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iMarketKorea Inc. andSubsidiariesConsolidated Financial StatementsDecember 31, 2012 and 2011
iMarketKorea Inc. and subsidiariesIndexDecember 31, 2012 and 2011
Page(s)
Report of Independent Auditors……..…………………………………………........................... 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 - 8
Notes to consolidated Financial Statements...........…………………............................................. 9 - 54
Samil PricewaterhouseCoopers, LS Yongsan Tower, 191, Hangangno 2-ga, Yongsan-gu,Seoul 140-702, Korea (Yongsan P.O Box 266, 140-600), www.samil.com
Samil PricewaterhouseCoopers is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). “PricewaterhouseCoopers” and “PwC” refer to the networkof member firms of PwCIL. Each member firm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.
Report of Independent Auditors
To the Board of Directors and Shareholders of
iMarketKorea Inc.
We have audited the accompanying consolidated statements of financial position of iMarketKorea Inc. andits subsidiaries (the “Group”) as of December 31, 2012 and 2011, and the related consolidated statementsof comprehensive income, changes in equity and cash flows for the years then ended, expressed inKorean won. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic ofKorea. Those standards require that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of iMarketKorea Inc. and its subsidiaries as of December 31, 2012 and2011, and their financial performance and cash flows for the years then ended, in conformity withInternational Financial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”).
2
Auditing standards and their application in practice vary among countries. The procedures and practicesused in the Republic of Korea to audit such financial statements may differ from those generally acceptedand applied in other countries. Accordingly, this report is for use by those who are informed about Koreanauditing standards and their application in practice.
Seoul, Korea
March 7, 2013
This report is effective as of March 7, 2013, 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.
iMarketKorea Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011
3
(in Korean won) Notes 2012 2011
Assets
Current Assets
Cash and cash equivalents 5,7 12,352,201,563 66,669,327,601
Trade receivables 4,5,6,9,35 594,254,902,812 439,321,317,639
Other receivables 4,5,9 5,011,543,089 4,073,298,694
Other financial assets 4,5,10 403,862,332 271,164,086
Inventories 11 22,914,711,983 12,321,023,084
Other current assets 12 1,701,109,125 28,213,371,266
Total current assets 636,638,330,904 550,869,502,370
Non-current assets
Other receivables 4,5,9 2,011,321,235 1,648,362,145
Other financial assets 4,5,8,10 341,000,000 11,000,000
Property and equipment 13 12,327,966,800 5,133,050,429
Intangible assets 14 31,144,540,532 5,597,741,439Investments in associates 15,34 327,374,658 -Deferred income tax assets 32 537,783,732 147,804,042
Total non-current assets 46,689,986,957 12,537,958,055
Total assets 683,328,317,861 563,407,460,425
iMarketKorea Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011
The accompanying notes are an integral part of these consolidated financial statements.
4
(in Korean won) Notes 2012 2011
Liabilities
Current liabilities
Trade payables 5,16,35 341,250,756,032 258,967,807,657
Other payables 5,16 5,415,659,382 2,863,394,416
Other financial liabilities 5,17 25,987,083 502,377,756
Current income tax liabilities 32 7,294,689,833 5,845,086,248
Borrowings 4,5,18 956,281,920 -
Provisions for liabilities and charges 21 542,185,797 -
Other current liabilities 19 4,110,959,099 6,253,946,860
Total current liabilities 359,596,519,146 274,432,612,937
Non-current liabilities
Borrowings 4,5,18 5,069,423,271 -
Retirement benefit obligation 20 2,618,944,647 1,521,587,716
Deferred income tax liabilities 32 668,366 -
Total non-current liabilities 7,689,036,284 1,521,587,716
Total liabilities 367,285,555,430 275,954,200,653
Equity
Capital stock 24 18,166,670,000 18,166,670,000
Capital surplus 24 134,652,554,025 134,652,554,025Accumulated other comprehensiveincome 25 (39,736,497) -
Other components of equity 25 (16,800,000) (16,800,000)
Retained earnings 26 165,080,384,502 134,650,835,747
Equity attributable to owners of theparent 317,843,072,030 287,453,259,772
Non-controlling interest (1,800,309,599) -
Total equity 316,042,762,431 287,453,259,772
Total liabilities and equity 683,328,317,861 563,407,460,425
iMarketKorea Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2012 and 2011
The accompanying notes are an integral part of these consolidated financial statements.
5
(in Korean won) Notes 2012 2011
Revenue 35 2,045,538,123,409 1,682,327,248,636
Cost of sales 35 (1,944,724,338,384) (1,598,664,373,026)
Gross profit 100,813,785,025 83,662,875,610
Selling and administrative expenses 29 (53,498,909,742) (42,401,372,321)
Operating profit 47,314,875,283 41,261,503,289
Other income 30 13,409,298,795 16,366,088,411
Other expenses 30 (11,730,765,138) (15,119,519,518)
Finance income 31 2,560,449,085 3,028,251,448
Finance costs 31 (314,312) (1,007,021)
Share of loss of associates 15 (170,625,342) -
Profit before income tax 51,382,918,371 45,535,316,609
Income tax expense 32 (12,820,297,345) (11,006,379,450)
Profit for the year 38,562,621,026 34,528,937,159
Other comprehensive income for the year,net of tax 20,25 (986,140,768) (1,163,560,015)
Total comprehensive income for the year 37,576,480,258 33,365,377,144
Profit attributable to:
Owners of the parent company 38,562,621,026 34,528,937,159
Non-controlling interest - -
Total comprehensive income attributable to:
Owners of the parent company 37,576,480,258 33,365,377,144
Non-controlling interest - -
Earnings per share attributable to the equityholders of the Company during the year
Basic earnings per share 33 1,073 961
Diluted earnings per share 33 1,073 961
iMarketKorea Inc. and SubsidiariesConsolidated Statements of Changes in EquityYears Ended December 31, 2012 and 2011
The accompanying notes are an integral part of these consolidated financial statements.
6
Attributable to owners of the parent company
(in Korean won)Capitalstock
Capitalsurplus
Accumulated othercomprehensive
income
Othercomponents of
equityRetainedearnings
Non-controllinginterest Total
Balance at January 1,2011 18,166,670,000 134,652,554,025 - (16,800,000) 108,472,126,603 - 261,274,550,628
Comprehensive income
Profit for the year - - - - 34,528,937,159 - 34,528,937,159Actuarial losses on
retirement benefitobligations - - - - (1,163,560,015) - (1,163,560,015)
Transactions with equityholders of theCompany
Dividends to equity holdersof the Company - - - - (7,186,668,000) - (7,186,668,000)
Balance at December 31,2011 18,166,670,000 134,652,554,025 - (16,800,000) 134,650,835,747 - 287,453,259,772
Balance at January 1,2012 18,166,670,000 134,652,554,025 - (16,800,000) 134,650,835,747 - 287,453,259,772
Comprehensive income
Profit for the year - - - - 38,562,621,026 - 38,562,621,026Actuarial losses on
retirement benefitobligations - - - - (946,404,271) - (946,404,271)
Currency translationdifferences - - (39,736,497) - - - (39,736,497)
Transactions with equityholders of theCompany
Dividends to equity holdersof the Company - - - - (7,186,668,000) - (7,186,668,000)
Effect of changes in scopeof subsidiaries - - - (1,800,309,599) (1,800,309,599)
Balance at December 31,2012 18,166,670,000 134,652,554,025 (39,736,497) (16,800,000) 165,080,384,502 (1,800,309,599) 316,042,762,431
iMarketKorea Inc. and SubsidiariesConsolidated Statements of Cash FlowsYears Ended December 31, 2012 and 2011
7
(in Korean won) 2012 2011
Cash flows from operating activities
Profit for the year 38,562,621,026 34,528,937,159
Adjustments to reconcile profit for the year
Income tax expense 12,820,297,345 11,006,379,450
Interest income (2,560,449,085) (3,028,251,448)
Interest expense 314,312 1,007,021
Depreciation 1,562,631,278 948,822,740
Amortization 2,361,637,423 841,863,031
Loss on disposal of property and equipment 5,458,000 4,344,931
Severance benefits 2,072,750,335 1,608,411,680
Loss on disposal of trade receivables 13,309,661 429,205
Bad debts expense 301,902,823 (75,844,673)
Other bad debts expense 217,810,001 558,500,076
Loss on foreign currency translation 350,184,388 105,982,749
Loss on valuation of forward exchange contracts 25,987,083 502,377,756
Provisions for liabilities and charges 542,185,797 -
Loss on valuation of short-term investments - 13,193,460
Share of loss of associates 170,625,342 -
Gain on foreign currency translation (3,399,807) (400,505,741)
Gain on disposal of short-term investments (9,100,149) -
Gain on valuation of forward exchange contracts (403,862,332) (250,997,506)
Gain on disposal of property and equipment (10,271,727) (4,778,490)
Changes in operating assets and liabilities
Decrease (increase) in trade receivables (157,058,337,855) 10,698,559,611
Decrease in other financial assets 250,997,506 300,290,840
Increase in inventories (10,267,385,432) (6,449,976,358)
Decrease (increase) in other assets 4,755,011,635 (18,841,901,951)
Increase (decrease) in trade payables 81,802,770,842 (23,350,408,636)
Decrease in other financial liabilities (502,377,756) (149,674,572)
Decrease in other liabilities (737,075,851) (476,212,841)
Payment of retirement benefits (674,610,244) (654,010,079)
Increase in pension plan assets (1,721,823,654) (1,376,299,048)
Cash generated from operations (28,132,199,095) 6,060,238,366
Interest received 2,509,539,995 3,101,893,822
Interest paid (314,312) (1,007,021)
Income tax paid (11,457,854,908) (11,053,336,134)
Net cash used in operating activities (37,080,828,320) (1,892,210,967)
iMarketKorea Inc. and SubsidiariesConsolidated Statements of Cash FlowsYears Ended December 31, 2012 and 2011
The accompanying notes are an integral part of these consolidated financial statements.
8
(in Korean won) 2012 2011
Cash flows from investing activities
Disposal of short-term investments 29,266,729 -
Acquisition of property and equipment (4,444,513,736) (3,824,781,146)
Proceeds from disposal of property and equipment 10,272,727 55,373,637
Acquisition of intangible assets (2,409,252,316) (2,453,931,700)
Increase in guarantee deposits (945,036,579) (65,649,300)
Decrease in guarantee deposits 90,190,000 30,100,000
Acquisition of investments of associates (498,000,000) -
Acquisition of investments in subsidiaries (1,531,851,543) -
Acquisition of available-for-sale financial assets (330,000,000) -
Net cash used in investing activities (10,028,924,718) (6,258,888,509)
Cash flows from financing activities
Increase in guarantee deposits received 89,295,000 -
Decrease in guarantee deposits received (110,000,000) (22,526,913)
Dividends paid to shareholders (7,186,668,000) (7,186,668,000)
Net cash used in financing activities (7,207,373,000) (7,209,194,913)
Net decrease in cash and cash equivalents (54,317,126,038) (15,360,294,389)
Cash and cash equivalents at the beginning of year 66,669,327,601 82,029,621,990
Cash and cash equivalents at the end of year 12,352,201,563 66,669,327,601
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
9
1. General Information
iMarketKorea Inc. (the “Company”) and its subsidiaries (collectively referred to as ‘the Group’) wasincorporated on December 8, 2000, under the Commercial Code of the Republic of Korea primarilyto operate in the internet distribution business of Maintenance, Repair and Operating supplies(MRO), internet auctions, advertising and internet business development consulting. The Company’soperations are headquartered in Samsung-dong, Gangnam-gu, Seoul.
The Group listed its shares on the Korea Exchange on July 30, 2010. As of December 31, 2012, thepaid-in capital is ₩18,167 million, and the Company’s shareholders are Interpark. Co., Ltd.(36.98%), Samsung associates, including Samsung Electronics Co., Ltd. (10.08%), and others(52.94%).
In 2012, the Company established iMarketAmerica, Inc., its 100% foreign subsidiary in the UnitedStates of America, and acquired majority shares issued by Koreit, Inc. These acquisitions wereaccounted for by the purchase method, and accordingly, results of operations have been included inthe accompanying consolidated financial statements from their respective dates of acquisition inaccordance with Act on External Audit of Stock Companies.
The Company’s consolidated subsidiaries as of December 31, 2012, are as follows:
Percentage of
ownership (%)
December 31, 2012 Location
Closing
month Main business
iMarketAmerica, Inc. 100.0 America December MRO business
Koreit, Inc. 53.7 Korea December Manufacture security clean paper
The Group has invested newly in iMarketAmerica, Inc.and Koreit, Inc during the year endedDecember 31, 2012.
Summary of the subsidiaries financial information as of and for the years ended December 31, 2012and 2011, is as follows:
(in thousands of Korean won) iMarketAmerica, Inc. Koreit, Inc.
Assets \ 1,128,957 \ 5,551,098
Liabilities 48,129 9,435,377
Equity 1,080,828 (3,884,279)
Sales 298,182 4,238,478
Net income (loss) 10,144 (1,755,790)
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
10
2. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financialstatements are set out below. These policies have been consistently applied to all the periodspresented, unless otherwise stated.
2.1 Basis of Preparation
The Group maintains its accounting records in Korean won and prepares statutory financialstatements in the Korean language (Hangul) in accordance with the International FinancialReporting Standards as adopted by the Republic of Korea (“Korean IFRS”). The accompanyingconsolidated financial statements have been condensed, restructured and translated into Englishfrom the Korean language financial statements.
Certain information attached to the Korean language financial statements, but not required for a fairpresentation of the Group's financial position, financial performance or cash flows, is not presentedin the accompanying consolidated financial statements.
The Group’s financial statements for the annual period beginning on January 1, 2011, have beenprepared in accordance with Korean IFRS. These are the standards, subsequent amendments andrelated interpretations issued by the International Accounting Standards Board ("IASB") that havebeen adopted by the Republic of Korea.
The preparation of the consolidated financial statements requires the use of certain criticalaccounting estimates. It also requires management to exercise judgment in the process of applyingthe Group’s accounting policies. The areas involving a higher degree of judgment or complexity, orareas where assumptions and estimates are significant to the consolidated financial statements aredisclosed in Note 3.
2.1.1 Changes in Accounting Policy and Disclosures
(a) New and amended standards adopted by the Group
The Group changed its accounting policy to present the operating income after deducting cost ofsales, and selling and administrative expenses from revenue, in accordance with the amendment ofKorean IFRS 1001, Presentation of Financial Statements.
The Group applies the accounting policy retroactively in accordance with the amended standardsand the comparative consolidated statement of the comprehensive income is restated by reflectingadjustments resulting from the retrospective application. As a result of the changes in the accountingpolicy, other income and expenses of \13,409 million and \11,731 million, respectively, for the
year ended December 31, 2012 (2011: \16,366 million and \15,120 million, respectively), whichinclude gain or loss on disposal of property and equipment, gain or loss on foreign currencytransaction and others, classified as operating income under the previous standard, were excludedfrom operating income. Consequently, operating income for the years ended December 31, 2012and 2011, was lower by\1,678 million and \1,246 million, respectively, as compared to theamounts under the previous standard. However, there is no material impact on net income andearnings per share for the years ended December 31, 2012 and 2011.
(b) New standards and interpretations not yet adopted
New standards, amendments and interpretations issued but not effective for the financial yearbeginning January 1, 2012, and not early adopted by the Group are as follows:
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
11
- Amendment of Korean IFRS 1001, Presentation of Financial Statements
Korean-IFRS 1001, Presentation of Financial Statements, requires other comprehensive incomeitems to be presented into two groups on the basis of whether they are potentially reclassifiable toprofit or loss subsequently. This is effective for annual periods beginning on or after July 1, 2012,with early adoption permitted. The Group expects that the application of this amendment would nothave a material impact on its consolidated financial statements.
- Amendments to Korean IFRS 1019, Employee Benefits
According to the amendments to Korean IFRS 1019, Employee Benefits, the use of a ‘corridor’approach is no longer permitted, and therefore all actuarial gains and losses incurred areimmediately recognized in other comprehensive income. All past service costs incurred fromchanges in pension plan are immediately recognized, and expected returns on interest costs andplan assets that used to be separately calculated are now changed to calculating net interestexpense (income) by applying discount rate used in measuring defined benefit obligation in netdefined benefit liabilities (assets). This amendment will be effective for annual periods beginning onor after January 1, 2013, and the Group is assessing the impact of application of the amendedKorean IFRS 1019 on its consolidated financial statements.
- Enactment of Korean IFRS 1110, Consolidated Financial StatementsKorean IFRS 1110, Consolidated Financial Statements, builds on existing principles by identifyingthe concept of control as the determining factor in whether an entity should be included in theconsolidated financial statements of the Parent Company. An investor controls an investee when it isexposed, or has rights, to variable returns from its involvement with the investee and has the abilityto affect those returns through its power over the investee. The standard provides additionalguidance to assist in the determination of control where this is difficult to assess. This enactment willbe effective for annual periods beginning on or after January 1, 2013, and The Group expects thatthe application of this enactment would not have a material impact on its consolidated financialstatements.
- Enactment of Korean IFRS 1112, Disclosures of Interests in Other EntitiesKorean IFRS 1112, Disclosures of Interests in Other Entities, provides the disclosure requirementsfor all forms of interests in other entities, including a subsidiary, a joint arrangement, an associate, aconsolidated structured entity and an unconsolidated structured entity. This enactment will beeffective for annual periods beginning on or after January 1, 2013, and the Group is reviewing theimpact of this standard.
- Enactment of Korean IFRS 1113, Fair Value Measurement
Korean IFRS 1113, Fair Value Measurement, aims to improve consistency and reduce complexityby providing a precise definition of fair value and a single source of fair value measurement anddisclosure requirements for use across Korean IFRSs. Korean IFRS 1113 does not extend the useof fair value accounting but provides guidance on how it should be applied where its use is alreadyrequired or permitted by other standards within the Korean IFRSs. This amendment will be effectivefor annual periods beginning on or after January 1, 2013, and the Group expects that the applicationof this enactment would not have a material impact on its consolidated financial statements.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
12
2.2 Consolidation
The Group has prepared the consolidated financial statements in accordance with Korean IFRS1027,Consolidated and Separate Financial Statements.
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Company has thepower to govern the financial and operating policies generally accompanying a shareholding of morethan one-half of the voting rights. The existence and effect of potential voting rights that are currentlyexercisable or convertible are considered when assessing whether the Company controls anotherentity. The Group also assesses the existence of control where it does not have more than 50% ofthe voting power but is able to govern the financial and operating policies by virtue of de-factocontrol.
Subsidiaries are fully consolidated from the date on which control is transferred to the Company.They are de-consolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The considerationtransferred for the acquisition of a subsidiary is measured as the fair values of the assets transferred,the liabilities incurred to the former owners of the acquiree and the equity interests issued by theCompany. The consideration transferred includes the fair value of any asset or liability resulting froma contingent consideration arrangement. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at their fair values at theacquisition date. The Group recognizes any non-controlling interest in the acquiree on anacquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionateshare of the recognized amounts of acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’spreviously held equity interest in the acquiree is remeasured to fair value at the acquisition date andthe resulting gain or loss is recognized in profit or loss.
Any contingent consideration to be transferred by the Group is recognized at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration that isdeemed to be an asset or liability is recognized in accordance with Korean IFRS 1039, either in profitor loss or as a change to other comprehensive income. Contingent consideration that is classified asequity is not remeasured, and its subsequent settlement is accounted for within equity.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and thefair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed.If this consideration is lower than the fair value of the net assets of the subsidiary acquired, thedifference is recognized in profit or loss.
Intercompany transactions, balances, income and expenses on transactions between the Groupcompanies are eliminated. Unrealized losses are also eliminated after recognizing impairment oftransferred assets. Accounting policies of subsidiaries have been changed where necessary toensure consistency with the policies adopted by the Group.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
13
(b) Associates
Associates are all entities over which the Group has significant influence but not control, generallyaccompanying a shareholding of between 20% and 50% of the voting rights. Investments inassociates are accounted for using the equity method of accounting. Under the equity method, theinvestment is initially recognized at cost, and the carrying amount is increased or decreased torecognize the investor’s share of the profit or loss of the investee after the date of acquisition. TheGroup’s investment in associates includes goodwill identified on acquisition, net of any accumulatedimpairment loss.
If the ownership interest in an associate is reduced but significant influence is retained, only aproportionate share of the amounts previously recognized in other comprehensive income isreclassified to profit or loss where appropriate.
The Group’s share of post-acquisition profit or loss is recognized in profit or loss, and its share ofpost-acquisition movements in other comprehensive income is recognized in other comprehensiveincome with a corresponding adjustment to the carrying amount of the investment. When theGroup’s share of losses in an associate equals or exceeds its interest in the associate, including anyother unsecured receivables, the Group does not recognize further losses, unless it has incurredlegal or constructive obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that theinvestment in the associate is impaired. If this is the case, the Group calculates the amount ofimpairment as the difference between the recoverable amount of the associate and its carrying valueand recognizes the amount as ‘impairment loss on investment in an associate’ in the statement ofincome.
Unrealized gains on transactions between the Group and its associates are eliminated to the extentof the Group’s interest in the associates. Unrealized losses are also eliminated unless thetransaction provides evidence of an impairment of the asset transferred. Accounting policies ofassociates have been changed where necessary to ensure consistency with the policies adopted bythe Group. Dilution gains and losses arising in investments in associates are recognized in profit orloss.
2.3 Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to thechief operating decision-maker. The chief operating decision-maker is responsible for allocatingresources, and assessing performance of the operating segments. The Group has a single operatingsegment.
Samsung Electronics Co., Ltd. takes more than 10% of its sales which amounted to \ 583,327
million (2011:\ 561,993 million) for the year ended December 31, 2012.
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 thecurrency of the primary economic environment in which the entity operates ‘the functional currency’.The consolidated financial statements are presented in Korean won.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
14
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange ratesprevailing at the dates of the transactions or valuation where items are re-measured. Foreignexchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognized in profit or loss, except when deferred in other comprehensive income asqualifying cash flow hedges and qualifying net investment hedges.
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents arepresented in the consolidated statement of comprehensive income within ‘finance income or costs’.All other foreign exchange gains and losses are presented in the consolidated statement ofcomprehensive income within ‘other income and expenses’.
Translation differences on non-monetary financial assets and liabilities such as equities held at fairvalue through profit or loss are recognized in profit or loss as part of the fair value gain or loss.Translation differences on non-monetary financial assets, such as equities classified asavailable-for-sale, are included in other comprehensive income.
(c) Translation into the presentation currency
The results and financial position of all Group entities that have a functional currency different fromthe presentation currency are translated into the presentation currency as follows:
assets and liabilities for each statement of financial position presented are translated at theclosing rate at the end of the reporting period;
income and expenses for each statement of income are translated at average exchangerates; and
all resulting exchange differences are recognized in other comprehensive income.
Exchange differences arising from the translation of borrowings designated for hedging theinvestment and other currency instruments are recognized in other comprehensive income. Whenforeign operations are wholly or partially sold, exchange differences recognized in equity aretransferred to profit or loss in the statement of income. When the Company ceases to control thesubsidiary, exchange differences that were recorded in equity are recognized in the statement ofincome as part of the gain or loss on sale.
2.5 Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits in banks, and other short-term highlyliquid investments with original maturities of three months or less.
2.6 Financial Instruments
2.6.1 Classification
The Company classifies its financial assets and liabilities in the following categories: at fair valuethrough profit or loss, loans and receivables, available-for-sale, held-to-maturity and other financialliabilities at amortized cost. The classification depends on the purpose for which the financial assetswere acquired and the nature of the assets. Management determines the classification of its financialinstruments at initial recognition.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
15
(a) Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities at fair value through profit or loss are financial instruments held fortrading. Financial assets and liabilities are classified in this category if acquired or incurredprincipally for the purpose of selling or repurchasing it in the short term. Derivatives that are notsubject to hedge accounting and financial instruments having embedded derivatives are alsoincluded in this category.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. They are included in current assets, except for maturitiesgreater than 12 months after the end of the reporting period. These are classified as non-currentassets. The Company’s loans and receivables comprise ‘cash and cash equivalents’, ‘trade andother receivables’, and ‘other financial assets’ in the consolidated statement of financial position.
(c) Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinablepayments and fixed maturities that the Group intends and is able to hold to maturity and areclassified as ‘other financial assets’ in the statements of financial position. If the Group were to sellother than an insignificant amounts of held-to-maturity investments, the whole category would betainted and reclassified as available-for-sale. Held-to-maturity investments are included innon-current assets, except for those with maturities of less than 12 months after the end of thereporting period, which are classified as current assets.
(d) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category ornot classified in any of the other categories. They are included in non-current assets unless theinvestment matures or management intends to dispose of it within 12 months after the end of thereporting period.
(e) Financial liabilities measured at amortized cost
The Group classifies non-derivative financial liabilities as financial liabilities measured at amortizedcost, except for financial liabilities at fair value through profit or loss or financial liabilities that arisewhen a transfer of a financial guarantee contracts and financial asset does not qualify forderecognition. They are classified as ‘trade payables’ and ‘other payables’ in the consolidatedstatement of financial position. Financial liabilities measured at amortized cost are included innon-current liabilities except for maturities less than 12 months after the end of the reporting period,which are classified as current liabilities.
2.6.2 Recognition and Measurement
Regular purchases and sales of financial assets are recognized on the trade date. Investments areinitially recognized at fair value plus transaction costs for all financial assets not carried at fair valuethrough profit or loss. Financial assets carried at fair value through profit or loss are initiallyrecognized at fair value, and transaction costs are expensed in the statement of income.Available-for-sale financial assets and financial assets at fair value through profit or loss aresubsequently carried at fair value. Loans and receivables, and held-to-maturity investments aresubsequently carried at amortized cost using the effective interest rate method.
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December 31, 2012 and 2011
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Gains or losses arising from changes in the fair value of the financial assets carried at fair valuethrough profit or loss, including interest income, are presented in the consolidated statement ofcomprehensive income within ‘other income’ in the period in which they arise. Dividend income fromfinancial assets at fair value through profit or loss is recognized in the statement of comprehensiveincome as part of ‘other income’ when the Group’s right to receive dividend payments is established.
Interest on available-for-sale and held-to-maturity securities calculated using the effective interestmethod is recognized in the consolidated statement of comprehensive income as part of ‘otherincome’. Dividends on available-for-sale equity instruments are recognized in the statement ofcomprehensive income as part of ‘other income’ when the Group’s right to receive dividendpayments is established.
2.6.3 Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the statement ofconsolidated financial position when there is a legally enforceable right to offset the recognizedamounts and there is an intention to settle on a net basis or realize the asset and settle the liabilitysimultaneously.
2.6.4 Derecognition
Financial assets are derecognized when the contractual rights to receive cash flows from theinvestments have expired or have been transferred and the Company has substantially transferredall risks and rewards of ownership. If the risks and rewards of ownership of transferred assets havenot been substantially transferred, the Company reviews the level of control retained over that assetand the extent of its continuing involvement to determine if transfers do not qualify for derecognition.
2.7 Impairment of Financial Assets
(a) Assets carried at amortized cost
The Group assesses at the end of each reporting period whether there is objective evidence that afinancial asset or a group of financial assets is impaired. A financial asset or a group of financialassets is impaired and impairment losses are incurred only if there is objective evidence ofimpairment 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 thefinancial asset or a group of financial assets that can be reliably estimated.
The criteria that the Group uses to determine that there is objective evidence of an impairment lossinclude:
Significant financial difficulty of the issuer or obligor; Delinquency in interest or principal payments for more than three months; For economic or legal reasons relating to the borrower’s financial difficulty, granting to the
borrower a concession that the lender would not otherwise consider; It becomes probable that the borrower will undergo bankruptcy or other financial
reorganization; The disappearance of an active market for that financial asset because of financial
difficulties; or Observable data suggesting that there is a measurable decrease in the estimated future
cash flows from a portfolio of financial assets since the initial recognition of those assets,even though the decrease cannot be identified with respect to individual financial assets inthe portfolio, such as:
(i) adverse changes in the payment status of borrowers in the portfolio;
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(ii) national or local economic conditions that correlate with defaults on the assets in theportfolio.
Impairment loss is measured as the difference between the assets’ carrying amount and the presentvalue of estimated future cash flows (excluding future credit losses that have not been incurred)discounted at the financial asset’s original effective interest rate. The carrying amount of the asset isreduced by the impairment loss amount and the amount of the loss is recognized in the statement ofincome. If a financial asset has a variable interest rate, the discount rate for measuring anyimpairment loss is the current effective interest rate determined under the contract. In practice, theGroup may measure impairment loss based on the fair value of financial asset using an observablemarket price.
If, in a subsequent period, the amount of impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized (for example, animprovement in debtor’s credit rating), the reversal of the previously recognized impairment loss isrecognized in the statement of income.
(b) Assets classified as available-for-sale
The Group assesses at the end of each reporting period whether there is objective evidence that afinancial asset or a group of financial assets is impaired. For debt securities, the Group uses thecriteria referred to in (a) above. In the case of equity investments classified as available-for-sale, asignificant or prolonged decline in the fair value of the security below its cost, for example decreasein fair value of the investments by more than 30% from its cost for more than six months, is alsoevidence that the asset is impaired. If any such evidence exists for available-for-sale financial assets,the cumulative loss – measured as the difference between the acquisition cost and the current fairvalue, less any impairment loss on that financial asset previously recognized in profit or loss – isremoved from equity and recognized in the statement of income. Impairment losses recognized inthe consolidated statement of income on equity instruments are not reversed through the statementof income. If, in a subsequent period, the fair value of a debt instrument classified asavailable-for-sale increases and the increase can be objectively related to an event occurring afterthe impairment loss was recognized in profit or loss, the impairment loss is reversed through thestatement of income.
2.8 Derivative Financial Instruments and Hedging Activities
Derivatives are initially recognized at fair value on the date a derivative contract is entered into andare subsequently re-measured at their fair value. The method of recognizing the resulting gain orloss depends on whether the derivative is designated as a hedging instrument, and if so, the natureof the item being hedged. The resulting gain or loss is recognized in 'other income and expenses'according to the nature of transactions.
The Group documents at the inception of the transaction the relationship between hedginginstruments and hedged items, as well as its risk management objectives and strategy forundertaking various hedging transactions. The Group also documents its assessment, both at hedgeinception and on an ongoing basis, of whether the derivatives that are used in hedging transactionsare highly effective in offsetting changes in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 4.The full fair value of a hedging derivative is classified as a non-current asset or liability when theremaining hedged item is more than 12 months and as a current asset or liability when the remainingmaturity of the hedged item is less than 12 months.
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(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecorded in the statement of comprehensive income, together with any changes in the fair value ofthe hedged asset or liability that are attributable to the hedged risk. The Group only applies fair valuehedge accounting for hedging trade receivables. The gain or loss relating to the effective portion isrecognized in the consolidated statement of comprehensive income within ‘other income andexpenses’.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carryingamount of a hedged item, on which the effective interest method is used, is amortized to profit or lossover the period to maturity.
2.9 Trade Receivables
Trade receivables are amounts due from customers for merchandise sold or services performed inthe ordinary course of business. If collection is expected in one year or less, they are classified ascurrent assets. If not, they are presented as non-current assets. Trade receivables are recognizedinitially at fair value and subsequently measured at amortized cost using the effective interestmethod, less allowance for doubtful accounts.
2.10 Inventories
Inventories are stated at the lower of cost and net realizable value. Net realizable value is theestimated selling price in the ordinary course of business, less applicable variable selling expenses.The cost of inventories shall comprise all costs of purchase, costs of conversion and other costsincurred in bringing the inventories to their present location and condition.
The costs of inventories are determined using the weighted-average method, except the specificidentification method for goods-in-transit. When inventories are sold, the carrying amount of thoseinventories shall be recognized as cost of sales in the period in which the related revenue isrecognized. The amount of any write-down of inventories to net realizable value and all losses ofinventories shall be recognized as an expense in the period the write-down or loss occurs. Theamount of any reversal of any write-down of inventories, arising from an increase in net realizablevalue, shall be recognized as a reduction in the amount of inventories recognized as an expense inthe period in which the reversal occurs.
2.11 Property and Equipment
All property and equipment are stated at historical cost less depreciation and accumulatedimpairment loss. Historical cost includes expenditures directly attributable to the acquisition of theitems.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item will flowto the Group and the cost of the item can be measured reliably. The carrying amount of the replacedpart is derecognized. All other repairs and maintenance are charged to the statement of incomeduring the financial period in which they are incurred.
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December 31, 2012 and 2011
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Land is not depreciated. Depreciation on other assets is calculated using the straight-line method toallocate the difference between their cost and their residual values over their estimated useful lives,as follows:
Description Estimated useful lives
Buildings 40 years
Machinery 5 years
Facility 5 years
Vehicles 5 years
Equipment and furniture 5 - 7 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end ofeach reporting period. An asset’s carrying amount is written down immediately to its recoverableamount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains andlosses on disposals are determined by comparing the proceeds with the carrying amount and arerecognized within ‘other gains and losses, net’ in the consolidated statement of comprehensiveincome.
2.12 Intangible Assets
(a) Goodwill
Goodwill arising from the acquisition of subsidiaries, associates and business is included inintangible assets. Goodwill is tested annually for impairment and carried at cost less accumulatedimpairment losses. Impairment losses on goodwill are not reversed. Gains and losses on thedisposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill impairment reviews are undertaken annually or more frequently if events or changes incircumstances indicate a potential impairment. The carrying value of goodwill is compared to therecoverable amount based on cash-generating unit (the “CGU”), which is the higher of value in useand the fair value less costs to sell. Any impairment is recognized immediately as an expense and isnot subsequently reversed.
(b) Others
Intangible assets are stated at historical cost less amortization and accumulated impairment loss.Amortization on intangible assets is calculated using the straight-line method beginning when theassets are available for use to allocate their costs assuming the residual value to be zero over theirestimated useful lives, as follows. Membership rights are regarded as intangible assets withindefinite useful life and not amortized because there is no foreseeable limit to the period over whichthe asset is expected to be utilized.
Description Estimated useful lives
Patents 5 years
Trademarks 5 years
Development costs 5 years
Membership rights Indefinite
Others 5 years
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December 31, 2012 and 2011
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The amortization period and the amortization method for an intangible asset with a finite useful lifeshall be reviewed at least at each financial year end. The useful life of an intangible asset that is notbeing amortized shall be reviewed each period to determine whether events and circumstancescontinue to support an indefinite useful life assessment for that asset. If they do not, the change inthe useful life assessment from indefinite to finite shall be accounted for as a change in anaccounting estimate.
2.13 Impairment of Non-financial Assets
Goodwill or intangible assets with indefinite useful lives are not subject to amortization and aretested annually for impairment. Assets that are subject to amortization are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognized for the amount by which the asset’s carrying amountexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value lesscosts to sell and value in use. For the purposes of assessing impairment, assets are grouped at thelowest levels for which there are separately identifiable cash flows (cash-generating units).Non-financial assets, other than goodwill, that suffered an impairment are reviewed for possiblereversal of the impairment at each reporting date.
2.14 Trade Payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinarycourse of business from suppliers. Trade payables are classified as current liabilities if payment isdue within one year or less. If not, they are presented as non-current liabilities. Trade payables arerecognized initially at fair value and subsequently measured at amortized cost using the effectiveinterest method.
2.15 Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings aresubsequently carried at amortized cost; any difference between the proceeds (net of transactioncosts) and the redemption value is recognized in the statement of income over the period of theborrowings using the effective interest method. Borrowings are classified as current liabilities unlessthe Group has an unconditional right to defer the settlement of the borrowings for at least 12 monthsafter the end of the reporting period.
Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities.The dividends on these preference shares are recognized in the consolidated statement ofcomprehensive income as ‘finance costs’.
2.16 Compound Financial Instruments
Compound financial instruments issued by the Group consist of convertible notes that can beconverted to share capital at the option of the holder, and the number of shares to be issued doesnot vary with changes in their fair value.
The liability component of a compound financial instrument is recognized initially at the fair value of asimilar liability that does not have an equity conversion option. The equity component is recognizedinitially at the difference between the fair value of the compound financial instrument as a whole andthe fair value of the liability component. Any directly attributable transaction costs are allocated to theliability and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument ismeasured at amortized cost using the effective interest method. The equity component of acompound financial instrument is not re-measured subsequent to initial recognition except onconversion or expiry.
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December 31, 2012 and 2011
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2.17 Provisions
Provisions are recognized when: the Group has a present legal or constructive obligation as a resultof past events; it is probable that an outflow of resources will be required to settle the obligation; andthe amount has been reliably estimated. Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settlethe obligation using a pre-tax rate that reflects current market assessments of the time value ofmoney and the risks specific to the obligation. The increase in the provision due to passage of time isrecognized as interest expense.
2.18 Current and Deferred Income Tax
The tax expense for the period consists of current and deferred tax. Tax is recognized in thestatement of income, except to the extent that it relates to items recognized in other comprehensiveincome or directly in equity. In this case, the tax is also recognized in other comprehensive incomeor directly in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantivelyenacted at the statement of financial position date in the countries where the Group operates andgenerates taxable income. Management periodically evaluates positions taken in tax returns withrespect to situations in which applicable tax regulation is subject to interpretation. It establishesprovisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognized, using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the consolidatedfinancial statements. However, deferred tax assets and liabilities are not recognized if they arisefrom initial recognition of an asset or liability in a transaction other than a business combination thatat the time of the transaction affects neither accounting nor taxable profit or loss. Deferred incometax is determined using tax rates and laws that have been enacted or substantially enacted by thestatement of financial position date and are expected to apply when the related deferred income taxasset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxableprofit will be available against which the temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries andassociates, except for deferred income tax liability where the timing of the reversal of the temporarydifference is controlled by the Group and it is probable that the temporary difference will not reversein the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offsetcurrent tax assets against current tax liabilities and when the deferred income taxes assets andliabilities relate to income taxes levied by the same taxation authority on either the same taxableentity or different taxable entities where there is an intention to settle the balances on a net basis.
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December 31, 2012 and 2011
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2.19 Employee Benefits
(a) Short-term employee benefits
Short-term employee benefits are due to be settled within 12 months after the end of the period inwhich the employees render the employee related service. When an employee has rendered serviceto an entity during an accounting period, the entity shall recognize the undiscounted amount ofshort-term employee benefits expected to be paid in exchange for that service.
(b) Defined benefit liability
The Group operates defined benefit plan. A defined benefit plan is a pension plan that is not adefined contribution plan. Typically defined benefit plans define an amount of pension benefit that anemployee will receive on retirement, usually dependent on one or more factors such as age, years ofservice and compensation. The liability recognized in the statement of financial position in respect ofdefined benefit pension plans is the present value of the defined benefit obligation at the end of thereporting period less the fair value of plan assets, together with adjustments for unrecognizedpast-service costs. The defined benefit obligation is calculated annually by independent actuariesusing the projected unit credit method. The present value of the defined benefit obligation isdetermined by discounting the estimated future cash outflows using interest rates of high-qualitycorporate bonds that are denominated in the currency in which the benefits will be paid, and thathave terms to maturity approximating to the terms of the related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarialassumptions are charged or credited to equity in other comprehensive income in the period in whichthey arise.
(c) Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normalretirement date, or whenever an employee accepts voluntary redundancy in exchange for thesebenefits. The Group recognizes termination benefits when it is demonstrably committed to atermination when the entity has a detailed formal plan to terminate the employment of currentemployees without possibility of withdrawal and in the case of an offer made to encourage voluntaryredundancy.
2.20 Share Capital
Ordinary shares and preferred shares that are not mandatorily redeemable are classified as equity.
Where the Group purchases its own equity share capital (treasury shares), the consideration paid,including any directly attributable incremental costs is deducted from equity attributable to theCompany’s equity holders until the shares are cancelled or reissued. Where such ordinary sharesare subsequently reissued, any consideration received is included in equity attributable to theCompany’s equity holders.
2.21 Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable, and representsamounts receivable for goods and services supplied, stated net of discounts, returns and valueadded taxes.
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December 31, 2012 and 2011
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The Group recognizes revenue when the amount of revenue can be reliably measured; when it isprobable that future economic benefits will flow to the entity; and when specific criteria have beenmet for each of the Group’s activities, as described below. The revenue can be reliably measuredonly when any contingency related to sales is resolved. The Group bases its estimate on historicalresults, taking into consideration the type of customer, the type of transaction and the specifics ofeach arrangement.
(a) Sale of goods
Sale of goods are recognized when products are delivered to the purchaser. Delivery does not occuruntil the products have been shipped to the specified location, the risks of obsolescence and losshave been transferred to the wholesaler, and either the purchaser has accepted the products inaccordance with the sales contract, the acceptance provisions have lapsed or the Group hasobjective evidence that all criteria for acceptance have been satisfied.
(b) 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 recoverableamount and continues unwinding the discount as interest income. Interest income on impaired loanand receivables is recognized using the original effective interest rate.
2.22 Operating Lease
Lease income from operating lease is recognized in income on a straight-line basis over the leaseterm. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease isadded to the carrying amount of the leased asset and recognized as an expense over the lease termon the same basis as the lease income.
2.23 Dividend Distribution
Dividend distribution to the Group’s shareholders is recognized as a liability in the Group’s financialstatements in the period in which the dividends are approved by the Group’s shareholders.
2.24 Approval of Issuance of the Financial Statements
The issuance of the December 31, 2012 financial statements of the Group was approved by theBoard of Directors on January 31, 2013.
2.25 Earnings per Share
Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equityholders of the entity (the numerator) by the weighted average number of ordinary shares outstanding(the denominator) during the period rather by the weighted average number of ordinary sharesoutstanding and weighted average potential ordinary shares for diluted earnings per share. Only ifearnings per share is reduced or loss per share is increased resulting from the assumption thatconvertible instruments are converted, that options or warrants are exercised, or that ordinaryshares are issued upon the satisfaction of specified conditions, potential ordinary shares areconsidered in calculation of diluted earnings per share.
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December 31, 2012 and 2011
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3. Critical Accounting Estimates and Judgments
The Group makes estimates and assumptions concerning the future. The resulting accountingestimates will, by definition, seldom equal the related actual results. Estimations and assumptionsare continuously evaluated with consideration to factors such as events reasonably predictable inthe foreseeable future within the present circumstance according to historical experience. Theestimates and assumptions that have a significant risk of causing a material adjustment to thecarrying 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 in accordance with theaccounting policy. The recoverable amounts of cash-generating units have been determined basedon value-in-use calculations. These calculations require the use of estimates.
(b) Fair value of financial instruments
The fair value of financial instruments that are not traded in an active market is determined by usingvaluation techniques. The Group uses its judgment to select a variety of methods and makeassumptions that are mainly based on market conditions existing at the end of each reporting period.
(c) Income taxes
The Group is operating in numerous countries and the income generated from these operations issubject to income taxes based on tax laws and interpretations of tax authorities in numerousjurisdictions. There are many transactions and calculations for which the ultimate tax determinationis uncertain. The Group recorded, based on its best estimate, current taxes and deferred taxes thatthe Group will be liable in the future for the operating results as of the financial year end. However,the final tax outcome in the future may be different from the amounts that were initially recorded.Such differences will impact the current and deferred income tax assets and liabilities in the period inwhich such determination is made.
(d) Provisions
The Group’s provision amounts are estimated based on historical data.
(e) Defined benefit liability
The present value of the defined benefit liability depends on a number of factors that are determinedon an actuarial basis using a number of assumptions. The assumptions used in determining the netcost (income) for pensions include the discount rate. Any changes in these assumptions will impactthe carrying amount of the defined benefit liability. The Group determines the appropriate discountrate at the end of each year. This is the interest rate that is used to determine the present value ofestimated future cash outflows expected to be required to settle the defined benefit liability. Indetermining the appropriate discount rate, the Group considers the interest rates of high-qualitycorporate bonds that are denominated in the currency in which the pension benefits will be paid, andthat have terms to maturity approximating to the terms of the related pension liability. Other keyassumptions for defined benefit liability are based in part on current market conditions.
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December 31, 2012 and 2011
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4. Financial Risk Management
4.1 Financial Risk Factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fairvalue interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. TheGroup’s overall risk management program focuses on the unpredictability of financial markets andseeks to minimize potential adverse effects on the Group’s financial performance.
Risk management is carried out by a central treasury department (Group treasury) under policiesapproved by the board of directors. The Group treasury identifies, evaluates and hedges financialrisks in close co-operation with the Group’s operating units.
Financial assets subject mainly to the risk management are cash and cash equivalents, tradereceivables, other receivables and other financial assets. Financial liabilities are trade payables,other payables and other financial liabilities.
(a) Market risk
i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from variouscurrency exposures, primarily with respect to the US dollar, Euro and the Japanese yen. Theultimate goal of managing foreign exchange risk is to maximize the corporate value as minimizinguncertainty and profit/loss changes due to changes in foreign exchange rate.
The foreign exchange risk management is performed according to internal management regulationswhich clarify philosophy and strategy of foreign exchange management, concept of exposure,estimation of hedging period and of hedge ratio.
The Group’s financial instruments denominated in major foreign currencies as of December 31, 2012and 2011, are converted into Korean won as follows:
(In thousands of Korean won)
2012 2011
Assets Liabilities Assets Liabilities
USD \ 32,009,511 \ 1,165,766 \ 37,806,269 \ 144,636
EUR 595,033 84,126 1,399,393 44,076
JPY - 2,222,701 - 22,390
As of December 31, 2012 and 2011, based on the assumption that the foreign exchange rate of theKorean won had fluctuated by 10% with all other variables held constant, the summary of analysisof the effects on income before tax would be as follows:
(In thousands of Korean won)
2012 2011
10% increase 10% decrease 10% increase 10% decrease
USD/ \ \ 3,084,375 \ (3,084,375) \ 3,766,163 \ (3,766,163)
EUR/ \ 51,091 (51,091) 135,532 (135,532)
JPY/ \ (222,270) 222,270 (2,239) 2,239
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ii) Cash flow and fair value interest rate risk
The Group’s cash flow interest rate risk arises from long-term borrowings. Borrowings issued atvariable rates expose the Group to cash flow interest rate risk which is partially offset by monetaryassets at variable rates. Also, borrowings at fixed rate expose the Group to fair value interest raterisk.
The Group periodically measured interest rate risk. As of December 31, 2012, if interest rate ofborrowings with variable interest fluctuated by 1% while all other variables held constant, the effectson statement of comprehensive income would be as follows;
(In thousands of Korean won)
1% increase 1% decrease
Borrowings \ (22,021) \ 22,021
iii) Credit risk
Credit risk arises from ordinary investment activities, as well as credit exposures to wholesale andretail customers, including outstanding receivables and committed transactions. The credit quality ofthe customer is evaluated taking into account its financial position, past experience and other factors.Individual credit limits are set based on internal or external ratings in accordance with limits set bythe management. The utilization of credit limits is regularly monitored.
As of December 31, 2012 and 2011, the maximum exposures to credit risk of the Group are asfollows:
2012(in thousands ofKorean won) Gross amount
Accumulatedimpairment
Maximumexposure
Cash and cashequivalents \ 12,318,968 \ - \ 12,318,968
Trade receivables 595,293,000 (1,038,097) 594,254,903
Other receivables 7,704,834 (681,970) 7,022,864
Other financial assets 744,862 - 744,862
2011(in thousands ofKorean won) Gross amount
Accumulatedimpairment
Maximumexposure
Cash and cashequivalents \ 66,636,673 \ - \ 66,636,673
Trade receivables 440,059,436 (738,118) 439,321,318
Other receivables 6,280,161 (558,500) 5,721,661
Other financial assets 282,164 - 282,164
Credit risk can arise from transactions with banks and financial institutions including transactions ofcash and cash equivalents, derivative financial instruments and deposits except cash in hand. TheGroup has internal policy which only permits transaction with high credit rated banks to mitigatecredit risk. Transactions with new financial institutions are monitored by finance department of theGroup.
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December 31, 2012 and 2011
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As of December 31, 2012, financial instruments except for trade receivables have not matured yet.In addition, aging analysis of trade receivables is presented in Note 9.
iv) Liquidity risk
The Group finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it hassufficient cash to meet operational needs while maintaining sufficient headroom on its undrawncommitted borrowing facilities at all times so that the Group does not breach borrowing limits orcovenants (where applicable) on any of its borrowing facilities. Such forecasting takes intoconsideration the Group’s debt financing plans, covenant compliance, compliance with internalstatement of financial position ratio targets and, if applicable external regulatory or legalrequirements – for example, currency restrictions.
Surplus cash held by the operating unit over and above balance required for working capitalmanagement is transferred to the Group treasury. Group treasury invests surplus cash in interest-bearing current accounts, time deposits, money market deposits and marketable securities,choosing instruments with appropriate maturities or sufficient liquidity to provide sufficienthead-room as determined by the above-mentioned forecasts.
The analyses of the Group’s liquidity risk as of December 31, 2012, is as follows:
(in thousands ofKorean won)
Less than 6months
Between 6 monthsand 1 year Total
Forward exchangecontracts (liabilities) \ 25,987 \ - \ 25,987
The details of the Group’s liquidity risk analysis as of December 31, 2012, are as follows:
(in thousands of Korean won)
Less than 6
months
Between 6
months and 1
year
Between 1
and 3 years Over 3 years Total
Borrowings \ 851,484 \ 1,380,845 \ 2,315,086 \ 2,214,642 \ 6,762,057
As of December 31, 2012, periods remained to contracted maturity of all financial liabilities are lessthan one year.
4.2 Capital Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as agoing concern in order to provide returns for shareholders and benefits for other stakeholders and tomaintain an optimal capital structure to reduce the cost of capital. Consistent with others in theindustry, the Group monitors capital on the basis of the debt ratio and net borrowings ratio.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
28
As of December 31, 2012 and 2011, the debt ratio and net borrowings ratio are as follows:
(in thousands of Korean won) 2012 2011
Total debts (A) \ 367,285,555 \ 275,954,201
Total equity (B) 316,042,762 287,453,260
Cash and cash equivalents (C) 12,352,202 66,669,328
Borrowings (D) 6,025,705 -
Debt ratio (A/B) 116.2% 96.0%
Net borrowings ratio ((D-C)/B) -2.0% -23.2%
4.3 Fair Value Estimation
The following table presents the Group’s financial assets and financial liabilities that are measuredat fair value as of December 31, 2012:
(in thousands of Korean won) Level 1 Level 2 Level 3 Total
Assets
Other financial assets
Forward exchange contracts \ - \ 403,862 \ - \ 403,862
Liabilities
Other financial liabilities
Forward exchange contracts \ - \ 25,987 \ - \ 25,987
The following table presents the Group’s assets and liabilities that are measured at fair value as ofDecember 31, 2011:
(in thousands of Korean won) Level 1 Level 2 Level 3 Total
Assets
Other financial assets
Short-term investment assets \ 20,166 \ - \ - \ 20,166
Forward exchange contracts - 250,998 - 250,998
Liabilities
Other financial liabilities
Forward exchange contracts \ - \ 502,378 \ - \ 502,378
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
29
The Group classifies fair value measurements using a fair value hierarchy that reflects thesignificance of the inputs used in measurements.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs, other than quoted prices, that are observable for the asset or liability, eitherdirectly or indirectly.
Level 3: inputs for the asset or liability that are not based on observable market data (that is,unobservable inputs).
The fair value of financial instruments traded in active markets is based on quoted market prices atthe statement of financial position date. A market is regarded as active if quoted prices are readilyand regularly available from an exchange, dealer, broker, an entity within the same industry, pricingservice, or regulatory agency, and those prices represent actual and regularly occurring markettransactions on an arm’s length basis. The quoted market price used for financial assets held by theGroup is the current bid price. These instruments are included in Level 1. Instruments included inLevel 1 consist primarily of KOSPI and KOSDAQ indexes equity investments classified as tradingsecurities or available for sale.
The fair value of financial instruments that are not traded in an active market (for example,over-the-counter derivatives) is determined by using valuation techniques. These valuationtechniques maximize the use of observable market data where they are available and rely as littleas possible on entity specific estimates. If all significant inputs required to fair value an instrumentare observable, the instrument is included in Level 2.
If one or more of the significant inputs is not based on observable market data, the instrument isincluded in Level 3.
Financial instrument measured at cost as available-for-sale financial assets amounting to \ 330million is unlisted equities invested in SVIC 25 new technology project investment cooperative.Because the related projects are in their initial phase of business operation, the range of reasonablefair value estimates is significant and the probabilities of the various estimates cannot bereasonably assessed and therefore these instruments are measured at cost.
The Group does not have any plans to dispose of the above-mentioned equities and derivativeinstruments in the near future. These instruments will be measured at fair value when the Groupcan develop a reliable estimate of the fair value.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
30
5. Financial Instruments by Category
Categorizations of financial assets as of December 31, 2012 and 2011, are as follows:
Assets 2012
(in thousands ofKorean won)
Assets at fairvalue throughprofit or loss
Available-for-salefinancial assets
Loans andreceivables Total
CurrentCash and cash
equivalents \ - \ - \ 12,352,202 \ 12,352,202
Trade receivables - - 594,254,903 594,254,903
Other receivables - - 5,011,543 5,011,543Other financial
assets 403,862 - - 403,862
403,862 - 611,618,648 612,022,510
Non-current
Other receivables - - 2,011,321 2,011,321Other financialassets - 330,000 11,000 341,000
- 330,000 2,022,321 2,352,321
Total \ 403,862 \ 330,000 \ 613,640,969 \ 614,374,831
Liabilities 2012
(in thousands ofKorean won)
Liabilities at fairvalue throughprofit or loss
Other financialliabilities at
amortized cost Total
Current
Trade payables \ - \ 341,250,756 \ 341,250,756
Other payables - 5,415,659 5,415,659Other financial
liabilities 25,987 - 25,987
Borrowings - 956,282 956,282
25,987 347,622,697 347,648,684
Non-current
Borrowings - 5,069,423 5,069,423
Total \ 25,987 \ 352,692,120 \ 352,718,107
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
31
Assets 2011
(in thousands ofKorean won)
Assets at fair valuethrough profit or
lossLoans andreceivables Total
CurrentCash and cash
equivalents \ - \ 66,669,328 \ 66,669,328
Trade receivables - 439,321,318 439,321,318
Other receivables - 4,073,299 4,073,299
Other financial assets 271,164 - 271,164
271,164 510,063,945 510,335,109
Non-current
Other receivables - 1,648,362 1,648,362
Other financial assets - 11,000 11,000
- 1,659,362 1,659,362
Total \ 271,164 \ 511,723,307 \ 511,994,471
Liabilities 2011
(in thousands ofKorean won)
Liabilities at fairvalue throughprofit or loss
Other financialliabilities at
amortized cost Total
Current
Trade payables \ - \ 258,967,808 \ 258,967,808
Other payables - 2,863,394 2,863,394Other financial
liabilities 502,378 - 502,378
Total \ 502,378 \ 261,831,202 \ 262,333,580
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
32
Income and loss of financial instruments by category for the years ended December 31, 2012 and2011, are as follows:
(in thousands of Korean won) 2012 2011
Assets at fair value through profit or loss
Gain on disposal of short-term investments \ 9,100 \ -
Loss on valuation of short-term investments - (13,193)
Valuation gain on forward exchange contracts 403,862 250,998
Realized gain from forward exchange contracts 10,207,149 6,853,299
Loans and receivables
Interest income 2,560,449 3,028,251
Impairment (519,713) (482,655)
Gain (loss) on foreign currency translation (347,044) 296,982
Loss on disposal (13,310) (429)
Other financial liabilities at amortized cost
Interest expense (314) (1,007)
Gain (loss) on foreign currency translation 259 (2,459)
Liabilities at fair value through profit or loss
Valuation loss on forward exchange contracts (25,987) (502,378)
Realized loss from forward exchange contracts (3,626,620) (9,847,484)
6. Transfers of Financial Assets
Trade receivables were transferred to Kookmin Bank and derecognized from the financialstatements amounting to \8,137 million during the year ended December 31, 2012. In relation with
the transaction, loss on disposal amounting to \13 million was recognized at the transfer date.
7. Cash and Cash Equivalents
Cash and cash equivalents, and financial instruments as of December 31, 2012 and 2011, consistof the following:
(in thousands of Korean won) 2012 2011
Cash at banks and in hand \ 33,234 \ 32,655
Short-term bank deposits 12,318,968 66,636,673
\ 12,352,202 \ 66,669,328
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
33
8. Deposits Restricted in Use
Deposits subject to withdrawal restriction as of December 31, 2012 and 2011, consist of thefollowing:
(in thousands ofKorean won)
FinancialInstitutions 2012 2011 Description
Long-terminvestments
Woori Bankand 2 others \ 11,000 \ 11,000
Deposits forchecking accounts
9. Trade and Other Receivables
Trade and other receivables as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Current
Trade receivables \ 595,293,000 \ 440,059,436
Less: allowances for doubtful receivables (1,038,097) (738,118)
Trade receivables ,net 594,254,903 439,321,318
Non-trade receivables 5,006,051 4,465,511
Less: allowances for doubtful receivables (631,970) (558,500)
Non-trade receivables, net 4,374,081 3,907,011
Short-term loans receivable 69,487 10,000
Less: allowances for doubtful receivables (50,000) -
Short-term loans receivable, net 19,487 -
Unearned revenue 74,945 152,288
Deposits 543,030 4,000
599,266,446 443,394,617
Non-current
Deposits 2,011,321 1,648,362
\ 601,277,767 \ 445,042,979
Movements on the Group’s allowances for doubtful receivables for the years ended December 31,2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Beginning balance \ 1,296,619 \ 856,166
Allowances for impairment of receivables 519,713 558,500
Unused amounts reversed - (75,845)Receivables written off during the year asuncollectible (146,265) (42,202)
Acquisition of subsidiaries 50,000 -
Ending balance \ 1,720,067 \ 1,296,619
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
34
The aging analysis of trade and other receivables as of December 31, 2012 and 2011, is as follows:
(in thousands of Korean won) 2012 2011
Receivables not past due \ 586,441,050 \ 431,891,384
Past due but not impaired
Less than 6 months 8,026,051 7,339,562
6 to 12 months 825,899 828,490
\ 595,293,000 \ 440,059,436
The provision for impairment of trade receivables as of December 31, 2012 and 2011, is \ 1,038
million and \ 738 million, respectively.
10. Other Financial Assets
Other financial assets as of December 31, 2012 and 2011, are as follows:
(In thousands of Korean won) 2012 2011
Current
Short-term investments \ - \ 20,166
Forward exchange contracts 403,862 250,998
403,862 271,164
Non-current
Long-term investments 11,000 11,000
Available-for-sale financial assets 330,000 -
341,000 11,000
\ 744,862 \ 282,164
As of December 31, 2012 and 2011, none of the other financial assets is either past due orimpaired.
As of December 31, 2012 and 2011, financial instruments measured at fair value through profit orloss among other financial assets, are as follows:
(In thousands of Korean won) 2012 2011
Short-term investments \ - \ 20,166
Forward exchange contracts 403,862 250,998
\ 403,862 \ 271,164
Changes in financial instruments measured at fair value through profit or loss are presented as cashflows from operating activities regarded as changes in working capital in the the statement of cashflows. Changes in fair value of financial instruments measured at fair value through profit or loss arepresented as other profit or loss in the consolidated statement of comprehensive income.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
35
Changes in available-for-sale financial assets for the year ended December 31, 2012, are asfollows:
(In thousands of Korean won) 2012
Beginning balance \ -
Acquisition 330,000
Ending balance \ 330,000
Details of available-for-sale financial assets for the year ended December 31, 2012, are as follows:
(In thousands of Korean won) 2012
Investment in partnerships \ 330,000
11. Inventories
Inventories as of December 31, 2012 and 2011, are as follows:
(In thousands of Korean won) 2012 2011
Merchandise \ 21,184,488 \ 12,319,973
Finished goods 70,514 -
Raw materials 144,154 -
Work in progress 62,436 -
Goods in transit 1,453,120 1,050
\ 22,914,712 \ 12,321,023
The cost of inventories recognized as cost of sales for the years ended December 31, 2012 and2011, amounted to \ 1,944,724 million and \ 1,598,664 million, respectively.
12. Other Assets
Other assets as of December 31, 2012 and 2011, are as follows:
(In thousands of Korean won) 2012 2011
Current
Advance payments \ 1,263,957 \ 27,798,156
Prepaid expenses 437,152 415,215
\ 1,701,109 \ 28,213,371
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
36
13. Property and Equipment
Changes in property and equipment for the years ended December 31, 2012 and 2011, are asfollows:
2012
(in thousands of Korean won) Land Buildings Machinery Facility Vehicles
Equipmentand
furniture Total
Net book valueat January 1, 2012 \ 29,544 \ 63,503 \ - \ - \ 146,473 \ 4,893,530 \ 5,133,050
Acquisition cost 29,544 78,358 - - 215,302 6,355,459 6,678,663
Accumulated depreciation - (14,855) - - (68,829) (1,461,929) (1,545,613)
Movements 1,739,430 2,290,759 93,978 130,277 123,056 2,817,417 7,194,917
Acquisition of subsidiaries 1,739,430 2,292,718 93,978 130,277 7,598 54,493 4,318,494Additions and capital
expenditures - - - - 162,794 4,281,720 4,444,514
Disposals - - - - (1) (5,458) (5,459)
Depreciation - (1,959) - - (47,335) (1,513,338) (1,562,632)Closing net book amount at
2012 \ 1,768,974 \ 2,354,262 \ 93,978 \ 130,277 \ 269,529 \ 7,710,947 \ 12,327,967
Acquisition cost 1,768,974 2,816,928 764,850 638,137 350,347 10,921,648 17,260,884
Accumulated depreciation - (462,666) (670,872) (507,860) (80,818) (3,210,701) (4,932,917)
2011
(in thousands of Korean won) Land Buildings Vehicles
Equipmentand
furniture Total
Net book valueat January 1, 2011 \ 29,544 \ 65,462 \ 60,526 \ 2,156,500 \ 2,312,032
Acquisition cost 29,544 78,358 132,821 2,722,322 2,963,045
Accumulated depreciation (12,896) (72,295) (565,822) (651,013)
Movements - (1,959) 85,947 2,737,030 2,821,018
Additions and capital expenditures - - 191,644 3,633,137 3,824,781
Disposals - - (54,940) - (54,940)
Depreciation - (1,959) (50,757) (896,107) (948,823)
Closing net book amount at 2011 \ 29,544 \ 63,503 \ 146,473 \ 4,893,530 \ 5,133,050
Acquisition cost 29,544 78,358 215,302 6,355,459 6,678,663
Accumulated depreciation - (14,855) (68,829) (1,461,929) (1,545,613)
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
37
The depreciation has been charged in selling and administrative expenses for the years endedDecember 31, 2012 and 2011.
As of December 31, 2012 and 2011, the value of the Group’s land, as determined by the localgovernment in Korea for property tax assessment purposes, was \ 1,221 million and \15 million,respectively.
14. Intangible Assets
Changes in intangible assets for the years ended December 31, 2012 and 2011, are as follows:
2012
(in thousands ofKorean won) Goodwill
Industrialproperty
rights TrademarksDevelopment
costsMembership
rights
Otherintangible
assets Total
Net book value atJanuary 1, 2012 \ - \ 1,697 \ 2,583 \ 257,033 \ 2,742,256 \ 2,594,172 \ 5,597,741Acquisition ofsubsidiaries 4,080,624 5,603 1,272 38,400 - - 4,125,899
Additions1
- - 2,716 - 1,440,018 22,339,805 23,782,539Amortizationcharge - (1,695) (992) (65,200) - (2,293,751) (2,361,638)
Net book value at2012 \ 4,080,624 \ 5,605 \ 5,579 \ 230,233 \ 4,182,274 \ 22,640,226 \ 31,144,541
1Contains \ 21,373 million of transferred amount from advance payments account to other
intangible assets.
2011
(in thousands of Korean won)
Industrialproperty
rights TrademarksDevelopment
costsMembership
rights
Otherintangible
assets Total
Net book value at January 1,2011 \ 21,887 \ 1,570 \ 43,067 \ 2,716,706 \ 1,202,443 \ 3,985,673
Additions - 1,831 250,000 25,550 2,176,551 2,453,932
Amortization charge (20,190) (818) (36,034) - (784,822) (841,864)
Net book value at 2011 \ 1,697 \ 2,583 \ 257,033 \ 2,742,256 \ 2,594,172 \ 5,597,741
The amortization has been charged to selling and administrative expenses for the years endedDecember 31, 2012 and 2011.
Goodwill impairment reviews are undertaken annually. The impairment loss of goodwill computesrecoverable amounts based on CGUs and this requires the use of accounting estimates.
The recoverable amounts of all CGUs have been determined based on value-in-use calculations.These calculations use after-tax cash flow projections based on estimated business plan approvedby management.
The Group determined estimated total income on its business plan and budgeted gross margin ratebased on past performance and its expectations of market development. The discount rates usedare after-tax and reflect specific risks relating to the relevant operating segments.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
38
15. Associates
Details of associate of the Group as of December 31, 2012, are as follows:
(in thousands of Korean won) 2012
LocationPercentage ofownership (%)
Closingmonth
Acquisitioncost
Net assetsvalue Book value
Aerogel ApplicationGroup Korea 35.0 % December \ 498,000 \ 152,552 \ 327,375
Changes in investments in associate for the year ended December 31, 2012, are as follows:
Summary of financial information of the associates as of and for the year ended December 31, 2012,is as follows:
16. Trade Payables and Other Payables
Trade payables and other payables as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Trade payables \ 341,250,756 \ 258,967,808
Other payables 2,613,462 1,235,127
Accrued expenses 2,567,212 1,372,578
Guarantee deposits received 234,985 255,690
\ 346,666,415 \ 261,831,203
(in thousands of Korean won) 2012
Beginning balance \ -
Acquisition 498,000
Share of loss (170,625)
Ending balance \ 327,375
(in thousands of Korean won) Amount
Assets \ 532,288
Liabilities 96,675
Equity 435,613
Revenues 699,677
Loss (436,643)
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
39
17. Other Financial Liabilities
Other financial liabilities as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Current
Forward exchange contracts \ 25,987 \ 502,378
18. Borrowings
Details of borrowings as of December 31, 2012, are as follows:
Details of bank borrowings as of December 31, 2012, are as follows:
(in thousands of Korean won)
Denominatedcurrency Creditor Latest maturity date Interest rate (%) Amount
Korean won Woori Bank March 6, 2013 7.60 \ 100,000
Korean won Woori Bank March 6, 2013 6.15 540,000
Foreign currency Woori Bank December 26, 2014 5.13 2,202,118
(in thousands of Korean won) 2012
Current
Short-term borrowings \ 956,282
Non-current
Long-term borrowings 2,202,118
Convertible bonds 1,050,637
Redeemable preference shares 1,816,668
5,069,423
\ 6,025,705
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
40
Details of convertible bonds as of December 31, 2012, are as follows:
The fair value of the liability component of the convertible bond, included in non-current borrowings,is calculated using the market interest rate for an equivalent non-convertible bond.
The Group issued 27,073 shares of convertible preferred shares on August 30, 2012. Preferredshareholders can convert preferred shares to common shares three years after the issuance dateuntil the tenth year. Required 1% dividends are paid annually and recorded as interest expenses.
19. Other Liabilities
Other liabilities as of December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Current
Advances from customers \ 2,206,149 \ 175,706
Withholdings 1,904,810 6,078,241
\ 4,110,959 \ 6,253,947
20. Defined Benefit Liability
Defined benefit liability recognized on the statements of financial position as of December 31, 2012and 2011, is as follows:
(in thousands of Korean won) 2012 2011
Present value of funded definedbenefit liability \ 10,686,702 \ 7,820,006
Present value of unfunded definedbenefit liability 172,486 -
Subtotal 10,859,188 7,820,006
Fair value of plan assets (8,240,243) (6,298,418)Liability on the statement of financial
position \ 2,618,945 \ 1,521,588
Changes in the carrying amount of defined benefit obligations for the years ended December 31,2012 and 2011, are as follows:
(in Korean won) Description
Par value \ 1,090,200,000
Issued value 1,090,200,000
Issued date August 30, 2012
Maturity date December 31, 2013
Coupon rate 5.0 %
Redeemable rate 5.0 %
Exercise price per share \ 60,000
Exercisable periodFrom transferred date to the day before redeemabledate (December 31, 2013)
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
41
(in thousands of Korean won) 2012 2011
Beginning balance \ 7,820,006 \ 5,189,928
Current service cost 1,940,350 1,509,769
Interest expense 402,156 307,457
Benefits paid (674,610) (654,010)
Actuarial gains 1,198,800 1,466,862
Acquisition of subsidiaries 172,486 -
Ending balance \ 10,859,188 \ 7,820,006
The movements in the fair value of plan assets for the years ended December 31, 2012 and 2011,are as follows:
(in thousands of Korean won) 2012 2011
Beginning balance \ 6,298,419 \ 4,781,483
Expected return on plan assets 269,756 208,814
Actuarial losses (49,755) (68,177)
Employer contribution 2,336,261 1,661,777
Benefits paid (614,438) (285,479)
Ending balance \ 8,240,243 \ 6,298,418
The amounts recognized on the consolidated statements of comprehensive income (selling andadministrative expenses) for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Current service cost \ 1,940,350 \ 1,509,769
Interest expenses 402,156 307,457
Expected return on plan assets (269,756) (208,814)
\ 2,072,750 \ 1,608,412
Actual return of plan assets for the years ended December 31, 2012 and 2011, are \220 million
and \141 million, respectively.
The amounts recognized as other comprehensive gain (loss) for the years ended December 31,2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Actuarial losses before income tax \ (1,248,554) \ (1,535,039)
Income tax expense 302,150 371,479
Actuarial losses after income tax \ (946,404) \ (1,163,560)
As of December 31, 2012 and 2011, accumulated actuarial loss recognized as othercomprehensive loss is \ 2,915,822 thousand and \ 1,969,418 thousand, respectively.Plan assets as of December 31, 2012 and 2011, consist of:
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
42
(in thousands of Korean won)
2012 2011
Amount Composition Amount Composition
Cash and cash equivalents \ 2,260,027 27.4% \ 1,400,807 22.2%
Equity instruments 4,792,695 58.2% 3,070,699 48.8%
Debt instruments 23,334 0.3% - 0.0%
Other 1,164,188 14.1% 1,826,912 29.0%
\ 8,240,244 100.0% \ 6,298,418 100.0%
The expected return on plan assets is determined by considering the expected returns on eachcomponent of plan assets. Expected rate of return on fixed interest debt instruments are based onredemption yields as at the end of the reporting period and expected returns on equity and propertyinvestments reflect long-term real rates of return experienced in the respective open markets.Expected contributions to plan assets for the year ending December 31, 2013, are \ 2,572 million.
The principal actuarial assumptions as of December 31, 2012 and 2011, were as follows:
2012 2011
Discount rate 4.25% 5.50%
Expected return on plan assets 4.50% 4.50%
Future salary increases 7.00% 7.00%
The sensitivity of the overall pension liability to changes in the weighted principal assumptions is:
21. Provisions for Liabilities and Charges
The Group recognized provisions related to lawsuits amounting to \ 542,186 thousand andclassified these as current liabilities.
22. Contingencies
As of December 31, 2012, the Group has been named as a defendant in five lawsuits, involving\ 1,898 million in damages, brought against it in the normal course of business. Also, the Group
has contingent liabilities in respect of a legal claim as the plaintiff, involving \ 1,335 million indamages. The ultimate outcome of the lawsuits cannot be determined as of report date. There areno significant liabilities expected from lawsuits except the provisions described in Note 21.
As of December 31, 2012, the Group is insured to collect certain portions of its accounts receivablefor up to approximately\ 12,600 million and for performance guarantees related to certain
contracts and advances from customers for up to approximately\ 12,766 million. In addition, the
Group takes out a movable comprehensive insurance covering up to \ 8,000 million related to its
warehouses and property damage insurance covering up to \ 5,878 million related to its buildingsand machinery.
Changes in principalassumption Impact on overall liability
Discount rate 1% increase/1% decrease 8.7% decrease /10.2% increase
Salary growth rate 1% increase/1% decrease 10.2% increase/8.8% decrease
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
43
As of December 31, 2012, the Group’s land and buildings are provided as collateral to Woori bankfor borrowings for up to a maximum amount of ₩3,780 million and Japanese Yen 262 million and
additionally for borrowings of the related party, Mr. Won-Sik Oh, for up to a maximum of ₩500million.
As of December 31, 2012, the Group‘s land and buildings were under provisional attachmentrelated to accounts payables with claim amount of \ 848 million.
23. Commitments
(a) Operating lease
The Group has entered into operating lease contracts with Macquarie Capital to lease computersand office equipment. Details of future minimum lease payments as of December 31, 2012 and2011, under operating lease contracts, are summarized below:
(in thousands of Korean won) 2012 2011
Within 1 year \ 212,399 \ 222,956
Between 1 year and 5 years 124,864 180,929
\ 337,263 \ 403,885
The Group has an option to exercise a choice of extension or restoration at expiration of thecontracts.
(b) Long-term service contract
The Group has entered into agreements with Samsung SDS Co., Ltd. for computer systemoperating assistance, under which the Group paid operating service fees amounting to \ 5,163
million and \ 3,956 million for the years ended December 31, 2012 and 2011, respectively.
(c) Derivative financial instruments
As of December 31, 2012, the Group has arrangement for losses on foreign exchange forwardtransaction with Woori Bank amounting to US$ 7 million. Also, the Group has foreign exchangeforward contract arrangements with Kookmin Bank and Citibank amounting to US$ 49 million andUS$ 7 million, respectively.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
44
Details of the contracts are as follows:
(in thousands of Korean won)
Long Position Short Position
Exchange RateNumber ofContractsCurrency Amount Currency Amount
KRW 49,359,781 USD 45,653,693 1,067.5 – 1,099.0 51
KRW 1,015,364 EUR 720,000 1,396.8 – 1,423.5 7
USD 132,619 KRW 141,934 1,065.6- 1,074.4 2
EUR 227,788 KRW 320,619 1,407.5 1
JPY 6,045,260 KRW 78,523 12.4 – 13.2 3
The Group recognized gain and loss on valuation of derivative instruments amounting to \ 404
million and \ 26 million, respectively, for the year ended December 31, 2012. Realized gain and
loss from forward exchange transactions amount to \ 10,207 million and \ 3,627 million,respectively.
(d) Others
As of December 31, 2012, the Group has bank overdraft facility agreements amounting to\ 46,500million with Shinhan Bank and three others, and there is no outstanding balance as of December 31,2012.
The Group has electronic credit transaction agreements with Shinhan Bank and five other banks forthe settlement of accounts amounting to \ 159,010 million, and an electronic note, amounting to
\ 153,705 million recorded under accounts payable, was issued as of December 31, 2012.
The Group has entered into short-term borrowing facility agreements for foreign trade with WooriBank with a maximum limit of ₩470 million and no outstanding balance. The Group has a limitagreement of US$ 38 million for opening import L/C with Kookmin Bank and Woori Bank with anoutstanding balance of US$ 2 million.
24. Capital Stock
As of December 31, 2012 and 2011, details of capital stock are as follows:
(in thousands of Korean won, exceptper share amount) 2012 2011
Number of authorized shares 80,000,000 shares 80,000,000 shares
Par value per share (In Korean won) \ 500 \ 500
Number of outstanding shares 35,943,340 shares 35,943,340 shares
Capital stock \ 18,166,670 \ 18,166,670
Share premium 134,652,554 134,652,554
Total paid-in capital \ 152,819,224 \ 152,819,224
In accordance with the resolution of the shareholders dated March 26, 2010, the Company carriedout the stock-split on April 28, 2010, and amended the number of authorized stocks. Consequently,the par value per share of the Company’s stock has become \ 500 from \ 5,000, and the numberof authorized stock has become 80 million from 8 million.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
45
In addition, the Group was listed on July 30, 2010, on the Korea Exchange and carried out theincrease in capital by issuing 9,000,000 shares of common stock at\ 15,300 per share. As a result,
the common stock and capital surplus increased by\ 4,500 million and \ 130,376 million,respectively.
The Company is authorized to issue convertible debentures and debentures with stock warrants forup to\ 40,000 million each according to the Articles of the Incorporation. As of December 31, 2012,no such debentures have been issued.
25. Accumulated Other Comprehensive Income and Other Components of Equity
The Group has accumulated other comprehensive income amounting to \ (-) 40 million due to
currency translation for the year December 31, 2012.
The Group acquired 61,000 shares with par value of ₩ 5,000 per share as treasury stock in
December 2004 with an acquisition cost of ₩ 1,024,800 thousand, in accordance with the resolution
of the Board of Directors to prepare for the exercise of stock options. As of December 31, 2012, the
Group has 10,000 treasury shares with the acquisition cost of ₩ 16,800 thousand and par value of
₩ 500 per share remaining after the issuance of 60,000 shares to employees on December 2, 2005,
upon exercise of their stock options.
26. Retained Earnings
Retained earnings as of December 31, 2012 and 2011, consist of the following:
(in thousands of Korean won) 2012 2011
Appropriations
Legal reserve1 \ 5,757,668 \ 5,039,001
Discretionary reserve 121,706,500 97,023,700
127,464,168 102,062,701
Unappropriated retained earnings 37,616,217 32,588,135
\ 165,080,385 \ 134,650,836
1The Commercial Code of the Republic of Korea requires the Company to appropriate, 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 the payment of cash dividends, but maybe transferred to capital stock or used to reduce accumulated deficit, if any, with the ratification ofthe Company’s majority shareholders.
27. Dividends
The dividends proposed for the years ended December 31, 2011 and 2010, were ₩ 7,187 million
and ₩ 7,187 million which were paid in April 2012 and 2011, respectively. A dividend in respect of
the year ended December 31, 2012, of ₩ 250 per share, amounting to total dividends of ₩ 8,983
million, is to be proposed at the annual general meeting on March 15, 2012. These consolidated
financial statements do not reflect this dividend payable.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
46
28. Expenses by Nature
Expenses by nature for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Purchase and changes in inventories \ 1,944,724,338 \ 1,598,664,373
Employee benefit expense 30,281,828 24,565,385
Depreciation 1,562,632 948,823
Amortization 2,361,637 841,863
Commission 2,843,609 2,763,031
Rents 3,926,548 3,853,379
IT expense 5,359,049 4,160,112
Other expenses 7,163,607 5,268,779
\ 1,998,223,248 \ 1,641,065,745
Employee benefit expense for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Salaries and wages \ 18,835,200 \ 16,133,320
Bonuses 4,386,231 3,501,652
Severance benefits 2,072,750 1,608,412
Employee benefits 4,987,647 3,322,001
\ 30,281,828 \ 24,565,385
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
47
29. Selling and Administrative Expenses
Selling and administrative expenses for the years ended December 31, 2012 and 2011, are asfollows:
(in thousands of Korean won) 2012 2011
Salaries \ 23,221,431 \ 19,634,972
Severance benefits 2,072,750 1,608,412
Employee benefits 4,987,647 3,322,001
Depreciation 1,562,632 948,823
Amortization 2,361,637 841,863
Repair and maintenance 5,199 6,049
Supplies 409,501 288,408
Travel 2,175,283 1,587,097
Communications 587,407 490,292
Taxes and dues 236,596 157,060
Commission 2,843,609 2,763,031
Rents 3,926,548 3,853,379
Entertainment 1,356,069 1,664,563
IT expense 5,359,049 4,160,112
Advertising 109,420 58,988
Promotional expense 28,614 58,888
Samples 26,427 17,233
Bad debts expense 301,903 (75,845)
Others 1,927,188 1,016,046
\ 53,498,910 \ 42,401,372
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
48
30. Other Income and Expenses
Other income for the years ended December 31, 2012 and 2011, consists of the following:
(in thousands of Korean won) 2012 2011
Gain on disposal of short-term investments \ 9,100 \ -
Foreign exchange gain 2,083,826 7,466,667
Gain on foreign currency translation 3,400 400,506Valuation gain on forward exchange
contracts 403,862 250,998Realized gain from forward exchange
contracts 10,207,149 6,853,299Gain from disposal of property and
equipment 10,272 4,778
Miscellaneous gain 691,690 1,389,840
\ 13,409,299 \ 16,366,088
Other operating expenses for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Loss on valuation of short-term investments \ - \ 13,193
Loss on disposal of trade receivables 13,310 429
Foreign exchange loss 6,256,107 3,550,808
Loss on foreign currency translation 350,184 105,983Loss on valuation of forward exchange
contracts 25,987 502,378Realized loss from forward exchange
contracts 3,626,620 9,847,484
Loss on disposal of property and equipment 5,458 4,345
Other bad debt expense 217,810 558,500
Donations - 14,090
Contribution to provision 542,186 -
Miscellaneous loss 693,103 522,310
\ 11,730,765 \ 15,119,520
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
49
31. Finance Income and Costs
Finance income and costs for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Korean won) 2012 2011
Interest incomeInterest income on short-term bank
deposits \ 2,503,741 \ 2,926,723Interest income on loans and
accounts receivable 56,708 101,528
\ 2,560,449 \ 3,028,251
(in thousands of Korean won) 2012 2011
Interest expense
Borrowings and bank overdrafts \ 314 \ 1,007
32. Income Tax Expense
Income tax expense for the years ended December 31, 2012 and 2011, consists of:
(in thousands of Korean won) 2012 2011
Current income taxes \ 12,033,745 \ 10,540,867Deferred income taxes - Origination and
reversal of temporary differences (389,283) 94,033
Corporate tax as a result of tax audits 873,685 -
Total Income tax effect 12,518,147 10,634,900
Income tax directly credited to equity 302,150 371,479
Income tax expense \ 12,820,297 \ 11,006,379
The income tax directly credited to equity for the years ended December 31, 2012 and 2011, is asfollows:
(in thousands of 2012 2011
Korean won) Before tax Tax credit After tax Before tax Tax credit After tax
Actuarial gains(losses)on retirement benefitobligations \ (1,248,554) \ 302,150 \ (946,404) \ (1,535,039) \ 371,479 \ (1,163,560)
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
50
The reconciliation of net income before tax and income tax expense for the years ended December31, 2012 and 2011, follows:
(in thousands of Korean won) 2012 2011
Net income before tax \ 51,382,918 \ 45,535,317
Income tax based on statutory rate (23.3%) \ 11,972,666 \ 10,993,147
Adjustments:
Tax effect of non-deductible expense 32,166 25,139
Corporate tax as a result of tax audits 873,685 -
Others (58,220) (11,907)
Income tax expense \ 12,820,297 \ 11,006,379
Details of deferred income tax assets and liabilities as of December 31, 2012 and 2011, are asfollows:
(in thousands of Korean won) 2012 2011
Deferred income tax assetsDeferred tax assets to be recovered within
12 months \ 394,768 \ 250,983Deferred tax assets to be recovered after
more than 12 months 2,184,507 1,531,938
Deferred tax liabilitiesDeferred tax liabilities to be recovered
within 12 months (18,805) (123,886)Deferred tax liabilities to be recovered
after more than 12 months (2,023,354) (1,511,231)
Deferred income tax assets, net \ 537,116 \ 147,804
The movements in deferred income tax accounts for the years ended December 31, 2012 and 2011,are as follows:
(in thousands of Korean won) 2012 2011
Deferred income tax assets at January 1 \ 147,804 \ 241,837
Deferred income tax assets at December 31 537,116 147,804Deferred income taxes - origination andreversal of temporary differences \ 389,312 \ (94,033)
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
51
The movements in deferred income tax assets and liabilities during the years ended December 31,2012 and 2011, are as follows:
(in thousands ofKorean won)
January 1,2012
Incomestatement
Othercomprehensive
incomeDecember 31,
2012
Unearned revenue \ (36,854) \ 18,717 \ - \ (18,137)
Non-trade receivables (87,032) 87,032 - -
Deposits payable 1,433 201 - 1,634
Defined benefit obligation 1,511,231 267,606 290,109 2,068,946
Contribution to plan assets (1,511,231) (494,949) 12,041 (1,994,139)
Bad debts expense 9,501 - - 9,501
Short-term provisions - 131,209 - 131,209
Depreciation - 66,803 - 66,803
Amortization 9,772 (2,032) - 7,740
Translation gain/loss 74 (74) - -
Accrued expenses 220,432 35,173 - 255,605
Short-term investments 9,503 (9,503) - -
Deposits received 20,975 (13,021) - 7,954
\ 147,804 \ 87,162 \ 302,150 \ 537,116
(in thousands ofKorean won)
January 1,2011
Incomestatement
Othercomprehensive
incomeDecember 31,
2011
Unearned revenue \ (75,716) \ 38,862 \ - \ (36,854)
Non-trade receivables - (87,032) - (87,032)
Deposits payable 645 788 - 1,433Defined benefit
obligation 830,413 325,837 354,981 1,511,231Contribution to plan
assets (726,533) (801,197) 16,499 (1,511,231)
Bad debts expense 8,480 1,021 - 9,501
Equipment and furniture 12,798 (12,798) - -Valuation gain onforward exchangecontracts (72,670) 72,670 - -
Valuation loss on forwardexchange contracts 36,221 (36,221) - -
Amortization 6,663 3,109 - 9,772
Translation gain/loss 24,045 (23,971) - 74
Accrued expenses 191,181 29,251 - 220,432
Short-term investments 6,310 3,193 - 9,503
Deposits received - 20,975 - 20,975
\ 241,837 \ (465,513) \ 371,480 \ 147,804
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
52
33. Earnings per Share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of theCompany by the weighted-average number of ordinary shares in issue during the year excludingordinary shares purchased by the Company and held as treasury shares.
Weighted-average number of common shares outstanding for the year ended December 31, 2012,is as follows:
PeriodNumber of
sharesNumber of days
outstandingWeighted number
of shares
2012. 01. 01 - 2012. 12. 31 35,933,340 366 13,151,602,440
35,933,340 13,151,602,440
Weighted-average number of common shares (2012): 13,151,602,440 / 365 = 35,933,340
Weighted-average number of common shares outstanding for the year ended December 31, 2011,is as follows:
PeriodNumber of
sharesNumber of days
outstandingWeighted number
of shares
2011. 01. 01 - 2011. 12. 31 35,933,340 365 13,115,669,100
35,933,340 13,115,669,100
Weighted-average number of common shares (2011): 13,115,669,100 / 365 = 35,933,340
Basic earnings per share for the years ended December 31, 2012 and 2011, is as follows:
(in Korean won) 2012 2011
Net income attributable to common stock ( I ) ₩ 38,562,621,026 ₩ 34,528,937,159Weighted-average number of common
shares outstanding during the year ( II ) 35,933,340 shares 35,933,340 shares
Basic earnings per share (( I )/( II )) ₩ 1,073 ₩ 961
As the Company has no dilutive securities outstanding, diluted earnings per share for the yearsended December 31, 2012 and 2011, is identical to basic earnings per share.
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
53
34. Subsidiaries and Associates
The Group established iMarketAmerica, Inc.for overseas market and acquired 100% of the sharecapital with investment of \ 1,110 million for the year ended December 31, 2012.
The Group acquired 53.7% of the share capital of Koreit, Inc. for \ 1,997million during the year.
The goodwill of \ 4,420 million arising from the acquisition is attributable to benefit from economiesof scale expected from combining the operations of the Group and Koreit, Inc.
The following table summarizes the consideration paid for Koreit, Inc., the fair value of assetsacquired, liabilities assumed and the non-controlling interest at the acquisition date:
The Group acquired 35.0% of Aerogel Application Group’s shares with \ 498 million. The Groupwill build strategic relationship and develop new products with Aerogel Application Group throughequity-participation.
(in thousands of Korean won) 2012
Consideration at March 1, 2012
Cash \ 1,996,655
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents \ 464,803
Property and equipment 4,318,493
Trade and other payables (3,023,660)
Borrowings (6,025,705)
Others 381,790
Total identifiable net assets (3,884,279)
Non-controlling interest 1,800,310
Goodwill 4,080,624
\ 1,996,655
iMarketKorea Inc. and SubsidiariesNotes to Consolidated Financial Statements
December 31, 2012 and 2011
54
35. Related Party Transactions
As of December 31, 2012, the Company’s related parties are as follows:
Description Related parties
Related party with significant influence InterPark Corporation
Subsidiaries of InterPark Corporation InterPark Logstics Co., Ltd and 19 others
Associates Aerogel Application Group
Related party transactions for the years ended December 31, 2012 and 2011, are as follows:
(in thousands of Koreanwon) 2012 2011
Counter party Sales Purchases Sales Purchases
InterPark Corporation ₩ 2,349 ₩ 1,166 ₩ - ₩ 15,500
Interpark Logstics Co., Ltdand 7 others 2,480,668 15,484,807
- -
Aerogel Application Group 78,073 298,849 - -
Samsung Electronics Co.,Ltd. and 53 associates
1- -
1,027,288,544 128,282,930
1 Samsung and its associates are not classified as related parties due to the change in the majorityshareholders on December 23, 2011.
The related account balances outstanding as of December 31, 2012 and 2011, are summarized asfollows:
(in thousands of Koreanwon) 2012 2011Counter party Receivables Payables Receivables Payables
InterPark Corporation ₩ 509 ₩ - ₩ - ₩ 17,500Interpark Logstic Co., Ltd.and 6 others 345,241 6,742,993 - -
Aerogel ApplicationGroup 85,881 102,515 - -
Key management compensation consists of short-term employee benefits and severance benefitsof ₩ 2,355 million (2011: ₩ 1,497 million) and ₩ 1,113 million (2011: ₩ 242 million), respectively,for the year ended December 31, 2012. Key management refers to the directors who havesignificant control and responsibilities on planning, operations and control of the business.
As of December 31, 2012, the Group does not have any provision for impairment of relatedaccounts receivable. It therefore does not have any bad debts expense.