESTRATION, LLC(*2)
 
 
1,600
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
142
 
 
 
(1,742
) 
 
 
—
 
Techmaker GmbH(*2)
 
 
5,609
 
 
 
—
 
 
 
(94
) 
 
 
145
 
 
 
—
 
 
 
(5,660
) 
 
 
—
 
WAVVE Americas Inc. (Formerly, Korea Content Platform, Inc.)(*2)
 
 
—
 
 
 
30,191
 
 
 
(14
) 
 
 
—
 
 
 
598
 
 
 
(30,775
) 
 
 
—
 
UTC
Kakao-SK
Telecom ESG Fund
 
 
—
 
 
 
2,000
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
2,000
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
41,472
 
 
 
41,239
 
 
 
(14,343
) 
 
 
(1,420
) 
 
 
1,632
 
 
 
(59,325
) 
 
 
9,255
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

14,354,113
 
 
 
340,237
 
 
 
1,823,252
 
 
 
360,858
 
 
 
(320,949
) 
 
 
(14,360,160
) 
 
 
2,197,351
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(*1)
Dividends received from the associates are deducted from the carrying amount for the year ended December 31, 2021.
 
(*2)
Investment in SK Telecom CS T1 Co., Ltd. and
twenty-
three
 other associates and joint ventures were transferred to the
spin-off
company for the year ended December 31, 2021. In addition, profit or loss related to investments in associates and joint ventures, which are transferred to the
spin-off
company, are included in profit or loss from discontinued operations.
 
(*3)
The Group recognized
￦
1,730 million of impairment loss for the investments in Hello Nature Co., Ltd. for the year ended December 31, 2021.
 
(*4)
The Parent Company has entered into an agreement whereby the entire shares of Carrot General Insurance Co., Ltd. will transfer to T map Mobility Co., Ltd. In accordance with the agreement, the Parent Company reclassified the investments in Carrot General Insurance Co., Ltd. amounting to
￦
8,734 million as non-current assets held for sale. (See note 40) Meanwhile, the investment in Carrot General Insurance Co., Ltd. amounting to
￦
10,000 million owned by T map Mobility Co., Ltd., a subsidiary of the Parent Company before spin-off, were transferred to the spin-off company for the year ended December 31, 2021. 
 
(*5)
The acquisition for the year ended December 31, 2021 includes
￦
1,000 million of cash investment in Studio Yesone Co., Ltd. and
￦
1,000 million of cash investment in SONNORI Corp. and
￦
687 million of cash investment in WALDEN SKT VENTURE FUND and
￦
3,000 million of cash investment in Smart SKT Infinitum Game Fund and
￦
1,600 million of cash investment in Laguna Dynamic Game&Contents Fund. The disposal for the year ended December 31, 2021 includes
￦
334 million relating to disposal of the part of shares of KDX Korea Data Exchange.
 
F-6
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and
2019
 
                  
                  
                  
                  
                  
                  
                  
 
 
2020
 
(In millions of won)
 
Beginning
balance
 
 
Acquisition
and
Disposal
 
 
Share of
profits

(losses)
 
 
Other

compre-
hensive

income
(loss)
 
 
Other
increase
(decrease)
 
 
Business
Combina-
tion
 
 
Ending
balance
 
Investments in associates:
                            
SK China Company Ltd.
 
￦

568,459
 
 
 
—
 
 
 
3,752
 
 
 
(17,078
) 
 
 
—
 
 
 
—
 
 
 
555,133
 
Korea IT Fund(*1)
 
 
311,552
 
 
 
—
 
 
 
23,189
 
 
 
6,110
 
 
 
(17,557
) 
 
 
—
 
 
 
323,294
 
KEB HanaCard Co., Ltd.
 
 
294,756
 
 
 
—
 
 
 
20,671
 
 
 
(497
) 
 
 
—
 
 
 
—
 
 
 
314,930
 
SK Telecom CS T1 Co., Ltd.(*2)
 
 
60,305
 
 
 
—
 
 
 
(7,282
) 
 
 
(13
) 
 
 
—
 
 
 
—
 
 
 
53,010
 
NanoEnTek, Inc.(*2)
 
 
42,127
 
 
 
143
 
 
 
830
 
 
 
90
 
 
 
—
 
 
 
—
 
 
 
43,190
 
UniSK(*1)
 
 
14,342
 
 
 
—
 
 
 
1,403
 
 
 
168
 
 
 
(213
) 
 
 
—
 
 
 
15,700
 
SK Technology Innovation Company
 
 
43,997
 
 
 
—
 
 
 
184
 
 
 
(2,602
) 
 
 
—
 
 
 
—
 
 
 
41,579
 
SK MENA Investment B.V.
 
 
14,904
 
 
 
—
 
 
 
—
 
 
 
(861
) 
 
 
—
 
 
 
—
 
 
 
14,043
 
SK hynix Inc.(*1,2)
 
 
11,425,325
 
 
 
—
 
 
 
995,117
 
 
 
(22,481
) 
 
 
(146,100
) 
 
 
—
 
 
 
12,251,861
 
SK Latin America Investment S.A.
 
 
13,698
 
 
 
—
 
 
 
(40
) 
 
 
272
 
 
 
—
 
 
 
—
 
 
 
13,930
 
Grab Geo Holdings PTE. LTD.(*2)
 
 
31,269
 
 
 
—
 
 
 
(425
) 
 
 
(781
) 
 
 
—
 
 
 
—
 
 
 
30,063
 
SK South East Asia Investment Pte. Ltd.
 
 
250,034
 
 
 
119,770
 
 
 
11,250
 
 
 
(69,064
) 
 
 
—
 
 
 
—
 
 
 
311,990
 
Pacific Telecom Inc.(*1)
 
 
40,016
 
 
 
—
 
 
 
2,307
 
 
 
(1,621
) 
 
 
(979
) 
 
 
—
 
 
 
39,723
 
S.M. Culture & Contents Co., Ltd.
 
 
63,469
 
 
 
(162
) 
 
 
(813
) 
 
 
(246
) 
 
 
—
 
 
 
—
 
 
 
62,248
 
Contents Wavve Co., Ltd.(*2)
 
 
83,640
 
 
 
—
 
 
 
(7,837
) 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
75,803
 
Hello Nature Co., Ltd.(*2,3)
 
 
13,620
 
 
 
9,980
 
 
 
(11,118
) 
 
 
(79
) 
 
 
(434
) 
 
 
—
 
 
 
11,969
 
Digital Games International Pte. Ltd.
 
 
—
 
 
 
8,810
 
 
 
(2,038
) 
 
 
(323
) 
 
 
—
 
 
 
—
 
 
 
6,449
 
Invites Healthcare Co., Ltd.
 
 
—
 
 
 
28,000
 
 
 
(2,645
) 
 
 
181
 
 
 
—
 
 
 
—
 
 
 
25,536
 
Nam Incheon Broadcasting Co., Ltd.
 
 
—
 
 
 
—
 
 
 
676
 
 
 
—
 
 
 
—
 
 
 
10,226
 
 
 
10,902
 
NANO-X
IMAGING LTD.(*2,4)
 
 
—
 
 
 
28,515
 
 
 
(747
) 
 
 
—
 
 
 
716
 
 
 
—
 
 
 
28,484
 
Home Choice Corp.
 
 
—
 
 
 
—
 
 
 
174
 
 
 
—
 
 
 
—
 
 
 
3,411
 
 
 
3,585
 
Carrot General Insurance Co., Ltd. (*5)
 
 
6,459
 
 
 
31
 
 
 
(6,188
) 
 
 
(33
) 
 
 
13,200
 
 
 
—
 
 
 
13,469
 
12CM JAPAN and others(*2,6)
 
 
58,884
 
 
 
(1,508
) 
 
 
(2,134
) 
 
 
(2,302
) 
 
 
12,810
 
 
 
—
 
 
 
65,750
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
13,336,856
 
 
 
193,579
 
 
 
1,018,286
 
 
 
(111,160
) 
 
 
(138,557
) 
 
 
13,637
 
 
 
14,312,641
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
F-
69
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and
2019
 
                  
                  
                  
                  
                  
                  
                  
 
 
2020
 
(In millions of won)
 
Beginning
balance
 
 
Acquisition
and
Disposal
 
 
Share of
profits

(losses)
 
 
Other

compre-
hensive

income
(loss)
 
 
Other
increase
(decrease)
 
 
Business
Combina-
tion
 
 
Ending
balance
 
Investments in joint ventures:
                            
Dogus Planet, Inc.(*2)
 
￦

15,921
 
 
 
—
  
 
 
3,453
 
 
 
(4,303
) 
 
 
—
 
 
 
—
 
 
 
15,071
 
Finnq Co., Ltd.
 
 
22,880
 
 
 
—
 
 
 
(9,538
) 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
13,342
 
NEXTGEN BROADCAST SERVICES CO, LLC(*2)
 
 
7,961
 
 
 
—
 
 
 
(1,769
) 
 
 
—
 
 
 
(342
) 
 
 
—
 
 
 
5,850
 
NEXTGEN ORCHESTRATION, LLC(*2)
 
 
1,646
 
 
 
—
 
 
 
57
 
 
 
—
 
 
 
(103
) 
 
 
—
 
 
 
1,600
 
Techmaker GmbH(*2)
 
 
—
 
 
 
5,609
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
5,609
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
 
48,408
 
 
 
5,609
 
 
 
(7,797
) 
 
 
(4,303
) 
 
 
(445
) 
 
 
—
 
 
 
41,472
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

13,385,264
 
 
 
199,188
 
 
 
1,010,489
 
 
 
(115,463
) 
 
 
(139,002
) 
 
 
13,637
 
 
 
14,354,113
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(*1)
Dividends received from the associates are deducted from the carrying amount for the year ended December 31, 2020.
 
(*2)
Profit and loss related to investments in associates and joint ventures, which are transferred to the
spin-off
company, are included in profit or loss from discontinued operations.
 
(*3)
The Group recognized
￦
434 million of impairment loss for the investments in Hello Nature Co., Ltd. for the year ended December 31, 2020.
 
(*4)
As the Group obtained significant influence,
￦
3,621 million of financial assets at FVOCI are reclassified to the investment in associates for the year ended December 31, 2020.
 
(*5)
￦
13,200
 
million of preferred shares of Carrot General Insurance Co., Ltd. were converted to common shares for the year ended December 31, 2020. 
 
(*6)
The acquisitions for the year ended December 31, 2020 include
￦
1,600 million of cash investment in Laguna Dynamic Game Contents Fund and
￦
1,342 million of cash investment in KDX Korea Data Exchange and
￦
708 million relating to contribution of WALDEN SKT VENTURE FUND. The disposals for the year ended December 31, 2020 include
￦
1,142 million relating to transfer of the shares of Health Connect Co., Ltd. and
￦
2,056 million relating to liquidation of 2010
KIF-Stonebridge
IT Fund and
￦
1,984 million relating to disposal of the entire shares of SK Telecom Smart City Management Co., Ltd.
(7)    The Group discontinued the application of equity method to the following investees due to their carrying amounts being reduced to zero. The details of cumulative unrecognized equity method losses as of December 31, 2021 are as
follows:
 
(In millions of won)
  
Unrecognized loss
 
  
Unrecognized change in equity
 
 
  
2021
 
 
Cumulative loss
 
  
2021
 
  
Cumulative loss
 
Wave City Development Co., Ltd.
  
￦

6,143   8,543    —    — 
Daehan Kanggun BcN Co., Ltd. and others
   (5,167)   5,780    —    (124) 
   
 
 
  
 
 
   
 
 
   
 
 
 
   
￦

976   14,323    —    (124) 
   
 
 
  
 
 
   
 
 
   
 
 
 
 
F-7
0
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
13.
    Property and Equipment
(1)    Property and equipment as of December 31, 2021 and 2020 are as
follows:
 
 
  
December 31, 2021
 
(In millions of won)
  
Acquisition cost
 
  
Accumulated
depreciation
 
  
Accumulated
impairment loss
 
  
Carrying
amount
 
Land
  
￦

972,800    —    —    972,800 
Buildings
   1,692,239    (897,336)    (450)    794,453 
Structures
   922,637    (629,757)    (1,601)    291,279 
Machinery
   35,770,485    (27,771,040)    (1,518)    7,997,927 
Other
   1,718,337    (1,230,128)    (493)    487,716 
Right-of-use
assets
   2,229,945    (669,389)    (1,223)    1,559,333 
Construction in progress
   767,751    —    —    767,751 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
￦

44,074,194    (31,197,650)    (5,285)    12,871,259 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
  
December 31, 2020
 
(In millions of won)
  
Acquisition cost
 
  
Accumulated
depreciation
 
  
Accumulated
impairment loss
 
  
Carrying
amount
 
Land
  
￦

1,039,323    —    —    1,039,323 
Buildings
   1,747,445    (888,389)    (450)    858,606 
Structures
   913,102    (594,098)    (1,601)    317,403 
Machinery
   36,152,031    (27,761,449)    (14,370)    8,376,212 
Other
   2,047,405    (1,391,201)    (2,588)    653,616 
Right-of-use
assets
   1,961,346    (489,311)    —    1,472,035 
Construction in progress
   659,882    —    —    659,882 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
￦

44,520,534    (31,124,448)    (19,009)    13,377,077 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(2)
Changes in property and equipment for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2021
 
 
 
Beginning
balance
 
 
Acquisition
 
 
Disposal
 
 
Transfer
 
 
Deprecia-
tion(*1)
 
 
Impairment(*2)
 
 
Business
combina-
tion(*3)
 
 
Spin-off
 
 
Ending
balance
 
Land
 
￦

1,039,323   634   (21,557)   24,789   —   —   —   (70,389)   972,800 
Buildings
  858,606   3,919   (9,706)   47,612   (55,818)   —   639   (50,799)   794,453 
Structures
  317,403   2,482   (6,124)   16,546   (37,968)   —   —   (1,060)   291,279 
Machinery
  8,376,212   593,225   (44,477)   1,816,003   (2,394,351)   (1,054)   —   (347,631)   7,997,927 
Other
  653,616   830,277   (2,286)   (607,271)   (180,980)   (495)   193   (205,338)   487,716 
Right-of-use
assets
  1,472,035   672,723   (60,159)   (9,610)   (433,970)   (1,223)   507   (80,970)   1,559,333 
Construction in progress
  659,882   1,695,316   (1,071)   (1,554,047)   —   —   —   (32,329)   767,751 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

13,377,077   3,798,576   (145,380)   (265,978)   (3,103,087)   (2,772)   1,339   (788,516)   12,871,259 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations. 
 
(*2)
The Group recognized impairment losses for obsolete assets for the year ended December 31, 2021.
 
F-7
1
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(*3)
Includes assets from the acquisition of YLP Inc. and another company by T map Mobility Co., Ltd. and from the acquisition of Rokmedia Co., Ltd. by One Store Co., Ltd.
 
(In millions of won)
 
 
 
 
 
2020
 
 
 
Beginning
balance
 
 
Acquisition
 
 
Disposal
 
 
Transfer
 
 
Deprecia-
tion(*1)
 
 
Impairment(*2)
 
 
Business
combina-
tion(*3)
 
 
Ending
balance
 
Land
 
￦

981,389   525   (20,415)   37,532   —   —   40,292   1,039,323 
Buildings
  867,408   3,034   (21,811)   48,160   (55,215)   —   17,030   858,606 
Structures
  347,069   2,542   (4,417)   9,167   (36,995)   —   37   317,403 
Machinery
  7,924,392   553,052   (32,369)   2,180,445   (2,419,522)   (1,745)   171,959   8,376,212 
Other
  731,066   945,499   (6,486)   (817,819)   (203,376)   —   4,732   653,616 
Right-of-use
assets
  1,326,628   736,157   (163,217)   —   (436,231)   —   8,698   1,472,035 
Construction in progress
  755,508   1,625,218   (16,162)   (1,709,735)   —   —   5,053   659,882 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

12,933,460   3,866,027   (264,877)   (252,250)   (3,151,339)   (1,745)   247,801   13,377,077 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations. 
 
(*2)
The Group recognized impairment losses for obsolete assets for the year ended December 31, 2020.
 
(*3)
Includes assets from the acquisition of Broadband Nowon Co., Ltd. and from the merger of Tbroad Co., Ltd. and two other companies by SK Broadband Co., Ltd., a subsidiary of the Parent Company.
 
14.
Investment Property
 
(1)
Investment property as of December 31, 2021 is as follows:
 
(In millions of won)
 
   
December 31, 2021
 
   
Acquisition

cost
   
Accumulated
depreciation
  
Carrying

amount
 
Land
  
￦

6,071    —   6,071 
Buildings
   21,021    (13,668)   7,353 
Right-of-use
assets
   12,577    (2,967)   9,610 
   
 
 
   
 
 
  
 
 
 
   
￦

39,669    (16,635)   23,034 
   
 
 
   
 
 
  
 
 
 
 
(2)
Changes in Investment property for the year ended December 31, 2021 are as follows:
 
(In millions of won)
 
   
2021
 
Beginning balance
  
￦

— 
Transfer
   23,034 
   
 
 
 
Ending balance
  
￦

23,034 
   
 
 
 
 
(3)
The Group recognized lease income of
￦
5,036 million for the year ended December 31, 2021 from investment property.
 
(4)
The fair value of investment property is
￦
66,128 million as of December 31, 2021.
 
F-7
2
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
15.
Lease
 
(1)
As a lessee
1)    Details of the
right-of-use
assets as of December 31, 2021 and 2020 are as
follows:
 
(In millions of won)
  
 
 
  
 
 
 
  
December 31,
2021
 
  
December 31,
2020
 
Land, buildings and structures
  
￦

1,392,925    1,269,753 
Others
   166,408    202,282 
   
 
 
   
 
 
 
   
￦

1,559,333    1,472,035 
   
 
 
   
 
 
 
2)    Details of amounts recognized in the consolidated statements of income for the years ended December 31,
 2021,
2020 and 2019 as a lessee are as
follows:
 
(In millions of won)
  
2021
 
  
2020
 
  
2019
 
Depreciation of
right-of-use
assets(*)
  
  
  
Land, buildings and structures
  
￦

338,304    347,166 
 
 
359,755
 
Others
   95,666    89,065 
 
 
89,062
 
   
 
 
   
 
 
 
 
 
 
 
   
￦

433,970    436,231 
 
 
448,817
 
   
 
 
   
 
 
 
 
 
 
 
Interest expense on lease liabilities(*)
  
￦

23,998    22,976 
 
 
25,981
 
Expenses related to short-term leases(*)
   25,435    20,193 
 
 
19,098
 
Expenses related to leases of
low-value
assets except for short-term leases(*)
   3,772    3,297 
 
 
2,550
 
 
 
(*)
Includes amounts related to discontinued operations. 
 
3)
The total cash outflows due to lease payments for the years ended
December 31, 2021, 2020 and 2019 amounted
 to
￦
484,879 million
,
 

￦
459,132 million
and
￦
489,440 
million, respectively, those amounts include cash flows from discontinued operations. 
 
(2)
As a lessor
1)    Finance lease
The Group recognized interest income of
￦
2,053 
million,
￦
2,223 million and
￦
1,712 
million on lease receivables for the years ended December 31, 2021, 2020 and 2019, respectively, those amounts include profit or loss from discontinued operations.
 
F-7
3
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
The following table sets out a maturity analysis for lease receivables, presenting the undiscounted lease payments to be received subsequent to December 31, 2021.
 
(In millions of won)
 
   
Amount
 
Less than 1 year
  
￦

22,497 
1 ~ 2 years
   11,124 
2 ~ 3 years
   10,425 
3 ~ 4 years
   3,619 
4 ~ 5 years
   58 
More than 5 years
   6 
   
 
 
 
Undiscounted lease payments
  
￦

47,729 
   
 
 
 
Unrealized finance income
   867 
   
 
 
 
Net investment in the lease
   46,862 
   
 
 
 
2)    Operating lease
The Group recognized lease income of
￦
230,140 million
,
￦
238,545 
million and
￦
168,482
million for the years ended December 31, 2021, 2020 and 2019, respectively, of which variable lease payments received are
 
￦
17,686
 
million
,
￦
21,715 million and
￦
25,228 million, respectively.
The following table sets out a maturity analysis of lease payments, presenting the undiscounted fixed payments to be received subsequent to December 31, 2021.
 
(In millions of won)
 
   
Amount
 
Less than 1 year
  
￦

170,575 
1 ~ 2 years
   113,524 
2 ~ 3 years
   51,433 
3 ~ 4 years
   1,409 
4 ~ 5 years
   808 
More than 5 years
   1,935 
   
 
 
 
   
￦

339,684 
   
 
 
 
 
16.
Goodwill
(1)    Goodwill as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
        
   
December 31, 2021
   
December 31, 2020
 
Goodwill related to merger of Shinsegi Telecom, Inc.
  
￦

1,306,236    1,306,236 
Goodwill related to acquisition of SK Broadband Co., Ltd.
   764,082    764,082 
Goodwill related to acquisition of Life & Security Holdings Co., Ltd.(*)
   —    1,176,274 
Other goodwill(*)
   2,175    110,932 
   
 
 
   
 
 
 
   
￦

 2,072,493    3,357,524 
   
 
 
   
 
 
 
 
(*)
Transferred to the
spin-off
company for the year ended December 31, 2021.
 
F-7
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)    Details of the impairment testing of Goodwill as of December 31, 2021 is as follows:
Goodwill is allocated to the following CGUs for the purpose of impairment testing.
 
 • 
goodwill related to Shinsegi Telecom, Inc.(*1): Cellular services;
 
 • 
goodwill related to SK Broadband Co., Ltd.(*2): Fixed-line telecommunication services; and
 
 • 
other goodwill: Others.
 
(*1)
Goodwill related to merger of Shinsegi Telecom, Inc.
The recoverable amount of the CGU is based on its value in use calculated by applying the post-tax annual discount rate of
 6.6%
 
(2020:
 
6.3%
)
(pre-tax annual discount rate: 9.0%) to the estimated future post-tax cash flows based on financial budgets for the next five years. An annual growth rate of 0.5% (2020: (
-
)0.2%) was applied for the cash flows expected to be incurred after five years and is not expected to exceed the long-term wireless telecommunication industry growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount. 
 
(*2)
Goodwill related to acquisition of SK Broadband Co., Ltd.
The recoverable amount of the CGU is based on its value in use, which is estimated based on key assumptions including operating revenue, annual growth rate applied for the cash flows expected to be incurred after five years (“perpetual growth rate”) and discount rate. The
post-tax
annual discount rate of
 
7.1
%
 (2020: 6.9%) (pre-tax annual discount rate
:
 
9.2
%
)
 
to the estimated future post-tax cash flows based on financial budgets for the next five years. The estimated operating revenue is based on past performance, business plans and its expectation of future market changes. An annual growth rate of
 1.0% (2020:
 
1.0
%
)
was applied for the cash flows expected to be incurred after five years and is not expected to exceed the long-term fixed-line telecommunication industry growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.
 
(3)
Details of the changes in goodwill for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
       
   
2021
  
2020
 
Beginning balance
  
￦

3,357,524   2,949,530 
Acquisition(*)
   111,928   408,531 
Impairment loss
   —   (519) 
Other
   (43)   (18) 
Spin-off
   (1,396,916)   — 
   
 
 
  
 
 
 
Ending balance
  
￦

2,072,493   3,357,524 
   
 
 
  
 
 
 
 
 
(*)
It consists of goodwill recognized as T map Mobility Co., Ltd.’s acquisition of YLP Inc. and another company, goodwill recognized as DREAMUS COMPANY’s acquisition of Studio Dolphin Co., Ltd. and goodwill recognized from One Store Co., Ltd.’s acquisition of Rokmedia Co., Ltd. for the year ended December 31, 2021. (See Note 11)
As of December 31, 2021 and 2020, accumulated impairment losses are
￦
33,441 million and
￦
68,832 million, respectively.
 
F-7
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
17.
Intangible Assets
 
(1)
Intangible assets as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
December 31, 2021
 
   
Acquisition

cost
   
Accumulated
amortization
  
Accumulated
impairment
  
Carrying
amount
 
Frequency usage rights(*1)
  
￦

7,221,735    (4,476,046)   (186,000)   2,559,689 
Land usage rights
   48,318    (45,586)   —   2,732 
Industrial rights
   92,332    (36,342)   (36)   55,954 
Development costs
   34,393    (34,193)   —   200 
Facility usage rights
   156,062    (138,188)   —   17,874 
Customer relations
   507,581    (180,324)   —   327,257 
Club memberships(*2)
   113,300    —   (24,806)   88,494 
Brands(*2)
   —    —   —   — 
Other(*3)
   4,347,971    (3,524,002)   (6,400)   817,569 
   
 
 
   
 
 
  
 
 
  
 
 
 
   
￦

12,521,692    (8,434,681)   (217,242)   3,869,769 
   
 
 
   
 
 
  
 
 
  
 
 
 
 
(In millions of won)
  
December 31, 2020
 
   
Acquisition

cost
   
Accumulated
amortization
  
Accumulated
impairment
  
Carrying
amount
 
Frequency usage rights(*1)
  
￦

6,210,882    (4,079,729)   (198,388)   1,932,765 
Land usage rights
   50,503    (45,783)   —   4,720 
Industrial rights
   116,889    (45,300)   (147)   71,442 
Development costs
   67,989    (54,771)   (3,854)   9,364 
Facility usage rights
   159,865    (137,985)   —   21,880 
Customer relations
   1,091,146    (171,283)   —   919,863 
Club memberships(*2)
   139,349    —   (32,484)   106,865 
Brands(*2)
   374,096    —   —   374,096 
Other(*3)
   4,604,077    (3,586,596)   (22,282)   995,199 
   
 
 
   
 
 
  
 
 
  
 
 
 
   
￦

 12,814,796    (8,121,447)   (257,155)   4,436,194 
   
 
 
   
 
 
  
 
 
  
 
 
 
 
 
(*1)
The Group was reassigned 800 MHz, 1.8 GHz and 2.1 GHz band of frequency license
s
from the Ministry of Science and Information and Communication Technology (“ICT”) in exchange for
￦
227,200 million,
￦
547,800 million and
￦
411,700 million, respectively, for the year ended December 31, 2021. The band of frequency was assigned to the Group at the date of initial lump sum payment and the annual payments in installment for the remaining balances are made in the next five years starting from the date of initial lump sum payment. For the year ended December 31, 2020, the Parent Company recognized an impairment loss of
￦
12,388 million for the portion of 800 MHz frequency usage rights used for 2G service as ICT approved the termination of 2G service. Meanwhile, for the year ended December 31, 2020, the Parent Company recognized an impairment loss of
￦
186,000 million for the 28GHz frequency usage rights as the carrying value exceeded the recoverable amount.
 
(*2)
Club memberships and Brands are classified as intangible assets with indefinite useful lives and are not amortized.
 
(*3)
Other intangible assets primarily consist of computer software and others.
 
F-7
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
C
hanges in intangible assets for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
 
 
 
 
 
 
2021
 
 
 
Beginning
balance
 
 
Acquisition
 
 
Disposal
 
 
Transfer
 
 
Amorti-
zation (*1)
 
 
Reversal

(Impairment)
(*2)
 
 
Business
Combina-

tion(*3)
 
 
Spin-off
 
 
Ending
balance
 
Frequency usage rights
 
￦

1,932,765   1,145,999   —   —   (519,075)   —   —   —   2,559,689 
Land usage rights
  4,720   175   (76)   —   (2,087)   —   —   —   2,732 
Industrial rights
  71,442   5,158   (8)   390   (6,377)   (36)   —   (14,615)   55,954 
Development costs
  9,364   1,279   (150)   —   (3,210)   —   —   (7,083)   200 
Facility usage rights
  21,880   1,690   (21)   328   (6,003)   —   —   —   17,874 
Customer relations
  919,863   4,854   (461)   —   (53,342)   —   4,705   (548,362)   327,257 
Club memberships
  106,865   6,518   (9,925)   —   —   653   —   (15,617)   88,494 
Brands
  374,096   —   —   —   —   —   —   (374,096)   — 
Other
  995,199   80,713   (4,580)   276,890   (421,213)   (111)   5,059   (114,388)   817,569 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

 4,436,194   1,246,386   (15,221)   277,608   (1,011,307)   506   9,764   (1,074,161)   3,869,769 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The Group recognized the difference between recoverable amount and the carrying amount of intangible assets amounting to
￦
147 million as impairment loss and
￦
653 million as reversal of impairment loss, respectively, for the year ended December 31, 2021.
 
(*3)
Includes assets from the acquisition of YLP Co., Ltd. and another company by T map Mobility Co., Ltd., and Rokmedia Co., Ltd. by One Store Co., Ltd.
 
(In millions of won)
 
  
2020
 
  
Beginning
balance
  
Acquisition
  
Disposal
  
Transfer
  
Amortization
(*1)
  
Impairment
(*1,2)
  
Business
Combination(*3)
  
Ending
balance
 
 
Frequency usage rights
 
￦

2,647,501   —   —   —   (516,348)   (198,388)   —   1,932,765 
Land usage rights
  7,349   550   (100)   —   (3,079)   —   —   4,720 
Industrial rights
  66,824   1,836   (513)   8,281   (4,825)   (161)   —   71,442 
Development costs
  11,146   1,141   (294)   3,302   (4,644)   (1,287)   —   9,364 
Facility usage rights
  25,832   1,810   (3)   434   (6,193)   —   —   21,880 
Customer relations
  591,371   2,014   (1,604)   491   (52,849)   —   380,440   919,863 
Club memberships
  80,410   11,821   (35,432)   544   —   (323)   49,845   106,865 
Brands(*4)
  374,096   —   —   —   —   —   —   374,096 
Other
  1,061,563   112,011   (13,729)   272,433   (430,719)   (6,410)   50   995,199 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

4,866,092   131,183   (51,675)   285,485   (1,018,657)   (206,569)   430,335   4,436,194 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The Group recognized the difference between recoverable amount and the carrying amount of intangible assets amounting to
￦
206,569 million as impairment loss for the year ended December 31, 2020.
 
(*3)
Includes assets from the acquisition of Broadband Nowon Co., Ltd. and from the merger of Tbroad Co., Ltd. and two other companies by SK Broadband Co., Ltd., a subsidiary of the Parent Company.
 
(*4)
Brands are recognized in connection with the acquisition of Life & Security Holdings Co., Ltd.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)
Research and development expenditures recognized as expense for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
            
   
2021
   
2020
   
2019
 
Research and development costs expensed as incurred(*)
  
￦

406,672    416,445    391,327 
 
 
(*)
Includes amounts related to discontinued operations.
 
(4)
Details of frequency usage rights as of December 31, 2021 are as follows:
 
(In millions of won)
 
   
Amount
   
Description
   
Commencement
of amortization
   
Completion of
amortization
 
800MHz license
  
￦

197,620    LTE service    Jul. 2021    Jun. 2026 
1.8GHz license
   520,100    LTE service    Dec. 2021    Dec. 2026 
2.6GHz license
   607,090    LTE service    Sept. 2016    Dec. 2026 
2.1GHz license
   390,882    
W-CDMA and LTE service
    Dec. 2021    Dec. 2026 
3.5GHz license
   833,034    5G service    Apr. 2019    Nov. 2028 
28GHz license
   10,963    5G service    Jan. 2021    Nov. 2023 
   
 
 
                
   
￦

2,559,689                
   
 
 
                
 
18.
Borrowings and Debentures
 
(1)
Short-term borrowings as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
 
   
Lender
  
Annual
interest rate (%)
  
December 31,
2021
   
December 31,

2020
 
Short-term borrowings
  Citibank  2.45  
￦

—    50,000 
   KEB Hana Bank(*1,3)  FTP 1M +1.01   —    27,000 
   KEB Hana Bank(*2,3)  
6M financial I
(bank) + 1.59
   —    5,000 
   Shinhan Bank(*2,3)  
6M financial I
(bank) + 1.35
   —    15,000 
   Hana Financial Investment Co., Ltd.  4.20   4,642    4,642 
   DB Financial Investment Co., Ltd.  4.00   2,785    2,785 
   Shinhan Financial Investment Co., Ltd.  4.20   5,571    5,571 
   
 
 
   
 
 
 
         
￦

12,998    109,998 
         
 
 
   
 
 
 
 
 
(*1)
1M FTP rate is 1.14% as of December 31, 2020.
 
(*2)
6M financial I (bank) rate is 0.92% as of December 31, 2020.
 
(*3)
Transferred to the
spin-off
company for the year ended December 31, 2021.
 
F-7
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2) Long-term borrowings as of December 31, 2021 and 2020 are as follows:
 
(In millions of won and thousands of other currencies)
 
Lender
  
Annual interest

rate (%)
   
Maturity
   
December 31,
2021
  
December 31,

2020
 
Korea Development Bank(*1)
   3M CD + 0.61    Dec. 20, 2021   
￦

—   12,250 
Korea Development Bank(*1,2)
   3M CD + 0.71    Dec. 21, 2022    12,500   25,000 
Korea Development Bank(*3)
   1.87    Feb. 10, 2026    50,000   — 
Credit Agricole CIB(*1,4)
   3M CD + 0.82    Dec. 14, 2023    25,000   37,500 
Export Kreditnamnden(*5)
   1.70    Apr. 29, 2022    
6,746
(USD 5,690)
 
 
  18,726
(USD 17,211)		 
 
Shinhan Bank and others(*6)
   3.20    Oct. 5, 2025    —   1,950,000 
UBS(*6)
   0.00    Mar. 28,
2025		 
 		   —   
617
(CHF 500)
 
 
FAE(*6)
   0.00    May 7, 2025    —   
617
(CHF 500
 
) 
Mizuho bank, Ltd.
   1.35    May 20, 2024    100,000   — 
DBS bank Ltd.
   1.32    May 28, 2024    200,000   — 
             
 
 
  
 
 
 
              394,246   2,044,710 
Less present value discount
             (59)   (15,786) 
             
 
 
  
 
 
 
              394,187   2,028,924 
Less current installments
             (41,065)   (49,663) 
             
 
 
  
 
 
 
             
￦

353,122   1,979,261 
             
 
 
  
 
 
 
 
 
(*1)
3M CD rate are 1.29% and 0.66% as of December 31, 2021 and 2020, respectively.
 
(*2)
The long-term borrowings are to be repaid by installments on an annual basis from 2018 to 2022.
 
(*3)
The long-term borrowings are to be repaid by installments on an annual basis from 2022 to 2026.
 
(*4)
The long-term borrowings are to be repaid by installments on an annual basis from 2020 to 2023.
 
(*5)
The long-term borrowings are to be repaid by installments on an annual basis from 2014 to 2022.
 
(*6)
Transferred to the
spin-off
company for the year ended December 31, 2021.
 
(3)
Debentures as of December 31, 2021 and 2020 are as follows:
 
(In millions of won and thousands of U.S. dollars)
 
   
Purpose
  
Maturity
   
Annual

interest rate (%)
  
December 31,
2021
  
December 31,
2020
 
Unsecured corporate bonds
  Operating fund   2021    4.22  
￦

—   190,000 
Unsecured corporate bonds
  Operating and refinancing fund   2022    3.30   140,000   140,000 
Unsecured corporate bonds
      2032    3.45   90,000   90,000 
Unsecured corporate bonds
  Operating fund   2023    3.03   230,000   230,000 
Unsecured corporate bonds
      2033    3.22   130,000   130,000 
Unsecured corporate bonds
      2024    3.64   150,000   150,000 
Unsecured corporate bonds
  Refinancing fund   2021    2.66   —   150,000 
Unsecured corporate bonds
      2024    2.82   190,000   190,000 
Unsecured corporate bonds
  
Operating and
refinancing fund
   2022    2.40   100,000   100,000 
Unsecured corporate bonds
      2025    2.49   150,000   150,000 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won and thousands of U.S. dollars)
 
   
Purpose
  
Maturity
   
Annual

interest rate (%)
  
December 31,
2021
  
December 31,
2020
 
Unsecured corporate bonds
      2030    2.61   50,000   50,000 
Unsecured corporate bonds
  Operating fund   2025    2.66   70,000   70,000 
Unsecured corporate bonds
      2030    2.82   90,000   90,000 
Unsecured corporate bonds
  Operating and refinancing fund   2025    2.55   100,000   100,000 
Unsecured corporate bonds
      2035    2.75   70,000   70,000 
Unsecured corporate bonds
  Operating fund   2021    1.80   —   100,000 
Unsecured corporate bonds
      2026    2.08   90,000   90,000 
Unsecured corporate bonds
      2036    2.24   80,000   80,000 
Unsecured corporate bonds
      2021    1.71   —   50,000 
Unsecured corporate bonds
      2026    1.97   120,000   120,000 
Unsecured corporate bonds
      2031    2.17   50,000   50,000 
Unsecured corporate bonds
  Refinancing fund   2022    2.17   120,000   120,000 
Unsecured corporate bonds
      2027    2.55   100,000   100,000 
Unsecured corporate bonds
  
Operating and
refinancing fund
   2032    2.65   90,000   90,000 
Unsecured corporate bonds
  
Operating and
refinancing fund
   2022    2.63   80,000   80,000 
Unsecured corporate bonds
  Refinancing fund   2027    2.84   100,000   100,000 
Unsecured corporate bonds
      2021    2.57   —   110,000 
Unsecured corporate bonds
      2023    2.81   100,000   100,000 
Unsecured corporate bonds
      2028    3.00   200,000   200,000 
Unsecured corporate bonds
      2038    3.02   90,000   90,000 
Unsecured corporate bonds
  
Operating and
refinancing fund
   2021    2.10   —   100,000 
Unsecured corporate bonds
      2023    2.33   150,000   150,000 
Unsecured corporate bonds
      2038    2.44   50,000   50,000 
Unsecured corporate bonds
  Operating fund   2022    2.03   180,000   180,000 
Unsecured corporate bonds
      2024    2.09   120,000   120,000 
Unsecured corporate bonds
      2029    2.19   50,000   50,000 
Unsecured corporate bonds
      2039    2.23   50,000   50,000 
Unsecured corporate bonds
  
Operating and
refinancing fund
   2022    1.40   120,000   120,000 
Unsecured corporate bonds
      2024    1.49   60,000   60,000 
Unsecured corporate bonds
      2029    1.50   120,000   120,000 
Unsecured corporate bonds
      2039    1.52   50,000   50,000 
Unsecured corporate bonds
      2049    1.56   50,000   50,000 
Unsecured corporate bonds
  Operating fund   2022    1.69   230,000   230,000 
Unsecured corporate bonds
      2024    1.76   70,000   70,000 
Unsecured corporate bonds
      2029    1.79   40,000   40,000 
Unsecured corporate bonds
      2039    1.81   60,000   60,000 
Unsecured corporate bonds
  
Operating and
refinancing fund
   2023    1.64   170,000   170,000 
Unsecured corporate bonds
  Operating fund   2025    1.75   130,000   130,000 
Unsecured corporate bonds
      2030    1.83   50,000   50,000 
Unsecured corporate bonds
      2040    1.87   70,000   70,000 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won and thousands of U.S. dollars)
 
   
Purpose
  
Maturity
   
Annual

interest rate (%)
  
December 31,
2021
  
December 31,
2020
 
Unsecured corporate bonds
  Refinancing fund   2025    1.40   140,000   140,000 
Unsecured corporate bonds
      2030    1.59   40,000   40,000 
Unsecured corporate bonds
      2040    1.76   110,000   110,000 
Unsecured corporate bonds
  Refinancing fund   2024    1.17   80,000   — 
Unsecured corporate bonds
      2026    1.39   80,000   — 
Unsecured corporate bonds
      2031    1.80   50,000   — 
Unsecured corporate bonds
      2041    1.89   100,000   — 
Unsecured corporate bonds
  Refinancing fund   2024    2.47   90,000   — 
Unsecured corporate bonds
      2026    2.69   70,000   — 
Unsecured corporate bonds
      2041    2.68   40,000   — 
Unsecured corporate bonds(*1)
  
Operating and
refinancing fund
   2021    1.77   —   120,000 
Unsecured corporate bonds(*1)
  Operating fund   2022    2.26   150,000   150,000 
Unsecured corporate bonds(*1)
  
Operating and
refinancing fund
   2022    2.70   140,000   140,000 
Unsecured corporate bonds(*1)
      2021    2.59   —   70,000 
Unsecured corporate bonds(*1)
      2023    2.93   80,000   80,000 
Unsecured corporate bonds(*1)
  Refinancing fund   2022    2.00   50,000   50,000 
Unsecured corporate bonds(*1)
      2024    2.09   160,000   160,000 
Unsecured corporate bonds(*1)
  
Operating and
refinancing fund
   2022    1.71   80,000   80,000 
Unsecured corporate bonds(*1)
      2024    1.71   100,000   100,000 
Unsecured corporate bonds(*1)
      2026    1.86   50,000   50,000 
Unsecured corporate bonds(*1)
  Refinancing fund   2023    1.48   100,000   100,000 
Unsecured corporate bonds(*1)
  
Operating and
refinancing fund
   2025    1.64   100,000   100,000 
Unsecured corporate bonds(*1)
  Refinancing fund   2025    1.41   160,000   160,000 
Unsecured corporate bonds(*1)
  Refinancing fund   2024    1.69   100,000   — 
Private placement corporate bonds(*2)
  Operating fund   2023    —   —   6,292 
Private placement corporate bonds(*2)
  Operating fund   2023    —   —   6,222 
Private placement corporate bonds(*2)
  Operating fund   2023    —   —   6,168 
Private placement corporate bonds(*2)
  Operating fund   2023    —   —   6,100 
 
F-8
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won and thousands of U.S. dollars)
 
   
Purpose
  
Maturity
   
Annual

interest rate (%)
  
December 31,
2021
  
December 31,
2020
 
Unsecured global bonds
  Operating fund   2027    6.63   
474,200
(USD
400,000
 
 
) 
  
435,200
(USD
400,000
 
 
) 
Unsecured global bonds
      2023    3.75   
592,750
(USD
500,000
 
 
) 
  
544,000
(USD
500,000
 
 
) 
Unsecured global bonds(*1)
  Refinancing fund   2023    3.88   
355,650
(USD
300,000
 
 
) 
  
326,400
(USD
300,000
 
 
) 
Floating rate notes(*3)
  Operating fund   2025    
3M LIBOR
+ 0.91
 
 
  
355,650
(USD
300,000
 
 
) 
  
326,400
(USD
300,000
 
 
) 
               
 
 
  
 
 
 
                8,448,250   8,606,782 
Less discounts on bonds
               (21,567)   (27,039) 
               
 
 
  
 
 
 
                8,426,683   8,579,743 
Less current installments of bonds
               (1,389,259)   (889,574) 
               
 
 
  
 
 
 
               
￦

7,037,424   7,690,169 
               
 
 
  
 
 
 
 
 
(*1)
Unsecured corporate bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company.
 
(*2)
Transferred to the
spin-off
company for the year ended December 31, 2021.
 
(*3)
3M LIBOR rates are 0.21% and 0.24% as of December 31, 2021 and 2020, respectively.
 
19.
Long-term Payables — other
 
(1)
Long-term payables — other as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
 
   
December 31, 2021
   
December 31, 2020
 
Payables related to acquisition of frequency usage rights
  
￦

1,611,010    1,141,723 
Other
   —    631 
   
 
 
   
 
 
 
   
￦

1,611,010    1,142,354 
   
 
 
   
 
 
 
 
(2)
As of December 31, 2021 and 2020, details of long-term payables — other which consist of payables related to the acquisition of frequency usage rights are as follows (See Note 17):
 
(In millions of won)
 
   
December 31, 2021
  
December 31, 2020
 
Long-term payables — other
  
￦

2,090,715   1,626,040 
Present value discount on long-term payables — other
   (80,882)   (59,717) 
Current installments of long-term payables — other
   (398,823)   (424,600) 
   
 
 
  
 
 
 
Carrying amount at December 31
  
￦

1,611,010   1,141,723 
   
 
 
  
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)
The principal amounts of the long-term payables — other repaid for the year ended December 31, 2021 and 2020 are
￦
425,349 million, respectively. The repayment schedule of the principal amount of long-term payables — other related to acquisition of frequency usage rights as of December 31, 2021 is as follows:
 
(In millions of won)
     
   
Amount
 
Less than 1 year
  
￦

400,245 
1~3 years
   769,395 
3~5 years
   738,300 
More than 5 years
   182,775 
   
 
 
 
   
￦

2,090,715
 
   
 
 
 
 
20.
Provisions
Changes in provisions for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
    
  
2021
  
As of December 31,
2021
 
  
Beginning
balance
  
Increase
  
Utilization
  
Reversal
  
Other
  
Business

Combination
  
Spin-off
  
Ending
balance
  
Current
  
Non-current
 
Provision for restoration
 
￦

113,653   12,648   (6,283)   (440)   172   —   (5,019)   114,731   59,204   55,527 
Emission allowance
  7,424   1,368   (1,091)   (5,816)   —   —   —   1,885   1,885   — 
Other provisions
  29,800   1,655   (18,909)   (1,820)   —   385   (732)   10,379   567   9,812 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

150,877   15,671   (26,283)   (8,076)   172   385   (5,751)   126,995   61,656   65,339 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(In millions of won)
    
  
2020
  
As of December

31, 2020
 
  
Beginning
balance
  
Increase
  
Utilization
  
Reversal
  
Other
  
Business

Combination
  
Ending
balance
  
Current
  
Non-current
 
Provision for restoration
 
￦

102,519   15,616   (3,610)   (1,492)   (6)   626   113,653   42,348   71,305 
Emission allowance
  5,257   7,400   —   (5,233)   —   —   7,424   7,424   — 
Other provisions(*)
  57,385   3,250   (30,861)   (1,904)   (199)   2,129   29,800   19,591   10,209 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

165,161   26,266   (34,471)   (8,629)   (205)   2,755   150,877   69,363   81,514 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(*)
￦
18,717 million of current provisions are included in the other provisions relating to SK Planet Co., Ltd.’s onerous contracts.
 
21.
Defined Benefit Liabilities (Assets)
 
(1)
Details of defined benefit liabilities (assets) as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
       
   
December 31,
2021
  
December 31,
2020
 
Present value of defined benefit obligations
  
￦

1,035,016   1,278,550 
Fair value of plan assets
   (1,040,286)   (1,127,163) 
   
 
 
  
 
 
 
Defined benefit assets(*)
   (18,427)   (3,557) 
   
 
 
  
 
 
 
Defined benefit liabilities
       154,944 
   
 
 
  
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
 
(*)
Since the Group entities neither have legally enforceable right nor intention to settle the defined benefit obligations of Group entities with defined benefit assets of other Group entities, defined benefit assets of Group entities have been separately presented from defined benefit liabilities.
 
(2)
Principal actuarial assumptions as of December 31, 2021 and 2020 are as follows:
 
   
December 31, 2021
   
December 31, 2020
 
Discount rate for defined benefit obligations
   2.35 ~ 3.29%    1.83 ~ 3.14% 
Expected rate of salary increase   2.00 ~ 5.29%    2.04 ~ 6.00% 
Discount rate for defined benefit obligation is determined based on market yields of high-quality corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio.
 
(3)
Changes in defined benefit obligations for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
For the year ended December 31
 
   
2021
  
2020
 
Beginning balance
  
￦

1,278,550   1,136,787 
Current service cost(*1)
   186,395   193,078 
Past service cost
   —   815 
Interest cost(*1)
   28,617   25,958 
Remeasurement
- Demographic assumption
   (794)   2,071 
- Financial assumption
   (29,399)   (18,266) 
- Adjustment based on experience
   5,773   17,364 
Business combinations
   —   1,742 
Benefit paid
   (114,897)   (76,987) 
Spin-off
   (318,476)   — 
Others(*2)
   (753)   (4,012) 
   
 
 
  
 
 
 
Ending balance
  
￦

1,035,016   1,278,550 
   
 
 
  
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
Others include changes of liabilities due to employee’s transfers among affiliates for the years ended December 31, 2021 and 2020.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(4)
Changes in plan assets for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
For the year ended December 31
 
   
2021
  
2020
 
Beginning balance
  
￦

1,127,163   965,654 
Interest income(*)
   24,550   21,057 
Remeasurement
   (3,798)   (1,385) 
Contributions
   152,208   213,298 
Benefit paid
   (100,511)   (68,084) 
Business combinations
   —   485 
Spin-off
   (157,522)   — 
Others
   (1,804)   (3,862) 
   
 
 
  
 
 
 
Ending balance
  
￦

1,040,286   1,127,163 
   
 
 
  
 
 
 
 
 
(*)
Includes amounts related to discontinued operations.
The Group expects to contribute
￦
187,598 million to the defined benefit plans in 2022.
 
(5)
Total cost of benefit plan, which is recognized in profit and loss (included in labor in the statement of income) and capitalized into
construction-in-progress,
for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
For the year ended December 31
 
   
2021
   
2020
 
Current service cost(*)
  
￦

186,395    193,078 
Past service cost
   —    815 
Net interest cost(*)
   4,067    4,901 
   
 
 
   
 
 
 
   
￦

190,462    198,794 
   
 
 
   
 
 
 
 
 
(*)
Includes amounts related to discontinued operations.
Costs related to the defined benefit except for the amounts transferred to construction in progress are included labor expenses and Research and development expenses.
 
(6)
Details of plan assets as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
        
   
December 31,
2021
   
December 31,
2020
 
Equity instruments
  
￦

25,083    15,770 
Debt instruments
   228,534    228,839 
Short-term financial instruments, etc.
   786,669    882,554 
   
 
 
   
 
 
 
   
￦

1,040,286    1,127,163 
   
 
 
   
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(7)
As of December 31, 2021, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:
 
(In millions of won)
        
   
0.5%
Increase
   
0.5%
Decrease
 
Discount rate
  
￦

(43,702)    47,870 
Expected salary increase rate
   47,552    (43,940) 
The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.
A weighted average duration of defined benefit obligations as of December 31, 2021 and 2020 are 9.19 years and 9.43 years, respectively.
 
22.
Derivative Instruments
 
(1)
Currency and interest rate swap contracts under cash flow hedge accounting as of December 31, 2021 are as follows:
 
(In millions of won and thousands of U.S. dollars)
Borrowing
date
  
Hedging Instrument (Hedged item)
 
Hedged risk
  
Financial
institution
 
Duration of
contract
Jul. 20, 2007  
Fixed-to-fixed
cross currency swap (U.S. dollar denominated bonds
face value of USD 400,000)
 Foreign currency risk  Morgan Stanley and four other banks Jul. 20, 2007 ~
Jul. 20, 2027
     
Dec. 16, 2013  
Fixed-to-fixed
cross currency swap
(U.S. dollar borrowing amounting to USD 5,690)
 Foreign currency risk  Deutsche bank Dec.16, 2013 ~ Apr. 29, 2022
     
Apr. 16, 2018
  
Fixed-to-fixed
cross currency swap
(U.S. dollar denominated bonds face
value of USD 500,000)
 Foreign currency risk  The Export-Import Bank of Korea and three other banks Apr. 16, 2018 ~ Apr. 16, 2023
     
Mar. 4, 2020  
Floating-to-fixed
cross-currency interest rate swap
(U.S. dollar-denominated bonds face value of USD 300,000)
 Foreign currency risk and Interest rate risk  Citibank 
Mar. 4, 2020 ~ Jun. 4, 2025
     
Aug. 13, 2018
  
Fixed-to-fixed
cross currency swap
(U.S. dollar denominated bonds face
value of USD 300,000)
 Foreign currency risk  Citibank Aug. 13, 2018 ~ Aug. 13, 2023
     
Dec. 21, 2017  
Floating-to-fixed
interest rate swap
(Korean won borrowing amounting to KRW 12,500)
 Interest rate risk  Korea Development Bank 
Dec. 21, 2017 ~ Dec. 21, 2022
     
Dec. 19, 2018  
Floating-to-fixed
interest rate swap
(Korean won borrowing amounting to KRW 25,000)
 Interest rate risk  Credit Agricole CIB 
Mar.19, 2019 ~ Dec.14, 2023
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
SK Broadband Co., Ltd., a subsidiary of the Parent Company, entered into Total Return Swap(TRS) contract amounting to
￦
270,000 million and
￦
64,000 million with beneficiary certificates as underlying asset with IGIS Professional Investment Type Private Real Estate Investment Trust No. 156 and Hana Professional Alternative Investment Type Private Real Estate Investment Trust No. 62, respectively. The contract
s
consist of the settlement of the difference resulting from the change in the value of the real estate on the maturity date of the contract and the settlement of the difference between the dividend and the standard dividend during the contract period. Each contract expires in November 2022 and September 2024, respectively. SK Broadband Co., Ltd. has an obligation to guarantee fixed rate of returns to the other party to each contract. SK Broadband Co., Ltd. recognized derivative financial assets of
￦
4,682 million and long-term derivative financial assets of
￦
2,306 million, respectively, for each TRS. Derivative financial assets and long-term derivative financial assets were measured using the discounted present value methods for estimated future cash flows.
 
(3)
In relation to the business acquisition by SK Broadband Co., Ltd. for the year ended December 31, 2020 the Parent Company has entered into a shareholders’ agreement with the shareholders of the acquirees. Pursuant to the agreement, when certain conditions are met within a period of time subsequent to the merger, the shareholders of the acquirees can exercise their drag-along rights and require the Parent Company to sell its shares in SK Broadband Co., Ltd. Should the shareholders exercise their drag-along rights, the Parent Company also can exercise its call options over the shares held by those shareholders. The Group recognized a derivative financial liability of
￦
321,025 
million (
￦
320,984 million as of December 31, 2020) for the rights prescribed in the shareholders’ agreement as of December 31, 2021.
The fair value of SK Broadband Co., Ltd.’s common stock was estimated using
5-year
projected cash flows discounted at 7.1% per annum. The fair value of the derivative financial liability was determined by using the Binomial Model based on various assumptions including the price of common stock and its price fluctuations. The significant unobservable inputs used in the fair value measurement and inter-relationship between significant unobservable inputs and fair value measurement are as below:
 
Significant unobservable inputs
  
Correlations between inputs
and fair value measurements
Fair value of SK Broadband Co., Ltd.’s common stock  The estimated fair value of derivative liabilities would decrease (increase) if the fair value of common stock would increase (decrease)
  
Volatility of stock price  The estimated fair value of derivative liabilities would decrease (increase) if the volatility of stock price increase (decrease)
 
(4)
The Group has entered into the agreement with Newberry Global Limited, whereby the Group has been granted subscription right and contingent subscription right to acquire Newberry series-C redeemable convertible preferred stock for the year ended December 31, 2020. The Group recognized derivative financial assets of
￦
15,477 million and
￦
9,524 million, respectively, for subscription right and contingent subscription right.
The fair value of Newberry series-C redeemable convertible preferred stock (“RCPS”) was estimated using the fair value of Newberry Global Limited’s common stock which was estimated by using market approach and its price fluctuations. The fair value of derivative financial asset was determined by using the Binomial Model based on various assumptions including the price of RCPS and its price fluctuations. Meanwhile, if the fair value of RCPS, significant unobservable input used in the fair value measurement, increases (decreases), the estimated fair value of derivative asset would increases (decreases). If the volatility of stock price, significant unobservable input used in the fair value measurement, increases (decrease), the estimated fair value of derivative asset would increases (decreases).
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(5)
The fair value of derivative financial instruments to which the Group applies cash flow hedge is recorded in the financial statements as derivative financial assets, long-term derivative financial assets, derivative financial liabilities and long-term derivative financial liabilities. As of December 31, 2021, details of fair values of the derivatives assets and liabilities are as follows:
 
(In millions of won and thousands of U.S. dollars)
 
Hedging instrument (Hedged item)
  
Cash flow hedge
  
Fair value
 
Current assets:
         
Fixed-to-fixed
cross currency swap (U.S. dollar borrowing amounting to USD 5,690)
  
￦

427   427 
Non-current
assets:
         
Fixed-to-fixed
cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)
  
￦

74,555   74,555 
Fixed-to-fixed
cross currency swap (U.S. dollar denominated bonds face value of USD 500,000)
   75,069   75,069 
Fixed-to-fixed
cross currency swap (U.S dollar denominated bonds face value of USD 300,000)
   30,150   30,150 
Floating-to-fixed cross currency interest rate swap (U.S dollar denominated bonds face value of USD 300,000)
   2,460   2,460 
   
 
 
  
 
 
 
   
￦

182,661   182,661 
   
 
 
  
 
 
 
Current liabilities:
         
Floating-to-fixed
interest rate swap (Korean won borrowing amounting to KRW 25,000)
  
￦

(52)   (52) 
Non-current
liabilities:
         
Floating-to-fixed
interest rate swap (Korean won borrowing amounting to KRW 12,500)
  
￦

(59)   (59) 
   
 
 
  
 
 
 
   
￦

(111)   (111) 
   
 
 
  
 
 
 
 
(6)
The fair value of derivatives held for trading is recorded in the financial statements as derivative financial assets, long-term derivative financial assets and long-term derivative financial liabilities. As of December 31, 2021, details of fair values of the derivative assets and liabilities are as follows:
 
(In millions of won)
 
 
  
Held for trading
   
Fair value
 
Current assets:
          
Contingent subscription right
  
￦

9,524    9,524 
Subscription right
   15,477    15,477 
Total return swap
   4,682    4,682 
Non-current
assets:
          
Total return swap
  
￦

5,250    5,250 
   
 
 
   
 
 
 
   
￦

34,933    34,933 
   
 
 
   
 
 
 
Non-current
liabilities:
          
Share option
  
￦

(321,025)    (321,025) 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
23.
Share Capital and Capital Surplus and Others
 
(1)
Details of share capital as of December 31, 2021 and 2020 are as follows:
 
(In millions of won, except for share data)
 
   
December 31, 2021
   
December 31, 2020
 
Number of authorized shares(*1)
   670,000,000    220,000,000 
Par value (in won)(*1)
   100    500 
Number of issued shares
   218,833,144    80,745,711 
Share capital:
          
Common share(*2)
  
￦

30,493    44,639 
 
 
(*1)
As a result of stock split and 
spin-off,
the number of shares that the Parent Company is allowed to be issue under article of incorporation has changed from 220,000,000 shares with a par value of
￦
500 to 670,000,000 shares with a par value of
￦
100.
 
(*2)
The Parent Company’s share capital decreased by
￦
14,146 million as a result of 
spin-off
for the year ended December 31, 2021. In addition, the Parent Company retired 8,685,568 treasury shares with reduction of its retained earnings before appropriation, as a result, the Parent Company’s issued shares have decreased without change in share capital for the year ended December 31, 2021. Meanwhile, in 2002 and 2003, the Parent Company retired treasury shares with reduction of its retained earnings before appropriation. As a result, the Parent Company’s issued shares have decreased without change in share capital.
 
(2)
Changes in issued shares for the years ended December 31, 2021 and 2020 are as follows:
 
(In shares)
       
   
2021
  
2020
 
Issued shares at January 1
   80,745,711   80,745,711 
Retirement of treasury shares(*1)
   (8,685,568)   —     
Stock split(*2)
   288,240,572   —     
Spin-off(*3)
   (141,467,571)   —     
   
 
 
  
 
 
 
Issued shares at December 31
   218,833,144   80,745,711 
   
 
 
  
 
 
 
 
 
(*1)
The Parent Company retired 8,685,568 treasury shares with reduction of its retained earnings before appropriation.
 
(*2)
The stock split of the Parent Company’s common share was approved at the shareholders’ meeting held on October 12, 2021. The stock split was effective from October 28, 2021. The par value of issued shares has changed from
 
￦
500 to
￦
100.
 
(*3)
The allocation of new shares to shareholders of the
spin-off
company is based on the number of shares at par value of
￦
100 held by the shareholders of the Parent Company after the stock split and is allocated at the rate of the table below per common share of the Parent Company.
 
   
Surviving Company
   
Spin-off Company
 
Company name  SK Telecom Co., Ltd.   SK Square Co., Ltd. 
Common shares (in shares)
   0.6073625    0.3926375 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)
Details of shares outstanding as of December 31, 2021 and 2020 are as follows:
 
(In shares)
  
2021
   
2020
 
   
Issued

shares
   
Treasury
shares
   
Outstanding
shares
   
Issued
shares
   
Treasury
shares
   
Outstanding
shares
 
Shares outstanding
   218,833,144    1,250,992    217,582,152    80,745,711    9,418,558    71,327,153 
 
(4)
Details of capital surplus and others as of December 31, 2021 and 2020 are as follows:  

 
(In millions of won)
       
   
December 31, 2021
  
December 31, 2020
 
Paid-in
surplus
  
￦

1,771,000   2,915,887 
Treasury shares(Note 24)
   (57,314)   (2,123,661) 
Hybrid bonds(Note 25)
   398,759   398,759 
Share option(Note 26)
   47,166   1,481 
Others(*)
   (13,783,337)   (515,263) 
   
 
 
  
 
 
 
   
￦

(11,623,726)   677,203 
   
 
 
  
 
 
 
 
(*) The amount for 2021 primarily consists of a change in equity amounting to
￦
13,340,037 million due to the spin-off that was accounted for as a transaction under common control (see note 41).

 
24.
Treasury Shares
 
(1)
Treasury shares as of December 31, 2021 and 2020 are as follows:
 
(In millions of won, except for share data)
        
   
December 31,
2021
   
December 31,
2020
 
Number of shares
   1,250,992    9,418,558 
Acquisition cost
  
￦

57,314    2,123,661 
 
(2)
Changes in treasury shares for the years ended December 31, 2021 and 2020 are as follows:
 
(In shares)
       
   
2021
  
2020
 
Treasury shares at January 1
   9,418,558   7,609,263 
Acquisition(*1)
   288,000   1,809,295 
Disposal(*2)
   (626,740)   — 
Retirement of treasury shares(*3)
   (8,685,568)   — 
Stock split(*4)
   1,577,000   — 
Spin-off(*5)
   (719,955)   — 
Disposal(*6)
   (303)   — 
   
 
 
  
 
 
 
Treasury shares at December 31
   1,250,992   9,418,558 
   
 
 
  
 
 
 
 
 
(*1)
The Parent Company acquired 288,000 of its treasury shares for
￦
72,982 million and 1,809,295 of its treasury shares for
￦
426,664 million in an effort to increase shareholder value by stabilizing its stock price for the years ended December 31, 2021 and 2020, respectively.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(*2)
The Parent Company distributed 626,240 treasury shares (acquisition cost:
￦
141,342 million) as bonus payment to the employees and congratulatory bonus payment for the 
spin-off,
resulting in gain on disposal of treasury shares of
￦
2,659 million and loss on disposal of treasury shares of
￦
114,359 million, respectively. In addition, the Parent Company distributed 500 treasury shares (acquisition cost:
￦
113 million) as compensation to the
non-executive
directors, resulting in gain on disposal of treasury shares of
￦
48 million for the year ended December 31, 2021.
 
(*3)
The Parent Company retired 8,685,568 treasury shares with reduction of its retained earnings before appropriation, as a result, the
P
a
rent
Company’s issued shares have decreased without change in share capital for the year ended December 31, 2021.
 
(*4)
The stock split of the Parent Company’s common stock was approved at the shareholders’ meeting held on October 12, 2021, to increase the number of its outstanding shares, effective from October 28, 2021.
 
(*5)
773,987
 
treasury shares, some of treasury shares held by the Parent Company, have been replaced common shares of SK Square Co., Ltd.,
spin-off
company, due to
spin-off.
Meanwhile. the Parent Company acquired 54,032 of its treasury shares (acquisition cost:
￦
3,129 million) for the purpose of handling single shares after stock split and
spin-off.
 
(*6)
The Parent Company distributed 303 treasury shares (acquisition cost:
￦
14 million) as congratulatory bonus payment of
spin-off
to the employee, resulting in loss on disposal of treasury shares of
￦
14 million for the year ended December 31, 2021.
 
25.
Hybrid Bonds
Hybrid bonds classified as equity as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
 
   
Type
  
Issuance date
  
Maturity(*1)
  
Annual
interest
rate(%)(*2)
   
December 31,
2021
  
December 31,
2020
 
Series
2-1
hybrid bonds
  Unsecured subordinated bearer bond  June 7, 2018  June 7, 2078   3.70   
￦
300,000   300,000 
Series
2-2
hybrid bonds
  Unsecured subordinated bearer bond  June 7, 2018  June 7, 2078   3.65    100,000   100,000 
Issuance costs
                 (1,241)   (1,241) 
                 
 
 
  
 
 
 
                 
￦
398,759   398,759 
                 
 
 
  
 
 
 
As there is no contractual obligation to deliver financial assets to the holders of hybrid bonds, the Group classified the hybrid bonds as equity.
These are subordinated bonds which rank before common shares in the event of a liquidation or reorganization of the Parent Company.
 
(*1)
The Parent Company has a right to extend the maturity without any notice or announcement.
 
(*2)
Annual interest rate is determined as yield rate of
5-year
national bond plus premium. According to the
step-up
clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
26.
Share based payment arrangement
 
(1)
The terms and conditions related to the grants of the share based payment arrangement are as follows:
1)     Equity-settled share-based payment arrangement
 
  
Parent Company
  
1-1
 
1-2
 
1-3
 
2
 
3
 
4
 
5(*2)
 
6(*2)
Grant date
 March 24, 2017 February 20,
2018		 February 22,
2019		 March 26,
2019
 March 26, 2020 March 25, 2021
Types of shares to be issued
 Registered common shares
Grant method
 Reissue of treasury shares, cash settlement
Number of shares (in shares)(*1)
 67,320 67,320 67,320 4,124 12,685 5,266 381,937 94,657
Exercise price (in won)(*1)
 49,350 53,298 57,562 50,824 53,052 50,862 38,452 50,276
Exercise period
 Mar. 25, 2019 ~
Mar. 24, 2022
 Mar. 25, 2020 ~
Mar. 24, 2023
 Mar. 25, 2021 ~
Mar. 24, 2024
 Feb. 21, 2020 ~
Feb. 20, 2023
 Feb. 23, 2021 ~
Feb. 22, 2024
 Mar. 27, 2021 ~
Mar. 26, 2024
 Mar. 27, 2023 ~
Mar. 26, 2027
 Mar. 26, 2023 ~
Mar. 25, 2026
Vesting conditions
 2 years’
service from
the grant date
 3 years’
service from the
grant date
 4 years’ service
from the grant
date		 2 years’
service from
the grant date
 2 years’
service from
the grant date
 2 years’
service from
the grant date
 3 years’
service from
the grant date
 2 years’
service from
the grant date
2)     Cash-settled share-based payment arrangement
 
   
Share appreciation rights of

SK Telecom Co., Ltd.(*3)
   
Share appreciation rights of

SK Square Co., Ltd.(*3)
 
Grant date
   January 1, 2021 
Grant method
   Cash settlement 
Number of shares
(in shares)(*1)
   224,692    145,247 
Exercise price (in won)(*1)
   50,276 
Exercise period
   Jan. 1, 2023 ~ Mar. 28, 2024 
Vesting conditions
   2 years’ service from the grant date 
 
(*1)
Number of shares granted and exercise price are adjusted as a result of stock split and 
spin-off
for the year ended December 31, 2021.
 
(*2)
Parts of the grant that have not met the vesting conditions have been forfeited for the year ended December 31, 2021.
 
(*3)
The Parent Company newly established the long-term incentive policy as part of the compensation related to the growth of corporate value on the beginning of the year, and granted cash settled share appreciation rights to executives.
As a result of 
spin-off
for the year ended December 31, 2021, there are no share options granted by subsidiaries of the Parent Company as of December 31, 2021.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
Share compensation expense recognized for the year ended December 31, 2021 and the remaining share compensation expense to be recognized in subsequent periods are as follows:
 
(In millions of won)
  
Share
compensation expense
 
As of December 31, 2020
  
￦

7,589 
For the year ended December 31, 2021(*)
   87,622 
In subsequent periods
   75,318 
   
 
 
 
   
￦

170,529 
   
 
 
 
A
s of December 31, 2021, the carrying amount of debt recognized by the Group in relation to the cash-settled share-based payment arrangement is
￦
1,774 million.
 
 
(*)
Includes amounts related to discontinued operations.
 
(3)
The Parent Company used binomial option pricing model in the measurement of the fair value of the share options at grant date and the inputs used in the model are as follows:
1)     Equity-settled share-based payment arrangement
 
(In won)
  
Parent Company
 
   
1-1
  
1-2
  
1-3
  
2
  
3
  
4
  
5
  
6
 
Risk-free interest rate
   1.86%   1.95%   2.07%   2.63%   1.91%   1.78%   1.52%   1.55% 
Estimated option’s life
   5 years   6 years   7 years   5 years   5 years   5 years   7 years   5 years 
Share price (Closing price on the preceding day)(*)
   52,500   52,500   52,500   48,700   51,800   50,600   34,900   49,800 
Expected volatility
   13.38%   13.38%   13.38%   16.45%   8.30%   7.70%   8.10%   25.70% 
Expected dividends
   3.80%   3.80%   3.80%   3.70%   3.80%   3.90%   5.70%   4.00% 
Exercise price(*)
   49,350   53,298   57,562   50,824   53,052   50,862   38,452   50,276 
Per-share
fair value of the option(*)
   5,403   4,048   3,096   4,798   1,720   1,622   192   8,142 
2)    Cash-settled share-based payment arrangement
 
(In won)
       
   
Share appreciation rights of

SK Telecom Co., Ltd.
  
Share appreciation rights of

SK Square Co., Ltd.
 
Risk-free interest rate
   1.71%   1.71% 
Estimated option’s life
   3.25 years   3.25 years 
Share price on the remeasurement date
   57,900   66,400 
Expected volatility
   26.00%   26.00% 
Expected dividends
   3.40%   0.00% 
Exercise price(*)
   50,276   50,276 
Per-share
fair value of the option
   10,646   20,321 
 
(*)
Share price (closing price on the preceding day), exercise price and
per-share
fair value of the option are adjusted as a result of stock split and
spin-off
for the year ended December 31, 2021.
Meanwhile, the Board of Directors of the Parent Company resolved to dispose its treasury shares for the purpose of allotment of shares as bonus payment on October 12, 2021. The transaction is equity-settled share-based
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
payment transactions in accordance with IFRS 2 and 505,350 shares (before stock split) were granted on October 12, 2021(grant date). 7,700 shares (before stock split) out of 505,350 shares (before stock split) were transferred to
spin-off
company on November 1, 2021. Vesting conditions are 6 months from the grant date and
per-share
fair value on the grant date are measured at
￦
300,500 that is closing price of common shares on the grant date before stock split and
spin-off.
The fair value of these share-based payment on the grant date is
￦
151,858 million, among which the awards with a fair value of
￦
9,935 million were transferred to
spin-off
company.
 
27.
Retained Earnings
 
(1)
Retained earnings as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
December 31, 2021
   
December 31, 2020
 
Appropriated:
          
Legal reserve
  
￦

22,320       22,320  
Reserve for business expansion
   11,631,138    11,631,138 
Reserve for technology development
   4,365,300    4,365,300 
   
 
 
   
 
 
 
    15,996,438    15,996,438 
Unappropriated
   6,418,583    6,963,155 
   
 
 
   
 
 
 
   
￦

22,437,341    22,981,913 
   
 
 
   
 
 
 
 
(2)
Legal reserve
The Korean Commercial Act requires the Parent Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. The legal reserve may not be utilized for cash dividends, but may only be used to offset a future deficit, if any, or may be transferred to share capital.
 
28.
Reserves
 
(1)
Details of reserves, net of taxes, as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
December 31, 2021
   
December 31, 2020
 
Valuation gain on FVOCI
  
￦

633,240         438,979 
Other comprehensive gain (loss) of investments in associates and joint ventures
   53,770    (392,333) 
Valuation gain on derivatives
   33,918    17,615 
Foreign currency translation differences for foreign operations
   14,310    (24,122) 
   
 
 
   
 
 
 
   
￦

     735,238    40,139 
   
 
 
   
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
Changes in reserves for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
   
  
Valuation gain
(loss) on
financial assets
at FVOCI
  
Other
comprehensive
income(loss) of
investments in
associates and
joint ventures
  
Valuation gain
(loss) on
derivatives
  
Foreign currency
translation
differences for
foreign
operations
  
Total
 
Balance at January 1, 2020
 
￦

(47,086)   (278,142)   (920)   (3,428)   (329,576) 
Changes, net of taxes
  486,065   (114,191)   18,535   (20,694)   369,715 
Balance at December 31, 2020
 
￦

438,979   (392,333)   17,615   (24,122)   40,139 
Changes, net of taxes
  194,261   446,103   16,303   38,432   695,099 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2021
 
￦

633,240   53,770   33,918   14,310   735,238 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(3)
Changes in valuation gain (loss) on financial assets at FVOCI for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
       
   
2021
  
2020
 
Balance at January 1
  
￦

438,979   (47,086) 
Amount recognized as other comprehensive income for the year, net of taxes
   627,833   486,440 
Amount reclassified to retained earnings, net of taxes
   (12,429)   (375) 
Changes from
spin-off,
net of taxes
   (421,143)   — 
   
 
 
  
 
 
 
Balance at December 31
  
￦

633,240   438,979 
   
 
 
  
 
 
 
 
(4)
Changes in valuation gain (loss) on derivatives for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
       
   
2021
  
2020
 
Balance at January 1
  
￦

  17,615   (920) 
Amount recognized as other comprehensive income for the year, net of taxes
        9,731      15,414 
Amount reclassified to profit, net of taxes
   6,572   3,121 
   
 
 
  
 
 
 
Balance at December 31
  
￦

33,918   17,615 
   
 
 
  
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
29.
Other Operating Income and Expenses
Details of other operating income and
expenses for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
           
  
2021
   
2020
   
2019
 
Other Operating Income:
              
Gain on disposal of property and equipment and intangible assets
 
￦

39,136    34,625    7,755 
Others(*)
  76,627    61,126    87,828 
  
 
 
   
 
 
   
 
 
 
  
￦

115,763    95,751    95,583 
  
 
 
   
 
 
   
 
 
 
Other Operating Expenses:
              
Communication
 
￦

32,462    34,462    32,986 
Utilities
  350,678    336,187    315,129 
Taxes and dues
  33,935    34,577    38,688 
Repair
  425,606    399,376    368,620 
Research and development
  347,711    353,198    324,052 
Training
  31,761    33,384    32,581 
Bad debt for accounts receivable — trade
  29,402    45,002    25,376 
Travel
  7,813    7,534    20,717 
Supplies and other
  101,656    105,333    104,943 
Loss on disposal of property and equipment and intangible assets
  28,158    25,633    23,821 
Impairment loss on property and equipment and intangible assets
  3,135    200,705    42,823 
Donations
  12,800    16,051    16,782 
Bad debt for accounts receivable — other
  3,995    6,640    3,594 
Others(*)
  22,475    60,280    60,176 
  
 
 
   
 
 
   
 
 
 
  
￦

1,431,587    1,658,362    1,410,288 
  
 
 
   
 
 
   
 
 
 
 
 
(*)
See note 4 (2).

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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
30.
Finance Income and Costs
 
(1)
Details of finance income and costs for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
 
(In millions of won)
 
 
 
  
 
 
  
 
 
 
 
2021
 
  
2020
 
  
2019
 
Finance Income:
 
   
  
   
  
   
Interest income
 
￦

36,708    37,030    48,605 
Gain on sale of accounts receivable — other
  27,725    22,605    15,855 
Dividends
  12,039    1,170    10,011 
Gain on foreign currency transactions
  10,987    9,029    8,836 
Gain on foreign currency translations
  7,505    7,888    4,064 
Gain relating to financial instruments at FVTPL
  60,169    62,963    34,321 
  
 
 
   
 
 
   
 
 
 
  
￦

155,133    140,685    121,692 
  
 
 
   
 
 
   
 
 
 
Finance Costs:
              
Interest expense
 
￦

279,737    288,972    306,665 
Loss on sale of accounts receivable — other
  —    —    5,823 
Loss on foreign currency transactions
  12,270    11,053    10,038 
Loss on foreign currency translations
  6,764    8,973    4,242 
Loss on disposal of long-term investment securities
  —    98    — 
Loss relating to financial instruments at FVTPL
  16,833    13,847    8,144 
  
 
 
   
 
 
   
 
 
 
  
￦

   315,604       322,943      334,912 
  
 
 
   
 
 
   
 
 
 
 
(2)
Details of interest income included in finance income for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
 
2021
 
  
2020
 
  
2019
 
Interest income on cash equivalents and financial instruments(*)
 
￦

16,141      24,378      29,854 
Interest income on loans and others(*)
  27,709    25,979    33,725 
  
 
 
   
 
 
   
 
 
 
  
￦

     43,850         50,357         63,579 
  
 
 
   
 
 
   
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
(3)
Details of interest expenses included in finance costs for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
 
2021
 
  
2020
 
  
2019
 
Interest expense on borrowings(*)
 
￦
66,188    116,397    104,991 
Interest expense on debentures(*)
  224,144    225,309    224,765 
Others(*)
  52,010    57,470    76,331 
  
 
 
   
 
 
   
 
 
 
  
￦

  342,342       399,176       406,087 
  
 
 
   
 
 
   
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
(4)
Finance income and costs by category of financial instruments for the years ended December 31, 2021, 2020 and 2019 are as follows. Bad debt expense (reversal of loss allowance) for accounts receivable — trade, loans and receivables are presented and explained separately in notes 6 and 3
5
.
1)     Finance income and costs
 
(In millions of won)
    
   
2021
 
   
Finance income(*)
   
Finance costs(*)
 
Financial Assets:
  
 
                        
 
  
 
                        
 
Financial assets at FVTPL
  
￦

149,590    67,503 
Financial assets at FVOCI
   3,413    142,015 
Financial assets at amortized cost
   48,940    12,262 
Derivatives designated as hedging instrument
   —    600 
   
 
 
   
 
 
 
    201,943    222,380 
   
 
 
   
 
 
 
Financial Liabilities:
          
Financial liabilities at FVTPL
   —    8,036 
Financial liabilities at amortized cost
   607    355,011 
   
 
 
   
 
 
 
    607    363,047 
   
 
 
   
 
 
 
   
￦

202,550    585,427 
   
 
 
   
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
(In millions of won)
 
   
2020
 
   
Finance income(*1)
   
Finance costs(*1)
 
Financial Assets:
  
 
                        
 
  
 
                        
 
Financial assets at FVTPL(*2)
  
￦

180,254    10,894 
Financial assets at FVOCI
   993    44,832 
Financial assets at amortized cost(*2)
   46,135    24,601 
Derivatives designated as hedging instrument
   —    1,867 
   
 
 
   
 
 
 
    227,382    82,194 
   
 
 
   
 
 
 
Financial Liabilities:
          
Financial liabilities at FVTPL
   —    12,115 
Financial liabilities at amortized cost
   6,434    400,678 
Derivatives designated as hedging instrument
   7,380    2,206 
   
 
 
   
 
 
 
    13,814    414,999 
   
 
 
   
 
 
 
   
￦

241,196    497,193 
   
 
 
   
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(*2)
The Group reclassified the category of financial assets measured at amortized cost. Accordingly, the category of financial income arising on reclassification of a financial asset is reclassified.
 
(In millions of won)
  
 
 
 
  
2019
 
 
  
Finance income(*1)
 
  
Finance costs(*1)
 
Financial Assets:
  
 
                        
 
  
 
                        
 
Financial assets at FVTPL(*2)
  
￦

79,529    13,577 
Financial assets at FVOCI
   9,924    — 
Financial assets at amortized cost(*2)
   52,543    17,488 
   
 
 
   
 
 
 
    141,996    31,065 
   
 
 
   
 
 
 
Financial Liabilities:
          
Financial liabilities at FVTPL
   56    43 
Financial liabilities at amortized cost
   103    406,206 
Derivatives designated as hedging instrument
   —    641 
   
 
 
   
 
 
 
    159    406,890 
   
 
 
   
 
 
 
   
￦

142,155    437,955 
   
 
 
   
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The Group reclassified the category of financial assets measured at amortized cost. Accordingly, the category of financial income arising on reclassification of a financial asset is reclassified.
2)     Other comprehensive income (loss)
 
(In millions of won)
          
   
2021
  
2020
  
2019
 
Financial Assets:
             
Financial assets at FVOCI
  
￦

920,871   579,678   (17,943) 
Derivatives designated as hedging instrument
   15,427   24,320   41,305 
   
 
 
  
 
 
  
 
 
 
    936,298   603,998   23,362 
   
 
 
  
 
 
  
 
 
 
Financial Liabilities:
             
Derivatives designated as hedging instrument
   706   (5,182)   (624) 
   
 
 
  
 
 
  
 
 
 
   
￦

 937,004     598,816     22,738 
   
 
 
  
 
 
  
 
 
 
 
(5)
Details of impairment losses for financial assets for th
e
 years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
          
   
2021
  
2020
  
2019
 
Accounts receivable — trade(*)
  
￦

31,546      48,625    28,841 
Other receivables(*)
   6,001   10,559   5,802 
   
 
 
  
 
 
  
 
 
 
   
￦

   37,547    59,184     34,643  
   
 
 
  
 
 
  
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
31.
Income Tax Expense
 
(1)
Income tax expenses for the years ended December 31, 2021, 2020 and 2019 consist of the following:
 
(In millions of won)
          
   
2021
  
2020
  
2019
 
Current tax expense:
             
Current year
  
￦

319,539    286,717    105,859 
Current tax of prior years(*)
   705   14,536   (6,855) 
   
 
 
  
 
 
  
 
 
 
    320,244   301,253   99,004 
   
 
 
  
 
 
  
 
 
 
Deferred tax expense:
             
Changes in net deferred tax assets
   331,704   75,249   201,264 
   
 
 
  
 
 
  
 
 
 
Income tax expense
             
Tax expense of continuing operation
   446,796   221,262   262,940 
Tax expense of discontinued operation
   205,152   155,240   37,328 
   
 
 
  
 
 
  
 
 
 
   
￦

 651,948    376,502   300,268 
   
 
 
  
 
 
  
 
 
 
 
(*)
Current tax of prior years are mainly composed of the income tax refund due to a change in the interpretation of the tax authority in relation to the income tax previously recognized by the Group.
 
(2)
The difference between income taxes computed using the statutory corporate income tax rates and the recorded income taxes for the years ended December 31, 2021, 2020 and 2019 is attributable to the following:
 
(In millions of won)
          
   
2021
  
2020
  
2019
 
Income taxes at statutory income tax rate
  
￦

834,146   505,824   308,913 
Non-taxable
income
   (13,924)   (41,084)   (92,666) 
Non-deductible
expenses
   15,329   31,882   14,630 
Tax credit and tax reduction
   (62,075)   (48,774)   (32,877) 
Changes in unrecognized deferred taxes
   (68,589)   (69,776)   83,940 
Changes in tax rate
   (36,193)   24,537   4,050 
Income tax refund and others
   (16,746)   (26,107)   14,278 
   
 
 
  
 
 
  
 
 
 
Income tax expense
  
￦

 651,948    376,502   300,268 
   
 
 
  
 
 
  
 
 
 
 
(3)
Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
          
   
2021
  
2020
  
2019
 
Valuation gain (loss) on financial assets measured at fair value
  
￦

(208,490)   (166,612)   2,983 
Share of other comprehensive income (loss) of associates and joint ventures
   (34)   (14)   2,279 
Valuation loss on derivatives
   (5,709)   (6,886)   (16,083) 
Remeasurement of defined benefit liabilities
   (3,780)   (164)   22,733 
Gain on disposal of treasury shares and others
   26,970   —   — 
   
 
 
  
 
 
  
 
 
 
   
￦

(191,043)   (173,676)     11,912 
   
 
 
  
 
 
  
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(4)
Details of the changes in deferred tax assets (liabilities) for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
 
  
2021
 
  
Beginning
  
Deferred tax
expense
(income)
  
Directly charged

to (credited

from) equity
  
Business

combinations
  
Spin-off
  
Ending
 
Deferred tax assets (liabilities) related to temporary differences:
                        
Loss allowance
 
￦

91,285   (8,397)   —   —   (5,531)   77,357 
Accrued interest income
  (1,631)   (2,022)   —   —   3,487   (166) 
Financial assets measured at fair value
  (81,055)   (6,765)   (208,490)   —   138,482   (157,828) 
Investments in subsidiaries, associates and joint ventures
  (1,673,906)   (281,035)   (34)   —   1,923,158   (31,817) 
Property and equipment and intangible assets
  (511,862)   (42,456)   —   (1,023)   249,374   (305,967) 
Provisions
  6,294   (1,436)   —   —   (660)   4,198 
Retirement benefit obligation
  102,285   (3,563)   (3,780)   —   (42,610)   52,332 
Valuation gain on derivatives
  14,767   210   (5,709)   —   (2,932)   6,336 
Gain or loss on foreign currency translation
  21,774   (396)   —   —   —   21,378 
Incremental costs to acquire a contract
  (807,831)   53,492   —   —   4,468   (749,871) 
Contract assets and liabilities
  (2,606)   405   —   —   —   (2,201) 
Right-of-use
assets
  (372,297)   (35,851)   —   —   18,646   (389,502) 
Lease liabilities
  362,476   38,600   —   —   (19,539)   381,537 
Others
  120,514   (95,537)   26,970   (135)   16,669   68,481 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
   (2,731,793)   (384,751)   (191,043)   (1,158)   2,283,012   (1,025,733) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards:
                        
Tax loss carryforwards
  88,223   7,915   —   —   (96,138)   — 
Tax credit
  39,583   45,132   —   —   (155)   84,560 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
   127,806   53,047   —   —   (96,293)   84,560 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

(2,603,987)   (331,704)   (191,043)   (1,158)   2,186,719   (941,173) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
   
  
2020
 
  
Beginning
  
Deferred tax
expense
(income)
  
Directly charged

to (credited

from) equity
  
Business

combinations
  
Ending
 
Deferred tax assets (liabilities) related to temporary differences:
                    
Loss allowance
 
￦

88,913   1,326   —   1,046   91,285 
Accrued interest income
  (2,039)   435   —   (27)   (1,631) 
Financial assets measured at fair value
  98,101   (17,586)   (166,612)   5,042   (81,055) 
Investments in subsidiaries, associates and joint ventures
  (1,613,048)   (60,844)   (14)   —   (1,673,906) 
Property and equipment and intangible assets
  (371,489)   (47,468)   —   (92,905)   (511,862) 
Provisions
  2,543   3,751   —   —   6,294 
Retirement benefit obligation
  100,194   1,873   (164)   382   102,285 
Valuation gain on derivatives
  17,507   4,146   (6,886)   —   14,767 
Gain or loss on foreign currency translation
  22,005   (231)   —   —   21,774 
Incremental costs to acquire a contract
  (829,055)   21,224   —   —   (807,831) 
Contract assets and liabilities
  (28,030)   25,424   —   —   (2,606) 
Right-of-use
assets
  (390,936)   18,639   —   —   (372,297) 
Lease liabilities
  385,394   (22,918)   —   —   362,476 
Others
  64,620   (30,310)   —   86,204   120,514 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
   (2,455,320)   (102,539)   (173,676)   (258)   (2,731,793) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards:
                    
Tax loss carryforwards
  91,136   (2,913)   —   —   88,223 
Tax credit
  9,380   30,203   —   —   39,583 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
   100,516   27,290   —   —   127,806 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

(2,354,804)   (75,249)   (173,676)   (258)   (2,603,987) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(5)
Details of temporary differences, unused tax loss carryforwards and unused tax credits carryforwards which are not recognized as deferred tax assets (liabilities), in the consolidated statements of financial position as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
       
   
December 31, 2021
  
December 31, 2020
 
Loss allowance
  
￦

85,998   102,085 
Investments in subsidiaries, associates and joint ventures
   (176,520)   8,365 
Other temporary differences
   61,368   68,415 
Unused tax loss carryforwards
   347,889   1,042,063 
Unused tax credit carryforwards
   34   1,037 
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(6)
The amount of unused tax loss carryforwards and unused tax credit carryforwards which are not recognized as deferred tax assets as of December 31, 2021 are expiring within the following periods:
 
(In millions of won)
        
   
Unused tax loss carryforwards
   
Unused tax credit carryforwards
 
Less than 1 year
  
￦

57,346    — 
1 ~ 2 years
   39,974    — 
2 ~ 3 years
   19,087    — 
More than 3 years
   231,482    34 
   
 
 
   
 
 
 
   
￦

347,889            34 
   
 
 
   
 
 
 
 
32.
Earnings per Share
(1)    Basic earnings per share
 
1)
Basic earnings per share for the years ended December 31, 2021, 2020 and 2019 are calculated as follows:
 
(In millions of won, except for share data)
            
   
2021
   
2020
   
2019
 
Basic earnings per share attributable to owners of the Parent
Company:
               
Profit from continuing operation attributable to owners of the Parent Company
  
￦

1,217,520    648,579    544,099 
Interest on hybrid bonds
   (14,766)    (14,766)    (14,766) 
   
 
 
   
 
 
   
 
 
 
Profit from continuing operation attributable to owners of the Parent Company on common shares
   1,202,754    633,813    529,333 
Profit from discontinued operation attributable to owners of the Parent Company on common shares
   1,190,003    855,773    344,598 
Weighted average number of common shares outstanding
   332,761,592    363,977,155    360,320,795 
   
 
 
   
 
 
   
 
 
 
Basic earnings per share (in won)
               
Continuing operation
   ￦3,614    1,741    1,469 
   
 
 
   
 
 
   
 
 
 
Discontinued operation
   3,576    2,352    956 
   
 
 
   
 
 
   
 
 
 
 
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
2)
The weighted average number of common shares outstanding for the years ended December 31, 2021, 2020 and 2019 are calculated as follows:
 
(In shares)
       
   
2021
 
   
Number of common shares
  
Weighted average number

of common shares
 
Issued shares at January 1, 2021
   403,728,555   403,728,555 
Treasury shares at January 1, 2021
   (47,092,790)   (47,092,790) 
Acquisition of treasury shares
   (1,494,032)   (1,383,241) 
Disposal of treasury shares
   3,134,003   1,022,242 
Spin-off
   (140,693,584)   (23,513,174) 
   
 
 
  
 
 
 
    217,582,152   332,761,592 
   
 
 
  
 
 
 
 
(In shares)
       
   
2020
 
   
Number of common shares
  
Weighted average number

of common shares
 
Issued shares at January 1, 2020
   403,728,555   403,728,555 
Treasury shares at January 1, 2020
   (38,046,315)   (38,046,315) 
Acquisition of treasury shares
   (9,046,475)   (1,705,085) 
   
 
 
  
 
 
 
    356,635,765   363,977,155 
   
 
 
  
 
 
 
 
(In shares)
       
   
2019
 
   
Number of common shares
  
Weighted average number

of common shares
 
Issued shares at January 1, 2019
   403,728,555   403,728,555 
Treasury shares at January 1, 2019
   (44,379,415)   (44,379,415) 
Disposal of treasury shares
   6,333,100   971,655 
   
 
 
  
 
 
 
    365,682,240   360,320,795 
   
 
 
  
 
 
 
Weighted average number of common shares for comparative period has been retrospectively adjusted to reflect the effect of the stock split (see note 23 (2)).
(2)    Diluted earnings per share
 
1)
Diluted earnings per share for the years ended December 31, 2021 and 2020 are calculated as follows:
 
(In millions of won, except for share data)
       
   
2021
  
2020
 
Profit from continuing operation attributable to owners of the Parent Company on common shares
  
￦

1,202,754   633,813 
Profit from discontinued operation attributable to owners of the Parent Company on common shares
   1,190,003       855,773  
   
 
 
  
 
 
 
Adjusted weighted average number of common shares outstanding
     332,917,848    364,041,895  
   
 
 
  
 
 
 
Diluted earnings per share (in won)
         
Continuing operation
  
￦

3,613   1,741 
Discontinued operation
   3,574   2,351 
   
 
 
  
 
 
 
 
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SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
2)
The adjusted weighted average number of common shares outstanding for the years ended December 31, 2021 and 2020 are calculated as follows:
 
(In shares)
       
   
2021
  
2020
 
Outstanding shares at January 1
    356,635,765    365,682,240 
Effect of treasury shares
   (360,999)   (1,705,085) 
Effect of
Spin-off
   (23,513,174)   — 
Effect of share option
          156,256   64,740 
   
 
 
  
 
 
 
Adjusted weighted average number of common shares outstanding
   332,917,848   364,041,895 
For the year ended December 31, 2019, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.
 
33.
Dividends
(1)    Details of dividends declared
Details of dividend declared for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won, except for face value and share data)
 
Year
  
Dividend type
  
Number of
shares
outstanding
   
Face value
(in won)
   
Dividend
ratio
  
Dividends
 
2021  Cash dividends (Interim)   217,616,645    100    1,635%  
￦

355,804 
   Cash dividends
(Year-end)
   217,582,152    100    1,660%   361,186 
                    
 
 
 
                    
￦

716,990 
                    
 
 
 
2020  Cash dividends (Interim)   73,136,448    500    200%  
￦

73,136 
   Cash dividends
(Year-end)
   71,327,153    500    1,800%   641,944 
                    
 
 
 
                    
￦

715,080 
                    
 
 
 
2019  Cash dividends (Interim)   71,869,828    500    200%  
￦

71,870 
   Cash dividends
(Year-end)
   73,136,448    500    1,800%   658,228 
                    
 
 
 
                    
￦

730,098 
                    
 
 
 
(2)    Dividends yield ratio
Dividends yield ratios for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In won)
Year
  
Dividend type
  
Dividend per share
   
Closing price at
year-end
   
Dividend yield ratio
2021
  Cash dividends   3,295    57,900   5.69%
2020
  Cash dividends   10,000    238,000   4.20%
2019
  Cash dividends   10,000    238,000   4.20%
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
34.
Categories of Financial Instruments
 
(1)
Financial assets by category as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
                        
   
December 31, 2021
 
   
Financial
assets at
FVTPL
   
Equity
instruments
at FVOCI
   
Debt
instruments
at FVOCI
   
Financial
assets at
amortized
cost
   
Derivatives
hedging
instrument
   
Total
 
Cash and cash equivalents
  
￦

505,578    —    —    367,153    —    872,731 
Financial instruments
   389,368    —    —    119,684    —    509,052 
Short-term investment securities
   5,010    —    —    —    —    5,010 
Long-term investment securities(*)
   203,473    1,510,428    1,177    —    —    1,715,078 
Accounts receivable — trade
   —    —    —    1,921,617    —    1,921,617 
Loans and other receivables
   459,959    —    —    735,958    —    1,195,917 
Derivative financial assets
   34,933    —    —    —    182,661    217,594 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
￦

1,598,321    1,510,428    1,177    3,144,412    182,661    6,436,999 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(*)
The Group designated
￦
1,510,428 million of equity instruments that are not held for trading as financial assets at FVOCI.
 
(In millions of won)
                        
   
December 31, 2020
 
   
Financial
assets at
FVTPL
   
Equity
instruments
at FVOCI
   
Debt
instruments
at FVOCI
   
Financial
assets at
amortized
cost
   
Derivatives
hedging
instrument
   
Total
 
Cash and cash equivalents(*1)
  
￦

539,372    —    —    830,281    —    1,369,653 
Financial instruments(*1)
   1,122,251    —    —    305,594    —    1,427,845 
Short-term investment securities
   150,392    —    —    —    —    150,392 
Long-term investment securities(*2)
   193,396    1,454,361    1,080    —    —    1,648,837 
Accounts receivable — trade
   —    —    —    2,214,353    —    2,214,353 
Loans and other receivables
   517,175    —    —    1,220,828    —    1,738,003 
Derivative financial assets
   99,559    —    —    —    65,136    164,695 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
￦

2,622,145    1,454,361    1,080    4,571,056    65,136    8,713,778 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(*1)
Some of the financial assets measured at amortized cost were reclassified to financial assets measured at FVTPL.
(*2)
The Group designated
￦
1,454,361 million of equity instruments that are not held for trading as financial assets at FVOCI.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
Financial liabilities by category as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
                
   
December 31, 2021
 
   
Financial
liabilities at
FVTPL
   
Financial
liabilities at
amortized
cost
   
Derivatives
hedging
instrument
   
Total
 
Accounts payable — trade
  
￦

—    190,559    —    190,559 
Derivative financial liabilities
   321,025    —    111    321,136 
Borrowings
   —    407,185    —    407,185 
Debentures
   —    8,426,683    —    8,426,683 
Lease liabilities(*)
   —    1,534,282    —    1,534,282 
Accounts payable — other and others
   —    5,524,692    —    5,524,692 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
￦

321,025    16,083,401    111    16,404,537 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(In millions of won)
                
   
December 31, 2020
 
   
Financial
liabilities at
FVTPL
   
Financial
liabilities at
amortized
cost
   
Derivatives
hedging
instrument
   
Total
 
Accounts payable — trade
  
￦

—    372,909    —    372,909 
Derivative financial liabilities
   333,099    —    42,061    375,160 
Borrowings
   —    2,138,922    —    2,138,922 
Debentures
   —    8,579,743    —    8,579,743 
Lease liabilities(*)
   —    1,436,777    —    1,436,777 
Accounts payable — other and others
   —    6,051,550    —    6,051,550 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
￦

333,099    18,579,901    42,061    18,955,061 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(*)
Lease liabilities are not applicable on category of financial liabilities, but are classified as financial liabilities measured at amortized cost on consideration of nature for measurement of liabilities.
 
35.
Financial Risk Management
(1) Financial risk management
The Group is exposed to market risk, credit risk and liquidity risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates and interest rates. The Group implements a risk management system to monitor and manage these specific risks.
The Group’s financial assets consist of cash and cash equivalents, financial instruments, investment securities, accounts receivable — trade and other, etc. Financial liabilities consist of accounts payable — trade and other, borrowings, debentures, lease liabilities and others.
 
1)
Market risk
(i)    Currency risk
The Group incurs exchange position due to revenue and expenses from its global operations. Major foreign currencies where the currency risk occur are USD, EUR and JPY. The Group determines the currency risk management policy after considering the nature of business and the presence of methods that mitigate the currency risk for each Group entities. Currency risk occurs on forecasted transactions and recognized assets and liabilities which are denominated in a currency other than the functional currency of each Group entity. The Group manages currency risk arising from business transactions by using currency forwards, etc.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Monetary assets and liabilities denominated in foreign currencies as of December 31, 2021 are as follows:
 
(In millions of won, thousands of foreign currencies)
 
   
Assets
   
Liabilities
 
   
Foreign

currencies
   
Won
equivalent
   
Foreign

currencies
   
Won
equivalent
 
USD
   52,331   
￦

62,038    1,527,169   
￦

1,810,459 
EUR
   59    80    —    — 
JPY
   —    —    87,837    905 
Others
   —    172    —    145 
        
 
 
        
 
 
 
        
￦

62,290        
￦

1,811,509 
        
 
 
        
 
 
 
In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (See note 22)
As of December 31, 2021, a hypothetical change in exchange rates by 10% would have increased (decreased) the Group’s income before income tax as follows:
 
(In millions of won)
       
   
If increased by 10%
  
If decreased by 10%
 
USD
  
￦

2,830   (2,830) 
EUR
   8   (8) 
JPY
   (90)   90 
Others
   2   (2) 
   
 
 
  
 
 
 
   
￦

2,750   (2,750) 
   
 
 
  
 
 
 
(ii)    Interest rate risk
The interest rate risk of the Group arises from borrowings, debentures and long-term payables — other. Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, the Group’s revenue and operating cash flows from the interest-bearing assets are not influenced by the changes in market interest rates.
The Group performs various analysis to reduce interest rate risk and to optimize its financing. To minimize risks arising from changes in interest rates, the Group takes various measures such as refinancing, renewal, alternative financing and hedging.
As of December 31, 2021, floating-rate borrowings and debentures amount to
￦
37,500 million and
￦
355,650 million, respectively, and the Group has entered into interest rate swaps to hedge interest rate risk related to the floating-rate borrowings and debentures as described in note 22. Therefore, income before income taxes for the year ended December 31, 2021 would not have been affected by the changes in interest rates of floating-rate borrowings and debentures.
As of December 31, 2021, the floating-rate long-term payables — other are
￦
2,090,715 million. If the interest rate increases (decreases) 1%p with all other variables held constant, income before income taxes for the year ended December 31, 2021, would change by
￦
20,907 million in relation to the floating-rate long-term payables — other that are exposed to interest rate risk.
Interest rate benchmark reform and associated risks
A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
reform’). Especially, in the case of LIBOR, all of the calculations were suspended as of December 31, 2021, except for the overnight, one month, three months, six months, and 12 months of USD LIBOR, and the aforementioned five USD LIBORs will also be suspended as of June 30, 2023. The alternative interest rate benchmark of USD LIBOR is the Secured Overnight Financing Rate(“SOFR”). Meanwhile, in case of Korean CD rate, the alternative interest rate benchmark has selected as Korea Overnight Financing Repo Rate(“KOFR”) and as part of interest rate benchmark reform, the interest rate has been disclosed through Korea Securities Depository since November 26, 2021. KOFR is calculated using the overnight RP rate as collateral for government bonds and monetary stabilization bonds. However, unlike LIBOR, calculation of CD rate will not be suspended, it is unclear when and how the transition to KOFR will take place.
The Group plans to include fallback clauses into financial instruments relating to LIBOR to which calculation has not been suspended yet, or change their LIBOR directly to alternative interest rates before the calculation is suspended. Meanwhile, The Group is closely monitoring market trends for CD rate-related financial instruments.
The Group’s financial instruments exposed to the risk arising from interest rate benchmark reform as of December 31, 2021 are indexed to the USD LIBOR. The Group is exposed to legal risk to amend the terms of contracts on the financial instruments subject to interest rate benchmark reform as well as process and operation risks to manage such amendments. In addition, the Group is exposed to the risk of monitoring the market trend regarding the alternative interest rate and establishing the corresponding risk management strategy. If the IBOR is designated as the hedged item, the Group is required to replace it to an alternative benchmark interest and review the effects on the hedging relationship. In addition, the Group is exposed to the risk of minimizing hedge ineffectiveness by aligning the method and timing of the transition to the alternative benchmark interest applied to the hedged item and the hedging instrument.
The Group evaluates the extent to which contracts reference IBOR cash flows, whether such contracts will need to be amended as a result of IBOR reform and how to manage communication about IBOR reform with counterparties.
Non-derivative
financial liabilities
The Parent Company’s
non-derivative
financial liabilities subject to Interest rate benchmark reform as of December 31, 2020 were floating-rate bonds indexed to USD LIBOR. As explained above, the Group is discussing with the counterparty about including the fallback clauses as of December 31, 2021.
Derivatives
The Group’s most derivative instruments designated as cash flow hedge are governed by contracts based on the International Swaps and Derivatives Association (ISDA)’s master agreements. As part of interest rate benchmark reform, ISDA has included a new fallback clause regarding which alterative benchmark interest rate to be applied when the calculation of major IBOR is suspended in the master agreement. The master agreement is applied to derivative contracts after January 25, 2021 and the transaction parties is required to adhere to ISDA protocol to include the same fallback clause to derivative contracts before January 25, 2021. The Group has adhered to ISDA protocol for transition to the alternative benchmark interest rate and the fallback clause will be included when counterparties adhere to the protocol to include. The Group’s counterparties have adhered to ISDA protocol and agreed to include the fallback clause.
Hedge accounting
The Group’s hedged items and hedging instruments as of December 31, 2021 are indexed to USD LIBOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
2)
Credit risk
The maximum credit exposure as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
        
   
December 31, 2021
   
December 31, 2020
 
Cash and cash equivalents
  
￦

872,550    1,369,423 
Financial instruments
   509,052    1,427,845 
Investment securities
   2,077    4,154 
Accounts receivable — trade
   1,921,617    2,214,353 
Contract assets
   118,278    148,281 
Loans and other receivables
   1,195,917    1,738,003 
Derivative financial assets
   217,594    164,695 
   
 
 
   
 
 
 
   
￦

4,837,085    7,066,754 
   
 
 
   
 
 
 
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors. Based on such information, the Group establishes credit limits for each customer or counterparty.
(i) Accounts receivable — trade and contract assets
The Group establishes a loss allowance in respect of accounts receivable — trade and contract assets. The main components of this allowance are a specific loss component that relates to individually significant exposures and a collective loss component established for groups of similar assets in respect of losses that are expected to occur. The collective loss allowance is determined based on historical data of collection statistics for similar financial assets. Details of changes in loss allowance
for
the year ended December 31, 2021 are included in note 6.
(ii) Debt investments
The credit risk arises from debt investments included in
￦
509,052 million of financial instruments,
￦
2,077 million of investment securities and
￦
1,195,917 million of loans and other receivables. To limit the exposure to this risk, the Group transacts only with financial institutions with credit ratings that are considered to be low credit risk.
Most of the Group’s debt investments are considered to have a low risk of default and the borrower has a strong capacity to meet its contractual cash flow obligations in the near term. Thus the Group measured the loss allowance for the debt investments at an amount equal to
12-month
expected credit losses.
Meanwhile, the Group monitors changes in credit risk at each reporting date. The Group recognized the loss allowance at an amount equal to lifetime expected credit losses when the credit risk on the debt investments is assumed to have increased significantly if it is more than 30 days past due.

 
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10
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 

 
 

The Group’s maximum exposure to credit risk is equal to each financial asset’s carrying amount. The gross carrying amounts of each financial asset except for the accounts receivable — trade and derivative financial assets as of December 31, 2021 are as follows.

(In millions of won)

 
   
Financial assets at
FVTPL
   
Financial
assets at
FVOCI
   
At amortized cost
 
   
12-month ECL
  
Lifetime ECL —
not credit impaired
  
Lifetime ECL —
credit impaired
 
Gross amount
  
￦

850,227    1,177    754,918   43,643   149,091 
Loss allowance
   —    —    (2,787)   (6,190)   (83,033) 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Carrying amount
  
￦

850,227    1,177    752,131   37,453   66,058 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Changes in the loss allowance for the debt investments for the year ended December 31, 2021 are as follows:
 
(In millions of won)
       
   
12-month ECL
  
Lifetime ECL —
not credit impaired
  
Lifetime ECL —
credit impaired
  
Total
 
December 31, 2020
  
￦

3,751   7,995   88,819   100,565 
Remeasurement of loss allowance, net(*)
   316   2,885   2,800   6,001 
Transfer to lifetime ECL — not credit impaired
   (306)   306   —   — 
Transfer to lifetime ECL — credit impaired
   (980)   (2,555)   3,535   — 
Amounts written off
   —   —   (16,429)   (16,429) 
Recovery of amounts written off
   6   —   10,495   10,501 
Business combination
   —   —   358   358 
Spin-off
   —   (2,441)   (6,545)   (8,986) 
   
 
 
  
 
 
  
 
 
  
 
 
 
December 31, 2021
  
￦

2,787   6,190   83,033   92,010 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
(*)
Includes amounts related to discontinued operations.
(iii) Cash and cash equivalents
The Group has
￦
872,550 million as of December 31, 2021 (
￦
1,369,423 million as of December 31, 2020) cash and cash equivalents with banks and financial institutions above specific credit ratings. Impairment on cash and cash equivalents has been measured on a
12-month
expected loss basis and reflects the short maturities of the exposures. The Group considered that its cash and cash equivalents have low credit risk based on the credit ratings of the counterparties assigned by external credit rating agencies.
 
3)
Liquidity risk
The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group maintains enough liquidity within credit lines through active operating activities.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Contractual maturities of financial liabilities as of December 31, 2021 are as follows:
 
(In millions of won)
 
  
Carrying
amount
  
Contractual
cash flows
  
Less than
1 year
  
1 - 5

years
  
More than
5 years
 
Accounts payable — trade
 
￦

190,559   190,559   190,559   —   — 
Borrowings(*)
  407,185   420,503   59,864   360,639   — 
Debentures(*)
  8,426,683   9,479,976   1,603,760   4,987,959   2,888,257 
Lease liabilities
  1,534,282   1,653,416   359,356   989,603   304,457 
Accounts payable — other and others(*)
  5,524,692   5,636,104   3,917,356   1,534,636   184,112 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

16,083,401   17,380,558   6,130,895   7,872,837   3,376,826 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(*)
Includes interest payables.
The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.
As of December 31, 2021, periods in which cash flows from cash flow hedge derivatives are expected to occur are as follows:
 
(In millions of won)
 
  
Carrying
amount
  
Contractual
cash flows
  
Less than 1
year
  
1 - 5 years
  
More than
5 years
 
Assets
 
￦

182,661   188,759   27,248   135,409   26,102 
Liabilities
  (111)   (111)   (52)   (59)   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

     182,550        188,648        27,196      135,350        26,102 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
(2)
Capital management
The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2020.
The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity from the consolidated financial statements.
Debt-equity ratio as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
       
   
December 31,
2021
  
December 31,
2020
 
Total liabilities
  
￦

18,576,139   23,510,714 
Total equity
   12,335,138   24,396,243 
   
 
 
  
 
 
 
Debt-equity ratios
   150.60%   96.37% 
   
 
 
  
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)
Fair value
 
1)
Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2021 are as follows:
 
(In millions of won)
 
December 31, 2021
 
  
Carrying
amount
  
Level 1
  
Level 2
  
Level 3
  
Total
 
Financial assets that are measured at fair value:
                    
FVTPL
 
￦

1,598,321   55,455   1,359,915   182,951   1,598,321 
Derivative hedging instruments
  182,661   —   182,661   —   182,661 
FVOCI
  1,511,605   1,344,434   —   167,171   1,511,605 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

3,292,587   1,399,889   1,542,576   350,122   3,292,587 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Financial liabilities that are measured at fair value:
                    
FVTPL
 
￦

321,025   —   —   321,025   321,025 
Derivative hedging instruments
  111   —   111   —   111 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

321,136   —   111   321,025   321,136 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Financial liabilities that are not measured at fair value:
                    
Borrowings
 
￦

407,185   —   392,237   —   392,237 
Debentures
  8,426,683   —   8,679,472   —   8,679,472 
Long-term payables — other
  2,009,833   —   2,010,852   —   2,010,852 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

10,843,701   —   11,082,561   —   11,082,561 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
2)
Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2020 are as follows:
 
(In millions of won)
 
December 31, 2020
 
  
Carrying
amount
  
Level 1
  
Level 2
  
Level 3
  
Total
 
Financial assets that are measured at fair value:
                    
FVTPL(*)
 
￦

2,622,145   60,473   2,291,355   270,317   2,622,145 
Derivative hedging instruments
  65,136   —   65,136   —   65,136 
FVOCI
  1,455,441   885,452   —   569,989   1,455,441 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

4,142,722      945,925     2,356,491   840,306   4,142,722 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Financial liabilities that are measured at fair value:
                    
FVTPL
 
￦

333,099   —   —   333,099   333,099 
Derivative hedging instruments
  42,061   —   42,061   —   42,061 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

375,160   —   42,061   333,099   375,160 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Financial liabilities that are not measured at fair value:
                    
Borrowings
 
￦

2,138,923   —   2,282,316   —   2,282,316 
Debentures
  8,579,743   —   9,085,324   —   9,085,324 
Long-term payables — other
  1,566,954   —   1,582,805   —   1,582,805 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

12,285,620   —   12,950,445   —   12,950,445 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(*)
Some of the financial assets measured at amortized cost were reclassified to financial assets measured at FVTPL.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are reasonable approximation of fair values.
Fair value of the financial instruments that are traded in an active market (financial assets at FVOCI and financial assets at FVTPL) is measured based on the bid price at the end of the reporting date.
The Group uses various valuation methods for determination of fair value of financial instruments that are not traded in an active market. Derivative financial contracts and long-term liabilities are measured using the discounted present value methods. Other financial assets are determined using the methods such as discounted cash flow and market approach. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities measured.
Interest rates used by the Group for the fair value measurement as of December 31, 2021 are as follows:
 
   
Interest rate
Derivative instruments
  0.32% ~ 3.90%
Borrowings and debentures
  1.64% ~ 2.33%
Long-term payables — other
  1.62% ~ 2.39%
 
3)
There have been no transfers between Level 2 and Level 1 for
the
year ended December 31, 2021. The changes of financial assets classified as Level 3 for the year ended December 31, 2021 are as follows:
 
(In millions of won)
 
  
Balance at
January 1,
2021
  
Gain (loss)
for the year(*1)
  
OCI
  
Acquisition
  
Disposal
  
Transfer
  
Spin-off
  
Balance at

December 31,
2021
 
Financial assets
                                
FVTPL
 
￦

270,317   21,973   7,318   128,517   (75,238)   (37,564)   (132,372)   182,951 
FVOCI(*2)
  569,989   —   38,520   11,019   (24,921)   (369,185)   (58,251)   167,171 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

840,306   21,973   45,838   139,536   (100,159)   (406,749)   (190,623)   350,122 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Financial liabilities
 
                            
FVTPL
 
￦

(333,099)   (8,036)   —   (217,736)   —   —   237,846   (321,025) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The transfer for the year ended December 31, 2021 includes
W
368,000 million transferred to FVOCI classified by Level 1 as part of the equity instruments held by
K-net
Culture and Contents Venture Fund were listed on Korea Exchange.
 
(4)
Enforceable master netting agreement or similar agreement
Carrying amounts of financial instruments recognized of which offset agreements are applicable as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
December 31, 2021
 
   
Gross
financial
instruments
recognized
   
Amount
offset
  
Net financial
instruments
presented on the
statements of
financial position
 
Financial assets:
              
Accounts receivable — trade and others
  
￦
197,828    (189,424)   8,404 
Financial liabilities:
              
Accounts payable — other and others
  
￦

200,849    (189,424)   11,425 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
(In millions of won)
  
December 31, 2020
 
   
Gross
financial
instruments
recognized
   
Amount
offset
  
Net financial
instruments
presented on the
statements of
financial position
   
Relevant financial
instruments not offset
  
Net
amount
 
Financial assets:
                       
Derivative instruments(*)
  
￦

8,015    —   8,015    (453)   7,562 
Accounts receivable — trade and others
   317,332    (203,403)   113,929    —   113,929 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
   
￦

325,347    (203,403)   121,944    (453)   121,491 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Financial liabilities:
                       
Derivative instruments(*)
  
￦

453    —   453    (453)   — 
Accounts payable — other and others
   301,996    (203,403)   98,593    —   98,593 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
   
￦

302,449    (203,403)   99,046    (453)   98,593 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
 
(*)
The balance represents the net amount under the standard terms and conditions of International Swaps and Derivatives Association.
 
36.
Transactions with Related Parties
(1) List of related parties
 
Relationship
  
Company
Ultimate Controlling Entity
  SK Inc.
Joint ventures
  Finnq Co., Ltd. and another
Associates
  SK China Company Ltd. and 42 others
Others
  The Ultimate Controlling Entity’s subsidiaries and associates, etc.
For the periods presented, the Group belongs to SK Group, a conglomerate as defined in the
Monopoly Regulation and Fair Trade Act of the Republic of Korea
. All of the other entities included in SK Group are considered related parties of the Group.
(2) Compensation for the key management
The Parent Company considers registered directors (2 executive and 5
non-executive
directors) who have substantial role and responsibility in planning, operations, and relevant controls of the business as key management. The compensation given to such key management for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
        
   
2021
   
2020
   
2019
 
Salaries
  
￦

5,956    10,029    5,969 
Defined benefits plan expenses
   2,845    3,459    1,237 
Share option
   146    158    325 
   
 
 
   
 
 
   
 
 
 
   
￦
8,947		   13,646   7,531 
   
 
 
   
 
 
   
 
 
 
 
F-11
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
Compensation for the key management includes salaries,
non-monetary
salaries and retirement benefits made in relation to the pension plan and compensation expenses related to share options granted.
 
 (3)
Transactions with related parties for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
            
     
2021
 
Scope
  
Company
 
Operating
revenue and
others
  
Operating
expense
and others(*1)
  
Acquisition of
property and
equipment
 
Ultimate Controlling Entity
  SK Inc.(*2) 
￦

33,253   633,868   82,191 
     
 
 
  
 
 
  
 
 
 
Associates
  
F&U Credit information Co., Ltd.
  3,828   50,029   — 
   KEB HanaCard Co., Ltd.  17,962   4,374   — 
   SK Wyverns Co., Ltd.(*3)  202   8,203   — 
   Daehan Kanggun BcN Co., Ltd.  10,943   —   — 
   SK China Company Ltd.(*4)  131,141   —   — 
   Others(*5)  11,778   8,356   — 
     
 
 
  
 
 
  
 
 
 
      175,854   70,962   — 
     
 
 
  
 
 
  
 
 
 
Others
  
SK Innovation Co., Ltd.
  53,445   19,093   — 
   SK Energy Co., Ltd.  18,970   1,250   — 
   
SK Geo Centric Co., Ltd. (Formerly, SK Global Chemical Co., Ltd.)
  33,435   9   — 
   
SK TNS Co., Ltd.(*3)
  75   6,868   57,903 
   SKC Infra Service Co., Ltd.(*3)  26   30,798   8,028 
   SK Networks Co., Ltd.(*6)  14,439   1,055,512   24 
   SK Networks Service Co., Ltd.  7,292   73,596   3,520 
   SK hynix Inc.(*7)  285,104   199   — 
   Happy Narae Co., Ltd.  6,899   20,229   133,625 
   
SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.)(*8)
  5,793    18,861   20,382 
   Content Wavve Co., Ltd.  174   78,964   — 
   Eleven Street Co., Ltd.  2,785   5,699   — 
   
SK Planet Co., Ltd.
  2,048   16,747   6,081 
   
SK hynix Semiconductor (China) Ltd.
  48,546   —   — 
   
SK hynix system ic (Wuxi) Co., Ltd.
  20,807   —   — 
   
SK ON Hungary Kft. (Formerly, SK Battery Hungary Kft.)
  38,413   —   — 
   SK RENT A CAR Co., Ltd.  5,843   18,564   — 
   DREAMUS COMPANY  795   20,074   396 
   SK m&service Co., Ltd.  764   3,670   888 
   UbiNS Co., Ltd.  415   42,335   50,847 
   Others  156,055   30,762   23,428 
     
 
 
  
 
 
  
 
 
 
      702,123    1,443,230   305,122 
     
 
 
  
 
 
  
 
 
 
     
￦

911,230   2,148,060   387,313 
     
 
 
  
 
 
  
 
 
 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
(*1)
Operating expense and others include lease payments by the Group.
 
(*2)
Operating expense and others include
￦
248,677 million of dividends paid by the Parent Company.
 
(*3)
Transactions occurred before the related party relationship terminated.
 
(*4)
Operating revenue and others include
￦
131,141 million of dividends received from SK China Company Ltd. which was deducted from the investment in associates.
 
(*5)
Operating revenue and others include
￦
10,716 million of dividends received from Korea IT Fund which was deducted from the investment in associates.
 
(*6)
Operating expenses and others include costs for handset purchases amounting to
￦
996,910 million.
 
(*7)
Operating revenue and others include
￦
170,937 million of dividend income received from SK hynix Inc.
 
(*8)
Operating revenue and others include
￦
9,637 million of dividend income received from SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.).
 
F-11
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
               
      
2020
 
Scope
  
Company
  
Operating
revenue and
others
   
Operating
expense
and
others(*1)
   
Acquisition
of property
and
equipment
 
Ultimate Controlling Entity
  SK Inc.(*2)  
￦

40,717    596,509    76,534 
      
 
 
   
 
 
   
 
 
 
Associates
  
F&U Credit information Co., Ltd.
   3,484    51,228    — 
   SK hynix Inc.(*3)   316,001    267    — 
   KEB HanaCard Co., Ltd.   683    3,065    — 
   SK Wyverns Co., Ltd.   1,279    19,354    — 
   Content Wavve Co., Ltd.   446    56,631    — 
   Others(*4)   65,431    12,511    78 
      
 
 
   
 
 
   
 
 
 
       387,324    143,056    78 
      
 
 
   
 
 
   
 
 
 
Others
  
SK Ecoplant Co., Ltd.
(Formerly, SK Engineering & Construction Co., Ltd.)
   12,349    238    — 
   SK Innovation Co., Ltd.   38,999    18,464    — 
   
SK Networks Co., Ltd.(*5)
   13,893    1,022,976    32 
   
SK Networks Services Co., Ltd.
   6,936    76,653    2,023 
   
SK Telesys Co., Ltd.
   388    10,751    30,453 
   
SK TNS Co., Ltd.
   1,118    43,767    496,460 
   
SK Energy Co., Ltd.
   16,009    296    — 
   
SK hynix Semiconductor (China) Ltd.
   73,683    —    — 
   
SK ON Hungary Kft. (Formerly, SK Battery Hungary Kft.)
   19,394    —    — 
   
SK Geo Centric Co., Ltd. (Formerly, SK Global Chemical Co., Ltd.)
   20,667    9    — 
   
SK Global Chemical International Trading (Shanghai) Co., Ltd.
   15,898    8    — 
   HappyNarae Co., Ltd.   9,871    17,361    129,621 
   Others   102,141    128,268    83,693 
      
 
 
   
 
 
   
 
 
 
       331,346    1,318,791    742,282 
      
 
 
   
 
 
   
 
 
 
      
￦

759,387    2,058,356    818,894 
      
 
 
   
 
 
   
 
 
 
 
(*1)
Operating expense and others include lease payments by the Group.
 
(*2)
Operating expense and others include
￦
216,241 million of dividends paid by the Parent Company.
 
(*3)
Operating revenue and others include
￦
146,100 million of dividends received from SK hynix Inc. which was deducted from the investment in associates and
￦
70,495 million of disposal amounts of Yongin SK Academy training facility.
 
(*4)
Operating revenue and others include
￦
18,749 million of dividends declared by Korea IT Fund and Pacific Telecom Inc. and UniSK which was deducted from the investments in associates.
 
(*5)
Operating expenses and others include costs for handset purchases amounting to
￦
961,167 million.
 
F-11
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
               
      
2019
 
Scope
  
Company
  
Operating
revenue and
others
   
Operating
expense
and
others(*1)
   
Acquisition
of property
and
equipment
 
Ultimate Controlling Entity
  SK Inc.(*2)  
￦

53,507    612,248    95,426 
      
 
 
   
 
 
   
 
 
 
Associates
  
F&U Credit information Co., Ltd.
   2,293    55,179    — 
   SK hynix Inc.(*3)   273,047    481    — 
   KEB HanaCard Co., Ltd.   832    1,901    — 
   SK Wyverns Co., Ltd.   1,399    21,528    — 
   Others(*4)   17,286    13,864    457 
      
 
 
   
 
 
   
 
 
 
       294,857    92,953    457 
      
 
 
   
 
 
   
 
 
 
Others
  
SK Ecoplant Co., Ltd.
(Formerly, SK Engineering & Construction Co., Ltd.)
   13,339    1,601    7,400 
   SK Innovation Co., Ltd.   26,697    2,777    — 
   
SK Networks Co., Ltd.(*5)
   29,321    1,088,443    449 
   
SK Networks Services Co., Ltd.
   1,056    76,671    4,979 
   
SK Telesys Co., Ltd.
   474    9,686    59,392 
   
SK TNS Co., Ltd.
   240    35,824    607,546 
   
SK Energy Co., Ltd.
   16,294    516    — 
   
SK hynix Semiconductor (China) Ltd.
   73,542    —    — 
   
SK Global Chemical International Trading (Shanghai) Co., Ltd.
   14,535    131    — 
   HappyNarae Co., Ltd.   6,943    18,121    168,286 
   Others   90,307    105,569    109,189 
      
 
 
   
 
 
   
 
 
 
       272,748    1,339,339    957,241 
      
 
 
   
 
 
   
 
 
 
      
￦

621,112    2,044,540    1,053,124 
      
 
 
   
 
 
   
 
 
 
 
 
(*1)
Operating expense and others include lease payments by the Group.
 
(*2)
Operating expense and others include
￦
216,241 million of dividends paid by the Parent Company.
 
(*3)
Operating revenue and others include
￦
219,150 million of dividends received from SK hynix Inc. which was deducted from the investment in associates.
 
(*4)
Operating revenue and others include
￦
11,955 million of dividends declared by Korea IT Fund, UniSK and
KIF-Stonebridge
IT Investment Fund which was deducted from the investments in associates.
 
(*5)
Operating expenses and others include costs for handset purchases amounting to
￦
1,043,902 million.
 
F-1
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(4)
Account balances with related parties as of December 31, 2021 and 2020 are as follows:
 
(In millions of won)
  
 
  
 
 
 
  
 
  
December 31, 2021
 
 
  
 
  
Receivables
 
  
Payables
 
Scope
  
Company
  
Loans
 
  
Accounts
receivable — trade,
etc.
 
  
Accounts
payable — other,
etc.
 
Ultimate Controlling Entity
  
SK Inc.
  
￦

—    2,092    69,652 
Associates
  
F&U Credit information Co., Ltd.
   —    4    5,265 
   
Wave City Development Co., Ltd.(*1)
   —    2,623    — 
   
Daehan Kanggun BcN Co., Ltd.(*2)
   22,147    3,857    — 
   
KEB HanaCard Co., Ltd.
   —    529    48,020 
   
Others
   —    84     1,197 
      
 
 
   
 
 
   
 
 
 
       22,147    7,097     54,482 
      
 
 
   
 
 
   
 
 
 
Others
  
SK Innovation Co., Ltd.
   —    3,022    38,022 
   
SK Networks Co., Ltd.
   —    241    198,631 
   
Mintit Co., Ltd.
   —    17,929    131 
   
SK hynix Inc.
   —    11,526    166 
   
Happy Narae Co., Ltd.
   —    6    49,349 
   
SK m&service Co., Ltd.
   —    1,453    18,921 
   
SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.)
   —    2,649    24,593 
   
Content Wavve Co., Ltd.
   —    183    9,873 
   
Incross Co., Ltd.
   —    3,610    11,829 
   
Eleven Street Co., Ltd.
   —    2,851    7,782 
   
SK Planet Co., Ltd.
   —    668    31,652 
   
SK RENT A CAR Co., Ltd.
   —    116    16,715 
   
UbiNS Co., Ltd.
   —    24    14,932 
   
Others
   —    8,307    29,106 
      
 
 
   
 
 
   
 
 
 
       —    52,585    451,702 
      
 
 
   
 
 
   
 
 
 
      
￦

22,147    61,774    575,836 
      
 
 
   
 
 
   
 
 
 
 
 
(*1)
As of December 31, 2021, the Parent Company recognized loss allowance amounting to
￦
1,102 million on the accounts receivable — trade.
 
(*2)
As of December 31, 2021, the Parent Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.
 
F-12
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(In millions of won)
     
    
December 31, 2020
 
    
Receivables
  
Payables
 
Scope
 
Company
 
Loans
  
Accounts
receivable — trade,
etc
  
Accounts
payable — other,
etc
 
Ultimate Controlling Entity
 
SK Inc.
 
￦

—   6,449   64,373 
Associates
 
F&U Credit information Co., Ltd.
  —   10   4,699 
  
SK hynix Inc.
  —   33,773   128 
  
Wave City Development Co., Ltd.(*1)
  —   25,782   — 
  
Daehan Kanggun BcN Co., Ltd.(*2)
  22,147   2,779   — 
  
KEB HanaCard Co., Ltd.
  —   352   145,328 
  
Content Wavve Co., Ltd.
  —   283   2,491 
  
Others
  —   9,098   1,686 
    
 
 
  
 
 
  
 
 
 
     22,147   72,077   154,332 
    
 
 
  
 
 
  
 
 
 
Others
 
SK Ecoplant Co., Ltd. (Formerly, SK Engineering & Construction Co., Ltd.)
  —   1,521   152 
  
SK Innovation Co., Ltd.
  —   11,737   44,105 
  
SK Networks. Co., Ltd.
  —   2,245   108,233 
  
SK Networks Services Co., Ltd.
  —   579   7,103 
  
SK Telesys Co., Ltd.
  —   37   9,253 
  
SK TNS Co., Ltd.
  —   263   89,915 
  
SK Energy Co., Ltd.
  —   3,502   1,837 
  
SK hystec Co., Ltd.
  —   494   6,085 
  
SK hynix Semiconductor (China) Ltd.
  —   5,896   — 
  
SK ON Hungary Kft. (Formerly, SK Battery Hungary Kft.)
  —   2,075   — 
  
SK Geo Centric Co., Ltd. (Formerly, SK Global Chemical Co., Ltd.)
  —   1,142   5 
  
SK Global Chemical International
Trading (Shanghai) Co., Ltd.
  —   795   21 
  
HappyNarae Co., Ltd.
  —   720   16,534 
  
Others
  —   15,564   120,575 
    
 
 
  
 
 
  
 
 
 
     —   46,570   403,818 
    
 
 
  
 
 
  
 
 
 
    
￦

22,147   125,096   622,523 
    
 
 
  
 
 
  
 
 
 
 
 
(*1)
As of December 31, 2020, the Parent Company recognized loss allowance amounting to
￦
10,880 million on the accounts receivable — trade.
 
(*2)
As of December 31, 2020, the Parent Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.
 
F-12
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
(5)
The Group has granted SK REIT Co., Ltd. the right of first offer regarding the disposal of real estate owned by the Group. Whereby, the negotiation period is within 3 to 5 years from June 30, 2021, date of agreement, and the Group has been granted the right by SK REIT Co., Ltd. to lease the real estate in preference to a third party if SK REIT Co., Ltd. purchases the real estate from the Group.
 
(6)
The details of additional investments and disposal of associates and joint ventures for the year ended December 31, 2021 as presented in note 12.
 
37.
Commitments and Contingencies
(1)     Collateral assets and commitments
SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of
￦
1,513 million as of December 31, 2021.
(2)     Legal claims and litigations
As of December 31, 2021, the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. In connection with those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.
(3)     Accounts receivable from sale of handsets
The sales agents of the Parent Company sell handsets to the Parent Company’s subscribers on an installment basis. The Parent Company entered into comprehensive agreements to purchase accounts receivable from handset sales with retail stores and authorized dealers and to transfer the accounts receivable from handset sales to special purpose companies which were established with the purpose of liquidating receivables, respectively.
The accounts receivable from sale of handsets amounting to
￦
493,277 million and
￦
571,004 million as of December 31, 2021 and 2020, respectively, which the Parent Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable — other and long-term accounts receivable — other.
 
F-12
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
38.
Statements of Cash Flows
 
(1)
Adjustments for income and expenses from operating activities for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
            
   
2021
   
2020
   
2019
 
Interest income
  
￦

(43,850)    (50,357)    (63,579) 
Dividends
   (14,132)    (1,170)    (10,011) 
Gain on foreign currency translations
   (10,753)    (8,928)    (4,576) 
Gain on sale of accounts receivable — other
   (27,725)    (22,605)    (15,855) 
Gain relating to investments in associates and joint ventures, net
   (1,948,447)    (1,028,403)    (449,543) 
Gain on disposal of property and equipment and intangible assets
   (40,109)    (35,644)    (8,533) 
Gain on business transfer
   (82,248)    (12,455)    (69,522) 
Gain relating to financial instruments at FVTPL
   (91,244)    (145,016)    (36,336) 
Other income
   (10,369)    (4,220)    (1,875) 
Interest expense
   342,342    399,176    406,087 
Loss on foreign currency translations
   8,005    12,730    4,948 
Loss on disposal of long-term investment securities
   —    98    — 
Loss on sale of accounts receivable — other
   —    —    5,823 
Income tax expense
   651,948    376,502    300,268 
Expense related to defined benefit plan
   190,462    198,794    175,165 
Share option
   91,646    4,313    2,073 
Bonus paid by treasury shares
   29,643    —    — 
Depreciation and amortization
   4,114,394    4,169,996    4,021,016 
Bad debt for accounts receivables — trade
   31,546    48,625    28,841 
Loss on disposal of property and equipment and intangible assets
   47,369    41,598    47,760 
Impairment loss on property and equipment and intangible assets
   3,135    208,833    65,935 
Bad debt for accounts receivable — other
   6,001    10,559    5,802 
Loss on impairment of investment assets
   —    —    1,670 
Loss relating to financial instruments at FVTPL
   76,142    27,082    8,437 
Other financial fees
   142,015    44,734    — 
Other expenses
   8,008    22,412    21,044 
   
 
 
   
 
 
   
 
 
 
   
￦

3,473,779    4,256,654    4,435,039 
   
 
 
   
 
 
   
 
 
 
 
F-12
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
Changes in assets and liabilities from operating activities for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
          
   
2021
  
2020
  
2019
 
Accounts receivable — trade
  
￦

(95,374)   (33,410)   (211,712) 
Accounts receivable — other
   (152,038)   (50,003)   48,399 
Accrued income
   —   —   151 
Advanced payments
   (43,212)   (945)   (12,204) 
Prepaid expenses
   77,404   112,270   (680,925) 
Inventories
   (70,601)   (7,219)   115,893 
Long-term accounts receivable — other
   83,658   26,027   (56,216) 
Contract assets
   (11,582)   1,528   (68,805) 
Guarantee deposits
   8,125   26,122   6,392 
Accounts payable — trade
   12,312   3,023   (23,607) 
Accounts payable — other
   (109,476)   311,737   167,595 
Withholdings
   (55,925)   33,348   (31,545) 
Contract liabilities
   (2,158)   35,426   33,574 
Deposits received
   (3,737)   (1,028)   (3,112) 
Accrued expenses
   7,505   61,848   116,949 
Provisions
   (19,324)   (30,773)   (36,478) 
Long-term provisions
   (260)   (548)   (1,699) 
Plan assets
   (51,697)   (145,214)   (130,790) 
Retirement benefit payment
   (114,897)   (76,987)   (84,098) 
Others
   (27,418)   37,256   (3,892) 
   
 
 
  
 
 
  
 
 
 
   
￦

(568,695)   302,458   (856,130) 
   
 
 
  
 
 
  
 
 
 
 
(3)
Significant
non-cash
transactions for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
           
   
2021
   
2020
  
2019
 
Increase (decrease) in accounts payable — other relating to
the 
acquisition of property and equipment and intangible assets
  
￦

1,063,800    (426,723)   438,622 
Increase of
right-of-use
assets
   672,723    736,157   1,141,349 
Merger of Tbroad Co., Ltd. and two other companies by SK Broadband Co., Ltd.
   —    1,072,487   — 
Change in assets and liabilities by
spin-off
(notes 41)
   14,379,397    —   — 
Retirement of treasury shares
   1,965,952    —   — 
Disposal of treasury shares (Congratulatory bonus for
spin-off)
   114,373    —   — 
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(4)
Reconciliation of liabilities arising from financing activities for the years ended December 31, 2021 and 20
2
0 are as follows:
 
(In millions of won)
 
  
2021
 
        
Non-cash
transactions
    
  
January 1,

2021
  
Cash flows
  
Exchange
rate
changes(*)
  
Fair value
changes
  
Business
combinations
  
Spin-off
  
Other
changes
  
December 31,
2021
 
Total liabilities from financing activities:
                                
Short-term borrowings
 
￦

109,998   (50,823)   —   —   1,825   (48,510)   508   12,998 
Long-term borrowings
  2,028,924   63,132   600   —   662   (1,703,300)   4,169   394,187 
Debentures
  8,579,743   (16,755)   145,584   —   —   (295,544)   13,655   8,426,683 
Lease liabilities
  1,436,777   (431,674)   —   —   497   (85,322)   614,003   1,534,281 
Long-term payables — other
  1,566,954   (426,267)   —   —   —   —   869,146   2,009,833 
Derivative financial
liabilities
  54,176   332   —   (42,282)   —   (12,115)   —   111 
Derivative financial assets
  (65,136)   —   —   (117,525)   —   —   —   (182,661) 
Financial liabilities at FVTPL
  —   129,123   —   7,996   —   (137,119)   —   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
￦

13,711,436   (732,932)   146,184   (151,811)   2,984   (2,281,910)   1,501,481   12,195,432 
Other cash flows from financing activities:
                                
Payments of cash dividends
     
￦

(1,028,520)                         
Payments of interest on hybrid bonds
      (14,766)                         
Acquisition of treasury shares
      (76,111)                         
Cash inflow from transactions with the
non-controlling
shareholders
      444,124                         
Cash outflow from transactions with the
non-controlling
shareholders
      (19,406)                         
Cash outflow from
spin-off
      (626,000)                         
      
 
 
                         
       (1,320,679)                         
      
 
 
                         
      
￦

(2,053,611)                         
      
 
 
                         
 
 
(*)
The effect of changes in foreign exchange rates for financial liabilities at amortized cost.
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 
(In millions of won)
 
   
2020
 
   
January 1,
2020
  
Cash flows
  
Non-cash
transactions
     
 
Exchange
rate
changes(*)
  
Fair value
changes
   
Business

combinations
   
Other
changes
   
December 31,
2020
 
Total liabilities from financing activities:
                                
Short-term borrowings
  
￦

20,603   76,375   13,020   —    —    —    109,998 
Long-term borrowings
   2,022,537   (3,026)   (14,208)   —    —    23,621    2,028,924 
Debentures
   8,220,833   445,462   (94,391)   —    —    7,839    8,579,743 
Lease liabilities
   1,291,007   (412,666)   —   —    7,696    550,740    1,436,777 
Long-term payables — other
   1,971,609   (428,100)   —   —    —    23,445    1,566,954 
Derivative financial
liabilities
   1,043   8,191   —   44,942    —    —    54,176 
Derivative financial
assets
   (144,886)   28,500   —   51,250    —    —    (65,136) 
   
 
 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
￦

13,382,746   (285,264)   (95,579)   96,192    7,696    605,645    13,711,436 
Other cash flows from financing activities:
                                
Payments of cash dividends
      
￦

(742,136)                        
Payments of interest on hybrid bonds
       (14,766)                        
Acquisition of treasury shares
       (426,664)                        
Cash inflow from transactions with the
non-controlling
shareholders
       17,766                        
Cash outflow from transactions with the
non-controlling
shareholders
       (6,515)                        
       
 
 
                        
        (1,172,315)                        
       
 
 
                        
       
￦
(1,457,579)                        
       
 
 
                        
 
 
(*)
The effect of changes in foreign exchange rates for financial liabilities at amortized cost.
 
39.
Emissions Liabilities
 
(1)
The quantity of emissions rights allocated free of charge for each implementation year as of December 31, 2021 are as follows:
 
(In
tCO2-eQ)
 
   
Quantities

allocated in 2019
   
Quantities
allocated in 2020
   
Quantities
allocated in
2021
   
Total
 
Emissions rights allocated free of charge
   815,927    814,842    1,033,764    2,664,533 
 
F-12
6
Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(2)
Changes in emissions rights quantities the Parent Company held are as follows:
 
(In
tCO2-eQ)
 
   
Quantities

allocated in
2019
  
Quantities
allocated in
2020
  
Quantities
allocated in
2021
  
Total
 
January 1
   (2,343)   (60,977)   —   (63,320) 
Allocation at no cost
   815,927   814,842   1,033,764   2,664,533 
Additional allocation
   131,015   217,643   —   348,658 
Purchase
   —   68,471   —   68,471 
Surrender or shall be surrendered
   (1,005,576)   (1,039,979)   (1,087,455)   (3,133,010) 
Borrowing
   60,977   —   —   60,977 
   
 
 
  
 
 
  
 
 
  
 
 
 
December 31
   —   —   (53,691)   (53,691) 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
(3)
As of December 31, 2021, the estimated annual greenhouse gas emissions quantities of the Parent Company are 1,087,455
tCO2-eQ.
 
40.
Non-current
Assets Held for Sale
On February 25, 2021, the Parent Company has decided to dispose of the investments in an associate engaged in mobility business to T map Mobility Co., Ltd. pursuant to the approval of the Board of Directors and reclassified entire shares of the investments in associates as
non-current
assets held for sale. The disposal is expected to take place in 2022 after approval by the Financial Services Commission.
 

(In millions of won)
        
      
December 31, 2021
 
Investments in associates
  Carrot General Insurance Co., Ltd.  
￦
              8,734 
 
41.
Spin-off
 
 
(1)
In accordance with the resolution of the Board of Directors held on June 10, 2021 and shareholders’ meeting held on October 12, 2021, the Parent Company completed the
spin-off
of its business of managing investments in semiconductor, new Information and Communication Technologies(“ICT”) and making new investments on November 1, 2021, and the registration of the
spin-off
was completed as of November 2, 2021. The details of the
spin-off
are as follows:
 
Method of
spin-off
 Horizontal
spin-off
Company SK Telecom Co., Ltd. (Surviving Company)
 SK Square Co., Ltd.
(Spin-off Company)
Effective date of
spin-off
 November 1, 2021
 
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
 (2)
The details of financial information due to the
spin-off
of its business of managing investments in semiconductor, New ICT and other business and making new investments are as follows:
 
 1)
Statements of Income
The details of profit or loss from discontinued operations for the years ended December 31, 2021, 2020 and 2019 are as follows: 
 
(In millions of won)
  
 
 
  
 
 
  
 
 
 
  
2021
 
  
2020
 
  
2019
 
Operating revenue
 and other operating income
  
￦
2,469,329    2,541,133 
 
 
2,331,433
 
Revenue
  
 
2,383,083
 
  
 
2,536,904
 
  
 
2,324,285
 
Other income
  
 
86,246
 
  
 
4,229
 
  
 
7,148
 
Operating expenses:
   2,396,324    2,471,519 
 
 
2,311,229
 
Labor
   824,505    897,676 
 
 
840,809
 
Commission
   349,344    244,074 
 
 
235,384
 
Depreciation and amortization
   287,412    326,417 
 
 
315,678
 
Network interconnection
   863    762 
 
 
1,099
 
Advertising
   158,512    159,589 
 
 
154,715
 
Rent
   2,754    2,115 
 
 
2,254
 
Cost of goods sold
   426,161    502,469 
 
 
455,257
 
Others
   346,773    338,417 
 
 
306,033
 
   
 
 
   
 
 
 
 
 
 
 
Operating profit
  
 
73,005
 
  
 
69,614
 
 
 
20,204
 
Finance income
   47,417    100,511 
 
 
20,464
 
Finance costs
   269,823    174,250 
 
 
103,044
 
Gain relating to investments in subsidiaries, associates and joint ventures,
   1,502,147    975,947 
 
 
416,344
 
   
 
 
   
 
 
 
 
 
 
 
Profit before income tax
  
 
1,352,746
 
  
 
971,822
 
 
 
353,968
 
Income tax expense
   205,152    155,240 
 
 
37,328
 
Profit for the year
  
￦
1,147,594
 
  
 
816,582
 
 
 
316,640
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
2)
Statements of Cash Flows
 
The
details of cash flows from discontinued operations for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
  
   
 
   
 
   
 
  
2021
 
 
2020
 
 
2019
 
Cash flows from operating activities
  
￦
59,255   495,696 
 
 
196,518
 
Cash flows from investing activities
   (967,053)   (483,599) 
 
 
(189,064
)
 
Cash flows from investing activities
   (88,872)   (22,902) 
 
 
(35,395
)
 
 
F-12
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Table of Contents
SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2021, 2020 and 2019
 
(3)
Subsequent to the spin-off, the Parent Company lost control over the related businesses. The spin-off was accounted for by derecognizing all related assets and liabilities. The net assets of the spin-off business as of spin-off date was recognized in Capital surplus and others. The details of assets and liabilities derecognized from the financial statements due to the
spin-off
of its business of managing investments in semiconductor, New ICT and other business and making new investments are as follows:

(In millions of won)
 
 
  
Amount
 
Current assets
  
￦
2,608,601 
Non-current
assets
  
 
19,269,615 
   
 
 
 
Total assets
  
￦
21,878,216 
Current liabilities
  
￦
2,161,458 
Non-current
liabilities
  
 
4,676,324 
   
 
 
 
Total liabilities
  
￦
6,837,782 
   
 
 
 
Net assets
  
￦
15,040,434 
   
 
 
 
 
(4)
The Parent Company has obligation to jointly and severally reimburse the Parent Company’s liabilities incurred prior to the
spin-off
with SK Square Co., Ltd., the
spin-off
company, in accordance with Article
530-9
(1) of Korean Commercial Act.
 
42.
Cash Dividends paid to the Parent Company
Cash dividends paid to the Parent Company for the years ended December 31, 2021, 2020 and 2019 are as follows:
 
(In millions of won)
               
   
2021
   
2020
   
2019
 
Cash dividends received from consolidated subsidiaries
  
￦
12,646    119,036    287,549 
Cash dividends received from associates
   312,793    164,850    227,500 
   
 
 
   
 
 
   
 
 
 
   
￦
325,439    283,886    515,049 
   
 
 
   
 
 
   
 
 
 
 
43.
Subsequent Events
On January 20, 2022, the Board of Directors of the Parent Company approved the disposal of treasury shares. The disposal of treasury shares has been completed and the details are as follows:
 
   
Information of disposal
Number of treasury shares to be disposed
  
413,080 Common shares
Price of the treasury shares to be disposed per share (in won)
  
￦
56,300
Aggregate disposal value
  
￦
23,256 million
Disposal date
  
January 24, 2022
Purpose of disposal
  
Allotment of shares as bonus payment
Method of disposal
  
Over-the-counter
 
F-129
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
SK hynix, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of SK hynix, Inc. and subsidiaries (the Group) as of October 31, 2021 and December 31, 2020, the related consolidated statements of comprehensive income, changes in equity and cash flows for the
10-month
period ended on October 31, 2021 and each of the years in the
two-year
period ended on December 31, 2020 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of October 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for the
10-month
period ended on October 31, 2021 and for each of the years in the
two-year
period ended on December 31, 2020, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Measurement of fair values of long-term investment assets related to KIOXIA Holdings Corporation (“KIOXIA”)
As discussed in Note 6 and Note 12 to the consolidated financial statements, the Group holds ￦ 3,823,456 million of equity investment in BCPE Pangea Intermediate Holdings Cayman, L.P. (“SPC1”), and ￦ 2,521,342 million of convertible bonds investment in BCPE Pangea Cayman2 Limited (“SPC2”), as of October 31, 2021. Fair values of these long-term investment assets are measured based on the equity value of KIOXIA Holdings Corporation (“KIOXIA”). Specifically, the fair value of equity investment in SPC1 is measured using an option pricing model allocating the estimated fair value of KIOXIA equity between investors, together with consideration of expected KIOXIA initial public offering and SPC1 liquidation. The fair value of convertible bonds investment in SPC2 is measured based on the estimated KIOXIA’s equity value and SPC2’s equity ownership in KIOXIA.
 
G-1
Table of Contents
We identified the measurement of fair values of long-term investment assets related to KIOXIA as a critical audit matter. Estimation of equity value of KIOXIA, an unlisted company, and fair values of the financial instruments in SPC1 and SPC2 involved the application of significant judgment and measurement uncertainty therefore requires a high degree of auditor judgment, and involvement of professionals with specialized skill and knowledge. Specifically, the assumptions of estimated future revenue, operating profit, discount rate, and volatility of KIOXIA’s equity value, and the expected timing of liquidation of SPC1 were challenging to test and involved subjective auditor judgment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal control related to the process over measurement of fair values of long-term investment assets related to KIOXIA. This included controls related to the development of estimated future revenue, operating profit, expected timing of liquidation of SPC1, discount rate, and volatility assumptions. We compared key assumptions of estimated future revenue, and operating profit used in the forecasted cash flow in prior year to the actual results in current year to assess the Group’s ability to accurately forecast. We performed sensitivity analyses over discount rate, volatility of KIOXIA’s equity value, and expected timing of liquidation of SPC1 to assess the impact of changes in those assumptions on the fair values measurement. We involved our valuation professionals with specialized skills and knowledge, who assisted us in the following:
 
 • 
assessing the estimated future revenue, operating profit, and expected timing of liquidation of SPC1 by comparing them with relevant industry data;
 
 • 
assessing the reasonableness of the comparable companies used by the Group in determining the discount rate;
 
 • 
assessing the volatility of KIOXIA’s equity value by comparing it against the volatilities for other public comparable companies.
/s/ KPMG Samjong Accounting Corp.
We have served as the Group’s auditor since 2012.
Seoul, Korea
April 28, 2022
 
G-2
Table of Contents
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Financial Position
As of October 31, 2021 and December 31, 2020
 
   
Note
   
2021
   
2020
 
       
(In millions of won)
 
Assets
      
Current assets
      
Cash and cash equivalents
  
 
5,6
 
  ￦4,874,752    2,975,989 
Short-term financial instruments
  
 
5,6,7
 
   599,125    436,708 
Short-term investment assets
  
 
5,6
 
   5,494,158    1,535,518 
Trade receivables, net
  
 
5,6,8,34
 
   7,123,034    4,931,322 
Loans and other receivables, net
  
 
5,6,8,34
 
   65,007    69,194 
Inventories, net
  
 
9
 
   7,089,084    6,136,318 
Current tax assets
     6,102    202 
Other current assets
  
 
10
 
   707,169    485,672 
Other financial assets
  
 
5,6,7
 
   30    30 
    
 
 
   
 
 
 
     25,958,461    16,570,953 
    
 
 
   
 
 
 
Non-current
assets
      
Investments in associates and joint ventures
  
 
11
 
   1,483,366    1,166,244 
Long-term investment assets
  
 
5,6,12
 
   6,626,956    6,139,627 
Loans and other receivables, net
  
 
5,6,8,34
 
   340,850    75,589 
Other financial assets
  
 
5,6,7
 
   52,481    353 
Property, plant and equipment, net
  
 
13,16,35
 
   44,349,102    41,230,562 
Right-of-use
assets, net
  
 
3,14
 
   1,569,669    1,707,645 
Intangible assets, net
  
 
15
 
   3,474,968    3,400,278 
Investment property, net
  
 
13,16
 
   164,544    209,417 
Deferred tax assets
  
 
22,32
 
   600,125    556,194 
Employee benefit assets, net
  
 
21
 
   3,930    61,962 
Other
non-current
assets
  
 
10,35
 
   92,870    55,029 
    
 
 
   
 
 
 
     58,758,861    54,602,900 
    
 
 
   
 
 
 
Total assets
    ￦84,717,322    71,173,853 
    
 
 
   
 
 
 
 
 
See accompanying notes to the consolidated financial statements
.
 
G-3
Table of Contents
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Financial Position,  continued
As of October 31, 2021 and December 31, 2020
 
   
Note
   
2021
  
2020
 
   
(In millions of won)
 
Liabilities
     
Current liabilities
     
Trade payables
  
 
5,6,34
 
  ￦1,171,300   1,046,159 
Other payables
  
 
5,6,34
 
   2,377,446   2,348,909 
Other
non-trade
payables
  
 
5,6,17,34
 
   2,154,302   1,367,193 
Borrowings
  
 
5,6,18,35
 
   2,736,032   3,114,250 
Provisions
  
 
20
 
   8,786   13,797 
Current tax liabilities
     2,327,409   636,649 
Lease liabilities
  
 
3,5,6,14
 
   301,846   347,464 
Other current liabilities
  
 
19
 
   231,760   197,395 
Other financial liabilities
  
 
5,6
 
   605   544 
    
 
 
  
 
 
 
     11,309,486   9,072,360 
    
 
 
  
 
 
 
Non-current
liabilities
     
Long-term other payables
  
 
5,6
 
   261,875   272,396 
Other
non-trade
payables
  
 
5,6,17
 
   22,638   29,923 
Borrowings
  
 
5,6,18,35
 
   11,404,344   8,137,398 
Defined benefit liabilities, net
  
 
21
 
   141,747   2,739 
Deferred tax liabilities
  
 
22,32
 
   458,986   266,640 
Lease liabilities
  
 
3,5,6,14
 
   1,259,638   1,296,252 
Other financial liabilities
  
 
5,6,23
 
   5,064   88,121 
Other
non-current
liabilities
  
 
19
 
   92,892   98,927 
    
 
 
  
 
 
 
     13,647,184   10,192,396 
    
 
 
  
 
 
 
Total liabilities
     24,956,670   19,264,756 
    
 
 
  
 
 
 
Equity
     
Equity attributable to owners of the Parent Company
     
Capital stock
  
 
24
 
   3,657,652   3,657,652 
Capital surplus
  
 
24
 
   4,334,643   4,143,736 
Other equity
  
 
24,37
 
   (2,294,986)   (2,503,122) 
Accumulated other comprehensive income(loss)
  
 
25
 
   500,222   (405,453) 
Retained earnings
  
 
26
 
   53,527,575   46,995,728 
    
 
 
  
 
 
 
Total equity attributable to owners of the Parent Company
     59,725,106   51,888,541 
Non-controlling
interests
     35,546   20,556 
    
 
 
  
 
 
 
Total equity
     59,760,652   51,909,097 
    
 
 
  
 
 
 
Total liabilities and equity
    ￦84,717,322   71,173,853 
    
 
 
  
 
 
 
See accompanying notes to the consolidated financial statements.
 
G-4
Table of Contents
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the ten-month period ended October 31, 2021 and years ended December 31, 2020 and 2019
 
   
Note
   
2021
  
2020
  
2019
 
       
(In millions of won, except per share
information)
 
Revenue
  
 
4,27,34
 
  ￦33,974,293   31,900,418   26,990,733 
Cost of sales
  
 
29,34
 
   19,340,881   21,089,789   18,818,814 
    
 
 
  
 
 
  
 
 
 
Gross profit
     14,633,412   10,810,629   8,171,919 
Selling and administrative expenses
  
 
28,29
 
   (5,245,543)   (5,798,005)   (5,452,740) 
Finance income
  
 
5,30
 
   2,040,145   3,327,905   1,247,640 
Finance expenses
  
 
5,30
 
   (1,331,343)   (1,980,411)   (1,531,417) 
Share of profit of equity-accounted investees
  
 
11
 
   204,086   (36,279)   22,633 
Other income
  
 
31
 
   81,441   84,773   88,179 
Other expenses
  
 
31
 
   (145,480)   (171,575)   (113,575) 
    
 
 
  
 
 
  
 
 
 
Profit before income tax
     10,236,718   6,237,037   2,432,639 
Income tax expense
  
 
32
 
   2,915,323   1,478,123   423,561 
    
 
 
  
 
 
  
 
 
 
Profit for the period
     7,321,395   4,758,914   2,009,078 
Other comprehensive income (loss)
      
Item that will never be reclassified to profit or loss:
      
Remeasurements of defined benefit liability, net of tax
  
 
21
 
   22,612   1,266   (90,211) 
Items that are or may be reclassified to profit or loss:
      
Foreign operations – foreign currency translation differences, net of tax
  
 
25
 
   800,810   (47,407)   150,037 
Gain (loss) on valuation of derivatives, net of tax
  
 
23,25
 
   17,103   (417)   12,753 
Equity-accounted investees – share of other comprehensive income (loss), net of tax
  
 
11,25
 
   90,874   (60,820)   21,444 
    
 
 
  
 
 
  
 
 
 
Other comprehensive income (loss) for the period, net of tax
     931,399   (107,378)   94,023 
    
 
 
  
 
 
  
 
 
 
Total comprehensive income for the period
    ￦8,252,794   4,651,536   2,103,101 
    
 
 
  
 
 
  
 
 
 
Profit or loss attributable to:
      
Owners of the Parent Company
    ￦7,309,517   4,755,102   2,005,975 
Non-controlling
interests
     11,878   3,812   3,103 
Total comprehensive income attributable to:
      
Owners of the Parent Company
     8,237,804   4,649,850   2,099,648 
Non-controlling
interests
     14,990   1,686   3,453 
Earnings per share
      
Basic earnings per share (in won)
  
 
33
 
   10,653   6,952   2,933 
Diluted earnings per share (in won)
  
 
33
 
   10,649   6,950   2,932 
See accompanying notes to the consolidated financial statements
 
G-5
Table of Contents
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Changes in Equity
For the ten-month period ended October 31, 2021 and years ended December 31, 2020 and 2019
      
Attributable to owners of the Parent Company
       
   
Notes
  
Capital stock
  
Capital
surplus
  
Other
equity
  
Accumulated
other
comprehensive
income (loss)
  
Retained
earnings
  
Total
  
Non-controlling

interests
  
Total equity
 
   
(In millions of won)
 
Balance at January 1, 2019
   ￦3,657,652   4,143,736   (2,506,451)   (482,819)   42,033,601   46,845,719   6,612   46,852,331 
Total comprehensive income
          
Profit for the year
    —   —   —   —   2,005,975   2,005,975   3,103   2,009,078 
Other comprehensive income (loss)
  
 
25
 
  —   —   —   183,884   (90,211)   93,673   350   94,023 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total comprehensive income
    —   —   —   183,884   1,915,764   2,099,648   3,453   2,103,101 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transactions with owners of the Parent Company
          
Increase of
non-controlling
interests
    —   —   —   —   —   —   4,715   4,715 
Dividends paid
  
 
26
 
  —   —   —   —   (1,026,003)   (1,026,003)   —   (1,026,003) 
Share-based payment transactions
  
 
37
 
  —   —   1,738   —   —   1,738   —   1,738 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total transactions with owners of the Parent Company
    —   —   1,738   —   (1,026,003)   (1,024,265)   4,715   (1,019,550) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2019
   ￦3,657,652   4,143,736   (2,504,713)   (298,935)   42,923,362   47,921,102   14,780   47,935,882 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at January 1, 2020
   ￦3,657,652   4,143,736   (2,504,713)   (298,935)   42,923,362   47,921,102   14,780   47,935,882 
Total comprehensive income
          
Profit for the year
    —   —   —   —   4,755,102   4,755,102   3,812   4,758,914 
Other comprehensive income (loss)
  
 
25
 
  —   —   —   (106,518)   1,266   (105,252)   (2,126)   (107,378) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total comprehensive income
    —   —   —   (106,518)   4,756,368   4,649,850   1,686   4,651,536 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Transactions with owners of the Parent Company
          
Increase of
non-controlling
interests
    —   —   —   —   —   —   4,090   4,090 
Dividends paid
  
 
26
 
  —   —   —   —   (684,002)   (684,002)   —   (684,002) 
Share-based payment transactions
  
 
37
 
  —   —   1,591   —   —   1,591   —   1,591 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total transactions with owners of the Parent Company
    —   —   1,591   —   (684,002)   (682,411)   4,090   (678,321) 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2020
   ￦3,657,652   4,143,736   (2,503,122)   (405,453)   46,995,728   51,888,541   20,556   51,909,097 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to the consolidated financial statements.
 
G-6
Table of Contents
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Changes in Equity,  continued
For the ten-month period ended October 31, 2021 and years ended December 31, 2020 and 2019
 
       
Attributable to owners of the Parent Company
        
   
Notes
   
Capital stock
   
Capital
surplus
  
Other
equity
  
Accumulated
other
comprehensive
income (loss)
  
Retained
earnings
  
Total
  
Non-controlling

interests
   
Total equity
 
   
(In millions of won)
 
Balance at January 1, 2021
    ￦3,657,652    4,143,736   (2,503,122)   (405,453)   46,995,728   51,888,541   20,556    51,909,097 
Total comprehensive income
             
Profit for the
ten-month
period
     —    —   —   —   7,309,517   7,309,517   11,878    7,321,395 
Other comprehensive income (loss)
  
 
25
 
   —    —   —   905,675   22,612   928,287   3,112    931,399 
    
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Total comprehensive income
     —    —   —   905,675   7,332,129   8,237,804   14,990    8,252,794 
    
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Transactions with owners of the Parent Company
             
Dividends paid
     —    —   —   —   (800,282)   (800,282)   —    (800,282) 
Disposal of treasury stock
  
 
26
 
   —    191,247   206,308   —   —   397,555   —    397,555 
Share-based payment transactions
  
 
37
 
   —    (340)   1,828   —   —   1,488   —    1,488 
    
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Total transactions with owners of the Parent Company
     —    190,907   208,136   —   (800,282)   (401,239)   —    (401,239) 
    
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
Balance at October 31, 2021
    ￦3,657,652    4,334,643   (2,294,986)   500,222   53,527,575   59,725,106   35,546    59,760,652 
    
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
   
 
 
 
See accompanying notes to the consolidated financial statements.
 
G-7
Table of Contents
SK HYNIX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
For the ten-month period ended October 31, 2021 and years ended December 31, 2020 and 2019
 
   
Note
   
2021
  
2020
  
2019
 
       
(In millions of won)
 
Cash flows from operating activities
      
Cash generated from operating activities
  
 
36
 
  ￦17,041,459   12,916,771   11,895,834 
Interest received
     14,338   40,635   30,543 
Interest paid
     (201,274)   (288,565)   (238,314) 
Dividends received
     25,962   16,365   14,891 
Income tax paid
     (914,511)   (370,635)   (5,153,218) 
    
 
 
  
 
 
  
 
 
 
Net cash provided by operating activities
     15,965,974   12,314,571   6,549,736 
    
 
 
  
 
 
  
 
 
 
Cash flows from investing activities
      
Net change in short-term financial instruments
     (180,388)   (140,810)   225,447 
Net change in short-term investment assets
     (3,901,661)   (115,122)   4,164,793 
Decrease in other financial assets
     211   773   — 
Increase in other financial assets
     (29,270)   (205)   (627) 
Collection of loans and other receivables
     39,556   36,722   13,057 
Increase in loans and other receivables
     (69,291)   (238,727)   (57,482) 
Proceeds from disposal of long-term investment assets
     21,022   708   4,316 
Acquisition of long-term investment assets
     (86,942)   (93,846)   (81,447) 
Proceeds from disposal of property, plant and equipment
     61,117   59,089   53,840 
Acquisition of property, plant and equipment
     (10,457,621)   (10,068,662)   (13,920,244) 
Proceeds from disposal of intangible assets
     2,073   695   183 
Acquisition of intangible assets
     (780,876)   (800,729)   (673,356) 
Proceeds from business transfer
     3,000   2,958   — 
Receipt of government grants
     7   —   — 
Acquisition of investments in associates
     (40,062)   (483,237)   (176,954) 
Net cash outflow from business combination
     —   —   (2,462) 
    
 
 
  
 
 
  
 
 
 
Net cash used in investing activities
     (15,419,125)   (11,840,393)   (10,450,936) 
    
 
 
  
 
 
  
 
 
 
Cash flows from financing activities
      
Proceeds from borrowings
  
 
36
 
   5,230,157   5,173,016   9,833,882 
Repayments of borrowings
  
 
36
 
   (2,975,415)   (3,921,310)   (4,585,425) 
Payments of lease liabilities
  
 
36
 
   (264,409)   (319,740)   (390,501) 
Proceeds from disposal of treasury shares
     7,761   —   — 
Dividends paid
     (800,282)   (684,002)   (1,026,003) 
Increase of
non-controlling
interests
     —   4,090   4,715 
    
 
 
  
 
 
  
 
 
 
Net cash provided by financing activities
     1,197,812   252,054   3,836,668 
    
 
 
  
 
 
  
 
 
 
Effect of movements in exchange rates on cash and cash equivalents
     154,102   (56,313)   21,283 
    
 
 
  
 
 
  
 
 
 
Net increase (decrease) in cash and cash equivalents
     1,898,763   669,919   (43,249) 
Cash and cash equivalents at beginning of the period
     2,975,989   2,306,070   2,349,319 
    
 
 
  
 
 
  
 
 
 
Cash and cash equivalents at end of the period
    ￦4,874,752   2,975,989   2,306,070 
    
 
 
  
 
 
  
 
 
 
See accompanying notes to the consolidated financial statements.
 
G-8
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
1.    Reporting Entity
(1) General information about SK hynix, Inc. (the “Parent Company” or the “Company”) and its subsidiaries (collectively the “Group”) is as follows:
The Parent Company, incorporated in October 15, 1949, is engaged in the manufactures, distribution and sales of semiconductor products and its shares have been listed on the Korea Exchange since 1996. The Parent Company’s headquarters is located at 2091 Gyeongchung-daero,
Bubal-eup,
Icheon-si,
Gyeonggi-do,
South Korea, and the Group has manufacturing facilities in
Icheon-si
and
Cheongju-si,
South Korea, and Wuxi and Chongqing, China.
As of October 31, 2021, the shareholders of the Parent Company are as follows:
 
Shareholder
  
Number of
shares
   
Percentage of
ownership (%)
 
SK Telecom Co., Ltd.
1
   146,100,000    20.07 
Other investors
   541,520,673    74.38 
Treasury shares
   40,381,692    5.55 
  
 
 
   
 
 
 
   728,002,365    100.00 
  
 
 
   
 
 
 
 
 
1
The largest shareholder of the Parent Company changed to SK Square Co., Ltd. on November 2, 2021, as SK Square Co., Ltd., a new
spin-off
corporation established by SK Telecom Co., Ltd., succeeded the entire shares of the Parent Company held by SK Telecom Co., Ltd.
The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange and the Luxembourg Stock Exchange, respectively.
 
G-9
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
1.    Reporting Entity,  continued
 
(2) Details of the Group’s consolidated subsidiaries as of October 31, 2021 and December 31, 2020 are as follows:
 
      
Ownership (%)
 
Company
 
Location
 
Business
 
2021
  
2020
 
SK hyeng Inc.
 Korea Construction and service  100.00   100.00 
SK hystec Inc.
 Korea Business support and service  100.00   100.00 
Happymore Inc.
 Korea Manufacturing cleanroom
suits and cleaning		  100.00   100.00 
SK hynix system ic Inc.
 Korea Semiconductor
manufacturing and sales		  100.00   100.00 
HappyNarae Co., Ltd.
 Korea Industrial material supply  100.00   100.00 
SK hynix America Inc.
 U.S.A. Semiconductor sales  97.74   97.74 
SK hynix Deutschland GmbH
 Germany Semiconductor sales  100.00   100.00 
SK hynix Asia Pte. Ltd.
 Singapore Semiconductor sales  100.00   100.00 
SK hynix Semiconductor Hong Kong Ltd.
 Hong Kong Semiconductor sales  100.00   100.00 
SK hynix U.K. Ltd.
 U.K. Semiconductor sales  100.00   100.00 
SK hynix Semiconductor Taiwan Inc.
 Taiwan Semiconductor sales  100.00   100.00 
SK hynix Japan Inc.
 Japan Semiconductor sales  100.00   100.00 
SK hynix Semiconductor (Shanghai) Co., Ltd.
 China Semiconductor sales  100.00   100.00 
SK hynix Semiconductor India Private Ltd.
1
 India Semiconductor sales  100.00   100.00 
SK hynix (Wuxi) Semiconductor Sales Ltd.
 China Semiconductor sales  100.00   100.00 
SK hynix Semiconductor (China) Ltd.
 China Semiconductor
manufacturing		  100.00   100.00 
SK hynix Semiconductor (Chongqing) Ltd.
2
 China Semiconductor
manufacturing		  100.00   100.00 
SK hynix Italy S.r.l
 Italy Semiconductor research and
development		  100.00   100.00 
SK hynix memory solutions America Inc.
 U.S.A. Semiconductor research and
development		  100.00   100.00 
SK hynix memory solutions Taiwan Ltd.
 Taiwan Semiconductor research and
development		  100.00   100.00 
SK hynix memory solutions Eastern Europe LLC.
 Belarus Semiconductor research and
development		  100.00   100.00 
SK APTECH Ltd.
 Hong Kong Overseas investment  100.00   100.00 
SK hynix Ventures Hong Kong Limited
 Hong Kong Overseas investment  100.00   100.00 
SK hynix (Wuxi) Investment Ltd.
3
 China Overseas investment  100.00   100.00 
SK hynix (Wuxi) Industry Development Ltd.
4
 China Foreign hospital
construction		  100.00   100.00 
SK hynix Happiness (Wuxi) Hospital Management Ltd.
4
 China Foreign hospital operation  70.00   70.00 
SK hynix system ic (Wuxi) Co., Ltd.
5
 China Overseas Semiconductor
manufacturing and sales		  100.00   100.00 
SK hynix cleaning (Wuxi) Ltd.
4
 China Building maintenance  100.00   100.00 
SUZHOU HAPPYNARAE Co., Ltd.
6
 China Overseas industrial material
supply		  100.00   100.00 
 
G-10
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
1.    Reporting Entity,  continued
 
      
Ownership (%)
 
Company
 
Location
 
Business
 
2021
  
2020
 
CHONGQING HAPPYNARAE Co., Ltd.
7
 China Overseas industrial material
supply		  100.00   100.00 
SkyHigh Memory Limited
5
 Hong Kong Overseas Semiconductor
manufacturing and sales		  60.00   60.00 
SK hynix (Wuxi) Education Technology Co.,Ltd.
4
 China Education  100.00   100.00 
Gauss Labs Inc.
 U.S.A Telecommunication of
information		  100.00   — 
SkyHigh Memory China Limited
9
 China Semiconductor sales  60.00   — 
SkyHigh Memory Limited Japan
9
 Japan Semiconductor sales  60.00   — 
SK hynix NAND Product Solutions Corp.
8
 U.S.A Semiconductor sales  100.00   — 
SK hynix NAND Product Solutions Taiwan Co.,
Ltd.
8
 Taiwan Semiconductor R&D center and
sales supporting		  100.00   — 
SK hynix NAND Product Solutions Canada Ltd.
8
 Canada Semiconductor R&D center  100.00   — 
SK hynix NAND Product Solutions Mexico, S. DE R.L. DE C.V.
8
 Mexico Semiconductor R&D center  100.00   — 
SK hynix Semiconductor (Dalian) Co., Ltd.
8
 China Semiconductor manufacturing  100.00   — 
SK hynix NAND Product Solutions UK Limited.
8
 U.K. Semiconductor Sales  100.00   — 
SK hynix NAND Product Solutions Israel Ltd.
8
 Israel Semiconductor sales supporting  100.00   — 
SK hynix NAND Product Solutions Japan G.K
8
 Japan Semiconductor sales  100.00   — 
SK hynix NAND Product Solutions International LLC.
8
 U.S.A. Semiconductor sales  100.00   — 
SK hynix NAND Product Solutions Asia Pacific LLC.
8
 U.S.A. Semiconductor sales  100.00   — 
SK hynix NAND Product Solutions Singapore Pte. Ltd.
8
 Singapore Semiconductor R&D center and
sales supporting		  100.00   — 
SK hynix NAND Product Solutions Malaysia Sdn. Bhd.
8
 Malaysia Semiconductor sales
supporting		  100.00   — 
SK hynix NAND Product Solutions Poland sp. z.o.o.
8
 
 Poland Semiconductor R&D center  100.00   — 
SK hynix NAND Product Solutions (Beijing) Co., Ltd.
8
 China Semiconductor sales
supporting		  100.00   — 
SK hynix NAND Product Solutions (Shanghai) Co., Ltd.
8
 China Semiconductor R&D center  100.00   — 
SK hynix (Wuxi) Education Service Development Co., Ltd.
10
 China Education  100.00   — 
HappyNarae America LLC
6
 U.S.A Overseas industrial material
supply		  100.00   — 
HappyNarae Hungary Kft
6
 Hungary Overseas industrial material
supply		  100.00   — 
SK hynix Ventures America LLC
 U.S.A Overseas investing
subsidiary		  100.00   — 
MMT (Money Market Trust)
 Korea Money Market Trust  100.00   100.00 
 
 
1
 
Subsidiary of SK hynix Asia Pte. Ltd.
 
2
 
Subsidiary of SK APTECH Ltd.
 
3
 
Subsidiary of SK hynix Semiconductor (China) Ltd.
 
G-11
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
1.    Reporting Entity,  continued
 
4
 
Subsidiary of SK hynix (Wuxi) Investment Ltd.
 
5
 
Subsidiary of SK hynix system ic Inc.
 
6
 
Subsidiary of HappyNarae Co., Ltd.
 
7
 
Subsidiary of SUZHOU HAPPYNARAE Co., Ltd.
 
8
 
Established for the acquisition of NAND business division of Intel Corporation during the
six-month
period ended June 30, 2021.
 
9
 
SkyHigh Memory China Limited and SkyHigh Memory Limited Japan were registered for establishment in March and May 2020, respectively and completed the establishment process by capital injections in April 2021.
 
10
 
Subsidiary of SK hynix (Wuxi) Education Technology Co., Ltd.
(3) Changes in the consolidated subsidiaries for the
ten-month
period ended October 31, 2021 are as follows:
 
Type
  
Company
  
Description
Addition
  SkyHigh Memory China Limited  Newly established
Addition
  SkyHigh Memory Limited Japan  Newly established
Addition
  SK hynix NAND Product Solutions Corp.  Newly established
Addition
  SK hynix NAND Product Solutions Taiwan Co., Ltd.  Newly established
Addition
  SK hynix NAND Product Solutions Canada Ltd.  Newly established
Addition
  SK hynix NAND Product Solutions Mexico, S. DE R.L. DE C.V.  Newly established
Addition
  SK hynix Semiconductor (Dalian) Co., Ltd.  Newly established
Addition
  SK hynix NAND Product Solutions UK Limited  Newly established
Addition
  SK hynix NAND Product Solutions Israel Ltd.  Newly established
Addition
  SK hynix NAND Product Solutions Japan G.K.  Newly established
Addition
  SK hynix NAND Product Solutions International LLC  Newly established
Addition
  SK hynix NAND Product Solutions Asia Pacific LLC  Newly established
Addition
  SK hynix NAND Product Solutions Singapore Pte. Ltd.  Newly established
Addition
  SK hynix NAND Product Solutions Malaysia Sdn. Bhd.  Newly established
Addition
  SK hynix NAND Product Solutions Poland sp. z.o.o.  Newly established
Addition
  SK hynix NAND Product Solutions (Beijing) Co., Ltd.  Newly established
Addition
  SK hynix NAND Product Solutions (Shanghai) Co., Ltd.  Newly established
Addition
  SK hynix (Wuxi) Education Service Development Co., Ltd.  Newly established
Addition
  HappyNarae America LLC  Newly established
Addition
  HappyNarae Hungary Kft  Newly established
Addition
  SK hynix Ventures America LLC  Newly established
 
G-12
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
1.    Reporting Entity,  continued
 
(4) Major subsidiaries’ summarized separate statements of financial position as of October 31, 2021 and December 31, 2020 are as follows:
 
  
2021
  
2020
 
  
Assets
  
Liabilities
  
Equity
  
Assets
  
Liabilities
  
Equity
 
  
(In millions of won)
 
SK hynix system ic Inc.
 ￦1,155,469   383,426   772,043   998,154   368,517   629,636 
SK hynix America Inc.
  3,626,670   3,157,080   469,590   2,722,417   2,330,715   391,702 
SK hynix Asia Pte. Ltd.
  906,789   815,308   91,481   284,115   197,442   86,673 
SK hynix Semiconductor Hong Kong Ltd.
  436,517   277,758   158,759   282,273   134,019   148,254 
SK hynix U.K. Ltd.
  386,978   367,378   19,600   303,729   283,833   19,896 
SK hynix Semiconductor Taiwan Inc.
  333,517   306,768   26,749   273,651   247,895   25,756 
SK hynix Japan Inc.
  376,231   299,721   76,510   348,336   278,622   69,714 
SK hynix (Wuxi) Semiconductor Sales Ltd.
  1,832,638   1,543,348   289,290   1,250,087   1,024,006   226,081 
SK hynix Semiconductor (China) Ltd.
  12,706,152   7,047,555   5,658,597   11,862,866   6,685,079   5,177,787 
SK hynix Semiconductor (Chongqing) Ltd.
  1,064,176   341,413   722,763   920,531   317,216   603,315 
HappyNarae Co., Ltd.
  136,439   77,947   58,492   171,026   116,728   54,298 
(5) Major subsidiaries’ summarized separate statements of comprehensive income for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
 
   
Revenue
   
Profit (Loss)
  
Total
comprehensive
income (loss)
 
   
(In millions of won)
 
SK hynix system ic Inc.
  ￦600,996    145,211   145,082 
SK hynix America Inc.
   13,133,432    46,293   46,293 
SK hynix Asia Pte. Ltd.
   2,626,853    (1,764)   (1,764) 
SK hynix Semiconductor Hong Kong Ltd.
   2,103,667    (354)   (354) 
SK hynix U.K. Ltd.
   1,005,271    (1,771)   (1,771) 
SK hynix Semiconductor Taiwan Inc.
   2,386,011    2,931   2,931 
SK hynix Japan Inc.
   604,054    8,377   8,377 
SK hynix (Wuxi) Semiconductor Sales Ltd.
   10,544,302    39,704   39,704 
SK hynix Semiconductor (China) Ltd.
   3,883,534    2,199   2,199 
SK hynix Semiconductor (Chongqing) Ltd.
   792,505    59,968   59,968 
HappyNarae Co., Ltd.
   709,047    4,195   4,195 
 
G-13
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
1.    Reporting Entity,  continued
 
   
2020
 
   
Revenue
   
Profit (Loss)
  
Total
comprehensive
income (Loss)
 
   
(In millions of won)
 
SK hynix system ic Inc.
  ￦702,979    97,317   95,903 
SK hynix America Inc.
   12,761,911    53,448   53,448 
SK hynix Asia Pte. Ltd.
   1,858,091    3,055   3,055 
SK hynix Semiconductor Hong Kong Ltd.
   1,746,160    6,320   6,320 
SK hynix U.K. Ltd.
   994,299    1,331   1,331 
SK hynix Semiconductor Taiwan Inc.
   1,917,103    4,657   4,657 
SK hynix Japan Inc.
   551,890    (181)   (212) 
SK hynix (Wuxi) Semiconductor Sales Ltd.
   10,423,701    90,303   90,303 
SK hynix Semiconductor (China) Ltd.
   3,936,769    484,677   484,677 
SK hynix Semiconductor (Chongqing) Ltd.
   699,558    73,048   73,048 
HappyNarae Co., Ltd.
   981,466    4,314   4,475 
   
2019
 
   
Revenue
   
Profit
  
Total
comprehensive
income
 
   
(In millions of won)
 
SK hynix system ic Inc.
  ￦661,511    76,195   76,400 
SK hynix America Inc.
   8,353,658    47,947   47,947 
SK hynix Asia Pte. Ltd.
   1,662,315    1,965   1,965 
SK hynix Semiconductor Hong Kong Ltd.
   1,579,680    2,493   2,493 
SK hynix U.K. Ltd.
   907,945    1,057   1,057 
SK hynix Semiconductor Taiwan Inc.
   1,455,320    8,127   8,127 
SK hynix Japan Inc.
   672,393    701   700 
SK hynix (Wuxi) Semiconductor Sales Ltd.
   10,882,152    94,768   94,768 
SK hynix Semiconductor (China) Ltd.
   3,177,415    18,551   18,551 
SK hynix Semiconductor (Chongqing) Ltd.
   477,849    39,102   39,102 
HappyNarae Co., Ltd.
   1,107,524    8,473   8,162 
(6) There are no significant
non-controlling
interests to the Group as of October 31, 2021, December 31, 2020 and December 31, 2019.
2.    Basis of Preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (IASB). In accordance with
Rule 3-09
of Regulation
S-X,
full financial statements of significant equity investments are required to be presented in the annual report of the investor. For purposes of
S-X
3-09,
the investee’s separate annual financial statements should only depict the period of the fiscal year in which it was accounted for by the equity method by the investor. As SK Square Co., Ltd., a new
spin-off
corporation established by SK Telecom Co., Ltd., succeeded the entire share of the Parent Company held by SK Telecom Co., Ltd. on November 2, 2021, the current year’s financial statements are prepared for the period from January 1, 2021 to October 31, 2021. Meanwhile, the comparatives financial statements are prepared for the years ended December 31, 2020 and 2019.
 
G-14
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
2.    Basis of Preparation,  continued
 
The consolidated financial statements were authorized for issuance by Parent Company’s management on April 28, 2022.
(1)    Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:
 
 • 
derivative financial instruments are measured at fair value
 
 • 
financial instruments at fair value through profit or loss and other comprehensive income or loss are measured at fair value
 
 • 
assets or liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets
(2)    Functional and presentation currency
Financial statements of entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.
(3)    Use of estimates
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
(a)    Judgments
Information about critical judgments in applying accounting policies that have the significant effect on the amounts recognized in the consolidated financial statements is included in the note for investments in associates and joint ventures.
(b)    Assumptions and estimation uncertainties
Preparation of consolidated financial statements requires assumptions and estimates of the future, and the management requires judgement to apply the Group’s accounting policies. The estimates and assumptions are continuously assessed, considering historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next future financial year are addressed below.
For the period ended October 31, 2021, the spread of Coronavirus disease 2019
(“COVID-19”)
has a material impact on the global economy. It may have a negative impact; such as, decrease in productivity, decrease or delay in sales, collection of existing receivables and others. Accordingly, it may have a negative impact on the financial position and financial performance of the Group.
 
G-15
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
2.    Basis of Preparation,  continued
 
Assumptions and estimates applied in the preparation of the consolidated financial statements can be adjusted depending on changes in the uncertainty from
COVID-19.
Also, the ultimate effect of
COVID-19
to the Group’s business, financial position and financial performance cannot presently be determined.
The following are estimates and assumptions about management decisions and significant risks that may affect the adjustment of the carrying amount of assets and liabilities in the following financial years: Additional information on significant judgements and estimates for some items is included in the separate footnotes.
 
 
(i)
Fair value of financial instruments
In principle, the fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group is making judgments on the selection and assumptions of various evaluation techniques based on important market conditions as of the end of the reporting period (see note 6).
 
 
(ii)
Corporate income tax
There is uncertainty in determining the final tax effect as corporate tax on the Group’s taxable income is calculated by applying various national tax laws and tax authorities’ decisions. The Group recognized the corporate tax effect, which is expected to be borne in the future as a result of business activities until the end of the reporting period, as current tax and deferred tax after the best estimation process. However, the actual future final corporate tax burden may not be consistent with the assets and liabilities recognized, and this difference may affect current and deferred tax assets and liabilities when the final tax effect is confirmed.
The Group will pay additional corporate taxes calculated by the method prescribed by the tax law when a certain amount of taxable income is not used for investment, salary increase, etc. for a certain period of time. Therefore, when measuring current and deferred taxes during the period, the tax effects should be reflected, and the corporate tax to be borne by the Group depends on the level of investment and salary growth in each year, so there is uncertainty in calculating the final tax effect.
In accordance with IAS 12, the Group reviews uncertainty in its tax treatment and reflects the impact of uncertainty in its financial statements if the tax authorities conclude that uncertainty is unlikely to be accepted, using a method that expects better prediction of uncertainty:
 
 • 
Most likely: the single most likely amount within the range of possible outcomes
 
 • 
Expected value: the sum of all amounts in the range of possible outcomes multiplied by each probability
 
 
(iii)
Provisions
The Group calculates provisions related to litigation costs as of the end of the reporting period, which are determined by estimates based on past experience (see note 20).
 
 
(iv)
Net defined benefit liabilities
The present value of the net defined benefit liability is affected by various factors determined by the actuarial method, especially changes in the discount rate (see note 21).
 
 
(v)
Inventories
Estimating the net realizable value of inventories is based on the most reliable evidence available as of the estimated date for the amount feasible from inventories. In addition, if the Group confirms the circumstances in which an event exists at the end of the reporting period, it shall estimate the change in price or cost directly related to the event.
 
G-16
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
2.    Basis of Preparation,  continued
 
 
(vi)
Revenue recognition
A refund liability and a right to the returned goods are recognized for the products expected to be returned once they are sold. Accumulated experience is used to estimate such returns at the time of sale at a portfolio level (expected value method), and the Group’s revenue is affected by changes in expected return rate.
Sales of goods are recognized based on considerations specified in the contract, net of sales incentives, when control of the products has transferred. The sales deduction, which affects the Company’s revenue, is reasonably estimated based on historical experience and past contracts.
 
 
(vii)
Development cost
The recoverable amounts of development cost have been determined based on
value-in-use
calculations, and those calculations are based on estimates.
 
 
(viii)
Depreciation of property, plant, and equipment and Intangible assets
The depreciation method, residual values and useful lives of property, plant and equipment and Intangible assets are reviewed, and adjusted if appropriate, at the end of each reporting period. If the resulting estimates differ from previous estimates, the difference is accounted for as a change in accounting estimates in accordance with IAS 8
‘Accounting Policies, Changes in Accounting Estimates and Errors’
.
 
 
(ix)
Goodwill
The recoverable amount of cash-generating units to review goodwill for impairment is determined on the basis of their net fair value.
 
 
(x)
Lease
In determining the lease term, the Group considers all relevant facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
For warehouses, retail stores, and equipment leases, the most relevant factors are generally as follows:
 
 • 
If a significant penalty is to be paid to terminate (not to extend), it is generally quite certain that the Group exercises the option to extend (not to extend).
 
 • 
It is generally fairly certain that the Group exercises the option to extend (not exercise the option to terminate) if the lease is expected to have significant residual value.
 
 • 
In other cases than the above, the Group will consider other factors, including the lease duration and costs, and the discontinuation required to replace the leased asset.
Most extension options in office and vehicle transport leases are not included in lease liabilities because the Group can replace the asset without significant cost or business interruption.
The Group reevaluates the lease term if the option is actually exercised (or not exercised) or the Group is liable to exercise (not exercised) the option. Only when significant events occur or there are significant changes in the circumstances that affect the lessee’s control of the lease term, the Group changes its judgment to ensure that the option to extend (or will not be exercised) is significant.
 
G-17
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
2.    Basis of Preparation,  continued
 
(c) Fair value measurement
The Group establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for various financial and
non-financial
assets and liabilities. Such policies and procedures are executed by the valuation department, which is responsible for the review of significant fair value measurements including fair values classified as level 3 in the fair value hierarchy.
The valuation department regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation department assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.
The Group reports significant valuation issues to the audit committee.
When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
 
 • 
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
 
 • 
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
 
 • 
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
If various inputs used to measure fair value of assets or liabilities fall into different levels of the fair value hierarchy, the Group classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy, which is significant to the entire measured value. The Group recognizes transfers between levels at the end of the reporting period of which such transfers occurred.
Information about assumptions used for fair value measurements is included in note 6 financial risk management.
3.    Significant Accounting Policies
The significant accounting policies applied by the Group in preparation of its consolidated financial statements are explained below. Except for the new accounting standards that are effective for annual periods beginning on or after January 1, 2021, the accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
(1)    Operating Segments
An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the Group, 2) whose operating results are reviewed regularly by the Group’s Chief Operating Decision Maker (“CODM”) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. The Group’s CODM is the board of directors, who do not receive and therefore do not review discrete financial information for any component of the Group. Accordingly, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic, product and customer information are provided in note 4 and 27.
 
G-18
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
(2)    Consolidation
(a)    Business combination
A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.
The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred and during period of service, except if related to the issue of debt or equity securities according to IAS 32 and IFRS 9.
The consideration transferred does not include amounts related to the settlement of
pre-existing
relationships. Such amounts are generally recognized in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to
pre-combination
service.
(b)    Non-controlling
interests
Non-controlling
interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(c)    Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the entity. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.
(d)    Loss of control
If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.
(e)    Interests in equity-accounted investees
The Group’s interest in equity-accounted investees comprise interests in an associate and a joint venture. An associate are these entities in which the Group has significant influence, but not control or joint control, over the
 
G-19
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
entity’s financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and the joint venture are initially recognized at cost including transaction costs. Subsequent to initial recognition, their carrying amounts are increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture. Distributions from equity-accounted investees are accounted for as deduction from the carrying amounts.
(f)    Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with equity-accounted investees are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.
(g)    Business combinations under common control
The assets and liabilities acquired in the combination of entities or business under common control are recognized at the carrying amounts recognized previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is added to or deducted from other capital adjustments.
(3)    Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.
(4)    Inventories
The cost of inventories is based on the weighted average method (except for goods
in-transit
that is based on the specific identification method), and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing inventories to their existing location and condition. In the case of manufactured inventories and
work-in-process,
cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.
Inventories are measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. The amount of any write-down of inventories to net realizable value and all losses of inventories shall be recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, shall be recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.
(5)    Non-derivative
financial assets
(a)    Initial recognition and measurement
Trade and other receivables, and debt investment are initially recognized when they are originated. Other financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instruments.
 
G-20
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
A financial asset and financial liability (unless it is an account receivable—trade without a significant financing component that is initially measured at the transaction price) are initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition.
(b)    Classification and subsequent measurements
On initial recognition, a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (FVOCI)—debt investment; FVOCI—equity investment; or FVTPL. The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. In case of changing its business model, all affected financial asset are reclassified on the first day of the first reporting period after the change in the business model.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
 
 • 
it is held within a business model whose objective is to hold assets to collect contractual cash flow; and
 
 • 
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
 
 • 
it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
 
 • 
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an
investment-by-investment
basis and irrevocable election can be made at initial recognition.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
The Group makes an assessment of the objective of the business model in which, financial assets is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
 
 • 
the stated policies and objectives for the portfolio and the operation of those policies in practice;
 
 • 
how the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity’s key management personnel;
 
 • 
the risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way in which those risks are managed;
 
 • 
how managers of the business are compensated (e.g. whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected); and
 
 • 
the frequency, volume and timing of sales of financial assets in prior periods, the reason for those sales and expectation about future sales activity for financial asset.
 
G-21
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets.
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial assets on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
 
 • 
contingent events that would change the amount or timing of cash flows;
 
 • 
terms that may adjust the contractual coupon rate, including variable-rate features;
 
 • 
prepayment and extension features; and
 
 • 
terms that limit the Group’s claim to cash flows from specified assets (e.g.
non-recourse
features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
The following accounting policies apply to subsequent measurements of financial assets.
 
Financial assets at FVTPL
  These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost
  These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Debt investments at FVOCI
  These assets are subsequently measured at fair value. Interest income is calculated using the effective interest method. Foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVOCI
  These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
 
G-22
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
(c)    De-recognition
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognized in its statement of financial position, but retain either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.
(d)    Offsetting between financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.
(6)    Derivative financial instruments
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value at the end of each reporting period, and changes in the fair value of derivatives therein are accounted for as described below.
(a)    Hedge accounting
The Group enters into a
fixed-to-fixed
cross currency swap contract and a
floating-to-fixed
cross currency interest rate swap contract to hedge interest rate risk and currency risk.
On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction. In addition, the document includes hedging instruments; hedged items; initial commencement date of those hedge relationship; fair value of hedged items based on hedged risk during the subsequent period; and the method of valuation on hedging instruments offsetting changes in cash flow.
 
 • 
Cash flow hedge
When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in accumulated other comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods which the forecasted transaction occurs.
(b)    Other derivative financial instruments
Other derivative financial instrument not designated as a hedging instrument are measured at fair value, and the changes in fair value of the derivative financial instrument is recognized immediately in profit or loss.
 
G-23
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.     Significant Accounting Policies,  continued
 
(7)    Impairment of financial assets
(a)    Recognition of impairment on financial assets
The Group recognizes loss allowances for expected credit losses (ECLs) on:
 
 • 
financial assets measured at amortized costs; and
 
 • 
contract assets.
The Group measures impairment losses at an amount equal to lifetime ECLs except for the below assets, which are measured at
12-month
ELCs.
 
 • 
credit risk of debt instruments is low at the end of reporting date
 
 • 
credit risk has not increased significantly since the initial recognition of debt investment (lifetime ECL: ECL that resulted from all possible default events over the expected life of a financial instrument)
The Group adopted an accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses for trade receivables and contract assets.
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition and estimating expected credit loss, the Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.
Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of a financial instrument.
12-month
ECLs are the portion of ECLs that result from all default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
(b)    Measurement of expected credit loss
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial instrument.
(c)    Credit-impaired financial instrument
A debt instrument carried at amortized cost and fair value through other comprehensive income (FVOCI) is assessed at the end of each reporting period to determine whether there is objective evidence that it is impaired. A financial asset is credit- impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred.
Objective evidence that a financial asset is impaired includes:
 
 • 
significant financial difficulty of the issuer or borrower;
 
 • 
a breach of contract, such as default or delinquency in interest or principal payments;
 
G-24
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
 • 
the Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the Group would not otherwise consider;
 
 • 
it becoming probable that the borrower will enter bankruptcy or other financial reorganization; or
 
 • 
the disappearance of an active market for the financial asset because of financial difficulties
(d)    Presentation of credit loss allowance on financial position
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.
(e)    Write-off
The Group writes off a financial asset when it has no reasonable expectations of recovering the contractual cash flows on a financial asset in its entirety or a portion thereof. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of
write-off
based on whether there is a reasonable expectation of recovery. However financial assets that are written off could still be subject to collection activities according to the Group’s past due collection process.
(8)    Property, plant and equipment
Property, plant and equipment are initially measured at cost. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.
Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the
day-to-day
repair and maintenance are recognized in profit or loss as incurred.
Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized as other income or expenses.
The estimated useful lives of the Group’s property, plant and equipment are as follows:
 
   
Useful lives (years)
 
Buildings
   10 - 50 
Structures
   10 - 20 
Machinery
   5 - 15 
Vehicles
   5 - 10 
Others
   5 - 10 
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
Depreciation methods, useful lives, and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.
(9)    Borrowing costs
The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale.
Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.
To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period does not exceed the amount of borrowing costs incurred during that period.
(10)    Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.
Goodwill arising from business combinations is recognized as the excess of the consideration transferred in the acquisition over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.
Amortization of intangible assets is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, certain intangible assets are determined as having indefinite useful lives and not amortized as there is no foreseeable limit to the period over which the assets are expected to be available for use.
The estimated useful lives of the Group’s intangible assets are as follows:
 
   
Useful lives (years)
Industrial rights
  5 - 10
Development costs
  2
Other intangible assets
1
  4 - 20
 
 
1
Other intangible assets include royalty payments with useful lives of 4 to 20 years.
Useful lives and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.
Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and others, are recognized in profit or loss as incurred.
(11)    Government grants
Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.
(a)    Grants related to assets
Government grants whose primary condition is that the Group purchases, constructs or otherwise acquires
non-current
assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the useful lives of depreciable assets.
(b)    Grants related to income
Government grants which are intended to compensate the Group for expenses incurred are recognized in profit or loss by as deduction of the related expenses.
(12)    Investment property
Property held for the purpose of earning rental income or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at cost less accumulated depreciation and impairment losses.
Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the
day-to-day
repair and maintenance are recognized in profit or loss as incurred.
Investment property is depreciated on a straight-line basis over 40 years.
Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.
(13)    Impairment of
non-financial
assets
The carrying amounts of the Group’s
non-financial
assets, other than assets arising from employee benefits, inventories, and deferred tax assets, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.
The Group estimates the recoverable amount of an individual asset; however if it is impossible to measure the individual recoverable amount of an asset, the Group estimates the recoverable amount of cash-generating unit
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
(“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell.
The value in use is estimated by applying a
pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.
An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount.
Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from business combination. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis.
Except for impairment losses in respect of goodwill, which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(14)    Leases
The Group assesses whether a contract is or contains a lease at inception of a contract. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
(a)    As a lessee
The Group recognizes for a
right-of-use
asset and a lease liability at the lease commencement date. The
right-of-use
asset is initially measured at cost, the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove of the underlying asset, or to restore the underlying asset or the site on which the underlying asset is located, less any lease incentives received.
The
right-of-use
asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In case that ownership of the
right-of-use
asset is transferred at the end of the lease term, or the cost of the
right-of-use
asset includes the exercise price of a purchase option, the
right-of-use
asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the
right-of-use
asset may be reduced by an impairment loss or adjusted for remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The Group generally uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability consist of the following:
 
 • 
fixed payments (including
in-substance
fixed payments)
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.     Significant Accounting Policies,  continued
 
 • 
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date
 
 • 
amounts expected to be payable under a residual value guarantee
 
 • 
the exercise price under a purchase option that the Group is reasonably certain to exercise
 
 • 
lease payments in an optional renewal period, if the Group is reasonably certain to exercise extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is subsequently increased by the interest expense recognized for the lease liability and decreased by reflecting the payment of the lease. The lease liability is remeasured when there is a change in future lease payments arising from changes in an index or a rate (interest rate), if there’s a change in the Group’s estimate of the amount expected to be paid under a residual value guarantee, or if the Group changes in the assessment of whether the option to buy or extend is reasonably certain to be exercised or not to exercise the termination option.
When the lease liabilities are remeasured, a corresponding adjustment is made to the carrying amount of the
right-of-use
asset, or is recorded in profit or loss if the carrying amount of the
right-of-use
asset has been reduced to zero.
A lessee shall remeasure the lease liability as an adjustment to the
right-of-use
asset, if either:
 
 • 
a change in the lease term or a change in circumstances or significant events that result in a change in the assessment of the exercise of the purchase option. In such cases, the lease liability is remeasured by discounting the modified lease payment at the revised discount rate;
 
 • 
the lease payment changes due to changes in the index or rate (interest rate) or the amount expected to be paid according to the residual value guarantee. In such cases, the lease liability measures the modified lease fee again by discounting it at an unchanged discount rate. However, if a change in the variable interest rate causes a change in the lease payments, the revised discount rate that reflects the change in interest rates is used; or
 
 • 
the lease agreement changes and is not accounted for as a separate lease. In such cases, the lease liability is remeasured by discounting the modified lease payment at the revised discount rate as of the effective date of the lease change, based on the lease term of the modified lease.
The Group has elected not to recognize
right-of-use
assets and lease liabilities for some leases of
low-value
assets and short-term leases. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and
non-lease
component on the basis of their relative stand-alone prices. However, for certain agreements, the Group has elected practical expedient not to separate
non-lease
components and account for the lease and
non-lease
components as a single lease component.
The Group separately presents
right-of-use
assets that do not meet the definition of investment property in the statement of financial position.
Subsequently, the right-of-use asset is accounted for consistently with the accounting policies applicable to the asset.
(b)    As a lessor
As a lessor, the Group determines whether the lease is a finance lease or an operating lease at the inception of the lease.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
To classify each lease, the Group generally determines whether the lease transfers most of the risks and rewards of ownership of the underlying asset. If most of the risks and rewards of ownership of the underlying asset are transferred to the lessee, the lease is classified as a finance lease, otherwise the lease is classified as an operating lease. As part of this assessment, the Group considers whether the lease term represents a significant portion of the economic life of the underlying asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. In addition, the classification of a lease is determined by the
right-of-use
asset arising from the head lease, not the underlying asset. If a head lease is a short-term lease to which the Group applies the recognition exemption, then the sub-lease is classified as an operating lease.
The Group has applied IFRS 15
‘Revenue from Contracts with Customers’
to allocate consideration in the contract to each lease and
non-lease
components.
The Group recognizes the lease payments received from operating leases on a straight-line basis over the lease term as revenue in ‘other revenue’.
The accounting policies that the Group has applied to the comparative period as lessors are not different from those in IFRS 16.
(15)    Non-derivative
financial liabilities
The Group classifies
non-derivative
financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.
(a)    Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, any directly attributable transaction costs are recognized in profit or loss as incurred.
(b)    Other financial liabilities
Non-derivative
financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest rate method.
(c)    Derecognition of financial liability
The Group derecognizes financial liability when its contractual obligations are discharged, cancelled or expire. The Group also derecognizes a financial liability, when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any
non-cash
assets transferred of liabilities assumed) is recognized in profit or loss.
 
G-30
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
(16)    Employee benefits
(a)    Short-term employee benefits
Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.
(b)    Other long-term employee benefits
Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the reporting period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods. Remeasurements are recognized in profit or loss in the period in which they arise.
(c)    Retirement benefits: defined benefit plans
As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations, net of fair value of plan assets.
The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.
Remeasurements of the net defined benefit liability (asset) comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability (asset), and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset), and are recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains or losses on a settlement of defined benefit plan when the settlement occurs.
(d)    Retirement benefits: defined contribution plans
When an employee has provided service for a certain period of time in relation to the defined contribution plan, the contribution to the defined contribution plan is recognized in profit or loss except to be included in the cost of the asset. The contributions to be paid are recognized as liabilities (accrued expenses) less the contributions that have been already paid.
(e)    Termination benefits
The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring. If benefits are not payable within 12 months after the end of the reporting period, then they are discounted to their present value.
 
G-31
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
(17)    Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.
Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the Group settles the obligation. The reimbursement is treated as a separate asset.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
A provision is used only for expenditures for which the provision was originally recognized.
(18)    Emissions Rights
The Group accounts for greenhouse gases emission right and the relevant liability as below pursuant to the
Act on Allocation and Trading of Greenhouse Gas Emission
in Korea.
(a)    Greenhouse Gases Emission Right
Greenhouse Gases Emission Right consists of emission allowances, which are allocated from the government free of charge or purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business.
Emission rights held for the purpose of performing the obligation are classified as intangible asset and are initially measured at cost and after initial recognition are carried at cost less accumulated impairment losses. Emission rights held for short-swing profits are classified as current asset and are measured at fair value with any changes in fair value recognized as profit or loss in the respective reporting period.
The Group derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government in which the future economic benefits are no longer expected to be probable.
(b)    Emission liability
Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. Emission liability is recognized when it is probable that outflows of resources will be required to settle the obligation and the costs required to perform the obligation are reliably estimable. Emission liability is an amount of estimated obligations for emission rights to be submitted to the government for the performing period. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession and the unit price for such emission rights in the market at the end of the reporting period.
(19)    Foreign currencies
(a)    Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
retranslated to the functional currency at the exchange rate at the reporting data.
Non-monetary
assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on the settlement or retranslation of monetary items are recognized in profit or loss, except for differences arising on the retranslation of the net investment in a foreign operation, which are recognized in other comprehensive income. When a gain or loss on a
non-monetary
item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a
non-monetary
item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.
(b)    Foreign operations
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the end of reporting period. The income and expenses of foreign operations are translated to functional currency at everage rates. Foreign currency differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the exchange rates at the end of reporting date.
When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to
non-controlling
interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.
(20)    Equity capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares is recognized as a deduction from equity, net of any tax effects.
When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss but recognized directly in equity. If the Group acquires and disposes treasury shares, the consideration paid or received is directly recognized in equity.
(21)    Share-based payment
The Group has granted shares or share options to its employees. For equity-settled share-based payment transactions, the Group measures the goods or services received, and the corresponding increase in equity as a capital adjustment at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Group cannot reliably estimate the fair value of the goods or services received, the Group measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. If the fair value of the equity instruments cannot be estimated reliably at the measurement date, the Group measures them at their intrinsic value and recognizes the goods or services received based on the number of equity instruments that ultimately vest.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
For cash-settled share-based payment transactions, the Group measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Group remeasures the fair value of the liability at each reporting date and at the date of settlement, with changes in fair value recognized in profit or loss for the period.
The Group accounts for share-based payment, with options to choose either cash-settled or equity-settled share-based payment, in accordance with the substance of transactions.
(22)    Revenue from contracts with customers
The Group’s accounting policies relating to revenue from contracts with customers are described in note 27.
(23)    Finance income and finance expenses
The Group’s finance income and finance expenses include:
 
 • 
Interest income;
 
 • 
Interest expense;
 
 • 
Dividend income;
 
 • 
The net gain or loss on financial assets at fair value through profit or loss;
 
 • 
Gain or loss on foreign exchange (currency) translation for financial asset and liabilities;
 
 • 
Impairment losses and reversals on investment in debt securities carried at amortized cost method; and
 
 • 
The gain on the remeasurement to fair value of any
pre-existing
interest in an acquire in a business combination
The Group uses effective interest rate method for recognizing interest income and expense. Dividend income is recognized in profit or loss on the date that the Group’s right to receive dividend is established.
The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:
 
 • 
The gross carrying amount of the financial asset; or
 
 • 
The amortized cost of the financial liability
In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.
(24)    Income taxes
Income tax expense comprises current and deferred tax. Current and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
(a)    Current tax
Current tax is the expected tax payable or refundable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
previous years. The amount of current tax payable or receivable is the best estimate of tax amount expected to be paid or received that reflects uncertainty related to income taxes. The taxable income is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and
non-taxable
or
non-deductible
items from the accounting profit. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.
In accordance with
K-IFRS
No.1012, the Group reviews uncertainty in its tax treatment and reflects the impact of uncertainty in its financial statements if the tax authorities conclude that uncertainty is unlikely to be accepted, using a method that expects better prediction of uncertainty:
 
 (i)
Most likely: the single most likely amount within the range of possible outcomes
 
 (ii)
Expected value: the sum of all amounts in the range of possible outcomes multiplied by each probability.
(b)    Deferred tax
Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes deferred tax assets for all deductible temporary differences including unused tax loss and tax credit to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis. If there are any additional income tax expense incurred in accordance with dividend payments, such income tax expense is recognized when liabilities relating to the dividend payments are recognized.
(25)    Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
outstanding ordinary shares, adjusted for own shares held, for the effects of all dilutive potential ordinary shares including stock options.
(26)    New and amended standards adopted by the Group
The following new standards and amendments to standards are effective for accounting periods beginning on or after January 1, 2021 and earlier application is permitted. The impacts on the consolidated financial statements in adopting the following new standards are not expected to be significant.
(a)    Amendments to IFRS 1116 ‘Lease’ — Practical expedient for
COVID-19-Related
Rent Concessions
As a practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the
COVID-19
pandemic is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the rent concession the same way it would account for the change applying this standard if the change were not a lease modification. The amendment does not have a significant impact on the consolidated financial statements.
(b)    Amendments to IFRS 1109 ‘Financial Instruments’, IAS 39 ‘Financial Instruments: Recognition and Measurement’ and IFRS 1107 ‘Financial Instruments: Disclosure’, IFRS 1104 ‘Insurance Contracts’, IFRS 1116 ‘Lease’ — Interest Rate Benchmark Reform (Phase 2 amendments)
In relation to interest rate benchmark reform, the amendments provide exceptions including adjust effective interest rate instead of book amounts when interest rate benchmark of financial instruments at amortized costs is replaced, and apply hedge accounting without discontinuance although the interest rate benchmark is replaced in hedging relationship. The amendments do not have a significant impact on the consolidated financial statements.
(27)    New and amended standards not yet adopted by the Group
The following new accounting standards and interpretations that have been published that are not mandatory for October 31, 2021 reporting period and have not been early adopted by the Group.
(a)    Amendments to IFRS 1116 ‘Lease’ — Practical expedient for
COVID-19-Related
Rent, Concessions beyond June 30, 2021
The application of the practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the
COVID-19
pandemic is a lease modification, is extended to lease payments originally due on or before September 30, 2022. A lessee shall apply the practical expedient consistently to eligible contracts with similar characteristics and in similar circumstances. The amendment should be applied for annual periods beginning on or after April 1, 2021, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements
(b)    Amendments to IFRS 1103 ‘Business Combination’ — Quotation of Conceptual Framework
The amendments update a reference of definition of assets and liabilities qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of Korea IFRS 1037 Provisions, Contingent Liabilities and Contingent Assets, and IFRIC 2121 Levies. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
3.    Significant Accounting Policies,  continued
 
(c)    Amendments to IAS 16 ‘Property, plant and equipment’ — Proceeds before intended use
The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
(d)    Amendments to IAS 37 ‘Provision and Contingent liabilities and Contingent assets’ — Onerous contracts : Cost of fulfilling a Contract
The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendments should be applied for annual periods beginning on or after January 1, 2022, and early application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
(e)    Annual Improvements to ‘Framework 2018-2020’
Annual improvements of ‘
Framework 2018-2020’
Cycle should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
 
 • 
IFRS 1101 First-time Adoption of Korean International Financial Reporting Standards : Subsidiaries that are first-time adopters
 
 • 
IFRS 1109 Financial Instruments : Fees in the ‘10% Test’ for Derecognition of Financial Liabilities
 
 • 
IFRS 1116 Lease : Lease Incentives
 
 • 
IFRS 1041 Agriculture : Fair Value Measurement
(f)    Amendments to IAS 1 ‘Presentation of Financial Statements’— Classification of Liabilities as Current or
Non-current
The amendments clarify that liabilities are classified as either current or
non-current,
depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the expectations of management. Also, the settlement of liability include the transfer of the entity’s own equity instruments, however, it would be excluded if an option to settle them by the entity’s own equity instruments if compound financial instruments is met the definition of equity instruments and recognized separately from the liability. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Group is reviewing the impact of the amendments on the consolidated financial statements.
4.    Geographic and Customer Information
The Group has a single reportable segment that is engaged in the manufacture and sale of semiconductor products. The Board of Directors of the Group reviews the operating results of the semiconductor business for reporting information used and reviewed when establishing the Group’s business strategy.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
4.    Geographic and Customer Information,  continued
 
(1) The Group’s
non-current
assets (excluding financial assets, loans and other receivables, equity-accounted investees and deferred tax assets) information by region based on the locations of subsidiaries as of October 31, 2021 and December 31, 2020 are as follows:
 
   
2021
   
2020
 
   
(In millions of won)
 
Korea
  ￦38,387,308    35,954,666 
China
   10,780,547    10,302,196 
Asia (other than China)
   17,568    20,397 
U.S.A.
   487,969    373,767 
Europe
   15,599    13,868 
  
 
 
   
 
 
 
  ￦ 49,688,991    46,664,894 
  
 
 
   
 
 
 
(2) Revenue from customer A and B each constitutes more than 10% of the Group’s consolidated revenue for the
ten-month
period ended October 31, 2021 and amounts to ￦3,892,880 million and ￦3,455,432 million, respectively. In addition, revenue from customer A, B and C each constitutes more than 10% of the Group’s consolidated revenue for the year ended December 31, 2020 and amounts to ￦3,510,469 million (2019: ￦3,051,211 million), ￦3,190,135 million (2019: ￦2,495,743 million) and ￦3,655,937 million (2019: ￦4,947,483 million), respectively.
5.    Categories of Financial Instruments
(1) Categories of financial assets as of October 31, 2021 and December 31, 2020 are as follows:
 
  
October 31, 2021
 
  
Financial assets at fair value
through profit or loss
  
Financial assets at fair value
through other comprehensive
income or loss
  
Financial assets at
amortized cost
  
Total
 
  
(In millions of won)
 
Cash and cash equivalents
 ￦—   —   4,874,752   4,874,752 
Short-term financial instruments
  222,500   —   376,625   599,125 
Short-term investment assets
  5,494,158   —   —   5,494,158 
Trade receivables
1
  —   660,211   6,462,823   7,123,034 
Loans and other receivables
  —   —   405,857   405,857 
Other financial assets
  23,028   —   29,483   52,511 
Long-term investment assets
  6,626,956   —   —   6,626,956 
 
 
 
  
 
 
  
 
 
  
 
 
 
 ￦ 12,366,642   660,211   12,149,540   25,176,393 
 
 
 
  
 
 
  
 
 
  
 
 
 
 
1
The Group transferred certain portion of trade receivables, which are from specific customers, and derecognized the trade receivables from the financial statements as all the risks and rewards are substantially transferred. Accordingly, the Group recognized gain or loss on disposal of trade receivables.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
5.     Categories of Financial Instruments,  continued
 
  
December 31, 2020
 
  
Financial assets at fair value
through profit or loss
  
Financial assets at fair value
through other comprehensive
income or loss
  
Financial assets at
amortized cost
  
Total
 
  
(In millions of won)
 
Cash and cash equivalents
 ￦—   —   2,975,989   2,975,989 
Short-term financial instruments
  227,500   —   209,208   436,708 
Short-term investment assets
  1,535,518   —   —   1,535,518 
Trade receivables
1
  —   512,458   4,418,864   4,931,322 
Loans and other receivables
  —   —   144,783   144,783 
Other financial assets
  —   —   383   383 
Long-term investment assets
  6,139,627   —   —   6,139,627 
 
 
 
  
 
 
  
 
 
  
 
 
 
 ￦ 7,902,645   512,458   7,749,227   16,164,330 
 
 
 
  
 
 
  
 
 
  
 
 
 
 
1
The Group transferred certain portion of trade receivables, which are from specific customers, and derecognized the trade receivables from the financial statements as all the risks and rewards are substantially transferred. Accordingly, the Group recognized gain or loss on disposal of trade receivables.
(2) Categories of financial liabilities as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31, 2021
 
   
Financial liabilities
measured at amortized cost
   
Other financial liabilities
   
Total
 
   
(In millions of won)
 
Trade payables
  ￦1,171,300    —    1,171,300 
Other payables
   2,639,321    —    2,639,321 
Other
non-trade
payables
   2,176,940    —    2,176,940 
Borrowings
   14,140,376    —    14,140,376 
Lease liabilities
   1,561,484    —    1,561,484 
Other financial liabilities
   4,496    1,173    5,669 
  
 
 
   
 
 
   
 
 
 
  ￦21,693,917    1,173    21,695,090 
  
 
 
   
 
 
   
 
 
 
   
December 31, 2020
 
   
Financial liabilities
measured at amortized cost
   
Other financial liabilities
   
Total
 
   
(In millions of won)
 
Trade payables
  ￦1,046,159    —    1,046,159 
Other payables
   2,621,305    —    2,621,305 
Other
non-trade
payables
   1,397,116    —    1,397,116 
Borrowings
   11,251,648    —    11,251,648 
Lease liabilities
   1,643,716    —    1,643,716 
Other financial liabilities
   3,958    84,707    88,665 
  
 
 
   
 
 
   
 
 
 
  
￦
17,963,902		    84,707    18,048,609 
  
 
 
   
 
 
   
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
5.    Categories of Financial Instruments,  continued
 
(3) Details of gain and loss on financial assets and liabilities by category for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
  
2020
  
2019
 
   
(In millions of won)
 
Financial assets at amortized cost
    
Interest income
  ￦18,496   27,872   30,062 
Foreign exchange differences
   649,633   (959,065)   229,649 
Loss on disposal
   (125)   —   — 
Impairment
   (868)   (555)   — 
Reversal of impairment
   —   5   85 
  
 
 
  
 
 
  
 
 
 
   667,136   (931,743)   259,796 
Financial assets at fair value through profit or loss
    
Dividend income
   7,875   1,325   429 
Gain on disposal
   52,903   27,510   59,217 
Gain (loss) on valuation
   11,150   1,736,345   (227,423) 
Foreign exchange differences
   (83,298)   (40,222)   209,563 
  
 
 
  
 
 
  
 
 
 
   (11,370)   1,724,958   41,786 
Financial liabilities measured at amortized cost
    
Interest expenses
   (218,076)   (253,468)   (245,440) 
Foreign exchange differences
   (227,930)   809,001   (339,834) 
  
 
 
  
 
 
  
 
 
 
   (446,006)   555,533   (585,274) 
Financial liabilities measured at fair value through profit or loss
    
Loss on valuation
   (1,704)   (1,681)   — 
  
 
 
  
 
 
  
 
 
 
  ￦208,056   1,347,067   (283,692) 
  
 
 
  
 
 
  
 
 
 
6.    Financial Risk Management
(1)    Financial risk management
The Group’s activities are exposed to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.
Risk management is carried out by the Parent Company’s corporate finance division in accordance with policies approved by the board of directors. The Parent Company’s corporate finance division identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The board of directors provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, and credit risk, use of derivative financial instruments and
non-derivative
financial instruments, and investment of excess liquidity.
(a)    Market risk
(i)    Foreign currency risk
The Group operates internationally and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to US dollar, Chinese Yuan, Euro and Japanese Yen. Foreign currency risk arises
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
from future commercial transactions, recognized assets and liabilities in foreign currencies, and net investments in foreign operations.
Monetary foreign currency assets and liabilities as of October 31, 2021 are as follows:
 
   
Assets
   
Liabilities
 
   
Foreign
currencies
   
Korean won
equivalent
   
Foreign
currencies
   
Korean won
equivalent
 
   
(In millions of won and millions of foreign currencies)
 
USD
   14,671   ￦17,189,434    14,254   ￦16,701,257 
JPY
   348    3,593    46,901    483,851 
CNY
   —    82    24    4,354 
EUR
   9    11,718    178    243,349 
Also, as described in note 23, the Group entered into a
fixed-to-fixed
cross currency swap and a
floating-to-fixed
cross currency interest rate swap to hedge foreign currency rate risk relating to bonds and borrowings denominated in foreign currencies.
As of October 31, 2021, effects on profit before income tax as a result of strengthening or weakening of the foreign currencies by 10% are as follows:
 
   
If strengthening by 10%
  
If weakening by 10%
 
   
(In millions of won)
 
USD
  ￦165,519   (165,519) 
JPY
   (48,026)   48,026 
CNY
   (427)   427 
EUR
   (23,163)   23,163 
(ii)    Interest rate risk
Interest rate risk of the Group is defined as the risk that the interest expenses arising from borrowings will fluctuate because of changes in future market interest rate. The interest rate risk mainly arises through floating rate borrowings, and is partially offset by interests received from floating rate financial assets.
The Group is managing cash flow interest rate risk using
floating-to-fixed
cross currency interest rate swaps. These interest rate swaps have an economic effect of converting floating interest borrowings into fixed interest borrowings. Generally, the Group borrows at a floating interest rate and then swaps at a fixed rate. Under the swap agreement, the Group will settle the difference between fixed interest costs and the floating interest costs calculated according to the principal agreed upon for each counterparty and specific period (mainly quarterly).
The Group is partially exposed to the risk of changing net interest costs due to changes in interest rates as of October 31, 2021. The Group has signed a currency interest rate swap contract on floating interest rate borrowings of ￦585,850 million and interest rate swap contract on floating interest rate borrowings of ￦117,170 million. Therefore, the changes in interest costs subject to fluctuation of interest rates do not have an impact on the profit before income tax for the
ten-month
period ended October 31, 2021.
As of October 31, 2021, if interest rates on borrowings and financial assets had been 100 basis points higher/lower with all other variables held constant, profit before income tax would have been ￦36,389 million (2020 : ￦50,270 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and net interest costs on floating rate financial assets.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
(iii)    Price risk
The Group invests in equity and debt securities resulted from its business needs and the purpose of liquidity management. The Group’s equity and debt securities are exposed to price risk as of October 31, 2021.
Equity investments that the Group owns are all unlisted equities and the effect of the equity investments on the Group’s profit for the
ten-month
period and other comprehensive income are explained in note 12.
(b)    Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from operating and investing activities. In order to manage credit risk, the Group periodically evaluates the credit worthiness of each customer or counterparty through the analysis of its financial information, historical transaction records and other factors, based on which the Group establishes credit limits for each customer or counterparty.
(i)    Trade and other receivables
For each new customer, the Group individually analyzes its credit worthiness before standard payment and delivery terms and conditions are offered. In addition, the Group is consistently managing trade and other receivables by reevaluating the overseas customer’s credit worthiness and securing collaterals in order to limit its credit risk exposure.
The Group reviews at the end of each reporting period whether trade and other receivables are impaired and maintains credit insurance policies to manage credit risk exposure from oversea customers. The maximum exposure to credit risk as of October 31, 2021 is the carrying amount of trade and other receivables.
(ii)    Other financial assets
Credit risk also arises from other financial assets such as cash and cash equivalents, short-term financial instruments, and deposits with banks and financial institutions as well as short-term and long-term loans mainly due to the bankruptcy of each counterparty to those financial assets. The maximum exposure to credit risk as of October 31, 2021 is the carrying amount of those financial assets. The Group transacts only with banks and financial institutions with high credit ratings, and accordingly management does not expect any significant losses from
non-performance
by these counterparties.
(c)    Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in having sufficient funds needed to meet obligations associated with its financial contracts until maturity. The Group forecasts its cash flow and liquidity status and sets action plans on a regular basis to manage liquidity risk proactively.
The Group invests surplus cash in interest-bearing current accounts, time deposits, and demand deposits, choosing instruments with appropriate maturities or sufficient liquidity based on the above-mentioned forecasts.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
Contractual maturities of financial liabilities as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31, 2021
 
   
Less than
1 year
   
1 – 2 years
   
2 – 5 years
   
More than
5 years
   
Total
 
   
(In millions of won)
 
Borrowings
1
  ￦2,984,990    2,876,617    6,736,101    2,512,410    15,110,118 
Lease liabilities
   429,548    271,723    436,883    616,039    1,754,193 
Trade payables
   1,171,300    —    —    —    1,171,300 
Other payables
   2,378,123    63,945    175,208    42,181    2,659,457 
Other
non-trade
payables
   2,112,716    11,073    11,565    —    2,135,354 
Derivative Liabilities
   1,069    276    —    —    1,345 
Other financial liabilities
   127,724    —    —    —    127,724 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
  ￦9,205,470    3,223,634    7,359,757    3,170,630    22,959,491 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
1
The cash flow includes payment of interest under terms and conditions of borrowing.
 
   
December 31, 2020
 
   
Less than
1 year
  
1 – 2 years
  
2 – 5 years
   
More than
5 years
   
Total
 
   
(In millions of won)
 
Borrowings
1
  ￦3,309,009   2,317,331   5,136,314    1,121,480    11,884,134 
Lease liabilities
   352,201   250,840   391,356    848,315    1,842,712 
Trade payables
   1,046,159   —   —    —    1,046,159 
Other payables
   2,348,909   56,902   160,488    78,336    2,644,635 
Other
non-trade
payables
   1,346,254   17,896   12,028    —    1,376,178 
Derivative Liabilities
   (3,538)   (3,839)   77,573    13,460    83,656 
Other financial liabilities
   117,106   —   —    —    117,106 
Financial guarantee contract
   87,040   —   —    —    87,040 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
 
  ￦8,603,140   2,639,130   5,777,759    2,061,591    19,081,620 
  
 
 
  
 
 
  
 
 
   
 
 
   
 
 
 
 
1
The cash flow includes payment of interest under terms and conditions of borrowing contracts.
The table above analyzes the Group’s financial liabilities into relevant maturity groups based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and include estimated interest payments.
(2)    Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends to shareholders, proceeds and repayments of borrowings, issue new shares or sell assets to repay debt.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
The
debt-to-equity
ratio and net borrowing ratio as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
   
December 31,

2020
 
   
(In millions of won)
 
Total liabilities (A)
  ￦24,956,670    19,264,756 
Total equity (B)
   59,760,652    51,909,097 
Cash and cash equivalents; short-term financial instruments;
and short-term investment asset (C)
   10,968,035    4,948,215 
Total borrowings (D)
   14,140,376    11,251,648 
Debt-to-equity
ratio (A/B)
   41.76%    37.11% 
Net borrowing ratio
(D-C)/B
   5.31%    12.14% 
(3)    Fair value
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in valuation techniques as follows:
 
 • 
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
 
 • 
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
 
 • 
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
(a) The following table presents the carrying amounts and fair values of financial instruments by categories, including their levels in the fair value hierarchy, as of October 31, 2021 and December 31, 2020:
 
       
October 31, 2021
 
   
Carrying
amounts
   
Level 1
   
Level 2
   
Level 3
   
Total
 
   
(In millions of won)
 
Financial assets measured at fair value
  
Short-term financial instruments
  ￦222,500    —    —    222,500    222,500 
Short-term investment asset
   5,494,158    —    5,494,158    —    5,494,158 
Trade receivables
1
   660,211    —    660,211    —    660,211 
Long-term investment asset
   6,626,956    —    —    6,626,956    6,626,956 
Other financial assets
   23,028    —    23,028    —    23,028 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   13,026,853    —    6,177,397    6,849,456    13,026,853 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial assets not measured at fair value
          
Cash and cash equivalents
2
   4,874,752    —    —    —    — 
Short-term financial instruments
2
   376,625    —    —    —    — 
Trade receivables
2
   6,462,823    —    —    —    — 
Loans and other receivables
2
   405,857    —    —    —    — 
Other financial assets
2
   29,483    —    —    —    — 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   12,149,540    —    —    —    — 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total financial asset
   25,176,393    —    6,177,397    6,849,456    13,026,853 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial liabilities measured at fair value
          
Other financial liabilities
   1,173    —    1,173    —    1,173 
Financial liabilities not measured at fair value
          
Trade payables
2
   1,171,300    —    —    —    — 
Other payables
2
   2,639,321    —    —    —    — 
Other
non-trade
payables
2
   2,176,940    —    —    —    — 
Borrowings
   14,140,376    —    13,973,972    —    13,973,972 
Lease liabilities
2
   1,561,484    —    —    —    — 
Other financial liabilities
2
   4,496    —    —    —    — 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   21,693,917    —    13,973,972    —    13,973,972 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total financial liabilities
  ￦21,695,090    —    13,975,145    —    13,975,145 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
1
 
The Group transferred some of the trade receivables and majority of the risks and rewards to the customer. Accordingly, the Group derecognized trade receivables from the financial statement on the date of assets transfer and recognized gain or loss on disposal of trade receivables.
2
 
The Group did not include fair values of financial assets and liabilities of which carrying amounts are considered to be a reasonable approximation of fair values.
 
G-45
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
       
December 31, 2020
 
   
Carrying
amounts
   
Level 1
   
Level 2
   
Level 3
   
Total
 
   
(In millions of won)
 
Financial assets measured at fair value
          
Short-term financial instruments
  ￦227,500    —    —    227,500    227,500 
Short-term investment asset
   1,535,518    —    1,535,518    —    1,535,518 
Trade receivables
1
   512,458    —    512,458    —    512,458 
Long-term investment asset
   6,139,627    —    —    6,139,627    6,139,627 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   8,415,103    —    2,047,976    6,367,127    8,415,103 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial assets not measured at fair value
          
Cash and cash equivalents
2
   2,975,989    —    —    —    — 
Short-term financial instruments
2
   209,208    —    —    —    — 
Trade receivables
2
   4,418,864    —    —    —    — 
Loans and other receivables
2
   144,783    —    —    —    — 
Other financial assets
2
   383    —    —    —    — 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   7,749,227    —    —    —    — 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total financial asset
   16,164,330    —    2,047,976    6,367,127    8,415,103 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial liabilities measured at fair value
          
Other financial liabilities
   84,707    —    84,707    —    84,707 
Financial liabilities not measured at fair value
          
Trade payables
2
   1,046,159    —    —    —    — 
Other payables
2
   2,621,305    —    —    —    — 
Other
non-trade
payables
2
   1,397,116    —    —    —    — 
Borrowings
   11,251,648    —    11,372,509    —    11,372,509 
Lease liabilities
2
   1,643,716    —    —    —    — 
Other financial liabilities
2
   3,958    —    —    —    — 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   17,963,902    —    11,372,509    —    11,372,509 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total financial liabilities
  ￦18,048,609    —    11,457,216    —    11,457,216 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
1
 
The Group transferred some of the trade receivables and majority of the risks and rewards to the customer. Accordingly, the Group derecognized trade receivables from the financial statement on the date of assets transfer and recognized gain or loss on disposal of trade receivables.
2
 
The Group did not include fair values of financial assets and liabilities of which carrying amounts are considered to be a reasonable approximation of fair values.
 
G-46
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
(b)    Valuation Techniques
The valuation techniques of recurring and
non-recurring
fair value measurements and quoted prices classified as level 2 or level 3 are as follows:
 
   
Fair value
   
Level
   
Valuation Techniques
 
   
(In millions of won)
         
Financial assets at fair value through profit or loss:
      
Short-term investment assets
  ￦5,494,158    2    Present value technique 
Long-term investment assets
   6,626,956    3    Present value technique and others 
Short-term financial instruments
   222,500    3    Present value technique 
Other financial assets
   23,028    2    Present value technique 
Financial assets at fair value through other comprehensive income
      
Trade receivables
   660,211    2    Present value technique 
Financial liabilities at fair value through other comprehensive income
      
Other financial liabilities
  ￦1,173    2    Present value technique 
Long-term investments measured at Level 3 in the fair value hierarchy include investments in special purpose companies of BCPE Pangea Intermediate Holdings Cayman, L.P. (“SPC1”) amounting to ￦3,823,456 million and BCPE Pangea Cayman2 Limited (“SPC2”) amounting to ￦2,521,342 million in connection with the Group’s investments in acquisition of KIOXIA Holdings Corporation (“KIOXIA”, formerly Toshiba Memory Corporation) (see note 12). The fair value of the long-term investments is measured based on the equity value of the underlying asset, KIOXIA estimated utilizing present value discount model.
The fair value of equity investment in SPC1 is measured using an option pricing model allocating the estimated fair value of KIOXIA equity between investors based on distribution priority pursuant to the underlying investment arrangement together with consideration of expected KIOXIA initial public offering and SPC1 liquidation.
The fair value of debt investment in SPC2 convertible bonds is measured based on the estimated KIOXIA’s equity value and SPC2’s equity ownership in KIOXIA (15.0%).
 
G-47
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
The valuation techniques and key inputs used in valuation of the equity investment in SPC1 and investment in SPC2 convertible bonds are as follows:
 
   
Fair value
  
Valuation Techniques
 
Level 3 inputs
 
Input

Range
 
   
(In millions of won)
        
Equity investment in SPC1
  
￦
3,823,456
 
 
Present value technique
and option-pricing method
 Terminal growth rate  0% 
 Discount rate (Weighted-average capital cost)  7.2% 
 Expected timing of liquidation of the SPC (years)  2.58 
 Volatility  41.3% 
    Risk free rate  -0.10% 
SPC2 convertible bonds
   Present value technique Terminal growth rate  0% 
   2,521,342   Discount rate (Weighted-average capital cost)  7.2% 
Other significant unobservable inputs used in the present value discount model also include estimated future revenue and operating profit of KIOXIA. In these level 3 significant unobservable inputs, the higher in terminal growth rate, future revenue, and operating profit or the lower in weighted-average capital cost will result the higher fair value of the equity investment in SPC1, while any change in volatility and risk free rate may have either positive or negative impact on the fair value of the investment in SPC1. In addition, the higher in terminal growth rate and the lower in weighted-average capital cost will result in the higher fair value of the investment in SPC2 convertible bonds.
Any positive or negative changes in the above inputs will have a significant and direct impact on the fair value of investments in SPC1 and SPC2, respectively. They are significant, but unobservable. Accordingly, the investments are classified as fair value hierarchy Level 3 and the above inputs may have a significant impact on the value of investments in SPC1 and SPC2.
The sensitivity analysis results for the effect of changes in each long-term investment input classified as Level 3 under sensitivity analysis on fair value are as follows:
 
   
Positive
fluctuation
   
Negative
fluctuation
 
   
(In millions of won)
 
Equity investment in SPC1
1
  ￦953,531   ￦(760,371) 
SPC2 convertible bonds
1
   633,526    (479,870) 
 
1
The changes in fair value are calculated by increasing or decreasing the terminal growth rate and weighted-average capital costs, which are major unobservable inputs by 0.5%.
 
G-48
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
6.    Financial Risk Management,  continued
 
(c) There was no transfer between fair value hierarchy levels during the
ten-month
period ended October 31, 2021 and the changes in financial assets and financial liabilities classified as Level 3 fair value measurements during the
ten-month
period ended October 31, 2021 are as follows:
 
   
Beginning
Balance
   
Acquisition
   
Disposals
  
Payments
   
Gain on

Valuation
   
Foreign
Exchange
Difference
  
Transfer
1
   
Ending

Balance
 
   
(In millions of won)
 
Financial assets:
              
Short-term Financial instruments
  ￦227,500    —    (5,000)   —    —    —   —    222,500 
Long-term investment assets
   6,139,627    88,258    (5,475)   —    520,229    (115,683)   —    6,626,956 
7.    Restricted Financial Instruments
Details of restricted financial instruments as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31

2021
   
December 31,

2020
   
Description
   
(In millions of won)
    
Short-term financial instruments
  ￦222,500    227,500   Restricted for supporting small businesses
   8,253    8,434   Pledged for consumption tax
   178,200    84,419   Guarantee deposits for repayments of borrowings
  
 
 
   
 
 
   
   408,953    320,353   
  
 
 
   
 
 
   
Other financial assets
   28,790    —   Deposits for the share purchase agreement
   11    11   Bank overdraft guarantee deposit
   614    305   Others
  
 
 
   
 
 
   
   29,415    316   
  
 
 
   
 
 
   
  ￦438,368    320,669   
  
 
 
   
 
 
   
8.    Trade Receivables and Loans and Other Receivables
(1) Details of trade receivables as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
   
December 31,

2020
 
   
(In millions of won)
 
Trade receivables
  ￦7,053,653    4,873,602 
Trade receivables to be collected from related parties
   69,381    57,720 
  
 
 
   
 
 
 
  ￦7,123,034    4,931,322 
  
 
 
   
 
 
 
 
G-49
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
8.    Trade Receivables and Loans and Other Receivables,  continued
 
(2) Details of loans and other receivables as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
   
December 31,

2020
 
   
(In millions of won)
 
Current
    
Other receivables
  ￦17,435    13,603 
Accrued income
   2,345    2,570 
Short-term loans
   10,222    5,045 
Short-term guarantee and other deposits
   35,005    47,976 
  
 
 
   
 
 
 
   65,007    69,194 
  
 
 
   
 
 
 
Non-current
    
Long-term other receivables
   —    2,977 
Long-term loans
   292,454    37,838 
Guarantee deposits
   48,163    34,558 
Others
   233    216 
  
 
 
   
 
 
 
   340,850    75,589 
  
 
 
   
 
 
 
  ￦405,857    144,783 
  
 
 
   
 
 
 
(3) Trade receivables and loans and other receivables, net of provision for impairment, as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,2021
 
   
Gross amount
   
Provision for
impairment
  
Carrying

amount
 
   
(In millions of won)
 
Trade receivables
  ￦7,123,952    (918)   7,123,034 
Current loans and other receivables
   66,282    (1,275)   65,007 
Non-current
loans and other receivables
   342,085    (1,235)   340,850 
  
 
 
   
 
 
  
 
 
 
  ￦7,532,319    (3,428)   7,528,891 
  
 
 
   
 
 
  
 
 
 
 
   
December 31,2020
 
   
Gross amount
   
Provision for
impairment
  
Carrying

amount
 
   
(In millions of won)
 
Trade receivables
  ￦4,931,366    (44)   4,931,322 
Current loans and other receivables
   70,472    (1,278)   69,194 
Non-current
loans and other receivables
   76,743    (1,154)   75,589 
  
 
 
   
 
 
  
 
 
 
  ￦5,078,581    (2,476)   5,076,105 
  
 
 
   
 
 
  
 
 
 
 
G-50
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
8.    Trade Receivables and Loans and Other Receivables,  continued
 
(4) Details of provision for impairment
Changes in the provision for impairment of trade receivables for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
   
2020
 
   
(In millions of won)
 
Beginning balance
  ￦44    9 
Bad debt expense
   871    555 
Write-off
   —    (517) 
Foreign exchange difference
   3    (3) 
  
 
 
   
 
 
 
Ending balance
  ￦918    44 
  
 
 
   
 
 
 
Changes in the provision for impairment of current loans and other receivables for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning balance
  ￦1,278   1,280 
Reversal
   (3)   (2) 
  
 
 
  
 
 
 
Ending balance
  ￦1,275   1,278 
  
 
 
  
 
 
 
Changes in the provision for impairment of
non-current
loans and other receivables the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
   
2020
 
   
(In millions of won)
 
Beginning balance
  ￦1,154    1,162 
Reversal
   —    (3) 
Write-off
   —    64 
Foreign exchange difference
   81    (69) 
  
 
 
   
 
 
 
Ending balance
  ￦1,235    1,154 
  
 
 
   
 
 
 
 
G-51
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
8.    Trade Receivables and Loans and Other Receivables,  continued
 
(5) The aging analysis of trade receivables and loans and other receivables as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31, 2021
 
   
Not impaired
         
       
Overdue
         
   
Not past
due
   
Less than
3 months
   
Over

3 months
and less than
6 months
   
Over
6 months
   
Impaired
   
Total
 
   
(In millions of won)
 
Trade receivables
  ￦7,123,034    —    —    —    918    7,123,952 
Current loans and other receivables
   65,007    —    —    —    1,275    66,282 
Non-current
loans and other receivables
   340,850    —    —    —    1,235    342,085 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
  ￦7,528,891    —    —    —    3,428    7,532,319 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
   
December 31, 2020
 
   
Not impaired
         
       
Overdue
         
   
Not past
due
   
Less than
3 months
   
Over

3 months
and less than
6 months
   
Over
6 months
   
Impaired
   
Total
 
   
(In millions of won)
 
Trade receivables
  ￦4,931,328    —    —    —    38    4,931,366 
Current loans and other receivables
   69,194    —    —    —    1,278    70,472 
Non-current
loans and other receivables
   75,589    —    —    —    1,154    76,743 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
  ￦5,076,111    —    —    —    2,470    5,078,581 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
9.    Inventories
(1) Details of inventories as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
   
December 31,

2020
 
   
(In millions of won)
 
Merchandise
  ￦2,519    2,173 
Finished goods
   1,420,798    1,078,967 
Work-in-process
   4,088,176    3,584,955 
Raw materials
   771,082    724,482 
Supplies
   683,200    588,009 
Goods in transit
   123,309    157,732 
  
 
 
   
 
 
 
  ￦7,089,084    6,136,318 
  
 
 
   
 
 
 
 
G-52
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
9.    Inventories,  continued
 
(2) The amount of the inventories recognized as cost of sales for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 is as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Inventories recognized as cost of sales
  ￦19,446,999    21,313,696    18,547,022 
(3) The changes in inventory valuation allowance during the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning balance
  ￦420,985   647,498 
Charged to cost of sales
   65,093   79,560 
Utilization upon sales
   (175,956)   (306,072) 
  
 
 
  
 
 
 
Ending balance
  ￦310,122   420,986 
  
 
 
  
 
 
 
There were no significant reversals of inventory write-downs recognized during the
ten-month
period ended October 31, 2021 and year ended December 31, 2020.
10.    Other Current and Non-current Assets
Details of other current and
non-current
assets as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,
2021
   
December 31,

2020
 
   
(In millions of won)
 
Current
    
Advance payments
  ￦78,258    51,047 
Prepaid expenses
   216,573    145,298 
Value added tax refundable
   348,450    235,602 
Contract assets
   63,059    53,605 
Others
   829    120 
  
 
 
   
 
 
 
   707,169    485,672 
  
 
 
   
 
 
 
Non-current
    
Long-term advance payments
   37,351    36,985 
Long-term prepaid expenses
   50,008    14,961 
Others
   5,511    3,083 
  
 
 
   
 
 
 
   92,870    55,029 
  
 
 
   
 
 
 
  ￦800,039    540,701 
  
 
 
   
 
 
 
 
G-53
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
11.    Investments in Associates and Joint Ventures
(1) Details of investments in associates and joint ventures as of October 31, 2021 follows:
 
Type
  
Investee
  
Location
  
Business
Associate
  Stratio, Inc.  U.S.A  Development and manufacture of semiconductor parts
  SK China Company Limited  China  Consulting and investment
  Gemini Partners Pte. Ltd.  Singapore  Consulting
  TCL Fund  China  Investment
  SK South East Asia Investment Pte. Ltd.
  Singapore  Consulting and investment
  Hushan Xinju (Chengdu) Venture Investment Center (Smartsource)  China  Venture Capital
  Prume Social Farm, Co., Ltd.  Korea  Growing crops
  Wuxi xinfa IC industry park., Ltd.  China  Developing Science-Technological Park
  Magnus Private Investment Co., Ltd  Korea  Investment
  L&S (No.10) Early Stage III Investment Association  Korea  Investment
  SiFive Inc.  U.S.A  Design and manufacture of semiconductor
  
YD-SK-KDB
Social Value		  Korea  Investment
  Ningbo Zhongxin Venture Capital Partnership (Limited Partnership)  China  Investment
  Jiangsu KVTS Semiconductor science and Technology Co Ltd.  China  Manufacture of semiconductor parts
Joint venture
  HITECH Semiconductor (Wuxi) Co., Ltd.  China  Manufacture of semiconductor parts
  Hystars Semiconductor (Wuxi) Co., Ltd.  China  Foundry factory construction
  Specialized Investment-type Private Equity Investment Trust For Growth Of Semiconductor  Korea  Investment
  Specialized Investment-type Private Equity Investment Trust For
Win-win
System Semiconductor		  Korea  Investment
 
G-54
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
11.    Investments in Associates and Joint Ventures,  continued
 
  
October 31, 2021
  
December 31, 2020
 
Type
 
Investee
 
Owner ship

(%)
  
Net asset
value
  
Carrying
amount
  
Owner ship

(%)
  
Carrying
amount
 
    
(In millions of won)
 
Associate
 Stratio, Inc.
1
  9.35  ￦100   403   9.12  ￦407 
 SK China Company Limited
2
  11.87   352,909   405,506   11.87   257,474 
 Gemini Partners Pte. Ltd.  20.00   2,254   2,254   20.00   1,771 
 TCL Fund
1
  11.05   11,871   12,305   11.05   11,538 
 SK South East Asia Investment Pte. Ltd.  20.00   363,109   363,109   20.00   325,006 
 Hushan Xinju (Chengdu) Venture Investment Center (Smartsource)
2
  16.67   8,563   8,564   16.67   7,970 
 Prume Social Farm, Co., Ltd.
3
  35.52   2,138   2,702   35.52   2,221 
 Wuxi xinfa IC industry park., Ltd.
4
  30.00   32,756   32,756   30.00   20,952 
 Magnus Private Investment Co., Ltd.  49.76   207,888   207,888   49.76   150,840 
 L&S (No.10) Early Stage III Investment Association  24.39   4,013   4,013   24.39   2,609 
 SiFive Inc.
1
  8.27   7,161   33,186   7.87   34,372 
 
YD-SK-KDB
Social Value		  23.26   5,398   5,398   23.26   2,566 
 Ningbo Zhongxin Venture Capital Partnership (Limited Partnership)
1,3
  7.54   3,549   3,550   —   — 
 Jiangsu KVTS Semiconductor science and Technology Co Ltd.
3
  33.00   4,421   7,215   —   — 
Joint venture
 HITECH Semiconductor (Wuxi) Co., Ltd.
4
  45.00   120,407   117,836   45.00   113,430 
 Hystars Semiconductor (Wuxi) Co., Ltd.
4
  50.10   220,711   222,301   50.10   195,423 
 Specialized Investment-type Private Equity Investment Trust For Growth Of Semiconductor
4
  33.33   24,629   24,629   33.33   24,818 
 Specialized Investment-type Private Equity Investment Trust For
Win-win
System Semiconductor
4
  37.50   29,751   29,751   37.50   14,847 
   
 
 
  
 
 
   
 
 
 
   ￦1,401,628   1,483,366   ￦1,166,244 
   
 
 
  
 
 
   
 
 
 
 
1
The Group is able to exercise significant influence through its right to appoint a director to the Board of Directors of each investee. Accordingly, the investments in these investees have been classified as associates.
 
2
Management of the Group is able to exercise significant influence over the entity by participating Board of Directors. Accordingly, the investments in these investees have been classified as associates.
 
3
Additional acquisition during the
ten-month
period ended October 31, 2021.
 
4
The relevant contract stipulates that important matters have to be resolved unanimously. Accordingly, the Group has classified them as joint ventures.
 
G-55
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
11.    Investments in Associates and Joint Ventures,  continued
 
(2) Changes in investments in associates and joint ventures for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
October 31, 2021
 
   
Beginning
balance
   
Acquisition
   
Transfer
   
Share of
profit
(loss)
  
Other
equity
movement
   
Dividend
  
Ending
balance
 
   
(In millions of won)
 
Stratio, Inc.
  
￦
407		    —    —    (12)   8    —   403 
SK China Company Limited
   257,474    —    —    119,944   28,088    —   405,506 
Gemini Partners Pte. Ltd.
   1,771    —    —    361   122    —   2,254 
TCL Fund
   11,538    680    —    110   1,106    (1,129)   12,305 
SK South East Asia Investment Pte. Ltd.
   325,006    —    —    7,691   30,412    —   363,109 
Hushan Xinju (Chengdu) Venture Investment Center (Smartsource)
   7,970    —    —    (170)   764    —   8,564 
Prume Social Farm, Co., Ltd.
   2,221    —    —    481   —    —   2,702 
Wuxi xinfa IC industry park., Ltd.
   20,952    9,603    —    (100)   2,301    —   32,756 
Magnus Private Investment Co., Ltd.
   150,840    —    —    57,048   —    —   207,888 
L&S (No.10) Early Stage III Investment Association
   2,609    1,500    —    (96)   —    —   4,013 
SiFive Inc.
   34,372    —    —    (1,702)   516    —   33,186 
YD-SK-KDB
Social Value
   2,566    3,000    —    (168)   —    —   5,398 
Ningbo Zhongxin Venture Capital Partnership (Limited Partnership)
   —    3,448    —    (86)   188    —   3,550 
Jiangsu KVTS Semiconductor science and Technology Co Ltd.
   —    6,831    —    241   143    —   7,215 
HITECH Semiconductor (Wuxi) Co., Ltd.
   113,430    —    —    12,997   8,180    (16,771)   117,836 
Hystars Semiconductor (Wuxi) Co., Ltd.
   195,423    —    —    7,832   19,046    —   222,301 
Specialized Investment-type Private Equity Investment Trust For Growth Of Semiconductor
   24,818    —    —    (189)   —    —   24,629 
Specialized Investment-type Private Equity Investment Trust For
Win-win
System Semiconductor
   14,847    15,000    —    (96)   —    —   29,751 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
  ￦1,166,244    40,062    —    204,086   90,874    (17,900)   1,483,366 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
 
G-56
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
11.    Investments in Associates and Joint Ventures,  continued
 
   
December 31, 2020
 
   
Beginning
balance
   
Acquisition
   
Transfer
   
Share of
profit
(loss)
  
Other
equity
movement
  
Dividend
  
Ending
balance
 
   
(In millions of won)
 
Stratio, Inc.
  ￦395    —    —    19   (7)   —   407 
SK China Company Limited
   259,272    —    —    5,746   (7,544)   —   257,474 
Gemini Partners Pte. Ltd.
   2,735    —    —    (872)   (92)   —   1,771 
TCL Fund
   4,995    5,280    —    999   264   —   11,538 
SK South East Asia Investment Pte. Ltd.
   237,599    121,450    —    10,889   (44,932)   —   325,006 
Hushan Xinju (Chengdu) Venture Investment Center(Smartsource)
   5,659    2,565    —    (233)   (14)   (7)   7,970 
Prume Social Farm, Co., Ltd.
   1,000    1,000    —    221   —   —   2,221 
Wuxi xinfa IC industry park., Ltd.
   —    21,860    —    (86)   (822)   —   20,952 
Magnus Private Investment Co., Ltd.
   —    207,346    —    (56,506)   —   —   150,840 
L&S (No.10) Early Stage III Investment Association
   —    2,250    500    (141)   —   —   2,609 
SiFive Inc.
   —    35,709    —    (880)   (457)   —   34,372 
YD-SK-KDB
Social Value
   —    1,400    1,400    (234)   —   —   2,566 
HITECH Semiconductor (Wuxi) Co., Ltd.
   114,518    —    —    21,241   (7,296)   (15,033)   113,430 
Hystars Semiconductor (Wuxi) Co., Ltd.
   142,594    69,377    —    (16,627)   79   —   195,423 
Specialized Investment-type Private Equity Investment Trust For Growth Of Semiconductor
   —    —    24,480    338   —   —   24,818 
Specialized Investment-type Private Equity Investment Trust For
Win-win
System Semiconductor
   —    15,000    —    (153)   —   —   14,847 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
  ￦768,767    483,237    26,380    (36,279)   (60,821)   (15,040)   1,166,244 
  
 
 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
G-57
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
11.    Investments in Associates and Joint Ventures,  continued
 
(3) Major associates and joint ventures’ summarized statements of financial position as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31, 2021
 
   
Current assets
   
Non-current

assets
   
Current
liabilities
   
Non-current

liabilities
 
   
(In millions of won)
 
SK China Company Limited
  ￦1,699,028    1,581,229    71,745    274,934 
SK South East Asia Investment Pte. Ltd.
   193,874    2,542,885    198    — 
Magnus Private Investment Co., Ltd.
   242,796    523,673    100,304    470,255 
HITECH Semiconductor (Wuxi) Co., Ltd.
   239,084    374,467    116,780    229,200 
Hystars Semiconductor (Wuxi) Co., Ltd.
   164,480    577,694    18,439    283,194 
 
   
December 31, 2020
 
   
Current
assets
   
Non-current

assets
   
Current
liabilities
   
Non-current

liabilities
 
   
(In millions of won)
 
SK China Company Limited
  ￦380,413    1,706,634    51,485    308,147 
SK South East Asia Investment Pte. Ltd.
   797,045    1,672,412    67    — 
Magnus Private Investment Co., Ltd.
   175,007    522,600    85,754    461,012 
HITECH Semiconductor (Wuxi) Co., Ltd.
   208,103    380,648    129,135    203,246 
Hystars Semiconductor (Wuxi) Co., Ltd.
   89,629    555,551    31,557    226,732 
(4) Major associates and joint ventures’ summarized comprehensive income (loss) for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
  
2021
  
2020
  
2019
 
  
Revenue
  
Profit

for the Period
  
Revenue
  
Profit (loss)
for the year
  
Revenue
  
Profit (loss)
for the year
 
  
(In millions of won)
 
SK China Company Limited
 ￦54,549   1,010,813   154,355   48,427   120,317   28,309 
SK South East Asia Investment Pte. Ltd.
  1,172   38,450   9,467   54,448   10,294   28,763 
Magnus Private Investment Co., Ltd.
  394,717   57,047   164,662   (56,505)   —   — 
HITECH Semiconductor (Wuxi) Co., Ltd.
  521,362   29,926   622,653   51,871   657,741   36,398 
Hystars Semiconductor (Wuxi) Co., Ltd.
  60,696   15,634   —   (33,188)   —   (1,044) 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
12.    Long-term Investment Assets
(1) Details of long-term investment assets as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31, 2021
   
December 31, 2020
 
   
Type
   
Acquisition
cost
   
Book
value
   
Book
value
 
   
(In millions of won)
 
ProMOS Technologies Inc.
   Equity securities   ￦21,847    —    — 
Intellectual Discovery
   Equity securities    4,000    2,182    2,182 
China Walden Venture Investments II, L.P.
   Certificate    8,457    12,520    10,965 
China Walden Venture Investments III, L.P.
   Certificate    7,014    7,577    7,085 
Keyssa, Inc
   Equity securities    6,174    189    189 
BCPE Pangea Intermediate Holdings Cayman, L.P.
1
   Certificate    2,752,014    3,823,456    3,595,494 
BCPE Pangea Cayman2, Ltd.
1
   Convertible bond    1,283,095    2,521,342    2,351,225 
FemtoMetrix, Inc.
   Convertible bond    4,387    4,387    4,387 
GigaIO Networks, Inc.
   Equity securities    4,066    3,103    3,103 
Inpria Corporation
   Equity securities    4,753    4,729    4,729 
Shanghai IoT Phase II Venture Capital Fund Partnership, L.P
   Certificate    7,292    18,572    13,262 
Beijing Horizon Robotics Technology Co., Ltd.
   Equity securities    55,091    58,819    56,190 
Shanghi Sitrus Microelectronics Technology Co., Ltd.
   Equity securities    5,254    1,441    1,314 
Jiangsu Jiequan Junhai Rongxin Investment Partnership
   Certificate    52,124    53,290    20,035 
Impact Venture Capital I, L.P.
   Certificate    5,242    6,899    5,881 
AutoTech Fund I, L.P.
   Certificate    4,294    4,340    3,840 
TransLink Capital Partners IV, L.P.
   Certificate    4,357    4,147    3,563 
Nuvolta
   Equity securities    12,296    12,816    — 
GPT
   Certificate    12,296    12,816    — 
Others
   —    66,949    74,331    56,183 
    
 
 
   
 
 
   
 
 
 
    ￦4,321,002    6,626,956    6,139,627 
    
 
 
   
 
 
   
 
 
 
 
1
 
In 2017, the Group participated in a consortium that includes Bain Capital in connection with acquisition of a stake in Toshiba Memory Corporation (“TMC”). On March 1, 2019, Toshiba Memory Holdings Corporation (“TMCHD”) was established as the holding company for TMC. Subsequently TMCHD and TMC were renamed KIOXIA Holdings Corporation (“KIOXIA”) and KIOXIA Corporation respectively. As of October 31, 2021, the Group holds equity interests in SPC1, which holds equity interests in KIOXIA, and convertible bonds issued by SPC2, which may be later convertible to 15% stake in KIOXIA. Management and decision-making rights of the Group for SPC1 and SPC2 are limited. Accordingly, the Group does not control or have any significant influenc4e on SPC1 and SPC2. The investments in SPC1 and SPC2 are classified as financial assets which are debt instruments measured at fair value through profit or loss.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
12.    Long-term Investment Assets,  continued
 
(2) Changes in the carrying amount of long-term investment assets for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning balance
  ￦6,139,627   4,381,812 
Acquisition
   88,258   95,332 
Disposal
   (5,475)   (706) 
Gain (loss) on valuation
   520,229   1,733,783 
Foreign exchange difference
   (115,683)   (44,214) 
Transfer
   —   (26,380) 
  
 
 
  
 
 
 
Ending balance
  ￦6,626,956   6,139,627 
  
 
 
  
 
 
 
13.    Property, Plant and Equipment
(1)
Changes in property, plant and equipment for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
  
2021
 
  
Land
  
Buildings
  
Structures
  
Machinery
  
Vehicles
  
Others
  
Construction-

in-progress
  
Total
 
  
(In millions of won)
 
Beginning balance
 ￦971,606   7,018,249   1,812,107   26,491,042   40,557   724,825   4,172,176   41,230,562 
Changes during 2021
        
Acquisitions
  12,072   184,553   177,751   6,696,835   88   112,384   2,836,605   10,020,288 
Disposals
  (55)   (190)   (26)   (4,092)   —   (40)   (6,241)   (10,644) 
Depreciation
  —   (241,629)   (107,833)   (7,261,632)   (2,786)   (239,432)   —   (7,853,312) 
Transfers
1
  72,952   107,106   24,163   1,769,609   —   74,946   (2,008,779)   39,997 
Exchange differences and others
  3,494   84,058   53,835   727,670   26   13,057   40,071   922,211 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending net book amount
  1,060,069   7,152,147   1,959,997   28,419,432   37,885   685,740   5,033,832   44,349,102 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Acquisition cost
  1,060,069   8,894,310   2,769,189   83,165,139   48,940   2,225,869   5,033,832   103,197,348 
Accumulated depreciation
  —   (1,702,197)   (790,088)   (54,575,300)   (11,048)   (1,540,100)   —   (58,618,733) 
Accumulated impairment
  —   (23,699)   (19,104)   (162,456)   —   (23)   —   (205,282) 
Government grants
  —   (16,267)   —   (7,951)   (7)   (6)   —   (24,231) 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 ￦ 1,060,069   7,152,147   1,959,997   28,419,432   37,885   685,740   5,033,832   44,349,102 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
1
 
Certain investment property was transferred to property, plant and equipment during the
ten-month
period ended October 31, 2021.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
13.    Property, Plant and Equipment,  continued
 
  
2020
 
  
Land
  
Buildings
  
Structures
  
Machinery
  
Vehicles
  
Others
  
Construction-

in-progress
  
Total
 
  
(In millions of won)
 
Beginning balance
 ￦1,041,771   5,547,744   1,619,064   26,974,270   43,096   764,043   3,959,952   39,949,940 
Changes during 2020
        
Acquisitions
  38,075   476,831   284,113   6,044,813   55   192,353   3,012,558   10,048,798 
Disposals
  (9,231)   (327)   (73)   (17,095)   —   (884)   (37,850)   (65,460) 
Depreciation
  —   (233,909)   (114,307)   (7,888,654)   (3,351)   (274,913)   —   (8,515,134) 
Transfers
1
  (96,096)   1,222,639   21,076   1,367,213   753   45,476   (2,767,284)   (206,223) 
Exchange differences and others
  (2,913)   5,271   2,234   10,495   4   (1,250)   4,800   18,641 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending net book amount
  971,606   7,018,249   1,812,107   26,491,042   40,557   724,825   4,172,176   41,230,562 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Acquisition cost
  971,606   8,459,016   2,494,982   74,141,182   48,860   2,045,915   4,172,176   92,333,737 
Accumulated depreciation
  —   (1,401,792)   (663,771)   (47,485,857)   (8,292)   (1,321,067)   —   (50,880,779) 
Accumulated impairment
  —   (23,699)   (19,104)   (162,276)   —   (23)   —   (205,102) 
Government grants
  —   (15,276)   —   (2,007)   (11)   —   —   (17,294) 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 ￦971,606   7,018,249   1,812,107   26,491,042   40,557   724,825   4,172,176   41,230,562 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
1
 
Certain investment property was transferred to property, plant and equipment during the year ended December 31, 2020.
(2) Details of depreciation expense allocation for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Cost of sales
  ￦7,186,705    7,749,569    6,878,303 
Selling and administrative expenses
   583,056    725,791    574,961 
Other expenses
   8,128    7,418    14,923 
Development costs and others
   75,423    32,356    43,607 
  
 
 
   
 
 
   
 
 
 
  ￦7,853,312    8,515,134    7,511,794 
  
 
 
   
 
 
   
 
 
 
(3) Certain machinery and others are pledged as collaterals for borrowings of the Group as of October 31, 2021 (see note 35).
(4) The Group capitalized borrowing costs amounting to ￦43,485 million on qualifying assets during the
ten-month
period ended October 31, 2021 and ￦53,311 million (2019: ￦36,302 million) on qualifying assets during the year ended December 31, 2020. Borrowing costs were calculated using a capitalization rate of 2.06% for the
ten-month
period ended October 31, 2021 and 1.93% (2019: 2.84%) for the year ended December 31, 2020.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
13.    Property, Plant and Equipment,  continued
 
(5) Details of insured assets as of October 31, 2021 are as follows:
 
   
Insured assets
  
Insured amount
   
Insurance Company
      
(In millions of won)
    
Package insurance
  Property, plant and equipment; investment property; inventories; and business interruption  ￦120,000,827   
Hyundai Marine & Fire
Insurance Co., Ltd. and others
Fire insurance
  Property, plant and equipment; investment property   78,759 
Erection all risks insurance
  Property, plant and equipment   5,984,764 
    
 
 
   
    ￦126,064,350   
    
 
 
   
In addition to the assets stated above, vehicles are insured by vehicle comprehensive insurance and liability insurance.
(6) The Group provides certain property, plant, and equipment as operating leases.
Rental income from the property, plant and equipment during the
ten-month
period ended October 31, 2021 was ￦12,261 million and year ended December 31, 2020 was ￦27,737 million (2019: ￦29,746 million).
14.     Leases
(1) Leases as lessee
(a) Changes in
right-of-use
assets for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
 
   
Properties
  
Structures
  
Machinery
  
Vehicles
  
Others
  
Total
 
   
(In millions of won)
 
Beginning net book amount
  ￦111,860   1,048,208   504,539   18,207   24,831   1,707,645 
Increase
   51,971   11,466   77,220   12,519   55   153,231 
Others
   2,489   (10,770)   (64,060)   (1,114)   1,949   (71,506) 
Depreciation
   (28,821)   (71,854)   (155,295)   (13,111)   (13,057)   (282,138) 
Foreign exchange difference
   8,977   48,727   3,334   197   1,202   62,437 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending net book amount
   146,476   1,025,777   365,738   16,698   14,980   1,569,669 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Acquisition cost
   220,026   1,238,000   675,759   32,937   34,886   2,201,608 
Accumulated amortization
   (40,012)   (212,223)   (310,021)   (16,239)   (19,906)   (598,401) 
Government grants
   (33,538)   —   —   —   —   (33,538) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  ￦146,476   1,025,777   365,738   16,698   14,980   1,569,669 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
G-62
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
14.    Leases,  continued
 
   
2020
 
   
Properties
  
Structures
  
Machinery
  
Vehicles
  
Others
  
Total
 
   
(In millions of won)
 
Beginning net book amount
  ￦97,855   975,996   609,529   11,491   11,787   1,706,658 
Increase
   26,358   159,166   52,849   25,881   20,212   284,466 
Others
   6,607   (7,706)   15,823   (4,746)   —   9,978 
Depreciation
   (18,686)   (83,522)   (172,750)   (14,436)   (6,824)   (296,218) 
Foreign exchange difference
   (274)   4,274   (912)   17   (344)   2,761 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending net book amount
   111,860   1,048,208   504,539   18,207   24,831   1,707,645 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Acquisition cost
   169,300   1,210,800   811,315   29,684   40,787   2,261,886 
Accumulated amortization
   (26,193)   (162,592)   (306,776)   (11,477)   (15,956)   (522,994) 
Government grants
   (31,247)   —   —   —   —   (31,247) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  ￦111,860   1,048,208   504,539   18,207   24,831   1,707,645 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
(b) Changes in lease liabilities for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning net book amount
  ￦1,643,716   1,666,999 
Increase
   153,231   284,466 
Others
   (71,812)   9,389 
Interest expense
   27,046   34,435 
Payments
   (271,859)   (326,665) 
Foreign exchange difference
   81,162   (24,908) 
  
 
 
  
 
 
 
Ending net book amount
  ￦1,561,484   1,643,716 
  
 
 
  
 
 
 
(c) The details of the minimum lease payment to be paid in the future for each period in connection with lease liabilities, present value and
current/non-current
classification of lease liabilities as of October 31, 2021 are as follows:
 
   
2021
 
   
(In millions of won)
 
Less than 1 year
  ￦429,548 
1~5 years
   708,606 
More than 5 years
   616,039 
  
 
 
 
Total lease liabilities undiscounted as of October 31, 2021
   1,754,193 
Present value of lease liabilities recognized as of October 31, 2021
   1,561,484 
  
 
 
 
Current lease liabilities
   301,846 
Non-current lease liabilities
   1,259,638 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
14.    Leases,  continued
 
(d) The amounts recognized in profit or loss in relation to
right-of-use
assets and lease liabilities for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
   
2020
 
   
(In millions of won)
 
Depreciation of
right-to-use
assets
  ￦282,138    296,218 
Interest expenses of lease liabilities
   27,046    34,435 
Expenses relating to short-term leases
   9,710    17,911 
Expenses relating to leases of
low-value
assets
   1,363    1,733 
(2) Leases as lessor
The Group provides certain property, plant, and equipment and investment property as leases (See note 13 and 16). All leases are classified as operating leases.
Details of the undiscounted operating lease payments to be received in the future periods subsequent to October 31, 2021 are as follows:
 
   
Property, plant and
equipment
   
Investment Property
   
Total
 
   
(In millions of won)
 
Less than 1 year
  ￦12,042    14,650    26,692 
1~2 years
   3,948    14,547    18,495 
2~3 years
   —    14,438    14,438 
3~4 years
   —    —    — 
  
 
 
   
 
 
   
 
 
 
  ￦15,990    43,635    59,625 
  
 
 
   
 
 
   
 
 
 
 
G-64
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
15.    Intangible Assets
(1) Changes in intangible assets for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
 
   
Goodwill
   
Industrial
property
rights
  
Development
costs
  
Others
  
Total
 
   
(In millions of won)
Beginning net book amount
  ￦701,596    86,127   597,930   2,014,625   3,400,278 
Changes during 2021
       
Internal development
   —    —   325,845   —   325,845 
External acquisition
   —    7,608   —   415,569   423,177 
Business combination
   —    —   —   11   11 
Disposals
   —    (1,665)   —   (13,073)   (14,738) 
Amortization
   —    (13,971)   (296,134)   (340,773)   (650,878) 
Impairment
   —    —   (43,069)   (384)   (43,453) 
Transfers
   —    10,734   —   (7,284)   3,450 
Others
   21,799    —   —   9,477   31,276 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Ending net book amount
   723,395    88,833   584,572   2,078,168   3,474,968 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Acquisition cost
   723,395    209,239   3,511,249   3,484,980   7,928,863 
Accumulated amortization and impairment
   —    (120,406)   (2,926,677)   (1,406,812)   (4,453,895) 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
  ￦723,395    88,833   584,572   2,078,168   3,474,968 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
   
2020
 
   
Goodwill
  
Industrial
property
rights
  
Development
costs
  
Others
  
Total
 
   
(In millions of won)
Beginning net book amount
  ￦720,197   85,724   931,788   833,340   2,571,049 
Changes during 2020
      
Internal development
   —   —   259,020   —   259,020 
External acquisition
   —   13,693   —   412,524   426,217 
Disposals
   —   (3,782)   —   (8,504)   (12,286) 
Amortization
   —   (16,001)   (576,334)   (368,215)   (960,550) 
Impairment
   —   —   (16,544)   —   (16,544) 
Transfers
   —   6,493   —   (9,720)   (3,227) 
Others
1
   (18,601)   —   —   1,155,200   1,136,599 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Ending net book amount
   701,596   86,127   597,930   2,014,625   3,400,278 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Acquisition cost
   701,596   195,637   3,185,403   3,110,632   7,193,268 
Accumulated amortization and impairment
   —   (109,510)   (2,587,473)   (1,096,007)   (3,792,990) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  ￦701,596   86,127   597,930   2,014,625   3,400,278 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
1
Others include reclassification of license assets due to a change in accounting estimate and increasing or decreasing amount due to exchange rate fluctuations and others.
 
G-65
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
15.    Intangible Assets,  continued
 
(2) Details of amortization expense allocation for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Cost of sales
  ￦206,661    219,851    88,445 
Selling and administrative expenses
   442,908    739,247    705,383 
Development costs
   1,309    1,452    1,341 
  
 
 
   
 
 
   
 
 
 
  ￦650,878    960,550    795,169 
  
 
 
   
 
 
   
 
 
 
(3) Goodwill impairment tests
The Group performs goodwill impairment tests annually. For the purpose of impairment tests, goodwill is allocated to CGU. The recoverable amount of the CGU as of October 31, 2021 was determined based on fair value less costs to sell, which was determined using the current stock price as of October 31, 2021. No impairment loss of goodwill was recognized since the recoverable amount is higher than the carrying value of the CGU as of October 31, 2021.
(4) Details of development costs
(a) Detailed criteria for capitalization of development costs
The Group’s development projects for a new product proceeds in the process of review and planning phases (Phase 0 ~ 4) and product design and mass production phases (Phase 5 ~ 8). The Group recognizes expenditures incurred after Phase 4 in relation with the development for new technology is recognized as an intangible asset. Expenditures incurred at phase 0 through 4 are recognized as expenses.
(b) Development cost capitalized and expenses on research and development
Among costs associated with development activities, ￦325,845 million that met capitalization criteria, was capitalized as development cost for the
ten-month
period ended October 31, 2021 and ￦259,020 million that met capitalization criteria, was capitalized as development cost for the year ended December 31, 2020. In addition, costs associated with research activities and other development expenditures that did not meet the criteria in the amount of ￦2,893,419 million were recognized as expenses for the
ten-month
period ended October 31, 2021 and ￦3,111,298 million (2019: ￦2,855,643 million) were recognized as expenses for the year ended December 31, 2020 (2019: ￦332,888 million).
(c) Details of development costs as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31, 2021
   
Book value
   
Residual amortization period
   
(In millions of won)
DRAM
  ￦114,613   1~20 months
   1,659   1
NAND
   310,885   8~21 months
  122,385   1
CIS
   48,388   2~21 months
  
 
 
   
  ￦597,930   
  
 
 
   
 
1
Amortization has not started as of October 31, 2021
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
15.    Intangible Assets,  continued
 
   
December 31, 2020
   
Book value
   
Residual amortization period
   
(In millions of won)
DRAM
  ￦46,995   11 months
   60,549   1
NAND
   296,317   18 months
  124,328   1
CIS
   43,883   2~12 months
   25,858   1
  
 
 
   
  ￦597,930   
  
 
 
   
 
1
Amortization has not started as of December 31, 2020
(d) The Group regcognized ￦43,069 million impairment loss in development costs for the
ten-month
period ended October 31, 2021. The Group recognized ￦16,544 million impairment loss in development costs for the year ended December 31, 2020.
16.    Investment Property
(1) Changes in investment property for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning net book amount
  ￦209,417   258 
Depreciation
   (1,426)   (291) 
Transfer
1
   (43,447)   209,450 
  
 
 
  
 
 
 
Ending net book amount
   164,544   209,417 
  
 
 
  
 
 
 
Acquisition cost
   170,550   249,135 
Accumulated depreciation
   (6,006)   (39,718) 
  
 
 
  
 
 
 
Ending net book amount
  ￦164,544   209,417 
  
 
 
  
 
 
 
 
1
 
Certain investment property was transferred to property, plant and equipment and certain property, plant and equipment was transferred to investment property during the period ended October 31, 2021 and the year ended December 31, 2020.
(2) The depreciation expense of ￦1,426 million was charged to cost of sales for the
ten-month
period ended October 31, 2021 and ￦291 million was charged to cost of sales for the year ended December 31, 2020 (2019: ￦37 million).
(3) Rental income from investment property during the
ten-month
period ended October 31, 2021 was ￦12,286 million and the year ended December 31, 2020 was ￦1,235 million (2019: ￦123 million).
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
17.    Other Non-trade Payables
Details of other payables as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,
2021
   
December 31,
2020
 
   
(In millions of won)
 
Current
    
Rent deposits payable
  ￦4,946    — 
Accrued expenses
   2,149,356    1,367,193 
  
 
 
   
 
 
 
   2,154,302    1,367,193 
  
 
 
   
 
 
 
Non-current
    
Rent deposits payable
   8,679    6,360 
Long-term accrued expenses
   13,959    23,563 
  
 
 
   
 
 
 
   22,638    29,923 
  
 
 
   
 
 
 
  ￦2,176,940    1,397,116 
  
 
 
   
 
 
 
18.    Borrowings
(1) Details of borrowings as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
   
December 31,

2020
 
   
(In millions of won)
 
Current
    
Short-term borrowings
  ￦181,611    179,579 
Current portion of long-term borrowings
   2,004,747    2,604,724 
Current portion of debentures
   549,674    329,947 
  
 
 
   
 
 
 
   2,736,032    3,114,250 
  
 
 
   
 
 
 
Non-current
    
Long-term borrowings
   4,223,014    4,526,968 
Debentures
   7,181,330    3,610,430 
  
 
 
   
 
 
 
   11,404,344    8,137,398 
  
 
 
   
 
 
 
  ￦14,140,376    11,251,648 
  
 
 
   
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
18.    Borrowings,  continued
 
(2) Details of short-term borrowings as of October 31, 2021 and December 31, 2020 are as follows:
 
  
Financial
Institutions
 
Maturity date
 
Interest rate per annum as
of October 31, 2021 (%)
1
 
October 31,

2021
  
December 31,
2020
 
  
(In millions of won)
 
General borrowings
 Shinhan Bank 2021.09.27 
—
 ￦—   4,000 
Foreign general borrowings
 Cypress 2021.12.31 —  —   6,924 
 
Industrial & Commercial
Bank of China
 2021.01.20 
—
  —   32,682 
 China Construction Bank and others 2021.02.26 
—
  —   76,258 
 City Bank 2021.07.14 ~ 2021.11.17 
1M USD
LIBOR + 0.55
  25,263   59,715 
 China Merchants Bank 2022.01.21 ~ 2022.09.27 
3M USD
LIBOR + 0.55~1.90
  57,508   — 
 Bank of China 2022.09.07 ~ 2022.11.12 
3M USD
LIBOR + 1.18~1.20
  21,207   — 
 Hystars Semiconductor (Wuxi) Co., Ltd. 2022.03.21 ~ 2022.05.13 4.15~5.10  77,633   — 
    
 
 
  
 
 
 
  ￦181,611   179,579 
  
 
 
  
 
 
 
 
G-69
Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
18.    Borrowings,  continued
 
(3) Details of long-term borrowings as of October 31, 2021 and December 31, 2020 are as follows:
 
  
Financial institutions
 
Maturity date
  
Interest rate per annum as
of October 31, 2021 (%)
1
  
October 31,
2021
  
December 31,
2020
 
          
(In millions of won)
 
Local currency borrowings:
     
Funds for equipment
 Korea Development Bank  
2021.09.29 ~
2025.04.14		 
 		  1.98 ~ 2.50  ￦475,000   725,000 
 The Export-Import Bank of Korea  
2022.10.23 ~
2025.05.15		 
 		  1.31 ~ 2.00   600,000   600,000 
 
Shinhan Bank and others
  
2025.03.31 ~
2028.04.09		 
 		  1.00 ~ 3.08   5,167   3,573 
Commercial Paper
 Shinhan Bank General Finance Department  2023.11.20   CD(91 days) + 0.67   300,000   300,000 
    
 
 
  
 
 
 
     1,380,167   1,628,573 
    
 
 
  
 
 
 
Foreign currency borrowings:
     
General borrowings
 The Export-Import Bank of Korea  2021.05.31   —   —   843,408 
 The Export-Import Bank of Korea  2023.02.03   3M USD LIBOR + 1.30   117,170   108,800 
 Bank of China  2023.12.09   3M USD LIBOR + 0.8   111,151   — 
 Bank of China  2024.05.26   0.9   117,001   — 
Funds for equipment
 The Export-Import Bank of Korea  
2021.02.25 ~
2022.03.10
 		  
3M USD LIBOR +
1.10 ~ 1.40		 
 		  58,585   244,800 
 The Export-Import Bank of Korea  
2021.12.25 ~
2021.12.27		 
 		  3M USD LIBOR + 1.30   292,502   272,349 
 The Export-Import Bank of Korea  2026.04.28   3M USD LIBOR + 0.95   351,510   — 
 Korea Development Bank  2026.10.02   3M USD LIBOR + 1.10   585,850   544,000 
 China Development Bank  
2023.05.26 ~
2023.11.25
 		  3M USD LIBOR + 1.00   210,602   212,432 
 China Bank  2022.11.28   3M USD LIBOR + 1.70   103,196   187,376 
 Industrial & Commercial Bank of China and others  2027.12.21   3M USD LIBOR + 1.65   234,002   — 
Syndicated loan
 Industrial & Commercial Bank of China and others  2024.04.24   3M USD LIBOR + 1.65   2,559,395   3,097,974 
SLB
 Macquarie  
2024.03.22 ~
2024.04.26
 
 
  4.17 ~ 7.85   120,879   — 
    
 
 
  
 
 
 
     4,861,843   5,511,139 
    
 
 
  
 
 
 
     6,242,010   7,139,712 
    
 
 
  
 
 
 
Less: Current portion
     (2,004,747)   (2,604,724) 
Less: Present value discount
     (14,249)   (8,020) 
    
 
 
  
 
 
 
    ￦4,223,014   4,526,968 
    
 
 
  
 
 
 
 
1
 
As of October 31, 2021, the annual interest rates are as follows:
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
18.    Borrowings,  continued
 
Type
  
Interest rate per annum as
of October 31, 2021
 
3M USD LIBOR
   0.13% 
CD (91 Days)
   1.12% 
(4) Details of debentures as of October 31, 2021 and December 31, 2020 are as follows:
 
   
Maturity date
   
Interest rate per
annum as of
October 31, 2021
(%)
   
October 31,

2021
  
December 31,

2020
 
           
(In millions of won)
 
Unsecured notes in local currency:
       
Unsecured corporate bonds
214-2nd
   2022.08.26    2.63   ￦140,000   140,000 
Unsecured corporate bonds
215-3rd
   2022.11.25    2.75    10,000   10,000 
Unsecured corporate bonds
216-2nd
   2021.02.19    —    —   180,000 
Unsecured corporate bonds
216-3rd
   2023.02.19    2.53    80,000   80,000 
Unsecured corporate bonds
217-2nd
   2021.05.27    —    —   150,000 
Unsecured corporate bonds 218th
   2023.03.14    3.01    300,000   300,000 
Unsecured corporate bonds
219-1st
   2023.08.27    2.48    250,000   250,000 
Unsecured corporate bonds
219-2nd
   2025.08.27    2.67    90,000   90,000 
Unsecured corporate bonds
220-1st
   2022.05.09    1.96    410,000   410,000 
Unsecured corporate bonds
220-2nd
   2024.05.09    1.99    200,000   200,000 
Unsecured corporate bonds
220-3rd
   2026.05.09    2.17    120,000   120,000 
Unsecured corporate bonds
220-4rd
   2029.05.09    2.54    250,000   250,000 
Unsecured corporate bonds
221-1st
   2023.02.14    1.61    340,000   340,000 
Unsecured corporate bonds
221-2nd
   2025.02.14    1.72    360,000   360,000 
Unsecured corporate bonds
221-3rd
   2027.02.14    1.93    130,000   130,000 
Unsecured corporate bonds
221-4th
   2030.02.14    2.21    230,000   230,000 
Unsecured corporate bonds
222-1st
   2030.11.10    2.33    70,000   70,000 
Unsecured corporate bonds
222-2nd
   2035.11.10    2.73    100,000   100,000 
Unsecured corporate bonds
223-1st
   2024.04.12    1.51    550,000   — 
Unsecured corporate bonds
223-2nd
   2026.04.13    1.89    360,000   — 
Unsecured corporate bonds
223-3rd
   2028.04.13    2.11    80,000   — 
Unsecured corporate bonds
223-4th
   2031.04.13    2.48    190,000   — 
      
 
 
  
 
 
 
       4,260,000   3,410,000 
      
 
 
  
 
 
 
Unsecured notes in foreign currency:
       
Unsecured global bonds 9th
   2024.09.17    3.00    585,850   544,000 
Unsecured global bonds
10-1st
   2024.01.19    1.00    585,850   — 
Unsecured global bonds
10-2nd
   2026.01.19    1.50    1,171,700   — 
Unsecured global bonds
10-3th
   2031.01.19    2.38    1,171,700   — 
      
 
 
  
 
 
 
       7,775,100   3,954,000 
      
 
 
  
 
 
 
Less: Discounts on debentures
       (44,096)   (13,623) 
Less: Current portion
       (549,674)   (329,947) 
      
 
 
  
 
 
 
      ￦7,181,330   3,610,430 
      
 
 
  
 
 
 
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
19.    Other Current and Non-current Liabilities
Details of other current and
non-current
liabilities as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
   
December 31,

2020
 
   
(In millions of won)
 
Current
    
Advance receipts
  ￦36,193    13,006 
Unearned income
   1,259    404 
Withholdings
   61,054    67,043 
Deposits received
   —    14,063 
Contract liabilities
   130,167    96,378 
Others
   3,087    6,501 
  
 
 
   
 
 
 
   231,760    197,395 
  
 
 
   
 
 
 
Non-current
    
Other long-term employee benefits
   92,890    94,026 
Long-term advance receipts
   —    4,901 
Others
   2    — 
  
 
 
   
 
 
 
   92,892    98,927 
  
 
 
   
 
 
 
  ￦324,652    296,322 
  
 
 
   
 
 
 
20.    Provisions
(1) Details of changes in provisions for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
 
   
Beginning
balance
   
Increase
   
Utilization
  
Reversal
   
Ending

Balance
 
   
(In millions of won)
 
Warranty
  ￦3,015    315    (322)   531    3,539 
Emission allowances
   10,782    4,192    (9,727)   —    5,247 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
  ￦13,797    4,507    (10,049)   531    8,786 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
 
   
2020
 
   
Beginning
balance
   
Increase
   
Utilization
  
Reversal
   
Ending

Balance
 
   
(In millions of won)
 
Warranty
  ￦4,081    1,087    (2,153)   —    3,015 
Emission allowances
   6,620    13,070    (8,908)   —    10,782 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
  ￦10,701    14,157    (11,061)   —    13,797 
  
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
(2) Provisions for warranty
The Group estimates the expected warranty costs based on historical results and accrues provisions for warranty.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
20.    Provisions,  continued
 
(3) Provision for emission allowances
The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the
Act on Allocation and Trading of Greenhouse Gas Emission Permits.
21.    Defined Benefit Liabilities
Under the defined benefit plan, the Group pays employee benefits to retired employees in the form of a lump sum based on their salaries and years of service at the time of their retirement. Accordingly, the Group is exposed to a variety of actuarial assumption risks such as risk associated with expected years of service, interest risk, and market (investment) risk.
(1) Details of defined benefit liabilities (assets) as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
  
December 31,

2020
 
   
(In millions of won)
 
Present value of defined benefit obligations
  ￦2,316,449   2,169,154 
Fair value of plan assets
   (2,178,632)   (2,228,377) 
  
 
 
  
 
 
 
Net defined benefit liabilities
  ￦137,817   (59,223) 
  
 
 
  
 
 
 
Defined benefit liabilities
   141,747   2,739 
Defined benefit assets
1
   (3,930)   (61,962) 
 
1
The Parent Company and certain subsidiaries’ fair value of plan assets in excess of the present value of defined benefit obligations amounted to ￦3,930 million and ￦61,962 million as of October 31, 2021 and December 31, 2020 are presented as defined benefit assets.
(2) Principal actuarial assumptions as of October 31, 2021 and December 31, 2020 are as follows:
 
   
2021 (%)
   
2020 (%)
 
Discount rate for defined benefit obligations
   1.96 ~ 4.31    1.96 ~ 3.56 
Expected rate of salary increase
   3.00 ~ 5.52    3.00 ~ 5.51 
(3) Weighted average durations of defined benefit obligations as of October 31, 2021 and December 31, 2020 are 11.77 and 11.77 years, respectively.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
21.    Defined Benefit Liabilities,  continued
 
(4) Changes in defined benefit obligations for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning balance
  ￦2,169,154   1,936,868 
Current service cost
   211,020   250,098 
Past service cost
   —   (714) 
Interest expense
   62,101   65,002 
Transfer from associates
   315   (2,205) 
Remeasurements:
   (54,285)   (25,036) 
Demographic assumption
   —   39,198 
Financial assumption
   (199,131)   (35,429) 
Adjustment based on experience
   144,846   (28,805) 
Benefits paid
   (71,884)   (54,824) 
Effect of movements in exchange rates
   28   (35) 
  
 
 
  
 
 
 
Ending balance
  ￦2,316,449   2,169,154 
  
 
 
  
 
 
 
(5) Changes in plan assets for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning balance
  ￦2,228,377   1,886,650 
Contributions
   211   355,664 
Interest income
   63,850   62,834 
Transfer from associates
   (257)   231 
Benefits paid
   (90,470)   (53,588) 
Remeasurements
   (23,107)   (23,373) 
Foreign exchange differences
   28   (41) 
  
 
 
  
 
 
 
Ending balance
  ￦2,178,632   2,228,377 
  
 
 
  
 
 
 
(6) The amounts recognized in profit or loss for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
  
2020
  
2019
 
   
(In millions of won)
 
Current service cost
  ￦211,020   250,098   220,870 
Past service cost
   —   (714)   — 
Net interest expense
   (1,748)   2,168   129 
  
 
 
  
 
 
  
 
 
 
  ￦209,272   251,552   220,999 
  
 
 
  
 
 
  
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
21.    Defined Benefit Liabilities,  continued
 
(7) The amounts in which defined benefit plan related expenses are included for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Cost of sales
  ￦111,827    135,999    120,736 
Selling and administrative expenses
   97,445    115,553    100,263 
  
 
 
   
 
 
   
 
 
 
  ￦209,272    251,552    220,999 
  
 
 
   
 
 
   
 
 
 
(8) Details of plan assets as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,

2021
   
December 31,

2020
 
   
(In millions of won)
 
Deposits
  ￦2,177,484    2,227,196 
Others
   1,147    1,181 
  
 
 
   
 
 
 
  ￦2,178,631    2,228,377 
  
 
 
   
 
 
 
Actual return on plan assets for the
ten-month
period October 31, 2021 amounted to ￦40,758 million and for the year ended December 31, 2020 amounted to ￦39,461 million (2019: ￦32,645 million).
(9) As of October 31, 2021, the Group funded defined benefit obligations through insurance plans with Mirae Asset Life Insurance Co., Ltd. and other insurance companies. The Group’s reasonable estimation of contribution to the plan assets for the year ending December 31, 2022 is ￦629,635 million under the assumption that the Group maintains the defined benefit plan.
(10) The sensitivity analysis of the defined benefit obligations as of October 31, 2021 to changes in the principal assumptions is as follows:
 
   
Effects on defined benefit obligation
 
   
Increase of rate
  
Decrease of rate
 
   
(In millions of won)
 
Discount rate (if changed by 1%)
  ￦(236,013)   277,245 
Expected rate of salary increase (if changed by 1%)
   278,286   (241,038) 
The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.
(11) Information about the maturity profile of the defined benefit obligation as of October 31, 2021 is as follows:
 
   
Less than 1
year
   
2 - 5
years
   
6 - 10
years
   
More than

11 years
   
Total
 
   
(In millions of won)
 
Benefits paid
  ￦150,636    399,940    738,364    2,646,403    3,935,343 
Information about the maturity profile is based on the undiscounted and vested amount of defined benefit obligation as of October 31, 2021, and classified by employee’s expected years of remaining services.
(12) The Group adopted defined contribution plan for retirement benefit for employees subject to peak wage system. Contributions to defined contribution plans amounting to ￦2,532 million was expensed for the
ten-month
period ended October 31, 2021 and ￦931 million (2019: ￦455 million) was expensed for the year ended December 31, 2020.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
22.    Deferred Income Tax
(1) Changes in deferred income tax assets and liabilities for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 without taking into consideration the offsetting of balances within the same tax authority, are as follows:
 
   
October 31, 2021
 
   
Beginning
  
Adjustment
   
Profit or
loss
  
Equity
  
Foreign
exchange
differences
  
Ending
 
   
(In millions of won)
 
Inventories, net
  ￦123,341   —    (9,104)   —   488   114,725 
Property, plant and equipment, net
   436,672   —    (95,094)   —   38,508   380,086 
Defined benefits liabilities, net
   (1,876)   —    34,933   (8,544)   (6)   24,507 
Short-term and long-term investment assets and others
   (542,300)   —    (146,906)   —   —   (689,206) 
Employee benefits
   59,471   —    11,363   —   10   70,844 
Provisions
   (9,441)   —    (12,132)   —   31   (21,542) 
Other assets and other liabilities
   19,378   —    8,260   —   (148)   27,490 
Accrued expenses
   100,714   —    24,682   —   —   125,396 
Others
   11,815   —    1,349   —   286   13,450 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Deferred tax assets for temporary differences, net
   197,774   —    (182,649)   (8,544)   39,169   45,750 
Tax credit carryforwards recognized
   3,899   —    (650)   —   259   3,508 
Tax loss carryforwards recognized
   87,881   —    —   —   4,000   91,881 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Deferred tax assets recognized, net
  ￦289,554   —    (183,299)   (8,544)   43,428   141,139 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
   
December 31, 2020
 
   
Beginning
  
Adjustment
   
Profit or
loss
  
Equity
  
Foreign
exchange
differences
  
Ending
 
   
(In millions of won)
 
Inventories, net
  ￦176,742   —    (52,937)   —   (464)   123,341 
Property, plant and equipment, net
    208,478    27,188    201,165   —   (159)   436,672 
Defined benefits liabilities, net
   7,756   —    (9,798)       169    (3)   (1,876) 
Short-term and long-term investment assets and others
   (27,555)   —    (514,745)   —   —   (542,300) 
Employee benefits
   46,537   —    12,936   —   (2)   59,471 
Provisions
   3,589   —    (13,006)   —   (24)   (9,441) 
Other assets and other liabilities
   11,629   —    7,632   —   117   19,378 
Accrued expenses
   92,408   —    8,306   —   —   100,714 
Others
   14,681   —    (2,410)   —   (456)   11,815 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Deferred tax assets for temporary differences, net
   534,265   27,188    (362,857)   169   (991)   197,774 
Tax credit carryforwards recognized
   6,251   —    (2,192)   —   (160)   3,899 
Tax loss carryforwards recognized
   117,381   —    (24,561)   —   (4,939)   87,881 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Deferred tax assets recognized, net
  ￦657,897   27,188    (389,610)   169   (6,090)   289,554 
  
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
22.    Deferred Income Tax,  continued
 
(2) As of October 31, 2021 and December 31, 2020, the temporary differences that are not recognized as deferred tax assets (liabilities) are as follows:
 
   
October 31,
2021
  
December 31,

2020
 
   
(In millions of won)
 
Deductible temporary differences
  ￦2,864,208   2,637,294 
Taxable temporary differences
   (3,224,408)   (3,130,362) 
  
 
 
  
 
 
 
Investments in subsidiaries, associates, and joint ventures
   (360,200)   (493,068) 
  
 
 
  
 
 
 
Other deductible temporary differences
   12,790   12,790 
  
 
 
  
 
 
 
(3) Details of period when the deferred income tax assets (liabilities) are recovered (settled) as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,
2021
  
December 31,

2020
 
   
(In millions of won)
 
Deferred income tax assets to be recovered after more than 12 months
  ￦1,295,936   1,410,835 
Deferred income tax assets to be recovered within 12 months
   287,102   142,651 
  
 
 
  
 
 
 
Deferred income tax assets recognized
   1,583,038   1,553,486 
  
 
 
  
 
 
 
Deferred income tax liabilities to be recovered after more than 12 months
   (1,441,381)   (1,263,264) 
Deferred income tax liabilities to be settled within 12 months
   (518)   (668) 
  
 
 
  
 
 
 
Deferred income tax liabilities recognized
   (1,441,899)   (1,263,932) 
  
 
 
  
 
 
 
Net income deferred tax assets (liabilities) recognized
  ￦141,139   289,554 
  
 
 
  
 
 
 
23.     Derivative Financial Instruments
(1) Details of derivative financial instruments applying cash flow hedge accounting as of October 31, 2021 are as follows:
 
Hedged items
 
Hedging instruments
Borrowing date
 
Financial
instrument
 
Hedged risk
 
Type of contract
  
Financial
institution
  
Contract period
  
(In thousands of foreign currencies)
2019.09.17
 
Foreign currency denominated bond with fixed rate
(Par value: USD 500,000)
 Foreign currency risk 
Fixed-to-fixed
cross currency swap		  Kookmin Bank and other  
2019.09.17~
2024.09.17
2019.10.02
 
Foreign currency denominated borrowing for equipment with floating rate
(Par value: USD 500,000)
 Foreign currency and interest rate risk 
Floating-to-fixed
cross currency interest rate swap		  Korea Development Bank  
2019.10.02~
2026.10.02
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
23.     Derivative Financial Instruments,  continued
 
Hedged items
 
Hedging instruments
Borrowing date
 
Financial
instrument
 
Hedged risk
 
Type of contract
  
Financial
institution
  
Contract period
  
(In thousands of foreign currencies)
2020.02.03
 
Foreign currency denominated borrowing with floating rate
(Par value: USD 50,000)
 Interest rate risk Interest rate swap  Woori Bank  
2020.02.03~
2023.02.03
2020.03.18
 
Foreign currency denominated borrowing with floating rate
(Par value: USD 50,000)
 Interest rate risk Interest rate swap  Woori Bank  
2020.03.18~
2023.02.03
(2) The derivative financial instruments held by the Group are presented in
non-current
other financial assets and
non-current
other financial liabilities in the consolidated financial statements of financial position and the details are as follows:
 
Type of contract
  
Hedged items
  
Cash flow hedge
   
Fair value
 
   
(In millions of won and thousands of foreign currencies)
 
Fixed-to-fixed
cross currency swap
  
Foreign currency denominated bond with fixed rate
(Par value: USD 500,000)
  ￦21,298    21,298 
Floating-to-fixed
cross currency interest rate swap
  
Foreign currency denominated borrowing for equipment with floating rate
(Par value: USD 500,000)
   1,730    1,730 
      
 
 
 
Derivative financial assets
  ￦    23,028 
    
 
 
 
Interest rate swap
  
Foreign currency denominated borrowing with floating rate
(Par value: USD 50,000)
  ￦865    865 
Interest rate swap
  
Foreign currency denominated borrowing with floating rate
(Par value: USD 50,000)
   308    308 
      
 
 
 
Derivative financial liabilities
  ￦    1,173 
    
 
 
 
As of October 31, 2021, changes of fair value of the derivative is recognized in other comprehensive income or loss as all of designated hedging instruments are effective for foreign currency risk or foreign currency and interest rate risk.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
24.     Capital Stock, Capital Surplus and Other Equity
(1) The Parent Company has 9,000,000,000 authorized shares and the face value per share is ￦5,000 as of October 31, 2021. The number of shares issued, common stock, capital surplus and other capital as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,
2021
  
Decmber 31,
2020
 
   
(In millions of won,
thousands of shares)
 
Issued shares
1
   731,530   731,530 
Capital stock:
   
Common stock
  ￦3,657,652   3,657,652 
Capital surplus:
   
Additional paid in capital
   3,625,797   3,625,797 
Others
   708,846   517,939 
  
 
 
  
 
 
 
   4,334,643   4,143,736 
  
 
 
  
 
 
 
Other equity:
   
Acquisition cost of treasury shares
2
   (2,302,119)   (2,508,427) 
Stock option
   7,133   5,305 
  
 
 
  
 
 
 
  ￦(2,294,986)   (2,503,122) 
  
 
 
  
 
 
 
Number of treasury shares
   40,382   44,001 
 
1
 
As of October 31, 2021, total number of shares is 728,002 thousand shares, which differs from total issued shares due to the effect of stock retirement.
 
2
 
Through the resolution of the Board of Directors on April 28, 2021, the Group transferred 3,618,878 treasury shares to employee stock ownership association (3,282,343 shares of discounted acquisition and 336,535 shares of free acquisition) and, accordingly, gain on disposal of treasury of ￦ 191,247 million occurred.
(2) The numbers of outstanding shares, which deducted treasury shares held by the Parent Company from listed shares of October 31, 2021 and December 31, 2020, are as follows:
 
   
October 31, 2021
 
   
Issued

shares
   
Treasury

shares
  
Outstanding

shares
 
   
(In shares)
 
The number of outstanding shares
   728,002,365    (40,381,692)   687,620,673 
 
   
December 31, 2020
 
   
Issued

shares
   
Treasury

shares
  
Outstanding

shares
 
   
(In shares)
 
The number of outstanding shares
   728,002,365    (44,000,570)   684,001,795 
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
25.    Accumulated Other Comprehensive Loss
(1) Details of accumulated other comprehensive loss as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,
2021
   
December 31,

2020
 
   
(In millions of won)
 
Equity-accounted investees — share of other comprehensive income (loss)
  ￦33,332    (57,542) 
Foreign operations — foreign currency translation differences
        437,451    (360,247) 
Gain on valuation of derivatives
   29,439           12,336 
  
 
 
   
 
 
 
  ￦500,222    (405,453) 
  
 
 
   
 
 
 
(2) Changes in accumulated other comprehensive income (loss) for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
  
2021
 
  
Beginning
  
Change
  
Ending
 
  
(In millions of won)
 
Equity-accounted investees — share of other comprehensive income (loss)
 ￦(57,542)   90,874   33,332 
Foreign operations — foreign currency translation differences
  (360,247)   797,698   437,451 
Gain (loss) on valuation of derivatives
  12,336   17,103   29,439 
 
 
 
  
 
 
  
 
 
 
 ￦(405,453)    905,675     500,222  
 
 
 
  
 
 
  
 
 
 
 
  
2020
 
  
Beginning
  
Change
  
Ending
 
  
(In millions of won)
 
Equity-accounted investees — share of other comprehensive income (loss)
 ￦3,278   (60,820)   (57,542) 
Foreign operations — foreign currency translation differences
  (314,966)   (45,281)   (360,247) 
Gain on valuation of derivatives
  12,753   (417)   12,336 
 
 
 
  
 
 
  
 
 
 
 ￦(298,935)   (106,518)   (405,453) 
 
 
 
  
 
 
  
 
 
 
26.    Retained Earnings and Dividends
(1) Details of retained earnings as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31,
2021
   
December 31,

2020
 
   
(In millions of won)
 
Legal reserve
1
  ￦429,983    349,954 
Discretionary reserve
2
   235,506    235,506 
Unappropriated retained earnings
   52,862,086    46,410,268 
  
 
 
   
 
 
 
  ￦53,527,575    46,995,728 
  
 
 
   
 
 
 
 
1
 
The Commercial Code of the Republic of Korea requires the Parent Company to appropriate for each financial period, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit.
2
 
Discretionary reserve is a reserve for technology development.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
26.    Retained Earnings and Dividends,  continued
 
(2) Dividends of the Parent Company
(a) Details of dividends for the
ten-month
period ended October 31, 2021, years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won and in thousands of shares)
 
Type of dividends
   Cash Dividends    Cash Dividends    Cash Dividends 
Outstanding ordinary shares
   687,621    684,002    684,002 
Par value (in won)
  ￦5,000    5,000    5,000 
Dividend rate
   31%    23%    20% 
Total dividends
  ￦1,058,936    800,282    684,002 
(b) Dividend payout ratio for the
ten-month
period ended October 31, 2021, years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Dividends
  ￦1,058,936    800,282    684,002 
Profit attributable to owners of the
Parent Company
   7,309,517    4,755,102    2,005,975 
Dividend payout ratio
1
   14.49%    16.83%    34.10% 
 
1
 
Due to the difference in reporting period between the prior years and the current period, the current rate is different from the annual rate.
(c) Dividend yield ratio for the
ten-month
period ended October 31, 2021, years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In won)
 
Dividends per share
  ￦1,540    1,170    1,000 
Closing stock price
   103,000    118,500    94,100 
Dividend yield ratio
   1.50%    0.99%    1.06% 
 
1
 
Due to the difference in reporting period between the prior years and the current period, the current rate is different from the annual rate.
27.    Revenue
(1) Details of the Group’s revenue for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Sale of goods
  ￦33,920,345    31,837,538    26,922,416 
Providing services
   53,948    62,880    68,317 
  
 
 
   
 
 
   
 
 
 
  ￦33,974,293    31,900,418    26,990,733 
  
 
 
   
 
 
   
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
27.    Revenue,  continued
 
(2) Details of the Group’s revenue by product and service types for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
DRAM
  ￦24,413,236    22,536,404    20,292,687 
NAND Flash
   8,040,201    7,471,242    5,139,563 
Other
   1,520,856    1,892,772    1,558,483 
  
 
 
   
 
 
   
 
 
 
  ￦33,974,293    31,900,418    26,990,733 
  
 
 
   
 
 
   
 
 
 
(3) The Group’s revenue information by region based on the location of selling entities for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Korea
  ￦1,174,928    1,452,006    1,446,997 
China
   12,810,386    12,217,634    12,570,278 
Taiwan
   2,370,792    1,905,650    1,444,188 
Asia (other than China and Taiwan)
   3,288,069    2,416,321    2,301,314 
U.S.A.
   13,065,022    12,686,108    8,141,151 
Europe
   1,265,096    1,222,699    1,086,805 
  
 
 
   
 
 
   
 
 
 
  ￦33,974,293    31,900,418    26,990,733 
  
 
 
   
 
 
   
 
 
 
(4) Details of the Group’s revenue by the timing of revenue recognition for the
ten-month
period ended October 31, 2021 and ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Performance obligations satisfied at a point in time
  ￦33,920,345    31,837,538    26,922,416 
Performance obligations satisfied over time
   53,948    62,880    68,317 
  
 
 
   
 
 
   
 
 
 
  ￦33,974,293    31,900,418    26,990,733 
  
 
 
   
 
 
   
 
 
 
(5) Revenue recognition policies and performance obligations
Revenue is measured based on the promised consideration specified in a contract with a customer. The Group recognizes revenue when the Group transfers a promised good or service to a customer.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
27.    Revenue,  continued
 
Revenue recognition policies regarding the nature and timing of performance obligation satisfaction in the contract are as follows:
 
   
Nature and timing of performance
obligation satisfaction
  
Revenue recognition policies
Sale of goods
  
Revenue is recognized when the customer obtains control of that asset, which is typically upon delivery or shipment depending on the terms of the contract.
 
When the good is defective, the customer is granted the right to return the defective goods in exchange for a functioning product or cash.
  
Revenue is measured at the amount of consideration for the sale of goods, reflecting the expected amount of return estimated through historical information. The Group’s right to recover products from customers and refund liability are recognized.
 
Refund liability is initially measured at the former carrying amount of the product less any expected costs to recover those products. Refund liability is included in other current liabilities (See note 19) and right to recover products from customers is included in other current assets (See note 10).The Group reviews its estimate of expected returns at the end of each reporting period and updates the amounts of the asset and liabilities accordingly.
28.    Selling and Administrative Expenses
Selling and administrative expenses for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
  
2020
  
2019
 
   
(In millions of won)
 
Selling and administrative expenses:
    
Salaries
  ￦638,686   592,894   516,226 
Defined benefit plan
   36,969   40,927   34,692 
Employee benefits
   146,959   159,600   141,104 
Commission
   387,111   334,570   460,644 
Depreciation
   178,860   245,858   206,429 
Amortization
   428,094   719,652   687,365 
Freight and custody charge
   39,996   48,617   40,222 
Legal cost
   7,798   20,323   31,679 
Rental
   10,967   8,944   6,933 
Taxes and dues
   66,650   56,934   54,525 
Training
   51,744   67,626   43,217 
Advertising
   72,313   95,158   92,792 
Utilities
   12,927   13,688   12,193 
Supplies
   74,888   100,748   99,029 
Repair
   20,938   26,541   29,546 
Travel and transportation
   3,876   4,692   16,731 
Others
   173,348   149,935   123,770 
  
 
 
  
 
 
  
 
 
 
   2,352,124   2,686,707   2,597,097 
  
 
 
  
 
 
  
 
 
 
Research and development:
    
Expenditure on research and development
   3,219,264   3,370,318   3,188,531 
Development cost capitalized
   (325,845)   (259,020)   (332,888) 
  
 
 
  
 
 
  
 
 
 
   2,893,419   3,111,298   2,855,643 
  
 
 
  
 
 
  
 
 
 
  ￦5,245,543   5,798,005   5,452,740 
  
 
 
  
 
 
  
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
29.    Expenses by Nature
Nature of expenses for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 is as follows:
 
   
2021
  
2020
  
2019
2
 
   
(In millions of won)
 
Changes in finished goods and
work-in-process
  ￦(845,052)   (616,725)   (523,777) 
Raw materials, supplies and consumables
   6,652,116   7,649,164   6,787,445 
Employee benefit
   4,379,783   3,833,439   3,411,234 
Depreciation and others
   8,778,793   9,764,776   8,605,492 
Commission
   2,002,944   2,149,025   2,113,753 
Utilities
   1,291,681   1,459,346   1,366,041 
Repair
   1,056,337   1,129,642   1,080,705 
Outsourcing
   853,737   1,188,589   1,128,458 
Others
   886,355   639,284   650,002 
Transfer: capitalized development cost and others
   (470,270)   (308,746)   (347,799) 
  
 
 
  
 
 
  
 
 
 
Total
1
  ￦24,586,424   26,887,794   24,271,554 
  
 
 
  
 
 
  
 
 
 
 
1
 
Total expenses consist of cost of sales and selling and administrative expenses.
 
2
Expenses for the year ended December 31, 2019 was reclassified to conform with the classification for the
ten-month
period ended October 31, 2021 and for the year ended December 31, 2020.
30.    Finance Income and Expenses
Finance income and expenses for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Finance income:
      
Interest income
  ￦18,496    27,872    30,062 
Dividend income
   7,875    1,325    429 
Foreign exchange differences
1
   1,440,639    1,527,580    1,143,099 
Gain on valuation of short-term investment assets
   —    2,592    5,811 
Gain on valuation of long-term investment assets
   520,232    1,741,026    8,237 
Gain on disposal of short-term investment assets
   37,127    27,510    58,784 
Gain on disposal of long-term investment assets
   15,776    —    1,218 
  
 
 
   
 
 
   
 
 
 
   2,040,145    3,327,905    1,247,640 
  
 
 
   
 
 
   
 
 
 
Finance expenses:
      
Interest expenses
   218,137    253,468    245,440 
Foreign exchange differences
2
   1,102,436    1,717,989    1,043,720 
Loss on valuation of short-term investment assets
   8,938    —    — 
Loss on disposal of long-term investment assets
   3    —    786 
Loss on valuation of long-term investment assets
   1,704    7,273    241,471 
Loss on valuation of financial liabilities
   125    1,681    — 
  
 
 
   
 
 
   
 
 
 
   1,331,343    1,980,411    1,531,417 
  
 
 
   
 
 
   
 
 
 
Net finance income (expense)
  ￦708,802    1,347,494    (283,777) 
  
 
 
   
 
 
   
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
30.    Finance Income and Expenses,  continued
 
 
1
Gain on foreign currency translation related to fair value of long-term investment assets amounting to ￦11,665 million is included for the
ten-month
period ended October 31, 2021 and ￦100 million is included for the years ended December 31, 2020 (2019: ￦212,450 million), respectively.
 
2
Loss on foreign currency translation related to fair value of long-term investment assets amounting to ￦127,348 million is included for the
ten-month
period ended October 31, 2021 and ￦44,314 million is included for the years ended December 31, 2020 (2019: ￦1,931 million), respectively.
31.    Other Income and Expenses
(1) Other income for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Gain on disposal of property, plant and equipment
  ￦57,014    38,585    26,158 
Others
   24,427    46,188    62,021 
  
 
 
   
 
 
   
 
 
 
  ￦81,441    84,773    88,179 
  
 
 
   
 
 
   
 
 
 
(2) Other expenses for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Loss on disposal of property, plant and equipment
  ￦7,330    44,955    11,531 
Loss on disposal of intangible assets
   2,938    4,841    7,668 
Loss on disposal of trade receivables
   4,216    6,320    8,564 
Loss on impairment of intangible assets
   43,453    16,544    71 
Donation
   59,526    70,461    59,522 
Others
   28,017    28,454    26,219 
  
 
 
   
 
 
   
 
 
 
  ￦145,480    171,575    113,575 
  
 
 
   
 
 
   
 
 
 
32.    Income Tax Expense
(1) Income tax expense for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
  
2019
 
   
(In millions of won)
 
Current tax:
     
Current tax on profits for the year
  ￦2,632,016    1,113,166   603,692 
Adjustments for the current tax liabilities attributable to prior year, but recognized in current year
   100,008    (24,653)   (85,520) 
  
 
 
   
 
 
  
 
 
 
   2,732,024    1,088,513   518,172 
  
 
 
   
 
 
  
 
 
 
Deferred tax:
     
Changes in net deferred tax assets
   183,299    389,610   (94,611) 
  
 
 
   
 
 
  
 
 
 
Income tax expense
  ￦2,915,323    1,478,123   423,561 
  
 
 
   
 
 
  
 
 
 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
32.    Income Tax Expense,  continued
 
(2) The relationship between tax expense and accounting profit for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
  
2021
  
2020
  
2019
 
  
(In millions of won)
 
Profit before income tax
 ￦10,236,718   6,237,037   2,432,639 
Tax calculated at domestic tax rates applicable to profits in the respective countries
  2,867,154   1,704,823   658,614 
Tax effects of:
   
Tax-exempt
income
  (5,840)   (70,922)   (36,618) 
Non-deductible
expenses
  6,435   19,977   11,694 
Changes in unrecognized deferred tax assets
  53,251   8,667   (93,041) 
Tax credits
  (129,703)   (118,011)   (102,755) 
Adjustments for the current tax liabilities attributable to prior year, but recognized in current year
  100,007   (24,653)   (85,520) 
Others
  24,019   (41,758)   71,187 
 
 
 
  
 
 
  
 
 
 
Income tax expense
 ￦2,915,323   1,478,123   423,561 
 
 
 
  
 
 
  
 
 
 
(3) Income taxes recognized directly in equity for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
  
2021
  
2020
  
2019
 
  
(In millions of won)
 
Remeasurements of defined benefit liabilities
 ￦(8,544)   169   34,132 
Gain on valuation of derivatives
  (6,094)   (680)   (4,837) 
Gain on disposal of treasury stock
  (72,542)   
 
 
 
  
 
 
  
 
 
 
 ￦(87,180)   (511)   29,295 
 
 
 
  
 
 
  
 
 
 
33.    Earnings per Share
Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the Parent Company by the weighted average number of outstanding ordinary shares for years ended October 31, 2021 and December 31, 2020.
(1) Basic earnings per share for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
  
2021
  
2020
  
2019
 
  
(In millions of won, except for shares and per share
information)
 
Profit attributable to ordinary shareholders of the Parent Company
 ￦7,309,517   4,755,102   2,005,975 
Weighted average number of outstanding ordinary shares
1
  686,168,360   684,001,795   684,001,795 
Basic earnings per share (in won)
 ￦10,653   6,952   2,933 
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
33.    Earnings per Share,  continued
 
 
1
 
Weighted average number of outstanding ordinary shares is calculated as follows:
 
  
2021
  
2020
  
2019
 
  
(In shares)
 
Outstanding ordinary shares
  728,002,365   728,002,365   728,002,365 
Acquisition of treasury shares
  (41,834,005)   (44,000,570)   (44,000,570) 
 
 
 
  
 
 
  
 
 
 
Weighted average number of outstanding ordinary shares
  686,168,360   684,001,795   684,001,795 
 
 
 
  
 
 
  
 
 
 
(2) Diluted earnings per share for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
  
2021
  
2020
  
2019
 
  
(In millions of won, except for shares and per share
amounts)
 
Profit attributable to ordinary shareholders of the Parent Company
 ￦    7,309,517   4,755,102   2,005,975 
Weighted average number of diluted outstanding ordinary shares
1
  686,419,424   684,139,222   684,089,944 
Diluted earnings per share (in won)
 ￦         10,649   6,950   2,932 
 
1
 
Weighted average number of diluted ordinary shares outstanding is calculated as follows:
 
  
2021
  
2020
  
2019
 
  
(In shares)
 
Weighted average number of outstanding ordinary shares
  686,168,360   684,001,795   684,001,795 
Stock options
  251,064   137,427   88,149 
 
 
 
  
 
 
  
 
 
 
Weighted average number of diluted outstanding ordinary shares
  686,419,424   684,139,222   684,089,944 
 
 
 
  
 
 
  
 
 
 
34.    Transactions with Related Parties and Others
(1) Details of related parties as of October 31, 2021 are as follows:
 
Type
  
Name of related parties
Associates
  
Stratio, Inc., SK China Company Limited, Gemini Partners Pte. Ltd., TCL Fund,
SK South East Asia Investment Pte. Ltd.,
Hushan Xinju (Chengdu) Venture Investment Center (Smartsource),
Prume Social Farm, Co., Ltd., Wuxi xinfa IC industry park., Ltd.,
Magnus Private Investment Co., Ltd.,
L&S (No.10) Early Stage III Investment Association,
SiFive Inc.,
YD-SK-KDB
Scocial Value,
Ningbo Zhongxin Venture Capital Partnership (Limited Partnership),
Jiangsu KVTS Semiconductor Science and Technology Co., Ltd.
Joint ventures
  
HITECH Semiconductor (Wuxi) Co., Ltd., Hystars Semiconductor (Wuxi) Co., Ltd.,
Specialized Investment-type Private Equity Investment Trust For Growth Of
Semiconductor, Specialized Investment-type Private Equity Investment Trust
For
Win-win
System Semiconductor
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
34.    Transactions with Related Parties and Others,  continued
 
Type
  
Name of related parties
Other related parties
  
SK Telecom Co., Ltd., which has significant influence over the Group,
SK Inc. (formerly, SK Holdings Co., Ltd.), which has control over SK Telecom Co., Ltd., and their subsidiaries
(2) Significant transactions for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
  
For the
ten-month
period ended October 31, 2021
 
  
Company
 
Operating
revenue and
others
  
Operating
expense
and others
  
Asset
acquisition
  
Dividend

income
  
Borrowings
 
    
(In millions of won)
    
Associate
 SK China Company Limited ￦21   8,923   —   —   — 
Joint ventures
 HITECH Semiconductor
(Wuxi) Co., Ltd.		  2,442   456,081   36,164   17,115   — 
 Hystars Semiconductor (Wuxi) Co., Ltd.  193   19,913   9,075   —   77,633 
 Magnus Private Investment Co., Ltd.,  45,610   302   —   —   — 
Other related
parties
 SK Telecom Co., Ltd.
1
  73,059   191,180   7,414   —   — 
 SK Inc.
2
  20,768   248,242   136,167   —   — 
 ESSENCORE Limited  721,250   —   —   —   — 
 
SK Ecoplant Co.,Ltd.
(formerly, SK Engineering &
Construction Co., Ltd.)
  24,519   260   998,929   —   — 
 SK Energy Co., Ltd.  35,858   69,434   2,558   —   — 
 SK Networks Co., Ltd.  5,933   7,409   386   —   — 
 SKC Solmics Co., Ltd.  845   111,780   289   —   — 
 Chungcheong energy service Co., Ltd.  28   19,959   —   —   — 
 SK Materials Co., Ltd.  3,645   97,990   —   —   — 
 SK Siltron Co., Ltd.
  26,645   285,215   —   —   — 
 SK Airgas Co., Ltd.  574   106,853   —   —   — 
 Techdream Co., Ltd  —   100,911   —   —   — 
 SK Trichem Co., Ltd.  531   116,818   —   —   — 
 SK Shieldus Co., Ltd.  1,738   62,077   15,194   —   — 
 SK Innovation Co., Ltd.  27,959   56,473   44   —   — 
 Others  111,797   228,588   37,663   —   — 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  ￦1,103,415   2,188,408   1,243,883   17,115   77,633 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
1
 
Operating expense and others include dividend payments of ￦170,937 million.
 
2
 
For the
ten-month
period ended October 31, 2021, royalty paid for the use of the SK brand amounted to ￦53,498 million.
 
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Table of Contents
SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
34.    Transactions with Related Parties and Others,  continued
 
  
For the year ended December 31, 2020
 
  
Company
 
Operating
revenue and
others
  
Operating
expense
and others
  
Asset
acquisition
  
Dividend

income
 
    
(In millions of won)
 
Associate
 SK China Company Limited ￦18   8,019   —   — 
Joint ventures
 HITECH Semiconductor (Wuxi) Co., Ltd.  4,766   543,575   21,780   15,033 
 Hystars Semiconductor (Wuxi) Co., Ltd.  168   —   —   — 
Other related parties
 SK Telecom Co., Ltd.
1
  135,050   166,019   82,044   — 
 SK Inc.
2
  20,905   264,994   272,980   — 
 ESSENCORE Limited  675,915   —   —   — 
 SK Ecoplant Co.,Ltd.  42,814   8,507   1,375,083   — 
 SK Energy Co., Ltd.  50,035   72,386   —   — 
 SK Networks Co., Ltd.  6,638   9,434   526   — 
 SKC Solmics Co., Ltd.  623   93,862   178   — 
 Chungcheong energy service Co., Ltd.  118   24,335   —   — 
 SK Materials Co., Ltd.  4,349   95,007   —   — 
 SK Siltron Co., Ltd.
  32,429   380,571   —   — 
 SK Airgas Co., Ltd.  13,220   75,990   110,858   — 
 Others  173,971   631,656   65,385   — 
  
 
 
  
 
 
  
 
 
  
 
 
 
  ￦1,161,019   2,374,355   1,928,834   15,033 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
1
 
Operating expense and others include dividend payments of ￦146,100 million.
 
2
 
For the year ended December 31, 2020, royalty paid for the use of the SK brand amounted to ￦54,434 million.
 
  
For the year ended December 31, 2019
 
  
Company
 
Operating
revenue and
others
  
Operating
expense
and others
  
Asset
acquisition
  
Dividend

income
 
    
(In millions of won)
 
Associate
 SK China Company Limited ￦15   10,954   —   — 
Joint ventures
 HITECH Semiconductor(Wuxi) Co., Ltd.  4,362   656,911   1,616   14,458 
 Hystars Semiconductor (Wuxi) Co., Ltd.  238   —   —   — 
Other related parties
 SK Telecom Co., Ltd.
1
  167,878   242,559   10,699   — 
 SK Inc.
2
  25,912   265,496   259,280   — 
 ESSENCORE Limited  708,497   —   —   — 
 SK Ecoplant Co.,Ltd.  60,886   1,249   1,851,230   — 
 SK Energy Co., Ltd.  62,220   73,717   —   — 
 SK Networks Co., Ltd.  12,704   12,698   —   — 
 SKC Solmics Co., Ltd.  676   82,814   1,067   — 
 Chungcheong energy service Co., Ltd.  215   27,215   —   — 
 SK Materials Co., Ltd.  4,118   79,000   —   — 
 SK Siltron Co., Ltd.
  32,411   397,327   —   — 
 SK Airgas Co., Ltd.  106   72,675   —   — 
 Others  163,648   484,678   68,445   — 
  
 
 
  
 
 
  
 
 
  
 
 
 
  ￦1,243,886   2,407,293   2,192,337   14,458 
  
 
 
  
 
 
  
 
 
  
 
 
 
 
1
 
Operating expense and others include dividend payments of ￦219,200 million.
 
2
 
For the year ended December 31, 2019, royalty paid for the use of the SK brand amounted to ￦82,629 million.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
34.    Transactions with Related Parties and Others,  continued
 
The above related party transactions include transactions executed based on agreements executed in the course of the Group’s business activities such as purchase or construction of property, plant and equipment, procurements of gas and raw materials, and system developments and maintenance services.
(3) The balances of significant transactions as of October 31, 2021 and December 31, 2020 are as follows:
 
   
October 31, 2021
 
   
Company
  
Trade
receivables
and others
   
Other
payables and
others
 
      
(In millions of won)
 
Associate
  SK China Company Limited  ￦3    9,151 
Joint ventures
  HITECH Semiconductor (Wuxi) Co., Ltd.   203    432,586 
  Hystars Semiconductor (Wuxi) Co., Ltd.
1
   15    184,675 
  Magnus Private Investment Co., Ltd.,   781    5 
Other related parties
  SK Telecom Co., Ltd.
   2,591    7,463 
  SK Inc.   1,453    125,579 
  ESSENCORE Limited   30,550    — 
  SK Ecoplant Co.,Ltd.   3,746    397,609 
  SK Energy Co., Ltd.   1,626    17,119 
  SK Networks Co., Ltd.   161    1,378 
  SKC solmics Co., Ltd.   91    40,750 
  Chungcheong energy service Co., Ltd.   —    1,194 
  SK Materials Co., Ltd.   675    11,596 
  SK Siltron Co., Ltd.
1
   3,287    31,910 
  SK Airgas Co., Ltd.   28    379,088 
  Techdream Co., Ltd   —    7,010 
  SK Trichem Co., Ltd.   120    14,565 
  SK Shieldus Co., Ltd.   3,144    21,116 
  SK Inovation Co., Ltd.   639    4,305 
  Others   26,831    42,289 
    
 
 
   
 
 
 
    ￦75,944    1,729,388 
    
 
 
   
 
 
 
 
1
Trade Other payables and others include ￦77,633 million of borrowings.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
34.    Transactions with Related Parties and Others,  continued
 
   
December 31, 2020
 
   
Company
  
Trade
receivables
and others
   
Other
payables and
others
 
      
(In millions of won)
 
Associate
  SK China Company Limited  ￦7    8,771 
Joint ventures
  HITECH Semiconductor (Wuxi) Co., Ltd.   198    417,730 
  
Hystars Semiconductor (Wuxi) Co., Ltd.
   7    — 
Other related parties  
SK Telecom Co., Ltd.
   10,747    7,920 
  
SK Inc.
   1,757    176,752 
  
ESSENCORE Limited
   55,500    — 
  SK Ecoplant Co.,Ltd.   3,397    592,630 
  SK Energy Co., Ltd.   1,204    22,328 
  SK Networks Co., Ltd.   289    1,712 
  SKC solmics Co., Ltd.   74    24,128 
  Chungcheong energy service Co., Ltd.   69    3,295 
  SK Materials Co., Ltd.   411    10,130 
  SK Siltron Co., Ltd.
1
   44,847    36,792 
  SK Airgas Co., Ltd.   12    390,967 
  Others   31,324    124,499 
    
 
 
   
 
 
 
    ￦149,843    1,817,654 
    
 
 
   
 
 
 
 
1
Trade receivable and others include ￦42,432 million advance paid for the purchase of wafers (See
note 35-(9)).
(4) Key management compensation
The Group considers registered directors who have authority and responsibility for planning, directing and controlling the activities of the Group as key management. The compensation paid to key management for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
Details
  
2021
   
2020
   
2019
 
   
(In millions of won)
 
Salaries
  ￦4,502    5,006    3,849 
Defined benefit plan related expenses
   533    545    406 
Share-based payment
   725    1,175    954 
  
 
 
   
 
 
   
 
 
 
  ￦5,760    6,726    5,209 
  
 
 
   
 
 
   
 
 
 
(5) The
right-of-use
assets and lease liabilities recognized regarding the lease agreements entered with the Joint venture, HITECH Semiconductor (Wuxi) Co., Ltd, for the
ten-month
period ended October 31, 2021 amount to ￦44,471 million and ￦44,471 million, respectively, and lease payments to the related parties amount to ￦89,200 million for the
ten-month
period ended October 31, 2021. The
right-of-use
assets and lease liabilities recognized regarding the lease agreements entered with SK Air Gas Co., Ltd. and other related parties for the
ten-month
period ended October 31, 2021 amount to ￦6,245 million and ￦6,245 million, respectively, and lease payments to the related parties amount to ￦35,218 million for the
ten-month
period ended October 31, 2021.
(6) The Group provides payment guarantee amounting to RMB 698 million for Hystars Semiconductor (Wuxi) Co., Ltd., a joint venture of the Group. (See note
35-(7))
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
34.    Transactions with Related Parties and Others,  continued
 
(7) The establishments of the subsidiaries are explained in Note 1, and the acquisitions and additional investments of associates and joint ventures are explained in Note 11.
(8) On June 30, 2021, the Group signed an agreement with SK REIT Co., Ltd. on the preferred purchase regarding the sale and lease of real estate held by the Group. In accordance with this agreement, the Group will grant a preferred purchase right to SK REIT Co., Ltd. if the Group intends to dispose of the real estate to a third party or if SK REIT Co., Ltd. requests negotiation for preferred purchase and the Group accepts. The preferred purchase right is to negotiate the purchase of real estate in preference to a third party and the lease to the Group. The exercise of the preferred purchase right will expire within three years from the date of the agreement, and if a sales and lease agreement could not be signed within six months from the date of exercise of the preferred purchase right, the right may be lost.
35.    Commitments and Contingencies
(1)     Significant pending litigations and claims of the Group as of October 31, 2021 are as follows:
(a)     Lawsuit from Netlist, Inc. (“Netlist”)
Netlist filed lawsuits against the Parent Company and its subsidiaries, SK hynix America Inc. and SK hynix memory solutions America Inc., with the U.S. District Court for the Central District of California on August 31, 2016 and June 14, 2017, and filed a lawsuit against the Parent Company and its subsidiary, SK hynix America Inc., with the U.S. District Court for the Western District of Texas on March 17, 2020 and June 15, 2020 for infringement of U.S. patent of Netlist.
During the
ten-month
period ended October 31, 2021, Netlist and the Group jointly filed an application for withdrawal of a patent infringement suit on March 30, 2021 filed with the California Central District Court during the period ended October 31, 2021 and the lawsuit was finalized on April 2, 2021.
In addition, Netlist and the Company jointly submitted an application to withdraw the lawsuit for infringement of patent to the Western District Court of Texas on April 20, 2021. The lawsuit was finalized on May 10, 2021 as the Western District Court of Texas finally approved it.
(b)     Price-fixing class-action lawsuits in North America
On April 27, 2018, a class action lawsuit against the Parent Company and its subsidiary, SK hynix America Inc., for price fixing by major DRAM companies (period from June 1, 2016 to February 1, 2018) was filed with the U.S. District Court for the Northern District of California. Similar class action lawsuits have been filed with the U.S. District Court for the Northern District of California, the Supreme Court of British Columbia, the Quebec District Court, the Ontario Federal and District Court. In December 2020 and September 2021, the U.S. District Court for the Northern District of California ruled dismissal all lawsuits filed by direct purchasers and indirect purchasers in the United States, and in June 2021 and November 2021, the Quebec District Court in Canada and the Ontario Federal Court decided to dismiss the lawsuits filed by the group of buyers in Canada, but the plaintiffs in the United States and Canada later filed for an appeal. Meanwhile, on March 7, 2022 the U.S. 9th federal Court of Appeals dismissed the complaint filed by indirect buyers in the United States and maintained the decision to dismiss from the first trial. The appeals by direct buyers in the United States 9th federal Court of Appeals and appeals in the Quebec District Court and Ontario Federal Court of Appeals are still in the progress.
(c)     The antitrust investigation in China
The State Administration for Market Regulation of China initiated to investigate the violation of the antitrust law regarding on primary DRAM businesses’ sales in China in May 2018, and the investigation has been started. The pending case currently is under investigation. As of October 31, 2021, the Group is unable to predict the outcome of these investigation.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
35.    Commitments and Contingencies,  continued
 
(d)     Other patent infringement claims and litigation
In addition to the above litigations, the Group has responded to various disputes related to intellectual property rights and recognizes a liability when it represents a present obligation as a result of past event and it is probable that an outflow of resources will arise and a loss can be reliably estimated.
(2)     Technology and patent license agreements
The Group has entered into a number of patent license agreements with several companies. The related royalties are paid on a
lump-sum
or running basis in accordance with the respective agreements. The
lump-sum
royalty payables are recognized as intangible assets, and the amount is amortized on a straight-line basis for the patent license agreement period and recognized as amortization expense.
(3)    Contract for supply of industrial water
The Group has entered into a renewal contract with Veolia Water Industrial Development Co., Ltd. (“Veolia”) under which the Group purchases industrial water from Veolia during the period of June 2018 through May 2023. According to the contract, the Group is obligated to pay base service charges, which are predetermined and additional service charges which are variable according to the amount of water used.
(4)    Back-end
process service contract with HITECH Semiconductor (Wuxi) Co., Ltd. (“HITECH”)
The Group has entered into an agreement with HITECH to be provided with post-process service by HITECH. The conditions of the service provided includes package, package test, modules and others. According to the agreement, the Group is liable to guarantee a certain level of margin to HITECH as the Group has priority to use HITECH’s equipment.
(5)    Assets provided as collateral
Details of assets provided as collateral as of October 31, 2021 are as follows:
 
   
Book value
   
Pledged amount
 
Category
  
Currency
   
Amount
   
Currency
  
Amount

in USD
   
Amount

in KRW
   
Remark
 
   
(In millions of won and millions of foreign currencies)
 
Land and buildings
   KRW    140,039   USD   133    156,386    

Borrowings for
equipment and
others		 
 
 
      KRW   —    14,854 
Machinery
   KRW    4,608,294   USD   6,600    7,733,768 
      KRW   —    1,020,000   
    
 
 
     
 
 
   
 
 
   
      USD   6,733    7,890,154   
   KRW    4,748,333   KRW   —    1,034,854   
    
 
 
     
 
 
   
 
 
   
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
35.    Commitments and Contingencies,  continued
 
(6)    Financing agreements
Details of credit lines with financial institutions as of October 31, 2021 are as follows:
 
  
Financial
Institution
 
Commitment
 
Currency
 
Amount
 
      
(In millions of won and
millions of foreign currencies)
 
The Parent Company
 Hana Bank
and others		 Import finance including usance USD  422 
 Comprehensive limit contract for import and export including usance USD  1,323 
  
Overdrafts with banks
 KRW  20,000 
  
Accounts receivable factoring contracts which have no right to recourse
 KRW  70,000 
SK hynix Semiconductor (China) Ltd.
 Agricultural
Bank of China
and others		 Import finance including usance RMB
USD
  
950
490
 
 
SK hynix America Inc. and other sales entities
 Citibank and
others		 
Accounts receivable factoring contracts which have no right to recourse
 USD  942 
Domestic subsidiaries
 Hana Bank
and others		 Import finance including usance USD  45 
(7)    Details of guarantees provided to others as of October 31, 2021 are as follows:
 
   
Currency
  
Amount
   
Remark
   
(In millions of U.S. dollars)
Wuxi Xinfa Group Co., Ltd.
1
  RMB   698   Guarantees for borrowing
 
1
The Group provides payment guarantee to Wuxi Xinfa Group Co., Ltd. for borrowings and accrued interests of Hystars Semiconductor (Wuxi) Co., Ltd., a joint venture of the Group.
(8)    Capital commitments
The Group’s commitments in relation to capital expenditures on property, plant and equipment as of October 31, 2021 are ￦8,154,658 million (as of December 31, 2020: ￦3,404,386 million).
(9)    Long-term purchase agreement for raw materials
The Group has entered into a procurement agreement with SK Siltron Co., Ltd. from 2019 to 2023 for a stable supply of wafer with an advanced payment of ￦150,000 million made in 2017. The advanced payment used in connection with the purchase of wafer during the current period is ￦42,432 million and the balance of the advance payment as of October 31, 2021 is ￦325 thousand. Meanwhile, SK Siltron Co., Ltd. is providing a certain portion of its property, plant and equipment as collateral to secure the advanced payment.
(10)    Investment in KIOXIA Holdings Corporation (“KIOXIA”)
In regards to the Group’s interests in KIOXIA through its investments in BCPE Pangea Intermediate holdings Cayman, L.P. and BCPE Pangea Cayman2 Limited, equity shares in KIOXIA owned, directly or indirectly, by the Group are limited to a certain percentage during certain periods after the date of acquisition. In addition, during the
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
35.    Commitments and Contingencies,  continued
 
same periods, the Group does not have the right in appointing KIOXIA’s directors and is unable to exercise significant influence over decision-making for KIOXIA’s operation and management.
(11)    Acquisition of the entire NAND business division of Intel Corporation
The Group has entered into a master purchase agreement with Intel Corporation (“Intel”) to acquire the entire NAND business of Intel excluding the Optane division of
Non-Volatile
Memory Solutions Group during the year ended December 31, 2020. Pursuant to the terms and conditions of the master purchase agreement, the entire business with assets and liabilities attributable to the business shall be transferred in two separate processes through subsidiaries that newly established overseas, and payment shall be made in two installments. Total purchase consideration of US$ 8,880 million shall be paid with the first installment of US$ 6,109 million which was paid in 2021 as part of the first deal closing and the second installment of US$ 2,771 million shall be paid by March 2025 as part of the second deal closing. The second deal closing of the business transfer depends on the satisfaction of an agreed upon set of conditions that include regulatory approvals of governmental authorities and the agreed termination fee shall be paid when the contract is terminated under certain circumstances. However, the Group believes that the possibility that the second deal closing will not be completed is low.
In the process of obtaining a conditional business combination approval for the Intel NAND business acquisition from the Chinese competition authority (Chinese state Administration for Market Regulation) in connection with the first closing of the Intel NAND business completed at the end of 2021, the Group was imposed with certain conditions, mainly including the obligation to maintain a reasonable pricing policy and increase production and to support the entry of third-party competitors into the Chinese eSSD market over the next five years. Therefore, the Group must comply with these obligations for the next five years and may apply to waive them after five years. If the Group makes such an application, the Chinese competition authorities will decide whether to accept the application in consideration of the competition in the Chinese eSSD market.
(12)    Contracts for corporate purchasing card
The Group signed contracts for corporate purchasing card with financial institutions for paying electricity bills. The Group pays the payment to the credit card companies at the end of the credit period stipulated in the contracts and the balance of the payables to the credit card companies as of October 31, 2021 is ￦446,070 million.
(13)    Acquisition of Key Foundry Co., Ltd. shares
The Group entered into a share purchase agreement with Magnus Semiconductor, LLC for 100% shares of Key Foundry Co., Ltd. on October 29, 2021. When this transaction is consummated, the Group will acquire all (100%) of the issued shares of Key Foundry Co., Ltd. owned by Magnus Semiconductor, LLC, and the purchase price will be 575,800 million. The purchase price can be adjusted by the net assets and business activities of Key Foundry Co., Ltd. The closing and timing of the transaction may vary depending on whether the prerequisites set in the contract are fulfilled, it includes to obtain the approvals from domestic and foreign government agencies and whether the reasons for cancellation occur.
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
36.    Statements of Cash Flows
(1) Reconciliations between profit for the period and net cash inflow from operating activities for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
  
2020
  
2019
 
   
(In millions of won)
 
Profit for the period
  ￦7,321,395   4,758,914   2,009,078 
Adjustment
    
Income tax expense
   2,915,323   1,478,123   423,561 
Defined benefit plan related expenses
   209,272   251,552   220,999 
Depreciation of property, plant and equipment
   7,853,312   8,515,134   7,511,794 
Depreciation of investment property
   1,426   291   37 
Amortization
   650,878   960,550   795,169 
Depreciation of
right-of-use
assets
   282,138   296,218   313,415 
Share-based compensation expenses
   1,957   1,591   1,738 
Loss on disposal of property, plant and equipment
   7,330   44,955   11,531 
Loss on disposal of intangible assets
   2,938   4,841   7,668 
Loss on impairment of intangible assets
   43,453   16,544   71 
Loss on valuation of short-term investment asset
   8,938   —   — 
Loss on disposal of short-term investment assets
   125   —   — 
Loss on valuation of long-term investment asset
   3   7,273   241,471 
Impairment loss on associate investment
   —   —   1,695 
Loss on valuation of financial liabilities
   1,704   1,681   — 
Interest expense
   218,137   253,468   245,440 
Loss on foreign currency translation
   530,637   375,504   250,974 
Loss on disposal of trade receivables
   4,216   6,320   8,564 
Loss (gain) on equity method investments, net
   (204,086)   36,279   (24,328) 
Gain on disposal of property, plant and equipment
   (57,014)   (38,585)   (26,158) 
Gain on disposal of intangible assets
   —   (122)   — 
Gain on valuation of short-term investment assets
   —   (2,592)   (5,811) 
Gain on disposal of short-term investment assets
   (37,127)   (27,510)   (58,784) 
Gain on valuation of long-term investment assets
   (520,232)   (1,741,026)   (8,237) 
Gain on disposal of long-term investment assets
   (15,776)   —   (1,218) 
Interest income
   (18,496)   (27,872)   (30,062) 
Gain on foreign currency translation
   (407,483)   (595,266)   (263,012) 
Others, net
   157,468   (9,646)   99 
Changes in operating assets and liabilities
    
Decrease (increase) in trade receivables
   (1,599,109)   (935,346)   2,214,776 
Decrease (increase) in loans and other receivables
   (8,332)   5,303   41,676 
Increase in inventories
   (839,741)   (843,842)   (851,735) 
Decrease (increase) in other assets
   (202,281)   47,350   114,792 
Increase (decrease) in trade payables
   (291,814)   222,036   (278,529) 
Decrease in other payables
   263,345   (6,583)   (16,623) 
Increase (decrease) in other
non-trade
payables
   733,596   158,514   (645,164) 
Increase (decrease) in provisions
   4,712   12,008   (42,787) 
Increase in other liabilities
   31,487   46,961   17,605 
Payment of defined benefit liabilities
   (629)   (585)   (4,120) 
Contributions to plan assets
   (211)   (355,664)   (279,751) 
  
 
 
  
 
 
  
 
 
 
Cash generated from operating activities
  ￦17,041,459   12,916,771   11,895,834 
  
 
 
  
 
 
  
 
 
 
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
 
36.    Statements of Cash Flows, Continued
(2) Details of significant transactions without inflows and outflows of cash for the
ten-month
period ended October 31, 2021 and years ended December 31, 2020 and 2019 are as follows:
 
   
2021
   
2020
   
2019
 
   
(In millions of won)
 
Increase in other payables related to acquisition of property, plant and equipment
  ￦1,480,098    1,721,481    1,786,787 
Transfer of investment property to property, plant and equipment
   —    —    1,105 
Transfer of property, plant and equipment to investment property
   —    209,450    — 
(3) Changes in liabilities arising from financing activities for the
ten-month
period ended October 31, 2021 and year ended December 31, 2020 are as follows:
 
   
2021
  
2020
 
   
(In millions of won)
 
Beginning balance
  ￦12,895,364   12,190,505 
Cash flows from financing activities
   
Proceeds from borrowings
   5,230,157   5,173,016 
Repayments of borrowings
   (2,975,415)   (3,921,310) 
Payments of lease liabilities
   (264,409)   (319,740) 
Increase of lease liabilities
   81,783   293,855 
Foreign currency differences
   700,052   (557,923) 
Present value discount (interest expense)
   42,082   43,885 
Interest paid
   (7,754)   (6,924) 
  
 
 
  
 
 
 
Ending balance
  ￦15,701,860   12,895,364 
  
 
 
  
 
 
 
37.    Share-based payment
(1) The Group accounts for share-based payment, with options to choose either cash-settled or equity-settled share-based payment, in accordance with the substance of transactions. Details of share options as of October 31, 2021 are as follows:
 
   
Total numbers of share
option granted
   
Exercised
   
Forfeited or Cancelled
   
Outstanding at

October 31, 2021
 
   
(In shares)
 
1
st
   99,600    —    —    99,600 
2
nd
   99,600    —    —    99,600 
3
rd
   99,600    —    —    99,600 
4
th
   7,747    7,747    —    — 
5
th
   7,223    —    —    7,223 
6
th
   8,171    —    8,171    — 
7
th
   61,487    —    —    61,487 
8
th
   61,487    —    —    61,487 
9
th
   61,487    —    —    61,487 
10
th
   54,020    —    —    54,020 
11
th
   6,397    —    —    6,397 
12
th
   6,469    —      6,469 
13
th
   75,163    —      75,163 
  
 
 
   
 
 
   
 
 
   
 
 
 
   648,451    7,747    8,171    632,533 
  
 
 
   
 
 
   
 
 
   
 
 
 
 
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SK HYNIX, INC. and Subsidiaries
Notes to the Consolidated Financial Statements
For the period from January 1, 2021 to October 31, 2021 and for the years ended December 31, 2020 and 2019
37.    Share-based payment,  continued
 
  
Grant date
 
Service Period for Vesting
 
Exercisable Period
  
Exercise

price

(in Korean
Won)
 
1
st
 March 24, 2017 March 24, 2017—March 24, 2019  March 25, 2019—March 24, 2022  ￦48,400 
2
nd
 March 24, 2017 March 24, 2017—March 24, 2020  March 25, 2020—March 24, 2023   52,280 
3
rd
 March 24, 2017 March 24, 2017—March 24, 2021  March 25, 2021—March 24, 2024   56,460 
4
th
 January 1, 2018 January 1, 2018—December 31, 2019  January 1, 2020—December 31, 2022   77,440 
5
th
 March 28, 2018 March 28, 2018—March 28, 2020  March 29, 2020—March 28, 2023   83,060 
6
th
 Feb 28, 2019 February 28, 2019—February 28, 2021  March 1, 2021—February 29, 2024   73,430 
7
th
 March 22, 2019 March 22, 2019—March 22, 2021  March 23, 2021—March 22, 2024   71,560 
8
th
 March 22, 2019 March 22, 2019—March 22, 2022  March 23, 2022—March 22, 2025   77,290 
9
th
 March 22, 2019 March 22, 2019—March 22, 2023  March 23, 2023—March 22, 2026   83,470 
10
th
 March 20, 2020 March 20, 2020—March 20, 2023  March 21, 2023—March 20, 2027   84,730 
11
th
 March 20, 2020 March 20, 2020—March 20, 2023  March 21, 2023—March 20, 2027   84,730 
12
th
 March 30, 2021 March 30, 2021—March 30, 2023  March 31, 2023—March 30, 2026   136,060 
13
th
 March 30, 2021 March 30, 2021—March 30, 2023  March 31, 2023—March 30, 2026   136,060 
(2) Measurement of fair value
The compensation cost is calculated by applying a binomial option-pricing model in estimating the fair value of the option at grant date. The inputs used are as follows:
 
   
1
st
  
2
nd
  
3
rd
  
4
th
  
5
th
  
6
th
  
7
th
  
8
th
 
Expected volatility
   23.23%   23.23%   23.23%   22.50%   25.30%   25.60%   26.17%   26.17% 
Estimated fair value of share options
(in Korean won)
  ￦10,026   9,613   9,296   16,687   18,362   16,505   17,744   16,888 
Dividend yield ratio
   1.20%   1.20%   1.20%   0.78%   1.23%   1.36%   1.98%   1.98% 
Risk free rate
   1.86%   1.95%   2.07%   2.38%   2.46%   1.89%   1.82%   1.88% 
 
  
9
th
  
10
th
  
11
th
  
12
th
  
13
th
 
Expected volatility
  26.17%   26.15%   26.15%   35.50%   35.50% 
Estimated fair value of share options (in Korean won)
 ￦16,093   11,786   11,786   39,995   39,995 
Dividend yield ratio
  1.98%   2.10%   2.10%   0.70%   0.70% 
Risk free rate
  1.91%   1.59%   1.59%   1.55%   1.55% 
(3) The compensation expense for the
ten-month
period ended October
31, 2021 was ￦1,957 and for the year ended December
31, 2020 was ￦1,591 million (2019: ￦1,738 million).
38.    Events after the reporting period
(1) The largest shareholder of the Parent Company changed to SK Square Co., Ltd. on November 2, 2021, as SK Square Co., Ltd., a new
spin-off
corporation established by SK Telecom Co., Ltd., succeeded the entire share of the Parent Company held by SK Telecom Co., Ltd.
(2) Regarding the acquisition of the Intel NAND business, the first installment of US$ 6,109 million was paid in December 2021 as part of the first deal closing.
 
G-98

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