BUILDING MORE POSSIBILITIES
2011 ANNUAL REPORT Global Leading Offshore& Shipbuilding Company
Introduction Review of Operations
03 20 28 Corporate Profile LNG/LPG Carriers Cruise & Ferries 04 22 30 Message from the Chairman VLCC & Product Tankers Offshore 06 24 32 Message from the CEO Containership STX Dalian 08 26 34 Board of Directors VLOC & Bulk Carriers stx Global Shipyards 10 Executive Officers 12 Creating New Frontiers STX Offshore & Shipbuilding has played a leading role in the development of the nation’s shipbuilding industry based on extensive experiences, cutting-edge shipbuilding technologies and world’s highest productivity.
The company has capability and specialty to build high value-added vessels such as LNG carriers, ultra large containerships and VLCCs, and its outstanding products and advanced technologies have been recognized by its customers in the world.
Our leadership is being also magnified in the fields of offshore facilities such as drilling rigs, FSUs, offshore pipe layers and LNG FPSOs and special vessels such as dredgers and dumping vessels.
STX Offshore & Shipbuilding has capability to build all types of ships by full-scale operation of its global production network linking Korea, China and Europe, which has driven the company for another takeoff toward the world’s best shipbuilding base.
Financial Section & Others
36 Financial Section 100 Affiliates 102 Global Network 04 Message from the Chairman
STX will effectively respond to the ever-changing business environment and lay the foundation for creating new opportunities by pursuing stable growth through responsible and substantial management. STX Offshore& Shipbuilding 2011 annual report 05
Dear shareholders and customers,
I would like to express my grateful thanks to all of you who have Fourth, we will lay a foundation for achieving ‘Vision 2020.’ supported STX Group. The key to reach our vision ‘USD100 billion in sales’ and ‘the In 2011, STX Group achieved KRW30 trillion in new orders world best company’ is forming the groundwork for sustainable and KRW30 trillion in sales via full-fledged growth of overseas growth by boosting efficiency of ongoing businesses and yards, expansion of the plant business in the Middle East and developing new markets. Based on successful inroads into successful development of energy and resources in the world the new markets, we will keep expanding our boundaries in despite the global economic recession and the European the resource, energy and plant businesses which are the new sovereign debt crisis. growth engines of the group. On top of that, we will focus on improving the fundamentals as a heavy industry company It is expected that many difficulties will be ahead us this year through continuous innovation of management structures in due to continued European fiscal crisis and uncertainties of the the shipbuilding and engine business parts global economy. However, every member of STX is determined to practice ‘responsible management’ with a sense of ownership Finally, STX will accelerate its efforts to cultivate human to turn a crisis of a fast changing business environment into an resources for the future. opportunity and stands tall in history as a winner. For a better future of the group, we will establish education STX Group set ‘stable growth through internal advancement’ as and training system and develop corporate culture to ensure its management policy of 2012 and suggested 5 strategies to talented people of STX can express their ability to the fullest in achieve this goal. their own positions with a sense of pride and expertise.
First, we will devote our efforts to new orders and marketing. “ Special achievement requires special preparation.”
Winning orders and promoting sales are prerequisites to In 2012, STX Group will implement the above 5 strategies while securing a foundation for constant growth. STX will make striving for the best result through meticulous preparation and utmost efforts to meet new order target with enhanced sales getting ready for the worst. We will do our best to achieve the power by inputting all possible resources and competence goal ‘KRW43 trillion in new orders, KRW33 trillion in sales and while we focus on pioneering strategic markets. KRW1.1 trillion in operating profit.’
Second, we will concentrate on improving profitability We are very grateful for your support and consideration. We through innovation of management efficiency. wish you and your family good health and happiness.
All employees and executives will attempt to innovate and streamline our business process to raise efficiency and profitability.
Third, we will strengthen the group’s competitiveness in manufacturing.
We believe the core competence of STX Group lies in its manufacturing competitiveness. Based on thorough understanding of customers, we will figure out their needs and improve our manufacturing system and technological capacity. STX will ensure every single step is aligned with providing products and services to customers at the best quality Chairman Duk-Soo, Kang 06 Message from the CEO
We will manage the company with principles of survival and change, and focus on improving fundamentals and foster new businesses to cope with current unfavorable market conditions. STX Offshore& Shipbuilding 2011 annual report 07
To our valued shareholders and customers! by our capability in terms of cost and technology. Moreover, we will strive to enhance profitability through strengthened I would like to extend my deepest gratitude for your productivity and business process efficiency. unwavering interest and support for the development of STX Offshore & Shipbuilding. Second, our mid- to long-term growth platform will be reinforced by high growth potential businesses. We will expand With the goal of making a new leap forward as a company offshore plant and green ship businesses in preparation against specialized in large vessels and offshore plants, STX Offshore the trend of high oil prices. Our progress to launch the cruise & Shipbuilding has focused on building high value-added ship business will be accelerated as well. We plan to achieve products such as VLCCs, ultra-large containerships and drill success in new businesses in the initial stage by differentiating ships in 2011. As a result, our sales increased by 8.3% over the products and technology. previous year to KRW4.27 trillion. Last, a corporate culture of safety, ethics and trust will be built. However, the external and internal business environment Every executive and employee will participate to realize an remains unfavorable due to the fiscal crisis of advanced accident-free workplace. Furthermore, we will raise awareness countries and uncertainty of the global economy. The on the importance of compliance and encourage participation number of new shipbuilding orders has decreased, and the of every member of the company to enable ethical exchange rate and raw material prices are unstable. Yet, we management and co-prosperity. have overcome difficulties and risks in the past through efforts including business diversification, entry into new markets Under the above business strategies, we will strive to attain the and technological development. An unprecedented level of goal of USD 7.0 billion in new orders and KRW 4.2 trillion in sales difficulty in the environment is expected in 2012, but we will in 2012. make swift and proactive response by leveraging the growth I would like to thank our shareholders and customers for your platform, can-do spirit and commitment to innovation. continued interest and support once again, and wish for good In 2012, the company will focus on strengthening its luck at your home and for your business. fundamentals to surmount the crisis of a market recession and Thank you. nurturing new growth engines under the principle of ‘survival and change’.
To this end, first, we will concentrate further on securing core competitiveness. Recently, we are faced with fierce competition while a long-term recession in the shipbuilding market is predicted. In order to lead the market under such circumstance, we need to not only improve but implement a fundamental innovation of our competence in all sectors. With the top priority on reaching USD 7.0 billion in new orders in 2012, the company will upgrade competitive edge, buttressed President & CEO Sang-Ho, Shin 08 Board of Directors
Board of Directors
The primary role of our Board of Directors is to oversee how management serves the interests of shareowners and other stakeholders. Our Board of Directors plays a critical role in ensuring the ongoing integrity, transparency and long-term strength of STX Offshore & Shipbuilding. STX Offshore& Shipbuilding 2011 annual report 09
Duk-Soo Kang Sang-Ho Shin Chairman President
Tae-Jung Kim Yon Yun Vice President Independent Director
Yun-Woo Lee Tae-Sung Chung Independent Independent Director Director
Woon-Oh Jung Jwoong-Sik Koh Independent Independent Director Director
10 Executive Officers
Executive Officers
Duk-Soo Kang In-Sung Lee Kyung-Jin Hong Chairman Vice Chairman Vice Chairman
Seong-Deug Do Tae-Ho Park No-Sik Kim Jung-Hyung Lyu Kwang-Gi Lo Vice President Vice President Vice President Vice President Executive Director
Cheon-Soo Han Joon-Ho Park Ho-Sung Kim Jong-Chil Do Young-Il Han Executive Director Executive Director Executive Director Executive Director Executive Director
Jung-Chul Cho Myeong-Seob Koh Seok-Soo Kim Ki-Joon Pyo Yong-Kwan Han Managing Director Managing Director Managing Director Managing Director Managing Director
Man-Sun Hong Jae-Ho Lim Jong-Min Jeong Young-Dal Choi Yoon-Kyoo Kang Managing Director Managing Director Managing Director Managing Director Director
Jung-Yeol Maeng Sang-Ho Lee Jong Kim Young-Kyu Park Sang-Heon Oh Director Director Director Director Director STX Offshore& Shipbuilding 2011 annual report 11
Our management team drives the Company’s growth initiative. The members draw together the Company’s leading marketing, sales, human resources, and communications expertise to create new ideas and foster existing ones.
Sang-Ho Shin Tae-Jung Kim Dae-Kwan Bae Sung-Soo Shin Young-Hwan Chung President Vice President Vice President Vice President Vice President
Ssang-Won Kang Yong-Jin Cho Soo-Jueng Lee Chan-Kyun Seok Hyo-Kwan Leem Executive Director Executive Director Executive Director Executive Director Executive Director
In-Sup Hur Byung-Hyun Hwang Sang-Seon Cha Kyung-Yeol Chun Joo-Ho Heo Executive Director Executive Director Executive Director Executive Director Executive Director
Joong-Sik Oh Myung-Chul Baek Sung-Wook Jo Seong-Am Cho Gu-Geun Byeon Managing Director Managing Director Managing Director Managing Director Managing Director
Kyong-Tae Cha Hae-Sung Yang Young-Kyun Shin Chun-Mo Kang Dong-Hwan Oh Director Director Director Director Director
Tae-Seok Jeong Chang-Kun Shin Yeong-Pyo Kim Young-Nam Kim Young-Mok Park Director Director Director Director Director Our ever-evolving technological expertise has produced tangible results in a variety of fields, which was continued in 2011.
Following the successful construction of environment-friendly 13,000TEU class containerships in September 2010, we completed the construction of a VLCC with maximized energy efficiency in December 2010. These results set a new standard in the environment-friendly shipbuilding market. We also started a joint research with Lloyd’s Register (LR), an international maritime classification society, to develop environment -friendly ships powered by LNG. Furthermore, we signed a Memorandum of Understanding (MOU) on ‘Joint Development for LNG Propulsion Ships and Bunkering System’ with Korea Gas Corporation. We started full-scale activities to become a leading shipbuilder in the field of green ship that has recently emerged as a significant issue in the shipbuilding industry.
In May 2011, STX Offshore & Shipbuilding became Korea’s first shipbuilder to complete installation of a system that enables it to monitor stock of steel, the most critical raw material in shipbuilding, in real time by advanced IT system. We plan to further develop an automatic system by 2015 that will control raw materials, processes, logistics and man power needed, which will help us become a smart shipbuilder with the highest level of productivity in the world.
In addition, we developed independent LNG cargo tanks with our own technologies and received Approval in Principle (AIP) from Norway’s Det Norske Veritas (DNV) in November 2011. This recognition will improve our ability to win new orders for LNG carriers. Creating New Frontiers
technology Our global production network linking Korea, China and Europe has made our competitiveness and expertise more powerful.
Jinhae Shipyard managed to demonstrate its strength as a top-notch shipyard by winning orders for a variety of high value-added ships such as 16,000 TEU class ultra large containerships, 170,200㎥ class LNG carriers and 155,000DWT class DP2 shuttle tankers in 2011. Moreover, we have successfully entered into the Russian market by winning an order for two 170,200 cbm class membrane typed LNG carriers worth $400 million from SCF(Sovocomflot) in May.
Meanwhile, in May 2011, Dalian Shipbuilding Complex completed one of the two drillships ordered from Noble Drilling Holdings in 2008 and 2010, the other is scheduled to complete by this year, which has helped the Complex to be recognized as a new Mecca of offshore facilities construction. Importantly, this drillship has significantly higher drill capacity and lower maintenance costs comparing to existing large drillships. This compact drillship applied DP-3 which is the highest rating in Dynamic Positioning System (DPS) set by International Maritime Organization (IMO) to maximize safety. This effort proved our competitiveness in the offshore plant market where high level of technological capability is required.
STX Europe’s subsidiaries were also able to win orders for a variety of ships such as cruise ships, ice breakers, coast defense ships, military landing ship tanks, deepwater drillships, fisheries research vessels and offshore support vessels with their accumulated technological capability and production capability and demonstrated their unrivalled competitiveness. In particular, STX OSV managed to achieve all-time high financial results despite slowdown in the global competitiveness shipbuilding industry. Creating New Frontiers
competitiveness Creating New Frontiers
We are recognized as a leading shipbuilder constructing the world’s top-notch ships.
STX Offshore & Shipbuilding’s ships were named as ‘Best Ships of 2011’ by ‘Marine Log’ of the U.S. and ‘Naval Architect’ of the UK, world’s renowned shipbuilding and shipping magazines. The ships are a FSU (Floating Storage Unit), a side dumping vessel and a VLCC.
The FSU which was ordered in 2008 is the world’s largest floating storage unit to be operated in the Persian Gulf. With the FSU winning the award, STX Offshore & Shipbuilding has been recognized for its specialized design and production capability. Furthermore, successful completion of the process ranging from design, purchase, production, installation and a trial operation has enhanced our experience to build high quality offshore plants.
The side dumping vessel is a specialized vessel to support offshore work and used to pour rocks into deep water for landfill of the seabed, which was built in our Busan Shipyard.
‘MAERSK SARA’, a 320,000 ton class VLCC, is an eco-friendly ship with intensive environmental and green technology. Application of a low vibration propeller and a waste heat recovery unit has greatly driven down the energy efficiency design index which is one of VLCC’s weaknesses. In particular, this VLCC emits 7% less CO² than existing VLCCs by converting not only engine waste heat but steam from the ship boiler into electrical energy and reusing it.
We are expecting that our world leading capability of shipbuilding and technology will considerably enable us to secure more new orders. brand power Review of Operations
Backed by world-class shipbuilding technology and accumulated experiences, we are making a legend of the Korean shipbuilding industry OFFSHORE in every corner of the world.
LNG/LPG CARRIERS
CONTAINERSHIP
VLCC & PRODUCT TANKERS
CRUISE & FERRIES
VLOC & BULK CARRIERS STX DALIAN
Leading the Offshore and Shipbuilding Industry
STX Offshore & Shipbuilding has stepped up its involvement in the field of global offshore facilities and grown rapidly. This active growth has resulted from high competence the company enjoys in design and construction of high value-added ships such as LNG carriers, ultra large containerships and VLCCs.
In 2011, the company achieved KRW 4.27 trillion in sales, up 8.3 % from the previous year, as a result of recovery in the shipbuilding market and effective operation of Jinhae Shipyard and Dalian Shipbuilding Complex. In addition, it received new orders of 30 ships amounting to $2.13 billion in the business of high value-added ships and offshore plants. 20 Review of Operations
LNG/LPG CARRIERS
Our world-class technological expertise and outstanding shipbuilding capability have shown excellent product quality and set us apart from the competition in the global LNG and LPG carrier market.
· 174K LNG CARRIER · 157K LNG CARRIER · 38,000 CBM LPG/AMMONIA/VCM TANKER · 23,000 CBM LPG CARRIER · 9,000 CBM ETHYLENE/LPG/AMMONIA/VCM TANKER STX Offshore& Shipbuilding 2011 annual report 21
We will strive to leap toward a major company in the global LNG and LPG carrier market by securing core technologies through continuous efforts in R&D.
STX Offshore & Shipbuilding is building top-notch LNG and LPG carriers with its cutting-edge technologies certified by global major ship classification societies.
A number of new orders came in the LNG carrier business in 2011. The company signed a contract with SCF Sovcomflot, Russia’s national shipping company, in May to build two 170,200 CBM class membrane-typed LNG carriers worth around $400 million and the construction is valued at $1.2 billion if options are included. We also signed a contract with Alpha Tankers, a Greek company, in September to construct a 159,700CBM class LNG carrier totaling about $200 million. This LNG carrier will be built in Jinhae Shipyard and delivered in 2015.
Meanwhile, STX Offshore & Shipbuilding developed independent LNG cargo tanks with its own technologies and received Approval in Principle (AIP) from Norway’s Det Norske Veritas (DNV). This independent LNG cargo tank is built outside a ship and erected on the hull. As a result, the construction takes less time and costs in comparison with non-independent cargo tanks. While a ship is running, flow of cryogenic temperature liquefied gas and external impact take place and damage inside of a cargo hold. This independent cargo hold has an ability to resolve this problem which is drawing attention from the industry.
In the field of LPG and Gas carriers, we signed a contract with a European shipper in January to construct three 6,800CBM class ethylene carriers, which was followed by an additional order of 3 identical vessels from the same owner in March.
Recently, construction of large-scale petrochemical complexes in the Middle East and Australia has increased the number of production sites and consumption sites, which is increasing trade volume. As a result, we expect there will be more orders for ethylene carriers as well as LNG carriers to place in the future.
Going forward, we will continue to enhance our competitiveness by proactively participating in a variety of overseas LNG and LPG transportation projects. At the same time, we will strive to leap toward a major company in the global LNG and LPG carrier market by securing core technologies through continuous efforts in R&D. 22 Review of Operations
VLCC & PRODUCT TANKERS
STX Offshore & Shipbuilding has leading competitiveness in the fields of product tankers and oil tankers and has been recognized for its advanced technologies in the Aframax class tanker and VLCC markets.
· 320,000 DWT VLCC · 115,000 DWT CRUDE/PRODUCT OIL TANKER · 74,200 DWT CRUDE/PRODUCT OIL TANKER · 51,000 DWT PRODUCT OIL/CHEMICAL TANKER · 38,300 DWT PRODUCT OIL/CHEMICAL TANKER · 35,700 DWT PRODUCT OIL TANKER (BOSTON BEAM) STX Offshore& Shipbuilding 2011 annual report 23
Our unrivaled ability to build a variety of ships with the best capability in each segment has appealed many customers in the global market.
We have shown advanced technologies and expertise in Handymax and Panamax class product oil and chemical tanker market for many years, which enabled us to enter the high value-added VLCC business.
Our product oil and chemical tankers are designed to have double-hull structures and proven to be safe and eco-friendly by major international ship classification societies in the U.K., the U.S and Italy. The tankers have highest capacity and speed among similar class tankers on the strength of our continuous technological development. Supported by these advantages, we have obtained a number of customers around the world.
We saw a boost in the VLCC business as we received an order for four 320,000 ton VLCCs from Denmark’s A. P. Moller – Maersk A/S in 2008. These VLCCs are 332m long, 60m wide and 30.5m deep and applies ‘waste heat recovery system’ that uses ‘waste gas’ produced during while a ship is running to effectively cope with persistently high oil prices. In 2011, the first of the 4 VLCCs was successfully delivered.
In 2011, STX Offshore & Shipbuilding won new orders of 10 ships worth $480 million from major European shippers; four 51,000 ton class product oil tankers from Thenamaris of Greece; four 51,000 ton class product oil tankers from Norden Shipping of Denmark; two 155,000 DWT class DP shuttle Tankers from European Navigation of Greece These ships which were recently ordered will be equipped with high efficiency engines that electronically control fuel injection. This engine is expected to increase fuel efficiency of the ships by 15% comparing to that of existing ships.
We will continue to strengthen efforts in R&D and improve marketing capabilities to further solidify competitiveness in the product oil tanker market and enhance our presence in the high value-added VLCC market in 2012. 24 Review of Operations
CONTAINERSHIP
We are building an outstanding hull form of containerships with the most optimal container loading capacity ranging from 2,600TEU class to 22,000TEU class and taking the lead in the field of green ships by developing our own eco-friendly technologies.
· 22,000 TEU CONTAINERSHIP · 16,000 TEU CONTAINERSHIP · 13,000 TEU CONTAINERSHIP · 5,000 TEU CONTAINERSHIP · 3,500 TEU CONTAINERSHIP · 2,850 TEU CONTAINERSHIP · 2,600 TEU CONTAINERSHIP STX Offshore& Shipbuilding 2011 annual report 25
Continuous efforts in R&D have enabled us to develop the world’s largest containerships and secure shipbuilding know-how and stable production competitiveness.
The trend in the global containership market has shifted toward more efficient and larger ships. STX Offshore & Shipbuilding has focused on securing shipbuilding technologies in the field of ultra-large containerships and has received orders for nine 13,000 TEU class containerships called ‘Dream Containership’ in 2007, which are under construction. In addition, we have led the field of global ultra-large containerships by completing a 22,000TEU class containership in the following year which considered hard to build in terms of technological and economic aspects.
In 2011, STX Offshore & Shipbuilding won an increased number of orders for ultra-large containerships. We signed a contract with an European shipper to build six 16,000TEU class ultra-large containerships in November 2011. This containership is 399m in length, 54m in width and 30m in height and its deck area is as large as 4 soccer fields combined, which is the second only to the 18,000TEU class among containerships for which orders have been placed in the global market. Importantly, STX Offshore & Shipbuilding’s own eco- friendly technologies applied to these containerships will greatly save fuel and significantly lower emission of CO2 and noxious gases, which will take green ships to the next level.
Spurred by these results, we are securing orders of 11 containerships valued at $1.7 billion in the containership business as of the end of 2011.
Considering it is highly likely that global container shipping companies will continue to secure large vessels ahead of their competitors, we will commit ourselves to improving our ability to win orders and build ultra-large containerships. 26 Review of Operations
VLOC & BULK CARRIERS
We have own technologies to build bulk carriers from handymax class to Panamax and Capesize class, with which we have demonstrated competitiveness that differentiates us from competitors in the VLOC market.
· 400,000 dwt ore carrier · 298,000 dwt ore carrier · 250,000 dwt ore carrier · 181,000 dwt bulk carrier · 105,000 dwt bulk carrier · 75,000 dwt bulk carrier · 58,000 dwt bulk carrier STX Offshore& Shipbuilding 2011 annual report 27
We successfully constructed a 400,000DWT class Very Large Ore Carrier (VLOC) which is the world’s largest by independently developing ability to research, design and construction
STX Offshore & Shipbuilding has built bulk carriers in a wide range of size from Handymax size to Panamax size and Capesize. With accumulated technologies and expertise in the field of bulk carriers, the company ventured into the VLOC business and is strengthening its position as a large shipyard.
In February, 2011, we received an order for four 83,000DWT class bulk carriers from an Asian shipper. This bulk carrier’s hull form was independently developed by STX Offshore & Shipbuilding. We also made the carrier larger than the existing 81,000 ton Kamsarmax class bulk carrier to maximize cargo loading capacity, which resulted in considerable attention from shippers.
In July, STX Offshore & Shipbuilding proved its second-to-none technologies by successfully completing and delivering the first of the eight 400,000DWT class VLOCs that had been ordered in 2009. This VLOC is 361m long, 65m in wide and 30.5m tall. The carrier is capable of accommodating 400,000 tons of iron ore at once and running at the speed of 14.8 knot, representing the world’s largest VLOC.
Furthermore, this vessel was independently researched, designed and built by STX Offshore & Shipbuilding that increased cargo tank capacity by more than 20% to load another 40,000 tons of cargo and applied high-capacity Ballast Water Treatment System in order to realize a capability to load 16,000 tons of cargo per hour. Besides, this carrier uses a TIER-II engine that consumes less fuel per unit hour than the existing engine mounted on ships to reduce emission of noxious gases such as NOx, SOx and CO2. This vessel also uses higher tensile steel that allows lighter hull weight, higher fuel economy and faster speed.
STX Offshore & Shipbuilding will keep striving for its reputation as a top-notch shipbuilder by enhancing technological competitiveness in the high value-added ultra-large bulk carrier sector. 28 Review of Operations
CRUISE & FERRIES
STX Europe is building the world’s best cruises and ferries, and it is raising the bar in the cruise ship industry with its design technologies and scale and by creating facilities onboard ship that will promise to impress passengers when they experience them.
OASIS OF THE SEAS IN NUMBERS
· CLASS AND TYPE: Oasis Class Cruise Ship · GROSS TONNAGE: 225,000 · LENGTH: 361 m (1,181 ft) · HEIGHT: 72 m (236 ft) · DECKS: 15 Passenger Decks · SPEED: 20.2 knot (37.4 km/h/23.2 mph) · CAPAC ITY: 5,400 passengers and 2,160 crews STX Offshore& Shipbuilding 2011 annual report 29
STX Europe has excelled in building cruise ships, which has been proven by its construction of the world’s top 15 cruise ships in size including 'Oasis of the Seas’ and ‘Allure of the Seas', the largest cruise ships in the world.
Cruise ships are the classic example of high value-added vessels accounting for about 20% of the global ship market by financial aspect and their construction requires high level of design technologies that strictly ensure low noise and vibration. Moreover, unlike merchant ships, it takes numerous time and costs to secure materials and technologies as well as high-end interior design technologies for cruise ships, which created high barriers to market entry.
STX Europe is the world’s largest cruise ship and ferry builder with excellent human resources equipped with expertise, modernized facilities and the best design technologies. It constructs the vessels in 5 shipyards (Turku, Rauma and Helsinki in Finland and St. Nazaire and Lorient in France), and provides high-quality maintenance services through global footholds located near major global cruise shippers and sea routes.
In 2011, STX Finland, one of STX Europe’s subsidiaries, won an order for a 97,000 ton cruise ship from TUI Cruises of Germany. The cruise ship STX Finland received has 1,250 cabins and can accommodate 3,500 passengers and crew members and will be built in Turku before being delivered in 2014.
STX Offshore & Shipbuilding will continue to maximize synergy of its global production network with STX Europe and improve its marketing capabilities. In so doing, the company will proactively cope with increasing demand for cruise ships and ferries in the future. 30 Review of Operations
OFFSHORE
We have solidified our position in the global offshore plant market by producing high value-added offshore facilities such as F(P)SO, floating production storage and offloading facility, and deep water drilling rigs with capability to offer EPCI (engineering, procurement, construction and installation) service. We strive for the world’s best company by building ships for offshore drilling, production and support that satisfy customer demand through 19 shipyards in 8 countries around the world.
LNG FLOATER LNG FPSO / FSRU / SRV
LNG floater which is a high value-added new concept floating unit used to develop underwater gas fields. This floater is operated to perform a series of process on the sea such as production, liquefaction, storage, regasification and offloading of natural gas. In the global market, STX Offshore & Shipbuilding has boasted of its most up-to-date facilities, shipbuilding technologies and capability for design used for construction of LNG carriers. On top of that, we have employed STX Europe’s source technologies to advance into the LNG floater market. Importantly, we have increased R&D and been engaged in more marketing activities; we have independently developed standard design and enhanced capability to design customized products that meet demand from customers and the market. STX Offshore& Shipbuilding 2011 annual report 31
FLOATING STORAGE & PRODUCTION UNIT FPSO / FSO / FPU / FPSS / SPAR
F(P)SO [Floating Production Storage & Offloading] and FPU (Floating Production Unit) are high value-added offshore facilities that require cutting-edge technologies and specialized design and production technologies. STX Offshore & Shipbuilding successfully constructed and delivered the world’s largest FSU to be operated in the Persian Gulf in 2011. Moreover, the company has increased its involvement in FPU product business such as FPSO, FPU, FPSS and SPAR treating the business as part of its main business areas.
DRILLING RIG Drillship / Semi-Submersible Rig / Jack-Up Rig
Drilling rig is a high value-added unit that drills underwater oil well and requires high level of technologies. Our products range from jack- up rigs used in a shallow sea that is about 200m deep to semi-submersible rigs operated in a deep sea up to 3,000m deep and drillships. GT- 10000 Design drillship that STX Offshore & Shipbuilding and Huisman jointly developed and own source technologies has been recognized for its competitiveness in the market and is one of the company’s key products. We received an order from a drilling company of U.S in 2008 for the latest drillship with the applications of the GT-10000 Design and for the equivalent Drillship No.2 in 2010. The No.1 Drillship was successfully transferred in 2011 and the No.2 drillship is scheduled for a transfer in 2012.
OFFSHORE SUPPORT VESSEL PLCV / HLCV / OSCV / WTIV
STX Offshore & Shipbuilding is expanding its market share in the offshore facility sector by producing offshore support vessels needed to carry out a variety of offshore work such as pipe laying, decommissioning and heavy Lifting, offshore construction and wind turbine installation. We won an order for an offshore pipe layer used to install deep water pipes from a world class company in France in 2007, which was successfully built and delivered. We are increasing our engagement in winning more orders for a variety of offshore specialized vessels.
FIXED PLATFORM
Fixed Platform is a fixed production facility consisting of an upper production platform(Topside) and a support structure on the bottom(Jacket) that is installed and operated in shallow waters with a depth of less than 300m. STX Offshore & Shipbuilding is increasing its ability to perform a series of work ranging from design, purchase, delivery and installation and is improving its capability to win more orders in order to strengthen its presence in the offshore market. We are enhancing our ability and know-how to carry out a series of work needed for fixed offshore facilities by applying them to the offshore new and renewable energy business and a variety of offshore facilities. 32 Review of Operations
STX DALIAN
STX Dalian Shipbuilding Complex has established a specialized vertical production system that makes it possible to process raw materials, assemble engines, manufacture blocks, build ships and produce offshore plants all together.
SHIPYARD INFORMATION
· Area 5,500,000 m² · Capacity · Dock Offshore Construction Facility {460m(L)X135m(B)X14.5m(H)} - Offshore Construction Facility: 320,000 DWT (80,000 DWT for simultaneous Skid Berth X 4 {680m(L)X67m(B) / 680m(L)X47m(B) / construction) 615m(L)X36m(B) / 615m(L)X56m(B)} - Skid Berth #1: 180,000 DWT (360,000 DWT for simultaneous construction) · Crane 900t Gantry X 4 - Skid Berth #2: 98,000 DWT (196,000 DWT for simultaneous construction) · Product Offshore / Containership / Bulk Carrier / PCTC - Skid Berth #3: 58,000 DWT (145,000 DWT for simultaneous construction) - Skid Berth #4: 81,000 DWT (202,500 DWT for simultaneous construction) STX Offshore& Shipbuilding 2011 annual report 33
STX Dalian Shipbuilding Complex is the world’s best shipbuilding complex equipped with vast premises, excellent technicians and stable systems.
The complex was established in China through close cooperation between STX Offshore & Shipbuilding, STX Engine, STX Heavy Industries, STX Metal and STX Construction. Supported by its vertical production system for ships and machinery, the shipyard is marching toward its primary goal of becoming a global major shipyard and engine maker.
STX Dalian Shipbuilding Complex has mainly produced bulk carriers and PCTCs. The complex has also accelerated diversification of its shipbuilding portfolio with an order for three containerships in November, 2010, which was followed by an order for eight 2,000TEU class containerships worth $230 million (if options are included) from Seacon of Singapore.
In addition, the shipyard has demonstrated a series of impressive performance in the offshore plant sector backed by its world’s largest offshore plant production facilities. These excellent results have helped it to solidify its status as a Mecca of building offshore plants.
STX Dalian received its first order for a drillship from Noble Drilling Holdings in 2008 and successfully built and delivered it in May, 2011. This vessel is capable of drilling down to 12,000m at a sea that’s 3,000m deep and boasts of maximized safety by applying DP-3, the highest rating in DPS set by IMO
Meanwhile, a 335,000DWT ultra-large FSU the shipyard received an order for in October, 2008 was 335m long and 60m wide and was completed in 2011, which confirmed the shipyard’s competitiveness in the offshore plant market that requires high level of technologies. 34 stx Global Shipyards
2011 OPERATING RESULTS OF STX GLOBAL SHIPYARDS
Norway_ OSVs Finland_ Cruise&Ferries Specialized Vessel Ice Breaker
France_ Cruise&Ferries China_ Bulkers Naval Vessels Romania_ Bulkers PCTC Korea_ LNGC OSVs Drillship FPSO FSO VLCC Pipelayer Mega Container
Vietnam_ OSVs
Sales
STX Offshore & Shipbuilding STX Europe Commercial ship OSV
KRW 4.3 trillion KRW 4.1 trillion 52% 21% Global Offshore Cruise ship Sales plant Shipyards Breakdown 14% 8% KRW11.1trillion by Ship Special STX Dalian Others ship Others
KRW 2.4 trillion KRW 0.3 trillion 3% 2% STX Offshore& Shipbuilding 2011 annual report 35
Global Shipyards
8 countries 19 shipyards
Brazil_ OSVs
New Orders Order Backlog
Cruise ship Commercial ship Commercial ship Cruise ship
USD USD USD USD 2.4 billion Global 2.2 billion 11.8 billion Global 5.1 billion Shipyards Shipyards OSV USD billion USD billion 7.2 23.5 USD (74 ships) (277 ships) 4.0 billion OSV Special ship Special ship Offshore plant
USD 1.4 billion USD 1.2 billion USD 2.0 billion USD 0.6 billion 36 Business Report
2011 Annual Report
Financial Section ( 2011. 01. 01 ~ 2011. 12. 31 )
37. Separate Statements of Financial Position 39. Separate Statements of Comprehensive Income(Loss) 40. Independent Auditors’ Report 41. Consolidated Statements of Financial Position 43. Consolidated Statements of Comprehensive Income(Loss) 44. Consolidated Statements of Changes in Equity 45. Consolidated Statements of Cash Flows 46. Notes to the Consolidated Financial Statements STX Offshore& Shipbuilding 2011 annual report 37
Separate Statements of Financial Position December 31, 2011 and 2010
(In millions of won) 2011 2010 Assets Property, plant and equipment W 1,489,566 1,381,795 Intangible assets 14,879 14,960 Investments in associates 240,239 399,962 Investments in subsidiaries 980,118 732,115 Long-term loans 1,069,363 942,363 Other investments 986 981 Available-for-sale financial assets 109,747 66,103 Financial derivative assets 462 6,987 Firm commitment assets 25,449 51,100 Other financial assets 8 8 Long-term trade receivables 34,949 38,190 Other receivables 18,442 19,960 Total non-current assets 3,984,208 3,654,524
Inventories 149,944 161,610 Trade receivables 40,358 13,504 Due from customers for contract work 1,162,705 1,038,040 Advance payments 348,943 450,101 Prepaid expenses 108,504 174,560 Other receivables 170,153 291,016 Short-term loans 1,167 327,973 Financial derivative assets 6,540 64,233 Firm commitment assets 56,236 294,270 Other financial assets 64,012 45,500 Cash and cash equivalents 136,443 216,742 Total current assets 2,245,005 3,077,549
Total assets W 6,229,213 6,732,073 38 Financial Statements
Separate Statements of Financial Position December 31, 2011 and 2010
(In millions of won) 2011 2010 Equity Share capital W 199,075 192,101 Capital surplus 276,219 241,308 Treasury shares (6,736) (6,736) Other equity 105,615 105,265 Retained earnings 1,133,584 1,166,063
Total equity 1,707,757 1,698,001
Liabilities Bonds 498,574 518,682 Bond with stock purchase warrants 97,059 - Long-term borrowings 44,000 - Defined benefit liabilities 9,379 10,553 Provisions 19,027 22,469 Financial derivative liabilities 64,503 54,232 Firm commitment liabilities 399 4,287 Deferred tax liabilities 233,900 201,785 Total non-current liabilities 966,841 812,008
Short-term borrowings 745,346 1,112,198 Short-term bonds 270,000 235,000 Current portion of long-term bonds 319,930 - Bond with stock purchase warrants 165,326 183,036 Current portion of long-term borrowings 20,000 10,000 Financial guarantee liabilities 5,889 9,525 Financial derivative liabilities 138,951 390,682 Firm commitment liabilities 31,498 97,745 Advances from customers 124,004 256,932 Due to customers for contract work 805,307 1,160,526 Trade payables 583,038 371,361 Other payables 132,861 172,176 Accrued expense 180,932 183,442 Other current liabilities 18,792 24,287 Income tax payables 12,741 15,154 Total current liabilities 3,554,615 4,222,064
Total liabilities 4,521,456 5,034,072
Total equity and liabilities W 6,229,213 6,732,073 STX Offshore& Shipbuilding 2011 annual report 39
Separate Statements of Comprehensive Income(Loss) For the years ended December 31, 2011 and 2010
(In millions of won, except earnings (loss) per share information) 2011 2010 Sales W 4,269,210 3,940,167 Cost of sales (4,086,033) (3,674,794) Gross profit 183,177 265,373 Selling, general and administrative expenses (79,296) (82,747) Profit from operations 103,881 182,626 Other income 3,263 13,162 Other expenses (2,648) (4,448) Finance income 688,970 817,536 Finance costs (775,681) (905,827) Profit before income tax 17,785 103,049 Income tax expense (37,485) (27,671) Profit (loss) for the period W (19,700) 75,378
Other comprehensive income (loss), net of tax Net change in fair value of available-for-sale financial assets (6,033) 6,929 Defined benefit plan actuarial gain (loss) 3,870 (1,594) Gains on revaluations of property, plant and equipment 11,382 11,932 Total other comprehensive income for the period, net of tax 9,219 17,267 Total comprehensive income (loss) for the period W (10,481) 92,645
Earnings (loss) per share Basic earnings (loss) per share W (251) 996 Diluted earnings (loss) per share (251) 978 40 Financial Statements
Independent Auditors’ Report
Based on a report originally issued in Korean
The Board of Directors and Stockholders STX Offshore & Shipbuilding Co., Ltd.:
We have audited the accompanying consolidated statements of financial position of STX Offshore & Shipbuilding Co., Ltd. and its subsidiaries (the “Group”) as of December 31, 2011 and 2010, and the related consolidated statement of comprehensive income (loss), changes in equity and cash flows for the years then ended. Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of STX (Dalian) Holdings Co., Ltd. and certain other subsidiaries, whose financial statements reflect total assets constituting 23.7% and 12.4% of consolidated total assets (before elimination of intercompany transactions) as of December 31, 2011 and 2010, and total sales constituting 20.0% and 6.0% of consolidated total sales (before elimination of intercompany transactions) for the years then ended. Those financial statements were audited by other auditors whose reports have been furnished to us, and our report, insofar as it relates to these subsidiaries, is based solely on the reports of other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2011 and 2010, and its financial performance and its cash flows for the years then ended, in accordance with Korean International Financial Reporting Standards.
Without qualifying our opinion, we draw attention to the following:
Transactions with related parties As described in note 28, the Group has sales and purchase transactions with related parties such as STX Corporation, and the amount of related balances due to or from related parties are recorded as of December 31, 2011. In addition, the Group provides payment guarantees to China Construction Bank and other banks for borrowings of the related party such as STX (Dalian) Engine Co., Ltd. and advances from customers.
Changes in control structures of subsidiaries and associates As described in notes 9 and 10, W 91,988 million was recognized as gains on disposals of investments in associates in relation to investment in kind of subsidiaries.
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. Accordingly, this report and the accompanying consolidated financial statements are for use by those knowledgeable about Korean auditing standards and their application in practice.
KPMG Samjong Accounting Corp. Seoul, Korea March 19, 2012
This report is effective as of March 19, 2012, 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. STX Offshore& Shipbuilding 2011 annual report 41
Consolidated Statements of Financial Position As of December 31, 2011 and 2010
(In millions of won) Note 2011 2010 Assets Property, plant and equipment 5,7 W 4,917,918 3,774,910 Intangible assets 6,7 837,544 747,515 Investments in associates 7,8 317,659 382,902 Other investments 11,430 16,162 Available-for-sale financial assets 7,10 160,445 119,360 Financial derivative assets 29 462 7,238 Firm commitment assets 29 25,449 56,753 Other financial assets 7,13 84,532 19 Deferred tax assets 26 250,337 250,513 Long-term trade receivables 11 34,949 38,190 Long-term due from customers for contract work 4 454,962 - Long-term prepaid expenses 24,729 5,637 Other receivables 11 107,002 69,312 Total non-current assets 7,227,418 5,468,511
Inventories 12 756,069 451,300 Trade receivables 11 275,472 212,314 Due from customers for contract work 28 2,969,204 2,214,929 Advance payments 407,969 508,297 Prepaid expenses 158,937 180,424 Other receivables 11 531,830 298,424 Available-for-sale financial assets 9,500 - Financial derivative assets 29 53,473 145,848 Firm commitment assets 29 161,861 556,061 Other financial assets 7,13 88,204 64,768 Income tax refund receivable 26 12,181 10,702 Cash and cash equivalents 13 1,257,767 1,559,631 Total current assets 6,682,467 6,202,698
Total assets W 13,909,885 11,671,209
See accompanying notes to the consolidated financial statements. 42 Financial Statements
Consolidated Statements of Financial Position As of December 31, 2011 and 2010
(In millions of won) Note 2011 2010 Equity Share capital 1,14 W 199,075 192,101 Capital surplus 14 285,534 154,976 Treasury shares 15 (6,736) (6,736) Other equity 16 224,191 239,366 Retained earnings 683,028 624,922 Equity attributable to owners of the parent company 1,385,092 1,204,629
Non-controlling interests 791,565 310,124
Total equity 2,176,657 1,514,753
Liabilities Bonds 17 618,277 781,872 Bond with stock purchase warrants 17 97,059 - Long-term borrowings 7,17 915,453 830,033 Capital lease liabilities 17 64,468 40,777 Defined benefit liabilities 20 41,026 40,101 Provisions 21 60,629 65,190 Financial derivative liabilities 29 64,503 61,708 Firm commitment liabilities 29 399 4,411 Deferred tax liabilities 26 372,555 337,162 Other non-current liabilities 19 51,738 23,328 Total non-current liabilities 2,286,107 2,184,582
Short-term borrowings 7,18 2,274,758 2,220,448 Short-term bonds 7,17 270,000 235,000 Current portion of bonds 17 419,799 - Bond with stock purchase warrants 17 165,326 183,036 Current portion of long-term borrowings 7,17 318,887 174,873 Financial derivative liabilities 29 175,088 475,692 Firm commitment liabilities 29 100,345 251,727 Advances from customers 29 336,732 636,106 Due to customers for contract work 28 1,734,279 1,588,619 Provisions 21 188,545 103,898 Trade payables 19 2,182,311 1,035,741 Other payables 695,299 399,600 Accrued expense 338,025 494,780 Other current liabilities 19 107,296 85,687 Dividends payable 3,491 - Income tax payables 26 136,940 86,667 Total current liabilities 9,447,121 7,971,874
Total liabilities 11,733,228 10,156,456
Total equity and liabilities W 13,909,885 11,671,209
See accompanying notes to the consolidated financial statements. STX Offshore& Shipbuilding 2011 annual report 43
As of December 31, 2011 and 2010 Consolidated Statements of Comprehensive Income (Loss) For the years ended December 31, 2011 and 2010
(In millions of won, except earnings (loss) per share information) Note 2011 2010 Sales 4,28,29 W 11,096,174 8,911,278 Cost of sales 22,28 (9,942,305) (8,364,324) Gross profit 1,153,869 546,954 Selling, general and administrative expenses 22,23 (558,617) (423,836) Profit from operations 595,252 123,118 Other income 24 21,622 64,795 Other expenses 24 (24,952) (50,864) Finance income 25 1,000,760 1,196,595 Finance costs 25 (1,264,222) (1,426,683) Share of profit of equity method accounted investees 4,8 5,931 21,941 Share of loss of equity method accounted investees 4,8 (6,976) (2,289) Profit (Loss) before income taxes 327,415 (73,387) Income tax expense 26 (158,802) (66,467) Profit (Loss) for the period W 168,613 (139,854)
Other comprehensive income (loss) Net change in fair value of available-for-sale financial assets (6,142) 6,912 Defined benefit plan actuarial gain (loss) 3,689 (1,594) Change in other comprehensive income items of equity method investments (12,382) (11,585) Foreign currency translation differences – foreign operations 22,141 (57,169) Revaluation of property, plant and equipment 17,062 24,735 Total other comprehensive income (loss) for the period, net of tax 24,368 (38,701) Total comprehensive income (loss) for the period W 192,981 (178,555)
Profit (Loss) attributable to: Owners of the Parent Company 71,115 (48,731) Non-controlling interests 97,498 (91,123) Profit (Loss) for the period W 168,613 (139,854)
Total comprehensive income (loss) attributable to: Owners of the Parent Company 86,815 (57,009) Non-controlling interests 106,166 (121,546) Total comprehensive income (loss) for the period W 192,981 (178,555)
Earnings (loss) per share 27 Basic earnings (loss) per share W 906 (644) Diluted earnings (loss) per share 877 (644)
See accompanying notes to the consolidated financial statements. 44 Financial Statements
Consolidated Statements of Changes in Equity For the years ended December 31, 2011 and 2010
Owners of Non- Share Capital Treasury Other Retained the Parent controlling Total (In millions of won) capital surplus shares equity earnings Company interests equity Balance at January 1, 2010 W 180,012 100,381 (6,736) 258,610 607,556 1,139,823 219,717 1,359,540 Total comprehensive Loss for the period Loss for the period - - - - (48,731) (48,731) (91,123) (139,854) Net change in fair value of available- for-sale financial assets - - - 6,905 - 6,905 7 6,912 Actuarial gains - - - - (1,594) (1,594) - (1,594) Revaluation surplus - - - 24,016 - 24,016 719 24,735 Change in equity of equity method investments - (410) - (31,767) 20,592 (11,585) - (11,585) Foreign currency translation differences – foreign operations - - - (26,020) - (26,020) (31,149) (57,169) Total comprehensive loss for the period - (410) - (26,866) (29,733) (57,009) (121,546) (178,555) Transactions with owners, recorded directly in equity Dividends paid - - - - (14,169) (14,169) - (14,169) Dividends distribution to non- controlling interests ------(456) (456) Changes in non-controlling interests - 7,603 - - 62,565 70,168 212,409 282,577 Stock warrants exercised 12,089 47,402 - - - 59,491 - 59,491 Share-based payment transactions - - - 6,205 - 6,205 - 6,205 Transfer to legal reserve - - - 1,417 (1,417) - - - Others - - - - 120 120 - 120 Total transactions with owners recorded directly in equity 12,089 55,005 - 7,622 47,099 121,815 211,953 333,768 Balance at December 31, 2010 W 192,101 154,976 (6,736) 239,366 624,922 1,204,629 310,124 1,514,753
Balance at January 1, 2011 W 192,101 154,976 (6,736) 239,366 624,922 1,204,629 310,124 1,514,753 Total comprehensive income for the period Profit for the period - - - - 71,115 71,115 97,498 168,613 Net change in fair value of available- for-sale financial assets - - - (6,136) - (6,136) (6) (6,142) Actuarial gains - - - - 3,689 3,689 - 3,689 Revaluation surplus - - - 15,665 - 15,665 1,397 17,062 Changes in equity method accounted investees’ capital - 22,211 - (34,574) (22) (12,385) 3 (12,382) Foreign currency translation differences – foreign operations - - - 14,868 - 14,868 7,273 22,141 Total comprehensive income for the period - 22,211 - (10,177) 74,782 86,816 106,165 192,981 Transactions with owners, recorded directly in equity Dividends paid - - - - (15,136) (15,136) - (15,136) Dividends distribution to non- controlling interests ------(45,330) (45,330) Stock warrants exercised 6,974 34,182 - - - 41,156 - 41,156 Issuance of stock warrants - 729 - - - 729 - 729 Increase in noncontrolling interests from acquisition of business - 13,269 - - - 13,269 241,111 254,380 Changes in non-controlling interests - 60,167 - - - 60,167 179,495 239,662 Share-based payment transactions - - - (6,512) - (6,512) - (6,512) Transfer to legal reserve - - - 1,514 (1,514) - - - Others - - - - (26) (26) - (26) Total transactions with owners recorded directly in equity 6,974 108,347 - (4,998) (16,676) 93,647 375,276 468,923 Balance at December 31, 2011 W 199,075 285,534 (6,736) 224,191 683,028 1,385,092 791,565 2,176,657
See accompanying notes to the consolidated financial statements. STX Offshore& Shipbuilding 2011 annual report 45
For the years ended December 31, 2011 and 2010 Consolidated Statements of Cash Flows For the years ended December 31, 2011 and 2010
(In millions of won) Note 2011 2010 Cash flows from operating activities Cash provided by operating activities 33 W 188,826 1,250,341 Interest received 31,007 35,454 Dividends received 4,790 4,907 Income tax paid (103,730) (28,981) Net cash provided by operating activities 120,893 1,261,721
Cash flows from investing activities Proceeds from sales of other financial assets 19,592 9,979 Proceeds from sales of available-for-sale financial assets 18,585 2,652 Collection of other receivables 80,421 35,353 Proceeds from sales of investments in associates 235 136,303 Disposal of subsidiaries 257,286 2,500 Proceeds from government grants 426 432 Proceeds from sales of property, plant and equipment 65,910 904 Proceeds from sales of intangible assets 516 51 Decrease in other investments - 1,523 Increase in other financial assets (36,276) (27,757) Purchase of available-for-sale financial assets (17,181) (49,507) Increase in other receivables (35,806) (55,998) Purchase of investments in associates (22,335) (31,018) Acquisition of business, net of cash acquired (106,798) - Increase in other investments (5) (682) Repayment of government grants (107) - Purchase of property, plant and equipment (515,256) (266,042) Purchase of intangible assets (6,302) (5,733) Net cash used in investing activities (297,095) (247,040)
Cash flows from financing activities Proceeds from short-term borrowings 2,716,858 2,678,166 Proceeds from issuance of bond with stock purchase warrants 97,746 - Proceeds from issuance of bonds 888,694 896,075 Proceeds from long-term borrowings 250,545 154,714 Proceeds from issuance of shares for warrants exercised 36,324 56,882 Equity investments of non-controlling interests 107,120 298,919 Repayments of short-term borrowings (3,152,011) (3,951,756) Repayments of current portion of long-term borrowings (108,136) (91,422) Repayments of current portion of finance lease liabilities (13,404) (8,346) Repayments of bonds (599,240) (455,000) Repayments of bond with stock purchase warrants (23,207) - Repayments of long-term borrowings (146,194) (130,447) Dividends paid (60,466) (14,625) Interest paid (251,280) (224,597) Net cash used in financing activities (256,651) (791,437)
Net increase (decrease) in cash and cash equivalents (432,853) 223,244 Cash and cash equivalents at beginning of period 1,559,631 1,360,378 Effect of exchange rate fluctuations on cash held 7,147 (23,991) Effect of change in scope of consolidation 123,842 - Cash and cash equivalents at end of period W 1,257,767 1,559,631
See accompanying notes to the consolidated financial statements. 46 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
1. General Information STX Offshore & Shipbuilding Co., Ltd. (the “Parent Company”) was established on April 10, 1967 in the name of Dong Yang Shipbuilding Industry Co., Ltd. and is engaged in the shipbuilding and ship repair business. On January 1, 1973, the Parent Company changed its name to Daedong Shipbuild- ing Co., Ltd. On January 1, 2002, the Parent Company again changed its name from Daedong Shipbuilding Co., Ltd. to STX Shipbuilding Co., Ltd. On March 27, 2009, the Parent Company changed its name to STX Offshore & Shipbuilding Co., Ltd.
The ownership of the Parent Company’s common stock issued as of December 31, 2011 is held as follows:
(In millions of won) Amount Stockholder Number of shares Percentage of ownership (par value) STX Corporation 26,224,899 32.93% W 65,562 SOCIETE GENERALE S.A. 776,583 0.98% 1,942 Treasury stock 1,159,969 1.46% 2,900 Others 51,468,563 64.63% 128,671 79,630,014 100.00% W 199,075
2. Basis of Presenting Financial Statements (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.
(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:
(i) Derivative financial instruments are measured at fair value (ii) Available-for-sale financial assets are measured at fair value (iii) Liabilities for cash-settled share-based payment arrangements are measured at fair value (iv) Liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets and unrecognized past service costs
(3) Functional and presentation currency These consolidated financial statements are presented in Korean won, which is the Parent Company’s functional currency and the currency of the primary economic environment in which the Group operates.
(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 as- sumptions 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 critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the con- solidated financial statements is included in the following notes:
(i) recognition of revenue and expenses by reference to the percentage of completion method
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next fi- nancial year are included in the following notes:
(i) measurement of deferred tax (ii) measurement of defined benefit obligations (iii) provisions and contingencies
(5) Authorization date of the consolidated financial statements The consolidated financial statements were authorized for issue by the Board of Directors on March 12, 2012 STX Offshore& Shipbuilding 2011 annual report 47
December 31, 2011
3. Significant Accounting Policies The significant accounting policies applied by the Group in preparation of its consolidated financial statements are included below. Accounting policies have been applied consistently as of and for the years ended December 31, 2010 and 2011.
(1) Operating segment An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, in- cluding revenues and expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating results are reviewed regularly by the Group’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reason- able basis. The Group has four operating segments which consist of merchant vessels, cruise & ferries, specialized vessels and shipbuilding equipment, as described in note 4.
(2) Basis of consolidation (a) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of the other entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. If a member of the Group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements.
(b) Intra-group transactions Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in prepar- ing the consolidated financial statements. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.
(c) Non-controlling interests Non-controlling interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero.
(3) Business combination (a) Business combination A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. Each identifiable asset and liability is measured at its acquisition-date fair value except for below: - Leases and insurance contracts are required to be classified on the basis of the contractual terms and other factors - Only those contingent liabilities assumed in a business combination that are a present obligation and can be measured reliably are recognized - Deferred tax assets or liabilities are recognized and measured in accordance with K-IFRS No. 1012 Income Taxes - Employee benefit arrangements are recognized and measured in accordance with K-IFRS No.1019 Employee Benefits - Indemnification assets are recognized and measured on the same basis as the indemnified liability or asset - Reacquired rights are measured in accordance with special provisions - Liabilities or equity instruments related to share-based payment transactions are measured in accordance with the method in K-IFRS No. 1102 Share-based Payment - Assets held for sale are measured at fair value less costs to sell in accordance with K-IFRS No. 1105 Non-current Assets Held for Sale
As of the acquisition date, non-controlling interests in the acquiree are measured as the non-controlling interests’ proportionate share of the ac- quiree’s identifiable net assets.
The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition- date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer. However, any portion of the acquirer’s share-based payment awards exchanged for awards held by the acquiree’ s employees that are included in consideration transferred in the business combination shall be measured in accordance with the method de- scribed above rather than at fair value. 48 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder’s fees; advisory, legal, account- ing, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. Acquisition-related costs, other than those associated with the issue of debt or equity securities, are expensed in the periods in which the costs are incurred and the services are received. The costs to issue debt or equity securities are recognized in accordance with K-IFRS No.1032 Financial Instruments: Presentation and K-IFRS No.1039 Financial Instruments: Recognition and Measurement.
(b) Goodwill The Group measures goodwill at the acquisition date as: - the fair value of the consideration transferred; plus - the recognized amount of any non-controlling interests in the acquiree; plus - if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less - the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, bargain purchase gain is recognized immediately in profit or loss.
As part of its transition to K-IFRS, the Group elected to restate only those business combinations which occurred on or after January 1, 2009 in ac- cordance with K-IFRS. In respect of acquisitions prior to January 1, 2009, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP, K-GAAP.
(c) Business combination under common control In a case of a combination involving entities or businesses under common control, the assets acquired and liabilities assumed are recognized at the carrying amounts in the Group’s consolidated financial statements.The difference between the consideration transferred in a business combi- nation and the net assets is recognized in the equity.
(4) Associates and jointly controlled entities An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity.
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement, and require unanimous consent for strategic financial and operating decisions.
The investment in an associate is initially recognized at cost and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate after the date of acquisition. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Intra-group losses recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.
If an associate uses accounting policies different from those of the Company for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in applying the equity method.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long- term investments, is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has to make payments on behalf of the investee for further losses.
(5) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and are used by the Group in management of its short- term commitments. Generally equity investments are excluded from cash and cash equivalents. However, redeemable preference shares, for which the period from the acquisition to redemption is short, are classified as cash and cash equivalents.
(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 receivables and available-for-sale financial assets. The Group recognizes financial assets in the con- solidated 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.
(a) Financial assets at fair value through profit or loss A financial asset is classified as financial assets are classified at fair value through profit or loss if it is 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. STX Offshore& Shipbuilding 2011 annual report 49
December 31, 2011
(b) Held-to-maturity investments A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and abili- ty 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.
(c) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial rec- ognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.
(d) 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 finan- cial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. 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. When a financial asset is derecognized or impairment losses are recognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Dividends on an available-for-sale equity instrument are recognized in profit or loss when the Group’s right to receive payment is established.
(e) De-recognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.
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.
(f) Offset a financial asset and a financial liability 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.
(g) Financial guarantee A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee is recognized at fair value. After initial recognition, an issuer of such a contract shall measure it at the higher of:
(i) The amount determined in accordance with K-IFRS No. 1037 Provisions, Contingent Liabilities and Contingent Assets, and (ii) The amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with K-IFRS No. 1018 Revenue.
(7) 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 as- set, 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.
In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impair- ment.
If financial assets have objective evidence that they are impaired, impairment losses should be measured and recognized.
(a) 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 instru- ment’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 establish a provision to cover impairment losses. 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 (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allow- ance account. 50 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(b) Financial assets carried at cost If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instru- ment, 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 shall not be reversed.
(c) 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 shall be reclassified from eq- uity 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 shall not be 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 occur- ring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.
(8) Property, plant and equipment Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acqui- sition 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, while an item of property, plant and equipment, except land, which shall be carried at its cost less any accu- mulated depreciation and any accumulated impairment losses, land whose fair value can be measured reliably are carried at revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the car- rying amount of property, plant and equipment and are recognized in profit or loss.
The estimated useful lives for the current and comparative periods are as follows:
Useful lives (years) Buildings 25 – 53 Structures 5 – 50 Machinery and equipment 3 – 20 Leased ships 6 – 15 Vehicles 3 – 8 Tools 8 – 15 Furniture and fixtures 5 – 10
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
The Group capitalizes as a part of the cost of qualifying assets interest costs on all borrowings incurred until the acquisition or construction of a qualifying asset is substantially complete and the asset is ready for its intended use.
(9) Borrowing costs The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.
To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. 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 shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be 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 shall not exceed the amount of borrowing costs incurred during that period. STX Offshore& Shipbuilding 2011 annual report 51
December 31, 2011
(10) Intangible assets Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.
Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which land use rights and club membership are expected to be available for use, these intangible assets are determined as having indefinite useful lives and not amortized.
The estimated useful lives are as follows:
Useful lives (years) Development costs 5 Software 5 – 10 Industrial rights 5, 10 Land rights 50 Customer relationship 5 Design and technology 10 Other intangible assets 3 – 40
Usable and profitable donation assets which are included in other intangible assets are amortized over 8 or 40 years, and order backlog are amortized using the percentage of completion method of related construction contracts.
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.
(a) 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.
(b) 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) Government grants Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.
Government grants whose primary condition is that the Group purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.
Government grants which are intended to compensate the Group for expenses incurred shall be are recognized as other income or deduction to related expenses in profit or loss over the periods in which the Group recognizes the related costs as expenses.
(12) Inventories The cost of inventories is based on ‘moving-average’ method for all inventories, and specific identification method for goods in transit, and includes expenditure incurred in 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. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The amount of any write-down of inventories to net realizable value and all losses of inventories 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. 52 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(13) Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.
The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that 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 if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.
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.
(14) Leases Leases for which the Group assumes or transfers substantially all the risks and rewards of ownership are classified as finance leases. Other leases are classified as operating leases.
(a) Finance leases At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statements 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.
(b) Operating leases Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.
(c) Determining whether an arrangement contains a lease Determining whether an arrangement is, or contains, a lease shall be 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 shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest STX Offshore& Shipbuilding 2011 annual report 53
December 31, 2011
(15) Construction work in progress Construction work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognized to date less progress billings and recognized losses. Cost includes all expenditures related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. The gross amount due to customers for contract work is recognized when progress billings exceed costs incurred plus recognized profits.
Construction work in progress is presented as part of due from customers for contract work in the consolidated statement of financial position for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as amount due to customers for contract work in the consolidated statement of financial position.
(16) 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.
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.
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).
(17) Derivative financial instruments, including hedge accounting Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are either recognized in profit or loss or, when the derivatives are designated in a hedging relationship and the hedge is determined to be an effective hedge, other comprehensive income.
(a) Fair value hedge The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designated derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).
On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on a quarterly basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80%-125%. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net income.
Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of comprehensive income.
(b) Separable embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria has been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.
(c) Other derivative financial instruments Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss. 54 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(18) Compound financial instrument The compound financial instrument issued by the Group is classified as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. The Group issued bonds with stock purchase warrants which are convertible to equity at the holder’s option, and the numbers of shares to be issued are not changed in accordance with the fair value.
The liability component of bonds with stock purchase warrants shall be recognized as the fair value of a similar liability on initial recognition and be measured in amortized cost by the effective interest method until it is extinguished. The equity component is determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole on initial recognition. The tax effect shall be reflected and the instrument is not remeasured afterward. Transaction costs that relate to the issuance of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds.
(19) 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 shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be 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.
(20) Foreign currencies (a) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the 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 available- for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
(b) Foreign operations If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:
The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.
When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.
(c) Net investment in the foreign operation Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve. STX Offshore& Shipbuilding 2011 annual report 55
December 31, 2011
(21) 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 not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.
(22) Employee benefits (a) Short-term employee benefits Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.
(b) 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.
(c) Retirement benefits: defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. 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; that benefit is discounted to determine its present value. The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.
The discount rate is the yield at the reporting date on corporate bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Group recognizes all actuarial gains and losses arising from actuarial assumption changes and experiential adjustments in other comprehensive income when incurred.
When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the total of cumulative unrecognized past service cost and the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.
Past service costs which are the change in the present value of the defined benefits obligation for employee service in prior periods, resulting in the current period from the introduction of, or change to post-employment benefits, is recognized as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, the Group recognizes the past service cost immediately.
(d) Share-based payment transactions The grant-date fair value of share-based payment awards granted to employees is recognized as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized 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 share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(23) Revenue Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates, and are recognized as a reduction of revenue.
(a) Construction contracts Revenue from manufacturing vessels is recognized principally by the percentage-of-completion method. Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognized as incurred unless they create an asset related to future contract activity.
The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognized immediately in profit or loss. 56 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(b) Goods sold Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.
(c) Services Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.
(d) Commissions When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Group.
(24) Finance income and finance costs Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, dividends on preference shares classified as liabilities, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.
(25) Income taxes Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
(a) Current tax Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and 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 from the accounting profit.
(b) Deferred tax Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.
The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, 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 reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.
If additional income taxes are levied as a result of dividends payment, it is recognized when related liabilities are recognized. STX Offshore& Shipbuilding 2011 annual report 57
December 31, 2011
(26) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the 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 convertible notes and share options granted to employees.
(27) New standards and interpretations not yet adopted The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2011, and the Group has not early adopted them. Management is in the process of evaluating the impact of adoption these new standards.
(a) Amendments to K-IFRS No. 1107 Financial Instruments: Disclosures The amendments require disclosing the nature of the transferred assets, their carrying amount, and the description of risks and rewards for each class of transferred financial assets that are not derecognized in their entirety. If the Group derecognizes transferred financial assets but still has their specific risks and rewards, the amendments require additional disclosures on their effect of risks. The amendments will be applied prospectively for the Group’s annual periods beginning on or after July 1, 2011.
(b) Amendments to K-IFRS No. 1012 Income Tax Deferred tax assets or deferred tax liabilities on investment properties measured at fair value, unless any contrary evidence exists, will be measured by reflecting the tax effect from selling the investment properties. The amendments will be prospectively applied for the Group’s annual periods beginning on or after January 1, 2012.
(c) Amendments to K-IFRS No. 1019 Employee Benefits The standard requires recognition of actuarial gains and losses immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation. The standard will be applied retrospectively for the Group’s annual periods beginning on or after January 1, 2013.
(d) K-IFRS No. 1113 Fair Value Measurement The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements. The standard will be applied prospectively for the Group’s annual periods beginning on or after January 1, 2013.
4. Segment Information (a) The Group has four reportable segments, as described below, which are the Group’s strategic business units. The following summary describes the operations in each of the Group’s main reportable segments:
· Merchant vessels segment includes mainly merchant vessels construction · Cruise & ferries segment includes mainly passenger ships construction · Specialized vessels segment includes mainly offshore plants construction · Shipbuilding equipment includes mainly manufacturing and distributing of shipbuilding materials, blocks and marine diesel vessel engines
(b) Segment information as of and for the year ended December 31, 2011
Merchant Cruise & Specialized Shipbuilding Inter segment (In millions of won) vessels ferries vessels equipment Other(*) elimination Total External sales W 5,696,176 1,626,822 2,436,850 389,505 946,821 - 11,096,174 Internal sales 324,399 2,067 392,879 846,984 93,166 (1,659,495) - Profit (loss) from operations 106,333 (13,502) 466,015 55,561 (2,329) (16,826) 595,252 Share of profit (loss) of equity accounted investees (731) (2,312) 1,998 - - - (1,045) Depreciation 78,139 24,703 55,994 63,301 75,587 (327) 297,397 Total assets excluding investments in associates 8,061,496 1,305,519 3,043,138 2,336,797 2,932,428 (4,087,152) 13,592,226 Investments in associates 262,363 444 53,360 151 1,341 - 317,659 Total liabilities 6,339,818 720,606 2,294,697 1,750,560 2,887,566 (2,260,019) 11,733,228 (*) In May 2011, the Group signed a construction project (contract amount of USD 1,044 million) on a generator plant for commercial use with Iraq Ministry of Electricity. The Group recognized W 633,177 million in contract revenue and W 454,961 million in long-term due from customers for contract work in other segments. 58 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(c) Segment information as of and for the year ended December 31, 2010
Merchant Cruise & Specialized Shipbuilding Inter segment (In millions of won) vessels ferries vessels equipment Other elimination Total External operating revenues W 3,939,882 1,688,774 2,272,791 880,778 129,053 - 8,911,278 Internal operating revenues 285 2,059 267,126 640,384 10,434 (920,288) - Profit (loss) from operations 182,626 (176,800) 153,129 (32,338) (3,507) 8 123,118 Share of profit (loss) of equity accounted investees 16,866 - 2,786 - - - 19,652 Depreciation 44,191 71,947 72,039 55,499 5,249 (234) 248,691 Total assets excluding investments in associates 6,332,111 1,256,233 2,913,634 2,329,155 1,276,154 (2,818,979) 11,288,308 Investments in associates 349,319 546 32,640 396 - - 382,901 Total iabilities 5,034,072 655,737 2,390,229 1,857,768 2,139,332 (1,920,682) 10,156,456
(d) Certain long-term assets by geographic regions as of December 31, 2011
Europe, (In millions of won) Korea China and others Adjustments Total Property, plant and equipment W 2,213,458 2,079,384 671,656 (46,580) 4,917,918 Intangible Assets 61,901 261,141 515,217 (715) 837,544 W 2,275,359 2,340,525 1,186,873 (47,295) 5,755,462
5. Property, Plant and Equipment (a) The carrying amount of property, plant and equipment as of December 31, 2011 and December 31, 2010 are as follows:
2011 2010 Accumulated Government Net book Accumulated Government Net book (In millions of won) Cost depreciation grants amount Cost depreciation grants amount Land W 939,189 - - 939,189 880,933 - - 880,933 Buildings 1,579,002 (232,931) (3,354) 1,342,717 1,292,847 (171,304) (3,277) 1,118,266 Structures 1,022,657 (63,657) (22,968) 936,032 554,263 (28,018) (20,072) 506,173 Machinery 1,459,708 (381,354) - 1,078,354 1,009,859 (264,524) - 745,335 Vessels 84,945 (22,912) - 62,033 81,028 (16,188) - 64,840 Vehicles 29,185 (19,538) - 9,647 12,107 (7,509) - 4,598 Tools and furniture 378,570 (154,960) (90) 223,520 252,741 (101,026) - 151,715 Construction-in- progress 326,573 - (147) 326,426 305,169 - (2,119) 303,050 W 5,819,829 (875,352) (26,559) 4,917,918 4,388,947 (588,569) (25,468) 3,774,910 STX Offshore& Shipbuilding 2011 annual report 59
December 31, 2011
(b) Changes in property, plant and equipment for the year ended December 31, 2011 are as follows: Addition through Balance at business Currency Balance at January 1, combination translation December (In millions of won) 2011 Additions Disposals (note9) Depreciation Other Revaluation difference 31, 2011 Land W 880,933 5,204 (443) 27,417 - 4,469 22,618 (1,009) 939,189 Buildings 1,121,543 24,059 (21,813) 131,972 (53,863) 119,709 - 24,464 1,346,071 Structures 526,245 10,194 (66) 249,565 (26,896) 168,126 - 31,832 959,000 Machinery 745,335 69,227 (68,397) 288,322 (96,710) 110,708 - 29,869 1,078,354 Vessels 64,840 19 - 2,869 (5,876) 32 - 149 62,033 Vehicles 4,598 1,727 (102) 6,047 (2,885) 32 - 230 9,647 Tools and furniture 151,715 45,877 (193) 39,074 (39,581) 19,814 - 6,904 223,610 Construction- in-progress 305,169 358,949 - 62,801 - (407,920) - 7,574 326,573 Sub-total W 3,800,378 515,256 (91,014) 808,067 (225,811) 14,970 22,618 100,013 4,944,477 Government grants (25,468) (113) - - 523 - - (1,501) (26,559) W 3,774,910 515,143 (91,014) 808,067 (225,288) 14,970 22,618 98,512 4,917,918
An investment property in the amount of W 1,805 million resulted from a business combination with STX Construction (Dalian) Co., Ltd. is includ- ed in the buildings’ carrying amount as of December 31, 2011.
(c) Changes in property, plant and equipment for the year ended December 31, 2010 are as follows: Balance at Currency Balance at January 1, Impairment translation December (In millions of won) 2010 Additions Disposals Depreciation loss Other Revaluation difference 31, 2010 Land W 801,908 283 (34) - - 52,771 31,286 (5,281) 880,933 Buildings 1,085,534 8,034 (1,029) (50,850) - 121,413 - (41,559) 1,121,543 Structures 474,374 20,852 (263) (17,452) - 48,276 - 458 526,245 Machinery 740,163 44,539 (483) (78,419) (2,658) 51,998 - (9,805) 745,335 Vessels 70,095 320 - (5,575) - - - - 64,840 Vehicles 5,317 854 (54) (1,605) - 76 - 10 4,598 Tools and furniture 146,816 22,141 (1,215) (27,168) - 10,602 - 539 151,715 Construction-in- progress 456,168 169,019 (377) - - (338,130) - 18,489 305,169 Sub-total W 3,780,375 266,042 (3,455) (181,069) (2,658) (52,994) 31,286 (37,149) 3,800,378 Government grants (25,698) (432) - 510 - - - 152 (25,468) W 3,754,677 265,610 (3,455) (180,559) (2,658) (52,994) 31,286 (36,997) 3,774,910 60 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
6. Intangible Assets (a) The carrying amount of intangible assets as of December 31, 2011 and December 31, 2010 are as follows:
2011 2010 Accumulated Accumulated amortization amortization and impairment Net book and impairment Net book (In millions of won) Cost loss amount Cost loss amount Goodwill W 414,103 (374) 413,729 373,786 (374) 373,412 Development costs 16,412 (7,781) 8,631 11,409 (5,961) 5,448 Software 45,051 (21,622) 23,429 19,536 (8,665) 10,871 Industrial rights 12,667 (2,886) 9,781 12,269 (1,640) 10,629 Land rights 209,921 (11,273) 198,648 120,013 (4,384) 115,629 Customer relationship 216,146 (77,164) 138,982 217,755 (55,997) 161,758 Design and technology 26,032 (11,252) 14,780 25,364 (8,002) 17,362 Other intangible assets 137,414 (107,850) 29,564 125,695 (73,289) 52,406 W 1,077,746 (240,202) 837,544 905,827 (158,312) 747,515
(b) Changes in intangible assets for the year ended December 31, 2011 are as follows:
Other Development Industrial Land Customer Design and intangible (In millions of won) Goodwill costs Software rights rights relationship technology assets Total Balance at January 1, 2011 W 373,412 5,448 10,871 10,629 115,629 161,758 17,362 52,406 747,515 Additions 26 112 3,262 - - - - 2,902 6,302 Addition through business combination 45,303 - 15,134 - 63,266 - 864 1,491 126,058 Disposals ------(514) (514) Amortization - (1,820) (6,853) (1,246) (3,806) (21,269) (3,350) (33,765) (72,109) Impairment loss ------(289) (289) Reversal of Impairment loss ------151 151 Other - 4,886 205 398 14,509 - - 6,658 26,656 Currency translation difference (5,012) 5 810 - 9,050 (1,507) (96) 524 3,774 Balance at December 31, 2011 W 413,729 8,631 23,429 9,781 198,648 138,982 14,780 29,564 837,544 STX Offshore& Shipbuilding 2011 annual report 61
December 31, 2011
(c) Changes in intangible assets for the years ended December 31, 2010 are as follows:
Other Development Industrial Land Customer Design and intangible (In millions of won) Goodwill costs Software rights rights relationship technology assets Total Balance at January 1, 2010 W 394,910 4,340 8,888 11,708 116,289 197,721 22,002 18,590 774,448 Additions - 709 3,040 1 831 - - 1,152 5,733 Amortization - (1,621) (2,690) (1,221) (2,454) (21,020) (3,233) (35,893) (68,132) Impairment loss ------(167) (167) Reversal of Impairment loss ------67 67 Other - 2,017 1,610 141 - - - 68,431 72,199 Currency translation difference (21,498) 3 23 - 963 (14,943) (1,407) 226 (36,633) Balance at December 31, 2010 W 373,412 5,448 10,871 10,629 115,629 161,758 17,362 52,406 747,515
(d) Goodwill impairment test
The carrying amount of goodwill allocated to the cash generating units as of December 31, 2011 is as follows:
(In millions of won) Cash-generating unit Carrying amount STX France SA and STX France Lorient SAS W 76,268 STX OSV Holdings Ltd. 276,634 Cheil Engineering Co., Ltd. 13,733 STX Windpower B.V. 1,761 STX (Dalian) Shipbuilding Co., Ltd. 41,763 STX Construction (Dalian) Co., Ltd. 3,540 Other 30 W 413,729
The recoverable amount of each cash generating unit is based on value in use. As a result of the impairment test, no impairment loss was recognized. Key assumptions in measuring value in use, which reflect past experience, are as follows:
Key assumptions (i) Financial budget approved by management Order on hand at the end of the period, EBITDA and cash flow based on estimated new contracts (ii) Period 2012 ~ 2016 (iii) Discount rate Weighted average cost of capital (8.3% ~ 12.6%)
Goodwill derived from the business combination with STX (Dalian) Shipbuilding Co., Ltd. and STX Construction (Dalian) Co., Ltd. was recognized during 2011. As there have been no significant adverse events since the acquisitions, the Group did not perform impairment test at year end. 62 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
7. Pledged Assets and Guarantees Provided to Third Parties Pledged assets provided to third parties as of December 31, 2011 are as follows:
(In millions of won) Amount Reason for pledged as providing assets Borrowing Assets pledged as collateral Book value collateral as collateral amount Pledged party Land W 527,760 Buildings 93,555 Structure 162,272 Short-term borrowings and 95,782 Machinery 68,627 671,400 Short-term bonds 270,000 Korea Development Bank Sub-total 852,214 671,400 365,782 Land 34,901 Buildings 55,739 52,000 Short-term borrowings 30,000 Kyongnam Bank Sub-total 90,640 52,000 30,000 Land 37,293 Foreign currency acceptances Buildings 9,605 25,000 and guarantees - Korea Eximbank Sub-total 46,898 25,000 - Korea Defense Industry Available-for-sale financial assets 3,116 3,116 Refund guarantees and others - Association Other financial assets 30,000 30,000 Credit Limit - Woori Bank Available-for-sale financial assets 25,043 Shinhan Investment Investments in associates 179,499 28,000 Short-term borrowings 20,000 Corp. Sub-total 204,542 28,000 20,000 Land rights 88,859 Structure 257,073 Buildings 344,484 Machinery 273,087 474,534 Long-term borrowings 264,886 Korea Development Bank Sub-total 963,503 474,534 264,886 Buildings 18,373 18,373 6,564 Structure 83,899 83,899 44,637 Machinery 71,516 71,516 47,705 Bank of Communications Land rights 48,102 48,102 Long-term borrowings 37,810 and others Sub-total 221,890 221,890 136,716 Land 4,014 Buildings 5,421 Other financial assets 377 7,800 Long-term borrowings 5,909 Woori Bank Sub-total 9,812 7,800 5,909 Land 4,014 Buildings 5,421 6,500 Long-term borrowings 4,000 Kookmin Bank Sub-total 9,435 6,500 4,000 Land 27,377 Buildings 48,754 Structure 24,719 80,000 Long-term 60,000 Machinery 43,361 40,000 borrowings(including 30,000 Construction-in-progress 31,293 190,000 current portion) 44,000 Korea Development Bank Sub-total 175,504 310,000 134,000 STX Offshore& Shipbuilding 2011 annual report 63
December 31, 2011
(In millions of won) Amount pledged as Reason for providing Borrowing Assets pledged as collateral Book value collateral assets as collateral amount Pledged party Land W 139,110 Buildings 60,709 Korea Development Structure 24,730 Long-term Bank borrowings(including Korea Finance Machinery 23,881 151,608 current portion) 109,169 Corporation Sub-total 248,430 151,608 109,169 Land 12,338 Buildings 1,900 13,000 Short-term borrowings 10,000 Kyongnam Bank Sub-total 14,238 13,000 10,000 Land 59,731 163,307 Dalian liabilities National Agricultural guarantees Cooperative Other financial assets 10,000 10,000 (Stand by L/C) 144,647 Federation Sub-total 69,731 173,307 144,647 Land rights 10,652 Short-term borrowings Bank of Buildings 45,662 102,206 Long-term borrowings 66,381 Communications Sub-total 56,314 102,206 66,381 Buildings 1,000 1,000 Long-term borrowings 1,000 Other financial assets 1,432 497 Short-term borrowings 1,790 Industrial Bank of Korea Sub-total 2,432 1,497 2,790 Shares of subsidiaries 12,627 13,000 Long-term borrowings 10,000 Korea Eximbank Land, Buildings and Machinery 79,077 83,502 Short-term borrowings 36,502 China CITIC Bank Short-term borrowings and Long-term Shares of subsidiaries 605,023 605,023 borrowings 344,456 SCB and other Buildings and others 154,377 150,052 Long-term borrowings 43,977 Nordea Bank and Others 64 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
8. Investments in Associates (a) Details of investments in associates as of December 31, 2011 and December 31, 2010 are summarized as follows:
(In millions of won) Book value Ownership (December Company 31,2011) Acquisition Cost 2011 2010 STX Pan Ocean Co., Ltd.(*1) 7.0% W 59,814 170,093 172,239 STX Energy Co., Ltd. 24.6% 34,253 89,369 64,492 STX (Dalian) Shipbuilding Co., Ltd.(note9)(b) - - - 43,740 STX (Dalian) Precision Engineering Co., Ltd.(*2) - - - 51,789 Korea Marine Finance Corp. 27.1% 2,360 2,899 3,227 STX (Dalian) Holdings Co., Ltd - - - 13,832 Yoosung power Co., Ltd. - - - 245 STX Jabal Dhahran Company Ltd. 50.0% 151 154 152 Dalian Lian Zhong Remicon Co., Ltd. 49.0% 1,341 1,341 - Olympic Subsea KS 35.0% 13,334 18,358 16,251 Olympic Green Energy KS 30.0% 5,029 5,029 1,684 Møgster Supply KS 36.0% 4,802 4,802 2,152 Møgster Supply AS 40.0% 1,023 1,023 1,031 REM Supply AS 49.0% 20,007 19,719 9,841 Island Offshore LNG KS 27.0% 3,377 3,377 1,134 Island Offshore LNG AS 30.0% 375 375 126 Bridge Eiendom AS 50.0% 482 482 195 Taklift AS 25.0% 124 124 125 Langmoen Energigjenvinning AS - - - 33 Arctech Helsinki Shipyard OY 50.0% 2,245 - - Others - 513 514 614 W 149,230 317,659 382,902 (*1) Though the Company’s ownership is below 20%, the Company classified it as investment in associates since the Company has significant transactions with investees, and significant influence to its Board of Directors decisions. (*2) STX (Dalian) Precision Engineering Co., Ltd., of which the Company owned 40% of interests, merged with STX (Dalian) Engine Co., Ltd. in December 2011. The Company classified the investment as available-for-sale financial assets since the Company’s ownership in STX (Dalian) Engine Co., Ltd. is 16% after the merger. STX Offshore& Shipbuilding 2011 annual report 65
December 31, 2011
(b) Details of changes in investments in companies accounted for using the equity method for the year ended December 31, 2011 are as follows:
(In millions of won) Accumulated Balance at other Balance at January 1, Share of comprehensive Other increase December Company 2011 Acquisition Disposals profit (loss) income (loss) (decrease) (*) 31, 2011 STX Pan Ocean Co., Ltd. W 172,239 - - (3,208) 2,506 (1,444) 170,093 STX Energy Co., Ltd. 64,492 - - 3,640 700 20,537 89,369 STX (Dalian) Shipbuilding Co., Ltd. (note9) 43,740 - - - - (43,740) - STX (Dalian) Precision Engineering Co., Ltd. (note10) 51,789 - - (945) 2,945 (53,789) - Korea Marine Finance Corp. 3,227 - - (217) 4 (115) 2,899 STX (Dalian) Holdings Co., Ltd 13,832 - - - - (13,832) - Yoosung power Co., Ltd. 245 - (245) - - - - STX Jabal Dhahran Company Ltd. 152 - - - (2) 4 154 Dalian Lian Zhong Remicon Co., Ltd. - 420 - - - 921 1,341 Olympic Subsea KS 16,251 - - 2,291 - (184) 18,358 Olympic Green Energy KS 1,684 3,455 - - - (110) 5,029 Møgster Supply KS 2,152 2,744 - - - (94) 4,802 Møgster Supply AS 1,031 - - - - (8) 1,023 REM Supply AS 9,841 10,535 - (294) - (363) 19,719 Island Offshore LNG KS 1,134 2,317 - - - (74) 3,377 Island Offshore LNG AS 126 257 - - - (8) 375 Bridge Eiendom AS 195 297 - - - (10) 482 Taklift AS 125 - - - - (1) 124 Langmoen Energigjenvinning AS 33 - (34) - - 1 - Arctech Helsinki Shipyard OY - 2,310 - (2,312) - 2 - Others 614 - (99) - - (1) 514 W 382,902 22,335 (378) (1,045) 6,153 (92,308) 317,659 (*) Dividend received from associates amounting to W 3,209 million is included in other increase and decrease. 66 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(c) Details of changes in investments in companies accounted for using the equity method for the year ended December 31, 2010 are as follows:
(In millions of won) Accumulated Balance at other Other Balance at January 1, Share of comprehensive increase December 2010 Acquisition Disposals profit (loss) income (loss) (decrease) 31, 2010 STX Pan Ocean Co., Ltd. W 302,533 - (135,812) 6,436 1,638 (2,556) 172,239 STX Energy Co., Ltd. 65,108 - - 8,507 (27,133) 18,010 64,492 STX (Dalian) Shipbuilding Co., Ltd. 38,371 - - 3,687 342 1,340 43,740 STX (Dalian) Precision Engineering Co., Ltd. 50,995 - - 361 433 - 51,789 Korea Marine Finance Corp. 2,858 360 - 164 5 (160) 3,227 STX (Dalian) Holdings Co., Ltd - 14,725 - (2,289) 571 825 13,832 Yoosung power Co., Ltd. 245 - - - - - 245 STX Jabal Dhahran Company Ltd. - 151 - - 1 - 152 Olympic Subsea KS - - - 2,786 - 13,465 16,251 Olympic Green Energy KS - 1,663 - - - 21 1,684 Møgster Supply KS - 2,134 - - - 18 2,152 Møgster Supply AS - 1,023 - - - 8 1,031 REM Supply AS - 9,718 - - - 123 9,841 Island Offshore LNG KS - 1,120 - - - 14 1,134 Island Offshore LNG AS - 124 - - - 2 126 Bridge Eiendom AS - - - - - 195 195 Taklift AS - - - - - 125 125 Langmoen Energigjenvinning AS - - - - - 33 33 Others 622 - (59) - - 51 614 W 460,732 31,018 (135,871) 19,652 (24,143) 31,514 382,902
(d) The financial information of significant associates as of and for the year ended December 31, 2011 are summarized as follows:
(In millions of won) Assets Liabilities Sales Net Income (Loss) STX Pan Ocean Co., Ltd. W 7,016,406 4,587,581 5,742,168 (21,984) STX Energy Co., Ltd. 1,217,327 852,472 1,070,374 15,030 Korea Marine Finance Corp. 10,806 93 1,168 (806) STX Jabal Dhahran Company Ltd. 308 - - - Dalian Lian Zhong Remicon Co., Ltd. 2,348 - - - Bridge Eiendom AS 13,848 13,618 761 (379) Olympic Subsea KS 101,253 62,827 17,793 4,152 Olympic Green Energy KS 16,907 - - - Møkster Supply KS 16,001 1,394 - (35) Møkster Supply AS 2,615 23 - (29) Island Offshore LNG KS 13,506 1,054 - - Island Offshore LNG AS 1,251 - - - REM Supply AS 93,965 53,595 1,973 (455) Arctech Helsinki Shipyard OY 106,242 116,691 40,567 (15,425)
(e) Marketable security as of December 31, 2011 is as follows:
(In millions of won) Company Number of shares Book value Market value STX Pan Ocean Co., Ltd. 14,441,640 W 170,093 W 87,805
In addition, the Group provides its investment in of STX Pan Ocean Co., Ltd. as collateral in connection with borrowings and etc. STX Offshore& Shipbuilding 2011 annual report 67
December 31, 2011
9. Subsidiaries (a) The subsidiaries consolidated by the Group as of December 31, 2011 and December 31, 2010 are summarized as follows:
Effective ownership interest Subsidiaries Country of incorporation 2011 2010 STX Heavy Industries Co., Ltd. Korea 57.5% 94.1% STX (Dalian) Plant Co., Ltd. China 57.5% 94.1% STX Windpower B.V. Netherlands 57.5% 94.1% Cheil Engineering Co., Ltd. Korea 57.5% 94.1% STX HI Malaysia Sdn. Bhd. Malaysia 57.5% 94.1% STX Heavy Industries Australia Pty., Ltd. Australia 57.5% - YEGRINA Co.,Ltd. Korea 57.5% - STX (Dalian) Business Center Co., Ltd. China 100.0% 100.0% STX Real Property Development (Dalian) Co., Ltd. China 47.3% 58.2% STX Architectural Design Co., Ltd. China 42.5% - STX (Dalian) Shipbuilding Co., Ltd. (*3)(note9)(b) China 63.9% - STX (Dalian) Holdings Co., Ltd. (note9)(2) China 63.9% - STX(Dalian) Marine Engineering Co., Ltd. (note9)(b) China 63.9% 100.0% STX(Dalian) Heavy industries Co.,Ltd.(*3) China 63.9% 76.6% STX China Shipbuilding Holdings Co., Ltd.(*2) Hong Kong 63.9% - STX Construction (Dalian) Co.,Ltd.(*2) China 36.7% - STX Canada Marine Inc. Canada 100.0% 100.0% STX US Marine Inc. America 100.0% 100.0% Hyukshin Machinery Co., Ltd. (*1) Korea 100.0% - STX Norway AS Norway 66.7% 66.7% STX Europe AS Norway 66.7% 66.7% STX Europe Holding AS Norway - 66.7% STX OSV Holdings Ltd. Singapore 33.9% 46.0% STX OSV AS Norway 33.9% 46.0% STX OSV Brevik Holding AS Norway 33.9% 46.0% STX Grenland Industri AS Norway 33.9% 46.0% STX Shipyard Support AS Norway 33.9% 46.0% Hjallum AS Norway 33.9% 46.0% STX Brevik Support AS Norway 33.9% 46.0% Scandinor AS Norway 66.7% 66.7% STX OSV Braila SA Romania 33.9% 46.0% Braila Ship Repair SA Romania 33.9% 46.0% AJA Ship Design SA Romania 20.3% 27.6% STX OSV Electro AS Norway 33.9% 46.0% STX OSV Electro Tulcea SRL Romania 33.9% 46.0% STX OSV Electrical Installation & Engineering India India 33.9% 46.0% STX OSV Electro Niteroi Ltd. Brazil 33.9% 46.0% STX OSV Electro Braila SRL Romania 33.9% 46.0% Emil Langva AS Norway 33.9% - STX OSV Electro Brevik AS Norway 33.9% 46.0% Brevik Elektro AS Norway 33.9% 46.0% STX OSV Niteroi SA Brazil 33.9% 46.0% STX OSV Promar SA Brazil 17.1% 23.3% STX OSV Accommodation AS Norway 33.9% 46.0% STX OSV RO Holding SRL Romania 33.9% 46.0% STX OSV Tulcea SA Romania 33.5% 44.0% STX OSV Scanyards SRL Romania 33.9% 46.0% STX OSV Singapore Pte. Ltd. Singapore 33.9% 46.0% STX OSV Vung Tau Ltd. Vietnam 33.9% 46.0% 68 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
Effective ownership interest Subsidiaries Country of incorporation 2011 2010 STX OSV Piping AS Norway 33.9% 46.0% STX OSV Piping SRL Romania 33.9% 46.0% STX OSV Design AS Norway 33.9% 46.0% Aakre Eigendom AS Norway 33.9% - Seaonics AS Norway 17.3% - STX France Holding AS Norway - 66.7% STX France SA France 44.5% 44.5% STX France Lorient SAS France 44.5% 44.5% STX France Solutions SAS France 44.5% 44.5% STX France LNG Techology SAS France 44.5% 44.5% STX France Cabins SAS France 44.5% 44.5% STX Norway Florø AS Norway 66.7% 66.7% AFS Elektro AS Norway - 50.7% STX Norway Design Florø AS Norway 66.7% 66.7% Kramfors ASA Norway - 66.7% STX Europe Technology AS Norway - 66.7% STX Finland OY Finland 66.7% 66.7% STX Finland Cabins OY Finland 66.7% 66.7% STX USA Lifecycle Services Inc. America 66.7% 66.7% Arctech Helsinki Shipyard OY Finland - 100.0% Aker Arctic Technology OY Finland 47.6% 47.6% Shipbuilding Completion OY Finland 66.7% 66.7% Technology Design and Eng’nD OY Finland 66.7% 66.7%
(*1) The Company acquired 100% ownership interest of Hyukshin Machinery Co., Ltd. with cash in January 2011 and the financial effect of the purchase business combination is as follows:
(In millions of won) Amount Consideration transferred in the business combination W 37,352 Fair value of identifiable net assets 49,137 Gains from a bargain purchase W 11,785
(*2) STX China Shipbuilding Holdings Co., Ltd. was established in June 2011. In August 2011, STX China Shipbuilding Holdings Co., Ltd. acquired 57.6% ownership interest of STX Construction (Dalian) Co., Ltd which was wholly owned by STX Construction Co., Ltd. The Group has no interest of STX Construction Co., Ltd. Consideration transferred in the business combination amounts to W 77,508 million, and the financial effects resulted from business combination of STX Construction (Dalian) Co., Ltd. are as follows:
(In millions of won) Amount Consideration transferred in the business combination W 77,508 Fair value of identifiable net assets 128,465 Non controlling interest 54,497 Gains from a bargain purchase W 3,540
Consideration transferred in the business combination and the fair value of identifiable net assets are measured in accordance with valuation reports which was performed by independent specialists of Deloitte Anjin LLC.
(*3) In July 2011, 31.8% ownership interest of STX (Dalian) Heavy industries Co., Ltd. was transferred from the Parent Company to STX (Dalian) Holdings Co., Ltd. In December 2011, 23.5% ownership interest of STX (Dalian) Shipbuilding Co., Ltd. was transferred from the Parent Company to STX (Dalian) Holdings Co., Ltd. STX Offshore& Shipbuilding 2011 annual report 69
December 31, 2011
(b)The financial effect of the business combination caused by investment in kind
In January 2011, 100% ownership interest of STX (Dalian) Marine Engineering Co., Ltd. was transferred from the Parent Company to STX (Dalian) Holdings Co., Ltd. as an investment in kind and STX (Dalian) Holdings Co., Ltd has been included in the scope of consolidation since the Group’ s ownership interest has changed to 68.2% due to the investment in kind. In addition, STX (Dalian) Shipbuilding Co., Ltd has been included in the scope of consolidation since the Group became the controlling shareholder of STX (Dalian) Shipbuilding Co., Ltd in consideration of interest owned by the Parent Company and STX (Dalian) Holdings Co., Ltd. during the year ended December 31, 2011.
The financial effect on acquisition of STX (Dalian) Shipbuilding Co., Ltd is as follows:
(In millions of won) Amount Consideration transferred in the business combination(*1) W 118,085 Fair value of identifiable net assets(*2) 165,485 Non controlling interest 89,163 Goodwill W 41,763
Consideration transferred in the business combination and the fair value of identifiable net assets are measured in accordance with valuation reports which was performed by independent specialists of Deloitte Anjin LLC.
(*1) Consideration transferred in the business combination is measured at the fair value of interest of STX (Dalian) Shipbuilding Co., Ltd immediately before the transaction. Consequently, the Group recognized the difference between the fair value and the book value under equity method W 40,426 million and amount of W 28,513 million which was previously recorded as in equity related to this investee as gain from disposal of investment in equity method accounted investee in finance income.
Consideration transferred in the business combination is measured by using the discounted cash flow method. The key assumption is as follows:
Measurement date January 1, 2011 Period 2011~2015 Financial budget approved by management Cash flow based on estimated new contracts 39,691million CNY and contract on hand at the end of the period, Growth rate 3.80% Discount rate(Weighted average cost of capital) 15.57%
(*2) The Group measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values.
(c) Cash flow from business combination
Fair value of consideration transferred in the business combination is as follows:
(In millions of won) Subsidiaries Cash Investment in associate Total Hyukshin Machinery Co., Ltd. W 37,352 - 37,352 STX (Dalian) Shipbuilding Co., Ltd. - 118,085 118,085 STX Construction (Dalian) Co.,Ltd. 77,508 - 77,508 W 114,860 118,085 232,945
Net cash flow from business combination is as follows:
(In millions of won) Amount Total consideration W 232,945 Less: Non monetary consideration (118,085) Monetary consideration 114,860 Less: Cash acquired (131,904) Net cash outflow (inflow) W (17,044) 70 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(d) Changes in control structures of subsidiaries
Kramfors ASA, of which STX Europe Holding AS owns 100% of interests, was liquidated in August 2011 and STX Europe Holding AS acquired STX France Holding AS, and STX Europe Technology AS. As a result, assets, liabilities, rights and obligations of STX France Holding AS, and STX Europe Technology AS were transferred to STX Europe Holdings AS. In addition, STX Europe AS merged STX Europe Holding AS in November 2011. Con- sequently, assets, liabilities, rights and obligations of STX Europe Holding AS were transferred to STX Europe AS.
(e) The financial information of subsidiaries as of December, 31, 2011 are summarized as follows:
(In millions of won) Assets Liabilities Sales Net Income (Loss) STX Heavy Industries Co., Ltd. W 1,878,818 1,483,700 1,686,602 40,616 Cheil Engineering Co., Ltd. 9,843 4,836 14,819 89 Hyukshin Machinery Co., Ltd. 294,473 210,912 111,037 5,145 YEGRINA Co.,Ltd. 450 416 - - STX (Dalian) Plant Co., Ltd. 168,566 121,954 13,479 (1,553) STX Real Property Development (Dalian) Co., Ltd. 152,697 42,306 52,281 6,271 STX (Dalian) Business Center Co., Ltd. 142,238 49,654 22,817 3,002 STX (Dalian) Holdings Co., Ltd. (note9)(2) 3,241,783 2,762,175 2,390,013 (10,754) STX China Shipbuilding Holdings Co., Ltd. 320,104 189,039 72,357 186 STX HI Malaysia Sdn. Bhd. 1,458 1,162 111 31 STX Heavy Industries Australia Pty Ltd 81 74 101 (5) STX Canada Marine Inc. 6,933 1,372 9,974 538 STX Norway AS 4,551,911 4,315,880 4,101,814 80,783 STX Windpower B.V. 7,640 2,875 2,862 (1,888)
10. Available-for-sale financial assets Available-for-sale financial assets as of December 31, 2011 and 2010 are summarized as follows:
(In millions of won) 2011 2010 National Housing Fund Bonds W 30 2,409 New-world-shipping Private Investment Trust 14,538 14,538 Available-for-sale debt instruments CP (STX Construction Co., Ltd.) (*1) 9,500 - Others 600 - 24,668 16,947
Available-for-sale equity Non-marketable equity STX (Dalian) Engine Co., Ltd. (*2) 65,195 - (*3) instruments: instruments Cruise Conglomerate Maritime Limited. 46,050 45,166 Others 8,988 10,005 120,233 55,171
Marketable equity Shinhan Financial Group Co., Ltd. 25,043 46,000 instruments SK Holdings Co., Ltd. - 1,242 25,043 47,242
W 169,944 119,360 (*1) STX Construction Co., Ltd. is a related party of the Group. (*2) In December 2011, STX (Dalian) Engine Co., Ltd. merged STX (Dalian) Precision Engineering Co., Ltd., of which the Group owned 40% of interests. The Group classified it as available-for-sale financial assets since the Company owns 16% of interests of STX (Dalian) Engine Co., Ltd. after the merger. The fair value of STX (Dalian) Engine Co., Ltd.’s interests acquired by the business combination is measured in accordance with valuation report issued by independent specialists of Deloitte Anjin LLC. The Group recognized the difference between the fair value of its interests in STX (Dalian) Engine Co., Ltd. and the carrying value of STX (Dalian) Precision Engineering Co., Ltd. W 11,406 million and amount of W 11,643 million which was previously recorded as in equity related to this investee as gain from disposal of investment in equity method accounted investee in finance income. (*3) Non-marketable securities that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured are measured at cost. STX Offshore& Shipbuilding 2011 annual report 71
December 31, 2011
11. Trade and other receivables (a) Details of trade and other receivables as of December 31, 2011 and December 31, 2010 are as follows:
2011 2010 (In millions of won) Current Non-current Current Non-current Trade receivables: Trade receivables W 286,584 39,214 220,782 44,161 Allowance for doubtful accounts (11,112) (4,265) (8,468) (5,971) 275,472 34,949 212,314 38,190
Other receivables: Loans 12,819 64,109 4,533 47,123 Allowance for doubtful accounts (116) (166) - (166) Other receivables 150,891 678 128,241 675 Allowance for doubtful accounts (19) - (27) - Accrued revenues 958 - 897 - Allowance for doubtful accounts (35) - (35) - Prepaid value added tax 351,969 - 103,973 - Deposits 15,363 42,380 60,811 21,680 Other current assets - - 30 - 531,830 107,001 298,423 69,312
W 807,302 141,950 510,737 107,502
(b) Details of trade and other receivables that are measured at amortized costs as of December 31, 2011, December 31, 2010 are as follows:
2011 2010 (In millions of won) Effective interest rate Current Non-current Effective interest rate Current Non-current Trade receivables W 3.35% ~ 6.85% 16,100 34,949 3.35% ~ 6.85% 1,367 38,190
12. Inventories Inventories as of December 31, 2011 and December 31, 2010 are summarized as follows:
(In millions of won) 2011 2010 Finished goods W 229,369 32,586 Allowance for finished goods (24,893) - Merchandise 800 - Raw materials 321,611 243,321 Work-in-process 87,216 109,526 Completed construction 11,197 3,599 Construction in progress 54,787 31,562 Supplies 1,182 406 Goods in transit 74,799 30,300 W 756,068 451,300 72 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
13. Restricted Deposits Restricted financial instruments excluding provided as collateral for borrowings and others as of December 31, 2011 and December 31, 2010 are as follows:
(In millions of won) 2011 2010 Description of restriction Cash and cash equivalents W - 681 Leasehold deposit Cash and cash equivalents 139,106 238,758 Restricted advances from customers Other financial assets 132,886 40,941 Pledge and others W 271,992 280,380
14. Share Capital and Capital Surplus (a) Details of share capital as of December 31, 2011 and December 31, 2010 are summarized as follows:
(In won, except share information) 2011 2010 Number of shares in issue 140,000,000 140,000,000 Value per share 2,500 2,500 Number of shares issued 79,630,014 76,840,224 Share Capital W 199,075,035,000 192,100,560,000
(b) Details of capital surplus as of December 31, 2011 and December 31, 2010 are summarized as follows:
(In millions of won) 2011 2010 Capital stock premium W 262,235 227,229 Gains from stock retirement 11,729 11,729 Other share premium 11,570 (83,982) W 285,534 154,976
(c) The Parent company issued 2,789,790 of common stocks upon exercise of stock warrants in 2011. As a result, share capital increased by W 6,974 million and capital stock premium increased by W 35,006 million.
15. Treasury Shares As of December 31, 2011 and 2010, the total number of treasury shares is 1,159,969.
16. Other equity (a) Details of other equity as of December 31, 2011 and December 31, 2010 are summarized as follows:
(In millions of won) 2011 2010 Gains on disposal of treasury stock W 11,148 11,148 Share-based payment 2,938 9,450 Fair value gain on available-for-sale financial assets (6,256) (120) Increases in equity of equity method investments 19,548 54,819 Decreases in equity of equity method investments (10,972) (11,670) Foreign currency translation differences 86,145 71,277 Gain on revaluation of land 98,975 83,310 Legal reserve 16,141 14,628 Voluntary reserve 6,524 6,524 W 224,191 239,366 STX Offshore& Shipbuilding 2011 annual report 73
December 31, 2011
(a) Legal reserve
The Korean Commercial Code requires the Parent Company to appropriate a legal reserve in an amount equal to at least 10% of cash dividends for each accounting period until the reserve equals 50% of stated capital. The legal reserve may be used to reduce a deficit or may be transferred to common stock in connection with a free issue of shares.
(b) Voluntary reserves Details of voluntary reserves as of December 31, 2011 and 2010 are summarized as follows:
(In millions of won) 2011 2010 Reserve for improvement of financial structures W 6,221 6,221 Reserve for business rationalization 303 303 W 6,524 6,524
(i) Reserve for improvement of financial structure Until December 26, 2007 the Regulations on Securities Issuance and Disclosure require the Parent Company to appropriate into a reserve for improvement of financial structure an amount equal to at least 50% of the net gain on sale of property, plant and equipment and 10% of net income for each year until the Group’s shareholder’s equity equals 30% of total assets. The reserve may be used to reduce a deficit or transferred to common stock in connection with a free issue of shares.
Effective as of December 27, 2007, the above requirement has been removed and the Parent Company is no longer required to appropriate into a reserve for improvement of financial structure and, consequently, the existing balance is now regarded as a voluntary reserve.
(ii) Reserve for business rationalization Until December 10, 2002 under the Special Tax Treatment Control Law, investment tax credits were allowed for certain investments. The Parent Company was, however, required to appropriate from retained earnings the amount of tax benefits received and transfer such amount into a reserve for business rationalization.
Effective as of December 11, 2002, the Parent Company is no longer required to establish a reserve for business rationalization despite tax benefits received for certain investments and, consequently, the existing balance is now regarded as a voluntary reserve.
17. Bonds and Long-term Borrowings (a) Bonds as of December 31, 2011 and December 31, 2010 are as follows:
(In millions of won) Book value Annual interest Bonds Date issued Due date rate 2011 2010 Debenture 2010.01.04 2012.01.04 7.4% W 220,000 220,000 Debenture 2010.05.07 2012.05.07 6.2% 100,000 100,000 Debenture 2010.05.07 2013.05.07 7.0% 200,000 200,000 Debenture 2010.06.08 2011.06.08 - - 200,000 Debenture 2010.06.25 2011.06.07 - - 35,000 Debenture 2011.01.07 2014.01.07 6.0% 180,000 - Debenture 2011.03.29 2014.03.29 4.1% 20,000 - Debenture 2011.06.08 2012.06.08 6.9% 270,000 - Debenture 2011.11.04 2013.05.04 6.7% 100,000 - Debenture 2010.10.29 2012.10.29 7.3% 100,000 100,000 Guaranteed bond 2006.03.10 2013.03.10 5.5% 23,056 23,227 Guaranteed bond 2006.03.10 2013.03.10 6.7% 96,648 96,926 Guaranteed bond 2010.03.24 2011.09.30 - - 43,314 1,309,704 1,018,467
Less discounts on bonds (1,627) (1,595) Less current portion of bonds (419,800) - Less short-term bonds (270,000) (235,000)
W 618,277 781,872 74 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(b) Bond with stock purchase warrants as of December 31, 2011 and December 31, 2010 are as follows:
(In millions of won) Book value Exercise price Bonds Date issued Due date Exercisable period in won (*) 2011 2010 2009.08.20 ~ Bond with stock purchase warrants 2009.07.20 2012.07.20 2012.06.20 13,150 W 150,965 173,030 2012.01.23 ~ Bond with stock purchase warrants 2011.12.23 2014.12.23 2014.11.23 14,150 100,000 -
Bond redemption premium 22,836 22,565 Less discounts on bonds (2,913) (2,167) Stock warrants adjustment (8,503) (10,392) 262,385 183,036
Less current portion of Bond with stock purchase warrants (165,326) (183,036)
W 97,059 -
(*)The exercise price of 12th was adjusted from W 14,350 to W 13,150, due to a decrease in stock price in 2010,
(i) 12th bond with stock purchase warrants is effective when the relevant payment is made in cash or proxy, and is required to pay dividends as- suming it to be converted on the last day of the year before the conversion is made. On the maturity date, the bond with stock purchase warrants is to be redeemed at 113.04% of the face value. The bond with stock purchase warrants bears an option to claim an early redemption by investors every 3 months after passing 18 months from the issuing date.
(ii) 22th bond with stock purchase warrants is effective when the relevant payment is made in cash or proxy, and is required to pay dividends as- suming it to be converted on the last day of the year before the conversion is made. On the maturity date, the bond with stock purchase warrants is to be redeemed at 103.15% of the face value. The bond with stock purchase warrants bears an option to claim an early redemption by investors every 6 months after 24 months subsequent to the issuing date.
In addition, the change in bond with stock purchase warrants for the year ended 2011 is summarized as follows:
12th Bond with 22nd Bond stock purchase warrants with stock purchase warrants Total Beginning remaining unconverted stocks 8,822,865 - 8,822,865 Issue - 7,066,608 7,066,608 Exercise (2,789,790) - (2,789,790) Adjustments (40) - (40) Ending remaining unconverted stocks 6,033,035 7,066,608 13,099,643 STX Offshore& Shipbuilding 2011 annual report 75
December 31, 2011
(c) Long-term borrowings as of December 31, 2011 and December 31, 2010 are summarized as follows:
(In millions of won) Financial institution Annual interest rate 2011 2010 Golden Bridge Investment & Securities Co., Ltd. - W - 10,000 Hanyang Securities Co., Ltd. 6.1% 20,000 - Kookmin Bank 8.9% 4,000 - Woori Bank 7.6% 5,909 - Korea Development Bank 5.6% ~ 6.9% 178,000 10,000 Korea Eximbank 7.3% 10,000 10,000 Korea Finance Corporation 4.4% ~ 4.6% 9,169 2,733 Industrial Bank of Korea 4.0% 198 384 Kookmin Bank - - 60,297 Shinhan Bank - - 60,297 Woori Bank - - 60,297 Korea Development Bank 3M LIBOR+3.0% 182,087 60,297 Industrial and Commercial Bank of China 7.1% 54,753 41,400 China Everbright Bank 7.1% 27,376 20,700 Bank of Communications 7.1% 165,962 96,570 Agricultural Bank of China 7.1% 16,426 12,420 China Minsheng Banking Corp 7.1% 71,179 53,820 Industrial and Commercial Bank of China 6.7% 10,951 10,350 China Everbright Bank 6.7% 5,475 5,175 Bank of Communications 6.7% 20,806 19,665 Agricultural Bank of China 6.7% 3,285 3,105 China Minsheng Banking Corp 6.7% 14,236 13,455 Jinzhou Bank 6.7% 16,426 - Standard Chartered Bank 2Y IRS+2.0% 135,697 66,260 Agricultural Bank of China 7.0% 54,753 - Korea Development Bank 3M LIBOR+4.3% 82,798 Samsung Securities Co., Ltd. - - 19,530 Woori Bank - - 58,068 Babca Transilvania - - 3,682 BNDES INVEST 4.2% 2,574 2,880 Eurasianshipping 7.0% 49,598 - BNDES Finame - - 1,329 Innovation Norway 4.2% ~ 4.5% 31,234 827 ITAU BBA 4.6% 1,157 2,110 BIGTRUSTNH LLC - - 49,906 Nordea Bank 1.5% ~ 2.3% 14,734 17,168 Norsk Tillitsmann 6.7% 88 104 Porsche Leasing Romania 10.0% ~ 10.6% 48 60 SND - - 33,085 Standard Chartered Bank - - 98,167 STX Engine Co., Ltd. 7.0% 30,727 91,748 1,219,646 995,889
Less current portion of long-term borrowings (298,292) (165,856) Less discounts on long-term borrowings (5,901) -
W 915,453 830,033 76 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(d) Finance lease liabilities as of December 31, 2011 and December 31, 2010 are as follows:
(In millions of won) Financial institution Annual interest rate 2011 2010 KDB Capital 7.4% ~ 8.9% W 38,204 47,221 Natexis Bail (ROHU) and others 1.6% ~ 6.9% 46,860 2,573 85,064 49,794 Less current portion (20,596) (9,017) W 64,468 40,777
18. Short-term Borrowings Short-term borrowings and acceptances payable to banks as of December 31, 2011 and December 31, 2010 are as follows:
(In millions of won) Book value Financial institution Annual interest rate 2011 2010 Korea Eximbank(*) 6.0% ~ 6.7% W 30,500 33,900 Nordea Bank(*) - - 57,342 Nordea Bank(*) NIBOR+1.5% 457,107 851,220 Shinhan Bank 1.3% ~ 1.8% 436 269 Woori Bank 1.3% ~ 4.7% 79,132 26,886 Korea Exchange Bank 1.5% ~ 2.7% 14,261 22,406 The Kwangju Bank, Ltd. 1.6% ~ 2.0% 10,421 - National Agricultural Cooperative Federation 1.3% ~ 4.4% 56,063 69,099 Industrial and Commercial Bank of China 3.1% ~ 3.4% 3,166 414 Bank of communication - - 3,761 Korea Development Bank 1.6% ~ 3.9% 25,482 29,814 Bank of communication - - 2,584 Korea Development Bank 7.1% 70,300 130,000 Kyongnam Bank 6.6% 30,000 30,000 The Kwangju Bank, Ltd. 7.0% 10,000 10,000 Shinhan Investment Corp. 5.8% 20,000 - Woori Bank 6.2% 50,000 - Korea Exchange Bank 5.1% 45,000 90,000 National Agricultural Cooperative Federation 7.5% 20,000 20,000 Korea Development Bank 7.2% - 35,000 Shinhan Bank 6.6% 20,000 20,000 Nordea Bank - 9 305 Woori Bank 7.3% 10,000 - Industrial bank of Korea 8.8% 299 - Korea Development Bank 6.8% 100,000 - Korea Exchange Bank 7.2% 7,300 - China Bohai Bank 6.9% 72,090 - BNDES Finame 6.2% 1,685 1,329 Guangfa Bank 7.2% ~ 7.7% 18,251 - Jilin Bank 3.3% ~ 6.7% 59,078 - Bank of Jinzhou 6.7% 913 - BTR - - 5 SCB 4.5% ~ 4.8% 294,752 - Kyongnam Bank 7.0% 10,000 - China Construction Bank 4.4% 6,269 - Industrial and Commercial Bank of China 3.8% 6,379 - Bank of communication 5.3% ~ 6.6% 70,204 - Bank of communication LIBOR+4.0% ~ 5.5% 15,249 - Agricultural Bank of China 7.2% 36,502 34,500 China Minsheng Bank 6.7 ~ 7.6% 36,502 - STX Offshore& Shipbuilding 2011 annual report 77
December 31, 2011
(In millions of won) Book value Financial institution Annual interest rate 2011 2010 Bank of China 10.0% W 11,935 - China CITIC Bank 7.0%~8.5% 106,161 18,113 Industrial bank of Korea 5.1%~5.5% 5,200 1,346 Korea Development Bank 6.4% ~ 6.5% 5,000 - SCB 6.9% 12,000 - SK Securities Co., Ltd. 5.4% 15,000 44,700 Kumho Investment Bank 4.0% ~ 5.4% 28,000 - Meritz Investment Bank 5.4% 3,000 28,200 IBK Securities Co., Ltd. 5.5% 30,000 - HMC Investment Securities Co., Ltd. 4.8% - 5,000 NH Investment & Securities Co., Ltd. 5.4% 7,000 - Woori Investment & Securities Co., Ltd. 5.0% ~ 5.6% 15,000 - KTB Investment & Securities Co., Ltd. 6.5% - 10,000 Hanyang Securities Co., Ltd. 5.5% 25,000 157,000 Korea Eximbank 6.0% 46,453 140,557 Korea Eximbank 5.1% 20,000 5,695 Woori Bank - - 26,000 Korea Exchange Bank and others 1.7% ~ 9.0% 35,050 31,908 Woori Bank 5.9% 8,000 49,907 Korea Exchange Bank 4.8% ~ 5.2% 104,487 159,805 STX (Dalian) Shipbuilding Co., Ltd. - - 73,383 STX Engine Co., Ltd. 7.0% 105,318 - Choi, Younghurk - 4,804 -
W 2,274,758 2,220,448
(*) The Group provided future accounts receivable expected to be collected as scheduled as collateral for short-term borrowings.
Trade receivables sold at a discount that are transferred to financial institutions but bears recourse obligations which have no significant changes in risks and awards are not de-recognized and are accounted for as short-term borrowings from financial institutions.
19. Trade Payables and Other Liabilities Trade and other payables as of December 31, 2011 and December 31, 2010 are summarized as follows:
Book value 2011 2010 (In millions of won) Current Non-current Current Non-current Trade payables W 2,182,311 - 1,035,741 - Other liabilities Withholdings 90,744 - 78,878 - Revenue deposits received 8,865 - - - VAT withholdings 1,076 - - - Unearned revenue 666 - 167 - Financial guarantee contract liabilities - - 3,684 - Other current liabilities 5,945 - 2,958 - Leasehold deposits received - - - 358 Long-term accrued expenses - 45,823 - 15,652 Other non-current liabilities - 5,914 - 7,318 107,296 51,737 85,687 23,328
W 2,289,607 51,737 1,121,428 23,328 78 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
20. Employee Benefits The Group operates both defined benefit and defined contribution plans.
(a) Details of defined benefit liabilities as of December 31, 2011 and December 31, 2010 are as follows:
(In millions of won) 2011 2010 Funded obligations W 34,733 42,423 Unfunded obligations 27,993 21,318 Contribution to national pension plan (97) (116) Fair value of plan assets (21,136) (24,120) Others (467) 596 Defined benefit liabilities at December 31 W 41,026 40,101
(b) Changes in defined benefit liabilities for the years ended December 31, 2011 and 2010 are as follows:
(In millions of won) 2011 2010 Defined benefit liabilities at January 1 W 40,101 43,233 Current service costs 9,418 9,921 Interest costs 3,019 3,222 Expected returns on plan assets (930) (899) Actuarial losses (gains) (4,839) 2,044 Effect of curtailments or settlements (499) (4,224) Acquisitions and disposals - 18 Past service costs 138 96 Contributions by plan participants (1,853) (5,776) Benefits paid by the plan (3,147) (4,718) Contributions by employers 1,596 - Effect of movement in exchange rates (1,978) (2,816) Defined benefit liabilities at December 31 W 41,026 40,101
(c) Changes in plan assets for the years ended December 31, 2011 and 2010 are as follows:
(In millions of won) 2011 2010 Fair value of plan assets at January 1 W 24,119 23,343 Expected returns on plan assets 930 789 Contributions paid into to plan 1,853 5,105 Actuarial gains (losses) (194) (122) Effect of curtailments or settlements (1,277) (695) Benefits paid by the plan (3,338) (3,486) Effect of movement in exchange rates (957) (814) Fair value of plan assets at December 31 W 21,136 24,120 STX Offshore& Shipbuilding 2011 annual report 79
December 31, 2011
(d) Retirement benefits recognized in the comprehensive statement of income for the years ended December 31, 2011 and 2010 are as follows:
(In millions of won) 2011 2010 Defined benefit plan: Current service costs W 9,418 9,921 Interest costs 3,019 3,222 Expected returns on plan assets (930) (899) Effect of curtailments (499) (4,224) Past service costs 138 96 11,146 8,116 Defined contribution plan: Contributions recognized as expense 34,803 35,381 34,803 35,381
Retirement benefit costs recognized W 45,949 43,497
(e) The components of plan assets as of December 31, 2011 are as follows:
(In millions of won) 2011 Debentures W 3,785 Financial assets 2,259 Equity instruments 793 Debt instruments 10,256 Others 4,044 W 21,136
21. Provisions (a) Changes in the provision for loss on construction contracts for the years ended December 31, 2011 and 2010 are summarized as follows:
(In millions of won) 2011 2010 Balance at beginning of period W 40,188 43,424 Changes in scope of consolidation 9,599 - Additional (reversal of) provisions (19,464) (1,543) Currency translation differences (432) (1,693) Balance at end of period W 29,891 40,188 Amount recorded as reduction of project under construction (17,302) (21,923) Amount recorded as provisions 12,589 18,265
Less current portion of provisions (8,400) (13,565)
Thereof non-current W 4,189 4,700
(b) Changes in the provision for warranty claims and other provisions for the years ended December 31, 2011 and 2010 are summarized as follows:
2011 2010 (In millions of won) Warranty Other Warranty Other Balance at begging of period W 121,900 28,923 62,047 40,946 Changes in scope of consolidation 4,164 - - - Provisions made (reversed) during the period 67,880 88,463 83,754 (1,390) Provisions used during the period (55,155) (17,501) (20,152) (7,386) Currency translation differences (624) (1,465) (3,749) (3,247) Balance at end of period 138,165 98,420 121,900 28,923
Less current portion of provisions (105,774) (74,371) (89,973) (361)
Thereof non-current W 32,391 24,049 31,927 28,562 80 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
22. Classification of Expenses by Nature Details of expenses by nature for the years ended December 31, 2011 and 2010 are summarized as follows:
(In millions of won) 2011 2010 Fluctuation of inventories W 5,423,477 5,266,287 Employee benefits 1,250,831 1,080,390 Depreciation and amortization 297,397 248,691 Commissions 304,369 217,407 Rental expenses 178,752 106,322 Freight expenses 33,937 40,037 Taxes and dues 29,553 20,193 Others 2,982,606 1,808,834 W 10,500,922 8,788,161
23. Selling, General and Administrative Expenses Details of selling, general and administrative expenses for the years ended December 31, 2011 and 2010 are as follows:
(In millions of won) 2011 2010 Salaries W 224,047 146,586 Retirement benefit costs 3,586 3,453 Employee benefits 14,325 8,920 Bad debt expenses 6,355 5,963 Rental expenses 35,221 24,734 Entertainment expenses 1,702 1,201 Depreciation 23,636 18,862 Taxes and dues 16,004 10,457 Advertising expenses 6,295 7,403 Training expenses 2,098 1,449 Travel expenses 7,643 6,884 Communication expenses 695 521 Repair expenses 1,009 13,002 Insurance premiums 1,203 894 Freight expenses 659 780 Commission and professional fees 75,229 72,782 Vehicle maintenance expenses 1,480 785 Supply expenses 1,321 8,285 Publication expenses 331 332 Utility expenses 692 180 Conference expenses 104 27 Development expenses 14 24 Amortization 64,797 66,385 Warranty expenses 2,089 2,398 Miscellaneous expenses 68,082 21,529 W 558,617 423,836 STX Offshore& Shipbuilding 2011 annual report 81
December 31, 2011
24. Other Operating Income and Expenses Details of other income and other expenses for the years ended December 31, 2011 and 2010 are as follows:
(In millions of won) 2011 2010 Other income: Gains on disposals of property, plant and equipment W 180 56 Gains on revaluations of property, plant and equipment 82 467 Gains on disposals of intangible assets 30 - Reversal of impairment losses on intangible assets 151 67 Reversal of allowance for doubtful accounts 1,541 10,525 Reversal of provision for construction warranties - 170 Gains from a bargain purchase 11,785 - Rental revenues 288 149 Miscellaneous gains 7,565 53,179 Gains on insurance settlements - 182 21,622 64,795
Other expenses: Other bad debt expenses 3,705 34,122 Losses on disposals of property, plant and equipment 3,589 2,323 Impairment losses on property, plant and equipment - 2,658 Losses on disposals of intangible assets 28 - Impairment losses on intangible assets 289 167 Loss of abnormal spoilage - 8,453 Donations 1,714 1,842 Miscellaneous losses 15,627 1,299 24,952 50,864
Net other income (expense) W (3,330) 13,931
82 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
25. Financial Income and Costs Details of finance income and finance costs for the years ended December 31, 2011 and 2010 are as follows:
(In millions of won) 2011 2010 Finance income: Interest income W 35,620 45,546 Dividend income 1,598 1,312 Gains on foreign currency transactions 126,538 252,678 Gains on foreign currency translations 125,985 83,746 Gains on Sale of available-for-sale financial assets 5 - Gains on disposals of investments in associates 91,988 24,263 Gains on valuations of financial derivatives 335,096 536,010 Gains on transactions of financial derivatives 127,718 90,693 Gains on valuations of firm commitments 150,517 132,540 Financial guarantee income 547 1,554 Other finance income 5,148 28,253 1,000,760 1,196,595
Finance costs: Interest expense 286,189 251,942 Losses on foreign currency transactions 131,390 199,111 Losses on foreign currency translations 120,376 104,087 Losses on disposals of available-for-sale financial assets 1,206 17 Losses on disposals of investments in associates 142 - Losses on bond retirement 1 - Losses on valuations of financial derivatives 287,882 282,872 Losses on transactions of financial derivatives 76,209 94,258 Losses on valuations of firm commitments 345,543 485,664 Other finance costs 15,284 8,732 1,264,222 1,426,683
Net finance costs W (263,462) (230,088)
26. Income Taxes (a) The components of income tax expense for the years ended December 31, 2011 and 2010 are summarized as follows:
(In millions of won) 2011 2010 Current income tax expense W 163,889 107,013 Adjustments for prior year 54 96 Changes in temporary differences 15,922 (69,197) Tax loss carry forwards (20,942) 28,899 Tax credit carry forwards (123) (345) Income tax expense W 158,802 66,467
(b) Current income tax expense and deferred income tax credited directly to equity for the years ended December 31, 2010 and 2011 are as follows:
(In millions of won) 2011 2010 Current income tax (charged) credited directly to equity W (1,292) 750 Deferred income tax credited directly to equity 22,906 44,236 Income tax credited directly to equity W 21,614 44,986 STX Offshore& Shipbuilding 2011 annual report 83
December 31, 2011
(c) The income tax expense calculated by applying statutory tax rates to the Group’s taxable income for the year differs from the actual tax expense in the statement of comprehensive income for the year ended December 31, 2011 and 2010 for the following reasons:
(In millions of won) 2011 2010 Profit (Loss) before income taxes W 327,413 (73,388)
Income tax using the Parent Company’s domestic tax rate 79,234 (17,760) Effect of tax rates difference in foreign jurisdictions 23,687 13,903 Adjustments Non-taxable income (18,506) (6,145) Non-deductible expenses 33,903 8,842 Investment tax credits (1,172) (14,381) Unrecognized deferred income tax 32,332 68,973 Adjustments for prior year 2,421 13 Other 6,903 13,022 Income tax expense (benefit) W 158,802 66,467
27. Earnings (Loss) per Share (a) Basic earnings per share for the the years ended December 31, 2011 and 2010 are as follows:
(In won except share information) 2011 2010 Profit (loss) attributable to common shareholders W 71,115,189,066 (48,731,002,706) Weighted average number of common shares(*) 78,470,045 75,680,255 Basic earnings (loss) per share W 906 (644)
(*)Computation of weighted average number of ordinary shares
Number of common Time-weighting factor Date shares (A) (B) (A)Ⅹ(B) Beginning 2011.01.01 75,680,255 365 27,623,293,075 Exercise of warrant 2011.01.01 2,789,790 365 1,018,273,350 28,641,566,425
Weighted average number of common shares 78,470,045
(b) Diluted earnings per share for the the years ended December 31, 2011 are as follows:
(In won except share information) 2011 Profit after adjustment W 71,115,189,066 Weighted average number of common shares(*) 81,065,119 Diluted earning per share W 877
Since there were no dilutive effects for the prior year, diluted EPS and basic EPS for the prior year are consistent.
(*) Computation of an increase in shares when exercise warrants
(In won except share information) Exercisable shares 6,033,035 Exercise price 13,150 Weighted stock price average 23,076 Available fund for exercise 79,334,410,250 Available shares for repurchase from available fund 3,437,961 Increase in shares when exercise warrants 2,595,074 Weighted average number of common shares 81,065,119 84 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
28. Transaction and Balances with Related Parties (a) The entity that has significant influence on the Group is STX Corporation.
(b) Significant transactions which occurred in the normal course of business with related parties for the years ended December 31, 2011 and 2010 are summarized as follows:
(In millions of won) Relationships 2011 2010 Revenue from sales Purchases and other Revenue from sales Purchases and other and others expenses and others expenses STX Corporation W 72,036 153,052 33,985 88,826 Associate(*1) 845,230 73,248 442,016 56,274 Other(*2) 198,757 1,875,877 95,691 1,205,552 W 1,116,023 2,102,177 571,692 1,350,652 (*1) Contract revenue amounting to W 590,132 million under the vessel contract with STX Pan Ocean Co., Ltd. is included in sales to associates. (*2) Others include those controlled or significantly influenced by STX Corporation.
(c) Account balances with related parties as of December 31, 2011 and December 31, 2010 are summarized as follows.
(In millions of won) 2011 2010 Relationships Receivables Payables Receivables Payables STX Corporation W 67,692 225,571 76,937 79,437 Associate 231,023 496,101 198,207 641,315 Other 142,961 1,137,659 60,249 612,931 W 441,676 1,859,331 335,393 1,333,683
(d) As of December 31, 2011 details of guarantee for the related company are as follows:
(In thousands of USD, CNY) Detail of credit Guarantee recipient Guarantee Amount Credit limit Creditors STX Construction Co., Ltd. Liability guarantee USD 9,114 USD 9,114 Woori Bank STX (Dalian) Engine Co., Ltd. Refund guarantee CNY 14,150 CNY 14,150 China Construction Bank Local payment CNY 1,350,000 CNY 1,350,000 China Construction Bank and 5 others Daeseung (Dalian) Logistics Co., Ltd. Local payment CNY 70,000 CNY 70,000 China Guangfa Bank
(e) As of December 31, 2011 details of guarantee from the related company are as follows:
(In millions of KRW, In thousands of US dollars and other foreign currencies) Detail of payment guarantee Contract Guarantee Amount Guarantee provider amount Contractor Refund guarantee USD 6,338 STX Corporation USD 6,338 Yangzijiang Shipbuilding(Holdings) EUR 9,455 STX Corporation EUR 9,455 Ltd. and 2 others Contract performance guarantee EUR 8,442 STX Corporation EUR 8,442 MAN Diesel Contract performance guarantee USD 100,300 STX Corporation USD 415,900 Sovcomflot and other Contract performance guarantee USD 61,200 STX Corporation USD 61,200 TP-NPV Singapore Pte, Ltd. STX Construction Local payment CNY 75,753 Co., Ltd. CNY 67,753 Korea Eximbank Local payment USD 265,013 USD 256,000 Standard Chartered Bank Local payment KRW 60,800 STX Engine Co., Ltd. KRW 50,000 Eurasianshipping
USD 432,851 USD 739,438 EUR 17,897 EUR 17,897 CNY 75,753 CNY 67,753 KRW 60,800 KRW 50,000 STX Offshore& Shipbuilding 2011 annual report 85
December 31, 2011
(f) Key management personnel compensation in total and for each of the following categories for the years ended December 31, 2011 and 2010 are summarized as follows:
(In millions of won) Compensation details 2011 2010 Short-term employee benefits W 2,912 5,301 Post-employment benefits 77 245 W 2,989 5,546
29. Financial Derivatives (a) The Group entered into financial derivative contracts and details of the financial derivatives contracts outstanding as of December 31, 2011 are as follows:
(In millions of KRW, in thousands of USD, EUR, NOK, GBP, SEK, BRL and RON) Buy Sell Purpose Contract Currency Contract Amount Contract Currency Contract Amount Counterpart Fair value hedge KRW 4,525,326 USD 4,055,296 KRW 8,973 EUR 5,692 USD 5,400 BRL 9,834
NOK 267,676 EUR 73,902 RON 179,706
EUR 168,809 GBP 3,758 NOK 1,869,232 SEK 863 USD 82,479
Korea Development Bank BRL 439,227 and others EUR 8,640 USD 450,657 NOK 1,343,417
USD 6,500 NOK 35,919
Trading KRW 1,173,756 USD 1,030,318 KRW 27,302 EUR 17,194 KRW 9,784 NOK 50,000 USD 135,799 KRW 154,823 EUR 9,894 KRW 15,098 NOK 50,000 KRW 9,784 CNY 3,955,259 USD 620,810 86 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(b) For the year ended December 31, 2011 the Group recorded finance income (cost) on valuation and transactions of currency forward contracts as follows:
(In millions of won) Finance income (costs) Finance income Finance cost Gains on Gains on Losses on Losses on transactions valuations Gains on transactions valuations Losses on of financial of financial valuations of firm of financial of financial valuations of firm Purpose Description derivatives derivatives commitments derivatives derivatives commitments Fair value Currency hedge forward W - 326,077 150,517 - 272,989 345,543 Currency Trading forward 127,718 9,018 - 76,209 14,893 - W 127,718 335,095 150,517 76,209 287,882 345,543
(c) For the year ended December 31, 2010 the Group recorded finance income (cost) on valuation and transactions of currency forward contracts as follows:
(In millions of won) Finance income (costs) Finance income Finance cost Gains on Gains on Losses on Losses on transactions valuations Gains on transactions valuations Losses on of financial of financial valuations of firm of financial of financial valuations of firm Purpose Description derivatives derivatives commitments derivatives derivatives commitments Fair value hedge Currency forward W 22,399 529,311 132,540 21,625 281,026 485,664 Trading Currency forward 68,294 6,700 - 72,632 1,845 - W 90,693 536,011 132,540 94,257 282,871 485,664
(d) As of December 31, 2011, the effect on the consolidated financial statement of applying the fair value hedge is as follows:
(In millions of won) Firm Firm Financial Advances from Due to customers commitment commitment Financial derivative derivative Purpose Sales customers for contract work assets liabilities assets liabilities Fair value hedge W (320,955) (10,360) (382,046) 187,310 100,744 36,337 225,324
30. Commitments and Contingencies (a) The Group is involved in various lawsuits for claims and damages aggregating to the claimed amount of W 10,715 million as a defendant as of December 31, 2011. The final outcome from these lawsuits cannot be estimated at present. Other than the above, there are nine other arbitrations in progress as of December 31, 2011 concerning the Group’s vessels that are under construction, which were filed by ship owners for requests for arbitration to the London Maritime Arbitrators Association. However the Group concluded that the outcome of the request for arbitration will not have a material impact on the financial statements thus no amounts has been recorded.
(b) As of December 31, 2011, the Group has pledged a blank check, 6 blank notes and 4 notes which amounted to W 8,381 million as collateral for a refund guarantee and guarantees related to the performance contracts.
(c) The Group has agreements for refund guarantees in connection with shipbuilding and engine-producing contracts. As of December 31, 2011, the Export-Import Bank of Korea and others have provided the Group with refund guarantees in the amounts of USD 4,775,377 thousand, EUR 401,189 thousand, NOK 252,768 thousand and KRW 196,518 million and limits of refund guarantees are USD 13,441,248 thousand, NOK 252,768 thousand, EUR 220,501 thousand and KRW 228,584 million. STX Offshore& Shipbuilding 2011 annual report 87
December 31, 2011
(d) As of December 31, 2011, the Group has been provided guarantees from others excluding refund guarantees and details of guarantees are as follows :
(In millions of KRW, In thousands of USD,THB) Details of guarantee provided Object of guarantee provided Total guarantee Reason for guarantee Guarantee provider amount provided Amount Pledged party Trade Bill KRW 45,000 Korea Exchange Bank KRW 150,000 Korea Trade Insurance Corporation Enterprises collaboration KRW 104,487 Korea Exchange Bank KRW 8,000 fund KRW 8,000 Woori Bank Korea Eximbank USD 2,000 Bid bond - - National Agricultural Cooperative Federation USD 12 Letter of guarantee - - Seoul Guarantee Insurance KRW 59,694 Performance bond - - Woori Bank USD 25,655 Performance bond - - Woori Bank USD 286 Bid bond - - Woori Bank USD 2,583 Stand by L/C - - Korea Exchange Bank USD 1,862 Other - - National Agricultural Cooperative Federation USD 125,420 Stand by L/C - - National Agricultural Cooperative Federation USD 3,450 Performance bond - - Performance and Industrial Bank of Korea USD 336 maintenance bond - - Performance and Industrial Bank of Korea THB 19,610 maintenance bond - - Performance and Seoul Guarantee Insurance KRW 1,342 maintenance bond - - Korea Credit Guarantee Fund KRW 122 Maintenance bond - - Engineering Financial Cooperative KRW 29 Maintenance bond - - Korea Defense Industry Association KRW 102,336 Performance bond - - Machinery Financial Cooperative KRW 28,257 Performance bond - -
KRW 349,780 KRW 157,487 USD 161,604 USD - THB 19,610 THB -
(e) As of December 31, 2011, the Group has entered into a Letter of Credit agreement with each of Korea Development Bank, Korea Exchange Bank, Agricultural Cooperative Federation, The Kwangju Bank, Shinhan Bank, Woori Bank and China Construction Bank with the limits set at USD 30 million, USD 59.69 million/ EUR 2.03 million, USD 80 million, USD 10 million, USD 40 million, USD 110 million and USD 4.85 million respectively.
(f) The Group was capable to receive orders directly by entering into a royalty agreement for diesel ship engines with MAN B&W. According to the contract, the Group pays royalties related to sales of diesel ship engines. The Group recognized W 61,438 million in 2011 and W 52,191 million in 2010 in cost of sales. 88 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
31. Sales Contracts Outstanding (a) Changes in sales contracts outstanding for the years ended December 31, 2011 are summarized as follows:
(In millions of KRW, In thousands of USD and NOK ) Vessel Cruise Special vessel Other At beginning of year USD 10,276,494 NOK 14,126,229 NOK 17,030,853 W 665,174 Changes in scope of consolidation 2,657,897 - - 23,300 New sales contracts 2,187,876 10,003,438 11,116,947 1,971,762 Sales realized 5,239,206 7,493,198 12,280,095 860,434 Other (1,728,552) (346,556) 807,840 (173,610)
At end of December 31, 2011 USD 8,154,509 NOK 16,289,913 NOK 16,675,545 W 1,626,192
(b) Accumulated sales, cost of sales and other accounts related to the percentage-of-completion method as of December 31, 2011 are as follows:
(In millions of won) Vessel Cruise Special vessel Other Total Sales(*) W 4,765,502 2,370,782 1,777,679 974,274 9,888,237 Cost of sales 4,090,492 2,331,276 1,745,072 834,564 9,001,404 Due from customers for contract work 1,494,773 284,178 1,110,604 534,611 3,424,166 Due to customers for contract work(*) 1,578,868 208,292 284,085 46,242 2,117,487 (*) The effect of hedge accounting is not reflected in the amount.
32. Financial Risk Management The Group has exposure to the following risks from its use of financial instruments: • Currency risk • Interest rate risk • Liquidity risk • Credit risk
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’ s finance department monitors and manages financial risks according to the Group’s risk management policies and procedures that have been authorized by the Board of Directors. The Group’s finance department reports regularly to the Board of Directors on its activities.
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 limits. 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.
The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
(a) Currency risk
The Group is exposed to currency risk on monetary assets, liabilities and contract work in foreign currencies. The Group uses forward exchange contracts and other financial derivatives to hedge its currency risk.
As of December 31, 2011, when foreign exchange rate changes 10%, monetary assets, liabilities, financial derivatives and firm commitments in foreign currencies effects profit before income tax as follows:
2011 2010 (In millions of won) 10% increase 10% decrease 10% increase 10% decrease Profit before income tax W (34,109) 34,109 (55,497) 55,497 STX Offshore& Shipbuilding 2011 annual report 89
December 31, 2011
(b) Interest rate risk
The Group borrows at fixed-rates and floating-rates, and therefore is exposed to interest rate risk. By regularly reviewing the interest rate, management maintains proper balance between fixed-rate borrowings and floating-rate borrowings.
As of December 31, 2011, the effect of a 50 basis point change in base rate of floating-rate borrowings on profit before income tax is as follows:
2011 2010 50 basis point 50 basis point 50 basis point 50 basis point (In millions of won) increase decrease increase decrease Profit before income tax W (13,953) 13,953 (9,122) 9,122
(c) 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 another financial asset. The Group has established both short-term and long-term financial management plans to manage the liquidity risk, and analyzes cash outflows occurred and cash outflows budgeted, so as to match the maturity structure of financial assets and financial liabilities.
As of December 31, 2011, the contractual maturities of the component’s financial liabilities, based on contractual undiscounted payments are as follows:
Within 1 Between 1 and Between 2 Between 3 Between 4 Beyond 5 (In millions of won) year 2 years and 3 years and 4 years and 5 years years Total Non-derivative financial liabilities Debentures W 740,185 438,380 200,403 - - - 1,378,968 Borrowings 2,568,329 509,010 174,821 100,041 147,382 17,071 3,516,654 Capital lease liabilities 25,652 17,521 15,978 15,976 15,978 10,160 101,265 Bond with stock purchase warrants 155,143 2,500 102,445 - - - 260,088 3,489,309 967,411 493,647 116,017 163,360 27,231 5,256,974 Financial derivatives Financial derivative liabilities 169,263 56,847 21,555 1,995 - - 249,660 Financial derivative assets (53,522) (546) - - - - (54,068) 115,741 56,301 21,555 1,995 - - 195,592
W 3,605,050 1,023,712 515,202 118,012 163,360 27,231 5,452,566
As of December 31, 2011, the Company provides payment guarantees for borrowings and the guaranteed amounts are USD 400,000 thousand and CNY 3,150,000 thousand. The Company also provides refund guarantees and the guaranteed amount is USD 999,764 thousand. Payment schedules for the borrowings of related parties in connection with payment guarantees the Company provides are summarized as follows:
Maturity guaranteed Within 1 Between 1 Between 2 Between 3 Between 4 (In thousands of USD, CNY) amount year and 2 years and 3 years and 4 years and 5 years Total STX (Dalian) Heavy Industries Co., Ltd. USD 280,000 52,780 52,780 52,780 - - 158,340 STX (Dalian) Marine Engineering Co., Ltd. CNY 1,800,000 540,000 240,000 240,000 240,000 240,000 1,500,000 STX (Dalian) Shipbuilding Co., Ltd. USD 120,000 24,000 24,000 24,000 - - 72,000 STX (Dalian) Engine Co., Ltd. CNY 1,350,000 172,320 172,320 172,320 172,320 402,240 1,091,520
USD 400,000 76,780 76,780 76,780 230,340 CNY 3,150,000 712,320 412,320 412,320 412,320 642,240 2,591,520
In addition, the Company is planning to sell its interests of STX OSV Holdings Ltd. 90 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
(d) 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. The Group’s management does business with customers with high credit ratings to manage credit risk and implements policies and procedures for enhancing credits of financial assets.
The carrying amount of financial assets is maximum exposure to credit risk. The maximum exposure to credit risk as of December 31, 2011 and December 31, 2010 is as follows:
2011 2010 (In millions of won) Current Non-current Current Non-current Available-for-sale financial assets W 9,500 160,445 - 119,360 Other financial assets 88,204 84,532 64,768 19 Trade receivables 286,584 39,214 220,782 44,161 Other receivables 532,000 107,167 298,486 69,478 Cash and cash equivalents 1,257,767 - 1,559,631 -
W 2,174,055 391,358 2,143,667 233,018
(e) Fair value hierarchy
(i) Fair value hierarchy
The Group classifies fair value measurements using a fair value hierarchy that reflects the significance of the input variables used in making the measurements. The level of fair value hierarchy is as follows:
Significance of input variables Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 Inputs that are observable for the asset or liability, either directly or indirectly Level 3 Inputs for the asset or liability that are not based on observable market data
(ii) The fair value measurements classified by fair value hierarchy as of December 31, 2011 and December 31, 2010 are as follows:
(In millions of won) Level 1 Level 2 Level 3 Total As of December 31, 2011: Available-for-sale financial assets(*) W 25,043 70,089 - 95,132 Financial derivative assets - 53,935 - 53,935 Financial derivative liabilities - 239,591 - 239,591
As of December 31, 2010: Available-for-sale financial assets(*) 47,242 64,077 - 111,319 Financial derivative assets - 153,087 - 153,087 Financial derivative liabilities - 537,400 - 537,400 (*) As of December 31, 2011 and December 31, 2010, the carrying amount of available-for-sale financial assets that do not have market prices in an active market and whose fair value cannot be reliably measured, are W 74,812 million and W 8,042 million respectively. STX Offshore& Shipbuilding 2011 annual report 91
December 31, 2011
(f) Capital management
The fundamental goal of capital management is to maximize shareholders’ value by minimizing the cost of capital. The capital structure of the Group consists of equity and net debt deducting cash and cash equivalents and current financial instruments from borrowings, which is regularly reviewed by management.
(In millions of won) 2011 2010 Net debt Debentures W 1,308,076 1,016,872 Bond with stock purchase warrants 262,385 183,036 Borrowings 3,573,566 3,266,133 Available-for-sale financial assets (169,945) (119,360) Other financial assets (172,736) (64,787) Cash and cash equivalents (1,257,767) (1,559,631)
W 3,543,579 2,722,263
Parent’s ownership interest 1,385,092 1,204,629 Debt to equity ratio 256% 226%
(g) Fair value of financial assets and liabilities
The carrying amount and the fair value of financial instruments as of December 31, 2011 and 2010 are summarized as follows:
2011 2010 (In millions of won) Carrying amount Fair value Carrying amount Fair value Financial assets Available-for-sale financial assets Marketable securities W 25,043 25,043 47,242 47,242 Non-marketable securities 144,902 144,902 72,118 72,118 169,945 169,945 119,360 119,360
Loans and receivables: Other financial assets 172,736 172,736 64,787 64,787 Trade and other receivables 949,252 949,252 618,239 618,239 Cash and cash equivalents 1,257,767 1,257,767 1,559,631 1,559,631 2,379,755 2,379,755 2,242,657 2,242,657
W 2,549,700 2,549,700 2,362,017 2,362,017
Financial liabilities Financial liabilities measured at amortized cost Trade and other payables W 2,341,344 2,341,344 1,144,756 1,144,756 Debentures 1,308,076 1,308,076 1,016,872 1,016,872 Bond with stock purchase warrants 262,385 262,385 183,036 183,036 Borrowings 3,573,566 3,573,566 3,266,133 3,266,133 7,485,371 7,485,371 5,610,797 5,610,797
W 7,485,371 7,485,371 5,610,797 5,610,797 92 Financial Statements
Notes to the Consolidated Financial Statements December 31, 2011
33. Cash provided by (used in) operations
(In millions of won) 2011 2010 Cash flows from operating activities Profit (loss) for the period W 168,613 (139,854) Adjustments for: Bad debt expenses 6,355 5,963 Other bad debt expenses 3,705 34,122 Provision for severance indemnities 45,949 43,497 Depreciation 225,288 180,559 Amortization 72,109 68,132 Losses on foreign exchange translations 120,376 104,087 Losses on disposals of available-for-sale financial assets 1,206 17 Losses on disposals of investments in associates 142 - Share of loss of equity method accounted investees 6,976 2,289 Losses on disposals of property, plant and equipment 3,589 2,323 Losses on disposals of intangible assets 28 - Impairment losses on property, plant and equipment - 2,658 Impairment losses on intangible assets 289 167 Interest expenses 286,189 251,942 Losses on valuations of financial derivatives 287,882 282,872 Losses on valuations of firm commitments 345,543 485,664 Gains on foreign exchange translations (125,985) (83,746) Reversal of allowance for doubtful accounts (1,541) (10,525) Gains on disposals of available-for-sale financial assets (5) - Share of profit of equity method accounted investees (5,931) (21,941) Gains on disposals of investments in associates (91,988) (24,263) Gains on valuations of property, plant and equipment (82) (467) Gains on disposals of property, plant and equipment (180) (56) Gains on disposals of intangible assets (30) - Reversal of impairment losses on intangible assets (151) (67) Gains from a bargain purchase. (11,785) - Interest income (35,620) (45,546) Gains on valuations of financial derivatives (335,096) (536,010) Gains on valuations of firm commitments (150,517) (132,540) Dividend Income (1,598) (1,312) Income tax expense (benefit) 158,802 66,467 STX Offshore& Shipbuilding 2011 annual report 93
December 31, 2011
(In millions of won) 2011 2010 Changes in: Due from customers for contract work (406,087) 2,199,262 Trade receivables (383,420) (29,208) Advance payments 208,436 20,783 Prepaid expenses 52,419 8,595 Other receivables 23,203 13,011 Financial derivative assets 110,110 123,563 Firm commitment assets 456,625 759,684 Inventories (121,463) 406,519 Long-term trade receivables 4,471 (11,529) Long-term due from customers for contract work (454,961) - Trade payables 892,955 (41,803) Due to customers for contract work (175,158) (1,493,233) Advances from customers (532,678) (419,311) Other payables 186,499 (11,059) Accrued expenses (87,037) 158,716 Other current liabilities 7,821 (7,561) Financial derivative liabilities (296,615) (921,797) Firm commitments liabilities (348,096) (50,970) Provisions 81,909 50,348 Other non-current liabilities 29,838 6,510 Payment of severance benefit (32,477) (44,611) Cash provided by operating activities W 188,826 1,250,341
34. Subsequent events The Group is planning to sell its interests of STX OSV Holdings Ltd.
In February 2012 52.4% ownership interest of STX (Dalian) Holdings Co., Ltd. was transferred from the Parent Company to STX China Shipbuilding Holdings Co., Ltd. as an investment in kind. The Parent Company’s ownership rate for STX China Shipbuilding Holdings Co., Ltd. and STX (Dalian) Holdings Co., Ltd. after investment in kind is not changed. Affiliates
STX Corporation Co., Ltd.｜www.stx.co.kr STX Europe ASA｜www.stxeurope.com STX Corporation, the holding company of STX Group, has established an efficient Based on original technology accumulated for more than 270 years, STX Europe has been governance structure by acquiring majority shares in affiliates, and is committed to leading specialized in building high value-added ships such as cruise ships, ferries, offshore plants consistent and balanced growth of STX Group by engaging in a variety of global businesses and special ships. The company is operating 15 shipyards in 6 countries, and committed including energy, trade and resource development in cooperation with our affiliates. to maximizing customer satisfaction by building innovative and future-oriented ships. As the heart of STX Group, the company is not only steering organic growth of each STX Europe also provides major cruise ship owners with quality ship management and business division to maximize the Group-based synergy effect, but also making substantial repairmen services through shipyards around the world. The world’s largest cruise ships ‘Oasis contributions to strengthening affiliates’ global competitiveness and capability to respond of the Seas’ and ‘Allure of the Seas’ which had been ordered from Royal Caribbean, a global to rapidly changing market environment by supporting their management improvement leading cruise ship operator, were successfully delivered in 2009 and 2010, respectively. STX through precise business analysis and by encouraging the investments in new businesses. Europe demonstrates its unrivaled excellence in the industry base on expertise, modernized STX Corporation will continue to achieve business innovation and raise the effectiveness shipyard, second-to-none ship design technology and abundant shipbuilding experiences. of performance management, reinforcing global competitiveness. The company will also support affiliates to realize their qualitative growth and synergy effect, leading the way in our transition into the World Best STX.
STX Heavy Industries Co., Ltd.｜www.stxhi.co.kr Since its establishment in 2004, STX Heavy Industries has engaged in manufacturing large marine engines installed in product tankers and LNG carriers, large container ships and STX PanOcean Co., Ltd.｜www.stxpanocean.com oil tankers as well as deck houses, fabricated steel materials and ship blocks. The company As Korea’s representative shipping company, STX Pan Ocean has been gaining high has an annual capacity for producing 4 million HP marine diesel engines, fabricating reputation and trust in the dry bulk shipping markets in the world for a long time. Based deck houses covering 74 vessels and cutting up to 200,000 tons of steel. In addition, it on unrivaled competitiveness in the dry bulk service, the company extended its reach to successfully entered the industrial plant EPC business that requires combined state-of-the- non-dry bulk sectors such as container service, tanker service, car carrier service, gas carrier art technologies, and intends to become a global player in this field in the future. To this service and OSV (Offshore Support Vessel) service. Furthermore, STX Pan Ocean successfully end, STX Heavy Industries is focusing on not only developing new technologies for diesel made a foray into the terminal operation business connecting marine shipping and ground engines and industrial plants but also improving productivity of shipbuilding materials. With transportation services to secure the foundation for sustainable growth and stable business continuous investments and technology development, STX Heavy Industries intends to portfolio. The company is taking on an aspect as a world-class shipping and logistics leap forward to a global top engine maker and plant builder. service provider today. By harnessing continuous marketing activities based on its solid global network and over 46 years of valuable experiences in shipping services, it has been succeeding in signing a series of long-term contracts with major domestic and foreign shippers. These results have enabled the company to lay a strong foundation for future growth despite tough business environments. STX Pan Ocean intends to emerge as the STX Engine Co., Ltd.｜www.stxengine.co.kr World Best shipping company through continuously expanding the fleet and developing STX Engine was established in 1976 as a company specializing in diesel engine production new businesses. and was licensed as a defense contractor in the following year. Since then, the company has played a pivotal role in the advance of Korea’s shipbuilding and machinery industries. The company makes marine engines for ultra large containerships, LNG carriers and oil tankers, military engines that require cutting-edge technologies, generator engines and engines for other industrial applications. STX Engine exports 70 ~ 80% of all engines it produces STX Dalian Shipyards｜www.stxdalian.com to Europe, Asia, Latin America and other overseas markets, and is gaining much trust by To leapfrog into a global leading shipbuilder, STX Group completed the integrated offering a variety of timely services through the global networks. In particular, the export shipbuilding and machinery production system in Dalian, China, through close cooperation of diesel engine generators to Iraq in 2011 has been recognized as a model of pioneering among affiliates. STX Dalian Shipbuilding Complex, as the center of STX’s global network new overseas markets. STX Engine will leapfrog into the global top engine maker by connecting Korea, Europe and China, plays a pivotal role for STX Group’s advance into the continuously strengthening global competitiveness. world’s best shipbuilding group and global engine maker. STX Dalian Shipbuilding Complex, equipped with an offshore construction facility, a 5 km long quay as well as the world’s largest steel cutting facility with an annual capacity of 1 million tons, has established a specialized and vertical integration system for basic material processing, engine assembling, hull block fabrication and shipbuilding, as well as offshore construction. Dalian Shipbuilding Complex will play a key role in realizing STX’s dream to become a global top shipbuilder & engine maker. STX Energy Co., Ltd.｜www.stxenergy.co.kr STX Construction Co., Ltd.｜www.stxconst.co.kr STX Energy has cogeneration power plants in Banwol Industrial Complex and Gumi Since the inception in 2005, STX Construction has been achieving remarkable growth Industrial Complex, providing high-quality steam and electricity to customers in the by building the SLS (Skid Launching System), core production facility of STX Offshore & industrial complexes. The cogeneration power plants have raised energy efficiency by more Shipbuilding, diesel engine production facilities of STX Engine, Gumi Factory of STX Solar, than 30% through advanced operating system and innovatively reduced costs through fuel STX Resort in Mungyeong, and more meaningful projects. Starting with the STX Dalian diversification. In addition, the company has acquired the rights to operate the community Shipbuilding Complex project in 2006, the company has strived to enter overseas markets energy business for Daegu Technopolis, and is promoting its district heating business. STX and won the ultra large residential complex project totaling USD180 thousand in Abu Dhabi, Energy is also promoting the development of energy resource such as crude oil, natural gas, UAE. This project completed the construction more than a month earlier. STX Construction coal and iron ore as well as energy trading business at home and abroad. By actively coping is focusing on receiving orders from overseas markets and delivering exclusive customer with the enforcement of environmental regulations such as climate change and renewable services to emerge as a world-class comprehensive construction company. portfolio standard, STX Energy will evolve into a global leader in the green energy era.
STX Marine Service Co., Ltd.｜www.stxmarine.co.kr STX Electric Power Co., Ltd.｜www.stxep.com STX Marine Service was spun off from STX Corporation to strengthen expertise and core STX Electric Power was established with the purpose of constructing and operating a mega- capability in the marine service business in 2011. The company has provided customers sized thermal power plant (Donghae Thermal Power Plant) through joint investments of with systematic and effective marine services that meet their needs and tightening ship- STX Energy and Korea East-West Power in 2011. The company will introduce cutting-edge related regulation by continuously dedicating to improving service quality. Its business technologies to make the power plant environmentally friendlier. The technologies include portfolio includes comprehensive marine services such as sale of materials and products air pollution control, sophisticated desulfurization and denitrification systems, and perfect for ships, commissioning of vessel engines, repairmen services, and sale of ship parts. STX sewage disposal facilities. This project is expected to create synergy in all business sectors Marine Service intends to become a world-class total marine service provider. To this end, the including construction, overseas resource development, trading, shipbuilding, and solar company is concentrating on securing specialized technologies and high-caliber talents, and and wind power businesses. Upon the completion, it will also become a bridgehead for our expanding the global network. entrance into overseas power plant construction and operation projects.
STX Solar Co., Ltd.｜www.stxsolar.co.kr STX Metal Co., Ltd.｜www.stxmetal.co.kr STX Solar started the business in 2008 with the establishment of solar cell production STX Metal is a world-class manufacturer of core parts, materials and equipments for diesel facilities with a capacity of 50MW and an R&D center in Gumi Industrial Complex. As the engines, ships and plants. It supplies them to global shipbuilders and engine makers. With the grid parity of solar business is expected to be in 2013, a lot of countries are proactively pride in playing a key role for the vertical integration of the Shipbuilding & Machinery sector nurturing independent solar industry. To keep pace with this trend, STX Solar is also striving of STX Group, the company continuously invests in R&D, thereby ensuring its independent to concentrate on research and development to attain the grid parity earlier. The company technical competitiveness. In particular, the completion of Daegu Factory in 2009 expanded aims to secure total solution systems in the solar business sector by cooperating with the annual production capacity of turbo charger and cargo oil pump up to 5,000 sets and 50 STX Heavy Industries and STX Energy. By doing so, STX Solar will continue to improve its sets, respectively. It also allowed the company to enter new growth engine businesses such global competitiveness and contribute to creating better lives of human being through its as development, design and production of cutting-edge parts of gas turbines for air craft businesses. and industrial use. STX Metal will continue to secure cutting-edge production facilities to accelerate existing businesses and intends to expand its business portfolio into environment- friendly and high value-added sectors such as hydrogen fuel cell, wind power generation and precision parts. Global Network
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Asia Name Country City Name Country City STX(Dalian) Holdings Co.,Ltd. China Dalian STX Pan Ocean Singapore Pte., Ltd. Singapore Singapore STX(Dalian) Shipbuilding Co.,Ltd. China Dalian STX Logistics Singapore Pte., Ltd. Singapore Singapore STX(Dalian) Marine Engineering Co.,Ltd. China Dalian STX Pan Ocean LNG Pte., Ltd. Singapore Singapore STX(Dalian) Engine Co.,Ltd. China Dalian STX International Trading (Singapore) Pte., Ltd. Singapore Singapore STX(Dalian) Metal Co.,Ltd. China Dalian STX Service Singapore Pte.,Ltd. Singapore Singapore STX(Dalian) Heavy Industries Co.,Ltd. China Dalian STX OSV Holdings Ltd. Singapore Singapore STX(Dalian) Plant Co., Ltd. China Dalian STX OSV Singapore Pte., Ltd. Singapore Singapore STX Construction (Dalian) Co.,Ltd. China Dalian STX OSV Vung Tau Ltd. Vietnam Vung Tao STX(Dalian) Information Technology Co., Ltd. China Dalian STX Architectural Design Co.,Ltd. China Dalian DaeSeung(Dalian) Logistics Co., Ltd. China Dalian Africa STX(Dalian) Business Center Co.,Ltd. China Dalian STX Real Property Development (Dalian) Co.,Ltd. China Dalian Name Country City STX Fushun Heavy Industry Co.,Ltd. China Fushun STX Engineering & Construction Ghana Ltd. Ghana Accra STX (Shanghai) Corporation Ltd. China Shanghai STX Ghana Ltd. Ghana Accra STX PanOcean(Hong Kong) Co., Ltd. China Hong Kong DTK Oceanic Ltd. Nigeria Lagos STX Pan Ocean (China) Co.,Ltd. China Shanghai Qingdao STX International Logistics co., Ltd. China Quingdao Qingdao STX-Keyun Logistics Co.,Ltd. China Quingdao Europe TIANJIN STX – SINOTRANS LOGISTICS Co.,Ltd. China Tianjin SEA WIN Shipping Co., Ltd. China Quingdao Name Country City Qingdao STX Machinery Co.,Ltd. China Quingdao SP/F STX Faroes Ltd. Denmark Faroes Island Dalian DaeSeung Tech Co., Ltd. China Dalian STX Finland OY Finland Turku Gulf Pacific Shipping Ltd. China Hong Kong STX Finland Cabins OY Finland Piikkio STX China shipbuilding Holdings Co., Ltd. China Hong Kong Aker Arctic Technology OY Finland Helsinki STX OSV Electrical Installation & Engineering India India Kochi Shipbuilding Completion OY Finland Turku STX Japan Corporation Japan Tokyo Technology Design and Eng'nD OY Finland Rauma STX Global Logix Co.,Ltd. Japan Tokyo STX France SA France St. Nazaire STX Container (Japan) Co., Ltd. Japan Tokyo STX France Lorient SAS France Lorient DS CEMENT LLP Kazakhstan Qazaly STX France Solutions SAS France St. Nazaire STX HI Malaysia Sdn. Bhd. Malaysia Kota Kinabalu STX France LNG Techology SAS France St. Nazaire STX Mongolia LLC. Mongolia Ulaanbaatar STX France Cabins SAS France Lanester STX CITINET LLC. Mongolia Ulaanbaatar STX Ireland Ltd. Ireland Ireland Faroes Island Søvikne Rauma Ålesund Kragerø Turku Brattvåg Oslo Helsinki Florø Porsgrunn Piikkio Brevik Skien Ireland London Lelystad Alberta Rotterdam Lorient Vancouver Braila Lanester St. Nazaire Tulcea Drobeta-Turnu Severin New York New Jersey
Texas Huston Fort Lauderdale Dubai
Lagos Accra
Ipojuca
Rio de Janeiro
Oceania Name Country City Name Country City STX WINDPOWER B.V. Netherlands Lelystad STX RHL Pty., Ltd. Australia Sydney STX Service Europe B.V. Netherlands Rotterdam STX Construction Australia Pty., Ltd. Australia Perth STX Norway AS Norway Oslo STX ALP Pty., Ltd. Australia Sydney STX Europe AS Norway Oslo STX HEAVY INDUSTRIES AUSTRALIA Pty., Ltd. Australia Perth Seaonics AS Norway Ålesund STX OSV AS Norway Ålesund STX OSV Brevik Holding AS Norway Brevik STX Brevik Support AS Norway Brevik Middle East STX Grenland Industri AS Norway Skien Name Country City STX Shipyard Support AS Norway Porsgrunn STX Middle East FZE UAE Dubai Brevik Elektro AS Norway Brevik STX Gulf Shipping DMCCO UAE Dubai Hjallum AS Norway Kragerø STX OSV Electro AS Norway Søviknes STX OSV Elektro Brevik AS Norway Brevik STX OSV Accommodation AS Norway Brattvåg STX OSV Piping AS Norway Brattvåg America STX OSV Design AS Norway Ålesund Name Country City STX Norway Florø AS Norway Florø STX Brasil Maritima Ltda. Brazil Rio de Janeiro STX Norway Design Florø AS Norway Florø STX OSV Electro Niteroi Ltd. Brazil Rio de Janeiro Scandinor AS Norway Oslo STX OSV Niteroi SA Brazil Rio de Janeiro STX OSV Electro Tulcea SRL Romania Tulcea STX OSV Promar SA Brazil Ipojuca STX OSV Electro Braila SRL Romania Braila STX Canada Marine Canada Vancouver STX OSV RO Holding SRL Romania Tulcea STX Energy Canada, Inc. Canada Alberta STX OSV Tulcea SA Romania Tulcea Younex Enterprises Corporation Guam Guam STX OSV Scanyards SRL Romania Tulcea STX Younex Construction Co., Ltd. Guam Guam STX OSV Braila SA Romania Braila STX America Inc. USA New Jersey Braila Ship Repair SA Romania Braila STX Pan Ocean (America), Inc. USA New York AJA Ship Design SA Romania Drobeta-Turnu STX Energy America, Inc USA Texas Severin STX Petroleum Manchaca, LLC. USA Texas STX OSV Piping SRL Romania Tulcea STX US Marine USA Huston Orion Story Russia Moscow STX Energy Texas, LLC. USA Texas STX Pan Ocean (U.K) Co., Ltd. UK London STX Energy E&P Offshore Management, LLC. USA Texas WORLD D&F INVESTMENT(UK) Co., Ltd. UK London STX USA Lifecycle Services Inc. USA Fort Lauderdale Copyright ⓒ 2011 by STX Offshore & Shipbuilding Produced by IR Plus http://www.stxons.co.kr Gyeongsangnam-do, Korea Gyeongsangnam-do, 100, Wonpo-dong, Jinhae-gu, Changwon-si, Jinhae-gu, Wonpo-dong, 100,