NXC Corporation and Subsidiaries Consolidated Financial Statements December 31, 2015 and 2014 NXC Corporation and Subsidiaries Index December 31, 2015 and 2014
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 – 67 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, 2015 and 2014, 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. 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, 2015 and 2014, and their financial performance and cash flows for the years then ended in accordance with Korean IFRS.
Other Matters 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 15, 2016
This report is effective as of March 15, 2016, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that 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, 2015 and 2014
(in Korean won) Notes 2015 2014
Assets Current assets Cash and cash equivalents 4,6,7,9 \ 1,967,108,516,441 \ 1,122,293,940,854 Financial assets at fair value through profit or loss 4,5,6,13 128,907,776,370 177,591,952,141 Trade receivables 4,6,8 337,854,693,922 315,203,617,243 Other financial assets 4,5,6,7,10,11 967,854,269,670 944,586,145,210 Other assets 12 45,564,685,751 44,688,761,232 Current tax assets 26 4,580,757,885 980,833,870 Inventories 14 21,050,639,722 22,769,609,217 3,472,921,339,761 2,628,114,859,767 Non-current assets Available-for-sale financial assets 5,6,16 256,084,371,313 723,139,287,184 Other financial assets 4,5,6,10,11 77,005,471,952 149,868,702,363 Other assets 12 26,024,087,841 19,188,256,724 Property and equipment 17 250,090,696,634 263,951,210,795 Intangible assets 18 931,447,091,404 1,044,584,559,826 Investment property 19 23,703,650,015 53,868,653,912 Investment in associates 20 62,534,365,413 53,980,675,505 Deferred tax assets 26 25,885,699,273 47,221,415,841 1,652,775,433,845 2,355,802,762,150 Total assets \ 5,125,696,773,606 \ 4,983,917,621,917
3 NXC Corporation and Subsidiaries Consolidated Statements of Financial Position December 31, 2015 and 2014
(in Korean won) Notes 2015 2014
Liabilities Current liabilities Trade payables 4,6 52,720,617,576 46,845,187,834 Borrowings 4,6,22 176,908,825,902 386,268,079,347 Other financial liabilities 4,5,6,11,21,39 131,747,510,282 140,400,091,897 Other liabilities 23 118,417,665,384 126,824,092,496 Provisions 24 238,385,919 485,461,735 Current tax liabilities 26 96,941,140,654 145,621,785,802 576,974,145,717 846,444,699,111 Non-current liabilities Borrowings 4,6,22 141,774,813,591 371,417,297,143 Other financial liabilities 4,5,6,21,39 21,806,024,142 27,418,335,452 Other liabilities 23 19,213,366,891 22,223,403,380 Provisions 24 3,168,127,821 3,808,055,533 Defined benefit liabilities 25 2,153,985,587 2,016,154,803 Deferred tax liabilities 26 100,819,692,712 136,186,545,010 288,936,010,744 563,069,791,321 Total liabilities 865,910,156,461 1,409,514,490,432
Equity attributable to owners of the Parent Capital stock 27 1,454,250,000 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 28 301,429,838,748 300,342,314,623 Retained earnings 29 2,337,540,138,726 2,032,073,319,848 Non-controlling interest 40 1,614,105,250,857 1,234,706,699,200 Total equity 4,259,786,617,145 3,574,403,131,485 Total liabilities and equity \ 5,125,696,773,606 \ 4,983,917,621,917
The accompanying notes are an integral part of these consolidated financial statements. 4 NXC Corporation and Subsidiaries Consolidated Statements of Comprehensive Income December 31, 2015 and 2014
(in Korean won) Notes 2015 2014
Revenue 31 \ 1,976,638,534,843 \ 1,948,525,292,306
Cost of sales 33 Cost of service 541,571,641,959 547,413,610,432 Cost of finished goods sold 85,433,926,122 99,834,404,483 627,005,568,081 647,248,014,915
Gross profit 1,349,632,966,762 1,301,277,277,391
Selling and administrative expenses 32,33 712,076,759,736 685,065,581,185
Operating profit 637,556,207,026 616,211,696,206
Other income 34 166,987,624,993 65,667,434,333 Other expenses 34 108,437,915,570 228,794,214,484 Financial income 35 93,588,545,266 112,504,445,522 Financial expenses 35 61,133,793,738 75,314,386,303 Share of profit(loss) 20 4,410,923,345 (7,491,136,614)
Profit before income tax 732,971,591,322 482,783,838,660
Income tax expense 26 187,419,805,648 258,595,247,309
Profit for the year \ 545,551,785,674 \ 224,188,591,351
Attributable to: Equity holders of the Parent Company \ 314,374,802,865 \ 119,983,962,726 Non-controlling interest 231,176,982,809 104,204,628,625
Other comprehensive income (loss) Items that will not be reclassfied to profit or loss Remeasurements of the net defined benefit liabilities 25 \ (38,112,228) \ (284,687,155) Items that may be subsequently reclassified to profit or loss Changes in fair value of available-for-sale financial assets 16 (53,071,559,005) (97,283,455,052) Gain on valuation of derivatives 349,760,662 457,252,589 Changes in equity method investees 20 910,879,912 1,701,182,096 Exchange differences on translating foreign operations 50,374,564,164 (131,291,302,863) (1,474,466,495) (226,701,010,384) Total comprehensive income (loss) for the year \ 544,077,319,179 \ (2,512,419,033)
Attributable to: Equity holders of the Parent Company \ 308,297,288,259 \ (37,416,696,553) Non-controlling interest 235,780,030,920 34,904,277,520
The accompanying notes are an integral part of these consolidated financial statements. 5 NXC Corporation and Subsidiaries Consolidated Statements of Changes in Equity December 31, 2015 and 2014
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, 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 25.1 - - - (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
Balances as of January 1, 2015 \ 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 Total comprehensive income: Profitfortheyear - - - 314,374,802,865 314,374,802,865 231,176,982,809 545,551,785,674 Othercomprehensiveloss - - (6,054,030,620) - (6,054,030,620) 4,617,676,353 (1,436,354,267) Remeasurementsofthenetdefinedbenefitliabilities 25.1 - - - (23,483,987) (23,483,987) (14,628,241) (38,112,228) Transactions with equity holders of the Company: Capitalreductionwithconsiderationpaid (26,500,000) - (70,100,715,000) - (70,127,215,000) - (70,127,215,000) Capitalreductionwithoutconsiderationpaid (542,909,000) - 542,909,000 - - - - Paidfordividends - - - (8,884,500,000) (8,884,500,000) - (8,884,500,000) Dividendsofsubsidiariespaid - - - - - (15,770,978,909) (15,770,978,909) Changesinsharesofsubsidiaries - - 78,939,803,974 - 78,939,803,974 139,012,684,672 217,952,488,646 Share-based payment associated with stock options 30 - - - - - 17,787,852,343 17,787,852,343 of subsidiaries Changesinscopeofconsolidation - - (2,240,443,229) - (2,240,443,229) 2,588,962,630 348,519,401 Balances as of December 31, 2015 \ 1,454,250,000 \ 5,257,138,814 \ 301,429,838,748 \ 2,337,540,138,726 \ 2,645,681,366,288 \ 1,614,105,250,857 \ 4,259,786,617,145
The accompanying notes are an integral part of these consolidated financial statements. 6 NXC Corporation and Subsidiaries Consolidated Statements of Cash Flows December 31, 2015 and 2014
(in Korean won) Notes 2015 2014
Cash flows from operating activities Cash generated from operations 36 761,569,412,898 \ 668,690,385,657 Interest received 35,024,632,462 35,267,245,158 Interest paid (9,707,347,088) (16,263,955,554) Dividendsincome 20,432,093,635 15,443,842,955 Income tax paid (229,995,206,242) (246,101,713,811) Net cash inflow from operating activities 577,323,585,665 457,035,804,405
Cash flows from investing activities Decreaseinfinancialdeposits 1,182,076,718,972 660,777,986,763 Increaseinfinancialdeposits (1,189,805,057,525) (1,157,527,254,219) Decreaseinfinancialassetsatfairvaluethroughprofitorloss 259,691,757,512 199,468,542,416 Increaseinfinancialassetsatfairvaluethroughprofitorloss (232,984,072,708) (161,063,805,855) Decrease in held-to-maturity investment - 1,000,000,000 Decreaseinnon-currentassetheld-for-sale - 46,867,653,750 Decreaseinavailable-for-salefinancialassets 16 639,663,033,515 118,890,949,207 Increaseinavailable-for-salefinancialassets 16 (150,684,422,273) (38,251,230,368) Decreaseinotherreceivables 13,168,645,154 21,360,455,620 Increaseinotherreceivables (2,403,942,740) (61,676,482,519) Disposalofpropertyandequipment 17 706,065,079 8,478,898,044 Acquisitionofpropertyandequipment 17 (24,801,310,935) (40,877,292,089) Disposalofintangibleassets 18 701,977,572 1,373,217,313 Acquisitionofintangibleassets 18 (24,842,013,469) (18,297,917,035) Acquisitionofinvestmentproperty 19 (77,577,877) - Acquisitionofinvestmentinassociates 20 (1,000,000,000) (2,025,244,252) Disposalofinvestmentinsubsidiaries 59,382,172,627 (737,708,922) Contingentconsideration 37 (6,926,795,536) - Businesscombination 39 (19,466,206,034) (549,419,556,192) Net cash inflow(outflow) from investing activities 502,398,971,334 (971,658,788,338)
Cash flows from financing activities Capitalreductionwithconsiderationpaid (70,127,215,000) - Increaseinshort-termborrowings 300,621,661,724 278,811,050,510 Decreaseinshort-termborrowings (413,818,826,654) (29,494,633,441) Redemptionofcurrentportionofborrowings (240,017,641,430) (122,433,711,811) Increaseinlong-termborrowings 49,430,166,100 516,924,560,471 Decreaseinlong-termborrowings (123,361,025,520) (332,078,857,508) Increase in financial lease liabilities - 1,123,117,504 Decreaseinfinancialleaseliabilities (3,262,127,679) (5,575,431,631) Dividends paid (8,884,500,000) - Dividends of subsidiaries paid (15,770,978,909) (16,385,809,918) Transactionswithequityholdersof theCompany 220,394,135,624 (97,786,113,389) Net cash provided by (used in) financing activities (304,796,351,744) 193,104,170,787
Net increase (decrease) in cash and cash equivalents 774,926,205,255 (321,518,813,146) Cashandcashequivalentsatthebeginningofyear 1,122,293,940,854 1,523,549,370,620 Exchangelossoncashandcashequivalents 69,888,370,332 (79,736,616,620) Cash and cash equivalents at the end of year 1,967,108,516,441 \ 1,122,293,940,854
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, 2015 and 2014
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, 2015, the Parent Company’s paid-in capital amounted to ￦1,454 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, 2015 and 2014, are as follows:
Percentage of ownership (%) Closing Subsidiaries Location 2015 2014month Controllingcompany
NEXON Co., Ltd. Japan 57.87 62.89 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 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 Alignment B-Corp CircleUp Fund LLC USA 100.00 100.00 December The Parent Company ATMedia Investor LLC USA 83.00 - December The Parent Company Future Foods, LLC USA 100.00 - December The Parent Company FutureFood, LLC USA 80.00 - December Future Foods, LLC 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 December Nexon Co., Ltd. Fantage.comInc. USA 58.57 58.57 December Nexon Co., Ltd. NEXON Europe S.a.r.l. Luxembourg - 100.00 December Nexon Co., Ltd. NEXON Europe Gmbh Germany 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 NDOORS Corporation Korea 100.00 100.00 December NEXON Korea Corporation Nexon GT Co., Ltd. (formerly GameHi Inc.) Korea 63.16 63.16 December NEXON Korea Corporation Neon Studio Corporation Korea 100.00 100.00 December NEXON Korea Corporation NEXON Taiwan Ltd. Taiwan 100.00 - December NEXON Korea Corporation
8 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Percentage of ownership (%) Closing Subsidiaries Location 2015 2014month Controllingcompany
Boolean Games Korea 100.00 - December NEXON Korea Corporation THINGSOFT Inc. Korea 100.00 100.00 December Neople Rushmo America, Inc USA 100.00 100.00 December Rushmo 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 100.00 100.00 December NXMH B.V.B.A. NXMH AS Norway 100.00 100.00 December NXMH B.V.B.A. Stokke AS Norway 100.00 100.00 December NXMH AS Stokke Amerika AS Norway 100.00 100.00 December Stokke AS Stokke Fabriker AB Sweden 100.00 100.00 December Stokke AS Stokke Danmark ApS Denmark 100.00 100.00 December Stokke AS Stokke Nederland BV Netherlands 100.00 100.00 December Stokke AS Stokke GmbH Germany 100.00 100.00 December Stokke AS Stokke GesmbH Austria 100.00 100.00 December Stokke AS Stokke AG Switzerland 100.00 100.00 December Stokke AS Stokke France S.A.S. France 100.00 100.00 December Stokke AS Stokke UK LTD UK 100.00 100.00 December Stokke AS Stokke Mobiliario SL Spain 100.00 100.00 December Stokke AS Stokke SRL Italy 100.00 100.00 December Stokke AS Stokke Hong Kong Limited Hong Kong 100.00 100.00 December Stokke AS Stokke Ltd (Japan) Japan 100.00 100.00 December Stokke AS Stokke Korea Co., Ltd Korea 100.00 100.00 December Stokke AS StokkeChinaLtd China 100.00 100.00 December Stokke AS StokkeRULLC Russia 100.00 - December Stokke AS Stokke LLC USA 100.00 100.00 December Stokke Amerika AS
1 The September 30 financial statements were used after reviewing the significant events from October to December.
2 NXProperties Corporation was reclassified to other related party due to sales of its shares to WiseKids Co.,Ltd. Which is other related party of the Parent Company.
9 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
1.2 Summarized Financial Information on Significant Subsidiaries
The summarized financial information for significant subsidiaries as of and for the years ended December 31, 2015 and 2014, is as follows:
(In thousands of Korean won) 2015 Profit (loss) for Assets Liabilities Equity Sales the year
NEXON Co., Ltd. and it’s subsidiaries \4,118,606,511 \448,458,425 \3,670,148,086 \1,791,254,208 \593,474,004 NXMH B.V.B.A. 1,537,673,012 128,671,066 1,409,001,946 626,125 42,053,460 NXMH AS and its subsidiaries 569,624,568 260,242,736 309,381,832 183,690,054 11,357,181 BRICKLINK LIMITED 8,700,484 904 8,699,580 135,425 (31,046) NXCL Corporation 2,679,713 377,730 2,301,983 1,259,161 (1,891,424)
(In thousands of Korean won) 2014 Profit (loss) Assets Liabilities Equity Sales for the year
NEXON Co., Ltd. and it’s subsidiaries \3,983,022,889 \830,215,852 \3,152,807,037 \1,737,108,803 \300,477,133 NXMH B.V.B.A. 1,593,430,232 242,839,098 1,350,591,134 348,676 (15,816,098) NXMH AS and its subsidiaries 632,943,586 304,461,522 328,482,064 207,630,008 (11,943,678) BRICKLINK LIMITED 8,217,222 6,513 8,210,709 757,550 (42,526) NXCL Corporation 3,988,514 294,083 3,694,431 2,330,815 (2,616,952)
1.3 Changes in Scope for Consolidation
Subsidiaries newly included in the consolidation for the year ended December 31, 2015:
Location Subsidiary Reason
USA ATMedia Investor LLC Newly established USA Future Foods, LLC Newly established USA FutureFood, LLC Newly established Germany NEXON Europe Gmbh Newly established Korea Boolean Games Newly acquired Taiwan NEXON Taiwan Ltd. Newly established Russia Stokke RU LLC Newly established
10 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Subsidiaries excluded from the consolidation for the year ended December 31, 2015:
Location Subsidiary Reason
Korea NX Properties Sold to other related party Japan Inblue Inc. Merged with gloops Inc. Luxembourg NEXON Europe S.a.r.l. Liquidated
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.
11 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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, 2015:
- Amendment to Korean IFRS 1019, Employee Benefits
Amendment to Korean IFRS 1019, Employee Benefits, permits a practical expedient in recognizing amount of contributions from employees or third parties as reduction in the service cost. The application of this amendments has no material impact on the consolidated financial statements.
- Amendment to Korean IFRS 1108, Operating Segments
Amendment to Korean IFRS 1108, Operating Segments, clarify that a reconciliation of the total of the reportable segments’ assets should only be provided if the segment assets are regularly provided to the top management. The application of this amendments has no material impact on the consolidated financial statements.
- Annual Improvements to Korean IFRS 2011-2013 Cycle
Amendment to K-IFRS 1103, Business Combination, clarifies that it excludes the accounting for the formation of joint arrangement in the financial statements of the joint arrangement itself from the scope of K-IFRS 1103, Business Combination. Amendments to K-IFRS 1113, Fair Value Measurements, and K-IFRS 1040, Investment property, exist. The application of these amendments has no material impact on the consolidated financial statements.
(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, 2015 and not early adopted would not .have a material impact on the 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
12 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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 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
13 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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.
14 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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.
15 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(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’.
16 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(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.
17 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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.
18 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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.
19 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
2.15 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.
2.16 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 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.
20 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
2.17 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.
21 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(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.
2.18 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).
22 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(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.
2.19 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.
2.20 Approval of Issuance of the Financial Statements
The issuance of the December 31, 2015 financial statements of the Group was approved by the Board of Directors on February 26, 2016, which is subject to change with the approval of the shareholders at their annual shareholders’ meeting.
23 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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).
24 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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 years and equity of the Group as of December 31, 2015 and 2014, is as follows:
(in thousands of Korean won) Impact on post-tax profit Impact on equity 2015 2014 2015 2014
USD Strengthened ₩ 133,709,993 ₩ 42,238,884 ₩ 121,607,170 ₩ 42,238,884 Weakened (133,709,993) (42,238,884) (121,607,170) (42,238,884) JPY Strengthened (3,168,386) (14,107,828) (3,262,542) (14,107,828) Weakened 3,168,386 14,107,828 3,262,542 14,107,828 CNY Strengthened 16,494,105 16,877,365 16,377,887 16,877,365 Weakened (16,494,105) (16,877,365) (16,377,887) (16,877,365) Other Strengthened (434,766) 44,959,946 (434,766) 44,959,946 Weakened 434,766 (44,959,946) 434,766 (44,959,946)
25 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(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, 2015 and 2014, 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 years and equity is as follows:
(in thousands of Korean won) Impact on post-tax profit Impact on equity 2015 2014 2015 2014
Listed equity Increase ₩ 9,638,165 ₩ 12,785,494 ₩ 11,871,835 ₩ 61,534,102 securities Decrease (9,638,165) (12,785,494) (11,871,835) (61,534,102)
(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 years and on equity as of December 31, 2015 and 2014, is as follows:
(in thousands of Impact on post-tax profit Impact on equity Korean won) 2015 2014 2015 2014
Increase \ (108,855) \ (134,314) \ (108,855) \ (134,314) Decrease 108,855 134,314 108,855 134,314
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.
26 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 Between 1 and 5 Less than 1 year years Over 5 years
Trade payables \ 52,720,618 \ - \ - Borrowings and finance lease 177,703,058 145,992,728 liabilities - Other financial liabilities 120,480,101 10,820,087 - Derivative liabilities 10,181,354 3,584,912 - Other financial liabilities(contingent consideration) 1,158,055 90,600,000 - Payment guarantee 1,300,000 - - \ 363,543,186 \ 250,997,727 \ -
(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 392,064,030 388,429,211 liabilities - 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 \ -
Above analysis is based on the earliest maturity with undiscounted cash flows of financial liabilities and includes cash flows of principal and interest payments.
27 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Carrying Fair Carrying Fair amount value amount value Financial assets Financial assets at fair value through profit or loss \128,907,776 \128,907,776 \177,591,952 \177,591,952 Available-for-sale financial assets 37,561,523 37,561,523 645,112,636 645,112,636 Other financial assets 1,883,482 1,883,482 49,010,716 49,010,716 Financial liabilities Other financial liabilities 13,766,266 13,766,266 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, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Available-for-sale financial assets Unlisted equity securities \ 169,988,249 \ 34,663,895 Beneficiary certificates 47,295,749 42,267,017 Others 1,238,851 1,095,739 \ 218,522,849 \ 78,026,651
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.
28 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 Level 1 Level 2 Level 3 Total Recurring fair value measurements Financial assets at fair value through profit or loss \ 127,152,576 \ - \ 1,755,200 \ 128,907,776 Available-for-sale financial assets 37,087,907 473,615 - 37,561,522 Derivative assets - 1,883,482 - 1,883,482 Derivative liabilities - 13,766,266 - 13,766,266
(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
Details of changes in Level 3 of the fair value hierarchy are as follows:
(In thousands of Korean won) 2015 2014
Beginning balance \ 2,562,869 \ 3,423,758 Amount recognized in profit or loss 280,808 135,867 Purchases 12,217,302 2,943,867 Sales (13,305,779) (3,940,623) Ending balance \ 1,755,200 \ 2,562,869
29 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
6. Financial Instruments by Category
6.1 Carrying Amounts of Financial Instruments by Category
Categorizations of financial assets and liabilities as of December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 Financial assets at fair value Financial assets through profit or Loans and classified as loss receivables available-for-sale Total
Cash and cash equivalents \ - \1,967,108,517 \ - \1,967,108,517 Financial assets at fair value through profit or loss 128,907,776 - - 128,907,776 Trade receivables - 337,854,694 - 337,854,694 Other current financial assets 1,877,931 965,976,339 - 967,854,270 Other non-current financial assets 5,551 76,999,921 - 77,005,472 Available-for-sale financial assets - - 256,084,371 256,084,371 \130,791,258 \3,347,939,471 \ 256,084,371 \3,734,815,100
(in thousands of Korean won) 2015 Financial liabilities at fair Other financial value through liabilities at Other financial profit or loss amortized cost liabilities 1 Total
Trade payables \ - \ 52,720,618 \ - \ 52,720,618 Borrowings(current) - 175,606,215 1,302,611 176,908,826 Other current financial liabilities 10,181,354 121,566,156 - 131,747,510 Other non-current financial liabilities 3,584,912 18,221,112 - 21,806,024 Borrowings(non-current) - 141,533,392 241,421 141,774,813 \ 13,766,266 \ 509,647,493 \ 1,544,032 \ 524,957,791 1 Other financial liabilities include finance lease liabilities not applicable to categories of financial liabilities.
30 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(in thousands of Korean won) 2014 Financial Financial assets assets at fair classified as value through Loans and available-for- Other financial profit or loss receivables sale 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 derivative assets (\45,566million).
(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.
31 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Financial assets at fair value through profit or loss Gain on disposal \ 16,080,922 \ 12,335,508 Gain on valuation 9,455,977 12,132,707 Loss on disposal (7,497,266) (9,089,326) Loss on valuation (9,968,192) (12,644,866) Dividend income 1,614,083 2,388,985 Available-for-sale financial assets Gain on disposal 102,828,125 8,821,769 Loss on disposal (907,666) (2,195,677) Impairment loss (1,780,522) (15,124,450) Gain(loss) on valuation 12,331,060 (160,214,441) Dividend income 18,561,229 12,926,467 Loans and receivables Interest income 35,769,398 35,267,245 Exchange differences 29,597,759 48,874,867 Bad debt expenses (369,259) (766,348) Other bad debt expenses (1,656,144) (8,789,903) Reversal of other bad debt expenses - 1,903,766 Financial liabilities at fair value through profit or loss Gain on derivatives transactions - 308,337 Gain on derivatives valuation 114,184 - Loss on derivatives transactions (4,404,921) - Loss on derivatives valuation (4,179,967) - Other financial liabilities at amortized cost Interest expenses (9,707,347) (16,263,955) Exchange differences (14,734,355) (23,780,930) Valuation of contingent consideration 8,710,136 (4,294,571)
32 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
7. Credit Quality of Financial Assets
7.1 Financial Deposits
Detail of financial deposits as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Cash and cash equivalents \ 1,967,108,516 \ 1,122,293,941 Short-term financial instruments 946,890,021 923,333,336 Long-term financial instruments 4,390,500 20,492,500 \ 2,918,389,037 \ 2,066,119,777
Financial deposits of the Group’s financial assets consist of financial institutions who have a certain level of credit ratings with no default risk.
8. Trade Receivables
Trade receivables and provisions for impairment of trade receivables as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Trade receivables1 \ 343,398,102 \ 320,856,637 Less: provisions for impairment of trade receivables (5,543,408) (5,653,020) Trade receivables - net \ 337,854,694 \ 315,203,617
1 The \22,263 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, 2015 and 2014, is as follows:
(In thousands of Korean won) 2015 2014
Receivables not past due \ 321,485,692 \ 301,925,701 Past due but not impaired1 Up to 3 months 16,301,894 12,449,300 3 to 6 months 21,266 289,538 6 to 12 months 45,662 124,407 Over 12 months 180 414,671 16,369,002 13,277,916 \ 337,854,694 \ 315,203,617
1 Trade receivables past due but not impaired relate to a number of independent customers who have no recent history of default.
33 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
- Provisions for impaired receivables amount to \ 5,543 million as of December 31, 2015 (2014: \ 5,653 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, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Beginning balance \ 5,653,020 \ 7,384,232 Bad debt expenses 369,259 78,955 Write-off (401,876) (2,323,541) Exchange differences (76,995) (4,350) Changes in scope of consolidation - 517,724 Ending balance \ 5,543,408 \ 5,653,020
9. Cash and Cash Equivalents
Cash and cash equivalents as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Cash on hand \ 26,835 \ 207,737
Bank deposits and short-term deposits 1,967,081,682 1,122,086,204
\ 1,967,108,517 \ 1,122,293,941
10. Other Financial Assets
Details of other financial assets as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Short-term financial instruments \ 946,890,021 \ 923,333,336 Short-term loans 1,530,745 1,563,388 Non-trade receivables 6,029,631 6,250,833 Accrued income 11,525,941 11,073,346 Derivative assets 1,883,482 49,010,716 Long-term financial instruments 4,390,500 20,492,500 Long-term loans 2,284,118 9,406,392 Leasehold deposits 70,325,304 73,324,336 \ 1,044,859,742 \ 1,094,454,847 Less: Non-current \ (77,005,472) \ (149,868,702) Current 967,854,270 944,586,145
34 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
11. Derivative Financial Instruments
Details of derivative financial instruments as of December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Assets Liabilities Assets Liabilities
Currency and interest rate swaps \ - \ - \ 45,566,007 \ - Currency forward1 1,883,482 \ 12,361,785 3,444,709 10,632,818 Interest rate swaps1 - 1,404,481 - 1,671,527 \ 1,883,482 \ 13,766,266 \ 49,010,716 \ 12,304,345
1 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, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Advance payments \ 2,690,844 \ 1,708,810 Prepaid expenses 64,110,183 59,994,941 Prepaid value added tax 2,161,594 216,416 Other assets 2,626,153 1,956,850 \ 71,588,774 \ 63,877,017 Less: Non-current \ (26,024,088) \ (19,188,256) Current 45,564,686 44,688,761
35 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
13. Financial Assets at Fair Value through Profit or Loss
Details of financial assets held for trading as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Listed securities \ 127,152,576 \ 168,674,066 Equity linked securities 1,755,200 2,562,869 Short-term bonds - 6,355,017 \ 128,907,776 \ 177,591,952
Details of listed securities as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Kwangju Bank \ 4,741,931 \ 5,146,330 Nexen Corporation 3,369,352 7,003,674 Dongah Tire Ind Co.,Ltd 932,912 11,824,186 Dongwon Industries Co., Ltd 3,750,610 15,730,380 Meritz Financial Group Inc. 13,906,061 16,695,936 Sebang Global Battery Co., Ltd - 12,206,844 JB Financial Group Co.,Ltd 14,303,080 16,678,037 KT Corporation 10,904,500 12,062,500 KSS shipping agent 9,766,848 1,310,220 Mando Corporation 7,032,095 13,863,240 Others 58,445,187 56,152,719 \ 127,152,576 \ 168,674,066
14. Inventories
Details of inventories as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Merchandise \ 471,986 \ 86,983 Finished goods1 21,239,449 23,922,483 Valuation allowance (660,795) (1,239,857) \ 21,050,640 \ 22,769,609
1 The cost of inventories recognized as expense and included in ‘cost of sales’ amounts to \ 85,434 million (2014: \99,834 million). In addition, \10,990 million (2014: \13,592 million) of finished goods are provided as collaterals in relation to borrowings from DNB BANK ASA (Note 22).
36 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
15. Non-current Assets Held-for-sale
There is no non-current assets held-for-sale as of December 31, 2015.
16. Available-for-sale Financial Assets
Details of available-for-sale financial assets as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Equity securities Stocks \ 193,778,928 \ 671,100,015 Beneficiary certificates 52,973,011 48,952,369 Debt securities 9,332,432 3,086,903 \ 256,084,371 \ 723,139,287
Changes in available-for-sale financial assets for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Beginning balance \ 723,139,287 \ 917,005,693 Exchange differences 13,271,325 (50,757,302) Acquisition due to changes in scope of consolidation (5,612,380) (306,177) Additions 150,684,422 40,992,131 Disposals (537,742,575) (7,806,968) Transfer (2,334,298) 98,000 Net losses reclassified from equity (95,871,948) (747,199) Net gains (losses) reclassified to equity 12,331,060 (160,214,441) Impairment (1,780,522) (15,124,450) \ 256,084,371 \ 723,139,287 Less: Non-current \ (256,084,371) \ (723,139,287) Current - -
37 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
17. Property and Equipment
Details of property and equipment as of December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Accumulated Carrying Accumulated Carrying Cost depreciation1 amount Cost depreciation1 amount
Land \59,631,383 - \59,631,383 \51,493,239 - \51,493,239 Buildings 156,361,283 (9,442,806) 146,918,477 152,337,377 (5,674,779) 146,662,598 Tools and equipment 154,609,144 (116,955,124) 37,654,020 146,366,219 (100,597,146) 45,769,073 Leasehold improvements 18,934,593 (13,425,207) 5,509,386 22,237,879 (14,935,729) 7,302,150 Others 777,883 (495,182) 282,701 734,560 (465,369) 269,191 Construction in progress 94,730 - 94,730 12,454,959 - 12,454,959 \390,409,016 \ (140,318,319) \250,090,697 \385,624,233 \ (121,673,023) \263,951,210
1 Accumulated impairment losses are included.
Changes in property and equipment for the years ended December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 Tools and Leasehold Construction Land Buildings equipment improvements Others in progress Total
Beginning balance 51,493,239 146,662,598 45,769,073 7,302,150 269,191 12,454,959 263,951,210 Exchange differences (13,618) 83,683 (180,320) 91,419 (2,255) - (21,091) Changes in scope of consolidation (2,994,698) (685,969) 21,290 198,285 - - (3,461,092) Acquisition (314,935) 4,383,428 19,337,358 1,893,547 94,617 94,730 25,488,745 Disposal - - (710,817) (879,196) - - (1,590,013) Depreciation - (4,201,424) (26,763,883) (3,096,818) (78,853) - (34,140,978) Transfers 11,461,395 676,161 181,320 - - (12,454,959) (136,083) Ending balance 59,631,383 146,918,477 37,654,020 5,509,387 282,700 94,730 250,090,697
38 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(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
Details of finance lease as of December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Accumulated Carrying Accumulated Carrying Cost depreciation amount Cost depreciation amount
Leasehold improvements \ 21,067,454 \ (20,677,611) \ 389,843 \ 11,362,788 \ (10,548,052) \ 814,736 Others 253,102 (219,705) 33,397 278,018 (156,080) 121,938 \ 21,320,556 \ (20,897,316) \ 423,240 \ 11,640,806 \ (10,704,132) \ 936,674
The total of future minimum lease payments as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Total minimum lease payments Within 1 year \ 1,304,589 \ 3,153,555 Within 2 year 137,541 1,186,546 Within 3 year 105,957 88,855 \ 1,548,087 \ 4,428,956 Unearned finance income \ 4,055 \ 14,223 Net minimum lease payments Within 1 year \ 1,302,611 \ 3,139,911 Within 2 year 136,515 1,185,967 Within 3 year 104,906 88,855 \ 1,544,032 \ 4,414,733
39 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
18. Intangible Assets
Details of intangible assets as of December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Accumulated Carrying Accumulated Carrying Cost amortization1 amount Cost amortization1 amount
Goodwill \ 688,997,080 \ (163,348,247) \ 525,648,833 \ 669,804,940 \ (149,225,876) \ 520,579,063 Software 86,060,653 (64,576,234) 21,484,419 77,891,348 (60,741,863) 17,149,485 Intellectual property 435,095,066 (60,198,901) 374,896,165 545,687,817 (50,496,936) 495,190,881 Others 12,108,189 (2,690,514) 9,417,675 13,079,121 (1,413,991) 11,665,130 \1,222,260,988 \(290,813,896) \931,447,092 \1,306,463,226 \(261,878,666) \1,044,584,559 1 Accumulated impairment losses are included.
Changes in intangible assets for the years ended December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 Intellectual Goodwill Software property Others Total
Beginning balance \520,579,063 \17,149,485 \ 495,190,881 \11,665,130 \1,044,584,559 Exchange differences (3,648,222) 543,140 (34,149,787) (1,387,863) (38,642,732) Changes in scope of consolidation 16,425,948 12,005 7,951,382 (550,000) 23,839,335 Acquisition - 19,068,188 5,074,663 699,163 24,842,014 Disposal - (489,392) (1,066,947) (497,606) (2,053,945) Amortization - (11,008,499) (89,600,371) (511,149) (101,120,019) Impairment (7,707,956) (3,833,783) (38,588,222) - (50,129,961) Transfers - 43,275 30,084,565 - 30,127,840 Ending balance \525,648,833 \21,484,419 \374,896,165 \9,417,675 \931,447,092
(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
40 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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) 2015 2014
FPS \ 46,666,456 \ 46,666,456 MMORPG 20,110,955 22,424,530 Action RPG 15,602,777 15,602,777 Mobile Game 221,309,078 208,209,537 Baby products 178,497,679 195,761,824 Others 43,461,888 31,913,940
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 sales ratio 15% ~ 35% 12% ~ 28% 83% ~ 87% 4%~9% 17%~22% -250%~70% Perpetual growth rate 1% 1% 1% 0% 2% 1% Pre-tax discount rate 13.00% 16.00% 14.00% 8% 10.99% 15% ~ 17%
41 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
19. Investment Property
Details of investment property as of December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Accumulated Carrying Accumulated Carrying Cost amortization amount Cost amortization amount
Land \ 6,889,305 \ - \ 6,889,305 \ 29,269,652 \ - \ 29,269,652 Buildings 19,174,512 (2,360,167) 16,814,345 28,137,583 (3,538,581) 24,599,002 \ 26,063,817 \ (2,360,167) \ 23,703,650 \ 57,407,235 \ (3,538,581) \ 53,868,654
Changes in investment property for the years ended December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Land Buildings Total Land Buildings Total
Beginning balance \ 29,269,653 \ 24,599,001 \ 53,868,654 \ 29,640,379 \ 26,714,116 \ 56,354,495 Exchange differences (188,747) (722,495) (911,242) (370,726) (1,430,993) (1,801,719) Changes in scope of consolidation (22,211,273) (6,622,071) (28,833,344) - - - Acquisition - 77,578 77,578 - - - Depreciation - (662,383) (662,383) - (684,122) (684,122) Transfers 19,672 144,715 164,387 - - - Ending balance \ 6,889,305 \ 16,814,345 \ 23,703,650 \ 29,269,653 \ 24,599,001 \ 53,868,654
42 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
20. Investments in Associates
Details of associates of the Group as of December 31, 2015 and 2014, are as follows:
Percentage of ownership Location 2015 2014 Fiscal year
Xeogen, Inc. Korea 31.67% 31.67% December 31, 2015 Humanworks Corp. Korea 35.00% 35.00% December 31, 2015 INTIVSOFT Co., Ltd. Korea 40.25% 40.25% December 31, 2015 NFUN Korea 40.00% 40.00% December 31, 2015 Ubifun Corp.(formerly Korea 35.00% 35.00% December 31, 2015 Copersons) NSC Corp1 Korea 26.52% - December 31, 2015 5ants Games Spain 31.75% 31.75% December 31, 2015 Six Wave, Inc. Hong Kong 25.13% 25.00% December 31, 2015 313 Art Project Inc Korea 29.68% 29.68% December 31, 2015 SMATOOS Inc2 Korea - 21.26% December 31, 2015 Jisik Corporation Korea 25.00% 25.00% December 31, 2015 IDIS Holdings Co., Ltd 3 Korea 27.71% 27.71% December 31, 2015 Innovative Fund LLC USA 48.39% 48.39% December 31, 2015 C program1 Korea 22.22% - December 31, 2015
1 Reclassified from available-for-sale financial assets to associates due to additional acquisition of shares during the year ended December 31, 2015 2 Excluded from associates due to decrease in ownership with the Group’s nonparticipation in its new issuance of shares. 3 The Group holds IDIS Holdings Co., Ltd. for finance strategy purposes. It has no significant transactions. Most of associates are engaged in games or IT business and the Group holds them for business strategy purposes.
43 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Changes in investments in associates for the years ended December 31, 2015 and 2014, are as follows: (in thousands of 2015 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. \ 368,979 \ - \ 16,167 \ - \ - \ - \ 385,146 Humanworks Corp. 1,549,206 - (148,822) - - - 1,400,385 INTIVSOFT Co., Ltd. 176,958 - (176,958) - - - - NSC Corp - 1,499,940 - - - - 1,499,940 Six Wave, Inc. 14,559,532 (11,272) 990,738 904,067 - - 16,443,065 313 Art Project Inc 770,239 - - - - - 770,239 IDIS Holdings Co., Ltd 33,471,490 - 4,281,152 6,812 - (256,781) 37,502,673 Innovative Fund LLC 3,084,272 - - - - - 3,084,272 C Program - 2,000,000 (551,354) - - - 1,448,646 53,980,676 3,488,668 4,410,923 910,879 - (256,781) 62,534,365
(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
Summary of condensed financial information of major associates and dividends received from
44 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
associates as of and for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 IDIS Holdings Co., Six Wave, Inc. Ltd
Current assets \ 14,798,115 \ 339,963,689 Non-current assets 11,178,866 204,045,673 Current liabilities 5,483,146 47,406,282 Non-current liabilities - 27,072,221 Sales 43,720,219 400,014,263 Net gain 3,941,972 37,683,286 Total comprehensive gain 3,900,312 38,086,955 Dividend - (256,781)
(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)
Details of adjustments from financial information of major associates to the book value of investments in associates for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 IDIS Holdings Co., Six Wave, Inc. Ltd
Net assets1 \ 20,493,835 \ 181,737,115 Net assets of equity shares 25.13% 27.71% Interests in net assets 5,150,726 50,354,732 Investment difference2 11,292,338 (12,852,058) Book value 16,443,064 37,502,674
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.
(In thousands of Korean won) 2014
45 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 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.
Fair value of marketable investments in associates as of December 31, 2015 and 2014, is as follows:
(in thousands of Korean won) 2015 2014 Fair value Book value Fair value Book value
IDIS Holdings Co., Ltd \ 42,240,540 \ 37,502,674 \ 36,462,959 \ 33,471,491
21. Other Financial Liabilities
Details of other financial liabilities as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Non-trade payables \ 69,284,211 \ 60,753,315 Accrued expenses 49,123,688 50,716,642 Leasehold deposits received 12,842,798 23,626,423 Contingent consideration 8,487,081 20,417,703 Derivative liabilities 13,766,266 12,304,344 Others 49,490 - \ 153,553,534 \ 167,818,427 Less: Non-current \ (21,806,024) \ (27,418,335) Current 131,747,510 140,400,092
46 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
22. Borrowings
Details of borrowings as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Short-term borrowings Sumitomo Bank Ltd., 0.67%~1.57% \ 130,274,216 \ 241,584,316 DNB BANK ASA - - 3,527,805 Current portion of long-term liabilities and long-term borrowings KEB & Other banks EURIBOR + 1.9% 143,607,822 173,668,094 Sumitomo Bank Ltd., 0.50% 40,338,644 331,276,177 Resona Bank - - 455,265 Bonds Private convertible bonds 3.00% 2,918,926 2,744,763 Finance lease liabilities NIH and others 0.29% 1,544,032 4,428,956 \ 318,683,640 \ 757,685,376 Less: Non-current \ (141,774,814) \ (371,417,297) Current 176,908,826 386,268,079
Details of collaterals provided by the Group in relation to borrowings are as follows:
i) Certain shares of subsidiaries are provided as collaterals in relation to borrowings from Sumitomo Bank Ltd.
ii) Part of inventories in subsidiary are provided as collateral in relation to borrowings from DNB BANK ASA (Note 14).
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
47 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
23. Other Liabilities
Details of other liabilities as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Withholdings \ 2,681,178 \ 2,788,800 Advances 1,039,607 1,504,960 Unearned revenues 111,893,061 119,966,066 Value added tax withheld 11,909,953 13,834,508 Government grants 605,059 330,514 Other current liabilities 9,502,174 10,622,648 \ 137,631,032 \ 149,047,496 Less: Non-current \ (19,213,367) \ (22,223,403) Current 118,417,665 126,824,093
24. Provisions
Changes in provisions for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Beginning balance \ 4,293,517 \ 4,308,513 Additional provisions 567,830 1,467,662 Used during year (1,571,183) (1,336,037) Exchange differences 95,470 (146,621) Changes in scope of consolidation 20,880 - Ending balance \ 3,406,514 \ 4,293,517 Less: Non-current \ (3,168,128) \ (3,808,056) Current 238,386 485,461
48 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Present value of unfunded defined benefit obligations \ 2,153,986 \ 2,016,155
Changes in the defined benefit obligations for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Beginning balance \ 2,016,155 \ 3,577,898 Current service cost 494,009 1,075,789 Interest expense 43,434 71,768 Exchange differences (182,964) (246,588) Remeasurements: Actuarial gains and losses arising from changes in financial assumptions 50,280 375,577 Payments from plans (379,361) (3,828,453) Changes in scope of consolidation 112,433 990,165 Ending balance \ 2,153,986 \ 2,016,155
The principal actuarial assumptions as of December 31, 2015 and 2014, are as follows:
2015 2014
Discount rate 3.51% 3.62% Salary growth rate 3.80% 3.41%
25. 2 Defined Contribution Plan
Recognized expense related to the defined contribution plan for the year ended December 31, 2015, is \16,307 million (2014: \13,344 million).
49 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
26. Tax Expense and Deferred Tax
Income tax expense for the years ended December 31, 2015 and 2014, consists of:
(In thousands of Korean won) 2015 2014
Current tax: Current tax on profits for the year \ 166,830,438 \ 273,782,851 Deferred tax: Changes in temporary differences (10,268,682) (77,304,726) Tax effect charged directly to equity 30,858,051 62,117,122 Income tax expense \ 187,419,807 \ 258,595,247
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) 2015 2014
Profit before tax \ 732,971,591 \ 482,783,839 Tax calculated at domestic tax rates applicable to profits in the respective countries \ 138,918,554 \ 154,321,281 Tax effects of: Income not subject to tax (2,129,352) (2,284,143) Expenses not deductible for tax purposes 72,834,087 75,296,711 Unrecognized deferred tax 71,931,296 81,131,842 Effect from change in tax rate (6,365,077) (13,641,780) Additional payment of income taxes (9,851,363) 24,260,257 Tax credit related effect (107,514,079) (82,708,503) Others 29,595,741 22,219,582 \ 187,419,807 \ 258,595,247
50 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Changes in deferred tax assets and liabilities for the years ended December 31, 2015 and 2014, without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:
(in thousands of Korean won) 2015 Other Beginning Exchange comprehen- Business Ending balance Profit or loss difference sive income combination balance
Property and equipment \(92,723,411) \91,574,754 \4,586,330 \ - \ (2,065) \ 3,435,608 Investments in associates and subsidiaries (8,103,070) (25,534,249) 9,657 - - (33,627,662) Allowance for doubtful accounts 2,396,569 (621,563) 5,657 - - 1,780,663 Impairment loss on available-for-sale securities 3,364,888 (2,621,215) 19,657 - - 763,330 Gain(loss) on valuation of available-for-sale securities (32,984,208) 1,759,264 (826,730) 30,858,050 - (1,193,624) Intangible assets (7,961,101) (76,125,641) 4,229,005 - - (79,857,737) Accrued expenses 3,252,878 (316,720) (138,760) - - 2,797,398 Bonuses 5,191,074 (121,166) (3,971) - (1,133) 5,064,804 Unearned revenues 17,324,238 (2,357,024) 108,942 - - 15,076,156 Repairs expenses 208,208 (50,259) - - - 157,949 Compensation expenses associated with stock option 3,740,853 (3,829,491) 88,638 - - - Service fees 1,407,375 1,535,118 - - - 2,942,493 Derivatives 2,392,102 847,661 (269,066) - - 2,970,697 Tax loss carryforwards 4,754,567 (1,425,984) (31,270) - - 3,297,313 Tax credit 1,736,210 (1,285,883) - - - 450,327 Others 7,037,699 (2,016,970) (3,976,274) - (36,163) 1,008,292 \(88,965,129) \(20,589,368) \ 3,801,815 \ 30,858,050 \ (39,361) \(74,933,993)
51 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(in thousands of 2014 Korean won) Other Beginning Profit or Exchange comprehen- Business Ending balance loss difference sive income combination balance
Property 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)
Deductible temporary differences of \2,723,248 million from interests in subsidiaries and associates and tax losses in subsidiaries were not recognized as the possibility of realization from disposal of its shares in predictable period seems unlikely. Deferred tax assets from tax credit carried forward (\54,950 million) was not recognized due to uncertainty of its realization.
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 2,908,500 shares (2014: 4,047,318 shares) with the par value of \ 500 per share.
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, 2015.
52 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
28. Other Components of Equity
Other components of equity as of December 31, 2015 and 2014, consist of:
(In thousands of Korean won) 2015 2014
Capital surplus by equity method \ 839,019,047 \ 760,084,311 Other capital surplus 20,087,750 22,328,192 Treasury stocks - (129,998,835) Loss from reduction of capital stock (199,551,573) - Capital change in equity method (69,809) (633,689) Gain on valuation of available-for-sale financial assets 10,003,778 42,785,788 Loss on foreign currency translation (368,022,233) (393,970,817) Loss on valuation of derivatives (37,121) (252,636) \ 301,429,839 \ 300,342,314
53 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
29. Retained Earnings
Retained earnings as of December 31, 2015 and 2014, consist of:
(In thousands of Korean won) 2015 2014
Legal reserves1 \ 11,561,830 \ 14,249,523 Discretionary reserves 45,445,312 45,445,313 Retained earnings before appropriation 2,280,532,997 1,972,378,484 \ 2,337,540,139 \ 2,032,073,320
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, 2015 and 2014, are as follows:
Average exercise price per share option (in Japanese Options (unit: share) Yen) 2015 2014 2015 2014
Beginning balance 32,406,000 19,676,000 825 910 Granted 50,000 17,975,000 1 705 Expired (1,131,000) (2,763,000) 1,119 1,116 Exercised (10,175,000) (2,482,000) 605 304 Ending balance 21,150,000 32,406,000 913 825
As of December 31, 2015, 12,608,000 options are exercisable.
54 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Expiry dates, exercise prices of share options, and number of options outstanding as of December 31, 2015 and 2014, are as follows:
Exercise price per share (in Japanese (unit: share) Maturity Yen) 2015 2014
1st 2015.09.30 153 - 3,382,000 2nd 2015.09.30 300 - 1,424,000 3rd 2015.09.30 640 - 536,000 4th 2015.09.30 880 - 35,000 5th 2018.09.05 1,367 7,436,000 10,017,000 6th 2043.05.06 1 150,000 150,000 7th 2020.03.02 853 9,038,000 11,886,000 8th 2024.03.24 0.001 2,704,000 3,025,000 9.1st 2024.05.08 809 1,683,000 1,831,000 9.2nd 2020.07.21 947 20,000 20,000 9.3rd 2020.10.20 865 69,000 100,000 10th 2045.08.02 1 50,000 - 21,150,000 32,406,000
Compensation costs of share options granted during the years ended December 31, 2015 and 2014, 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 10th
Grant date 2013.05.07 2014.03.03 2014.03.25 2014.05.09 2014.07.22 2014.10.21 2015.08.03 Annual risk-free interestrate 1.29% 0.13% 0.10% 0.10% 0.10% 0.10% 0.8% Expected exercise period 18 years 4 years 2.3 years 4.7 years 3.5 years 4 years 15.4years Pricevolatility 46.70% 44.59% 47.62% 44.20% 46.30% 44.35% 78.90% Expected dividend yield 0.90% 1.17% 1.23% 1.24% 1.06% 1.16% 0.59% Compensation 794 ~ 790 expenses per share 944 JPY 267 JPY JPY 268 JPY 296 JPY 270 JPY 1,558 JPY
Share-based payments recognized as expenses for the years ended December 31, 2015 and 2014, amount to \17,788 million and \46,090 million, respectively. All expenses are related to equity-settled share-based payments.
55 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
31. Operating Profit
Details of operating profit for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Sales - Internet \ 1,026,373,763 \ 1,081,883,077 Sales - Royalty 712,320,568 538,914,493 Sales - Finished goods 183,690,054 207,630,008 Others 54,254,150 120,097,714 \ 1,976,638,535 \ 1,948,525,292
Details of external customers, who contribute more than 10% of the Group revenue for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Company A \ 593,577,315 \ 557,104,396 Company B 102,194,187 172,202,695
32. Selling and Administrative Expenses
Selling and administrative expenses for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Salaries \ 124,345,272 \ 126,918,272 Post-employment benefits 6,242,146 8,291,526 Share-based payment 17,523,910 44,939,924 Employee benefits 27,011,970 26,416,160 Rental 10,361,109 11,806,264 Depreciation and amortization 36,101,741 37,719,084 Taxes and dues 11,212,525 7,579,101 Travel 10,569,267 11,098,484 Entertainment 1,656,489 1,600,362 Communication 2,008,474 2,252,276 Development 67,931,993 58,344,763 Advertising 151,291,639 103,017,967 Repairs 6,969,649 6,911,187 Service fee 201,527,268 143,117,217 Outsourcing 7,643,984 6,074,321 Bad debts expense 369,259 766,348 Freight 124,408 154,661 Recruiting 4,419,759 2,936,679 Others 24,765,898 85,120,984 \ 712,076,760 \ 685,065,580
56 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
33. Expenses by Nature
Expenses by nature for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Changes in finished goods \ 85,433,926 \ 99,834,404 Salaries 283,578,806 268,140,181 Post-employment benefits 16,844,935 17,723,714 Share-based payment 17,787,852 46,089,987 Employee benefits 73,564,543 64,263,155 Outsourcing 36,105,519 33,382,231 Publishing 209,577,422 198,109,288 Depreciation and amortization 135,260,997 168,334,884 Rental 17,819,588 22,519,132 Communication 32,984,276 26,164,612 Taxes and dues 11,276,383 8,272,482 Travel 10,569,267 11,098,484 Entertainment 1,656,489 1,600,362 Advertising 151,291,639 103,017,967 Repairs 12,572,410 11,603,457 Service fee 201,527,268 143,117,217 Bad debt expense 369,259 766,348 Freight 124,408 154,661 Recruiting 4,419,759 2,936,679 Miscellaneous expenses 24,765,898 85,120,986 Others 11,551,684 20,063,364 \ 1,339,082,328 \ 1,332,313,595
57 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
34. Other Income and Expenses
Details of other income for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Dividend income \ 20,175,312 \ 15,315,452 Rental income 2,058,320 2,051,039 Gain on disposal of financial assets at fair value through profit or loss 16,080,922 12,335,508 Gain on valuation of financial assets at fair value through profit or loss 9,455,977 12,132,707 Gain on disposal of available-for-sale financial assets 102,828,125 8,821,769 Gain on disposal of property and equipment 157,199 1,494,384 Gain on disposal of intangible assets 41,322 - Reversal of other bad debt expenses - 1,903,766 Miscellaneous gains 16,190,448 11,612,809 \ 166,987,625 \ 65,667,434
Details of other expenses for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Loss on disposal of financial assets at fair value through profit or loss \ 7,497,266 \ 9,089,326 Loss on valuation of financial assets at fair value through profit or loss 9,968,192 12,644,866 Loss on disposal of available-for-sale financial assets 907,666 2,195,677 Impairment loss on available-for-sale financial assets 1,780,522 15,124,450 Loss on disposal of investments in associates 11,272 - Loss on disposal of subsidiaries 7,272,331 - Impairment loss on investments in associates - 8,794,981 Other bad debt expenses 1,656,144 8,789,903 Other depreciation 662,383 684,121 Loss on disposal of property and equipment 1,356,083 1,221,718 Impairment loss on property and equipment - 20,185 Loss on disposal of intangible assets 1,393,290 763,209 Impairment loss on intangible assets 50,129,961 137,434,233 Donation 8,124,173 8,797,537 Service fees 14,440,280 12,698,568 Miscellaneous losses 3,238,353 10,535,440 \ 108,437,916 \ 228,794,214
58 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
35. Finance Income and Expenses
Details of finance income for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Interest income \ 35,769,398 \ 35,267,245 Exchange differences 57,704,963 76,928,863 Gain on derivative transactions - 308,337 Gain on valuation of derivative 114,184 - \ 93,588,545 \ 112,504,445
Details of finance expenses for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Interest expenses \ 9,707,347 \ 16,263,955 Exchange differences 42,841,559 51,834,927 Loss on valuation of derivative 4,179,967 5,548,142 Loss on derivative transactions 4,404,921 1,667,362 \ 61,133,794 \ 75,314,386
36. Cash Generated from Operations
Details of cash generated from operations for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Profit before income tax \ 545,551,786 \ 224,188,591 Adjustments for: Tax expenses 187,419,806 258,595,247 Bad debt expenses 369,259 766,348 Other bad debt expenses 1,656,144 8,789,903 Reversal of other bad debt expenses - (1,903,766) Depreciation 34,140,978 38,284,237 Impairment loss on property and equipment - 20,185 Gain on disposal of property and equipment (157,199) (1,494,384) Loss on disposal of property and equipment 1,356,083 1,221,718 Amortization 101,120,019 130,050,647 Impairment loss on intangible assets 50,129,961 137,434,233 Gain on disposal of intangible assets (41,322) - Loss on disposal of intangible assets 1,393,290 763,209 Other depreciation 662,383 684,121 Loss on disposal of financial assets at fair value through profit or loss 7,497,266 9,089,326 Loss on valuation of financial assets at fair value through profit or loss 9,968,192 12,644,866 Gain on disposal of financial assets at fair value through profit or loss (16,080,922) (12,335,508)
59 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(In thousands of Korean won) 2015 2014
Gain on valuation of financial assets at fair value through profit or loss (9,455,977) (12,132,707) Gain on disposal of available-for-sale financial assets (102,828,125) (8,821,769) Loss on disposal of available-for-sale financial assets 907,666 - Impairment loss on available-for-sale financial assets 1,780,522 15,124,450 Loss on equity method investments (4,410,923) 7,491,137 Loss on disposal of investments in associates 11,272 - Impairment loss on investments in associates - 8,794,981 Loss on disposal of subsidiaries 7,272,331 - Post-employment benefits 537,443 1,147,557 Share-based payment 17,787,852 46,089,987 Dividend income (20,175,312) (15,315,452) Interest income (35,769,398) (35,267,245) Interest expenses 9,707,347 16,263,956 Gain on valuation of derivative (114,184) - Loss on valuation of derivative 4,179,967 5,548,143 Contribution to provision - 1,467,662 Miscellaneous gains (8,727,043) (2,657,898) Miscellaneous losses 16,906 7,349,751 240,154,282 617,692,935
Decrease(increase) in trade receivables (22,139,354) (81,697,521) Decrease(increase) in inventories (432,425) (3,513,576) Decrease(increase) in other receivables 2,803,997 (3,467,745) Decrease(increase) in other assets 8,333,422 (32,169,045) Increase(decrease) in trade payables 5,347,572 5,574,974 Increase(decrease) in other payables (2,791,943) (9,178,193) Increase(decrease) in other current liabilities (9,965,300) (17,773,627) Increase(decrease) in other non-current liabilities (3,342,080) (25,801,918) Increase(decrease) in provisions (1,571,183) (1,336,037) Benefit paid (379,361) (3,828,453) (24,136,655) (173,191,141) \ 761,569,413 \ 668,690,385
Significant transactions not affecting cash flows for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Transfer of available-for-sale financial assets \ 86,040,828 \ 160,116,440 Transfer of construction in progress 12,454,959 1,305,647 Transfer to current portion of borrowings 146,500,987 133,866,164 Transfer of contingent consideration to current portion - 6,897,605
60 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
37. Contingencies and Commitments
Commitments
The Group provided \6,140 million of time deposits as collateral in relation to borrowing of employees amounting to \3,530 million as of December 31, 2015.
The Group provided \4,023 million of time deposits as collateral in relation to government subsidies as of December 31, 2015.
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, 2015.
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 receives payment guarantees amounting to \3,657 million and \216 million from Jeju Bank and Seoul Guarantee Insurance Co., Ltd. respectively in relation to the government subsidies.
Contingent Consideration
Contingent consideration granted in relation to business combination is as follows:
(in thousands of Korean Boolean Games THINGSOFT Inc. Weclay Inc. won and in Japanese yen)
Conditions for occurrence Sales attainable Sales attainable Years of service and standard standard other goals achievement Contingent consideration \ 0 ~ 44,600,000 \ 0 ~ 47,000,000 \ 0 ~ 316,111
Changes in contingent consideration for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 2014
Beginning balance \ 20,417,703 \ 16,336,052 New transactions 3,694,026 - Paid (6,926,796) - Profit or loss (8,710,136) 4,691,855 Exchange differences 12,284 (610,204) Ending balance \ 8,487,081 \ 20,417,703 Less: Non-current \ 7,401,026 \ 6,897,605 Current 1,086,055 13,520,098
61 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
38. Related Party Transactions
As of December 31, 2015, 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., Xeogen, Inc., INTIVSOFT Co., Ltd. Other related parties NXProperties Corporation, Wisekids Co., Ltd.
Sales and purchases with related parties for the years ended December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Sales Purchases Sales Purchases Associates 313 Art Project Inc \ 243,000 \ - \ 324,000 \ - IDIS Holdings Co., Ltd 256,781 - 128,391 - Ubifun Corp. 42,733 840,727 179,679 3,554,988 NFUN - - 39,048 224,598 Xeogen, Inc. - 443,386 - 301,565 INTIVSOFT Co., Ltd. 9,363 - 62,312 - Other related parties NXProperties Corporation (*1) 24,000 - - - Wisekids Co., Ltd.(*2) 43,585 102,719 - - \ 619,462 \ 1,386,832 \ 733,430 \ 4,081,151
62 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Year-end balances of receivables and payables arising from sales and purchases of goods and services as of December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Receivables Payables Receivables Payables Associates 313 Art Project Inc \ - \ - \ 627,088 \ 750,000 Ubifun Corp. - - - 277,356 NFUN - - 2,479,220 - Xeogen, Inc. - 44,102 - 40,783 INTIVSOFT Co., Ltd. 100,000 - 166,742 - Other related parties NXProperties Corporation (*1) 6,600 - - - Wisekids Co., Ltd.(*2) - 96,200 - - \ 106,600 \ 140,302 \ 3,273,050 \ 1,068,139
(*1)Sold to WiseKids Co, Ltd., other related party, during the year ended December 31, 2015.
(*2) The acquisition amount (\60,121 million) for NXProperties was not included.
Fund transactions with a related party for the years ended December 31, 2015 and 2014, are as follows:
(in thousands of Korean won) 2015 2014 Loans Borrowings Loans Borrowings Associate INTIVSOFT Co., Ltd. \ 100,000 \ - \ 166,667 \ -
Payment guarantee provided by the Group
(in thousands of Guaranteed Korean won) amount Guaranteed by
Associate 313 Art Project Inc \ 1,300,000 Korea Exchange Bank and others
63 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Commitment with a related party :
There is no commitment between related parties and Group.
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, 2015 and 2014, consists of:
(In thousands of Korean won) 2015 2014
Salaries and other short-term employee benefits \ 2,348,481 \ 2,320,869 Post-employment benefits 107,228 193,259 \ 2,455,709 \ 2,514,128
39. Business Combinations
Details of the Group’s business combinations as of December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) 2015 Boolean Games
Consideration Cash \ 25,000,000 Contingent consideration 3,694,026 Total consideration \ 28,694,026 Recognized amounts of identifiable assets acquired and liabilities assumed Cash and cash equivalents \ 5,533,794 Property, plant and equipment 219,573 Intangible assets 7,963,387 Trade and other receivables 1,566,743 Other assets 23,406 Trade and other payables (151,595) Prepared income (400,000) Retirement benefit obligations (112,433) Deferred tax liabilities (1,749,304) Other liabilities (625,493) Total identifiable net assets 12,268,078 Goodwill 16,425,948 \ 28,694,026
64 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
(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
65 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
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, 2015 and 2014, is as follows:
(in thousands of 2015 Korean won) Other Accumulated comprehensive Non- non-controlling Profit or loss income Accumulated controlling interests at the allocated to allocated to non- Changes in non-controlling interest beginning of the non-controlling controlling shares of interests at the rate (%) year interests interests subsidiaries Others end of the year NEXON Co., Ltd. and its subsidiaries 42.13% \1,234,706,699 \231,176,983 \4,617,064 \139,012,685 \ 2,016,874 \1,611,530,305
(in thousands of 2014 Korean won) Other Accumulated comprehensive Non- non-controlling Profit or loss income Accumulated controlling interests at the allocated to non- allocated to non- Changes in non-controlling interest beginning of the controlling controlling shares of interests at the rate (%) year interests interests subsidiaries Others end of the year NEXON Co., Ltd. and its subsidiaries 37.11% \1,244,672,136 \104,204,629 \(69,300,351) \(74,328,383) \29,458,668 \1,234,706,699
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, 2015 and 2014, are as follows:
(In thousands of Korean won) NEXON Co., Ltd. and its subsidiaries 2015 2014
Current assets \ 3,210,731,184 \ 2,350,872,005 Non-current assets 907,875,327 1,632,150,884 Current liabilities 357,052,786 512,072,897 Non-current liabilities 91,405,639 318,142,954 Equity 3,670,148,086 3,152,807,038 Equity attributable to owners of the Parent 3,555,781,331 3,035,921,838 Equity attributable to non-controlling interests 114,366,755 116,885,200
66 NXC Corporation and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2015 and 2014
Sales, profit (loss) from continuing and discontinued operations, and comprehensive income for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) NEXON Co., Ltd. and its subsidiaries 2015 2014
Sales \ 1,791,254,208 \ 1,737,108,803 Profit for the year 593,474,004 300,477,133 Other comprehensive income(loss) 12,359,134 (188,602,348) Total comprehensive income 605,833,138 111,874,785 Profit attributable to owners of the Parent 601,574,402 111,031,043 Profit attributable to non-controlling interests 4,258,736 843,742
Summarized cash flows activities for the years ended December 31, 2015 and 2014, are as follows:
(In thousands of Korean won) NEXON Co., Ltd. and its subsidiaries 2015 2014
Cash flows from operating activities \ 560,815,142 \ 577,233,399 Cash flows from investing activities 525,946,000 (614,001,448) Cash flows from financing activities (332,273,089) (268,666,324) Exchange gains (losses) on cash and cash equivalents 53,485,218 (10,778,295) Net (decrease)/increase in cash and cash equivalents 807,973,271 (316,212,668) Cash and cash equivalents at beginning of year 1,072,216,170 1,388,428,838 Cash and cash equivalents at end of year \ 1,880,189,441 \ 1,072,216,170
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, 2015 and 2014:
(In thousands of Korean won) 2015 2014
Stock options exercised by employee \ (5,994,282) \ (4,646,258) Acquisition of additional interests in a subsidiary and disposal of interests in a subsidiary without loss of control 84,811,809 16,208,983 Net effect on parent’s equity \ 78,817,527 \ 11,562,725
41. Events after the Reporting Period
The Group established a wholly owned subsidiary of Nexon US Holdings Inc. which had 100% subsidiary of Blast Acquisition Sub Inc. in February 2016. The Group entered into merger agreement between Blast Acquisition Sub Inc. and Big Huuge Games, Inc. in March 2016. Big Huge Games Inc. will be remained as surviving entity as 100% subsidiary of Nexon US Holdings Inc. after merger.
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