NXC Corporation and Subsidiaries Consolidated Financial Statements December 31, 2014 and 2013 NXC Corporation and Subsidiaries Index December 31, 2014 and 2013
Page(s)
Independent Auditor’s Report ·········································································· 1 – 2
Consolidated Financial Statements
Consolidated Statements of Financial Position ······················································ 3 – 4
Consolidated Statements of Comprehensive Income ·············································· 5
Consolidated Statements of Changes in Equity ···················································· 6
Consolidated Statements of Cash Flows ······························································ 7
Notes to the Consolidated Financial Statements······················································ 8 – 69 Independent Auditor’s Report
(English Translation of a Report Originally Issued in Korean)
To the Shareholder and Board of Directors of NXC Corporation
We have audited the accompanying consolidated financial statements of NXC Corporation and its subsidiaries (collectively “the Group”), which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Samil PricewaterhouseCoopers, LS Yongsan Tower, 92, Hangangdaero, Yongsan-gu, Seoul 140-702, Korea (Yongsan P.O Box 266, 140-600), www.samil.com Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of NXC Corporation and its subsidiaries as of December 31, 2014 and 2013, and their financial performance and cash flows for the years then ended in accordance with Korean IFRS.
Other Matters The consolidated financial statements of the Group as of and for the year ended December 31, 2013 were audited in accordance with the previous Korean Standards on Auditing.
We did not audit the financial statements of certain subsidiaries, whose financial statements represent 44% of the Group's consolidated total assets as of December 31, 2013, and 22% of the Group's consolidated total sale for the year ended December 31, 2013. These statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for certain subsidiaries, is based solely on the reports of the other auditors.
Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.
Seoul, Korea March 19, 2015
This report is effective as of March 19, 2015, 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 there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.
2 NXC Corporation and Subsidiaries Consolidated Statements of Financial Position December 31, 2014 and 2013
(in Korean won) Notes 2014 2013
Assets Current assets Cash and cash equivalents 4,6,7,9 \ 1,122,293,940,854 \ 1,523,549,370,620 Financial assets at fair value through profit or loss 4,5,6,13 177,591,952,141 213,262,664,965 Held-to-maturity investment 4,6 - 1,000,000,000 Trade receivables 4,6,8 315,203,617,243 217,833,015,653 Other financial assets 4,5,6,7,10,11 944,586,145,210 467,522,085,250 Other assets 12 44,688,761,232 54,430,751,742 Current tax assets 26 980,833,870 7,992,326,953 Inventories 14 22,769,609,217 264,415,726 Non-current asset held-for-sale 5,15 - 46,867,653,750 2,628,114,859,767 2,532,722,284,659 Non-current assets Available-for-sale financial assets 5,6,16 723,139,287,184 917,005,693,151 Other financial assets 4,6,10,11 149,868,702,363 85,075,280,473 Other assets 12 19,188,256,724 1,447,230,938 Property and equipment 17 263,951,210,795 259,302,110,657 Intangible assets 18 1,044,584,559,826 740,681,111,535 Investment property 19 53,868,653,912 56,354,495,406 Investment in associates 20 53,980,675,505 68,695,400,381 Deferred tax assets 26 47,221,415,841 30,183,333,827 2,355,802,762,150 2,158,744,656,368 Total assets \ 4,983,917,621,917 \ 4,691,466,941,027
3 NXC Corporation and Subsidiaries Consolidated Statements of Financial Position December 31, 2014 and 2013
(in Korean won) Notes 2014 2013
Liabilities Current liabilities Trade payables 4,6 46,845,187,834 26,116,487,010 Borrowings 4,6,22 386,268,079,347 139,889,329,549 Other financial liabilities 4,5,6,11,21,39 140,400,091,897 132,891,640,414 Other liabilities 23 126,824,092,496 125,516,960,602 Provisions 24 485,461,735 1,133,321,174 Current tax liabilities 26 145,621,785,802 85,850,276,392 846,444,699,111 511,398,015,141 Non-current liabilities Borrowings 4,6,22 371,417,297,143 352,186,916,223 Other financial liabilities 4,6,21,39 27,418,335,452 24,487,305,697 Other liabilities 23 22,223,403,380 47,779,496,743 Provisions 24 3,808,055,533 3,175,191,562 Defined benefit liabilities 25 2,016,154,803 3,577,897,732 Deferred tax liabilities 26 136,186,545,010 103,195,858,352 563,069,791,321 534,402,666,309 Total liabilities 1,409,514,490,432 1,045,800,681,450
Equity attributable to owners of the Parent Capital stock 27 2,023,659,000 2,023,659,000 Paid-in capital in excess of par value 27 5,257,138,814 5,257,138,814 Other components of equity 28 300,342,314,623 481,425,957,421 Retained earnings 29 2,032,073,319,848 1,912,287,368,320 Non-controlling interest 40 1,234,706,699,200 1,244,672,136,022 Total equity 3,574,403,131,485 3,645,666,259,577 Total liabilities and equity \ 4,983,917,621,917 \ 4,691,466,941,027
The accompanying notes are an integral part of these consolidated financial statements. 4 NXC Corporation and Subsidiaries Consolidated Statements of Comprehensive Income Years ended December 31, 2014 and 2013
(in Korean won) Notes 2014 2013
Revenue 31 \ 1,948,525,292,306 \ 1,749,761,693,456
Cost of sales Cost of service 547,413,610,432 485,844,817,146 Cost of finished goods sold 99,834,404,483 - 647,248,014,915 485,844,817,146
Gross profit 1,301,277,277,391 1,263,916,876,310
Selling and administrative expenses 32,33 685,065,581,185 565,476,024,305
Operating profit 616,211,696,206 698,440,852,005
Other income 34 65,667,434,333 86,080,420,116 Other expenses 34 228,794,214,484 188,602,248,185 Financial income 35 112,504,445,522 68,926,170,929 Financial expenses 35 75,314,386,303 64,548,442,526 Share of profit(loss) 20 (7,491,136,614) (128,832,302)
Profit before income tax 482,783,838,660 600,167,920,037
Income tax expense 26 258,595,247,309 205,446,762,434
Profit for the year \ 224,188,591,351 \ 394,721,157,603
Attributable to: Equity holders of the Parent Company \ 119,983,962,726 \ 256,316,629,303 Non-controlling interest 104,204,628,625 138,404,528,300
Other comprehensive income (loss) Items that will not be reclassfied to profit or loss Remeasurements of the net defined benefit liabilities 25 \ (284,687,155) \ (269,960,167) Items that may be subsequently reclassified to profit or loss Changes in fair value of available-for-sale financial assets 16 (97,283,455,052) 277,310,060,986 Gain on valuation of derivatives 457,252,589 1,469,279,827 Changes in equity method investees 20 1,701,182,096 (2,395,244,545) Exchange differences on translating foreign operations (131,291,302,862) (219,829,264,276) (226,701,010,384) 56,284,871,825 Total comprehensive income (loss) for the year \ (2,512,419,033) \ 451,006,029,428
Attributable to: Equity holders of the Parent Company \ (37,416,696,553) \ 293,004,276,801 Non-controlling interest 34,904,277,520 158,001,752,627
The accompanying notes are an integral part of these consolidated financial statements. 5 NXC Corporation and Subsidiaries Consolidated Statements of Changes in Equity Years ended December 31, 2014 and 2013
Notes Attributable to equity holders of the Parent Company
Other components Non-controlling (in Korean won) Capital surplus of equity Retainedearnings TotalCapitalstockInterest Totalequity
Balances as of January 1, 2013 \ 2,023,659,000 \ 5,257,138,814 \ 415,920,276,089 \ 1,659,198,287,627 \ 2,082,399,361,530 \ 1,013,870,270,732 \ 3,096,269,632,262 Total comprehensive income: Profitfortheyear - - - 256,316,629,303 256,316,629,303 138,404,528,300 394,721,157,603 Othercomprehensiveincome - - 36,858,674,758 - 36,858,674,758 19,696,157,233 56,554,831,991 Remeasurementsofthenetdefinedbenefitliabilities 25 - - - (171,027,260) (171,027,260) (98,932,906) (269,960,166) Transactions with equity holders of the Company: Amortizationofdiscountsonstockissuuance - - 95,021,350 (95,021,350) - - - Dividendspaid - - - (2,961,500,000) (2,961,500,000) - (2,961,500,000) Dividendsofsubsidiariespaid - - - - - (17,656,019,089) (17,656,019,089) Changesinsharesofsubsidiaries - - 28,583,108,538 - 28,583,108,538 76,107,048,326 104,690,156,864 Share-based payment associated with stock options 30 - - - - - 14,353,872,811 14,353,872,811 of subsidiaries Others - - (31,123,314) - (31,123,314) (4,789,385) (35,912,699) Balances as of December 31, 2013 \ 2,023,659,000 \ 5,257,138,814 \ 481,425,957,421 \ 1,912,287,368,320 \ 2,400,994,123,555 \ 1,244,672,136,022 \ 3,645,666,259,577
Balances as of January 1, 2014 \ 2,023,659,000 \ 5,257,138,814 \ 481,425,957,421 \ 1,912,287,368,320 \ 2,400,994,123,555 \ 1,244,672,136,022 \ 3,645,666,259,577 Total comprehensive income: Profitfortheyear - - - 119,983,962,726 119,983,962,726 104,204,628,625 224,188,591,351 Othercomprehensiveloss - - (157,202,648,081) - (157,202,648,081) (69,213,675,149) (226,416,323,230) Remeasurementsofthenetdefinedbenefitliabilities 25 - - - (198,011,198) (198,011,198) (86,675,957) (284,687,155) Transactions with equity holders of the Company: Dividendsofsubsidiariespaid - - - - - (16,385,809,918) (16,385,809,918) Changesinsharesofsubsidiaries - - (23,457,730,272) - (23,457,730,272) (74,328,383,117) (97,786,113,389) Acquisitionoftreasurystock - - 587,160 - 587,160 341,070 928,230 Share-based payment associated with stock options 30 - - - - - 46,089,987,458 46,089,987,458 of subsidiaries Others - - (423,851,605) - (423,851,605) (245,849,834) (669,701,439) Balances as of December 31, 2014 \ 2,023,659,000 \ 5,257,138,814 \ 300,342,314,623 \ 2,032,073,319,848 \ 2,339,696,432,285 \ 1,234,706,699,200 \ 3,574,403,131,485
The accompanying notes are an integral part of these consolidated financial statements. 6 NXC Corporation and Subsidiaries Consolidated Statements of Cash Flows Years ended December 31, 2014 and 2013
(in Korean won) Notes 2014 2013
Cash flows from operating activities Cash generated from operations 36 \ 668,690,385,657 \ 837,063,459,161 Interest received 35,267,245,158 25,347,423,795 Interest paid (16,263,955,554) (7,582,153,498) Dividendsincome 15,443,842,955 9,792,269,572 Income tax paid (246,101,713,811) (217,880,463,959) Net cash provided by operating activities 457,035,804,405 646,740,535,071
Cash flows from investing activities Decreaseinfinancialdeposits 660,777,986,763 73,875,083,057 Increaseinfinancialdeposits (1,157,527,254,219) (1,540,000,000) Decreaseinfinancialassetsatfairvaluethroughprofitorloss 199,468,542,416 43,018,258,673 Increaseinfinancialassetsatfairvaluethroughprofitorloss (161,063,805,855) (27,301,411,888) Decrease in held-to-maturity investment 1,000,000,000 - Decreaseinnon-currentassetheld-for-sale 46,867,653,750 - Decreaseinavailable-for-salefinancialassets 16 118,890,949,207 25,391,696,945 Increaseinavailable-for-salefinancialassets 16 (38,251,230,368) (33,046,493,545) Decreaseinotherreceivables 21,360,455,620 9,643,460,847 Increaseinotherreceivables (61,676,482,519) (4,058,216,794) Disposalofpropertyandequipment 17 8,478,898,044 824,992,175 Acquisitionofpropertyandequipment 17 (40,877,292,089) (135,642,790,323) Disposalofintangibleassets 18 1,373,217,313 96,548,023 Acquisitionofintangibleassets 18 (18,297,917,035) (40,922,906,781) Acquisitionofinvestmentproperty 19 - (209,068,071) Disposalofinvestmentinassociates 20 - 31,015,961,269 Acquisitionofinvestmentinassociates 20 (2,025,244,252) (4,195,085,663) Disposalofinvestmentinsubsidiaries (737,708,922) - Businesscombination 39 (549,419,556,192) (13,270,012,094) Net cash used in investing activities (971,658,788,338) (76,319,984,170)
Cash flows from financing activities Increaseinshort-termborrowings 278,811,050,510 (934,703,410) Decreaseinshort-termborrowings (29,494,633,441) - Redemptionofcurrentportionofborrowings (122,433,711,811) (127,500,976,756) Increaseinlong-termborrowings 516,924,560,471 40,992,999,234 Decreaseinlong-termborrowings (332,078,857,508) (1,864,164,019) Increase in financial lease liabilities 1,123,117,504 - Decreaseinfinancialleaseliabilities (5,575,431,631) - Dividends paid - (2,961,500,000) Dividends of subsidiaries paid (16,385,809,918) (17,656,019,089) CashinflowsfromequitytransactionwithintheGroup - 95,888,008,890 Acquisitionoftreasurystock (97,786,113,389) - Net cash provided by (used in) financing activities 193,104,170,787 (14,036,355,150)
Net increase (decrease) in cash and cash equivalents (321,518,813,146) 556,384,195,751 Cashandcashequivalentsatthebeginningofyear 1,523,549,370,620 1,124,542,251,554 Exchangelossoncashandcashequivalents (79,736,616,620) (157,377,076,685) Cash and cash equivalents at the end of year \ 1,122,293,940,854 \ 1,523,549,370,620
The accompanying notes are an integral part of these consolidated financial statements. 7 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
1. General Information
NXC Corporation (the Parent Company) and its subsidiaries (collectively ‘the Group’) primarily engage in the business of game development and services, and lease and investment of real estate. The Group’s offices are located in Korea, Japan, United States and other locations.
As of December 31, 2014, the Parent Company’s paid-in capital amounted to ￦2,024 million after several capital increases and the Parent Company’s shareholders consist of Mr. Kim Jeong-Ju and four others.
1.1 Consolidated Subsidiaries
Details of the consolidated subsidiaries as of December 31, 2014 and 2013, are as follows:
Percentage of ownership (%) Closing Subsidiaries Location 2014 2013month Controllingcompany
NEXON Co., Ltd. Japan 62.89 61.73 December The Parent Company and 1 other NXMH B.V.B.A.1 Belgium 100.00 100.00 September The Parent Company NXProperties Corporation Korea 100.00 100.00 December The Parent Company NXCL Corporation Korea 100.00 100.00 December The Parent Company VIP Private Equity Fund Korea 100.00 100.00 December The Parent Company INNOVATIVEFUND, LLC2 USA - 100.00 December The Parent Company Alignment B-Corp CircleUp Fund LLC USA 100.00 - December The Parent Company NEXON Korea Corporation Korea 100.00 100.00 December Nexon Co., Ltd. Rushmo Korea 100.00 100.00 December Nexon Co., Ltd. Nexon America, Inc. USA 100.00 100.00 December Nexon Co., Ltd. Nexon Software Development (Shanghai) Co., Ltd. China 100.00 100.00 December Nexon Co., Ltd. gloopsInc. Japan 100.00 100.00 December Nexon Co., Ltd. InblueInc. Japan 100.00 100.00 December Nexon Co., Ltd. Fantage.comInc. USA 58.57 58.57 December Nexon Co., Ltd. NEXON Europe S.a.r.l. Luxembourg 100.00 100.00 December Nexon Co., Ltd. Nexon M (formerlygloopsInternationalInc.) USA 100.00 100.00 December Nexon Co., Ltd. Nexon Networks Corporation Korea 100.00 100.00 December NEXON Korea Corporation Neople Korea 100.00 100.00 December NEXON Korea Corporation Nexon Communications Korea 100.00 100.00 December NEXON Korea Corporation Nexon Space Co., Ltd. Korea 100.00 100.00 December NEXON Korea Corporation Weclay Inc. Korea - 100.00 December NEXON Korea Corporation NDOORS Corporation Korea 100.00 97.71 December NEXON Korea Corporation Nexon GT Co., Ltd. (formerly GameHi Inc.) Korea 63.16 62.08 December NEXON Korea Corporation Nextoric Corporation Korea - 91.95 December NEXON Korea Corporation Neon Studio Corporation Korea 100.00 100.00 December NEXON Korea Corporation THINGSOFT Inc. Korea 100.00 100.00 December Neople Rushmo America, Inc USA 100.00 - December Rushmo
8 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Percentage of ownership (%) Closing Subsidiaries Location 2014 2013month Controllingcompany
gloopsVietnamCo.,Ltd. Vietnam 100.00 100.00 December gloops Inc. COMLIE.INC Japan 100.00 100.00 December gloops Inc. BRICKLINK LIMITED Hong Kong 100.00 100.00 December NXMH B.V.B.A. NXMH LLC USA 100.00 - December NXMH B.V.B.A. NXMH AS Norway 100.00 100.00 December NXMH B.V.B.A. Stokke Holdings AS Norway - 100.00 December NXMH B.V.B.A. Stokke AS Norway 100.00 - December NXMH AS Stokke Amerika AS Norway 100.00 - December Stokke AS Stokke Fabriker AB Sweden 100.00 - December Stokke AS Stokke Danmark ApS Denmark 100.00 - December Stokke AS Stokke Nederland BV Netherlands 100.00 - December Stokke AS Stokke GmbH Germany 100.00 - December Stokke AS Stokke GesmbH Austria 100.00 - December Stokke AS Stokke AG Switzerland 100.00 - December Stokke AS Stokke France S.A.S. France 100.00 - December Stokke AS Stokke UK LTD UK 100.00 - December Stokke AS Stokke Mobiliario SL Spain 100.00 - December Stokke AS Stokke SRL Italy 100.00 - December Stokke AS Stokke Hong Kong Limited Hong Kong 100.00 - December Stokke AS Stokke Ltd (Japan) Japan 100.00 - December Stokke AS Stokke Korea Co., Ltd Korea 100.00 - December Stokke AS StokkeChinaLtd China 100.00 - December Stokke AS Stokke LLC USA 100.00 - December Stokke Amerika AS
1 The September 30 financial statements were used after reviewing the significant events from October to December.
2 Innovative Fund LLC was reclassified from a subsidiary to an associate due to a decrease in the ownership of the Group through issuance of stocks in the form of an allotment to the third party during the year ended December 31, 2014.
Although the Group owns over 50% ownership of SB Next on Rush Investment Partnership and COLLAB II- GEC, LLC, these were excluded from the consolidated subsidiaries since the general partners decide on the operations and investments in accordance with its Articles of Incorporation.
9 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
1.2 Summarized Financial Information on Other Significant Subsidiaries
The summarized financial information for significant subsidiaries as of and for the years ended December 31, 2014 and 2013, is as follows:
(In thousands of Korean won) 2014 Profit (loss) Assets Liabilities Equity Sales for the year
NEXON Co., Ltd. \1,831,864,662 \388,521,092 \1,443,343,570 \79,331,161 \192,081,649 NXMH B.V.B.A. 1,593,430,232 242,839,098 1,350,591,134 348,676 (15,816,098) NXProperties Corporation 69,799,410 1,015,630 68,783,780 324,000 232,753 NXCL Corporation 3,988,514 294,083 3,694,431 2,330,815 (2,616,952) VIP Private Equity Fund 44,148,456 396,484 43,751,972 - 1,172,440 Alignment B-Corp CircleUp Fund LLC 362,309 - 362,309 - - NEXON Korea Corporation 2,565,817,458 225,485,757 2,340,331,701 739,495,707 378,256,353 Rushmo 3,021,206 1,275,649 1,745,557 78,466 (2,161,664) Nexon America, Inc. 33,987,955 46,963,805 (12,975,850) 48,837,099 (12,549,072) Nexon Software Development (Shanghai) Co., Ltd. 109,133,313 71,090,752 38,042,561 43,096,590 26,668,463 gloops Inc. 123,598,860 112,050,157 11,548,703 197,000,166 13,800,474 Inblue Inc. 11,616,720 1,590,949 10,025,771 23,378,688 4,586,697 Fantage.com Inc. 796,120 6,420,016 (5,623,896) 3,324,927 (658,056) NEXON Europe S.a.r.l. 14,580,996 7,116,345 7,464,651 22,396,123 (4,885,197) Nexon M (formerly gloops International Inc.) 23,289,451 55,015,690 (31,726,239) 2,550,844 (15,544,664) Nexon Networks Corporation 24,541,852 5,364,161 19,177,691 28,125,925 (701,784) Neople 757,570,213 105,142,070 652,428,143 635,174,954 374,805,008 Nexon Communications 5,075,427 1,079,508 3,995,919 3,949,598 404,386 Nexon Space Co., Ltd. 3,095,440 1,094,910 2,000,530 8,284,507 720,355 Weclay Inc. - - - - (14,337) NDOORS Corporation 22,600,123 7,584,587 15,015,536 19,655,465 2,946,481 Nexon GT Co., Ltd. (formerly GameHi Inc.) 132,588,372 21,048,925 111,539,447 63,296,226 11,300,858 Nextoric Corporation - - - 758,304 (446,109) Neon Studio Corporation 445,554 541 445,013 111,276 (1,810,138) THINGSOFT Inc. 2,188,405 3,548,749 (1,360,344) 2,750,286 (4,304,287) Rushmo America, Inc 810,372 45,147 765,225 - (332,588) gloops Vietnam Co., Ltd. 2,336,444 1,463,807 872,637 1,772,248 324,771 COMLIE.INC 33,242 159,445 (126,203) - (8,244) BRICKLINK LIMITED 8,217,222 6,513 8,210,709 757,550 (42,526) NXMH LLC 1,449,435 - 1,449,435 - (31,348) NXMH AS 509,156,171 173,878,582 335,277,589 26,719,641 (2,901,292) Stokke AS 90,212,716 78,967,424 11,245,292 193,479,566 13,046,120 Stokke Amerika AS 2,618 15,593 (12,975) - (2,633) Stokke Fabriker AB 328,174 204,870 123,304 924,291 107,927 Stokke Danmark ApS 1,269,481 336,312 933,169 1,679,338 86,704
10 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(In thousands of Korean won) 2014 Profit (loss) Assets Liabilities Equity Sales for the year
Stokke Nederland BV 984,674 378,716 605,958 2,979,808 518,168 Stokke GmbH 2,959,139 1,613,607 1,345,532 12,313,466 1,130,799 Stokke GesmbH 366,001 179,801 186,200 968,980 144,412 Stokke AG 747,512 354,830 392,682 1,983,124 204,176 Stokke France S.A. 1,040,088 771,258 268,830 2,491,232 181,492 Stokke UK LTD 969,652 321,208 648,444 2,572,364 300,776 Stokke Mobiliario SL 630,669 392,469 238,200 1,622,561 173,685 Stokke SRL 1,032,507 692,256 340,251 2,410,589 170,633 Stokke Hong Kong Limited 376,643 252,174 124,469 3,027,682 112,677 Stokke Ltd (Japan) 7,460,807 5,614,621 1,846,186 13,054,925 479,479 Stokke Korea Co., Ltd 4,550,120 2,595,005 1,955,115 9,951,870 331,123 Stokke China Ltd 1,884,395 1,092,424 791,971 6,098,608 422,811 Stokke LLC 10,616,422 9,067,929 1,548,493 23,208,657 286,932
(In thousands of Korean won) 2013 Profit (loss) Assets Liabilities Equity Sales for the year
NXProperties Corporation \ 61,152,166 \ 2,600,523 \ 58,551,643 \ 324,000 \ 2,940,225 NEXON Korea Corporation 2,454,380,019 348,261,796 2,106,118,223 1,252,205,976 697,383,206 Nexon Networks Corporation 24,113,572 5,707,659 18,405,913 32,007,115 1,658,831 Neople 734,255,053 138,914,158 595,340,895 452,821,296 302,820,033 Nexon Communications 4,473,624 937,200 3,536,424 4,733,943 941,872 Nexon Space Co., Ltd. 3,283,049 2,007,652 1,275,397 2,217,634 (324,603) THINGSOFT Inc. 6,675,630 4,260,435 2,415,195 783,432 (798,297) Weclay Inc. 98,908 557 98,351 3,273 (5,745) NDOORS Corporation 21,628,951 9,566,273 12,062,678 15,461,387 (3,867,458) GameHi Inc. 109,732,615 15,338,170 94,394,445 55,282,015 21,295,930 Rushmo 4,197,932 290,710 3,907,222 479,639 (2,447,615) NXCL Corporation 6,740,580 429,196 6,311,384 1,517,953 (2,530,740) Nextoric Corporation 7,989,039 1,730,059 6,258,980 8,577,333 (2,309,998) Neon Studio Corporation 2,706,015 461,368 2,244,647 - (3,317,193) VIP Private Equity Fund 42,836,199 254,880 42,581,319 - 7,328,614 BRICKLINK LIMITED 7,942,389 18,144 7,924,245 560,001 (632,944) Nexon Software Development (Shanghai) Co., Ltd. 147,068,888 71,929,583 75,139,305 54,146,006 34,452,071 NEXON Co., Ltd. 2,130,329,766 575,977,357 1,554,352,409 125,660,433 131,258,323 gloops Inc. 154,842,412 135,087,035 19,755,377 253,889,029 21,721,806 COMLIE.INC 38,583 168,853 (130,270) 260,722 (216,289) Inblue Inc. 14,676,288 8,286,084 6,390,204 35,447,469 6,932,432 Fantage.com Inc. 1,664,336 6,403,146 (4,738,810) 5,073,060 (1,134,463)
11 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(In thousands of Korean won) 2013 Profit (loss) Assets Liabilities Equity Sales for the year
Nexon America, Inc. 27,960,834 27,873,595 87,239 59,361,574 (6,860,802) Nexon M (formerly, gloops International Inc.) 12,949,849 27,821,594 (14,871,745) 332,582 (8,991,777) INNOVATIVEFUND, LLC 1,053,900 - 1,053,900 - - NXMH B.V.. - - - - 402,637 NXMH B.V.B.A. 1,014,062,537 585,238 1,013,477,299 8,112,189 5,774,416 NXMH AS 8,608 - 8,608 - - Stokke Holdings AS 5,211 - 5,211 - - NEXON Europe S.a.r.l. 20,360,544 7,167,058 13,193,486 24,822,058 (82,501) gloops Vietnam Co., Ltd. 1,727,632 1,202,620 525,012 2,630,256 354,783
1.3 Changes in Scope for Consolidation
Subsidiaries newly included in the consolidation for the year ended December 31, 2014:
Location Subsidiary Reason
Norway Stokke AS Newly acquired Norway Stokke Amerika AS Newly acquired Sweden Stokke Fabriker AB Newly acquired Denmark Stokke Danmark ApS Newly acquired Netherlands Stokke Nederland BV Newly acquired Germany Stokke GmbH Newly acquired Austria Stokke GesmbH Newly acquired Switzerland Stokke AG Newly acquired France Stokke France S.A. Newly acquired UK Stokke UK LTD Newly acquired Spain Stokke Mobiliario SL Newly acquired Italy Stokke SRL Newly acquired Hong Kong Stokke Hong Kong Limited Newly acquired Japan Stokke Ltd (Japan) Newly acquired Korea Stokke Korea Co., Ltd Newly acquired China Stokke China Ltd Newly acquired USA Stokke LLC Newly acquired USA Alignment B-Corp CircleUp Fund LLC Newly established USA Rushmo America, Inc Newly established USA NXMH LLC Newly established
12 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Subsidiaries excluded from the consolidation for the year ended December 31, 2014:
Location Subsidiary Reason
USA INNOVATIVEFUND, LLC Decrease in ownership interest Korea Weclay Inc. Merged with NEXON Korea Corporation Korea Nextoric Corporation Merged with Nexon GT Co., Ltd. Norway Stokke Holdings AS Merged with NXMH AS
2. Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of Preparation
The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements.
Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Group's financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements.
The consolidated financial statements of the Group have been prepared in accordance with Korean IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea.
The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.
13 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
2.2 Changes in Accounting Policy and Disclosures
(a) New and amended standards adopted by the Group
The Group newly applied the following amended and enacted standards for the annual period beginning on January 1, 2014:
- Enactment of Korean IFRS 2121, Levies
Korean IFRS 2121, Levies, is applied to a liability to pay a levy imposed by the government in accordance with the legislation. The interpretation requires that the liability to pay a levy is recognized when the activity that triggers the payment of the levy occurs, as identified by the legislation. The application of this interpretation does not have a material impact on the consolidated financial statements.
- Amendment to Korean IFRS 1102, Share-based payment
Amendment to Korean IFRS 1102, Share-based payment, clarifies the definition of ‘vesting conditions’ such as ‘performance condition’, ‘service condition’ and others. This enactment is applied to share-based payment transactions for which the grant date is on or after July 1, 2014. The application of this amendment does not have a material impact on the consolidated financial statements.
- Amendment to Korean IFRS 1032, Financial Instruments: Presentation
Amendment to Korean IFRS 1032, Financial Instruments: Presentation, provides that the right to offset must not be contingent on a future event and must be legally enforceable in all of circumstances; and if an entity can settle amounts in a manner such that outcome is, in effect, equivalent to net settlement, the entity will meet the net settlement criterion.
- Amendment to Korean IFRS 1036, Impairment of Assets
Amendment to Korean IFRS 1036, Impairment of Assets, removed certain disclosures of the recoverable amount of cash-generating units which had been included in this amendment by the issuance of Korean IFRS 1113.
- Amendment to Korean IFRS 1039, Financial Instruments: Recognition and Measurement
Amendment to Korean IFRS 1039, Financial Instruments: Recognition and Measurement, allows the continuation of hedge accounting for a derivative that has been designated as a hedging instrument in a circumstance in which that derivative is novated to a central counterparty (CCP) as a consequence of laws or regulations.
Other standards, amendments and interpretations which are effective for the annual period beginning on January 1, 2014, do not have a material impact on the financial statements of the
14 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Group.
(b) New standards and interpretations not yet adopted
The Group expects that new standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2014 and not early adopted would not have a material impact on its consolidated financial statements.
2.3 Consolidation
The Group has prepared the consolidated financial statements in accordance with Korean IFRS 1110, Consolidated Financial Statements.
(a) Subsidiaries
Subsidiaries are all entities over which the Parent Company has control. the Parent Company controls the corresponding investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The consolidation of a subsidiary begins from the date the Parent Company obtains control of a subsidiary and ceases when the Parent Company loses control of the subsidiary.
The Group applies the acquisition method to account for business combinations. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Group recognizes any non- controlling interest in the acquiree on an acquisition-by-acquisition basis in the event of liquidation, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets. All other non-controlling interests are measured at their acquisition-date fair values, unless another measurement basis is required by IFRSs. Acquisition-related costs are expensed as incurred.
Goodwill is recognized as the excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over the identifiable net assets acquired. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.
Balances of receivables and payables, income and expenses and unrealized gains on transactions between the Group subsidiaries are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
In transactions with non-controlling interests, which do not result in loss of control, the Group recognizes directly in equity attributable to owners of the Parent Company any difference between the amount by which the non-controlling interests are adjusted and the fair value of the
15 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
consideration paid or received, and attribute it to the owners of the Parent Company.
If the Group loses control of a subsidiary, any investment retained in the subsidiary is re- measured at its fair value at the date when control is lost and any resulting differences are recognized in profit or loss.
(b) Associates
Associates are all entities over which the Group has significant influence, and investments in associates are initially recognized at acquisition cost using the equity method. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. If there is any objective evidence that the investment in the associate is impaired, the Group recognizes the difference between the recoverable amount of the associate and its book value as impairment loss.
(c) Joint Arrangements
A joint arrangement, wherein two or more parties have joint control, is classified as either a joint operation or a joint venture. A joint operator has rights to the assets, and obligations for the liabilities, relating to the joint operation and recognizes the assets, liabilities, revenues and expenses relating to its interest in a joint operation. A joint venturer has rights to the net assets relating to the joint venture and accounts for that investment using the equity method.
2.4 Foreign Currency Translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the each entity operates (the functional currency). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss.
Exchange differences arising on non-monetary financial assets and liabilities such as equity instruments at fair value through profit or loss and available-for-sale equity instruments are recognized in profit or loss and included in other comprehensive income, respectively, as part of the fair value gain or loss.
16 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
2.5 Financial Assets
(a) Classification and measurement
The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, loans and receivables, and held-to- maturity financial assets. Regular purchases and sales of financial assets are recognized on the trade date.
Regular purchases and sales of financial assets are recognized on the trade date. At initial recognition, financial assets are measured at fair value plus, in the case of financial assets not carried at fair value through profit or loss, transaction costs. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statement of income. After the initial recognition, available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables, and held-to-maturity investments are subsequently carried at amortized cost using the effective interest rate method.
Changes in fair value of financial assets at fair value through profit or loss are recognized in profit or loss and changes in fair value of available-for-sale financial assets are recognized in other comprehensive income. When the available-for-sale financial assets are sold or impaired, the fair value adjustments recorded in equity are reclassified into profit or loss.
(b) Impairment
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated.
Impairment of loans and receivables is presented as a deduction in an allowance account. Impairment of other financial assets is directly deducted from their carrying amount. The Group writes off financial assets when the assets are determined to be no longer recoverable.
The objective evidence that a financial asset is impaired includes significant financial difficulty of the issuer or obligor; a delinquency in interest or principal payments over three months; or the disappearance of an active market for that financial asset because of financial difficulties. A decline in the fair value of an available-for-sale equity instrument by more than 50% from its cost or a prolonged decline below its cost for more than 12 months is also objective evidence of impairment.
17 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(c) Derecognition
If the Group transfers a financial asset and the transfer does not result in derecognition because the Group has retained substantially of all risks and rewards of ownership of the transferred asset due to a recourse in the event the debtor defaults, the Group continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received.
(d) Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.
2.6 Derivative Instruments
Derivatives are initially recognized at fair value on the date when a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of the derivatives that are not qualified for hedge accounting are recognized in the statement of income within 'other income (expenses)' or 'financial income (expenses)' according to the nature of transactions.
The Group has entered into derivative financial instruments, including foreign exchange forward contracts and interest rate swaps, in purpose of selling in short term or managing its exposure to interest rate risk and foreign exchange rate risk. These derivatives are presented as other financial assets (liabilities) in the statement of financial position, regardless of retention purposes and subsequent measurement standards.
The Group designated some derivatives as hedging instruments to hedge risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge), and cash flow risk (a cash flow hedge).
At the inception of the hedging transaction, the Group has designated and documented the relationship between hedging instruments and hedged items, as well as its objectives in risk management and strategy for undertaking various hedging transactions. The document contains hedging instrument, hedged items, nature of hedge, and assessment of whether the hedging instrument are highly effective in offsetting risk of changes in fair value of hedged items.
(a) Derivative financial instruments for trading
Derivative financial instruments, other than the derivatives that are effective in hedge, are measured at fair value. Gain or loss on valuation of fair value is recognized in statement of comprehensive income as ‘finance cost’.
18 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(b) Derivative financial instruments for fair value hedge
Changes in the fair value of a derivative financial instrument, designated as hedging instrument and satisfied the criteria for fair value hedge accounting, are recognized in profit or loss as well as changes in fair value of hedged items. The change in fair value of hedging instrument and hedged items are all recognized in statement of comprehensive income as part of profit or loss. The fair value accounting is discontinued if the hedging instrument is expired, sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized and recognized in profit or loss from the date the hedge accounting is discontinued.
(c) Derivative financial instruments for cash flow hedge
The effective portion of changes in fair value of derivatives that are designated and qualify as fair value hedges is recognized as ’finance cost’ in other comprehensive income, and the ineffective portion is recognized immediately in profit or loss. The previously recognized profit or loss in other comprehensive income is reclassified as ‘reclassification adjustment’ from equity to profit or loss during accounting period that is in effect of expected cash flow related with the hedge. If the hedging instrument no longer meets the criteria for hedge accounting; the hedging instrument is expired, sold, terminated, or exercised; or the designation is revoked; then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.
2.7 Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method.
2.8 Non-current Assets (or Disposal Group) Held-for-sale
Non-current assets (or disposal group) are classified as assets held-for-sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. The assets are measured at the lower amount between their carrying amount and the fair value less costs to sell.
2.9 Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that are directly attributable to the acquisition of the items.
19 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between their cost and their residual values over their estimated useful lives, as follows:
Useful life Building 40 years Structure 15 Machinery 3 Leasehold improvements 3 Others 3
The depreciation method, residual values and useful lives of property and equipment are reviewed at each financial year-end and, if appropriate, accounted for as changes in accounting estimates.
2.10 Intangible Assets
Goodwill is measured as explained in Note 2.3.(a) and carried at its cost less accumulated impairment losses.
Intangible assets, except for goodwill, are initially recognized at its historical cost and carried at its cost less accumulated amortization and accumulated impairment losses.
Internally generated software development costs are the aggregate costs recognized after meeting the asset recognition criteria, including technical feasibility, and determined to have future economic benefits. Membership rights are regarded as intangible assets with indefinite useful life and not amortized because there is no foreseeable limit to the period over which the assets are expected to be utilized. Intangible assets with definite useful life that are amortized using the straight-line method over their estimated useful lives, are as follows:
Useful life Intellectual property 5 - 80 years Software 3 Others 1 - 10
2.11 Government Grants
Government grants are recognized at their fair values when there is reasonable assurance that the grant will be received and the Group will comply with the conditions attaching to it. Government grants related to assets are presented by deducting the grants in arriving at the carrying amount of the assets, and grants related to income are deferred and presented by deducting the related expenses for the purpose of the government grants.
20 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
2.12 Investment Property
Property held to earn rentals or for capital appreciation or both is classified as investment property. Investment property is measured initially at its cost. After recognition as an asset, investment property is carried at cost less accumulated depreciation and impairment losses. Investment property, except for land, is depreciated using the straight-line method over their useful lives for 40 years.
2.13 Impairment of Non-financial Assets
Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
2.14 Financial Liabilities
(a) Classification and measurement
Financial liabilities at fair value through profit or loss are financial instruments held for trading. Financial liabilities are classified in this category if incurred principally for the purpose of repurchasing them in the near term. Derivatives that are not designated as hedges or bifurcated from financial instruments containing embedded derivatives are also categorized as held-for- trading.
The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presented as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statement of financial position.
(b) Derecognition
Financial liabilities are removed from the statement of financial position when it is extinguished, for example, when the obligation specified in the contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified.
21 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
2.15 Financial Guarantee Contracts
Financial guarantees contracts provided by the Group are initially measured at fair value on the date the guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the amounts below and recognized as ‘other financial liabilities’:
the amount determined in accordance with Korean IFRS 1037, Provisions, Contingent Liabilities and Contingent Assets; or
the initial amount, less accumulated amortization recognized in accordance with Korean IFRS1018, Revenue.
2.16 Provisions
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the increase in the provision due to passage of time is recognized as interest expense.
2.17 Current and Deferred Tax
The tax expense for the period consists of current and deferred tax. Tax is recognized on the profit for the period in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.
Management periodically evaluates tax policies that are applied in tax returns in which applicable tax regulation is subject to interpretation. The Parent Company recognizes current income tax on the basis of the amount expected to be paid to the tax authorities.
Deferred tax is recognized for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts as expected tax consequences at the recovery or settlement of the carrying amounts of the assets and liabilities. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized.
Deferred tax liability is recognized for taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the
22 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
temporary difference will not reverse in the foreseeable future. In addition, deferred tax asset is recognized for deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.18 Employee Benefits
(a) Post-employment benefits
The Group has both defined contribution and defined benefit plans.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The contributions are recognized as employee benefit expense when an employee has rendered service.
A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds and that have terms to maturity approximating to the terms of the related pension obligation. The remeasurements of the net defined benefit liability are recognized in other comprehensive income.
If any plan amendments, curtailments, or settlements occur, past service costs or any gains or losses on settlement are recognized as profit or loss for the year.
(b) Other long-term employee benefits
Certain Group companies provide long-term employee benefits, which are entitled to employees with service period for ten years and above. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. The Group recognizes past service cost, net interest on other long-term employee benefits and remeasurements as profit or loss for the year. These liabilities are valued annually by independent qualified actuaries.
23 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(c) Share-based payments
Equity-settled share-based payments granted to employees are estimated at the grant date fair value of equity instruments and recognized as employee benefit expenses over the vesting period. The number of equity instruments expected to vest is remeasured with consideration to non- market vesting conditions at the end of the reporting period, with any changes from the original measurement recognized in the profit for the year and equity.
Compensation expenses arising from share-based payments granted by subsidiaries are recognized according to the ownership interest of equity holders of the Parent Company and non- controlling interest, and re-classified as non-controlling interest in consolidated statement of financial position.
(d) Annual paid leave
The Group recognizes expenses and liabilities related to annual paid leave during an accounting period when an employee has rendered service that gives rise to employee’s entitlement to future annual paid leave.
2.19 Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or rendering of services arising from the normal activities of the Group.
The Group recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities, as described below. The Group bases its estimate on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
(a) Royalty income
Royalty income is recognized on an accrual basis in accordance with the substance of the relevant agreements.
(b) Sale of virtual goods
The Group provides online games to individual customers for free. However, the Group sells virtual items that are used in online games at a cost. Revenue from the sales of item is recognized when it is probable that future economic benefits will flow to the Group and these benefits can be measured reliably. Revenue from the sales of item is generally recognized on a straight-line basis over the period for which the item is expected to be used (Note 3).
24 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(c) Sale of goods
Revenue from the sale of goods is recognized when products are delivered to the purchaser.
(d) Interest income
Interest income is recognized using the effective interest method according to the time passed. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognized using the original effective interest rate.
(e) Dividend income
Dividend income is recognized when the right to receive payment is established.
2.22 Lease
A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases where all the risks and rewards of ownership are not transferred to the Group are classified as operating leases. Lease payments under operating leases are recognized as expenses on a straight-line basis over the lease term.
Leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases and recognized as lease assets and liabilities at the lower of the fair value of the leased property and the present value of the minimum lease payments on the opening date of the lease period.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership at the inception of the lease. A lease other than a finance lease is classified as an operating lease. Lease income from operating leases is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.
2.21 Approval of Issuance of the Financial Statements
The issuance of the December 31, 2014 financial statements of the Group was approved by the Board of Directors on February 27, 2015, which is subject to change with the approval of the shareholders at their annual shareholders’ meeting.
25 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
3. Critical Accounting Estimates and Assumptions
The Group makes estimates and assumptions concerning the future. The estimates and assumptions are continuously evaluated with consideration to factors such as events reasonably predictable in the foreseeable future within the present circumstance according to historical experience. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
(a) Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations (Note 18).
(b) Estimates on using period of game item
The Group provides the online games (PC and mobile) for free to individual users and sells virtual items that are used in the free game. Revenue from the sale of the item is deferred and recognized over the period of expected use of the item. In order to estimate the period of expected use, the Group analyzes certain factors including the behavior patterns of users by considering the nature of items and games. In addition, the Group continuously reviews the possibility of changes in the estimates. The revenue from the sale of the items is recognized over the period during which the items are expected to be used based on the result of past performance and this can be changed depending on the changes in future market conditions and users.
(c) Income taxes
The Group is operating in numerous countries and the income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain (Note 26).
(d) Fair value of financial instruments
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period (Note 5).
26 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
4. Financial Risk Management
4.1 Financial Risk Management Factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Management reviews and approves principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
4.1.1 Market Risk
(a) Foreign exchange rate risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Norwegian krone, the Japanese yen, Chinese yuan and US dollar. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.
The impact of weakened/strengthened Korean won by 10% against foreign currencies with all other variables held constant on the post-tax profit for the year and equity of the Group as of December 31, 2014 and 2013, is as follows:
(in thousands of Korean won) Impact on post-tax profit Impact on equity 2014 2013 2014 2013
USD Strengthened ₩ 42,238,884 ₩ 33,502,650 ₩ 42,238,884 ₩ 33,502,650 Weakened (42,238,884) (33,502,650) (42,238,884) (33,502,650) JPY Strengthened (14,107,828) 4,039,326 (14,107,828) 4,039,326 Weakened 14,107,828 (4,039,326) 14,107,828 (4,039,326) CNY Strengthened 16,877,365 9,550,064 16,877,365 9,550,064 Weakened (16,877,365) (9,550,064) (16,877,365) (9,550,064) NOK Strengthened - 4,648,246 - 4,648,246 Weakened - (4,648,246) - (4,648,246) Other Strengthened 44,959,946 1,652,343 44,959,946 1,652,343 Weakened (44,959,946) (1,652,343) (44,959,946) (1,652,343)
27 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(b) Price risk
The Group is exposed to equity securities price risk because of investments held by the Group and classified either as available-for-sale or at fair value through profit or loss.
As of December 31, 2014 and 2013, the impact of increases/decreases of the stock price by 10% with all other variables held constant on the Group’s post-tax profit for the year and equity is as follows:
(in thousands of Korean won) Impact on post-tax profit Impact on equity 2014 2013 2014 2013
Listed equity Increase ₩ 12,785,494 ₩ 15,905,789 ₩ 61,534,102 ₩ 81,825,052 securities Decrease (12,785,494) (15,905,789) (61,534,102) (81,825,052)
(c) Interest rate risk
Interest rate risk is defined as the risk that the interest income arising from deposits will fluctuate because of changes in future market interest rate. The interest rate risk mainly arises through floating rate borrowings.
The impact of 10 basis points higher/lower of interest rate on the Group’s post-tax profit for the year and on equity as of December 31, 2014 and 2013, is as follows:
(in thousands of Impact on post-tax profit Impact on equity Korean won) 2014 2013 2014 2013
Increase \ (912) \ (438,605) \ (912) \ (438,605) Decrease 912 438,605 912 438,605
4.1.2 Credit Risk
Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. For banks and financial institutions, the Group has transactions with customers who have few risks and the Group has major customers with sound financial positions. Management does not expect any losses from non-performance by these counterparties. The maximum exposure to credit risk equals to the book value.
28 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
4.1.3 Liquidity Risk
The Group monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance and, if applicable external regulatory or legal requirements – for example, currency restrictions.
The Group invests surplus cash in money market deposits, time deposits, and marketable available-for-sale securities, choosing instruments with appropriate maturities or sufficient liquidity.
Details of the Group’s liquidity risk analysis as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 Between 1 and 5 Less than 1 year years Over 5 years
Trade payables \ 46,845,188 \ - \ - Borrowings and finance lease liabilities 392,064,030 388,429,211 - Other financial liabilities 126,005,479 9,090,901 - Derivative liabilities 7,497,008 4,807,336 - Other financial liabilities(contingent consideration) 54,268,470 - - Payment guarantee 1,150,000 - - \ 627,830,175 \ 402,327,448 \ -
(in thousands of Korean won) 2013 Between 1 and 5 Less than 1 year years Over 5 years
Trade payables \ 26,116,487 \ - \ - Borrowings and finance lease liabilities 141,691,671 366,462,111 - Other financial liabilities 132,891,640 8,837,365 - Other financial liabilities(contingent consideration) - 62,316,000 - Payment guarantee 1,250,000 - - Gross settled derivative financial instruments (forward contract) 529,824,955 - - \ 831,774,753 \ 437,615,476 \ -
Above analysis is based on the earliest maturity with undiscounted cash flows of financial liabilities and includes cash flows of principal and interest payments.
29 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
5. Fair Value
5.1 Fair Value of Financial Instruments by Category
Carrying amount and fair value of financial instruments by category as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Carrying Fair Carrying Fair amount value amount value Financial assets Financial assets at fair value through profit or loss \177,591,952 \177,591,952 \213,262,665 \213,262,665 Available-for-sale financial assets 645,112,636 645,112,636 846,678,883 846,678,883 Other financial assets 49,010,716 49,010,716 41,946,156 41,946,156 Financial liabilities Other financial liabilities 12,304,344 12,304,344 - -
1 Equity instruments that do not have a quoted price in an active market are measured at cost and excluded from the fair value disclosures because their fair value cannot be measured reliably. 2 Short-term trade receivables and payables whose carrying amount is a reasonable approximation of fair value are excluded from the fair value disclosures.
5.2 Financial Instruments Measured at Cost
Details of financial instruments measured at cost as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Available-for-sale financial assets Unlisted equity securities \ 34,663,895 \ 6,174,915 Beneficiary certificates 42,267,017 38,512,480 Others 1,095,739 25,639,415 \ 78,026,651 \ 70,326,810
Financial instruments have been measured at cost since their fair value cannot be reliably measured due to the lack of basic information required for future cash flow projection.
30 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
5.3 Fair Value Hierarchy
Assets measured at fair value or for which the fair value is disclosed are categorized within the fair value hierarchy, and the defined levels are as follows:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 Level 1 Level 2 Level 3 Total Recurring fair value measurements Financial assets at fair value through profit or loss \ 168,674,066 \ 6,355,017 \ 2,562,869 \ 177,591,952 Available-for-sale financial assets 642,643,021 2,469,615 - 645,112,636 Derivative assets - 49,010,716 - 49,010,716 Derivative liabilities - 12,304,344 - 12,304,344
(in thousands of Korean won) 2013 Level 1 Level 2 Level 3 Total Recurring fair value measurements Financial assets at fair value through profit or loss \ 209,838,907 \ - \ 3,423,758 \ 213,262,665 Available-for-sale financial assets 846,360,268 318,615 - 846,678,883 Derivative assets - 41,946,156 - 41,946,156 Non-current assets held-for-sale Assets held-for-sale 46,867,654 - - 46,867,654
31 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Details of changes in Level 3 of the fair value hierarchy are as follows:
(In thousands of Korean won) 2014 2013
Beginning balance \ 3,423,758 \ 6,166,725 Amount recognized in profit or loss 135,867 592,340 Purchases 2,943,867 15,500,000 Sales (3,940,623) (18,835,307) Ending balance \ 2,562,869 \ 3,423,758
6. Financial Instruments by Category
6.1 Carrying Amounts of Financial Instruments by Category
Categorizations of financial assets and liabilities as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 Financial Financial assets Held-to- assets at fair classified as maturity value through Loans and available-for- financial Other financial profit or loss receivables sale assets assets1 Total
Cash and cash equivalents \ - \1,122,293,941 \ - \ - \ - \1,122,293,941 Financial assets at fair value through profit or loss 177,591,952 - - - - 177,591,952 Trade receivables - 315,203,617 - - - 315,203,617 Other current financial assets 2,365,241 942,220,904 - - - 944,586,145 Other non-current financial assets 1,079,467 103,223,228 - - 45,566,007 149,868,702 Available-for-sale financial assets - - 723,139,287 - - 723,139,287 \181,036,660 \2,482,941,690 \ 723,139,287 \ - \ 45,566,007 \3,432,683,644
1 Other non-current financial assets among other financial assets are cash flow hedge derivatives (\45,566 million).
32 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(in thousands of Korean won) 2014 Financial liabilities at fair Other financial value through liabilities at Other financial profit or loss amortized cost liabilities 1 Total
Trade payables \ - \ 46,845,188 \ - \ 46,845,188 Borrowings(current) - 386,268,079 - 386,268,079 Other current financial liabilities 7,497,008 132,903,084 - 140,400,092 Other non-current financial liabilities 4,807,336 22,610,999 - 27,418,335 Borrowings(non-current) - 370,141,896 1,275,401 371,417,297 \ 12,304,344 \ 958,769,246 \ 1,275,401 \ 972,348,991
1 Other financial liabilities include finance lease liabilities not applicable to categories of financial liabilities
(in thousands of Korean won) 2013 Financial Financial assets Held-to- assets at fair classified as maturity value through Loans and available-for- financial Other financial profit or loss receivables sale assets assets1 Total
Cash and cash equivalents \ - \1,523,549,371 \ - \ - \ - \1,523,549,371 Financial assets at fair value through profit or loss 213,262,665 - - - - 213,262,665 Trade receivables - 217,833,016 - - - 217,833,016 Other current financial assets - 467,522,085 - - - 467,522,085 Other non-current financial assets - 43,129,125 - - 41,946,156 85,075,281 Available-for-sale financial assets - - 917,005,693 - - 917,005,693 Held-to-maturity financial assets - - - 1,000,000 - 1,000,000 \ 213,262,665 \2,252,033,597 \ 917,005,693 \ 1,000,000 \ 41,946,156 \3,425,248,111
1 Other non-current financial assets among other financial assets are derivative assets (\41,946 million).
33 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(in thousands of Korean won) 2013 Financial liabilities at fair Other financial value through liabilities at Other financial profit or loss amortized cost liabilities 1 Total
Trade payables \ - \ 26,116,487 \ - \ 26,116,487 Borrowings(current) - 134,082,720 5,806,610 139,889,330 Other current financial liabilities - 132,891,640 - 132,891,640 Other non-current financial liabilities - 24,487,306 - 24,487,306 Borrowings(non-current) - 348,682,630 3,504,286 352,186,916 \ - \ 666,260,783 \ 9,310,896 \ 675,571,679
1 Other financial liabilities include finance lease liabilities.
6.2 Net gains or Losses by Category of Financial Instruments
Net gains or net losses on each category of financial instruments for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Financial assets at fair value through profit or loss Gain on disposal \ 12,335,508 \ 23,482,813 Gain on valuation 12,132,707 21,499,563 Loss on disposal (9,089,326) (1,693,782) Loss on valuation (12,644,866) (1,510,082) Dividend income 2,388,985 2,359,977 Available-for-sale financial assets Gain on disposal 8,821,769 6,595,788 Loss on disposal (2,195,677) - Impairment loss (15,124,450) (5,868,613) Gain(loss) on valuation (160,214,441) 375,553,520 Dividend income 12,926,467 2,777,502 Loans and receivables Interest income 35,267,245 25,347,424 Exchange differences 48,874,867 (14,401,031) Bad debt expenses (766,348) (400,135) Other bad debt expenses (8,789,903) (7,060,804) Reversal of other bad debt expenses 1,903,766 5,652,539 Financial liabilities at fair value through profit or loss Gain on derivatives transactions 308,337 - Other financial liabilities at amortized cost Interest expenses (16,263,955) (7,582,153) Exchange differences (23,780,930) 1,013,491 Valuation of contingent consideration (4,294,571) -
34 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
7. Credit Quality of Financial Assets
7.1 Financial Deposits
Detail of financial deposits as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Cash and cash equivalents \ 1,122,293,941 \ 1,523,549,371 Short-term financial instruments 923,333,336 441,868,460 Long-term financial instruments 20,492,500 1,807,500 \ 2,066,119,777 \ 1,967,225,331
Financial deposits of the Group’s financial assets consist of customers who have a certain level of credit ratings with no default risk. In addition, \6,648 million of financial deposits are restricted in relation to borrowings from Sumitomo Bank Ltd.
8. Trade Receivables
Trade receivables and provisions for impairment of trade receivables as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Trade receivables1 \ 320,856,637 \ 225,217,248 Less: provisions for impairment of trade receivables (5,653,020) (7,384,232) Trade receivables - net \ 315,203,617 \ 217,833,016
1 The \33,935 million of trade receivables are provided as collaterals in relation to borrowings from DNB BANK ASA (Note 22).
The aging analysis of the trade receivables as of December 31, 2014 and 2013, is as follows:
(In thousands of Korean won) 2014 2013
Receivables not past due \ 301,925,701 \ 153,515,792 Past due but not impaired1 Up to 3 months 12,449,300 62,875,454 3 to 6 months 289,538 460,267 6 to 12 months 124,407 703,471 Over 12 months 414,671 278,032 13,277,916 64,317,224 \ 315,203,617 \ 217,833,016
1 Trade receivables past due but not impaired relate to a number of independent customers who
35 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
have no recent history of default. 2 Provisions for impaired receivables amount to \ 5,653 million as of December 31, 2014 (2013: \ 7,384 million). A portion of the impaired receivables is expected to be recovered.
Movements on provisions for impairment of trade receivables for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Beginning balance \ 7,384,232 \ 7,580,887 Bad debt expenses 78,955 400,135 Write-off (2,323,541) (521,246) Exchange differences (4,350) (75,544) Changes in scope of consolidation 517,724 - Ending balance \ 5,653,020 \ 7,384,232
9. Cash and Cash Equivalents
Cash and cash equivalents as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Cash on hand \ 207,737 \ 255,434 Bank deposits and short-term deposits 1,122,086,204 1,523,293,937 \ 1,122,293,941 \ 1,523,549,371
10. Other Financial Assets
Details of other financial assets as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Short-term financial instruments \ 923,333,336 \ 441,868,460 Short-term loans 1,563,388 1,713,302 Non-trade receivables 6,250,833 18,401,496 Accrued income 11,073,346 5,538,826 Derivative assets 49,010,716 41,946,156 Long-term financial instruments 20,492,500 1,807,500 Long-term loans 9,406,392 1,930,972 Leasehold deposits 73,324,336 39,390,653 \ 1,094,454,847 \ 552,597,365 Less: Non-current \ (149,868,702) \ (85,075,280) Current 944,586,145 467,522,085
36 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
11. Derivative Financial Instruments
Details of derivative financial instruments as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Assets Liabilities Assets Liabilities
Currency and interest rate swaps1 \ 45,566,007 \ - \ 41,946,156 \ - Currency forward 2 3,444,709 10,632,818 - - Interest rate swaps 2 - 1,671,527 - - \ 49,010,716 \ 12,304,345 \ 41,946,156 \ -
1 The Group has entered into a currency swap contract for cash flow hedge of the exchange rate and interest payment of long-term borrowings. Contractual period is from July 27, 2012 to July 31, 2017, and the principals are payable every January 31 and July 31 during the contractual period. It is expected to have an impact on profit or loss of the Group. The amount recognized as other comprehensive income in relation to cash flow hedge is \457 million (2013: \1,469 million) for the year ended December 31, 2014.
2 In order to manage foreign exchange risk, the Group has entered into currency forward contracts to sell or purchase foreign currencies with maturities between one to three years. In addition, the Group has entered into interest rate swap contracts to receive floating-rate interest and pay fixed rate interest with DNB BANK ASA in relation to borrowings in the past, and the relevant derivatives will mature in 2021.
12. Other Assets
Details of other assets as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Advance payments \ 1,708,810 \ 3,338,546 Prepaid expenses 59,994,941 35,462,023 Prepaid value added tax 216,416 15,786,493 Other assets 1,956,850 1,290,921 \ 63,877,017 \ 55,877,983 Less: Non-current \ (19,188,256) \ (1,447,231) Current 44,688,761 54,430,752
37 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
13. Financial Assets at Fair Value through Profit or Loss
Details of financial assets held for trading as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Listed securities \ 168,674,066 \ 209,838,907 Equity linked securities 2,562,869 3,423,758 Short-term bonds 6,355,017 - \ 177,591,952 \ 213,262,665
Details of listed securities as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Kwangju Bank \ 5,146,330 \ - Nexen Corporation 7,003,674 26,917,722 Dongah Tire Ind Co.,Ltd 11,824,186 9,389,990 Dongwon Industries Co., Ltd 15,730,380 16,123,776 Meritz Financial Group Inc. 16,695,936 14,478,045 Sebang Global Battery Co., Ltd 12,206,844 19,511,047 JB Financial Group Co.,Ltd 16,678,037 3,282,644 KT Corporation 12,062,500 12,178,300 Mando Corporation 13,863,240 4,744,875 Others 57,462,939 103,212,508 \ 168,674,066 \ 209,838,907
14. Inventories
Details of inventories as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Merchandise \ 86,983 \ 264,416 Finished goods1 23,922,483 - Valuation allowance (1,239,857) - \ 22,769,609 \ 264,416
1 The cost of inventories recognized as expense and included in ‘cost of sales’ amounts to \ 99,834 million (2013:nil). In addition, \13,592 million of finished goods are provided as collaterals in relation to borrowings from DNB BANK ASA (Note 22).
38 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
15. Non-current Assets Held-for-sale
There is no non-current assets held-for-sale as of December 31, 2014 and the Group recognized shares of Gamania Digital Entertainment Co., Ltd. as non-current assets held-for-sale upon its decision to sell the shares in 2013.
16. Available-for-sale Financial Assets
Details of available-for-sale financial assets as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Equity securities Stocks1 \ 671,100,015 \ 863,384,894 Beneficiary certificates 48,952,369 50,949,765 Debt securities 3,086,903 2,671,034 \ 723,139,287 \ 917,005,693
1 The Group provided listed stocks amounting to \64,309 million as collateral in relation to the borrowings from Sumitomo Bank Ltd. (Note 22).
Changes in available-for-sale financial assets for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Beginning balance \ 917,005,693 \ 558,626,760 Exchange differences (50,757,302) (56,525,488) Acquisition due to changes in scope of consolidation (306,177) (3,199,250) Additions 40,992,131 33,046,494 Disposals (7,806,968) (16,520,603) Transfer 98,000 30,968,929 Net gains (losses) reclassified from equity (747,199) 923,944 Net gains (losses) reclassified to equity (160,214,441) 375,553,520 Impairment (15,124,450) (5,868,613) \ 723,139,287 \ 917,005,693 Less: Non-current \ (723,139,287) \ (917,005,693) Current - -
39 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
17. Property, Plant and Equipment
Details of property, plant and equipment as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Accumulated Carrying Accumulated Carrying Cost depreciation1 amount Cost depreciation1 amount
Land \51,493,239 \ - \ 51,493,239 \ 53,196,971 \ - \ 53,196,971 Buildings 152,337,377 (5,674,779) 146,662,598 151,514,116 (1,766,293) 149,747,823 Tools and equipment 146,366,219 (100,597,146) 45,769,073 117,516,485 (72,375,853) 45,140,632 Leasehold improvements 22,237,879 (14,935,729) 7,302,150 25,853,013 (14,941,139) 10,911,874 Others 734,560 (465,369) 269,191 726,860 (422,050) 304,810 Construction in progress 12,454,959 - 12,454,959 - - - \385,624,233 \ (121,673,023) \263,951,210 \348,807,445 \ (89,505,335) \259,302,110
1 Accumulated impairment losses are included.
Changes in property, plant and equipment for the years ended December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 Tools and Leasehold Construction Land Buildings equipment improvements Others in progress Total
Beginning balance \53,196,971 \149,747,823 \45,140,632 \10,911,874 \ 304,810 \ - \259,302,110 Exchange differences (26,748) (327,663) (2,083,503) (254,870) (5,578) - (2,698,362) Changes in scope of consolidation - - 10,116,009 459,400 - - 10,575,409 Acquisition 482,703 1,958,678 22,028,470 2,539,739 107,096 13,760,606 40,877,292 Disposal (81,124) (391,468) (725,622) (1,610,237) (989) - (2,809,440) Depreciation - (4,280,221) (28,737,318) (5,130,550) (136,148) - (38,284,237) Impairment - - (20,185) - - - (20,185) Transfers (2,078,563) (44,551) 50,590 386,794 - (1,305,647) (2,991,377) Ending balance \51,493,239 \146,662,598 \45,769,073 \7,302,150 \ 269,191 \12,454,959 \263,951,210
40 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(in thousands of Korean won) 2013 Tools and Leasehold Construction Land Buildings equipment improvements Others in progress Total
Beginning balance \53,040,477 \ 18,248,961 \38,766,576 \ 8,424,728 \ 355,813 \ 38,997,433 \157,833,988 Exchange differences 7,922 (314,222) (736,190) (312,632) (1,772) - (1,356,894) Changes in scope of consolidation - - 99,273 - - - 99,273 Acquisition 199,785 4,430,078 25,933,131 6,562,575 224,464 98,292,758 135,642,791 Disposal (51,213) (245,388) (822,430) (639,413) (105,649) - (1,864,093) Depreciation - (1,315,850) (24,066,707) (7,160,902) (168,046) - (32,711,505) Impairment - - (945,375) - - - (945,375) Transfers - 128,944,244 6,912,354 4,037,518 - (137,290,191) 2,603,925 Ending balance \53,196,971 \149,747,823 \45,140,632 \ 10,911,874 \ 304,810 \ - \259,302,110
Details of finance lease as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Accumulated Carrying Accumulated Carrying Cost depreciation1 amount Cost depreciation1 amount
Tools and equipment \ - \ - \ - \ 19,761,806 \ (12,108,160) \ 7,653,646 Leasehold improvements 11,362,788 (10,548,052) 814,736 12,612,330 (11,732,441) 879,889 Others 278,018 (156,080) 121,938 363,599 (127,559) 236,040 \ 11,640,806 \ (10,704,132) \ 936,674 \ 32,737,735 \ (23,968,160) \ 8,769,575
The total of future minimum lease payments as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Total minimum lease payments Within 1 year \ 3,153,555 \ 5,936,924 Within 2 year 1,186,546 2,732,499 Within 3 year 88,855 785,824 \ 4,428,956 \ 9,455,247 Unearned finance income \ 14,223 \ 144,351 Net minimum lease payments Within 1 year \ 3,139,911 \ 5,806,610 Within 2 year 1,185,967 2,719,116 Within 3 year 88,855 785,170 \ 4,414,733 \ 9,310,896
41 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
18. Intangible Assets
Details of intangible assets as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Accumulated Accumulated Carrying Cost amortization Carrying amount Cost amortization amount
Goodwill \ 537,930,371 \ (17,351,308) \ 520,579,063 \474,742,944 \ (14,616,405) \460,126,539 Software 77,891,348 (60,741,863) 17,149,485 64,605,010 (45,985,722) 18,619,288 Intellectual property 545,687,817 (50,496,936) 495,190,881 272,556,491 (20,491,130) 252,065,361 Others 13,079,121 (1,413,991) 11,665,130 10,799,373 (929,449) 9,869,924 \1,174,588,657 \(130,004,098) \1,044,584,559 \822,703,818 \ (82,022,706) \740,681,112
Changes in intangible assets for the years ended December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 Intellectual Goodwill Software property Others Total
Beginning balance \ 460,126,539 \ 18,619,288 \ 252,065,361 \ 9,869,924 \ 740,681,112 Exchange differences (55,936,415) (646,927) (69,232,937) (585,226) (126,401,505) Changes in scope of consolidation 230,866,962 - 431,918,345 3,268,650 666,053,957 Acquisition - 10,378,640 6,703,433 1,215,844 18,297,917 Disposal - (609,598) (43,872) (1,581,026) (2,234,496) Amortization - (12,652,829) (116,874,781) (523,036) (130,050,646) Impairment (114,478,022) (12,603,902) (10,352,309) - (137,434,233) Transfers - 14,664,813 1,007,640 - 15,672,453 Ending balance \ 520,579,064 \ 17,149,485 \ 495,190,880 \ 11,665,130 \1,044,584,559
(in thousands of Korean won) 2013 Intellectual Goodwill Software property Others Total
Beginning balance \ 561,224,069 \ 14,146,059 \ 371,001,789 \ 9,329,806 \ 955,701,723 Exchange differences (80,077,794) (1,340,212) (36,557) 501,004 (80,953,559) Changes in scope of consolidation 30,967,630 126,785 16,941,143 - 48,035,558 Acquisition - 23,804,548 16,819,820 298,539 40,922,907 Disposal - (1,534,670) (4,843) (338,117) (1,877,630) Amortization - (11,761,422) (113,826,504) (10,667) (125,598,593) Impairment (51,987,366) (5,002,018) (53,641,505) (12,945) (110,643,834) Transfers - 180,218 14,812,018 102,304 15,094,540 Ending balance \ 460,126,539 \ 18,619,288 \ 252,065,361 \ 9,869,924 \ 740,681,112
42 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Impairment Tests for Goodwill
The following is a summary of goodwill allocated by the main source of income of the Group (cash-generating unit):
(In thousands of Korean won) 2014 2013
FPS \ 46,666,456 \ 46,666,456 MMORPG 22,424,530 22,424,530 Action RPG 15,602,777 15,602,777 Mobile Game 1 187,274,177 316,115,594 Mobile Game 2 20,935,361 22,986,945 Baby products 195,761,824 - Others 31,913,940 36,330,237
The recoverable amount of all CGUs has been determined based on value-in-use calculations. Key assumptions used in the value-in-use calculations are as follows:
(in thousands of Korean won) FPS MMORPG Action RPG Mobile Game Baby products Others
Operating profit to 65%~73% -36%~19% 73%~82% 4%~9% 20%~22% -336%~61% sales ratio Perpetual growth rate 1.00% 1.00% 1.00% 0% 2.00% 1.00% Pre-tax discount rate 18.00% 18.00% 14.00% 7.57% 17.78% 17.56%
Recoverable amount of the impaired mobile game amounts to \196,564 million for the year ended December 31, 2014.
43 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
19. Investment Property
Details of investment property as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Accumulated Carrying Accumulated Carrying Cost amortization amount Cost amortization amount
Land \ 29,269,652 \ - \ 29,269,652 \ 29,640,379 \ - \ 29,640,379 Buildings 28,137,583 (3,538,581) 24,599,002 29,395,386 (2,681,270) 26,714,116 \ 57,407,235 \ (3,538,581) \ 53,868,654 \ 59,035,765 \ (2,681,270) \ 56,354,495
Changes in investment property for the years ended December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Land Buildings Total Land Buildings Total
Beginning balance \ 29,640,379 \ 26,714,116 \ 56,354,495 \ 29,530,569 \ 26,848,923 \ 56,379,492 Exchange differences (370,727) (1,430,992) (1,801,719) 109,810 429,238 539,048 Acquisition - - - - 209,068 209,068 Depreciation - (684,122) (684,122) - (773,113) (773,113) Ending balance \ 29,269,652 \ 24,599,022 \ 53,868,654 \ 29,640,379 \ 26,714,116 \ 56,354,495
During 2014, rental income from investment property is \2,584 million (2013: \1,107 million), and direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the year is \1,366 million (2013: \929 million).
44 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
20. Investments in Associates
Details of associates of the Group as of December 31, 2014 and 2013, are as follows:
Percentage of ownership Location 2014 2013 Fiscal year
Xeogen, Inc. Korea 31.67% 31.67% December 31, 2014 Humanworks Corp. Korea 35.00% 35.00% December 31, 2014 INTIVSOFT Co., Ltd. Korea 40.25% 40.25% December 31, 2014 NFUN Korea 40.00% 40.00% December 31, 2014 Ubifun Corp.(formerly Korea 35.00% 35.00% December 31, 2014 Copersons) 5ants Games Spain 31.75% 31.75% December 31, 2014 Six Wave, Inc. Hong Kong 25.00% 25.00% December 31, 2014 313 Art Project Inc Korea 29.68% 29.68% December 31, 2014 SMATOOS Inc Korea 21.26% 21.26% December 31, 2014 Jisik Corporation Korea 25.00% 25.00% December 31, 2014 IDIS Holdings Co., Ltd 1 Korea 27.71% 27.71% December 31, 2014 Innovative Fund LLC2 USA 48.39% 100.00% December 31, 2014
1 The Group holds IDIS Holdings Co., Ltd. for finance strategy purposes. It has no significant transactions. 2 Innovative Fund LLC was reclassified from a subsidiary to an associate due to a decrease in ownership of the Group through issuance of stocks in the form of an allotment to the third party during the year ended December 31, 2014. Most of associates are engaged in games or IT business and the Group holds them for business strategy purposes.
45 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Changes in investments in associates for the years ended December 31, 2014 and 2013, are as follows: (in thousands of 2014 Korean won) Gain or loss Acquisition / on equity Changes in Changes in Beginning disposal / method equity method interest / Ending balance transfer investments investees Impairment dividend balance
Xeogen, Inc. \ 322,982 \ - \ 45,997 \ - \ - \ - \ 368,979 Humanworks Corp. 1,503,239 - 45,967 - - - 1,549,206 INTIVSOFT Co., Ltd. 239,519 - (62,561) - - - 176,958 NFUN 1,922,061 - (10,430) - (1,911,631) - - Ubifun Corp. 513,342 - (513,342) - - - - 5ants Games 880,127 - (122,791) 239,716 (997,052) - - Six Wave, Inc. 22,157,013 - (416,882) (1,294,301) (5,886,298) - 14,559,532 313 Art Project Inc 965,651 - (195,412) - - - 770,239 IDIS Holdings Co., Ltd 40,191,466 - (6,261,683) (329,902) - (128,391) 33,471,490 Innovative Fund LLC - 3,084,272 - - - - 3,084,272 \68,695,400 \ 3,084,272 \ (7,491,137) \ (1,384,487) \ (8,794,981) \ (128,391) \ 53,980,676 (in thousands of 2013 Korean won) Gain or loss Acquisition / on equity Changes in Changes in Beginning disposal / method equity method interest / Ending balance transfer investments investees Impairment dividend balance
Xeogen, Inc. \ 353,838 \ - \ (4,260) \ - \ - \ (26,596) \ 322,982 Nitmus, inc. 130,661 (224,070) 93,409 - - - - Humanworks Corp. 1,465,709 - 37,530 - - - 1,503,239 INTIVSOFT Co., Ltd. 987,723 - 285,722 - (1,033,926) - 239,519 NFUN - 3,000,150 (1,078,089) - - - 1,922,061 Ubifun Corp. - 246,336 265,499 1,507 - - 513,342 JoyCity Corporation 72,076,821 (68,487,182) (2,805,551) 65,390 - (849,478) - 5ants Games 1,300,427 - (90,825) (329,475) - - 880,127 Gamania Digital Entertainment Co., Ltd. 64,884,607 (46,867,654) 313,149 (3,448,620) (14,791,328) (90,154) - Six Wave, Inc. 41,191,125 - 1,125,477 (705,946) (18,245,760) (1,207,883) 22,157,013 313 Art Project Inc 1,153,224 - (187,573) - - - 965,651 SMATOOS Inc 580,891 - (167,550) - (551,132) 137,791 - Jisik corporation 408,314 - (100,235) - (308,079) - - IDIS Holdings Co., Ltd 36,875,557 1,194,936 2,184,465 60,373 - (123,865) 40,191,466 \221,408,897 \ (111,137,484) \ (128,832) \ (4,356,771) \(34,930,225) \(2,160,185) \68,695,400
46 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Summary of condensed financial information of major associates and dividends received from associates as of and for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 IDIS Holdings Co., Six Wave, Inc. Ltd
Current assets \ 7,640,736 \ 249,059,119 Non-current assets 10,812,753 209,216,103 Current liabilities 2,852,730 32,284,510 Non-current liabilities - 30,015,265 Sales 29,177,359 277,848,350 Net loss (1,667,633) (33,723,308) Total comprehensive loss (1,816,647) (34,335,519) Dividend - (128,391)
(In thousands of Korean won) 2013 IDIS Holdings Co., Six Wave, Inc. Ltd
Current assets \ 9,929,470 \ 251,831,818 Non-current assets 9,764,167 265,399,792 Current liabilities 2,897,063 31,454,663 Non-current liabilities - 47,684,291 Sales 45,084,210 299,225,765 Net gain 4,503,722 6,067,636 Total comprehensive gain 4,312,208 6,249,218 Dividend - 123,865
Details of adjustments from financial information of major associates to the book value of investments in associates for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 IDIS Holdings Co., Six Wave, Inc. Ltd
Net assets1 \ 15,600,758 \ 167,188,026 Net assets of equity shares 25.00% 27.71% Interests in net assets 3,899,930 46,323,549 Investment difference2 10,659,601 (12,852,058) Book value 14,559,531 33,471,491
1 Net assets are the amounts after deducting non-controlling interest. 2 Investment difference arose when the fair value of net assets is less than book value upon the acquisition of significant influence.
47 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(In thousands of Korean won) 2013 IDIS Holdings Co., Six Wave, Inc. Ltd
Net assets1 \ 16,796,574 \ 191,441,336 Net assets of equity shares 25.00% 27.71% Interests in net assets 4,198,864 53,043,525 Investment difference2 17,958,148 (12,852,058) Book value 22,157,012 40,191,467
1 Net assets are the amounts after deducting non-controlling interest. 2 Investment difference arose when the fair value of net assets is less than book value upon the acquisition of significant influence.
Fair value of marketable investments in associates as of December 31, 2014 and 2013, is as follows:
(in thousands of Korean won) 2014 2013 Fair value Book value Fair value Book value
IDIS Holdings Co., Ltd \ 36,462,959 \ 33,471,491 \ 35,949,396 \ 40,191,466
21. Other Financial Liabilities
Details of other financial liabilities as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Non-trade payables \ 60,753,315 \ 78,710,401 Accrued expenses 50,716,642 38,754,532 Leasehold deposits received 23,626,423 23,577,961 Contingent consideration 20,417,703 16,019,941 Derivative liabilities 12,304,344 - Others - 316,111 \ 167,818,427 \ 157,378,946 Less: Non-current \ (27,418,335) \ (24,487,306) Current 140,400,092 132,891,640
48 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
22. Borrowings
Details of borrowings as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Short-term borrowings Sumitomo Bank Ltd., 1.58% \ 241,584,316 \ - DNB BANK ASA NIBOR + 0.6~0.8% 3,527,805 - Current portion of long-term liabilities and long-term borrowings KEB & Other banks EURIBOR + 1.9% 173,668,094 - Sumitomo Bank Ltd., 0.60%~1.48% 331,276,177 478,964,000 Resona Bank 0.98% 455,265 1,166,600 Bonds Private convertible bonds 3.00% 2,744,763 2,634,750 Finance lease liabilities NH and others 0.50%~0.52% 4,428,956 9,310,896 \ 757,685,376 \ 492,076,246 Less: Non-current \ (371,417,297) \ (352,186,917) Current 386,268,079 139,889,329
Details of collaterals provided by the Group in relation to borrowings are as follows:
i) Certain shares of subsidiaries and available-for-sale financial assets are provided as collaterals in relation to borrowings from Sumitomo Bank Ltd. (Note 16).
ii) The \33,935 million of trade receivables and \13,592 million of inventories are provided as collateral in relation to borrowings from DNB BANK ASA (Note 8).
Details of convertible bonds issued by the Group are as follows:
Details
Issuance date October 23, 2013 Maturity date October 24, 2016 Par value USD 2,500,000 Conversion ratio 100% of par value Conversion price USD 0.13 per share Conversion period April 23, 2014 ~ October 24, 2016
49 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
23. Other Liabilities
Details of other liabilities as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Withholdings \ 2,788,800 \ 2,090,770 Advances 1,504,960 14,599,099 Unearned revenues 119,966,066 128,601,590 Value added tax withheld 13,834,508 20,219,090 Government grants 330,514 330,514 Other current liabilities 10,622,648 7,455,394 \ 149,047,496 \ 173,296,457 Less: Non-current \ (22,223,403) \ (47,779,497) Current 126,824,093 125,516,960
24. Provisions
Changes in provisions for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Beginning balance \ 4,308,513 \ 2,718,224 Additional provisions 1,467,662 2,707,288 Used during year (1,336,037) (1,085,857) Exchange differences (146,621) (25,242) Changes in scope of consolidation - (5,900) Ending balance \ 4,293,517 \ 4,308,513 Less: Non-current \ (3,808,056) \ (3,175,191) Current 485,461 1,133,322
50 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
25. Post-employment Benefit
25.1 Defined Benefit Plan
The majority of defined benefit plans that the Group operates in various countries are final salary pension plans. The level of benefits provided depends on employees’ length of service and their salary in the final years leading up to retirement. The majority of benefit liabilities are unfunded plans.
Details of net defined benefit liabilities recognized in the statements of financial position as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Present value of unfunded defined benefit obligations \ 2,016,155 \ 3,577,898
Changes in the defined benefit obligations for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Beginning balance \ 3,577,898 \ 2,447,940 Current service cost 1,075,789 819,695 Interest expense 71,768 64,642 Exchange differences (246,588) 112,107 Remeasurements: Actuarial gains and losses arising from changes in financial assumptions 375,577 315,165 Payments from plans (3,828,453) (396,917) Changes in scope of consolidation 990,165 215,265 Ending balance \ 2,016,155 \ 3,577,898
The principal actuarial assumptions as of December 31, 2014 and 2013, are as follows:
2014 2013
Discount rate 3.62% 3.75~3.80% Salary growth rate 3.41% 6.50%
25. 2 Defined Contribution Plan
Recognized expense related to the defined contribution plan for the year ended December 31, 2014, is \13,344 million (2013: \12,418 million).
51 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
26. Tax Expense and Deferred Tax
Income tax expense for the years ended December 31, 2014 and 2013, consists of:
(In thousands of Korean won) 2014 2013
Current tax: Current tax on profits for the year \ 273,782,851 \ 212,186,708 Deferred tax: Changes in temporary differences (77,304,726) 92,151,506 Tax effect charged directly to equity 62,117,122 (98,891,452) Income tax expense \ 258,595,247 \ 205,446,762
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:
(In thousands of Korean won) 2014 2013
Profit before tax \ 482,783,839 \ 600,167,920 Tax calculated at domestic tax rates applicable to profits in the respective countries \ 154,321,281 \ 146,705,098 Tax effects of: Income not subject to tax (2,284,143) (187,363) Expenses not deductible for tax purposes 75,296,711 11,997,073 Unrecognized deferred tax 81,131,842 62,479,746 Foreign taxes not applicable to tax credit 13,341,270 45,978,330 Effect from change in tax rate (13,641,780) (1,055,666) Additional payment of income taxes 24,260,257 14,367,662 Effect from tax credit and tax deduction (96,049,773) (74,640,201) Others 22,219,582 (197,917) \ 258,595,247 \ 205,446,762
52 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Changes in deferred tax assets and liabilities for the years ended December 31, 2014 and 2013, without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:
(in thousands of Korean won) 2014 Other Beginning Exchange comprehen- Business Ending balance Profit or loss difference sive income combination balance
Property, plant and equipment \ 2,149,705 \ 1,771,676 \12,717,445 \ - \ (109,362,237) \ (92,723,411) Investments in associates and subsidiaries 5,893,018 (13,222,075) (774,013) - - (8,103,070) Allowance for doubtful accounts 8,079,075 (5,643,503) (10,616) - (28,387) 2,396,569 Impairment loss on available-for-sale securities 1,981,681 2,030,598 (75,113) (572,278) - 3,364,888 Gain(loss) on valuation of available-for-sale securities (96,524,882) (1,578,005) 2,429,279 62,689,400 - (32,984,208) Intangible assets (46,093,992) 39,254,923 (396,458) - (725,574) (7,961,101) Accrued expenses 2,735,472 729,500 (252,080) - 39,986 3,252,878 Bonuses 3,414,473 1,755,927 (64,264) - 84,938 5,191,074 Unearned revenues 26,765,661 (8,870,293) (366,370) - (204,760) 17,324,238 Repairs expenses 3,134,535 (2,935,735) - - 9,408 208,208 Compensation expenses associated with stock option 1,564,637 2,672,208 (495,992) - - 3,740,853 Service fees 1,033,971 373,404 - - - 1,407,375 Derivatives (647,993) 2,145,992 (318,901) - 1,213,004 2,392,102 Tax loss carryforwards 3,157,486 914,749 (143,834) - 826,166 4,754,567 Reserve for research and development (797,410) 797,410 - - - - Tax credit 1,616,628 119,582 - - - 1,736,210 Others 9,525,410 (5,128,754) 2,304,764 - 336,279 7,037,699 \ (73,012,525) \15,187,604 \14,553,847 \ 62,117,122 \ (107,811,177) \ (88,965,129)
53 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(in thousands of Korean won) 2013 Other Beginning Exchange comprehen- Ending balance Profit or loss difference sive income balance
Property, plant and equipment \ (559,011) \ 2,715,479 \ (6,763) \ - \ 2,149,705 Investments in associates and subsidiaries (11,575,727) 17,470,898 (2,153) - 5,893,018 Allowance for doubtful accounts 8,897,266 (784,882) (33,309) - 8,079,075 Impairment loss on available- for-sale securities 1,311,865 669,816 - - 1,981,681 Gain(loss) on valuation of available-for-sale securities 72,048,701 (70,330,124) - (98,243,459) (96,524,882) Intangible assets (85,371,845) 39,425,750 (147,897) - (46,093,992) Accrued expenses 3,868,486 (940,501) (192,514) - 2,735,471 Bonuses 2,909,839 698,941 (194,307) - 3,414,473 Unearned revenues 51,345,502 (23,471,650) (1,108,190) - 26,765,662 Repairs expenses 5,244,765 (2,110,230) - - 3,134,535 Outsourcing 29,315,317 (29,315,317) - - - Long-term borrowings 7,714,622 (7,714,622) - - - Currency swap (6,303,728) 6,303,728 - (647,993) (647,993) Tax loss carryforwards 2,558,618 598,868 - - 3,157,486 Reserve for research and development (1,594,820) 797,410 - - (797,410) Tax credit 4,485,964 (2,869,337) - - 1,616,627 Others 7,855,692 6,352,895 (2,084,568) - 12,124,019 \ 92,151,506 \ (62,502,878) \ (3,769,701) \ (98,891,452) \ (73,012,525)
Details of unrecognized deductible (taxable) temporary differences as deferred tax assets (liabilities) as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Remarks
Interests in subsidiaries \ 15,288,373 \ 880,411,472 No plan for disposal and associates (4,063,131,353) (2,594,223,131) No plan to pay dividends Available-for-sale financial assets - 23,470,295 Restriction on disposal Tax loss carryforwards 31,297,278 53,505,116 Uncertainty of future taxable profit Others 47,328,208 - Changes in possibility of realization
54 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
27. Capital Stock and Capital Surplus
The Parent Company’s total number of authorized shares is 20,000,000 shares and the total number of common stocks issued is 4,047,318 shares (2013: 4,047,318 shares) with the par value of \ 500 per share. As of December 31, 2014, the 1,085,818 shares of issued shares are held by The Parent Company.
According to the Articles of Incorporation, The Parent Company is allowed to grant stock options to its employees within 10% of the total number of stocks issued with the approval of shareholders. No stock options were granted as of December 31, 2014.
28. Other Components of Equity
Other components of equity as of December 31, 2014 and 2013, consist of:
(In thousands of Korean won) 2014 2013
Capital surplus by equity method \ 760,084,311 \ 783,542,042 Other capital surplus 22,328,192 22,752,044 Treasury stocks (129,998,835) (129,999,422) Capital change in equity method (633,689) (1,588,567) Gain on valuation of available-for-sale financial assets 42,785,788 104,976,764 Loss on foreign currency translation (393,970,817) (297,715,029) Loss on valuation of derivatives (252,636) (541,875) \ 300,342,314 \ 481,425,957
Changes in accumulated other comprehensive income for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Beginning balance \ (191,259,213) \ (231,350,057) Increase(decrease) (157,202,648) 60,495,618 Reclassification to profit or loss (3,609,493) (20,404,774) Ending balance \ (352,071,354) \ (191,259,213)
Changes in accumulated other comprehensive income represent net of tax effect amounts.
The 1,085,818 treasury stocks acquired resulting from the merger (acquisition cost: \129,994 million) are presented as the deduction from equity.
55 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
29. Retained Earnings
Retained earnings as of December 31, 2014 and 2013, consist of:
(In thousands of Korean won) 2014 2013
Legal reserves1 \ 14,249,523 \ 10,439,604 Discretionary reserves 45,445,313 45,445,312 Retained earnings before appropriation 1,972,378,484 1,856,402,452 \ 2,032,073,320 \ 1,912,287,368
1 The Commercial Code of the Republic of Korea requires the Parent Company to appropriate for each financial period, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit. When the accumulated legal reserves (the sum of capital reserves and earned profit reserves) are greater than 1.5 times the paid-in capital amount, the excess legal reserves may be distributed.
30. Share-based Payments
Share options are granted to directors and selected employees. Stocks issued through share option are registered common stock and grant method is new shares issuance of common stock.
Changes in the number of share options outstanding and their related weighted average exercise prices as of December 31, 2014 and 2013, are as follows:
Average exercise price per share option (in Japanese Options (unit: share) Yen) 2014 2013 2014 2013
Beginning balance 19,676,000 24,357,000 910 833 Granted 17,975,000 250,000 705 1 Expired (2,763,000) (1,194,000) 1,116 1,225 Exercised (2,482,000) (3,743,000) 304 248 Ending balance 32,406,000 19,670,000 825 910
As of December 31, 2014, 12,821,000 options are exercisable.
56 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Expiry dates, exercise prices of share options, and number of options outstanding as of December 31, 2014 and 2013, are as follows:
Exercise price per share (in Japanese (unit: share) Maturity Yen) 2014 2013
1st 2015.09.30 153 3,382,000 4,334,000 2nd 2015.09.30 300 1,424,000 2,416,000 3rd 2015.09.30 640 536,000 1,094,000 4th 2015.09.30 880 35,000 35,000 5th 2018.09.05 1,367 10,017,000 11,541,000 6th 2043.05.06 1 150,000 250,000 7th 2020.03.02 853 11,886,000 - 8th 2024.03.24 0 3,025,000 - 9.1st 2024.05.08 809 1,831,000 - 9.2nd 2020.07.21 947 20,000 - 9.3rd 2020.10.20 865 100,000 - 32,406,000 19,670,000
Compensation costs of share options granted during the years ended December 31, 2014 and 2013, are calculated by applying a fair value approach using a black-Scholes model. The related assumptions and variables to calculate the compensation costs are as follows:
6th 7th 8th 9.1st 9.2nd 9.3rd
Grant date 2013.05.07 2014.03.03 2014.03.25 2014.05.09 2014.07.22 2014.10.21 Annual risk-free 1.29% 0.13% 0.10% 0.10% 0.10% 0.10% interest rate Expected exercise 18 years 4 years 2.3 years 4.7 years 3.5 years 4 years period Price volatility 46.70% 44.59% 47.62% 44.20% 46.30% 44.35% Expected dividend 0.90% 1.17% 1.23% 1.24% 1.06% 1.16% yield Compensation 794 ~ 790 944 JPY 267 JPY 268 JPY 296 JPY 270 JPY expenses per share JPY
Share-based payments recognized as expenses for the years ended December 31, 2014 and 2013, amount to \46,090 million and \14,354 million, respectively. All expenses are related to equity-settled share-based payments.
57 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
31. Operating Profit
Details of operating profit for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Sales - Internet \ 1,081,883,077 \ 966,712,337 Sales - Royalty 538,914,493 708,873,724 Sales - Finished goods 207,630,008 - Others 120,097,714 74,175,632 \ 1,948,525,292 \ 1,749,761,693
Details of external customers, who contribute more than 10% of the Group revenue for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Company A \ 557,104,396 \ 583,952,092 Company B 172,202,695 231,203,628
32. Selling and Administrative Expenses
Selling and administrative expenses for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Salaries \ 126,918,272 \ 100,169,301 Post-employment benefits 8,291,526 5,617,967 Share-based payment 44,939,924 13,777,464 Employee benefits 26,416,160 22,071,462 Rental 11,806,264 11,064,185 Depreciation and amortization 37,719,084 14,104,542 Taxes and dues 7,579,101 6,592,636 Travel 11,098,484 6,204,185 Entertainment 1,600,362 2,180,413 Communication 2,252,276 1,624,181 Development 58,344,763 42,410,852 Advertising 103,017,967 108,558,798 Repairs 6,911,187 7,757,505 Service fee 143,117,217 109,337,776 Outsourcing 6,074,321 5,301,685 Bad debts expense 766,348 400,135 Freight 154,661 258,818 Recruiting 2,936,679 6,598,601 Contribution to provision - 103,363 Others 85,120,984 101,342,155 \ 685,065,580 \ 565,476,024
58 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
33. Expenses by Nature
Expenses by nature for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Changes in finished goods \ 99,834,404 \ - Salaries 268,140,181 243,725,644 Post-employment benefits 17,723,714 13,302,993 Share-based payment 46,089,987 14,353,873 Employee benefits 64,263,155 39,844,226 Outsourcing 33,382,231 30,552,099 Publishing 198,109,288 125,035,296 Depreciation and amortization 168,334,884 158,292,532 Rental 22,519,132 29,899,991 Communication 26,164,612 18,267,782 Taxes and dues 8,272,482 6,592,636 Travel 11,098,484 6,204,185 Entertainment 1,600,362 2,180,413 Advertising 103,017,967 108,558,798 Repairs 11,603,457 7,757,505 Service fee 143,117,217 109,337,776 Bad debt expense 766,348 400,135 Freight 154,661 258,818 Recruiting 2,936,679 6,598,601 Miscellaneous expenses 85,120,986 101,342,156 Others 20,063,364 28,815,382 \ 1,332,313,595 \ 1,051,320,841
59 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
34. Other Income and Expenses
Details of other income for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Dividend income \ 15,315,452 \ 5,137,479 Rental income 2,051,039 999,588 Gain on disposal of financial assets at fair value through profit or loss 12,335,508 23,482,813 Gain on valuation of financial assets at fair value through profit or loss 12,132,707 21,499,563 Gain on disposal of available-for-sale financial assets 8,821,769 6,595,788 Gain on disposal of investments in associates - 237,791 Gain on disposal of subsidiaries - 703,818 Gain on disposal of property and equipment 1,494,384 170,521 Gain on disposal of intangible assets - 31,016 Reversal of other bad debt expenses 1,903,766 5,652,539 Miscellaneous gains 11,612,809 21,569,504 \ 65,667,434 \ 86,080,420
Details of other expenses for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Loss on disposal of financial assets at fair value through profit or loss \ 9,089,326 \ 1,693,782 Loss on valuation of financial assets at fair value through profit or loss 12,644,866 1,510,082 Loss on disposal of available-for-sale financial assets 2,195,677 - Impairment loss on available-for-sale financial assets 15,124,450 5,868,613 Loss on disposal of investments in associates - 5,460,354 Impairment loss on investments in associates 8,794,981 34,930,224 Other bad debt expenses 8,789,903 7,060,804 Other depreciation 684,121 773,112 Loss on disposal of property and equipment 1,221,718 1,209,623 Impairment loss on property and equipment 20,185 945,375 Loss on disposal of intangible assets 763,209 1,812,098 Impairment loss on intangible assets 137,434,233 110,643,834 Donation 8,797,537 7,544,192 Service fees 12,698,568 4,614,649 Miscellaneous losses 10,535,440 4,535,506 \ 228,794,214 \ 188,602,248
60 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
35. Finance Income and Expenses
Details of finance income for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Interest income \ 35,267,245 \ 25,347,424 Exchange differences 76,928,863 43,578,747 Gain on derivative transactions 308,337 - \ 112,504,445 \ 68,926,171
Details of finance expenses for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Interest expenses \ 16,263,955 \ 7,582,153 Exchange differences 51,834,927 56,966,290 Loss on valuation of derivative 5,548,142 - Loss on derivative transactions 1,667,362 - \ 75,314,386 \ 64,548,443
36. Cash Generated from Operations
Details of cash generated from operations for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Profit before income tax \ 224,188,591 \ 394,721,157 Adjustments for: Tax expenses 258,595,247 205,446,762 Bad debt expenses 766,348 400,135 Other bad debt expenses 8,789,903 7,060,804 Reversal of other bad debt expenses (1,903,766) (5,652,539) Depreciation 38,284,237 32,711,505 Impairment loss on property and equipment 20,185 945,375 Gain on disposal of property and equipment (1,494,384) (170,521) Loss on disposal of property and equipment 1,221,718 1,209,623 Amortization 130,050,647 125,598,593 Impairment loss on intangible assets 137,434,233 110,643,834 Gain on disposal of intangible assets - (31,016) Loss on disposal of intangible assets 763,209 1,812,098 Other depreciation 684,121 773,112 Loss on disposal of financial assets at fair value through profit or loss 9,089,326 1,693,782 Loss on valuation of financial assets at fair value through profit or loss 12,644,866 1,510,082 Gain on disposal of financial assets at fair value through profit or loss (12,335,508) (23,482,813)
61 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(In thousands of Korean won) 2014 2013
Gain on valuation of financial assets at fair value through profit or loss (12,132,707) (21,499,563) Gain on disposal of available-for-sale financial assets (8,821,769) (6,595,788) Impairment loss on available-for-sale financial assets 15,124,450 5,868,613 Loss on equity method investments 7,491,137 128,833 Gain on disposal of investments in associates - (237,791) Loss on disposal of investments in associates - 5,460,354 Impairment loss on investments in associates 8,794,981 34,930,224 Gain on disposal of subsidiaries - (703,818) Post-employment benefits 1,147,557 884,337 Share-based payment 46,089,987 14,353,873 Dividend income (15,315,452) (9,327,536) Interest income (35,267,245) (25,347,424) Interest expenses 16,263,956 7,582,153 Loss on valuation of derivative 5,548,143 - Contribution to provision 1,467,662 103,363 Miscellaneous gains (2,657,898) (10,269,518) Miscellaneous losses 7,349,751 - 617,692,935 455,799,128
Decrease(increase) in trade receivables (81,697,521) 28,986,550 Decrease(increase) in inventories (3,513,576) 1,781,647 Increase in other receivables (3,467,745) (27,412,037) Increase in other assets (32,169,045) (20,122,634) Increase in trade payables 5,574,974 10,603,220 Increase(decrease) in other payables (9,178,193) 10,894,896 Decrease in other current liabilities (17,773,627) (241,955) Decrease in other non-current liabilities (25,801,918) (16,463,739) Decrease in provisions (1,336,037) (1,085,857) Benefit paid (3,828,453) (396,917) (173,191,141) (13,456,826) \ 668,690,385 \ 837,063,459
Significant transactions not affecting cash flows for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Transfer of available-for-sale financial assets \ 160,116,440 \ 34,168,179 Transfer of construction in progress 1,305,647 123,099,503 Transfer to current portion of borrowings 133,866,164 150,804,177 Transfer of contingent consideration to current 6,897,605 16,019,941 portion
62 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
37. Contingencies and Commitments
Commitments
The Group provided \8,540 million of time deposits as collateral in relation to the borrowings of employees amounting to \4,735 million as of December 31, 2014.
The Group has entered into a contract of online game contents service with many companies and receives a certain portion of sales in exchange for providing contents as of December 31, 2014.
The Group supplies online games developed by other companies along with its in house developed games to the users through the internet site of the Group. The related revenue is allocated to the Group and game development companies based on a certain ratio.
Contingent Liability
The Group provided payment guarantees and time deposits as collaterals in relation to borrowings to employees amounting to \2,870 million and borrowings to related parties amounting to \1,250 million as of December 31, 2014 (Note 38).
The Group has been provided with payment guarantees by Jeju Bank amounting to \444 million and by Seoul Guarantee Insurance Co., Ltd. amounting to \346 million in relation to the government grants with recourse.
Contingent Consideration
Contingent consideration granted in relation to business combination is as follows:
(in thousands of Korean InBlue Inc. THINGSOFT Inc. Weclay Inc. won and in Japanese yen)
Conditions for occurrence EBITDA attainable Sales attainable Years of service and standard standard other goals achievement Contingent consideration ￥ 0 ~ 1,500,000 \ 0 ~ 47,000,000 \ 0 ~ 316,111
Changes in contingent consideration for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 2013
Beginning balance \ 16,336,052 \ 11,334,488 New transactions - 16,336,052 Profit or loss 4,691,855 (10,269,518) Exchange differences (610,204) (1,064,970) Ending balance \ 20,417,703 \ 16,336,052 Less: Non-current \ 6,897,605 \ 16,336,052 Current 13,520,098 -
63 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
38. Related Party Transactions
As of December 31, 2014, the controlling shareholder is Mr. Kim Jeong-Ju.
Details of associates and other related parties that have sales and other transactions with the Group or have receivables and payables balances are as follows:
Entity name
Associates 313 Art Project Inc, IDIS Holdings Co., Ltd, Ubifun Corp., NFUN, Xeogen, Inc., INTIVSOFT Co., Ltd.
Sales and purchases with related parties for the years ended December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Sales Purchases Sales Purchases Associates 313 Art Project Inc \ 324,000 \ - \ - \ 55,440 IDIS Holdings Co., Ltd 128,391 - 123,865 146,040 Six Waves Inc. - - - 2,653 Gamania Digital Entertainment Co., Ltd. - - 29,773,315 - Ubifun Corp. 179,679 3,554,988 134,847 - NFUN 39,048 224,598 175,114 10,000 Nitmus, inc. - - - 7,340 Xeogen, Inc. - 301,565 - 187,583 INTIVSOFT Co., Ltd. 62,312 - 13,980 - JoyCity Corporation - - 372,584 32,766 \ 733,430 \ 4,081,151 \ 30,593,705 \ 441,822
Year-end balances of receivables and payables arising from sales and purchases of goods and services as of December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Receivables Payables Receivables Payables Associates 313 Art Project Inc \ 627,088 \ 750,000 \ 1,125,568 \ 14,500 Gamania Digital Entertainment Co., Ltd. - - 1,042,632 - Ubifun Corp. - 277,356 - - NFUN 2,479,220 - 1,564 - Nitmus, inc. - - - 200,000 Xeogen, Inc. - 40,783 - 174,268 INTIVSOFT Co., Ltd. 166,742 - 139,750 - \ 3,273,050 \ 1,068,139 \ 2,309,514 \ 388,768
64 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Fund transactions with a related party for the years ended December 31, 2014 and 2013, are as follows:
(in thousands of Korean won) 2014 2013 Loans Borrowings Loans Borrowings Associate INTIVSOFT Co., Ltd. \ 166,667 \ - \ 139,750 \ -
Payment guarantee provided by the Group
(in thousands of Guaranteed Korean won) amount Guaranteed by
313 Art Project Associate Inc \ 1,250,000 Korea Exchange Bank and others
Commitment with a related party :
Details INTIVSOFT Co., The Group paid \400 million in accordance with loan Ltd. contract, and the principal and interest are repaid based on the repayment plan. The outstanding balance amounts to \140 million and \400 million as of December 31, 2014 and 2013, respectively.
Key management includes directors (executive and non-executive), members of the Executive Committee, the Group Secretary and the Head of Internal Audit. The compensation paid or payable to key management for employee services for the years ended December 31, 2014 and 2013, consists of:
(In thousands of Korean won) 2014 2013
Salaries and other short-term employee benefits \ 2,320,869 \ 2,449,186 Post-employment benefits 193,259 202,931 \ 2,514,128 \ 2,652,117
65 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
39. Business Combinations
Details of the Group’s business combinations as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) 2014 Stokke AS
Consideration Cash \ 549,552,857 Total consideration 549,552,857 Fair value of preferred shares held before the business combination - 549,552,857 Recognized amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents 133,301 Property, plant and equipment 10,575,409 Intangible assets 435,186,995 Trade and other receivables 27,017,598 Inventories 22,015,703 Other assets 4,065,880 Trade and other payables 21,961,158 Borrowings 22,084,557 Other liabilities 27,461,934 Retirement benefit obligations 990,165 Deferred tax liabilities 107,811,177 Total identifiable net assets 318,685,895 Goodwill 230,866,962 \ 549,552,857
66 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
(in thousands of Korean won) 2013 BRICKLINK THINGSOFT Inc. Weclay Inc. LIMITED Consideration Cash \ 17,745,940 \ 684,239 \ 8,216,150 Contingent consideration 16,019,941 316,111 - Total consideration 33,765,881 1,000,350 8,216,150 Fair value of preferred shares held before the business combination 4,618,539 - - 38,384,420 1,000,350 8,216,150 Recognized amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents 5,350,514 125,764 - Property, plant and equipment 92,657 6,616 - Intellectual property 16,941,143 - - Other intangible assets 126,785 - - Trade and other receivables 1,510,328 4,235 - Other assets 63 - - Trade and other payables (41,346) (20,413) - Unearned revenues (3,215,068) - - Other liabilities (81,614) (12,105) - Retirement benefit obligations (427,217) - - Deferred tax liabilities (3,727,052) - - Total identifiable net assets 16,529,193 104,097 - Goodwill 21,855,227 896,253 8,216,150 \ 38,384,420 \ 1,000,350 \ 8,216,150
67 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
40. Information About Non-controlling Interests
40.1 Changes in Accumulated Non-controlling Interests
The profit or loss allocated to non-controlling interests and accumulated non-controlling interests of subsidiaries that are material to the Group for the years ended December 31, 2014 and 2013, is as follows:
(in thousands of 2014 Korean won) Other Accumulated Profit or loss comprehensive Non- non-controlling allocated to income Accumulated controlling interests at the non- allocated to non-controlling interest rate beginning of the controlling non-controlling interests at the (%) year interests interests Others end of the year NEXON Co., Ltd. 37.11% \ 1,244,672,136 \104,204,629 \ (69,300,351) \ (44,869,714) \ 1,234,706,700 and its subsidiaries
(in thousands of 2013 Korean won) Other Accumulated Profit or loss comprehensive Non- non-controlling allocated to income Accumulated controlling interests at the non- allocated to non-controlling interest rate beginning of the controlling non-controlling interests at the (%) year interests interests Others end of the year NEXON Co., Ltd. 38.27% \ 1,013,870,271 \138,404,528 \ 19,597,224 \ 72,800,113 \ 1,244,672,136 and its subsidiaries
40.2 Summarized Financial Information on Subsidiaries
The summarized financial information for each subsidiary with non-controlling interests that are material to the Group before inter-company eliminations is as follows:
Assets, liabilities and equity of subsidiaries as of December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) NEXON Co., Ltd. and its subsidiaries 2014 2013
Current assets \ 2,350,872,005 \ 2,131,115,284 Non-current assets 1,632,150,884 2,245,812,997 Current liabilities 512,072,897 504,529,462 Non-current liabilities 318,142,954 542,292,794 Equity 3,152,807,038 3,330,106,026 Equity attributable to owners of the Parent 3,035,921,838 3,255,503,628 Equity attributable to non-controlling interests 116,885,200 74,602,397
68 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2014 and 2013
Sales, profit (loss) from continuing and discontinued operations, and comprehensive income for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) NEXON Co., Ltd. and its subsidiaries 2014 2013
Sales \ 1,737,108,803 \ 1,746,652,642 Profit for the year 300,477,133 577,702,350 Other comprehensive income (188,602,348) (266,438) Total comprehensive income 111,874,785 577,435,912 Profit attributable to owners of the Parent 111,031,043 575,681,283 Profit attributable to non-controlling interests 843,742 1,754,629
Summarized cash flows activities for the years ended December 31, 2014 and 2013, are as follows:
(In thousands of Korean won) NEXON Co., Ltd. and its subsidiaries 2014 2013
Cash flows from operating activities \ 577,233,399 \ 673,470,575 Cash flows from investing activities (614,001,448) (70,975,168) Cash flows from financing activities (268,666,324) (145,779,872) Exchange gains (losses) on cash and cash equivalents (10,778,295) (114,404,623) Net (decrease)/increase in cash and cash equivalents (316,212,668) 342,310,912 Cash and cash equivalents at beginning of year 1,388,428,838 1,046,117,926 Cash and cash equivalents at end of year \ 1,072,216,170 \ 1,388,428,838
40.3 Transactions with Non-controlling Interests
Effects of transactions with non-controlling interests on the equity attributable to owners of the parent for the years ended December 31, 2014 and 2013:
(In thousands of Korean won) 2014 2013
Stock options exercised by employee \ (4,646,258) \ (8,353,773) Acquisition of additional interests in a subsidiary and disposal of interests in a subsidiary without 16,208,983 36,936,882 loss of control Net effect on parent’s equity \ 11,562,725 \ 28,583,109
69