CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2015 and 2014
(With Independent Auditors’ Report Thereon)
Contents
Page
Independent Auditors’ Report 1
Consolidated Statements of Financial Position 3
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Changes in Equity 7
Consolidated Statements of Cash Flows 9
Notes to the Consolidated Financial Statements 12
Independent Auditor’s Report
Based on a report originally issued in Korean
The Board of Directors and Shareholders CJ E&M Corporation:
We have audited the accompanying consolidated financial statements of CJ E&M Corporation and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as at December 31, 2015 and 2014, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgments, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2015 and 2014 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.
Other Matter
The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.
Seoul, Korea March 4, 2016
This report is effective as of March 4, 2016, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any. CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Position
As of December 31, 2015 and 2014
(In won) Note 2015 2014
Assets : Cash and cash equivalents 5,7,29 W 47,493,272,198 33,525,990,630 Accounts and notes receivable - trade 9,29,33 406,450,567,144 352,453,730,663 Advance payments 13 131,440,330,594 138,528,894,268 Other current financial assets 5,12,29,33 337,273,057,259 500,522,346,764 Other current assets 17 10,141,670,019 8,833,316,387 Income tax refund receivable 3,429,431,349 66,375,975 Inventories 8 3,915,888,761 5,243,369,241 Current assets 940,144,217,324 1,039,174,023,928
Available-for-sale financial assets 10,29 77,991,343,288 67,836,584,920 Held-to-maturity investments 29 7,519,395,000 8,529,395,000 Investments in equity method investees 11 495,330,178,618 377,297,630,661 Property and equipment 14 77,339,271,637 88,464,908,331 Intangible assets 15 653,159,648,557 694,725,260,394 Investment property 16 3,578,311,814 - Other non-current financial assets 12,29,33 22,448,495,842 21,367,208,661 Other non-current assets 17 32,937,005,913 19,470,503,910 Deferred tax assets 32 54,407,753,505 40,520,008,394 Non-current assets 1,424,711,404,174 1,318,211,500,271
Total assets W 2,364,855,621,498 2,357,385,524,199
See accompanying notes to the consolidated financial statements.
3 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Position, Continued
As of December 31, 2015 and 2014
(In won) Note 2015 2014
Liabilities : Accounts and notes payable - trade 29,33 W 107,076,227,170 67,690,656,180 Accounts and notes payable - other 29 154,909,505,619 147,014,765,667 Income tax payable 1,395,358,639 42,041,973,269 Short-term borrowings 5,18,25,29 54,552,102,000 45,470,400,301 Current portion of debentures 5,18,25,29 49,969,815,810 99,924,350,466 Current portion of long-term borrowings 5,18,25,29 71,249,950,000 2,166,703,344 Other current financial liabilities 5,19,29 135,661,864,629 138,021,900,603 Other current liabilities 20,22 66,914,984,374 37,677,454,965 Current provisions 21 556,082,507 795,738,234 Current liabilities 642,285,890,748 580,803,943,029
Debentures 5,18,25,29 99,906,927,180 149,737,504,299 Long-term borrowings 5,18,25,29 31,083,290,000 102,333,240,000 Other non-current financial liabilities 5,19,29 978,293,440 1,101,392,587 Other non-current liabilities 20,22 2,540,605,341 2,049,094,528 Liabilities for defined benefit obligations 22 12,823,188,862 8,868,495,171 Non-current provisions 21 606,958,177 967,139,598 Deferred tax liabilities 32 14,548,132,425 5,821,307,023 Non-current liabilities 162,487,395,425 270,878,173,206
Total liabilities 804,773,286,173 851,682,116,235
Stockholders’ equity : Share capital 1, 23 193,660,445,000 193,660,445,000 Share premium 969,766,994,891 969,766,994,891 Retained earnings 370,030,141,797 316,305,165,021 Other capital 23,24 18,077,989,854 29,639,156,509 Equity attributable to owners of the Parent Company 1,551,535,571,542 1,509,371,761,421
Non-controlling interests 8,546,763,783 (3,668,353,457)
Total stockholders’ equity 1,560,082,335,325 1,505,703,407,964
Total stockholders’ equity and liabilities W 2,364,855,621,498 2,357,385,524,199
See accompanying notes to the consolidated financial statements.
4 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2015 and 2014
(In won) Note 2015 2014
Continuing operations : Revenue 6,33 W 1,347,313,885,448 1,232,665,331,630 Cost of sales 30,33 (1,019,400,511,204) (977,251,998,021) Gross profit 327,913,374,244 255,413,333,609
Selling, general and administrative expenses 27,30,33 (275,237,564,257) (268,061,754,339) Operating income (loss) 6 52,675,809,987 (12,648,420,730)
Finance income 28 18,518,644,976 15,387,452,263 Finance costs 28 (20,519,617,862) (23,431,660,686) Share of profit of equity method investees 11 141,931,756,950 16,966,047,428 Share of loss of equity method investees 11 (13,214,990,009) (7,465,159,989) Other non-operating income 31 7,293,465,164 1,175,504,350 Other non-operating expenses 31 (127,353,613,496) (40,351,484,699) Profit (loss) before income tax 59,331,455,710 (50,367,722,063)
Income tax expense 32 (6,411,116,068) (6,570,238,294) Profit (loss) from continuing operations 52,920,339,642 (56,937,960,357)
Discontinued operations Profit from discontinued operations, net of tax 34 - 290,355,565,342
Profit for the year W 52,920,339,642 233,417,604,985
Profit (loss) attributable to:
Owners of the Parent Company : - Continuing operations 54,345,192,936 (52,556,615,445) - Discontinued operations - 277,065,795,495 54,345,192,936 224,509,180,050
Non-controlling interests : - Continuing operations (1,424,853,294) (4,381,344,912) - Discontinued operations - 13,289,769,847 (1,424,853,294) 8,908,424,935 W 52,920,339,642 233,417,604,985
See accompanying notes to the consolidated financial statements.
5 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income, Continued
For the years ended December 31, 2015 and 2014
(In won) Note 2015 2014
Other comprehensive loss : Items that will not be reclassified to profit or loss
subsequently: Remeasurements of the defined benefit plan 22 W (330,978,483) (4,520,243,625) Net changes in retained earnings of equity method investees 11 (213,727,363) - Total items that will not be reclassified to profit or loss
subsequently (544,705,846) (4,520,243,625) Items that are or may be reclassified to profit or loss
subsequently: Foreign currency translation differences for foreign operations (837,936,483) (2,349,510,743) Net capital changes in equity method investees 11 (569,366,224) 2,525,456,771 Net changes in fair value of available-for-sale financial assets 10 1,063,431,939 (826,546,645) Total items that are or may be reclassified to profit or loss subsequently: (343,870,768) (650,600,617) Total other comprehensive loss (888,576,614) (5,170,844,242) Total comprehensive income for the year W 52,031,763,028 228,246,760,743
Total comprehensive income (loss) attributable to: Owners of the Parent Company 53,780,557,205 220,660,063,035 Non-controlling interests (1,748,794,177) 7,586,697,708 W 52,031,763,028 228,246,760,743
Earnings per share : 26
Basic earnings (loss) per share Basic earnings (loss) per share from continuing operations W 1,409 (1,363) Basic earnings per share from discontinued operations - 7,184
Diluted earnings (loss) per share Diluted earnings (loss) per share from continuing operations W 1,409 (1,363) Diluted earnings per share from discontinued operations - 7,184
See accompanying notes to the consolidated financial statements.
6 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Change in Equity, Continued
For the years ended December 31, 2015 and 2014
Controlling interest Share Share Retained Other Non-controlling Total
(In won) capital premium earnings capital Sub-total interests equity
Balance at January 1, 2015 W 193,660,445,000 969,766,994,891 316,305,165,021 29,639,156,509 1,509,371,761,421 (3,668,353,457) 1,505,703,407,964 Total comprehensive income (loss): Profit (loss) for the period - - 54,345,192,936 - 54,345,192,936 (1,424,853,294) 52,920,339,642 Other comprehensive income(loss) : Net changes in fair value of available-for- sale financial assets - - - 1,063,431,939 1,063,431,939 - 1,063,431,939 Remeasurements of the defined benefit plan - - (406,488,797) - (406,488,797) 75,510,314 (330,978,483) Net changes in retained earnings of equity method investees - - (213,727,363) - (213,727,363) - (213,727,363) Other comprehensive loss of equity method investees - - - (569,366,224) (569,366,224) - (569,366,224) Foreign currency translation differences for foreign operations - - - (438,485,286) (438,485,286) (399,451,197) (837,936,483) Total - - 53,724,976,776 55,580,429 53,780,557,205 (1,748,794,177) 52,031,763,028 Transactions with owners of the Parent Company, recognized directly in equity: Acquisition of subsidiaries - - - - - 2,932,389,610 2,932,389,610 Capital increase by subsidiaries - - - - - 906,798,171 906,798,171 Additional acquisition of investments in subsidiaries - - - (11,616,747,084) (11,616,747,084) 10,029,569,703 (1,587,177,381) Loss of control over subsidiary - - - - - 95,153,933 95,153,933 Total - - - (11,616,747,084) (11,616,747,084) 13,963,911,417 2,347,164,333 Balance at December 31, 2015 W 193,660,445,000 969,766,994,891 370,030,141,797 18,077,989,854 1,551,535,571,542 8,546,763,783 1,560,082,335,325
See accompanying notes to the consolidated financial statements.
7 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Change in Equity, Continued
For the years ended December 31, 2015 and 2014
Controlling interest Share Share Retained Other Non-controlling Total
(In won) capital premium earnings capital Sub-total interests equity
Balance at January 1, 2014 W 193,660,445,000 969,761,752,571 96,223,530,864 (26,052,524,612) 1,233,593,203,823 41,179,897,623 1,274,773,101,446 Total comprehensive income : Profit for the period - - 224,509,180,050 - 224,509,180,050 8,908,424,935 233,417,604,985 Other comprehensive income(loss) : Remeasurements of the defined benefit plan - - (4,436,068,505) - (4,436,068,505) (84,175,120) (4,520,243,625) Net changes in fair value of available-for- sale financial assets - - - (826,546,645) (826,546,645) - (826,546,645) Other comprehensive income of equity method investees - - - 2,525,456,771 2,525,456,771 - 2,525,456,771 Foreign currency translation differences for foreign operations - - - (1,111,958,636) (1,111,958,636) (1,237,552,107) (2,349,510,743) Total - - 220,073,111,545 586,951,490 220,660,063,035 7,586,697,708 228,246,760,743 Transactions with owners of the Parent Company, recognized directly in equity: Acquisition of subsidiaries - - - - - 2,596,566,693 2,596,566,693 Capital increase by subsidiaries - - - 53,822,332,678 53,822,332,678 83,836,897,422 137,659,230,100 Additional acquisition of investments in subsidiaries - - - (3,849,660,329) (3,849,660,329) (320,345,661) (4,170,005,990) Loss of control over subsidiary - 5,242,320 8,522,612 6,890,456,525 6,904,221,457 (138,548,067,242) (131,643,845,785) Reversal of share based compensation expenses - - - (886,889,784) (886,889,784) - (886,889,784) Exercise of stock appreciation right - - - (23,555,586) (23,555,586) - (23,555,586) Exercise of stock options - - - (847,953,873) (847,953,873) - (847,953,873) Total - 5,242,320 8,522,612 55,104,729,631 55,118,494,563 (52,434,948,788) 2,683,545,775 Balance at December 31, 2014 W 193,660,445,000 969,766,994,891 316,305,165,021 29,639,156,509 1,509,371,761,421 (3,668,353,457) 1,505,703,407,964
See accompanying notes to the consolidated financial statements.
8 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2015 and 2014
(In won) 2015 2014
Cash flows from operating activities : Profit for the year W 52,920,339,642 233,417,604,985
Adjustments for: Income tax expense 6,411,116,068 77,021,901,596 Interest expense 13,740,869,564 17,298,469,886 Loss on disposal of available‑for‑sale financial assets, net 939,817,983 550,303,757 Impairment loss on available-for-sale financial assets 546,718,500 2,047,862,968 Gain on valuation of derivatives, net (96,094,793) (109,408,406) Loss on disposal of accounts and notes payable - trade 408,698 - Gain on transaction of derivatives, net (604,449,594) (321,357,253) Loss (gain) on foreign exchange translation, net (625,964,657) 50,511,229 Depreciation 13,911,253,751 18,515,956,950 Amortization 306,069,097,869 283,821,337,338 Accrual for provisions 720,980,137 2,103,769,209 Reversal of share based compensation expenses - (993,110,919) Expenses for retirement severance benefits 10,199,455,049 12,014,295,012 Provision for bad debt 10,078,497,237 33,099,441,646 Other bad debt expense 15,298,844,689 27,936,964,270 Share of income of equity method investees, net (128,716,766,941) (10,641,290,078) Loss on disposal of equity method investees, net - 155,931,474 Gain on disposal of subsidiaries (3,048,191,317) - Loss on disposal of property and equipment, net 1,933,418,563 171,654,661 Impairment loss on property and equipment - 598,459,679 Gain on disposal of intangible assets, net (85,058,964) (5,000,000) Impairment loss on intangible assets 97,352,650,607 21,110,838,637 Loss on scrap of inventories 2,146,389,923 676,553,643 Other gain, net (1,348,392,715) (272,300,511) Gain on disposal of discontinued operations - (368,232,700,694) Interest income (8,921,038,195) (11,495,130,863) Reversal of provisions (551,627,535) (148,334,651) Gain on valuation of short-term financial assets - (2,294,822) Dividend income (3,463,607,128) (666,048,860) 331,888,326,799 104,287,274,898
Change in assets and liabilities: Accounts and notes receivable - trade (61,255,441,921) (53,048,991,265) Advance payments (33,003,032,487) (34, 249,925,414) Other financial assets (7,294,024,592) (13,911,427,805) Inventories (640,456,228) 227,606,137 Other assets (2,566,117,139) (548,806,612) Accounts and notes payable 56,492,779,411 6,343,921,074 Other financial liabilities 15,472,628,088 (9,467,434,846) Other liabilities (1,243,699,129) 22,824,088,049 Provisions (773,687,950) (948,793,812) Payment of retirement and severance benefits (1,313,172,934) (2,555,114,598)
9 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2015 and 2014
Succession of liabilities for defined benefit obligations 13,651,299 194,500,806 Increase of plan assets (5,741,669,000) (16,634,793,439) W (41,852,242,582) (101,775,171,725 )
Cash generated from operating activities W 342,956,423,859 23 5,929,708,158
Interest received 12,604,048,923 7,534,388,536 Dividend received 6,258,993,841 1,004,672,360 Interest paid (10,737,444,638) (13,555,387,826) Income tax paid (55,631,372,710) (35,804,462,350) Net cash provided by operating activities 295,450,649,275 195 ,108,918,878
Cash flows from investing activities : Decrease of short-term financial assets 211,048,750,000 6,611,994,769 Disposal of available-for-sale financial assets 9,157,741,287 7,248,416,940 Disposal of held-to-materiality investments 1,200,000,000 2,000,000,000 Collection of loans 1,749,918,541 3,829,813,316 Decrease of deposits 1,474,815,107 4,725,950,613 Decrease of long-term-financial assets - - Disposal of other investment assets - 244,300,000 Disposal of property and equipment 364,394,993 1,176,843,350 Disposal of investment property - - Disposal of intangible assets 4,132,426,509 821,486,029 Disposal of investments in equity method investees 13,986,064,080 10,938,588,326 Settlement of derivatives 713,858,000 320,650,000 Inflow from disposal of business, net of cash held by business being disposed 2,765,128,061 205,720,905,877 Increase of short-term financial assets (45,728,000,000) (501,341,792,998) Acquisition of available-for-sale financial assets (9,445,140,599) (13,090,378,593) Acquisition of held-to-materiality investments (190,000,000) (12,000,225,000) Increase of loan (3,650,000,000) (5,420,611,768) Increase of deposit (2,058,660,366) (3,914,562,974) Increase of long-term financial assets (46,860,000) (203,555,000) Decrease of long-term financial assets - 259,177,500 Acquisition of property and equipment (8,029,163,215) (19,152,548,608) Acquisition of intangible assets (334,887,249,458) (328,012,362,955) Acquisition of investments in subsidiary (4,311,789,600) - Acquisition of investments in equity method investees (19,510,000,000) (23,455,000) Outflow from business combination, net of cash held by business being acquired (7,654,231,536) (741,182,314) Others, net - (5,300,000) Net cash used in investing activities W (188,917,998,196) (640,007,848,490)
See accompanying notes to the consolidated financial statements.
10 CJ E&M CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2015 and 2014
(In won) 2015 2014
Cash flows from financing activities : Proceeds from short-term borrowings W 41,650,708,500 33,108,572,135 Cash received from non-controlling interests while maintaining controls of subsidiaries 2,932,389,610 137,659,230,100 Repayment of short-term borrowings (35,064,838,460) (14,399,896,776) Repayment of current portion of long-term borrowings (2,166,703,344) (3,350,003,356) Repayment of debenture (100,000,000,000) (1,000,000,000) Cash paid to non-controlling interests while maintaining controls of subsidiaries (1,587,177,381) (4,170,005,990) Others, net (57,846,928) (1,361,897,183) Net cash provided by financing activities (94,293,468,003) 146,4 85,998,930
Net increase (decrease) in cash and cash equivalents 12,239,183,076 (298,412,930,682) Cash and cash equivalents at the beginning of the year 33,525,990,630 332,310,495,486 Effect of exchange rate fluctuations on cash held 1,728,098,492 (371,574,174) Cash and cash equivalents at the end of the year W 47,493,272,198 33,525,990,630
See accompanying notes to the consolidated financial statements.
11 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
1. Reporting entity
CJ E&M Corporation (the “Parent Company”) was established on September 1, 2010 when CJ O SHOPPING Co., Ltd. spun off its media division, and the Parent Company was incorporated on September 15, 2010 upon obtaining approval from Korea Communications Commission. On October 15, 2010, the Parent Company listed its shares on the Korean Securities Dealers’ Automated Quotations stock market, and the Parent Company changed its name from “O Media Holdings Co., Ltd.” to “CJ E&M Corporation” on December 30, 2010.
On March 1, 2011, the Parent Company merged with ON Media Corporation, CJ Internet Corp., Mnet Media Corp., CJ MEDIA, Inc. and CJ Entertainment Corp. On November 13, 2011, the Parent Company spun off its game development subsidiaries and management division for game development subsidiaries. The Parent Company also merged with Korea Baduk Television Inc., ORION CINEMA NETWORK, INC, On Game Network Inc., KMTV Corp., and International Media Genius, INC. on December 1, 2013 and spun off its game division on August 1, 2014.
As of December 31, 2015, the Parent Company’s paid-in capital amounted to W193,660 million, and the shareholders of the Parent Company are as follows:
Number Percentage of of shares ownership CJ Corporation 15,245,201 39.36% Treasury stock 158,095 0.41% Others 23,328,793 60.23% 38,732,089 100.00%
The consolidated financial statements are composed of the Parent Company, its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates. The Group renders services and operates a range of media, music, pictures, advertisement and other entertainment business.
12 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
1. Reporting entity, continued
(1) The list of subsidiaries as of December 31, 2015 and 2014 are as follows:
Ownership (%) Parent company Subsidiaries Location Primary business 2015 2014
CJ E&M Corporation CJ Entertainment Japan Inc. Japan Broadcasting 60.00 60.00 CJ NGC KOREA, INC. (*6) Korea Program provision - 67.00 CJ Century E&M Consulting Co., Ltd. China Media and
entertainment 100.00 100.00 CJ E&M Japan, Inc. (*1,2) Japan Program provision 46.71 46.00 CJ Entertainment America, LLC. USA Program provision 100.00 100.00 CJ E&M America, Inc. USA Management of
subsidiaries 100.00 100.00 CJ E&M Tianjin Co., Ltd. China Broadcasting 100.00 100.00 MEZZOMEDIA Inc. Korea Advertising media
service 51.00 51.00 JS PICTURES Co., Ltd. Korea Contents provision 70.00 70.00 MMO Entertainment Corporation Korea Management servi ce 100.00 100.00 CJ Victor Entertainment, Inc. Japan Music label business 51.00 51.00 Story Plant Co., Ltd Korea Program production 100.00 100.00 CH Holdings Limited Hong Kong Management of
subsidiaries 100.00 100.00 CJ E&M Vietnam Co., Ltd. (*3) Vietnam Movie making
consulting 100.00 - AOMG Ltd. (*7) Korea Music label business 51.00 - Hi-Lite Records Inc. (*7) Korea Music label business 51.10 - CJ E&M Corporation ImaginAsian Entertainment, Inc. (*8) USA Broadcasting & CJ E&M America, Inc. 94.92 70.52 CH Holdings Limited Rolemodel Entertainment Group Limited Hong Kong Media and
entertainment 98.00 98.00 CJ E&M Corporation CJ E&M Hong Kong Limited (*4) Hong Kong Broadcasting & CH Holdings (formerly, FICCJM Asia Limited) Limited 100.00 49.00 Rolemodel Shanghai Yiheya Media Co., Ltd.(*5) China Media and Entertainment entertainment Group Limited. 100.00 --
(*1) The Parent Company has control over it through the board of directors and others.
(*2) The Parent Company purchased additional 500 shares of CJ E&M Japan, Inc. As a result, the Group’s equity interest in CJ E&M Japan, Inc. increased.
(*3) The Parent Company established CJ E&M Vietnam Co., Ltd. during 2015.
(*4) CJ E&M Hong Kong Limited (formerly, FICCJM Asia Limited) was newly included in consolidated entities as CH Holdings Limited obtained control over it by purchasing 51% of shares during 2015.
(*5) Shanghai Yiheya Media Co., Ltd. was established through the investment of Rolemodel Entertainment Group Limited during 2015.
(*6) The Parent Company lost control over CJ NGC KOREA, INC. due to disposal of entire investment in the entity during 2015.
(*7) The Parent Company obtained control over AOMG Ltd. and Hi-Lite Records Inc. by purchasing 51% of shares of the entities during 2015.
13 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
1. Reporting entity, continued
(1) The list of subsidiaries as of December 31, 2015 and 2014 are as follows, continued;
(*8) CJ E&M America, Inc. additionally purchased 24.49% of shares of ImaginAsian Entertainment, Inc. during 2015.
(2) Changes in subsidiaries
The list of subsidiaries that were newly included in or excluded from the Group during the year ended December 31, 2015 is as follows:
1) Included subsidiaries
Company Reason CJ E&M Vietnam Co., Ltd. Establishment Shanghai Yiheya Media Co., Ltd. Establishment CJ E&M Hong Kong Limited Acquisition (formerly, FICCJM Asia Limited) AOMG Ltd. Acquisition Hi-Lite Records Inc. Acquisition
2) Excluded subsidiaries
Company Reason CJ NGC KOREA, INC. Disposal of shares and issuance of shares to third party
(3) Condensed financial information of subsidiaries
1) Condensed financial information of subsidiaries as of and for the year ended December 31, 2015 is as follows:
(In thousands of won) Total comprehen Parent Profit -sive company Subsidiaries Assets Liabilities Revenue (loss) income(loss)
CJ E&M Corporation CJ Entertainment Japan, INC W 1,513,524 3,740,064 2,917,476 (98,290) (215,590) CJ NGC KOREA, INC. (*1) 1,046,596 1,334,942 2,799,023 (405,161) (405,161) CJ Century E&M Consulting Co., Ltd. 1,398,099 1,168,578 - (31,252) (37,818) CJ E&M Japan, Inc. 8,877,682 6,978,781 22,594,193 635,298 726,828 CJ Entertainment America, LLC. 5,928,248 10,299,522 4,245,276 (1,800,026) (2,020,184) CJ E&M America, Inc. 66,388,329 34,875,618 11,592,368 (820,779) 370,625 CJ E&M Tianjin Co., Ltd. 4,680,067 555,066 1,369,937 137,856 174,402 MEZZOMEDIA Inc. (*2) 75,673,114 65,420,855 24,252,660 1,897,258 2,035,470
JS PICTURES Co., Ltd. 11,964,585 3,963,495 13,530,689 (926,634) (900,679) MMO Entertainment Corporation 253,718 152,497 1,191,087 8,184 8,184 CJ Victor Entertainment, Inc. 7,945,488 1,792,895 6,037,174 (1,880,051) (1,591,358) Story Plant Co., Ltd 2,872,606 2,577,423 5,149,104 (627,432) (628,360) CH Holdings Ltd. 11,362,743 1,943 - (4,291) 118,198 CJ E&M Vietnam Co., Ltd. 2,284,116 181,837 37,911 (176,702) (119,521) AOMG Ltd. 1,057,236 83,002 479,319 209,733 209,733 Hi-Lite Records Inc. 1,243,606 155,917 - - - CJ E&M Corporation ImaginAsian Entertainment, Inc. & CJ E&M America, Inc. 2,554,951 45,292,428 524,498 (5,383,686) (7,878,266)
14 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
1. Reporting entity, continued
(3) Condensed financial information of subsidiaries, continued
1) Condensed financial information of subsidiaries as of and for the year ended December 31, 2015 is as follows;, continued:
(In thousands of won) Total comprehen Parent Profit -sive company Subsidiaries Assets Liabilities Revenue (loss) income(loss)
CH Holdings Ltd. Rolemodel Entertainment Group Limited W 8,849,624 4,056,956 1,206,660 (1,241,922) (1,023,176) CJ E&M Corporation CJ E&M Hong Kong Limited (*1) & CH Holdings Limited (formerly, FICCJM Asia Limited) 5,782,591 5,051,847 4,333,128 (1,023,269) (847,976) Rolemodel Shanghai Yiheya Media Co., Ltd. Entertainment Group Limited. 13,932,931 11,996,115 2,648,922 (3,134,521) (3,315,735)
(*1) Condensed financial information of CJ NGC KOREA, INC. is the financial information as of and for the period ended July 1, 2015 when the Parent Company lost control over the entity. Also, condensed financial information of CJ E&M Hong Kong Limited (formerly, FICCJM Asia Limited) is the financial information for the period after July 1, 2015 when the Parent Company obtained control over the entity.
(*2) Condensed financial information of MEZZOMEDIA Inc. includes an individually identifiable intangible asset which the Group recognized as its fair value at the date the Group gained control over the entity.
2) Condensed financial information of subsidiaries as of and for the year ended December 31, 2014 is as follows:
(In thousands of won) Total comprehen Parent Profit -sive company Subsidiaries Assets Liabilities Revenue (loss) income(loss)
CJ E&M Corporation CJ Entertainment Japan, INC W 818,684 2,829,634 1,879,267 (1,210,825) (1,191,000)
CJ NGC KOREA, INC. 1,228,455 2,957,640 5,352,658 (2,236,816) (2,236,816) CJ Century E&M Consulting Co., Ltd. 1,655,299 1,387,960 - (228) 5,317 CJ E&M Japan, Inc. 8,085,292 6,913,219 26,241,302 70,814 (36,246) Mediaweb INC. (*1) 17,550,627 3,356,144 8,222,197 644,445 644,445 CJ Entertainment America, LLC. 3,985,903 6,336,993 2,398,065 (2,308,997) (2,407,455) Netmarble Games Corporation (*1) 237,050,143 44,705,807 554,070 (1,902,883) (1,901,989) CJ E&M America, Inc. 45,311,856 14,169,771 6,004,612 233,805 719,674 N2PLAY Co., Ltd. (*1) 25,241,877 2,659,391 11,483,582 6,586,920 6,596,687 CJ E&M Tianjin Co., Ltd. 5,612,673 1,662,073 303,106 (1,644,762) (1,614,394) MEZZOMEDIA Inc. (*2) 73,073,430 64,856,641 18,319,555 485,354 236,866 JS PICTURES Co., Ltd. 13,168,041 4,266,271 26,208,041 1,749,304 1,846,175 MMO Entertainment Corporation 190,468 97,430 828,080 7,037 7,037 CJ Victor Entertainment, Inc. 5,191,996 1,933,358 3,486,739 (1,452,983) (1,851,711) Story Plant Co., Ltd 950,660 27,117 - (76,457) (76,457) CH Holdings Ltd. 1,103,132 687 - (2,699) 6,778
15 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
1. Reporting entity, continued
(3) Condensed financial information of subsidiaries, continued
2) Condensed Financial information of subsidiaries as of and for the year ended December 31, 2014 is as follows, continued:
(In thousands of won) Total comprehen Parent Profit -sive company Subsidiaries Assets Liabilities Revenue (loss) income(loss)
Netmarble Games IGS CO., LTD. (*1) Corporation W 5,853,909 2,390,253 8,201,685 1,282,928 1,282,928 ANI-PARK Co., Ltd. (*1) 30,271,906 22,075,285 9,497,590 (1,040,821) (1,040,821) SEED9 Games Inc. (*1) W 43,584,643 8,977,789 26,899,385 17,039,118 17,039,118 Reborn Games Co., Ltd. (*1) 929,521 9,759,994 831,364 (2,542,388) (2,542,388) NURIEN SOFT Co., Ltd. (*1) 2,060,564 3,074,912 2,714,790 (155,863) (155,863) CJ Internet Japan Corp. (*1) 4,195,403 3,135,570 5,164,831 (916,115) (911,058) CJ Games Global Corporation. (*1) 1,183,448 32,601 68,361 (984,598) (1,029,066) Stand Best Tech Co., Ltd. (*1) 984,893 161,162 741,331 101,107 98,926 TurnOn Games Co., Ltd. (*1) 15,463,992 3,906,152 1,122,270 (1,800,741) (1,794,266) JoyBomb Entertainment Technology Co., Ltd. (*1) 12,894,200 3,969,213 15,436,014 2,713,937 1,992,321 Galaxy Network Technology Limited (*1) 4,300,364 - - (24,570) 7,172 SHR Interaktif Servisler San. ve Tic. Ltd. Sti. (*1) 2,001,563 3,074,851 3,863,431 9,080 43,499 JOYGAME Interactive Services Ltd. (*1) 7,235,533 3,482,962 7,211,142 100,662 (37,920) CJ E&M Corporation ImaginAsian Entertainment, Inc. & CJ E&M America, Inc. 3,600,197 38,459,408 3,423,926 (11,004,303) (12,370,026) Mediaweb INC.& PT.CJ Internet Indonesia (*1) Netmarble Games Corporation 1,755,591 207,869 980,430 (487,965) (435,393) MEZZOMEDIA Inc. Embargo Inc. - - - (4,702) (4,702) Galaxy Network Beijing Galaxy Space Internet Technology Limited Technology Co., Ltd. (*1) 2,764,152 15,628 34,316 (507,218) (656,415) IGS CO., LTD. IG S&C Philippines Inc. (*1) 282,459 3,479 33,645 (27,678) (26,052) CH Holdings Ltd. Rolemodel Entertainment Group Limited 115,148 569,640 - - -
(*1) Condensed financial information of Mediaweb INC., N2PLAY Co., Ltd. and Netmarble Games Corporation (formerly, CJ Games Corporation) and its subsidiaries is as of and for the period ended August 1, 2014 when the Parent Company lost control over them.
(*2) Condensed financial information of MEZZOMEDIA Inc. includes an individually identifiable intangible asset which the Group recognized as its fair value at the date the Group obtained control over the entity.
16 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. Basis of preparation
(1) Statement of compliance
The consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations in the Republic of Korea.
The consolidated financial statements were authorized for issue by the Board of Directors on February 4, 2016, which will be submitted for approval to the shareholders’ meeting to be held on March 18, 2016.
(2) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position:
- Derivative financial instruments measured at fair value, - Available-for-sale financial assets measured at fair value, and - Liabilities for defined benefit plans recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.
(3) Functional and presentation currency
The financial statements of the Group entities are prepared in the respective currency of the primary economic environment (“functional currency”) in which each of the Group entities operates. These consolidated financial statements are presented in Korean won, which is the Parent Company’s functional currency.
(4) Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
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:
Note 15: impairment test: key assumptions underlying recoverable amounts, including the recoverability of goodwill, Notes 21 and 25: recognition and measurement of provisions and contingencies: key assumptions about likelihood and magnitude of an outflow of resources, Note 22: measurement of defined benefit obligations: key actuarial assumptions, and Note 32: recognition of deferred tax assets: availability of future taxable profit against which carryforward tax losses can be used.
17 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
2. Basis of preparation, continued
(5) Measurement of fair value
A number of the Group’s accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair value. This includes a valuation team that has overall responsibility for overseeing all significant value measurements, including Level 3 fair values, and reports directly to the CFO.
The valuation team 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 team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities, - Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices), and - Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability might be categorized in 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.
Further information about the assumptions made in measuring fair values is included in the following note:
Note 29: Financial instruments.
(5) The Group reclassified gains (losses) on disposal of investments in equity method investees from other non-operating income (expenses) in the consolidated financial statements as of December 31, 2014 to share of profit (loss) of equity method investee to conform to the 2015 presentation. These reclassification have no effect on the net assets or net income as reported in 2014.
3. Change in accounting policies
Except for the following amendment to existing standards with a date of initial application of January 1, 2015, the Group has consistently applied the accounting policies to all periods presented in these consolidated financial statements:
- Employee Contributions (Amendments to K-IFRS 1019)
Amendments to K-IFRS 1019 introduced a practical expedient to accounting for defined benefit plan when employees or third parties pay contributions, if certain criteria are met. According to the amendments, the entity is permitted to recognize those contributions as a reduction of the service cost in the period in which the related service is rendered, instead of forecasting future contributions from employees or third parties and attributing them to periods or service as negative benefits.
The change had no significant impact on the consolidated financial statements.
18 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant Accounting Policies
The significant accounting policies applied by the Group in the preparation of its consolidated financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements except for the changes in accounting policies as explained in note 3 to the consolidated financial statements.
(1) Operating segment
The Group classifies reportable segments based on the internal report reviewed regularly by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance. The Group has five strategic divisions, which are its reportable segments, as described in note 6. These divisions offer different products and services, and are managed separately because they require different technology and marketing strategies.
Segment results that are reported to the Group’s chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Parent Company’s headquarters), head office expenses, and income tax assets and liabilities.
(2) Basis of consolidation
1) 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, except if related to the issue of debt or equity securities according to K-IFRS No. 1032 and 1039. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally 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.
2) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
3) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
19 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant Accounting Policies, continued
4) Loss of Control When the Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
5) Interests in equity method investees The Group’s interests in equity method investees comprise interests in associates and a joint venture.
Associates are those entities in which the Group has significant influence, but not control or joint control, over the 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 a joint venture are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity accounted investees, until the date on which significant influence or joint control ceases.
6) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity method investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
7) Business combination under common control A business combination involving entities or business under common control are accounted for by applying book value method, which accounted for assets and liabilities at carrying amounts recognized previously in the consolidated financial statements. The Group recognizes the difference between the consideration transferred in a business combination and net assets acquired as other capital.
(3) Discontinued Operation
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. When an operation is classified as a discontinued operation, the comparative consolidated statement of comprehensive income (loss) is re-presented as if the operation had been discontinued from the start of the comparative period.
(4) 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. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares when it has a short maturity with a specified redemption date.
20 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant Accounting Policies, continued
(5) Inventories
The cost of inventories is based on the specific identification or moving average principle, and includes expenditures for acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
Inventories are measured at the lower of cost and net realizable value. The amount of any write-down of inventories to net realizable value and all losses of inventories are 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, are recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.
(6) Non-derivative financial assets
The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivable and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.
1) Financial assets at fair value through profit or loss A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.
2) Held-to-maturity investments A non-derivative financial assets with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method.
3) Loans and receivable Loans and receivable are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivable are measured at amortized cost using the effective interest method.
4) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to- maturity investments or loans and receivable. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost.
21 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant Accounting Policies, continued
(6) Non-derivative financial assets, continued
5) De-recognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expires, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. In the case that the Group neither transfers nor retains all the risks and rewards of ownership of the financial asset, the Group derecognize the financial asset if the Group has not retained control, otherwise, the Group continues to recognize the financial asset to the extent of its continuing involvement in the financial assets.
If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.
6) 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.
(7) Derivative financial instruments
Derivatives are initially recognized at fair value; any directly attributable transaction costs are recognized in profit or loss as they are incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.
(8) Impairment of financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.
Objective evidences that a financial asset has been impaired are as follows:
- significant financial difficulty of the issuer, - breach of contract such as a delay or failure of principal repayment and interest payment, - Inevitable relaxation of the initial borrowing conditions due to legal or economic related financial difficulties of the borrower, - borrower's bankruptcy or other financial restructuring are very likely, - disappearance of an active market for an asset due to financial difficulties, and - observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since their initial recognition although the decrease cannot yet be identified with the individual assets in the group
In addition, for an equity investment classified as available-for-sale financial assets, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
If financial assets have objective evidence that they are impaired, impairment losses are measured and recognized as below:
22 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(8) Impairment of financial assets, continued
1) Financial assets measured at amortized cost An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Group can recognize impairment losses directly or reflect in an allowance account. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed either directly or by adjusting an allowance account.
2) Financial assets carried at cost The amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.
3) Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for- sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.
(9) 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.
Subsequent to initial recognition, property and equipment are carried at its cost less any accumulated depreciation and any accumulated impairment losses.
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 in profit or loss.
23 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(9) Property and equipment, continued
The estimated useful lives of the Group’s assets are as follows:
Estimated useful lives
Buildings 40 years Structures 20 years Broadcasting equipment 8 years Tools and office equipment, machinery, vehicles, and other tangible assets 4 ~ 8 years
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 accounting estimate.
(10) Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.
Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets shown below from the date that they are available for use. The residual value of intangible assets is assumed to be zero. However, as there are no foreseeable limits to the periods over which certain intangible assets are expected to be available for use, these intangible assets are regarded as having indefinite useful lives and not amortized.
Estimated useful lives
Industrial rights 5 ~ 10 years Copyright Term of a contract or the period over which related revenue is expected to be realized Software 5 years Development costs 5 years License Contract period Other intangible assets 5 ~ 20 years
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 are accounted for as changes in accounting estimates.
1) Goodwill Goodwill acquired in a business combination is included in intangible assets. The Group applied K-IFRS retrospectively only to business combinations that occurred after September 1, 2010. Therefore, goodwill acquired in a business combination prior to September 1, 2010 represents the amount recognized under previous GAAP. Goodwill is not amortized and, subsequent to initial recognition, goodwill is carried at its cost less any accumulated impairment losses.
24 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(10) Intangible assets, continued
2) Research and development Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development expenditures are 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.
3) Subsequent expenditures 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.
(11) Investment property
Property held for the purpose of earning rentals 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 depreciated cost less any accumulated 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 item will flow to the Group and the cost of the item can be measured reliably. 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.
Investment property except for land, are depreciated on a straight-line basis over 5 years as estimated useful lives.
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.
(12) 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.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets (“CGUs”). 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 post-tax discount rate that reflect 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 if the carrying amount of an asset or a CGU exceeds its recoverable amount.
25 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(12) Impairment of non-financial assets, continued
Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(13) Leases
The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.
1) Finance leases At the commencement of the lease term, the Group recognizes as financial assets and financial liabilities in its consolidated statement of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.
The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased asset may be impaired.
2) Operating leases Payments made under operating leases are recognized in profit or loss on a straight-line basis over the period of the lease. Incentives received under operating leases are recognized over period of the lease by being deducted from payment made under operating leases.
3) Determining whether an arrangement contains a lease Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.
At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser's incremental borrowing rate of interest.
26 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(14) 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. The Group immediately recognizes other borrowing costs as an expense. 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 that period.
(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.
1) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, 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, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.
2) Other financial liabilities Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.
The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).
27 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(16) Employee benefits
1) Short-term employee benefits Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render 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.
2) Other long-term employee benefits Other long-term employee benefits include employee benefits that are expected to be settled beyond 12 months after the end of the annual reporting period in which the employees render the related service. 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.
3) Retirement benefits: defined contribution plans When an employee has rendered 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.
4) Retirement benefits: defined benefit plans The Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods, discounting that amount and deducting the fair value of plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan.
Remeasurements of the net defined benefit liability, 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 and reclassified to retained earnings. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in 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 and losses on the settlement of a defined benefit plan when the settlement occurs.
28 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. 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 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.
The Group recognized provisions for returned products, rewards and certain card mileage which are the best estimate of expenditure required to settle the present obligation based on historical data.
A provision is used only for expenditures for which the provision was originally recognized.
(18) Foreign currencies
1) 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 retranslated to each functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.
Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of the net investment in a foreign operation, which are recognized in other comprehensive income. If foreign currency differences arising on non-monetary items are recognized in other comprehensive profit or loss, related foreign exchange rate change effects are recognized in other comprehensive profit or loss. If foreign currency differences arising on non-monetary items are recognized in profit or loss, related foreign exchange rate change effects are recognized in profit or loss.
29 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(18) Foreign currencies, continued
2) 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 average exchange rates for the reporting periods. Foreign currency differences are recognized in other comprehensive income.
When a foreign operation is disposed of, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant portion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant portion is reclassified to profit or loss.
(19) Equity 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 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 recognized in equity.
(20) Share-based payment transactions
For equity-settled share-based payment transactions, the fair value of the goods or services received is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards, unless that fair values cannot be estimated reliably. If the Group cannot reliably estimate the fair value of the goods or services received, the Group measures their value indirectly by reference to the fair value of the equity instruments granted. 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 as an expense is based on the number of awards that meet the related service and non- market performance conditions at the vesting date.
For cash-settled share-based payment transactions, the fair value of the goods or services received and the liability incurred is recognized as an employee expense, with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to the payment. 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 as an employee expense in profit or loss.
30 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(21) Revenue
The Group recognizes its revenue by each business as follows:
1) Media The Group recognizes its revenue arising from TV subscriptions, license fees, advertising, and other services upon delivery of the service. The revenue arising from sale of goods is recognized upon delivery of the goods. The revenue arising from barter transactions, mainly broadcasting advertisement, amounted to W7,195 million and W7,448 million for the years ended December 31, 2015 and 2014, respectively.
2) Music The Group measures its revenue arising from sale of albums and online music services at fair value of the consideration received or receivable. Sales discounts and returns are deducted from the revenue. The Group recognizes its revenue arising from entertainment management and portal service when the entire amount of revenue can be reliably measured, inflow of economic benefits is very likely to happen, and the costs already incurred and required to the completion of transaction can be reliably measured. For the customer loyalty program, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits (“Points”) and the other components of the sale. The amount allocated to the Points is deferred and revenue is recognized only when the Points are redeemed and the Group has fulfilled its obligations.
3) Motion pictures The Group recognizes its revenue arising from film distribution confirmation of box office by theatres. Video sales are recognized upon confirming sold units consigned to distribution channels. The Group recognizes its revenue arising from copyrights of TV and cable TV when the transfer of publication right is effective. For the exporting of copyrights, the revenue is recognized upon confirmation of the copyright fees from the buyers after the contract.
4) Performance The Group recognizes its revenue arising from distribution of performance upon confirmation of ticket sales.
(22) Finance income and finance costs
Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on foreign currency transactions, gains on foreign currency translation of monetary item, gains on the disposal of available-for-sale financial assets and changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.
Finance costs comprise interest expense on borrowings, losses on foreign currency transactions, losses on foreign currency translation of monetary item and changes in the fair value of financial assets at fair value through profit or loss. Interest expense on borrowings is recognized in profit or loss using the effective interest method.
31 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(23) Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
1) 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 any adjustment to tax payable in respect of previous years. 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.
2) 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 a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, 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 the Group 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 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 be settled current tax liabilities and assets on a net basis. The Group recognizes additional tax arising from dividends payment upon dividends payable is recognized.
(24) 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.
32 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
4. Significant accounting policies, continued
(25) New standards not yet adopted
The following new standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2015, and the Group has not early adopted them.
1) K-IFRS 1109, ‘Financial Instruments’
K-IFRS No. 1109 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from K-IFRS No. 1039, Financial Instruments : Recognition and Measurement. K-IFRS No. 1109 is effective for annual periods beginning on or after January 1, 2018.
2) K-IFRS 1115, ‘Revenue from Contracts with Customers’
K-IFRS No. 1115 introduces a single, five-step revenue recognition model for contracts with customers and replaces existing revenue recognition guidance, including K-IFRS No. 1018, Revenue, K-IFRS No. 1011, Construction Contracts, and K-IFRS No. 2113, Customer Loyalty Programmes. The model specifies that revenue should be recognized when a company transfers control of goods or services to a customer in a manner that best reflects the company’s performance. K-IFRS No. 1115 is effective for annual reporting periods beginning on or after January 1, 2018.
5. Risk management
The Group has exposure to the following risks from its use of financial instruments: - Credit risk - Liquidity risk - Market risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
(1) Financial risk management
1) Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to policies. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
33 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
5. Risk management, continued
(1) Financial risk management, continued
2) 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 principally from the Group’s receivable from customers and investment securities.
The Group’s exposure to credit risk is mainly influenced by the individual characteristics of each customer. Therefore, the Group has transacted with customers over certain level of creditworthiness and established a credit policy and procedure in order to manage the credit risk. The Group has analyzed each new customer for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases bank references. Based on this review, the Group establishes credit limits for each customer and determine whether collateral or payment guarantee is required; these limits are reviewed periodically.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivable and investments. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.
3) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial asset.
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group has established short-term and long-term capital management plan and periodically reviews budget and actual cash outflows to match maturity structure of financial liabilities and financial assets.
The Group monitors its cash flows through long-term and short-term management strategies and ensures it has sufficient cash on demand to meet expected operational expenses.
4) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
① Currency risk The Group has exposure to currency risk on the sale, purchase, and borrowings that are denominated in a currency other than the functional currency. Main currencies used for these transactions are USD, EUR, JPY and others.
The Group has several policies in minimizing foreign exchange position risk, such as using local currency when buying or selling goods or services and when borrowing or lending funds or matching deposit currency and withdrawal currency.
34 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
5. Risk management, continued
(2) Financial risk management, continued
4) Market risk, continued
① Currency risk, continued The Group’s currency risk management policy defines exchange risk, assessment term, management procedures, duration of hedge and portion of hedge. The Group does not allow speculative foreign currency transactions and they periodically manage, monitor, and evaluate exchange risk.
② Interest rate risk The Group’s interest rate risk mainly arises from borrowings with variable interest rates. Accordingly, the Group establishes and manages its policy for minimizing uncertainty and financial costs.
③ Other market price risk Market price risk arises from the available-for-sale equity instruments that the Group possesses. Major investments within the portfolio are managed separately and the approval of the board of directors is necessary for important acquisition or sale decisions.
(3) Capital management
The Group’s capital management aims to sustain future development of the business and maximizing stockholders’ profit to minimize capital finance costs. The Group’s capital structure consists of net liabilities (total borrowings less cash and cash equivalents) and total equity. The Group’s management periodically reviews the Group’s capital structure.
Details of liabilities to equity ratios as of December 31, 2015 and 2014 are as follows:
(In thousands of won, except ratio) 2015 2014
Total liabilities (A) W 804,773,286 851,682,116 Total equity (B) 1,560,082,335 1,505,703,408 Borrowings and debentures (C) 306,762,085 399,632,198 Financial lease liabilities (D) 109,723 210,731 Cash and cash equivalents (E) 47,493,272 33,525,991 Short-term financial assets (F) 306,768,000 472,088,750 Net debt (C+D-E-F) W (47,389,464) (105,771,812)
Liabilities to equity ratio (A/B) 51.59% 56.56% Net debt to equity ratio ((C+D-E-F)/B) (*) (*)
The Group additionally includes short-term financial assets for the purpose of calculating net debt from the current year. As a result, the Group recalculated the amount of net debt as of December 31, 2014 to conform to the 2015 presentation.
(*) The Group did not present net debt to equity ratio since the ratio was calculated as negative.
35 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
6. Operating segments
The Group has four reportable segments, as described below, which are the Group’s strategic business units as of December 31, 2015. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s chief operation decision maker reviews internal management reports at least on a quarterly basis. The following summary describes the operations in each of the Group’s reportable segments:
- Media: Operates cable channels as well as producing broadcast contents - Music: Provides online music portal service and records and manages concerts - Performance : Produces, invests in performance - Motion Pictures: Produces, invests in and distributes films
Financial information of each reportable segment for the years ended December 31, 2015 and 2014 is as follows:
(In thousands of won)
2015 2014 Revenue Operating profit (loss) Revenue Operating profit (loss) Discontinu Continuing Discontinued Continuing Discontinued Continuing ed Continuing Discontinued operations operations operations operations operations operations operations operations
Media W 909,477,893 - 46,210,776 - 825,917,683 - 2,150,418 - Music 184,112,131 - 667,621 - 180,703,215 - (887,120) - Performance 15,378,059 - (154,689) - 14,726,112 19,142,943 (9,936,702) (32,582,575) Motion pictures 238,345,802 - 5,952,102 - 211,318,322 - (3,975,017) - Games - - - - - 294,640,108 - 39,322,634
W 1,347,313,885 - 52,675,810 - 1,232,665,332 313,783,051 (12,648,421) 6,740,059
The portion of revenue and operating profit (loss) derived from overseas is immaterial.
As information for reportable segment’s assets and liabilities is not reported to the Group’s chief operating decision maker, the Group does not present this information in the consolidated financial statements.
7. Cash and cash equivalents
Details of cash and cash equivalents as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Cash on hand W 5,150 - Demand deposits 47,488,122 33,525,991 W 47,493,272 33,525,991
36 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
8. Inventories
Details of inventories as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Merchandises W 3,887,751 5,214,200 Supplies - 69 Raw materials 28,138 29,100 W 3,915,889 5,243,369
The Group has recognized write-down of inventories amounting to W74 million for the year ended December 31, 2015.
9. Accounts and notes receivable - trade
(1) Accounts and notes receivable - trade are presented on a net basis after deducting allowances for doubtful accounts. The gross amount of accounts and notes receivable - trade and related allowances for doubtful accounts as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Accounts and notes receivable - trade W 452,435,093 394,891,222 Allowances for doubtful accounts (45,984,526) (42,437,491) Accounts and notes receivable – trade, net W 406,450,567 352,453,731
(2) Changes of allowance for doubtful accounts during the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Beginning balance W 42,437,491 15,082,338 Change in scope of consolidation (5,869) (1,350,347) Impairment loss (reversal of allowance) 10,078,497 33,099,442 Write-offs (5,191,620) (4,380,160) Others (1,333,973) (13,782) Ending balance W 45,984,526 42,437,491
10. Available-for-sale financial assets
Available-for-sale financial assets as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Acquisition Carrying Acquisition Carrying costs amount costs amount
Listed shares W - - 668,284 1,056,977 Unlisted shares 8,362,078 5,745,293 8,174,645 6,074,578 Debt securities 1,410,000 - 1,410,000 30,000 Investment in partnership 72,246,050 72,246,050 60,675,030 60,675,030 W 82,018,128 77,991,343 70,927,959 67,836,585
37 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
10. Available-for-sale financial assets, continued
The Group recognized the difference between acquisition costs and fair values of available-for-sale financial assets in other comprehensive income (loss), except for impairment losses which were recorded in profit or loss. The Group has a balance of a net cumulative unrealized loss of W1,063 million as accumulated other comprehensive loss for available-for-sale financial assets as of December 31, 2014. However, as a result of disposal of all listed stocks, the cumulative unrealized loss was reclassified to profit of loss for the year ended December 31, 2015
Investments in equity instruments, except for listed shares, are measured at cost less impairment loss because they do not have a quoted market price in an active market and their fair value cannot be reliably measured.
11. Investments in equity method investees
(1) Investments in equity method investees as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Owner- Carrying Owner- Carrying Company Location Business ship (%) amount ship (%) amount
MBC PLUS MEDIA Co., Ltd. Korea Broadcasting 23.52% W 47,409,829 23.52% W 44,757,838 Gemini Investment No.1 Korea Fund 33.33% 33,567 33.33% 24,462 Michigan Global Contents Fund Korea Fund 20.00% 643,182 20.00% 673,968 Century- on- multimedia Investment Union,2 (*1) Korea Fund 20.00% 76,771 20.00% 690,907 CINEMA SERVICE CO., LTD. Korea Filmmaking 37.10% 2,609,197 37.10% 2,905,441 ART Service Corp. Korea Advertising 43.39% 2,419,158 43.39% 2,126,995 Company K Partners Contents Investment Fund (*2) Korea Fund 30.00% 715,270 30.00% 4,227,106 Capital One Diversity Cinema Fund (*1) Korea Fund 20.00% 80,127 20.00% 635,605 Union Visual Contents Investment Fund Korea Fund 33.33% 5,476,853 33.33% 6,168,454 CABLE TV SEODAEGU Korea Broadcasting 49.33% - 49.33% - GRETECH Corp. (*3) Korea Software development 24.54% 3,101,388 24.54% 13,043,254 KTF-CJ Music Contents Investment Fund Korea Fund 40.00% 1,825,595 40.00% 1,825,595 Michigan Global Contents Fund 2 Korea Fund 28.00% 2,452,563 28.00% 2,759,688 Wooridull Entertainment Investment Fund (*4) Korea Fund 31.36% 1,143,955 31.36% 1,143,955 CJ E&M Hong Kong Limited (*4) Hong- Broadcasting (formerly, FICCJM Asia Limited) Kong - - 49.00% 679,476 Ajou Culture Development Company, Inc. China Performance planning 20.00% 197,172 20.00% 50,093 Smilegate Investment, Inc. (*2) Korea Fund 25.00% 556,875 25.00% 2,349,086 CJ Culture Investment No.14 Cinema Fund Korea Fund 25.00% 4,962,866 25.00% 5,017,948 IBK Financial Group Cultural Contents Investment Fund (*2) Korea Fund 33.33% 1,315,600 33.33% 3,172,315 Clip Service Inc. (*5) Korea Performance planning - - 31.85% 950,209 Musicworks Co., Ltd. (*7) Korea Music 19.00% - 19.00% - Blackwell & Fuller Holdings LLC. (*6) England Music - - 20.00% 16,104,027 JELLY FISH ENTERTAINMENT CO., LTD (*7) Korea Music 19.00% 597,717 19.00% 259,640 M Studio Co., Ltd. China Music 49.00% 267,582 49.00% 360,024 Polaris Mnet Co., Ltd. Korea Education 50.00% 50,582 50.00% 484,112 Alive media Co., Ltd. (*8) Korea Music - - 19.00% - Netmarble Games Corporation (*9) Korea Online game development 31.45% 399,846,794 34.81% 266,887,433
38 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
11. Investments in equity method investees, continued
(1) Investments in equity method investees as of December 31, 2015 and 2014 are as follows, continued:
(In thousands of won) 2015 2014 Owner- Carrying Owner- Carrying Company Location Business ship (%) amount ship (%) amount
Uncle Daedo Co, Ltd. (*10) Korea Broadcast Program Production 20.00% 47,536 -- - Hwa&dam pictures (*10) Korea Broadcast Program Production 20.00% 9,000,000 -- - Culturedepot Co, Ltd. (*10) Korea Entertainment Management 30.00% 10,500,000 -- - W 495,330,179 W 377,297,631
(*1) The Group collected W300 million from investment in Century- on- multimedia Investment Union 2, with W53 million of profit. Also, the Group collected W551 million from investment in Capital One Diversity Cinema Fund, with W250 million of profit.
(*2) The Group collected W3,000 million from investment in Company K Partners Contents Investment Fund, W167 million from investment in Smilegate Investment, Inc., and W1,800 million from investment in IBK Financial Group Cultural Contents Investment Fund, respectively.
(*3) The Group recognized W9,063 million of impairment loss on investment in GRETECH Corp. whose carrying amount exceeded its recoverable amount.
(*4) CH Holdings Limited obtained control over CJ E&M Hong Kong Limited (formerly, FICCJM Asia Limited) by purchasing 51% shares of the entity in 2015. As a result, the Group discontinued the use of the equity method and reclassified investment in the entity as a subsidiary, recognizing W1,703 million of profit.
(*5) The Parent Company disposed of investment of W197 million in Clip Service Inc, with W8 million of profit. Also, the ownership percentage of the Parent Company in Clip Service decreased as the entity issued to a third party new shares of common stock. As a result, the Group lost significant influence on the entity and reclassified it into available-for-sale financial assets with W195 million of loss.
(*6) The Group lost significant influence on Blackwell & Fuller Holdings LLC. due to the partial disposal of its shares of Blackwell & Fuller Holdings LLC. with W806 million of profit. Accordingly, the Group discontinued the use of the equity method to the residual investments in the entity and reclassified it into available-for-sale financial assets.
(*7) The Parent Company has significant influence over them through the board of directors and others.
(*8) The Group disposed of entire investment in Alive media Co., Ltd. with W23 million of profit.
(*9) As Netmarble Games Corporation issued to a third party new shares of common stock, the ownership percentage of the Parent Company in Netmarble Games Corporation decreased.
(*10) The Group newly invested W10 million in Uncle Daedo Co, Ltd., W9,000 million in Hwa&dam pictures, and W10,500 million in Culturedepot Co, Ltd., respectively.
39 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
11. Investments in equity method investees, continued
(2) Condensed financial information of significant equity method investees as of and for the years ended December 31, 2015 is as follows:
(In thousands of won) 2015 Union IBK Financial Black- Visual CJ Group well Netmarble Contents Culture Cultural & Games MBC PLUS Invest- Investment Contents Fuller Corporation MEDIA Co., ment GRETECH No.14 Investment Holdings and its Ltd. Fund Corp. Cinema Fund Fund LLC.(*2) subsidiaries.
Current assets W 195,510,109 2,583,433 10,423,504 1,947,623 1,318,773 7,572,022 497,921,567 Non-current assets 39,240,085 13,847,124 9,401,647 18,233,318 2,898,027 34,482,020 791,877,341 Current liabilities 27,653,381 - 2,106,145 329,477 270,000 29,135,377 243,952,224 Non-current liabilities 2,890,021 - 5,080,000 - - - 30,292,095 Non-controlling interest ------126,574,130 Revenue 211,715,087 1,152,749 11,948,124 2,864,428 1,399,043 1,487,593 1,072,920,876 Profit (loss) (*1) 13,496,692 (2,074,803) (1,890,249) (220,326) (170,144) (1,969,051) 117,266,136 Other comprehensive Income (loss) (*1) (19,708) - (1,689,714) - - 69,705 20,716,371 Total comprehensive income (loss) (*1) 13,476,984 (2,074,803) (3,579,963) (220,326) (170,144) (1,899,346) 137,982,507 Dividend received 383,773 ------
(*1) Profit and comprehensive income of Netmarble Games Corporation and its subsidiaries presented above are the profit and comprehensive income - attributable to owners of Netmarble Games Corporaton.
(*2) Condensed financial information of the entity is the financial information as of and for the period ended on the date when the Group lost control over the entity and reclassified its investments into available-for-sale financial assets.
(3) Condensed financial information of significant equity method investees as of and for the years ended December 31, 2014 is as follows:
(In thousands of won) 2014 Union IBK Financial Black- Visual CJ YJM Group well Netmarble MBC Contents Culture Entertain- Cultural & Games PLUS Invest- Investment ment Contents Fuller Corporation MEDIA ment GRETECH No.14 Co., Ltd. Investment Holdings and its Co., Ltd. Fund Corp. Cinema Fund (*2) Fund LLC. subsidiaries.
Current assets W 199,295,862 7,041,631 12,414,020 4,574,882 20,597,396 9,786,945 7,507,753 383,710,408 Non-current assets 27,247,682 11,463,730 6,329,931 15,588,642 6,656,376 - 36,546,614 245,421,816 Current liabilities 32,363,942 - 2,524,981 91,733 10,583,242 270,000 29,236,357 123,029,735 Non-current liabilities 1,746,070 - - - 204,070 - - 37,761,425 Non-controlling interest ------47,048,461 Revenue 197,282,829 1,966,999 18,014,597 3,081,181 1,165,720 742,603 432,001 368,401,789 Profit (loss) (*1) 21,020,422 540,560 (5,489,042) (1,108,116) 617,837 466,596 (864,332) 29,151,879 Other comprehensive Income (loss) (*1) 6,214,699 - 4,105,038 - (939,576) - 590,097 (713,148) Total comprehensive income (loss) (*1) 27,235,121 540,560 (1,384,004) (1,108,116) (321,739) 466,596 (274,235) 28,438,731 Dividend received 338,624 ------
(*1) Profit and comprehensive income of Netmarble Games Corporation and its subsidiaries presented above are the profit and comprehensive income attributable to owners of Netmarble Games Corporaton.
(*2) Condensed financial information of the entity is the financial information as of and for the period ended date on which interest was eliminated in the Group’s consolidated financial statements.
40 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
11. Investments in equity method investees, continued
(4) The reconciliation of significant investees’ net asset to the carrying amount of the Group’s interest in these equity method investees as of December 31, 2015 is as follows:
2015 (In thousands of won) Group’s share of Owner- net assets Carrying Net assets (a) ship (b) (a×b) Goodwill amount
MBC PLUS MEDIA Co., Ltd. W 204,206,792 23.52% 45,998,696 1,411,133 47,409,829 Union Visual Contents Investment Fund 16,430,557 33.33% 5,476,853 - 5,476,853 GRETECH Corp. 12,639,006 24.54% 3,101,388 - 3,101,388 CJ Culture Investment No.14 Cinema Fund 19,851,464 25.00% 4,962,866 - 4,962,866 IBK Financial Group Cultural Contents Investment Fund 3,946,800 33.33% 1,315,600 - 1,315,600 Netmarble Games Corporation and its subsidiaries(*1) 888,980,459 31.45% 291,205,935 108,640,859 399,846,794
(*1) Net assets of Netmarble Games Corporation and its subsidiaries represent the amount attributable to owners of Netmarble Games Corporation. Also, financial information of the entity includes an individually identifiable intangible asset which the Group recognized at its fair value at the date the Group lost control over the entity.
(5) The reconciliation of significant investees’ net asset to the carrying amount of the Group’s interest in these equity method investees as of December 31, 2014 is as follows:
2014 (In thousands of won) Group’s Change in share of net scope of
Owner- assets consolida Carrying Net assets (a) ship (b) (a×b) Goodwill -tion amount
MBC PLUS MEDIA Co., Ltd. W 192,433,532 22.52% 43,346,705 1,411,133 - 44,757,838 Union Visual Contents Investment Fund 18,505,361 33.33% 6,168,454 - - 6,168,454 GRETECH Corp. 16,218,970 24.54% 3,979,848 9,063,406 - 13,043,254 CJ Culture Investment No.14 Cinema Fund 20,071,791 25.00% 5,017,948 - - 5,017,948 YJM Entertainment Co., Ltd. (*1) 16,466,460 30.54% 5,029,462 9,722,825 (14,752,287 ) - IBK Financial Group Cultural Contents Investment Fund 9,516,945 33.33% 3,172,315 - - 3,172,315 Blackwell & Fuller Holdings LLC. 14,818,010 20.00% 2,963,602 13,140,425 - 16,104,027 Netmarble Games Corporation and its subsidiaries(*2) 421,292,603 34.81% 146,651,546 120,235,887 - 266,887,433
(*1) The Group’s equity interest in YJM Entertainment Co., Ltd. was calculated based on the number of ordinary shares outstanding excluding treasury stock of YJM Entertainment Co., Ltd.
(*2) Net assets of Netmarble Games Corporation and its subsidiaries represent the amount attributable to owners of Netmarble Games Corporation. Also, financial information of the entity includes an individually identifiable intangible asset which the Group recognized as its fair value at the date the Group lost control over the entity.
41 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
11. Investments in equity method investees, continued
(6) The aggregate carrying amount of individually insignificant associates and joint ventures as of December 31, 2015 is as follows:
(In thousands of won) 2015 Group’s share of loss and
total comprehensive income (loss) Other Carrying Profit (loss) comprehensive Total comprehensive amount for the year loss income (loss)
Individually insignificant associates W 33,166,266 1,091,144 (412,909) 678,236 Individually insignificant joint ventures 50,583 (433,529) - (433,530)
(7) The aggregate carrying amount of individually insignificant associates and joint ventures as of December 31, 2014 is as follows:
(In thousands of won) 2014 Group’s share of profit (loss) and
total comprehensive income (loss) Other Carrying Loss comprehensive Total comprehensive amount For the year income loss
Individually insignificant associates W 21,662,250 (1,923,544) 613,338 (1,310,206) Individually insignificant joint ventures 484,112 (1,045,492) - (1,045,492
(8) Changes in investments in equity method investees for the years ended December 31, 2015 are as follows:
2015 (In thousands of won) Changes Equity Changes in
Beginning Acqui income in Dividend Impairment retained Others Ending balance -sition Disposal (loss) equity income loss earnings (*2,3) balance
MBC PLUS MEDIA Co., Ltd. W 44,757,838 - - 3,040,204 (4,440) (383,773) - - - 47,409,829 Union Visual Contents Investment Fund 6,168,454 - - (691,601) - - - - - 5,476,853 GRETECH Corp. 13,043,254 - - (463,834) (414,626) - (9,063,406) - - 3,101,388 CJ Culture Investment No.14 Cinema Fund 5,017,948 - - (55,082) - - - - - 4,962,866 IBK Financial Group Cultural Contents Investment Fund 3,172,315 - (1,800,000) (56,715) - - - - - 1,315,600 Blackwell & Fuller Holdings LLC. 16,104,027 - (6,679,360) (393,810) 13,941 - - - (9,044,798) - Netmarble Games Corporation 266,887,433 - - 39,228,720 77,164 - (213,727) 93,867,204 399,846,794 Individually insignificant associates 21,662,250 15,282,430 - 1,091,144 (412,909) (2,411,614) - - (2,045,035) 33,166,266 Individually insignificant joint ventures 484,112 - - (433,529) - - - - - 50,583 W 377,297,631 15,282,430 (8,479,360) 41,265,497 (740,870) (2,795,387) (9,063,406) (213,727) 82,777,371 495,330,179
(*1) The Group received dividends of W384 million from MBC PLUS MEDIA Co., Ltd., W224 million from Ajou Culture Development Company, Inc., and W2,188 million from Smilegate Investment, Inc., respectively.
(*2) Due to the issuance of new shares of Netmarble Games Corporation to a third party, W93,843 million of gain on investment in equity method investees was recognized.
42 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
11. Investments in equity method investees, continued
(8) Changes in investments in equity method investees for the year ended December 31, 2015 are as follows, continued:
(*3) CH Holdings Limited obtained control over CJ E&M Hong Kong Limited (formerly, FICCJM Asia Limited) by purchasing 51% shares of the entity during 2015. As a result, the Group discontinued the use of the equity method and reclassified its investments as investments in subsidiary. Also, the ownership percentage of the Parent Company in Clip Service decreased as the entity issued to a third party new shares of common stock. As a result, the Group lost significant influence on the entity and reclassified its investments into available-for-sale financial assets.
(9) Changes in investments in equity method investees for the year ended December 31, 2014 are as follows:
2014 (In thousands of won) Changes in Equity Changes Profit from scope of
Beginning Acqui income in discontinued consolidation Others Ending balance -sition Disposal (loss) equity operations (*2) (*1) balance
MBC PLUS MEDIA Co., Ltd. W 39,210,606 - - 4,734,966 1,322,024 - - (509,758) 44,757,838 Union Visual Contents Investment Fund 5,988,267 - - 180,187 - - - - 6,168,454 GRETECH Corp. 13,382,864 - - (1,346,913) 1,007,303 - - - 13,043,254 CJ Culture Investment No.14 Cinema Fund 5,294,977 - - (277,029) - - - - 5,017,948 YJM Entertainment Co., Ltd. (*2) 14,850,558 - - - (286,981) 188,710 (14,752,287) - - IBK Financial Group Cultural Contents Investment Fund 5,016,783 - (2,000,000) 155,532 - - - - 3,172,315 Blackwell & Fuller Holdings LLC. 16,158,874 - - (172,866) 118,019 - - - 16,104,027 Netmarble Games Corporation - - - 10,147,740 (248,246) - 256,987,939 - 266,887,433 Individually insignificant associates 35,668,954 23,455 (9,138,286) (2,719,305) 613,338 795,761 (3,581,667) - 21,662,250 Individually insignificant joint ventures 1,529,604 - - (1,045,492) - - - - 484,112 W 137,101,487 23,455 (11,138,286) 9,656,820 2,525,457 984,471 238,653,985 (509,758) 377,297,631
(*1) The carrying amount of investments in MBC PLUS MEDIA Co., Ltd. decreased due to dividends received and disproportionate capital increase of the entity while merging with MBC Sports Co., Ltd. In relation to unequal capital increase, the Group recognized W139 million of loss on partial disposal of equity method investees.
(*2) As the Parent Company spun off its game division and subsequently lost control over Netmarble Games Corporation, investments in the equity method investees were derecognized on the consolidated financial statements. Related equity income (loss) were classified as profit from discontinued operations.
(10) The unrecognized cumulative equity losses, resulted from discontinuing application of the equity method, as of and for the year ended December 31, 2015 are as follows:
Unrecognized Unrecognized cumulative equity
equity losses losses as of (In thousands of won) during 2015 December 31, 2015
Individually insignificant associates W (214,762) (4,285,373)
43 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
12. Other financial assets
(1) Other financial assets as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Non- Non- Current current Current current
Accounts receivable - other W 24,216,230 - 15,814,444 - Accrued income 198,915 - 3,887,915 - Loans 4,758,842 2,845,185 8,595,430 1,403,390 Deposits provided 1,234,975 13,245,711 - 13,653,079 Derivatives 96,095 - 135,808 - Short-term financial assets (*) 306,768,000 - 472,088,750 - Long-term financial assets (*) - 5,232,740 - 5,185,880 Other investments - 1,124,860 - 1,124,860 W 337,273,057 22,448,496 500,522,347 21,367,209
(*) Short-term and long-term financial assets which are restricted in use as of December 31, 2015 are W6,055 million.
(2) Other financial assets are presented on a net basis after deducting related allowance for doubtful accounts. Other financial assets and related allowance for doubtful accounts as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Non- Non- Current current Current current
Other financial assets W 356,018,900 30,448,496 523,345,900 21,367,209 Allowance for doubtful accounts: Accounts receivable - other (7,868,525) - (8,096,784) - Accrued income (1,284,362) - (1,284,362) - Loans (9,592,956) (8,000,000) (13,442,407) - (18,745,843) (8,000,000) (22,823,553) - Other financial assets, net W 337,273,057 22,448,496 500,522,347 21,367,209
(3) Changes of allowance for other financial assets for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Non- Non- Current current Current current
Beginning balance W 22,823,553 - 11,866,833 82,533 Change in scope of consolidation (114,359) - (1,004,804) (6,638) Impairment loss (reversal of allowance) 4,491,527 - 9,340,718 2,624,105 Write-off (454,878) - (79,194) - Other (8,000,000) 8,000,000 2,700,000 (2,700,000) Ending balance W 18,745,843 8,000,000 22,823,553 -
44 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
13. Advance payments
(1) Advance payments are presented on a net basis after deducting related allowance for doubtful accounts. Advance payments and related allowance for doubtful accounts as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Advance payments W 165,449,822 171,905,656 Allowance for doubtful accounts (34,009,491) (33,376,762) Advance payments, net W 131,440,331 138,528,894
(2) Changes of allowance for advance payments for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Beginning balance W 33,376,762 30,073,258 Change in scope of consolidation - (7,259,583) Impairment loss 10,807,318 13,497,589 Write-off (10,508,722) (5,128,882) Other 334,133 2,194,380 Ending balance W 34,009,491 33,376,762
14. Property and equipment
(1) Changes in property and equipment for the year ended December 31, 2015 are as follows:
Beginning Change in scope Ending (In thousands of won) balance Acquisitions Disposals of consolidation Depreciation Others (*) balance
Land W 4,252,129 - - - - - 4,252,129 Buildings 35,447,191 - - - (979,955) - 34,467,236 Structures 1,987,197 1,546,767 (995,906) - (167,377) 253,014 2,623,695 Machinery 230,425 92,920 (1,557) 60,037 (90,175) 6,159 297,809 Broadcasting equipment 28,948,347 2,430,156 (3,625) - (6,666,757) 410,885 25,119,006 Vehicles 125,306 51,592 - - (73,260) 45,521 149,159 Tools and office equipment 8,837,154 2,463,037 (1,296,728) 17,527 (3,474,132) 57,042 6,603,900 Other tangible assets 2,918,659 2,801,071 (11,887) - (1,726,120) (163,885) 3,817,838 Construction in progress 5,718,500 229,600 - - - (5,939,600) 8,500 W 88,464,908 9,615,143 (2,309,703) 77,564 (13,177,776) (5,330,864) 77,339,272
(*) Construction in progress of W 5.7 billion was transferred to other intangible assets during 2015. The others are related to transfers from other accounts, changes in exchange rates and so on.
45 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
14. Property and equipment, continued
(2) Changes in property and equipment for the year ended December 31, 2014 are as follows:
Beginning Change in scope Impairment Ending (In thousands of won) balance Acquisitions Disposals of consolidation Depreciation loss Others (*) balance
Land W 13,528,655 - - (9,276,526) - - - 4,252,129 Buildings 42,829,973 1,943,007 - (17,588,707) (1,171,687) - 9,434,605 35,447,191 Structures 6,127,369 228,428 (15,938) (3,888,082) (274,987) (10,128) (179,465) 1,734,183 Machinery 8,884,462 1,996,196 (799,258) (8,005,748) (1,806,358) - (38,869) 230,425 Broadcasting equipment 33,377,489 2,768,920 - - (7,179,093) - (18,969) 28,948,347 Vehicles 170,708 55,934 (17,085) (11,449) (74,295) - 1,493 125,306 Tools and office equipment 19,276,972 4,351,196 (477,409) (7,214,686) (5,781,956) (588,332) (728,631) 8,837,154 Other tangible assets 4,792,941 80,693 (38,808) (529,832) (2,227,581) - 841,246 3,171,673 Construction in progress 6,006,120 9,147,000 - - - - (9,434,620) 5,718,500 W 134,994,689 20,571,374 (1,348,498) (46,515,030) (18,515,957) (598,460) (123,210) 88,464,908
(*) Others are related to transfers from other accounts such as investment property, changes in exchange rates and so on.
15. Intangible assets
(1) Changes in intangible assets for the year ended December 31, 2015 are as follows:
(In thousands of won) 2015 Industrial Copy Develop- Member- Goodwill right -right ment cost Software License ship Others(*1) Total
Acquisition costs: Beginning balance W 189,982,417 643,770 1,317,515,338 5,671,395 5,989,698 590,000 17,391,972 123,637,004 1,661,421,594 Acquisitions - 414,400 333,535,217 - 24,081 - 693,074 3,508,009 338,174,781 Disposals - 1,121,858 (9,581,747) - (10,000) - (655,390) (172,684) (9,297,963) Others (*2) - (933,175) (71,111,342) - 101,177 - - 4,009,341 (67,933,999) Change in scope of consolidation 8,613,314 - 5,960,670 - 11,098 - - - 14,585,082 Ending balance W 198,595,731 1,246,853 1,576,318,136 5,671,395 6,116,054 590,000 17,429,656 130,981,670 1,936,949,495
Accumulated amortization and impairment losses: Beginning balance W (3,072,325) (26,148) (915,800,572) (5,521,722) (5,433,355) (87,778) (4,037,254) (32,717,180) (966,696,334) Amortization - (8,100) (296,172,497) (40,820) (235,938) (196,667) - (9,415,076) (306,069,098) Impairment loss - - (95,153,806) - - - - (2,198,845) (97,352,651) Disposals - (986,677) 5,003,742 - 7,033 - 293,390 95,502 4,412,990 Others (*2) - 986,677 83,190,802 - (100,270) - - 3,198,557 87,275,766 Change in scope of consolidation - - (5,355,514) - (5,005) - - - (5,360,519) Ending balance (3,072,325) (34,248) (1,224,287,845) (5,562,542) (5,767,535) (284,445) (3,743,864) (41,037,042) (1,283,789,846)
W 195,523,406 1,212,605 352,030,291 108,853 348,519 305,555 13,685,792 89,944,628 653,159,649
(*1) Others include individually identifiable customer relationships which the Group recognized in connection with business combinations.
(*2) Others are related to write-off of assets which were fully amortized and transfers from other accounts.
46 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
15. Intangible assets, continued
(2) Changes in intangible assets for the year ended December 31, 2014 are as follows:
(In thousands of won) 2014 Industrial Copy Develop- Member- Goodwill right -right ment cost Software License ship Others(*1) Total
Acquisition costs: Beginning balance W 268,322,895 8,424,906 1,071,473,602 62,645,506 28,583,808 37,108,123 19,215,761 123,344,595 1,619,119,196 Acquisitions - 274,884 331,712,330 1,080,154 171,430 896,367 600,440 3,583,867 338,319,472 Disposals - - (16,133,322) - - (15,005,104) (20,000) (860,831) (32,019,257) Change in scope of consolidation (79,549,644) (8,092,172) (258,984) (56,000,064) (21,906,115) (24,923,156) (1,585,790) (5,585,108) (197,901,033) Others (*2) 1,209,166 36,152 (69,278,288) (2,054,201) (859,425) 2,513,770 (818,439) 3,154,481 (66,096,784) Ending balance W 189,982,417 643,770 1,317,515,338 5,671,395 5,989,698 590,000 17,391,972 123,637,004 1,661,421,594
Accumulated amortization and impairment losses: Beginning balance W - (2,318,157) (713,995,233) (51,960,408) (22,803,678) (14,358,752) (1,942,893) (28,587,855) (835,966,976) Amortization - (353,304) (269,118,480) (1,380,079) (1,974,724) (2,679,488) - (8,315,262) (283,821,337) Impairment loss (3,072,325) - (7,556,919) - - (7,709,490) (2,422,105) (350,000) (21,110,839) Disposals - - 15,722,996 - - 14,870,185 - 609,590 31,202,771 Change in scope of consolidation - 2,645,313 105,375 47,818,765 18,571,836 9,773,570 257,167 4,054,890 83,226,916 Others (*2) - - 59,041,689 - 773,211 16,197 70,577 (128,543) 59,773,131 Ending balance (3,072,325) (26,148) (915,800,572) (5,521,722) (5,433,355) (87,778) (4,037,254) (32,717,180) (966,696,334)
W 186,910,092 617,622 401,714,766 149,673 556,343 502,222 13,354,718 90,919,824 694,725,260
(*1) Others include individually identifiable customer relationships which the Group recognized in connection with business combinations.
(*2) Others are related to write-off of assets which were fully amortized and transfers from other accounts.
(3) Impairment test for goodwill
1) Goodwill and intangible assets that have indefinite useful lives are tested for impairment annually. The Group reviews the recoverable amount of CGU related to those assets. The recoverable amount is determined on the basis of value in use, which is discounted amount of future cash flows arising from continuous use of the assets.
Primary assumptions used in calculation of value in use are determined by considering external and internal information (historical information), and the management assessment about future trend of related industry.
The key assumptions used in the estimation of the recoverable amount are set out below:
CJ E&M CJ E&M Corporation Corporation MEZZOMEDIA JS PICTURES Media Music Inc. Co., Ltd. Discount rate 7.20% 7.90% 5.67% 6.96% Terminal value growth rate 1.00% 1.00% 0.00% 1.00%
The discount rate is a post-tax measure based on the rate of government bonds issued by the government in the relevant market and in the same currency as the cash flows, adjusted for a risk premium to reflect both the risk of investing in equities generally and the systemic risk of the Group.
47 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
15. Intangible assets, continued
(3) Impairment testing for goodwill, continued
The future cash flows were estimated based on the nature of industry in which the Group would belong for the estimated years. The future cash flows after the estimated years were estimated at terminal growth rate. The cash flow projections were estimated based on historical experience, actual operating results and each entity’s business plan.
2) Membership that have indefinite useful lives are tested for impairment annually. For impairment test, the Group reviews the asset‛s recoverable amount. The Group used membership is fair value less costs of disposal as its recoverable amount, believing that the asset's value in use is estimated to be close to its fair value less costs of disposal and fair value less costs of disposal can be measured through a quoted price in an active market for membership.
3) As a result of the impairment test for copyrights, the Group identified certain copyrights from which the possibility of future cash flows were not probable. Therefore, the Group recognized W95,154 million of impairment loss on these copyrights whose carrying amount exceeded their recoverable amount.
16. Investment property
(1) Changes in investment property for the year ended December 31, 2015 are as follows:
(In thousands of won) 2015
Acquisition costs: Beginning balance W - Acquisitions 4,311,790 Ending balance 4,311,790
Accumulated depreciation and impairment losses: Beginning balance - Depreciation (733,478) Ending balance (733,478)
W 3,578,312
(2) The amount recognized as rental income arising from investment property for the year ended December 31, 2015 is W1,844 million.
48 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
17. Other assets
(1) Other assets as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Current Non-current Current Non-current
Prepaid expenses W 9,827,546 8,361,659 8,574,438 11,493,338 Refundable value added tax 242,005 - 9,162 - Other quick assets 72,119 - 249,716 - Long-term advance payments - 24,575,347 - 7,977,166 W 10,141,670 32,937,006 8,833,316 19,470,504
(2) Long-term advance payments are presented on a net basis after deducting related allowance for doubtful accounts. Long-term advance payments and related allowance for doubtful accounts as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Long-term advance payments W 25,530,756 8,616,252 Allowances for doubtful accounts (955,409) (639,086) Long-term advance payments, net 24,575,347 7,977,166
(3) Changes of allowance for doubtful accounts for years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Beginning balance W 639,086 4,118,2 81 Impairment loss - 2,474,554 Change in scope of consolidation - (6,592,833) Others 316,323 639,086 Ending balance W 955,409 639,086
49 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
18. Borrowings and debentures
(1) Borrowings and debentures as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Current liabilities: Short-term borrowings in Korean won W 11,970,000 8,400,000 Short-term borrowings in foreign currency 42,582,102 37,070,400 Current portion of debentures 49,969,816 99,924,350 Current portion of long-term borrowings in Korean won 71,249,950 2,166,703 W 175,771,868 147,561,453 Non-current liabilities: Debentures 99,906,927 149,737,504 Long-term borrowings in Korean won 31,083,290 102,333,240 W 130,990,217 252,070,744
(2) Debentures as of December 31, 2015 and 2014 are as follows:
(In thousands of won) Maturity Interest rate (%) 2015 2014
2nd non-guaranteed public offering 2017.01.30 4.34 W100,000,000 100,000,000 3rd- 1 non-guaranteed public offering 2015.07.06 3.62 - 100,000,000 3rd- 2 non-guaranteed public offering 2016.07.06 3.67 50,000,000 50,000,000 150,000,000 250,000,000 Less: discount (123,257) (338,146) Less: current portion of long-term borrowings (49,969,816) (99,924,350) W 99,906,927 149,737,504
(3) Short-term borrowings in Korean won as of December 31, 2015 and 2014 are as follows:
(In thousands of won) Lender Type Interest rate (%) 2015 2014
Hana Bank Operating loan 3.93 ~ 4.49 W 3,500,000 1,900,000 Kookmin Bank Operating loan 3.69 ~ 3.72 3,020,000 1,500,000 Woori Bank Operating loan 3.71 ~ 4.65 5,450,000 5,000,000 W 11,970,000 8,400,000
(4) Short-term borrowings in foreign currencies as of December 31, 2015 and 2014 are as follows:
(In thousands of won) Lender Type Interest rate (%) 2015 2014
Shinhan Bank Japan Operating loan 1.80 W 2,430,025 2,300,350 Loans collateralized by
electronic receivable 1.68 ~ 1.69 3,888,040 3,680,560 Mitsui Sumitomo Loans collateralized by
Bank electronic receivable 1.60 972,010 920,140 Woori Bank Operating loan 3month LIBOR+1.5% - 16,488,000 LA branch 1.46 - 5,496,000 Bank of America Operating loan 1.30 32,464,400 8,079,120 HSBC Operating loan 2.50 ~ 3.00 2,827,627 - Individual loan Operating loan - - 106,230 W 42,582,102 37,070,400
50 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
18. Borrowings and debentures, continued
(5) Long-term borrowings in Korean won as of December 31, 2015 and 2014 are as follows:
(In thousands of won) Lender Type Interest rate (%) 2015 2014
Kookmin Bank Operating loan 6.94 ~ 7.93 W - 33,333 Shinhan Bank Policy loan 1.47 ~ 2.61 1,166,620 1,666,640 Woori Bank Policy loan 1.47 ~ 2.61 1,166,620 1,749,970 Broadcasting
promotion fund 2.75 - 1,050,000 NH Investment & Securities Commercial paper (formerly, Woori Investment & Securities) 2.92 ~ 3.13 100,000,000 100,000,000 102,333,240 104,499,943
Less: current portion of long-term borrowings (71,249,950) (2,166,703) W 31,083,290 102,333,240
(6) Changes of borrowings for the year ended December 31, 2015 are as follows:
Carrying
(In thousands of won) Maturity Face value amount
Beginning balance 2015 ~ 2018 W 149,970,343 149,970,343 Proceeds 2016 41,650,709 41,650,709 Repayments 2015 (37,231,542) (37,231,542) Changes in exchange rates 2,495,832 2,495,832 Ending balance 2016 ~ 2018 W 156,885,342 156,885,342
(7) Debt principal repayment schedule as of December 31, 2015 and 2014 are as follows:
(In thousands of won) Maturity 2015 2014
Unsecured bank borrowings 2015 W - 47,637,103 2016 125,802,052 71,249,950 2017 ~ 2018 31,083,290 31,083,290 Debentures 2015 - 100,000,000 2016 50,000,000 50,000,000 2017 100,000,000 100,000,000 W 306,885,342 399,970,343
51 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
19. Other financial liabilities
Other financial liabilities as of December 31, 2015 and 2014 are as follows:
2015 2014 Non- Non- (In thousands of won) Current current Current current
Accrued expenses W 50,660,839 - 39,056,233 36,364 Leasehold deposits received 738,614 903,106 738,614 952,248 Investment deposits received 84,184,226 - 98,066,681 - Finance lease liabilities 50,750 58,973 97,950 112,781 Derivative instrument liabilities - - 26,400 - Others 27,436 16,214 36,023 - W 135,661,865 978,293 138,021,901 1,101,393
20. Other liabilities
Other liabilities as of December 31, 2015 and 2014 are as follows:
2015 2014 Non- Non- (In thousands of won) Current current Current current
Advance received W 11,196,293 - 10,712,083 - Deposits received 14,579,804 - 5,468,494 - Value added tax payable 7,019,005 - 5,916,516 - Unearned revenue 9,987,172 - 7,843,192 - Deferred revenue 71,897 600,837 7,707 628,106 Liabilities for short-term employee benefits 24,060,813 1,939,768 7,729,463 1,420,989 W 66,914,984 2,540,605 37,677,455 2,049,095
21. Provisions
(1) Details of provisions as of December 31, 2015 and 2014 are as follows:
2015 2014 Non- Non-
(In thousands of won) Current current Current current
Restoration W 500,000 279,000 500,000 279,000 Return 56,083 - 295,738 - Mileage - 291,455 - 355,768 Others - 36,503 - 332,372 W 556,083 606,958 795,738 967,140
52 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
21. Provisions, continued
(2) Changes in provisions for the year ended December 31, 2015 are as follows:
Restoration Return Mileage (In thousands of won) (*1) (*2) (*3) Others
Beginning balance W 779,000 295,738 355,768 332,372 Accrual - 11,605 709,375 - Payments - - (773,688) - Reversals - (255,759) - (295,869) Others (*4) - 4,499 - - Ending balance W 779,000 56,083 291,455 36,503
(*1) The Group recognized the restoration provision using the best estimate of expenditure required to restore leased broadcasting studio to the original state.
(*2) The provision relates to expected costs for returned products, which is estimated by using past experience. The relevant returns are expected to incur within one year from end of reporting period.
(*3) The Group runs CJ ONE card mileage program with CJ CGV Co., Ltd., etc. The provision relates to the costs of expected redemption of CJ ONE card points which were collected by card holders free of charge when no purchases of the Group’s product or services were made.
(*4) Others are related to foreign currency translation.
(3) Changes in provisions for the year ended December 31, 2014 are as follows:
Unused (In thousands of won) cash Restoration Return Mileage Others
Beginning balance W 9,882 423,730 52,807 363,918 36,503 Accrual 1,199 500,000 306,239 1 ,000,462 295,869 Payments - (40,000) - (908,794) - Reversals (69) (104,730) (43,536) - - Change in scope of consolidation (11,012) - - (99,818) - Others - - (19,772) - - Ending balance W - 779,000 295,738 355,768 332,372
53 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
22. Employee benefits
(1) Employee benefits expenses for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Wages and salaries ￦ 148,832,053 115,932,304 Social security contribution expenses 10,375,586 10,561,661 Contributions to defined contribution plans 686,822 842,703 Expenses related to post-employment defined benefit plans 9,481,818 7,778,107 Retirement allowance 30,815 140,097 Share-based payment - 44,773 ￦ 169,407,094 135,299,645
(2) Total employee benefits liabilities as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Present value of defined benefit obligations ￦ 40,860,715 37,933,448 Fair value of plan assets (28,037,526) (29,064,953) Net defined benefit liability 12,823,189 8,868,495 Liabilities for compensated absence 5,303,257 4,756,132 Liabilities for performance-based bonus 20,697,324 4,394,320 Total employee benefit liabilities ￦ 38,823,770 18,018,947
The Group’s defined benefit plans are administrated by Woori Bank, Samsung Fire & Marine Insurance Co., Ltd. and so on. The principal of its plan assets are guaranteed and the annual yield of its plan assets is 1.76% for 2015.
These defined benefit plans expose the Group to actuarial risk such as longevity risk, currency risk, interest rate risk and market (investment) risk.
54 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
22. Employee benefits, continued
(3) The following table shows reconciliation from the opening balances to the ending balances for net defined benefit liability and its components:
Net defined (In thousands of won) Defined benefit obligations Fair value of plan assets benefit liability 2015 2014 2015 2014 2015 2014 Balance at January 1 ￦ 37,933,448 43,215,253 (29,064,953) (22,597,025) 8,868,495 20,618,228
Current service cost 9,533,253 10,839,964 - - 9,533,253 10,839,964 Interest cost (income) 942,117 1,202,655 (701,264) (648,173) 240,853 554,482 Subtotal 10,475,370 12,042,619 (701,264) (648,173) 9,774,106 11,394,446 Included in OCI: Remeasurements loss (gain): - Actuarial loss (gain) arising from: - demographic assumptions 21,565 1,124,570 - - 21,565 1,124,570 - financial assumptions (1,103,747) 1,576,758 - - (1,103,747) 1,576,758 - experience adjustment 1,306,489 2,811,370 - - 1,306,489 2,811,370 - Return on plan assets excluding interest income - - 199,764 252,665 199,764 252,665 Subtotal 224,307 5,512,698 199,764 252,665 424,071 5,765,363 Other: Contribution paid by the employer - - (5,741,669) (16,634,793) (5,741,669) (16,634,793) Benefits paid (5,666,728) (5,728,475) 5,143,344 4,373,750 (523,384) (1,354,725) Transfer with affiliated companies, net (2,113,601) (231,836) 2,127,252 426,337 13,651 194,501 Foreign currency differences, net 7,919 (30,775) - (14,674) 7,919 (45,449) Subtotal (7,772,410) (5,991,086) 1,528,927 (11,849,380) (6,243,483) (17,840,466) Change in scope of consolidation - (16,846,036) - 5,776,960 - (11,069,076) Balance at December 31 ￦ 40,860,715 37,933,448 (28,037,526) (29,064,953) 12,823,189 8,868,495
(4) Details of plan assets as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Cash and deposits ￦ 28,037,526 29,064,953
(5) Defined benefit obligation
1) Actuarial assumptions Principal actuarial assumptions as of December 31, 2015 and 2014 are as follows:
2015 2014 Discount rate 2.35% ~ 3.30% 2.71% ~ 3.50% Weighted average of future salary increases 3.95% ~ 6.20% 5.25% ~ 7.80%
Assumptions regarding future mortality were measured based on mortality tables published by Korea Insurance Development Institute.
55 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
22. Employee benefits, continued
(5) Defined benefit obligation, continued
2) Reasonably possible changes at the reporting date to one of the relevant assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.
Defined benefit (In thousands of won) Movement obligation Discount rate 1 % increase W (1,553,660) 1% decrease 1,716,055 Weighted average of future salary increases 1 % increase 1,694,884 1% decrease (1,566,149)
Although the analysis does not take account of the full distribution of cash flows expected under the plan, it does provide an approximation of the sensitivity of the assumptions shown.
23. Share capital and other capital
(1) Share capital as of December 31, 2015 and 2014 are as follows:
(In won, except share data) 2015 2014
Number of shares authorized 100,000,000 100,000,000 Par value per share 5,000 5,000 Number of shares issued 38,732,089 38,732,089 Share capital W 193,660,445,000 193,660,445,000
(2) Changes of the number of shares issued for the years ended December 31, 2015 and 2014 are as follows:
2015 2014 Number of Out- Number of Out- shares Treasury standing shares Treasury standing (In shares) issued stock shares issued stock shares
Number at the beginning 38,732,089 (158,790) 38,573,299 38,732,089 (173,657) 38,558,432 Issuance due to business
combination - 695 695 - 14,867 14,867 Number at the ending 38,732,089 (158,095) 38,573,994 38,732,089 (158,790) 38,573,299
(3) Other capital as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Treasury stock W (5,048,244) (5,070,332) Gain on sales of treasury stock 3,332,450 3,332,450 Loss on sales of treasury stock (2,277,771) (2,277,771) Stock option 233,268 416,444 Unrealized changes in fair value of available-for-sale financial assets - (1,063,432) Foreign currency translation differences for foreign operations (1,582,071) (1,143,586) Changes in equity of equity method investees (155,847) 413,519 Other capital adjustments 23,576,205 35,031,865 W 18,077,990 29,639,157
56 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
24. Share-based payments
(1) Share option
The Group established share option programs that entitle key management personnel to purchase shares of the Parent Company.
The terms and conditions related to granted share options are as follows:
Vesting Exercisable Grant date Option conditions period Mar 10, 2006 Equity-settled 2 years'
service 9 years Mar 20, 2009 Equity-settled 4 years'
service 10 years
Options are to be settled by physical delivery of shares.
(2) Assumptions and methodology for measurement of the fair values at grant date
The fair values of share options at grant date were measured based on the Black-Scholes formula by using the following assumptions and inputs:
(In won) Equity-settled Mar 10, 2006 (*) Mar 20, 2009 Fair value of share options W 58,880 34,511 Exercise price W 116,000 49,000 Risk-free interest rate 5.04% 4.38% Expected life 6 years 7 years Expected volatility 64.00% 59.00% Expected dividends 2.04% 2.64%
(*) These share options were expired during 2015.
(3) Change of share options granted for the years ended December 31, 2015 and 2014 are as follows:
(In won) 2015 2014 Weighted Weighted average average Number of exercise Number of exercise options price options price
Beginning balance 9,861 W 70,138 328,082 W 39,096 Exercised - - (92,720) 24,032 Expired (3,111) 116,000 (4,601) 73,500 Change in scope of consolidation - - (220,900) 1,905 Ending balance 6,750 W 49,000 9,861 W 70,138
57 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
25. Commitments and contingencies
(1) Borrowing agreements between the Group and financial institutions as of December 31, 2015 are as follows:
Credit Borrowing (In thousands of won) Financial institution limit amount
Overdraft Woori Bank and others W 217,000,000 - General loan Kookmin Bank and others 60,222,052 49,692,052 Policy loan Shinhan Bank and others 2,333,240 2,333,240 Loans on electronic receivable collateral Shinhan Bank Japan and others 4,860,050 4,860,050 Commercial paper NH Investment & Securities 100,000,000 100,000,000 Public debenture KB Investment & Security Co., Ltd. and others 150,000,000 150,000,000 Finance leases Century Tokyo Leasing Corp. and others 109,723 109,723
(2) Payment guarantee
As of December 31, 2015, the Group is provided with payment guarantees of W35,314 million from the Seoul Guarantee Insurance Company, Woori Bank, and Kookmin Bank related to the performance of contracts, accounts and notes payable - trade and others.
(3) Details of guarantees which the Group has provided as of December 31, 2015 are as follows:
(In thousand won, in thousands of USD and JPY) Recipient Amount Type Lender
Employees Employees W 10,800,000 Loan guarantee Woori Bank
(4) Litigation in progress
The Group is a defendant in seven litigations, with claiming damages amounting to W1,608 million, in aggregate, and as a plaintiff in six lawsuits for alleged damages amounting to W12,472 million in aggregate as of December 31, 2015. The Group’s management believes that the outcome of these legal actions would not result in a material effect on the Group’s financial position, operating results or cash flows.
(5) Other contingencies
In April 2014, the Parent Company received advance notice of payment for taxes of W33,470 million according to the result of tax audit performed by National Tax Service, and appealed through tax procedures such as review system of the legality before taxation and tax tribunal. The Parent Company paid tax payment of W29,686 million, which was confirmed according to results of these procedures, and recognized income tax expense of W27,931 and W1,755 million in 2014 and 2015, respectively. However, in relation to some items of tax payment, the Parent Company lodged an appeal against the above decision to Board of Audit and Inspection and Tax Tribunal. The actual tax payment is expected to be finalized according to the result of these appeal procedures.
58 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
25. Commitments and contingencies, continued
(6) Joint surety over the liabilities before spin-off
The Parent Company was established as CJ O SHOPPING CO., Ltd. spun off its media division as of September 1, 2010 and has joint surety, according to the first clause of Article 530-9 of the Commercial Law, with CJ O SHOPPING CO., Ltd. over the liabilities of CJ O SHOPPING CO., Ltd. that existed before the Parent Company was spun off from CJ O SHOPPING CO., Ltd.
On November 13, 2011, the Parent Company divided itself into two separate entities by spinning off the game development and management division of game development subsidiaries into a new company called Netmarble Games Corporation (formerly, CJ Games Corporation, “Newly Established Company”). According to the spin-off plan, any liabilities that arose after the spin-off or any liabilities that arose after the spin-off but omitted in the spin-off plan for reasonable causes, are imposed on the responsible party according to their originating business division. If the originated business division is uncertain, it is allocated to the Parent Company and the Newly Established Company by the proportional rate of net assets at the time of the spin-off.
On August 1, 2014, the Parent Company divided itself into two separate entities by spinning off the game division (“Spun-off business division”). According to the spin-off plan, any liabilities that arose after the spin-off or any liabilities that arose after the spin-off but omitted in the spin-off plan for reasonable causes, are imposed on the responsible party according to their originating business division. If liabilities are caused by both spinned-off business division and the other ones, it is allocated to the Parent Company and the newly established company by the proportional rate of net assets at the time of the spin-off.
26. Earnings per share
(1) Basic earnings (loss) per share
1) Basic earnings (loss) per share from continuing operations for the years ended December 31, 2015 and 2014 are as follows:
(In won, except share data) 2015 2014
Profit (loss) attributable to owners of the Parent Company: Continuing operations W 54,345,192,936 (52,556,615,445) Weighted average number of ordinary shares outstanding 38,573,577 38,567,716 Earnings (loss) per share: Continuing operations W 1,409 (1,363)
2) Basic earnings per share from discontinued operations for the year ended December 31, 2014 are as follows. The Group did not calculate basic earnings per share from discontinued operation for the year ended December 31, 2015 since discontinued operation did not exist during 2015.
(In won, except share data) 2014
Profit attributable to owners of the Parent Company: Discontinued operations W 277,065,795,495 Weighted average number of ordinary shares outstanding 38,567,716 Earnings per share: Discontinued operations W 7,184
59 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
26. Earnings per share, continued
3) Weighted average number of ordinary shares outstanding for the year ended December 31, 2015 is as follows:
Time- Weighted Number of weighting number of (In shares) shares factor shares
Ordinary shares outstanding 38,732,089 365 14,137,212,485 Treasury stock (158,790) 365 (57,958,350) Exercise of appraisal right (*) 695 101,636 14,079,355,771
(*) Appraisal rights were exercised several times during 2015.
Weighted average number of ordinary shares outstanding: 14,079,355,771 ÷ 365 days = 38,573,577 shares
4) Weighted average number of ordinary shares outstanding for the year ended December 31, 2014 is as follows:
Time- Weighted Number of weighting number of (In shares) shares factor shares
Ordinary shares outstanding 38,732,089 365 14,137,212,485 Treasury stock 173,657 365 (63,384,805) Exercise of appraisal right (*) 14,867 3,388,660 14,077,216,340
(*) Appraisal rights were exercised several times during 2014.
Weighted average number of ordinary shares outstanding: 14,077,216,340 ÷365 days = 38,567,716 shares
(2) Diluted earnings (loss) per share As there is no diluting effect for the years ended December 31, 2015 and 2014, the diluted earnings (loss) per share is equal to the basic earnings (loss) per share.
(3) The following potential ordinary shares were excluded from the calculation of diluted earnings per share as the effect of the shares was anti-dilutive for the year ended December 31, 2015, but the shares could have dilutive effect in future periods.
Ordinary shares (In won, except share data) Par value Exercise period to be issued
Stock option W 5,000 Mar 20, 2013 ~ Mar 3, 2019 6,750
60 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
27. Selling, general and administrative expenses
Details of selling, general and administrative expenses for the years ended December 31, 2015 and 2014 are follows:
(In thousands of won) 2015 2014
Salaries W 69,366,292 55,508,864 Expenses for defined benefit plan 4,835,997 4,748,831 Employee fringe benefits 9,715,364 10,528,705 Conference 2,084,582 1,610,241 Education and training 2,181,351 2,598,872 Rent 10,741,976 13,287,913 Repairs and maintenance 74,345 14,838 Depreciation 7,838,545 7,807,783 Amortization 6,597,051 6,675,916 Insurance 376,139 379,587 Vehicle maintenance 729,147 805,427 Advertisement 32,145,034 41,044,242 Fees and charges 95,538,204 94,159,985 Taxes and dues 1,098,394 2,298,277 Entertainment 7,143,164 6,550,892 Bad debt expense 10,078,497 4,940,681 Research and development 3,973,195 3,275,975 Event 258,322 120,334 Share compensation - 44,773 Sales promotion 5,265,575 6,349,878 Travel 2,412,087 2,396,812 Miscellaneous 2,784,303 2,912,928 W 275,237,564 268,061,754
61 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
28. Finance income and finance costs
(1) Finance income
1) Finance income for the year ended December 31, 2015 is as follows:
2015 Financial assets at Financial fair value liabilities
through Available-for- Held-to- measured Loans and profit or sale financial maturity at amortized (In thousands of won) receivables loss assets investments cost Total
Interest income W 8,681,142 - 85,682 154,214 - 8,921,038 Gains on foreign currency transactions 1,972,027 - - - 1,037,576 3,009,603 Gains on foreign exchange translations 1,552,451 - - - 296,354 1,848,805 Gain on disposal of available-for-sale financial assets - - 382,160 - - 382,160 Dividends income - - 3,463,607 - - 3,463,607 Gain on valuation of derivatives - 96,095 - - - 96,095 Gain on transaction of derivatives - 797,337 - - - 797,337 W 12,205,620 893,432 3,931,449 154,214 1,333,930 18,518,645
2) Finance income for the year ended December 31, 2014 is as follows:
2014 Financial assets at Financial fair value Available- liabilities
through for-sale Held-to- measured Loans and profit or financial maturity at amortized (In thousands of won) receivables loss assets investments cost Total
Interest income W 9,559,584 - 10,162 66,742 - 9,636,488 Gains on foreign currency transactions 1,629,849 - - - 981,508 2,611,357 Gains on foreign exchange translations 994,517 - - - 246,137 1,240,654 Gain on disposal of available-for-sale financial assets - - 368,000 - - 368,000 Dividends income - - 666,049 - - 666,049 Gain on valuation of derivatives - 135,808 - - - 135,808 Gain on transaction of derivatives - 729,096 - - - 729,096 W 12,183,950 864,904 1,044,211 66,742 1,227,645 15,387,452
62 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
28. Finance income and finance costs, continued
(2) Finance costs
1) Finance costs for the year ended December 31, 2015 are as follows:
2015 Financial Financial liabilities at fair Available-for- liabilities Loans and sale financial measured at value through (In thousands of won) receivable assets amortized cost profit or loss Total
Interest expenses W - - 13,740,870 - 13,740,870 Losses on foreign currency transactions 1,647,934 - 1,845,981 - 3,493,915 Losses on foreign exchange translations 544,045 - 678,795 - 1,222,840 Loss on disposal of available-for-sale financial assets - 1,321,978 - - 1,321,978 Impairment loss on available-for-sale financial assets - 546,719 - - 546,719 Loss on disposal of receivable - trade 409 - - - 409 Loss on transaction of derivatives - - - 192,887 192,887 W 2,192,388 1,868,697 16,265,646 192,887 20,519,618
2) Finance costs for the year ended December 31, 2014 are as follows:
2014 Financial Financial liabilities at fair Available-for- liabilities Loans and sale financial measured at value through (In thousands of won) receivable assets amortized cost profit or loss Total
Interest expenses W - - 15,208,103 - 15,208,103 Losses on foreign currency transactions 1,995,373 - 1,171,586 - 3,166,959 Losses on foreign exchange translations 938,130 - 718,164 - 1,656,294 Loss on disposal of available-for-sale financial assets - 918,304 - - 918,304 Impairment loss on available-for-sale financial assets - 2,047,863 - - 2,047,863 Loss on valuation of derivatives - - - 26,400 26,400 Loss on transaction of derivatives - - - 407,738 407,738 W 2,933,503 2,966,167 17,097,853 434,138 23,431,661
63 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments
(1) Credit risk
1) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. Cash on hand and equity investments in available-for-sale equity financial assets are not included in the exposure to credit risks according to definition of credit risk. The maximum exposure to credit risk as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Cash and cash equivalents W 47,488,122 33,525,991 Accounts and notes receivable - trade 406,450,567 352,453,731 Available-for-sale financial assets - 30,000 Held-to-maturity financial assets 7,519,395 8,529,395 Other financial assets 359,721,553 521,889,556 W 821,179,637 916,428,673
2) Impairment loss
The aging of loans and receivable and the analysis of impairment loss of loans and receivable as of December 31, 2015 and 2014, excluding cash and cash equivalents, are as follows:
2015 2014 Carrying Impair Carrying Impair (In thousands of won) amount -ment amount -ment
Not past due W 763,099,476 15,537,297 879,024,527 16,428,908 Past due 6 months 17,068,728 2,087,058 15,912,662 8,093,357 Past due 6 ~ 12 months 15,834,423 12,618,849 20,721,367 17,994,817 More than one year 42,803,766 42,487,165 23,809,966 22,743,962 W 838,806,393 72,730,369 939,468,522 65,261,044
Changes in the allowance for doubtful accounts in respect of loans and receivable for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Beginning balance W 65,261,044 27,031,704 Change in scope of consolidation (120,228) (2,361,789) Impairment loss (reversal of allowance) 14,570,024 45,064,264 Write-off (5,646,498) (4,459,353) Others (1,333,973) (13,782) Ending balance W 72,730,369 65,261,044
64 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(1) Credit risk, continued
3) Financial assets classified as loans and receivable, excluding cash and cash equivalents, that are past due but not impaired as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Past due less than 6 months W 14,981,670 7,819,305 Past due 6 ~12 months 3,215,574 2,726,550 More than one year 316,601 1,066,004 W 18,513,845 11,611,859
(2) Liquidity risk
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements, as of December 31, 2015 and 2014.
2015 Contractual 1 year
(In thousands of won) Book value cash flows or less 1 ~ 5 years
Accounts and notes payable - trade W 107,076,227 107,076,227 107,076,227 - Accounts payable - other 154,909,506 154,909,506 154,909,506 - Short term borrowings 54,552,102 54,955,718 54,955,718 - Debentures 149,876,743 156,801,250 55,716,250 101,085,000 Long-term borrowings 102,333,240 102,373,663 71,276,899 31,096,764 Other financial liabilities 136,640,158 136,640,158 135,661,865 978,293 W 705,387,976 712,756,522 579,596,465 133,160,057
2014 Contractual 1 year
(In thousands of won) Book value cash flows or less 1 ~ 5 years
Accounts and notes payable - trade W 67,690,656 67,690,656 67,690,656 - Accounts payable - other 147,014,766 147,014,766 147,014,766 - Short term borrowings 45,470,400 46,103,512 46,103,512 - Debentures 249,661,855 263,604,167 107,985,000 155,619,167 Long-term borrowings 104,499,943 104,722,085 2,260,525 102,461,560 Other financial liabilities 139,123,294 139,123,294 138,021,901 1,101,393 W 753,460,914 768,258,480 509,076,360 259,182,120
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
65 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(3) Currency risk
1) Exposure to currency risk
① The Group’s exposure to foreign currency risk as of December 31, 2015 is as follows:
(in thousands of won) 2015 Accounts Accounts Cash and and notes and notes Finance cash receivable Short-term Other payable Other lease Net equivalents - trade loans receivables - trade payables liabilities Borrowings exposure
USD W 10,244,402 13,077,362 2,008,351 632,709 (1,171,365) (21,018,320) - (32,464,400) (28,691,261) EUR 9,252 1,077,873 - - - (194,584) - - 892,541 JPY 12,151,838 5,819,060 - 209,375 (1,555,805) (1,651,789) (109,723) (7,290,075) 7,572,881 CNY 6,044,360 23,303,769 - 6,081,022 (1,098) (11,048,809) - - 24,379,244 TWD - 24,817 ------24,817 MYR - 12,758 ------12,758 THB - - - - - (274) - - (274) HKD 3,065,717 1,799,105 - 185,712 (2,171,396) (66,168) - (2,827,627) (14,657) IDR 5 - - - (452,580) - - (452,575) SGD - 11,593 ------11,593 AUD 17,618 ------17,618 GBP 27,597 - - - - (304) - - 27,293 CAD - 10,979 ------10,979 VND 439,719 601,455 - 21,639 - (170,882) - - 891,931
Exchange rates applied for the year ended December 31, 2015 are as follows:
(In won) USD EUR JPY CNY TWD MYR THB HKD IDR SGD AUD GBP CAD VND
Reporting date rate 1,172.00 1,280.53 9.72 180.55 35.51 273.07 32.48 151.21 0.09 828.09 853.10 1,735.91 844.56 0.05 Average rate 1,131.36 1,255.49 9.35 180.06 35.62 290.81 33.05 145.94 0.08 823.03 850.07 1,729.71 885.54 0.05
② The Group’s exposure to foreign currency risk as of December 31, 2014 is as follows:
(in thousands of won) 2014 Accounts Accounts Cash and and notes and notes Finance cash receivable Short-term Other payable Other lease Net equivalents - trade loans receivables - trade payables liabilities Borrowings exposure
USD W 10,107,127 138,799,701 3,111,115 1,847,376 (3,090,790) (3,690,810) - (30,063,120) 117,020,599 EUR 236,080 20,786 ------256,866 JPY 10,436,952 5,653,621 2,644 299,297 (1,617,362) (1,571,473) (210,731) (6,901,050) 6,091,898 CNY 4,282,914 19,013,700 - 1,827,657 (1,022,328) (142,368) - - 23,959,575 TWD - 3,439 ------3,439 MYR - 32,392 ------32,392 THB - 2,654 ------2,654 HKD 76,243 13,568 - 20,170 (73,561) (14,078) - (106,230) (83,888) SGD 1,279 1,664 ------2,943 AUD 157,965 ------157,965 GBP 93,913 ------93,913 CAD 19,413 ------19,413
66 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(3) Currency risk, continued
1) Exposure to currency risk
② The Group’s exposure to foreign currency risk as of December 31, 2014 is as follows, continued:
Exchange rates applied for the year ended December 31, 2014 are as follows:
(In won) USD EUR JPY CNY TWD MYR THB HKD SGD AUD GBP CAD
Reporting date rate 1,099.20 1,336.52 9.2 176.81 34.69 314.24 33.44 141.7 831.75 899.09 1,710.47 946.53 Average rate 1,055.30 1,456.26 10.05 174.09 35.32 320.32 32.14 136.09 832.75 939.96 1,740.66 990.85
2) Sensitivity analysis
A strengthening or weakening of the won, as indicated below, against foreign currencies at December 31, 2015 and 2014 would have affected profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the reporting date. The analysis assumes that all other variables, in particular interest rates, remain constant.
① Effects on profit (loss) before tax as a result of change in exchange rate as of December 31, 2015 are as follows:
2015 10% 10% (In thousands of won) Strengthening Weakening
USD W (2,869,126) 2,869,126 EUR 89,254 (89,254) JPY 757,288 (757,288) CNY 2,437,924 (2,437,924) TWD 2,482 (2,482) MYR 1,276 (1,276) THB (27) 27 HKD (1,466) 1,466 IDR (45,258) 45,258 SGD 1,159 (1,159) AUD 1,762 (1,762) GBP 2,729 (2,729) CAD 1,098 (1,098) VND 89,193 (89,193) W 468,288 (468,288)
67 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(3) Currency risk, continued
2) Sensitivity analysis, continued
② Effects on profit (loss) before tax as a result of change in exchange rate as of December 31, 2014 are as follows:
2014 10% 10% (In thousands of won) Strengthening Weakening
USD W 11,702,060 (11,702,060) EUR 25,687 (25,687) JPY 609,190 (609,190) CNY 2,395,958 (2,395,958) TWD 344 (344) MYR 3,239 (3,239) THB 265 (265) HKD (8,389) 8,389 SGD 294 (294) AUD 15,797 (15,797) GBP 9,391 (9,391) CAD 1,941 (1,941) W 14,755,777 (14,755,777)
(4) Interest rate risk
1) The Group’s interest-bearing financial assets (liabilities) as of December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014 Fixed rate instruments: Financial assets W 366,674,193 515,919,538 Financial liabilities (292,568,568) (373,004,985) 74,105,625 142,914,553 Variable rate instruments: Financial assets 418,696 4,879,903 Financial liabilities (14,303,240) (26,837,943) W (13,884,544) (21,958,040)
2) Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not affect profit or loss.
68 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(4) Interest rate risk, continued
3) Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) profit or loss for the next year by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis was performed on the same basis for 2014.
Profit (loss) 100 bp 100 bp
(In thousands of won) increase decrease
December 31, 2015: Variable rate financial assets W 4,187 (4,187) Variable rate financial liabilities (143,032) 143,032 Cash flow sensitivity, net W (138,845) 138,845
December 31, 2014: Variable rate financial assets W 48,799 (48,799) Variable rate financial liabilities (268,379) 268,379 Cash flow sensitivity, net W (219,580) 219,580
69 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(5) Fair values
1) The fair values of financial instruments, together with the carrying amounts as of December 31, 2015 are as follows:
Carrying amount Fair value
Financial assets at fair Financial value Available-for- Held-to- liabilities through Loans and sale financial maturity measured at (In thousands of won) profit or loss receivable assets investments amortized cost Total Level 1 Level 2
Financial assets: Financial assets measured at fair value : Derivative financial assets W 96,095 - - - - 96,095 - 96,095 Subtotal 96,095 - - - - 96,095 - 96,095
Financial assets not measured at fair value (*1) : Cash and cash equivalents - 47,493,272 - - - 47,493,272 - - Accounts and notes receivable- trade - 406,450,567 - - - 406,450,567 - - Available-for-sale financial assets (*2) - - 77,991,343 - - 77,991,343 - - Held-to-maturity investments - - - 7,519,395 - 7,519,395 - - Others - 359,625,458 - - - 359,625,458 - - Subtotal - 813,569,297 77,991,343 7,519,395 - 899,080,035 - - Total W 96,095 813,569,297 77,991,343 7,519,395 - 899,176,130 - 96,095
Financial liabilities: Financial liabilities not measured at fair value (*1) : Accounts and notes payable - trade W - - - - 107,076,227 107,076,227 - - Account payable - other - - - - 154,909,506 154,909,506 - - Debentures and Borrowings - - - - 306,762,085 306,762,085 - - Others - - - - 136,640,158 136,640,158 - - Subtotal - - - - 705,387,976 705,387,976 - - Total W - - - - 705,387,976 705,387,976 - -
(*1) As carrying amounts of financial assets and liabilities are considered to approximate fair values, their fair value are not disclosed.
(*2) As equity investments do not have a quoted market price in an active market and their fair value cannot be reliably measured, they are measured at cost.
70 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(5) Fair values, continued
2) The fair values of financial instruments, together with the carrying amounts as of December 31, 2014 are as follows:
Carrying amount Fair value
Financial assets at fair Financial value Available-for- Held-to- liabilities through Loans and sale financial maturity measured at (In thousands of won) profit or loss receivable assets investments amortized cost Total Level 1 Level 2
Financial assets: Financial assets measured at fair value : Available-for-sale financial assets W - - 1,056,977 - - 1,056,977 1,056,977 - Derivative financial assets 135,808 - - - - 135,808 - 135,808 Subtotal 135,808 - 1,056,977 - - 1,192,785 1,056,977 135,808
Financial assets not measured at fair value (*1) : Cash and cash equivalents - 33,525,991 - - - 33,525,991 - - Accounts and notes receivable- trade - 352,453,731 - - - 352,453,731 - - Available-for-sale financial assets (*2) - - 66,779,608 - - 66,779,608 - - Held-to-maturity investments - - - 8,529,395 - 8,529,395 - - Others - 521,753,748 - - - 521,753,748 - - Subtotal - 907,733,470 66,779,608 8,529,395 - 983,042,473 - - Total W 135,808 907,733,470 67,836,585 8,529,395 - 984,235,258 1,056,977 135,808
Financial liabilities: Financial liabilities measured at fair value : Derivative financial liabilities W 26,400 - - - - 26,400 - 26,400
Financial liabilities not measured at fair value (*1) : Accounts and notes payable - trade - - - - 67,690,656 67,690,656 - - Account payable - other - - - - 147,014,766 147,014,766 - - Debentures and Borrowings - - - - 399,632,198 399,632,198 - - Others - - - - 139,096,894 139,096,894 - - Subtotal - - - - 753,434,514 753,434,514 - - Total W 26,400 - - - 753,434,514 753,460,914 - 26,400
(*1) As carrying amounts of financial assets and liabilities are considered to approximate fair values, their fair value are not disclosed.
(*2) As equity investments do not have a quoted market price in an active market and their fair value cannot be reliably measured, they are measured at cost.
71 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
29. Financial instruments, continued
(6) Other market risk
The Group does not possess quoted equity instruments among the available-for-sale financial assets as of December 31, 2015.
30. Nature of Expenses
Details of nature of expenses for the years ended December 31, 2015 and 2014 are as follows:
2015 2014 Selling, Selling, general and general and Cost administra- Cost administra- of tive of tive (In thousands of won) sales expenses Total sales expenses Total
Changes in inventories W 15,977,956 - 15,977,956 6,371,083 - 6,371,083 Employee benefits 84,829,219 74,202,289 159,031,508 64,435,516 60,257,695 124,693,211 Depreciation 6,072,709 7,838,545 13,911,254 6,818,167 7,807,783 14,625,950 Amortization 299,472,047 6,597,051 306,069,098 270,988,053 6,675,916 277,663,969 Fees and charges 33,599,068 95,538,204 129,137,272 27,164,869 94,159,985 121,324,854 Others 579,449,512 91,061,475 670,510,987 601,474,310 99,160,375 700,634,685 W 1,019,400,511 275,237,564 1,294,638,075 977,251,998 268,061,754 1,245,313,752
31. Other non-operating income and expenses
(1) Details of other non-operating income for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Gains on disposal of other investments W - 20,000 Gains on disposal of property and equipment 11,921 30,099 Gains on disposal of intangible assets 418,000 - Gain on exemption of obligations - 48,349 Reversal of provisions 295,868 - Gain on disposal of investments in subsidiaries 3,048,191 - Commission 348,899 113,849 Miscellaneous income 3,170,586 963,207 W 7,293,465 1,175,504
72 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
31. Other non-operating income and expenses, continued
(2) Details of other non-operating expenses for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Other bad debt expense W 15,298,845 20,340,231 Losses on disposal of property and equipment 1,945,339 315,420 Impairment losses on property and equipment - 598,460 Losses on disposal of intangible assets 332,941 - Impairment losses on intangible assets 97,352,651 13,401,349 Losses on inventory obsolescence 292,291 - Losses on disposal of inventories 1,854,099 677,054 Compensation for damage - 295,868 Donations 5,718,846 3,070,843 Miscellaneous losses 4,558,601 1,652,260 W 127,353,613 40,351,485
32. Income tax expense
(1) The components of income tax expense for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Current tax expense W 6,164,770 54,611,822 Origination and reversal of temporary differences (4,933,359) (5,460,157) Adjustment for prior periods 5,179,705 27,870,237 W 6,411,116 77,021,902
Income tax expense from continuing operations 6,411,116 6,570,238 Income tax expense from discontinued operations - 70,451,664 W 6,411,116 77,021,902
(2) Income tax expense recognized directly in equity or other comprehensive income for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Deferred tax expense - Remeasurements of the defined benefit plan W 93,091 1,245,119 - Gains (losses) on valuation of available-for-sale financial assets 134,471 226,598 W 227,562 1,471,717
Income tax expenses related to remeasurements of the defined benefit plan and gains (losses) on valuation of available-for-sale financial assets were reflected in other comprehensive income.
73 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
32. Income tax expense, continued
(3) The relationship between income tax expense from continuing operations and accounting profit (loss) for the years ended December 31, 2015 and 2014 are as follows:
(In thousands of won) 2015 2014
Profit (loss) before income tax W 59,331,456 (50,367,722) Applicable statutory tax rate 23.29% 21.89% Income tax expense (benefit) 13,820,537 (11,025,599) Adjustments: - Non-deductible expense 4,095,120 88,342,821 - Non-taxable income (42,191) (70,761,960) - Unrecognized deferred tax in temporary differences (17,839,226) (12,359,409) - Tax credit - (15,646,289) - Adjustment for prior periods 5,179,705 27,870,890 - Others 1,197,171 149,784 Income tax expense W 6,411,116 6,570,238
(4) As of December 31, 2015, the tax effects of temporary difference were calculated by expected tax rate of the fiscal period when the temporary differences are expected to be reversed.
(5) Changes in deferred tax assets (liabilities) for the year ended December 31, 2015 are as follows:
2015 Profit Other Beginning or comprehen Ending (In thousands of won) balance loss -sive income balance
Depreciation W 93,135 (47,171) - 45,964 Other provisions 331,431 (17,066) - 314,365 Bad debt expense 20,503,475 (241,601) - 20,261,874 Available-for-sale financial assets 478,961 (190,175) 134,470 423,256 Intangible assets (5,761,659) 17,821,288 - 12,059,629 Accrued revenue (848,968) 803,733 - (45,235) Accrued expenses 1,243,263 271,697 - 1,514,960 Plan assets (5,941,543) 1,832,128 - (4,109,415) Goodwill (116,160) 116,160 - - Long-term accrued expenses 342,032 93,288 - 435,320 Investments in subsidiaries and associates (6,427,680) (8,726,825) - (15,154,505) Defined benefit obligations 7,039,051 1,020,547 93,091 8,152,689 Others 3,703,747 653,987 - 4,357,734 Tax loss carryforward 20,059,616 (11,451,142) - 8,608,474 Tax credit carryforward - 2,994,511 - 2,994,511 W 34,698,701 4,933,359 227,561 39,859,621
74 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
32. Income tax expense, continued
(6) Changes in deferred tax assets (liabilities) for the year ended December 31, 2014 are as follows:
2014 Change in scope of Profit Other
Beginning consolida or comprehen Ending (In thousands of won) balance Spin-off -tion loss -sive income balance
Depreciation W 883,954 - (20,007) (770,812) - 93,135 Other provisions 101,454 - - 229,977 - 331,431 Bad debt expense 12,037,659 (3,106,190) (148,464) 11,720,470 - 20,503,475 Available-for-sale financial assets 1,970,984 - (42,375) (1,676,246) 226,598 478,961 Intangible assets (3,879,856) - (3,739,449) 1,857,646 - (5,761,659) Accrued revenue (286,058) - 110,952 (673,862) - (848,968) Accrued expenses 1,469,635 - (193,504) (32,868) - 1,243,263 Plan assets (4,206,593) 702,987 10,862 (2,448,799) - (5,941,543) Advance received 430,169 - (430,169) - - - Goodwill (116,160) - - - - (116,160) Impairment losses on property and equipment 16,212 - (16,212) - - - Deferred revenue 834,395 - - (834,395) - - Long-term accrued expenses 379,265 - - (37,233) - 342,032 Investments in subsidiaries and associates (4,297,602) - 3,250,444 (5,380,522) - (6,427,680) Defined benefit obligations 6,459,223 (1,328,918) (875,252) 1,538,879 1,245,119 7,039,051 Others 3,769,526 - (348,582) 282,803 - 3,703,747 Tax loss carryforward 10,799,162 - (1,326,365) 10,586,819 - 20,059,616 Tax credit carryforward 9,605,049 - (703,349) (8,901,700) - - W 35,970,418 (3,732,121) (4,471,470) 5,460,157 1,471,717 34,698,701
33. Related parties
(1) The ultimate controlling party of the Group is CJ Corporation and details of related parties of the Group as of December 31, 2015 are as follows:
Related parties Subsidiaries 17 companies including MEZZOMEDIA Inc. and JS PICTURES Co., Ltd. Associates 30 companies including MBC PLUS MEDIA Co., Ltd. and Netmarble Games
Corporation Others CJ CHEILJEDANG CORP., CJ O SHOPPING Co., Ltd., CJ CGV Co., Ltd., and
others
75 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
33. Related parties, continued
(2) Significant transactions which occurred in the normal course of business with related parties for the year ended December 31, 2015 are as follows:
(In thousands of won) 2015 Acquisition of Acquisition property and of intangible Dividend Relationship Name Sales Purchases equipment assets income
The ultimate CJ Corporation controlling party W 729,154 4,720,338 - - - Associates ART Service Corp. 325,171 98,675 - - - GRETECH Corp. 529,916 - - - - MBC PLUS MEDIA Co., Ltd. 3,600 130,800 - - 383,773 CINEMA SERVICE CO., LTD 8,843 - - - - JELLY FISH ENTERTAINMENT CO, LTD 89,500 7,085,421 - - - Netmarble Games Corporation (formerly, CJ Games Corporation) 1,749,866 1,356,820 - - - Clip Service Inc. (*1) 127,500 74,477 - - - FICCJIM Asia Limited 756,967 87,153 - - - Ajou Culture Development Company, Inc. - - - - 223,777 Smilegate Investment, Inc. (formerly, MVP Capital Co., Ltd.) - - - - 2,187,837 Other related SEED9 Games Inc. - 218 - - - parties NetmarbleNeo Inc.(*2) 511,580 380,714 - - - Netmarble N2 Inc. 30,000 - - - - IGS CO. ,LTD. - 7,000 - - - CJ Cheiljedang Corp. 9,280,904 13,290,823 - - - CJ Freshway Corporation 201,319 71,442 - - - CJ Foodville Co., Ltd. 1,072,348 2,655,888 - - - CJ O SHOPPING Co.,Ltd. 2,142,298 42,412 - - - CJ HelloVision Co., Ltd. 33,539,929 4,972,989 - - - CJ telenix co.,Ltd. - 470,465 - - - CJ PowerCast Inc. 36,686 32,833,032 1,320,190 22,000 - CJ CGV CO.,LTD. 57,669,936 5,329,048 - 580,000 - D-CINEMA KOREA CO., LTD. - 3,208,840 - - - CJ OliveNetworks Co., Ltd (formerly, CJ Systems Co., Ltd.) 5,818,707 13,844,532 3,610,372 1,768,402 - CJ Development Co., Ltd. 48,522 893,535 - - - CJ korea express Corporation 1,285,450 368,660 - - - CJ MD1 Corp. 155,000 - - - - CJ Hellovision Daegu Donggu Broadcasting Co.,Ltd. 332,109 8,606 - - - CJ Hellovision Daegu Suseong Broadcasting Co.,Ltd. 403,086 8,881 - - - CJ Hellovision Ara Broadcasting Co.,Ltd. 2,232,264 29,555 - - - JEONBUK CATV Co 208,766 1,264 - - - CJ HELLOVISION Youngseo Broadcasting Network Co., Ltd. 390,432 3,998 - - - CJ HelloVision Honam Broadcasting Co.,Ltd. 832,354 18,660 - - - CJ HelloVision Kangwon Broadcasting Co.,Ltd. 745,061 8,203 - - - CJ HealthCare Corporation 1,518,136 - - - - SUPERRACE, INC. 803,800 - - - - ENPRANI CO, LTD. 478,125 - - - - CJ CGV America LA, LLC. 2,837,668 15,105 - - - CJ CGV VIETNAM CO., Ltd. 94,634 10,478 - - - CJ VIETNAM COMPANY LIMITED - 45,062 - - - Fides Food System Co.,Ltd 1,857 - - - - CJ Japan Corp. 48,874 355,359 - - - CJ 4DPLEX AMERICA, INC. 1,745,738 - - - - CJ CGV (Shanghai) Enterprise Management Co., Ltd. - 149,164 - - -
76 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
33. Related parties, continued
(2) Significant transactions which occurred in the normal course of business with related parties for the year ended December 31, 2015 are as follows, continued:
(In thousands of won) 2015 Acquisition of Acquisition property and of intangible Dividend Relationship Name Sales Purchases equipment assets income
Other related CJ America,Inc. W 105,265 17,106 - - - parties CJ(China) Consulting., Ltd - 202,114 - - - JOY RENT A CAR - 539,817 - - -
C&I Leisure Industry Corp. - 8,684,420 - - - JS communications - 26,000 - - - W 128,891,365 102,047,074 4,930,562 2,370,402 2,795,387
(*1) The transaction amount is recognized during the period ended on the date when Clip Service Inc. was excluded from associates in the consolidated financial statements.
(*2) On June 1, 2015, TurnOn Games Co., Ltd., NURIEN SOFT Co., Ltd and Reborn Games Co., Ltd were merged and the merged entity changed its company name to Netmarble Neo Inc.
(3) Significant transactions which occurred in the normal course of business with related parties for the year ended December 31, 2014 are as follows:
(In thousands of won) 2014 Acquisition of property Acquisition and of intangible Dividend Relationship Name Sales Purchases equipment assets income
The ultimate CJ Corporation controlling party W 1,797,167 5,850,140 - - - Associates ART Service Corp. 296,113 89,300 - - - GRETECH Corp. 566,077 - - - - MBC PLUS MEDIA Co., Ltd. 2,000 396,300 - - 338,624 CINEMA SERVICE CO., LTD 140,000 - - - - JELLY FISH ENTERTAINMENT CO, LTD 80,000 7,560,857 - - - Netmarble Games Corporation (formerly, CJ Games Corporation) 639,585 20,033 - - - Clip Service Inc. - 1,317,282 - - - FICCJIM Asia Limited 1,340,767 125,457 - - - Other related YJM Entertainment Co., Ltd. - 837,738 - - - parties Mediaweb INC. 14,984 4,594 - - - SEED9 Games Inc. - 137 - - - NetmarbleNeo Inc. 138,495 173,261 - - - Netmarble N2 Inc. 15,000 - - - - CJ Cheiljedang Corp. 10,067,575 15,144,381 - - - CJ Freshway Corporation 301,755 214,857 - - - CJ Foodville Co., Ltd. 1,345,786 3,322,765 - - - CJ O SHOPPING Co.,Ltd. 7,105,053 77,099 - - - CJ HelloVision Co., Ltd. 33,372,351 9,152,950 - - - CJ telenix co.,Ltd. - 516,435 - - - CJ PowerCast Inc. 9,950 32,467,543 - - - CJ CGV CO.,LTD. 72,632,129 6,562,906 - 960,000 - D-CINEMA KOREA CO., LTD. - 3,360,450 - - - CJ OliveNetworks Co., Ltd (formerly, CJ Systems Co., Ltd.) 4,250,397 12,916,421 2,875,154 3,371,656 -
77 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
33. Related parties, continued
(3) Significant transactions which occurred in the normal course of business with related parties for the year ended December 31, 2014 are as follows, continued:
(In thousands of won) 2014 Acquisition of property Acquisition and of intangible Dividend Relationship Name Sales Purchases equipment assets income
Other related CJ Development Co., Ltd. W - 143,071 10,213,000 - - parties CJ HelloVision Silla Broadcasting Co.,Ltd. 642,222 9,922 - - - CJ korea express Corporation 75,422 270,414 - - - CJ Educations Corporation 4,800 - - - - CJ MD1 Corp. 160,429 - - - - CJ Hellovision Daegu Donggu Broadcasting Co.,Ltd. 373,988 17,728 - - - CJ Hellovision Daegu Suseong Broadcasting Co.,Ltd. 462,233 29,336 - - - CJ Hellovision Ara Broadcasting Co.,Ltd. 2,523,020 236,664 - - - CJ HELLOVISION YOUNGDONG BROADCASTING SYSTEM., LTD 726,924 100,723 - - - JEONBUK CATV Co 616,418 19,698 - - - CJ HELLOVISION Youngseo Broadcasting Network Co., Ltd. 1,182,935 40,279 - - - CJ HelloVision Honam Broadcasting Co.,Ltd. 869,570 25,730 - - - CJ HelloVision Kangwon Broadcasting Co.,Ltd. 496,448 275 - - - CJ HealthCare Corporation 1,151,636 - - - - SUPERRACE, INC. 255,000 28,000 - - -
KOREA EXPRESS U.S.A. INC. - 1,126 - - - CJ CGV America LA, LLC. 2,271,280 1,978 - - - Maritime Tower Co., Ltd - 10,637 - - - CJ PRIME SHOPPING INC. 184 - - - - CJ korea express Japan Corporation 1,417 - - - - CJ Japan Corp. 15,079 386,399 - - - CJ 4DPLEX Co.,Ltd. 55,387 - - - - CJ 4DPLEX AMERICA, INC. 236,607 - - - - CJ Foodville Japan Co., Ltd. - 1,470 - - - CJ CGV (Shanghai) Enterprise Management Co., Ltd. - 339,609 - - - CJ America,Inc. - 13,779 - - - JOY RENT A CAR - 728,202 - - - C&I Leisure Industry Corp. - 7,622,399 - - - JS communications - 367,275 - - - W 146,236,183 110,505,620 13,088,154 4,331,656 338,624
78 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
33. Related parties, continued
(4) Account balances with related parties as of December 31, 2015 are as follows:
(In thousands of won) 2015 Accounts Accounts and notes Accounts Other and notes Accounts receivable - receivable - Advance receiv- payable - payable - Other Relationship Name trade other payments ables trade other payable
The ultimate CJ Corporation controlling party W 292,600 - - - - 435,862 - Associates ART Service Corp. 362,656 - - - - 20,462 - GRETECH Corp. 116,493 ------MBC PLUS MEDIA Co., Ltd. 220 - - - - 880 - CINEMA SERVICE CO., LTD - 1,510,161 1,239,876 - - - 405,402 JELLY FISH ENTERTAINMENT CO, LTD - - 400,000 - - 280,802 342,134 Netmarble Games Corporation (formerly, CJ Games Corporation) 10,271 13 - - - 4,095 - Clip Service Inc. - - 7,375 - - - - FICCJIM Asia Limited ------Uncle Daedo Co. Ltd. - - 9,000 - - 89,671 - Hwa&dam pictures - - 3,001,965 - - 22,940 10,436 Culturedepot Co. Ltd. - - 3,000,000 - - - - Other related Newmarble N2 Inc. 11,000 ------parties NetmarbleNeo Inc. 55,719 ------CJ Cheiljedang Corp. 3,248,161 86,162 382 1,617,985 - 1,523,877 - CJ Freshway Corporation - - - - - 600 - CJ Foodville Co., Ltd. 523,118 45,013 - - 360,479 677,047 - CJ O SHOPPING Co.,Ltd. 715,733 22,631 - - 22,181 115,920 - CJ HelloVision Co., Ltd. 5,290,390 1,950 - 349,219 387,659 1,078,863 - CJ telenix co.,Ltd. 10,225 - - - - 48,013 - CJ PowerCast Inc. 12,853 - 30,912 - 121,167 6,132,551 43,000 CJ CGV CO.,LTD. 7,968,743 712,897 399,541 613,120 - 1,185,277 - D-CINEMA KOREA CO., LTD. - - 10,730 - - 106,249 - CJ OliveNetworks Co., Ltd (formerly, CJ Systems Co., Ltd.) 646,981 7,702 230,821 1,644,218 4,254,032 2,013,507 590,248 CJ Development Co., Ltd. 1,670 - 1,705,000 4,041,136 6,759 94,830 - CJ korea express Corporation 66,250 11 - - - 101,765 - CJ MD1 Corp. 22,915 ------CJ HealthCare Corporation 316,974 ------CJ Worldis Co.Ltd 330 25 - - - 363,788 - SUPERRACE, INC. 609,180 ------CJ 4DPLEX Co.,Ltd. 620 ------Simuline Inc 490 ------WON JI 620 ------CJ Foodville USA, Inc. 91,817 ------CJ 4DPLEX AMERICA, INC. 392,864 ------CJ CGV America LA, LLC. 446,420 - - - 15,646 1,453 - CJ CGV VIETNAM CO., Ltd. 71,536 ------CJ CGV(Shanghai) Enterprise Management Co., Ltd. 4,722 ------CJ Japan Corp. 3,628 - - - - 167,744 - - CJ Foodville Shanghai Corp. 17,476 ------CJ Beijing Bakery Co., Ltd. 35,338 ------CJ SEAFOOD CORPORATION 680 ------JOY RENT A CAR - - - - - 55,073 - C&I Leisure Industry Corp. 180 4,308 198,000 - - 999,490 - W 21,348,873 2,390,873 10,233,602 8,265,678 5,335,667 15,353,015 1,391,220
79 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
33. Related parties, continued
(5) Account balances with related companies as of December 31, 2014 are as follows:
(In thousands of won) 2014 Accounts Accounts and notes Accounts Other and notes Accounts receivable - receivable - Advance receiv- payable - payable - Other Relationship Name trade other payments ables trade other payable
The ultimate CJ Corporation controlling party W 55,000 - - - - 763,091 - Associates ART Service Corp. 295,722 - - - - 922,322 - GRETECH Corp. 341,931 ------MBC PLUS MEDIA Co., Ltd. 2,200 ------CINEMA SERVICE CO., LTD - - 1,548,959 - - - 510,316 Clip Service Inc. 879,902 - 140,982 - - 134,211 - JELLY FISH ENTERTAINMENT CO, LTD - 29,391 426,891 - - 2,126,652 313,204 FICCJIM Asia Limited 1,045,047 - - - - 130,704 - Netmarble Games Corporation 53,603 4 - - - 1,765 - Other related IGS CO., LTD. 555 ------parties SEED9 Games Inc. - - - - - 27 - Mediaweb INC. - - - - 249,576 - - NURIEN SOFT Co., Ltd 50,056 - - - - - 146,844 CJ Cheiljedang Corp. 2,821,946 371 - 1,617,985 - 1,704,391 7,191 CJ HealthCare Corporation 113,300 ------CJ Freshway Corporation - - - - - 15,140 - CJ Foodville Co., Ltd. 22,365 4,637 - 115,420 - 1,296,580 - CJ O SHOPPING Co.,Ltd. 3,484,003 9,128 - - 124 46,265 25,560 CJ Worldis Co., Ltd. 370 3 - - - 233,788 - CJ HelloVision Co., Ltd. 2,884,284 562 - 349,219 1,739,905 1,137,479 1,008 CJ telenix co.,Ltd. 9,870 - - - - 50,781 - CJ korea express Corporation 66,160 - - - - 111,407 31 CJ Educations Corporation 10 9 - - - - - CJ PowerCast Inc. 960 - - - 465,550 5,803,385 - CJ CGV CO.,LTD. 8,494,135 16,675 - 613,120 - 1,298,157 - D-CINEMA KOREA CO., LTD. - - - - - 16,786 - CJ 4DPLEX Co.,Ltd. 565 ------Simuline Inc 465 ------CJ Hellovision Daegu Suseong Broadcasting Co.,Ltd. 39,657 - - - - 314 - CJ Hellovision Daegu Donggu Broadcasting Co.,Ltd. 31,158 - - - - 207 - CJ Hellovision Ara Broadcasting Co.,Ltd. 225,630 - - - 7 22,524 - JEONBUK CATV Co 59,945 - - - - 356 - CJ HELLOVISION Youngseo Broadcasting Network Co., Ltd. 139,520 - - - - 436 - CJHelloVision Honam Broadcasting Co.,Ltd. 182,622 - - - - 683 - CJ HelloVision Kangwon Broadcasting Co.,Ltd. 463,700 - - - - 1,976 - CJ OliveNetworks Co., Ltd (formerly, CJ Systems Co., Ltd.) 1,160,099 3,659 - 1,322,411 2,430,695 2,617,091 602,098 CJ Development Co., Ltd. 2,625 40 - 3,990,000 220,000 8,990 1,380 CJ MD1 Corp. 38,799 ------
80 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
33. Related parties, continued
(5) Account balances with related companies as of December 31, 2014 are as follows, continued:
(In thousands of won) 2014 Accounts Accounts and notes Accounts and notes Accounts receivable receivable - Advance Other payable - payable - Other Relationship Name - trade other payments receivable trade other payable
Other related SUPERRACE, INC. W 110,000 ------parties CJ Foodville USA, Inc. 5,441 - - - 86,114 - - CJ 4DPLEX AMERICA, INC. 328,710 ------CJ CGV America LA, LLC. 740,200 ------CJ America, Inc. 2,100 - - - - 3,788 - CJ Japan Corp. - - - 156,455 - - - JOY RENT A CAR - - - - - 57,242 - JS communications - - - - - 9,056 - W 24,152,655 64,479 2,116,832 8,164,610 5,191,971 18,515,594 1,607,632
(6) Key management personnel compensation for each of the following categories for the years ended December 31, 2015 and 2014 were as follows:
(In thousands of won) 2015 2014
Short-term salaries W 10,103,540 9,189,745 Expenses for defined benefit obligations 1,350,914 1,813,026 Other Long-term salaries 16,809 983,990 W 11,471,263 11,986,761
The Group considers key management as executives and non-executive directors who have significant authority and responsibility over planning, operating and controlling of the Group or perform a managing role in each business unit.
81 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
34. Spin-offs and discontinued operations
(1) Spin-offs
On May 15, 2014, the board of directors of the Parent Company decided to divide the Parent Company into two separate entities by spinning off its game division. The decision of the board of directors was approved by the general shareholders’ meeting held on June 30, 2014. On August 1, 2014, the spin-off process was completed according to spin-off plan described as follows:
Plan Details
Spin-off methodology : Vertical spin-off
Spin-off companies : CJ E&M Corporation (Remaining company) CJ NETMARBLE Corporation (Newly established company)
Date of spin-off : August 1, 2014
(2) Discontinued operations
On July 8, 2014, the board of directors of the Parent Company decided to transfer entire shares of a newly established company, CJ NETMARBLE Corporation, to Netmarble Games Corporation (formerly, CJ Games Corporation). The share purchase agreement was also signed on the same date. On August 1, 2014, CJ NETMARBLE Corporation was newly established as the Parent Company spun off its game division. On August 11, 2014, the Parent Company transferred entire shares of a newly established company, CJ NETMARBLE Corporation, to Netmarble Games Corporation.
On August 7, 2014, the Parent Company sold a total of 6,400 shares of the common stock of the Netmarble Games Corporation to HAN RIVER INVESTMENT PTE. LTD. which is wholly owned by Han River Investment Holdings Ltd., a 100% owned subsidiary of Tencent Holdings Ltd, in exchange for cash. Furthermore, Netmarble Games Corporation issued to a third party a total of 68,889 new shares of common stock. As a result, the ownership percentage of the Parent Company in Netmarble Games Corporation decreased to 35.86% from 50% and the Parent Company lost control over Netmarble Games Corporation.
In addition, in 2014, the Parent Company decided to discontinue joint investment business of performance division in order to strengthen core competencies of performance production business using copyright owned by the Parent Company.
In the consolidated statements of comprehensive income (loss), the discontinued operation is separately presented from continuing operation and comparative information of the consolidated statement of comprehensive income (loss) for the years ended December 31, 2013 was restated. Note 34 (3) shows financial information that is related with game division as of and for the periods ended on the spin-off date, Netmarble Games Corporation (formerly, CJ Games Corporation) and its subsidiaries as of and for the periods ended August 1, 2014, the date of loss of control over Netmarble Games Corporation, and discontinued joint investment business as of and for the periods ended December 31, 2014, the date of discontinuance of business.
82 CJ E&M CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
34. Spin-offs and discontinued operations, continued
(3) Comprehensive income (loss) from discontinued operations for the period ended on the date of discontinuance of operation during 2014 was as follows:
(In thousands of won) 2014
Discontinued operations : Revenue W 313,783,051 Cost of sales (214,574,868) Gross profit 99,208,183
Selling, general and administrative expenses (92,468,124) Operating profit 6,740,059
Finance income 2,728,563 Finance costs (2,930,125) Share of profit of equity method investees 984,471 Share of loss of equity method investees - Other non-operating income 914,168 Other non-operating expenses (15,862,609) Loss before income tax (7,425,473)
Gains on disposal of discontinued operation 368,232,702
Income tax expense (70,451,664) Profit for the period W 290,355,565
Remeasurements of the defined benefit plan 17,136 Foreign currency translation differences for foreign operations (930,627) Capital changes in equity method investees (286,981) Loss on valuation of available-for-sale financial assets (573,161) Taxes on other comprehensive income 123,323 Other comprehensive loss for the period (1,650,310)
Total comprehensive income for the period W 288,705,255
(4) Cash flows from discontinued operations for the period ended on the date of discontinuance of operation during 2014 was as follows:
(In thousands of won) 2014
Cash flows from operating activities W 15,970,128 Cash flows from investing activities (47,261,905) Cash flows from financing activities 149,802,284
35. Subsequent events
The Group decided to spin off its drama production business of media division in order to adjust to significantly changing contents market and develop and operate corresponding business strategy. The Group believes that this spin-off could maximize enterprise value of the Group. Accordingly, the board of directors of the Parent Company approved the spin-off plan on February 4, 2016. The date of spin-off would be May 1, 2016.
83