AMOREPACIFIC Group, Inc. and...

AMOREPACIFIC Group, Inc.and SubsidiariesConsolidated Financial StatementsDecember 31, 2013 and 2012

AMOREPACIFIC Group, Inc. and SubsidiariesIndexDecember 31, 2013 and 2012

Page(s)

Report of Independent Auditors…...................................................................................1 – 2

Consolidated Financial Statements

Consolidated Statements of Financial Position........................................................................3

Consolidated Statements of Comprehensive Income…...........................................................4

Consolidated Statements of Changes in Equity…....................................................................5

Consolidated Statements of Cash Flows…..............................................................................6

Notes to Consolidated Financial Statements….................................................................7 – 80

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

1

Report of Independent Auditors

To the Board of Directors and Shareholders of

AMOREPACIFIC Group, Inc.

We have audited the accompanying consolidated statements of financial position of

AMOREPACIFIC Group, Inc. and its subsidiaries (collectively the “Group”) as of December 31,

2013 and 2012, and the related consolidated statements of comprehensive income, changes

in equity and cash flows for the years then ended, expressed in Korean won. These financial

statements are the responsibility of the Group's management. Our responsibility is to express

an opinion on these financial statements based on our audits. We did not audit the financial

statements of AMOREPACIFIC EUROPE S.A.S and certain other consolidated subsidiaries,

whose financial statements represent assets of \428,242 million (2012: \257,112 million) as

of December 31, 2013 and sales of \476,502 million (2012: \385,894 million) for the year

then ended. These statements were audited by other auditors whose reports have been

furnished us and our opinion, insofar as it relates to the amounts included for AMOREPACIFIC

EUROPE S.A.S and certain other consolidated subsidiaries, is based solely on the reports of

the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the

Republic of Korea. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts

and disclosures in the financial statements. An audit also includes assessing the accounting

principles used and significant estimates made by management, as well as evaluating the

overall financial statement presentation. We believe that our audits and the reports of other

auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the consolidated financial

statements, referred to above, present fairly, in all material respects, the financial position of

AMOREPACIFIC Group, Inc. and its subsidiaries as of December 31, 2013 and 2012, and

their financial performance and cash flows for the years then ended, in accordance with

International Financial Reporting Standards as adopted by the Republic of Korea (“Korean

IFRS”).

AMOREPACIFIC Group, Inc. and SubsidiariesConsolidated Statements of Financial Position

December 31, 2013 and 2012

Notes

Assets

Current assets

Cash and cash equivalents 6,7,8 ￦ 364,548,104 ￦ 227,459,080 US$ 345,445 US$ 215,540

Bank deposits 6,7,34 529,193,106 535,799,277 501,462 507,722

Trade receivables 6,7,9,36 243,295,814 221,530,871 230,547 209,922

Other receivables 6,7,9,36 7,391,145 9,182,618 7,004 8,701

Other current assets 6,16 39,511,838 48,388,813 37,440 45,853

Inventories 10 342,133,096 333,989,437 324,205 316,488

Assets held-for-sale 35,41 26,184,886 2,299,359 24,813 2,179

1,552,257,989 1,378,649,455 1,470,916 1,306,405

Non-current assets

Bank deposits 6,7,34 7,525,381 5,602,832 7,131 5,309

Other receivables 6,7,9,36 135,207,648 109,712,860 128,122 103,964

Available-for-sale financial assets 6,11,40 30,986,543 32,372,353 29,363 30,676

Property, plant and equipment 5,13,36 2,288,369,464 2,102,569,921 2,168,454 1,992,391

Investment property 15,40 201,631,987 203,231,632 191,066 192,582

Intangible assets 5,14 650,752,718 636,793,936 616,652 603,425

Investments in associates 12 11,617,808 8,911,496 11,009 8,445

Deferred income tax assets 26 43,473,343 38,092,616 41,195 36,096

Other non-current assets 16 33,267 17,721 32 16

3,369,598,159 3,137,305,367 3,193,024 2,972,904Total assets ￦ 4,921,856,148 ￦ 4,515,954,822 US$ 4,663,940 US$ 4,279,309

Liabilities

Current liabilities

Trade payables 6,36,39 ￦ 110,831,485 ￦ 116,410,894 US$ 105,024 US$ 110,311

Borrowings 6,18,39 84,236,800 24,811,761 79,823 23,512

Other payables 6,36,39 221,750,220 202,860,518 210,130 192,230

Current income tax liabilities 26 76,518,362 56,592,026 72,509 53,626

Deferred revenue 48,036,852 48,855,221 45,520 46,295

Provisions for other liabilities and charges 19 7,518,047 11,734,109 7,124 11,119

Other current liabilities 6,20,39 84,485,359 67,439,071 80,058 63,905

Liabilities held-for-sale 35,41 10,914,389 - 10,342 -

644,291,514 528,703,600 610,530 500,998

Non-current liabilities

Borrowings 6,18,39 68,991,606 51,750,044 65,376 49,038

Net defined benefit liabilities 21 54,029,226 58,111,745 51,198 55,067

Deferred income tax liabilities 26 221,350,148 213,542,952 209,751 202,353

Other non-current liabilities 6,13,17,20,39 24,246,780 29,633,399 22,976 28,081

368,617,760 353,038,140 349,301 334,539

Total liabilities 1,012,909,274 881,741,740 959,831 835,537

Equity attributable to equity holders of the Company

Capital stock 1 44,450,975 44,450,975 42,122 42,122

Additional paid-in capital 673,016,873 673,095,966 637,749 637,824

Capital surplus 22,621,590 7,385,439 21,436 6,998

Other components of equity 22 (140,829,516) (134,507,447) (133,450) (127,459)

Accumulated other comprehensive income 23 (7,322,826) (2,478,523) (6,939) (2,349)

Retained earnings 24 1,533,662,040 1,390,506,741 1,453,295 1,317,641

2,125,599,136 1,978,453,151 2,014,213 1,874,777

Non-controlling interests 38 1,783,347,738 1,655,759,931 1,689,896 1,568,995

Total equity 3,908,946,874 3,634,213,082 3,704,109 3,443,772Total liabilities and equity ￦ 4,921,856,148 ￦ 4,515,954,822 US$ 4,663,940 US$ 4,279,309

(in thousands of Korean won)

The accompanying notes are an integral part of these consolidated financial statements.

The U.S. dollar figures are provided for information purposes only and do not form a part of the audited financial statements. Refer to Note 4.

2013 2012 2013 2012

(in thousands of U.S. dollars (Note 4))

3

AMOREPACIFIC Group, Inc. and SubsidiariesConsolidated Statements of Comprehensive Income

Years Ended December 31, 2013 and 2012

Notes

Sales 5,27,36 ￦ 3,895,390,626 ￦ 3,431,733,414 US$ 3,691,264 US$ 3,251,903

Cost of sales 28,36 1,199,461,065 1,013,893,306 1,136,607 960,763

Gross profit 2,695,929,561 2,417,840,108 2,554,657 2,291,140

Selling and administrative expenses 28,29 2,226,178,972 1,967,424,350 2,109,522 1,864,327

Operating profit 5 469,750,589 450,415,758 445,135 426,813

Finance income 6,30 25,973,581 29,445,707 24,613 27,903

Finance costs 6,30 3,325,002 2,297,749 3,151 2,177

Other non-operating losses, net 31 (14,837,288) (9,773,928) (14,060) (9,262)

Share of profit of associates 12 4,329,716 2,921,430 4,103 2,768

12,141,007 20,295,460 11,505 19,232

Profit before income tax 481,891,596 470,711,218 456,640 446,045

Income tax expense 26 126,886,639 124,002,662 120,238 117,505

Profit for the year ￦ 355,004,957 ￦ 346,708,556 US$ 336,402 US$ 328,540

Profit attributable to:

Equity holders of the Company ￦ 163,011,488 ￦ 154,827,917 US$ 154,469 US$ 146,715

Non-controlling interests 38 191,993,469 191,880,639 181,933 181,825

Other comprehensive income

Items that will not be reclassified to profit or loss

Remeasurements of net defined benefit liabilities 21,26 (1,329,774) (13,603,039) (1,260) (12,890)

Items that may be subsequently reclassified to profit or loss

Gain(Loss) on valuation of available-for-sale financial assets 6,11,23,26 (3,882,729) 785,326 (3,679) 744

Share of other comprehensive income of associates 12,23,26 (286,371) (2,446,710) (271) (2,318)

Foreign currency translation differences 23,26 (1,977,966) (8,750,254) (1,875) (8,292)

Total comprehensive income for the year, net of income taxes 347,528,117 322,693,879 329,317 305,784

Attributable to:

Equity holders of the Company 157,065,990 144,705,155 148,835 137,122

Non-controlling interests 190,462,127 177,988,724 180,482 168,662

Total comprehensive income for the year, net of income taxes ￦ 347,528,117 ￦ 322,693,879 US$ 329,317 US$ 305,784

Earnings per share 32

Basic earnings per share to the ordinary equity holders ￦ 20,102 ￦ 19,143 US$ 19.05 US$ 18.14

Basic earnings per share to the preferred equity holders 20,157 19,193 19.10 18.19

Diluted earnings per share to the ordinary equity holders 19,539 18,602 18.52 17.63

Diluted earnings per share to the preferred equity holders 19,594 18,652 18.57 17.67

2013

(in thousands of Korean won,

except per share amounts)



2013 2012

(in thousands of U.S. dollars(Note 4),

except per share amounts)

2012

4

AMOREPACIFIC Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2013 and 2012

Notes

Cash flows from operating activities

Cash generated from operations 33 ￦ 623,242,114 ￦ 429,564,298 US$ 590,583 US$ 407,054

Interest received 24,162,826 23,175,308 22,897 21,961

Interest paid (3,313,998) (1,368,923) (3,140) (1,297)

Income tax paid (104,243,822) (104,881,974) (98,782) (99,386)

Net cash generated from operating activities 539,847,120 346,488,709 511,558 328,332

Cash flows from investing activities

Net decrease in bank deposits 4,665,542 - 4,420 -

Decrease in other receivables 13,036,221 11,941,255 12,353 11,317

Disposal of property, plant and equipment 13,396,965 34,670,740 12,695 32,854

Disposal of intangible assets 1,062,185 1,508,122 1,007 1,429

Disposal of non-current assets held-for-sale - 6,879,904 - 6,519

Dividends received from associates 1,260,000 1,819,624 1,194 1,724

Disposal of available-for-sale financial assets 7,069,547 5,035,793 6,699 4,772

Net increase in bank deposits - (117,172,880) - (111,033)

Increase in other receivables (39,166,911) (41,527,033) (37,114) (39,351)

Acquisition of available-for-sale financial assets (4,179,910) (7,929,132) (3,961) (7,514)

Acquisition of property, plant and equipment (385,389,474) (305,090,194) (365,194) (289,103)

Acquisition of intangible assets (23,578,975) (24,809,253) (22,343) (23,509)

Acquisition of subsidiaries, net of cash acquired - (5,322,822) - (5,044)

Net cash used in investing activities (411,824,810) (439,995,876) (390,244) (416,939)

Cash flows from financing activities

Proceeds from short-term borrowings 19,819,904 9,034,672 18,781 8,561

Proceeds from long-term borrowings 61,674,540 7,900,000 58,443 7,486

Increase in non-controlling Interest 4,446,118 2,604,997 4,213 2,468

Proceeds from disposal of treasury shares 11,828,689 - 11,209 -

Dividends paid (51,457,411) (48,739,355) (48,761) (46,185)

Repayments of short-term borrowings (1,189,459) - (1,127) -

Decrease in non-controlling interests (12,817,155) - (12,146) -

Purchase of treasury shares (19,533,715) - (18,510) -

Net cash provided by(used in) financing activities 12,771,511 (29,199,686) 12,102 (27,670)

Effect of foreign exchange on cash and cash equivalents (3,704,797) (3,421,208) (3,511) (3,242)

Net increase(decrease) in cash and cash equivalents 137,089,024 (126,128,061) 129,905 (119,519)

Cash and cash equivalents at the beginning of year 227,459,080 353,587,141 215,540 335,059

Cash and cash equivalents at the end of year ￦ 364,548,104 ￦ 227,459,080 US$ 345,445 US$ 215,540

2013 20122013 2012

(in thousands of U.S. dollars(Note 4))(in thousands of Korean won)



6

AMOREPACIFIC Group, Inc. and SubsidiariesNotes to Consolidated Financial Statements


7

1. General Information

General information about AMOREPACIFIC Group, Inc. (the “Company”) and its 26 subsidiaries

(collectively referred to as the “Group”) is as follows.

The Company was incorporated on September 5, 1945, under the laws of the Republic of Korea to

engage in manufacturing, marketing and trading of cosmetics, personal care goods and other

related products. However, on January 1, 2007, the Company’s legal form of business entity was

changed to a holding company to provide management, administrative and financing services to its

consolidated and unconsolidated subsidiaries. The Company listed its shares on the Korea Stock

Exchange on April 30, 1973, and as approved by the shareholders on March 25, 2011, the

Company changed its name from PACIFIC Corporation to AMOREPACIFIC Group, Inc.

As of December 31, 2013, the Company’s paid-in capital is ￦44,451 million, including ￦4,555

million of preferred stock. The Company is authorized to issue 36,000,000 shares at a par value

per share of ￦5,000. As of December 31, 2013, 7,979,098 shares of common stock and 911,097

shares of preferred stock are issued.

Details of preferred stock issued by the Company are as follows:

Type Dividend rate

Number of

shares Description

Preferred stock¹ Common stock dividend rate + 1% 644,377 Non-participating and non-cumulative

Convertible preferred stock Max (Common stock dividend rate, 3%) 266,720 Participating and cumulative

1Preferred stock have no voting rights, and they are non-participating and non-cumulative. They

can receive 1% additional dividend of face value on a yearly basis. Accordingly, when calculating

basic earnings per share, the preferred stock are presented separately as ordinary shares which

have different dividend rates from other common stock even though they have no priority.

The Company’s consolidated subsidiaries as of December 31, 2013, are as follows:

AMOREPACIFIC Group, Inc. and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2013 and 2012

8

1Although the Group has less than 50% of voting power, it is included as a subsidiary as the

related parties, including the CEO, have 49.6% of the voting power and the rest are widely

distributed among shareholders and institution investors owning less than 1%. Taking into

consideration the participatory and approval ratios of the past general meetings, the Group has de

facto control to decide the financial and operating policies.

Percentage of

Shareholder Subsidiaries Primary business ownership(%) Year end Location

AMOREPACIFIC Group,Inc. AMOREPACIFIC Corporation ¹Manufacturing and marketing

of cosmetics ￦ 34,508 35.40 Dec 31 Korea

AMOREPACIFIC Group,Inc. Etude CorporationManufacturing and marketing

of cosmetics4,650 80.48 Dec 31 Korea

AMOREPACIFIC Group,Inc. Innisfree Corporation Marketing of cosmetics 1,222 81.82 Dec 31 Korea

AMOREPACIFIC Group,Inc. AMOS Professional CorporationMarketing of hair care

products3,500 100.00 Dec 31 Korea

AMOREPACIFIC Group,Inc. PACIFICPHARMA CorporationManufacturing and marketing

of medicine11,645 100.00 Dec 31 Korea

AMOREPACIFIC Group,Inc. PACIFICGLAS, Inc.Manufacturing and marketing

of glass5,000 100.00 Dec 31 Korea

AMOREPACIFIC Group,Inc. PACIFICPACKAGE CorporationPrinting, Manufacturing and

marketing of paper containers11,505 99.58 Dec 31 Korea

AMOREPACIFIC Group,Inc. Jangw on Co., Ltd.Manufacturing and marketing

of green tea5,083 98.38 Dec 31 Korea

AMOREPACIFIC Group,Inc. COSVISION CO.,LTD.

Manufacturing and marketing

of cosmetics, detergents and

organic compounds

2,000 100.00 Dec 31 Korea

AMOREPACIFIC

Corporation

AMOREPACIFIC Global

Operations LimitedHolding company 149,197 90.00 Dec 31 HongKong

AMOREPACIFIC

Corporation

AMOREPACIFIC GLOBAL

OPERATIONS PTE. LTD.Holding company 5,096 100.00 Dec 31 Singapore

AMOREPACIFIC

Corporation

AMORE Cosmetics

(Shanghai) Co.,Ltd.

Manufacturing and

marketing of cosmetics14,274 100.00 Dec 31 China

AMOREPACIFIC

Corporation69.21

AMORE Cosmetics (Shanghai)

Co.,Ltd.30.79

AMOREPACIFIC

Corporation

AMOREPACIFIC

(Shanghai) R&I Center Co.,Ltd.Research and development 2,195 100.00 Dec 31 China

AMOREPACIFIC Global

Operations Limited

AMOREPACIFIC Trading

Co. Ltd.Marketing of cosmetics 9,456 100.00 Dec 31 China

AMOREPACIFIC Global

Operations Limited

AMOREPACIFIC

EUROPE S.A.S

Manufacturing and

marketing of cosmetics98,933 100.00 Dec 31 France

AMOREPACIFIC Global

Operations LimitedAnnick Goutal S.A.S Marketing of cosmetics 9,267 100.00 Dec 31 France

AMOREPACIFIC Global

Operations LimitedAMOREPACIFIC US, INC. Marketing of cosmetics 45,888 100.00 Dec 31 America

AMOREPACIFIC Global

Operations Limited

AMOREPACIFIC Japan

Co.,Ltd.Marketing of cosmetics 30,770 100.00 Dec 31 Japan

AMOREPACIFIC Global

Operations Limited

AMOREPACIFIC Taiw an

Co.,Ltd.Marketing of cosmetics 11,621 100.00 Dec 31 Taiw an

AMOREPACIFIC Global

Operations Limited

AMOREPACIFIC

SINGAPOREPTE. LTD.Marketing of cosmetics 25,861 100.00 Dec 31 Singapore

Amorepacific Global

Operations Limited

AMOREPACIFIC

MALAYSIA SDN. BHD.Marketing of cosmetics 2,950 100.00 Dec 31 Malaysia

AMOREPACIFIC GLOBAL

OPERATIONS PTE. LTD.Amorepacific VIETNAM JSC Marketing of cosmetics 5,479 70.00 Dec 31 Vietnam

AMOREPACIFIC Global

Operations Limited

AMOREPACIFIC

(Thailand) LIMITEDMarketing of cosmetics 6,328 100.00 Dec 31 Thailand

AMOREPACIFIC

Corporation5.82

AMOREPACIFIC Global

Operations Limited94.18

AMOREPACIFIC Global

Operations Limited99.80

Innisfree Corporation 0.20

China

PT. LANEIGEINDONESIA

PACIFICMarketing of cosmetics 4,093 Dec 31 Indonesia

Dec 31

stock

Capital

AMOREPACIFIC

New Cosmetics

(Shanghai) Co.,Ltd.

Marketing of cosmetics 34,829

Innisfree Cosmetics India

Private LimitedMarketing of cosmetics 888 Dec 31 India


9

The summary of the consolidated subsidiaries’ financial information as of December 31, 2013 and

2012, and the results of their operations for the years then ended, which are included in the

consolidated financial statements, follows:

(in millions of Korean won)

AMOREPACIFIC Corporation ￦ 3,133,866 ￦ 563,386 ￦ 2,666,340 ￦ 270,810 ￦ 270,306

Etude Corporation 117,762 33,646 337,239 19,467 18,976

Innisfree Corporation 146,617 47,157 332,759 39,348 39,260

AMOS Professional Corporation 47,391 7,370 49,001 8,876 8,590

PACIFICPHARMA Corporation 133,035 42,894 125,439 8,716 5,346

PACIFICGLAS, Inc. 62,010 11,746 61,225 (1,450) (1,339)

PACIFICPACKAGE Corporation 50,349 5,962 53,124 1,914 1,924

Jangwon Co., Ltd. 84,211 8,454 11,659 1,357 1,358

COSVISION CO.,LTD. 29,224 21,451 99,368 1,910 1,858

AMOREPACIFIC Global Operations Limited¹ 171,268 50,886 24,006 1,629 (2,055)

AMOREPACIFIC GLOBAL OPERATIONS PTE. LTD.¹ 4,896 6 - (4) (255)

AMOREPACIFIC Cosmetics (Shanghai) Co.,Ltd.¹ 48,139 9,890 51,402 7,802 8,121

AMOREPACIFIC New Cosmetics (Shanghai) Co.,Ltd. 126,793 92,110 - (53) 392

AMOREPACIFIC (Shanghai) R&I Center Co., Ltd. 1,809 97 1,337 (490) (451)

AMOREPACIFIC Trading Co. Ltd. 129,201 88,435 358,820 2,361 2,740

AMOREPACIFIC EUROPE S.A.S 88,929 56,166 73,065 144 1,163

Annick Goutal S.A.S 22,401 19,777 17,786 (4,580) (5,401)

AMOREPACIFIC US, INC. 11,521 6,001 23,489 (2,289) (5,644)

AMOREPACIFIC Japan Co.,Ltd. 13,425 11,565 47,639 (4,089) (4,691)

AMOREPACIFIC Taiwan Co.,Ltd. 6,017 3,460 10,256 3 (111)

AMOREPACIFIC SINGAPORE PTE., LTD. 20,262 4,742 22,736 (3,236) (4,460)

AMOREPACIFIC MALAYSIA SDN. BHD. 4,138 1,159 7,893 701 431

AMOREPACIFIC VIETNAM JSC 5,611 2,419 2,749 203 111

AMOREPACIFIC (Thailand) LIMITED 5,522 2,781 9,161 (1,458) (1,849)

PT. LANEIGE INDONESIA PACIFIC 1,795 950 788 (1,162) (1,566)

Innisfree Cosmetics India Private Limited 854 - - - (32)

2013

Total

Total Total Net income comprehensive

assets liabilities Sales (loss) income(loss)


10

1Represents separate financial statements in which its investments in subsidiaries and associates

are measured at cost.

The amounts presented above are before the elimination of intercompany transactions. Also, the

amounts presented above reflect accounting adjustments which were different from the immediate

parent’s.

Changes in scope for consolidation in 2013

There are no subsidiaries which are newly consolidated or excluded from consolidation in 2013.


AMOREPACIFIC Corporation ￦ 2,865,781 ￦ 520,719 ￦ 2,510,394 ￦ 275,500 ￦ 264,196

Etude Corporation 108,441 37,721 280,507 18,608 18,410

Innisfree Corporation 105,948 40,858 229,416 28,284 28,042

AMOS Professional Corporation 43,066 7,087 42,623 8,197 8,234

PACIFICPHARMA Corporation 144,480 56,311 141,247 1,056 2,265

PACIFICGLAS, Inc. 62,653 11,051 59,379 (25) (323)

PACIFICPACKAGE Corporation 35,996 9,451 51,064 3,797 3,665

Jangwon Co., Ltd. 83,723 9,325 11,376 1,747 1,626

COSVISION CO.,LTD. 22,438 16,523 73,702 1,567 1,540

AMOREPACIFIC Global Operations Limited¹ 133,988 45,261 1,540 (704) (7,582)

AMOREPACIFIC GLOBAL OPERATIONS PTE. LTD.¹ 5,148 2 - 5 (59)

AMOREPACIFIC Cosmetics (Shanghai) Co.,Ltd.¹ 41,123 10,890 47,902 4,460 7,199

AMOREPACIFIC New Cosmetics (Shanghai) Co.,Ltd. 44,219 9,743 - (94) (1,089)

AMOREPACIFIC (Shanghai) R&I Center Co., Ltd. 2,162 - - 28 (33)

AMOREPACIFIC Trading Co. Ltd. 91,692 53,904 258,683 9,165 4,136

AMOREPACIFIC EUROPE S.A.S 79,377 47,779 66,353 (10,323) (12,529)

Annick Goutal S.A.S 20,136 12,110 19,650 (719) (1,495)

AMOREPACIFIC US, INC. 10,684 4,985 17,998 (4,408) (4,867)

AMOREPACIFIC Japan Co.,Ltd. 11,961 10,874 47,036 (3,585) (3,920)

AMOREPACIFIC Taiwan Co.,Ltd. 3,723 1,055 7,213 (695) (783)

AMOREPACIFIC SINGAPORE PTE., LTD. 14,409 6,272 10,448 (1,666) (2,039)

AMOREPACIFIC MALAYSIA SDN. BHD. 3,033 485 5,363 590 490

AMOREPACIFIC VIETNAM JSC 4,791 1,710 2,663 (765) (981)

AMOREPACIFIC (Thailand) LIMITED 2,991 1,117 2,867 (668) (727)

PT. LANEIGE INDONESIA PACIFIC 1,129 411 - (283) (359)

Innisfree Cosmetics India Private Limited 351 - - - (2)

2012

assets liabilities Sales (loss) income(loss)

Total Total Net income comprehensive

Total



11

2. Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial

statements are set out below. These policies have been consistently applied to all the periods

presented, unless otherwise stated.

2.1 Basis of Preparation

The Group maintains its accounting records in Korean won and prepares statutory financial

statements in the Korean language (Hangul) in accordance with the International Financial

Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). The accompanying

consolidated financial statements have been condensed, restructured and translated into English

from the Korean language financial statements.

Certain information attached to the Korean language financial statements, but not required for a fair

presentation of the Group's financial position, financial performance or cash flows, is not presented

in the accompanying consolidated financial statements.

The Group’s consolidated financial statements have been prepared in accordance with Korean

IFRS. These are the standards, subsequent amendments and related interpretations issued by the

International Accounting Standards Board ("IASB") that have been adopted by the Republic of

Korea.

The preparation of financial statements requires the use of certain critical accounting estimates. It

also requires management to exercise judgment in the process of applying the Group’s accounting

policies. The areas involving a higher degree of judgment or complexity, or areas where

assumptions and estimates are significant to the consolidated financial statements are disclosed in

Note 3.

2.2 Changes in Accounting Policy and Disclosures

(a) New and amended standards adopted by the Group

The Group newly applied the following amended and enacted standards for the annual period

beginning on January 1, 2013:

- Amendment to Korean IFRS 1001, Presentation of Financial Statements: Presentation of Items

of Other Comprehensive Income

The amendment requires other comprehensive income items to be presented into two groups on

the basis of whether they are potentially reclassifiable to profit or loss subsequently. The Group

applies the amendment retroactively and there is no impact of the application of this amendment

on its comprehensive income or loss.



12

- Amendment to Korean IFRS 1019, Employee Benefits

The amendment requires entities to immediately recognize all actuarial gains and losses incurred

in other comprehensive income or loss. All past service costs incurred are immediately recognized

in accordance with the change of the plan, and the previous separate calculation of the interest

cost and the expected returns on plan assets has been revised to calculate net interest expense

(income) by applying the discount rate used in the defined benefit obligation measurement in the

net defined benefit liabilities (assets). The Group applies the amendment retroactively and the

prior year’s consolidated statement of comprehensive income has been restated by retroactive

application.

The effects of retroactive application of this change in accounting policy are as follows:

(in millions of Korean won, except per share amounts) 2013

Before

change Impact

After

change

Cost of sales \ 1,199,461 \ - \ 1,199,461

Selling and administrative expenses 2,226,466 (287) 2,226,179

Post-tax other comprehensive income (7,259) (218) (7,477)

Basic earnings per share to the ordinary equity holders 20,093 9 20,102

Basic earnings per share to the preferred equity holders 20,148 9 20,157

(in millions of Korean won, except per share amounts) 2013

Before

change Impact

After

change

Cost of sales \ 1,013,893 \ - \ 1,013,893

Selling and administrative expenses 1,968,749 (1,325) 1,967,424

Post-tax other comprehensive income (23,005) (1,010) (24,015)

Basic earnings per share to the ordinary equity holders 19,088 55 19,143

Basic earnings per to the preferred equity holders 19,138 55 19,193

- Korean IFRS 1110, Consolidated Financial Statements

Korean IFRS 1110, Consolidated Financial Statements, introduces a single control concept and

provides a specific guidance for the control. The adoption of this standard does not have an impact

on consolidation scope in the consolidated financial statements.

- Korean IFRS 1111, Joint Arrangements

Korean IFRS 1111, Joint Arrangements, reflects the substance of joint arrangements and focuses

on the rights and obligations of the parties to the joint arrangements rather than on the legal forms

of the arrangements. Joint arrangements are classified into joint operations or joint ventures. The

adoption of this standard does not have an impact on the consolidated financial statements.



13

- Korean IFRS 1112, Disclosures of Interests in Other Entities

Korean IFRS 1112, Disclosure of Interests in Other Entities, provides disclosure requirements for

all types of equity investments in other entities including subsidiaries, associates, joint ventures

and unconsolidated structured entities.

- Korean IFRS 1027, Separate Financial Statements

Korean IFRS 1027, Separate Financial Statements, contains accounting treatments and

requirements for investments in subsidiaries, associates and joint ventures relating only to

separate financial statements of the Controlling Company.

- Korean IFRS 1113, Fair Value Measurement

Korean IFRS 1113, Fair Value Measurement, provides a precise definition of fair value, and a

single source of fair value measurement and disclosure requirements for use across K-IFRS. The

Group has applied this standard prospectively according to the transitional provisions of K-IFRS

1113 and there is no material impact of the application of this standard on the consolidated

financial statements.

(b) New standards and interpretations not yet adopted

New standards, amendments and interpretations issued but not effective for the financial year

beginning January 1, 2013 and not early adopted by the Group are as follows:

- Amendment to Korean IFRS 1110, Consolidated Financial Statements

Amendment to Korean IFRS 1110, Consolidated Financial Statements, provides that, if a parent

company qualifies as an investment entity, it is required to measure its investments in subsidiaries

at fair value through profit and loss instead of consolidating these subsidiaries in its consolidated

financial statements. The amendment does not apply for a parent of an investment entity if the

parent itself is not an investment entity. This amendment is effective for annual periods beginning

on or after January 1, 2014, with early adoption permitted. The Group expects that the application

of this amendment would not have a material impact on its consolidated financial statements

- Amendment to Korean IFRS 1032, Financial Instruments: Presentation

Amendment to Korean IFRS 1032, Financial Instruments: Presentation, provides that the right to

offset must not be contingent on a future event and must be legally enforceable in all of

circumstances; and if an entity can settle amounts in a manner such that outcome is, in effect,

equivalent to net settlement, the entity will meet the net settlement criterion. This amendment is

effective for annual periods beginning on or after January 1, 2014, and the Group is assessing the

impact of application of this amendment on its consolidated financial statements.



14

- Amendment to Korean IFRS 1039, Financial Instruments: Recognition and Measurement

Amendment to Korean IFRS 1039, Financial Instruments: Recognition and Measurement, allows

the continuation of hedge accounting for a derivative that has been designated as a hedging

instrument in a circumstance in which that derivative is novated to a central counterparty (CCP) as

a consequence of laws or regulations. This amendment is effective for annual periods beginning

on or after January 1, 2014, with early adoption permitted. The Group is assessing the impact of

application of this amendment on its consolidated financial statements.

- Enactment of Korean IFRS 2121, Levies

Korean IFRS 2121, Levies, are applied to a liability to pay a levy imposed by a government in

accordance with the legislation. The interpretation requires that the liability to pay a levy is

recognized when the activity that triggers the payment of the levy occurs, as identified by the

legislation (the obligating event). This interpretation is effective for annual periods beginning on or

after January 1, 2014, with early adoption permitted. The Group expects that the application of this

interpretation would not have a material impact on its consolidated financial statements.

2.3 Consolidation

The Group has prepared the consolidated financial statements in accordance with Korean IFRS

1110, Consolidated Financial Statements.

(a) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Company has

control. The Company controls the corresponding investee when it is exposed, or has rights, to

variable returns from its involvement with the investee and has the ability to affect those returns

through its power over the investee. Consolidation of a subsidiary begins from the date the

Company obtains control of a subsidiary and ceases when the Company loses control of the

subsidiary.

The Group applies the acquisition method to account for business combinations. The

consideration transferred is measured at the fair values of the assets transferred, and identifiable

assets acquired and liabilities and contingent liabilities assumed in a business combination are

initially measured at their fair values at the acquisition date. The Group recognizes any non-

controlling interest in the acquiree on an acquisition-by-acquisition basis in the event of liquidation,

either at fair value or at the non-controlling interest’s proportionate share of the recognized

amounts of acquiree’s identifiable net assets. All other non-controlling interests are measured at

their acquisition-date fair values, unless another measurement basis is required by IFRSs.

Acquisition-related costs are expensed as incurred.

Goodwill is recognized as the excess of the aggregate of the consideration transferred, the

amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of the

acquirer’s previously held equity interest in the acquiree over the identifiable net assets acquired.

If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the

difference is recognized in profit or loss.



15

Balances of receivables and payables, income and expenses and unrealized gains on

transactions between the Group subsidiaries are eliminated. Accounting policies of subsidiaries

have been changed where necessary to ensure consistency with the policies adopted by the

Group.

(b) Changes in ownership interests in subsidiaries without change of control

In transactions with non-controlling interests, which do not result in loss of control, the Group

recognizes directly in equity any difference between the amount by which the non-controlling

interests are adjusted and the fair value of the consideration paid or received, and attribute it to the

owners of the parent.

(c) Disposal of subsidiaries

If the Group loses control of a subsidiary, any investment continuously retained in the subsidiary is

re-measured at its fair value at the date when control is lost and any resulting differences are

recognized in profit or loss.

(d) Associates

Associates are all entities over which the Group has significant influence, and investments in

associates are initially recognized at acquisition cost using the equity method. Unrealized gains on

transactions between the Group and its associates are eliminated to the extent of the Group’s

interest in the associates. If there is any objective evidence that the investment in the associate is

impaired, the Group recognizes the difference between the recoverable amount of the associate

and its book value as impairment loss.

2.4 Segment Reporting

The Group’s operating segments are reported in a manner consistent with the internal reporting

provided to the chief operating decision-maker (Note 5). The chief operating decision-maker, who

is responsible for allocating resources and assessing performance of the operating segments, has

been identified as the representative director that makes strategic decisions.

2.5 Foreign Currency Translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the

currency of the primary economic environment in which the entity operates (“the functional

currency”). The consolidated financial statements are presented in Korean won, which is the

controlling entity’s functional and presentation currency.



16

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates

prevailing at the dates of the transactions or valuation where items are re-measured. Foreign

exchange gains and losses resulting from the settlement of such transactions and from the

translation at year-end exchange rates of monetary assets and liabilities denominated in foreign

currencies are recognized in profit or loss.

Exchange differences arising on non-monetary financial assets and liabilities such as equity

instruments at fair value through profit or loss and available-for-sale equity instruments are

recognized in profit or loss and included in other comprehensive income, respectively, as part of

the fair value gain or loss.

(c) Translation to presentation currency

The results and financial position of all Group entities that have a functional currency different from

the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each statement of financial position presented are translated at

the closing rate at the end of the reporting period;

income and expenses for each income statement are translated at average exchange

rates; and

all resulting exchange differences are recognized in other comprehensive income.

When the Company ceases to control the subsidiary, exchange differences that were recorded in

equity are recognized in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as

assets and liabilities of the foreign entity and translated at the closing rate.

2.6 Financial Instruments

(a) Classification and measurement

The Group classifies its financial assets in the following categories: financial assets at fair value

through profit or loss, available-for-sale financial assets, loans and receivables, and held-to-

maturity financial assets. Regular purchases and sales of financial assets are recognized on trade

date.

Regular purchases and sales of financial assets are recognized on the trade date. At initial

recognition, financial assets are measured at fair value plus, in the case of financial assets not

carried at fair value through profit or loss, transaction costs. Transaction costs of financial assets

carried at fair value through profit or loss are expensed in the statement of income. After the initial

recognition, available-for-sale financial assets and financial assets at fair value through profit or

loss are subsequently carried at fair value. Loans and receivables, and held-to-maturity

investments are subsequently carried at amortized cost using the effective interest rate method.



17

Changes in fair value of financial assets at fair value through profit or loss are recognized in profit

or loss and changes in fair value of available-for-sale financial assets are recognized in other

comprehensive income. When the available-for-sale financial assets are sold or impaired, the fair

value adjustments recorded in equity are reclassified into profit or loss.

(b) Impairment

The Group assesses at the end of each reporting period whether there is objective evidence that a

financial asset or a group of financial assets is impaired. A financial asset or a group of financial

assets is impaired and impairment losses are incurred only if there is objective evidence of

impairment as a result of one or more events that occurred after the initial recognition of the asset

(a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of

the financial asset or a group of financial assets that can be reliably estimated.

Impairment of loans and receivables is presented as a deduction in an allowance account.

Impairment of other financial assets is directly deducted from their carrying amount. The Group

writes off financial assets when the assets are determined to be no longer recoverable.

The objective evidence that a financial asset is impaired includes significant financial difficulty of

the issuer or obligor; a delinquency in interest or principal payments over three months; or the

disappearance of an active market for that financial asset because of financial difficulties. A

decline in the fair value of an available-for-sale equity instrument by more than 30% from its cost

or a prolonged decline below its cost for more than six months is also objective evidence of

impairment.

2.7 Derivative Instruments

Derivatives are initially recognized at fair value on the date when a derivative contract is entered

into and are subsequently re-measured at their fair value. Changes in the fair value of the

derivatives that are not qualified for hedge accounting are recognized in the statement of income

within 'other non-operating income (expenses)' or 'finance income (expenses)' according to the

nature of transactions.

2.8 Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the

first-in, first-out (FIFO) method.



18

2.9 Property, Plant and Equipment

Property, plant and equipment is stated at its cost less accumulated depreciation and accumulated

impairment losses. Historical cost includes expenditures that is directly attributable to the

acquisition of the items.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method

to allocate the difference between their cost and their residual values over their estimated useful

lives, as follows:

Useful life

Buildings 10 - 49 years

Structures 10 - 40 years

Machinery 5 - 20 years

Vehicles 4 - 6 years

Tools 3 years

Fixtures and furniture 2 - 4 years

Others 10 - 40 years

The depreciation method, residual values and useful lives of property, plant and equipment are

reviewed at the end of each reporting period and, if appropriate, accounted for as changes in

accounting estimates.

2.10 Borrowing Costs

Borrowing costs incurred in the acquisition or construction of a qualifying asset are capitalized in

the period when it is prepared for its intended use, and investment income earned on the

temporary investment of borrowings made specifically for the purpose obtaining a qualifying asset

is deducted from the borrowing costs eligible for capitalization during the period. Other borrowing

costs are recognized as expenses for the period in which they are incurred.

2.11 Government Grants

Government grants are recognized at their fair values when there is reasonable assurance that the

grant will be received and the Group will comply with the conditions attaching to it. Government

grants related to assets are presented by deducting the grants in arriving at the carrying amount of

the assets, and grants related to income are deferred and presented by deducting the related

expenses for the purpose of the government grants.



19

2.12 Intangible Assets

(a) Goodwill

Goodwill is measured as explained in Note 2.3(a) and goodwill arises on the acquisition of

subsidiaries, associates and business are included in intangible assets. Goodwill is tested annually

for impairment and carried at cost less accumulated impairment losses. Impairment losses on

goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying

amount of goodwill relating to the entity sold.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to

each of the CGUs, or group of CGUs, that is expected to benefit from the synergies of the

combination. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in

circumstances indicate a potential impairment. The carrying value of goodwill is compared to the

recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any

impairment is recognized immediately as an expense and is not subsequently reversed.

(b) Industrial property rights

Acquired industrial property rights, software and other intangible assets are shown at historical cost.

Intangible assets acquired in a business combination are recognized at fair value at the acquisition

date. These have a finite useful life and are carried at cost less accumulated amortization.

Amortization is calculated using the straight-line method to allocate the cost over their estimated

useful lives, as follows:

Useful life

Industrial property rights 5 - 20 years

Software 5 years

Others 3 - 5 years

Membership rights are regarded as intangible assets with indefinite useful life and not amortized

because there is no foreseeable limit to the period over which the asset is expected to be utilized.

2.13 Investment Property

Property held to earn rentals or for capital appreciation or both is classified as investment property.

Investment property is measured initially at its cost. After recognition as an asset, investment

property is carried at cost less accumulated depreciation and impairment losses. Investment

property, except for land, is depreciated using the straight-line method over their useful lives which

are the same as those of property, plant and equipment.



20

2.14 Impairment of Non-financial Assets

Goodwill or intangible assets with indefinite useful lives are not subject to amortization and are

tested annually for impairment. Assets that are subject to amortization are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount may not be

recoverable. An impairment loss is recognized for the amount by which the asset’s carrying

amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair

value less costs to sell and value in use. Non-financial assets, other than goodwill, that suffered

impairment are reviewed for possible reversal of the impairment at each reporting date.

2.15 Financial Liabilities

(a) Classification and measurement

Financial liabilities at fair value through profit or loss are financial instruments held for trading.

Financial liabilities are classified in this category if incurred principally for the purpose of

repurchasing them in the near term. Derivatives that are not designated as hedges or bifurcated

from financial instruments containing embedded derivatives are also categorized as held-for-

trading.

The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value

through profit or loss, financial guarantee contracts and financial liabilities that arise when a

transfer of financial assets does not qualify for derecognition, as financial liabilities carried at

amortized cost and presented as ‘trade payables’, ‘borrowings’, and ‘other payables’ in the

statement of financial position.

Preferred shares that provide for a mandatory redemption at a particular date are classified as

liabilities. Interest expenses on these preferred shares calculated using the effective interest

method are recognized in the statement of income as ‘finance costs’, together with interest

expenses recognized on other financial liabilities.

(b) Derecognition

Financial liabilities are removed from the statement of financial position when it is extinguished, for

example, when the obligation specified in the contract is discharged, cancelled or expired or when

the terms of an existing financial liability are substantially modified.

2.16 Current and Deferred Tax

The tax expense for the period consists of current and deferred tax. Tax is recognized on the profit

for the period in the statement of income, except to the extent that it relates to items recognized in

other comprehensive income or directly in equity. In this case, the tax is also recognized in other

comprehensive income or directly in equity, respectively. The tax expense is calculated on the

basis of the tax laws enacted or substantively enacted at the end of the reporting period.

Deferred tax is recognized for temporary differences arising between the tax bases of assets and

liabilities and their carrying amounts as expected tax consequences at the recovery or settlement



21

of the carrying amounts of the assets and liabilities. However, deferred tax assets and liabilities

are not recognized if they arise from initial recognition of an asset or liability in a transaction other

than a business combination that at the time of the transaction affects neither accounting nor

taxable profit or loss. Deferred tax assets are recognized only to the extent that it is probable that

future taxable profit will be available against which the deductible temporary differences can be

utilized.

Deferred tax liability is recognized for taxable temporary differences associated with investments

in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is

able to control the timing of the reversal of the temporary difference and it is probable that the

temporary difference will not reverse in the foreseeable future. In addition, deferred tax asset is

recognized for deductible temporary differences arising from such investments to the extent that it

is probable the temporary difference will reverse in the foreseeable future and taxable profit will be

available against which the temporary difference can be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset

current tax assets against current tax liabilities and when the deferred income taxes assets and

liabilities relate to income taxes levied by the same taxation authority on either the same taxable

entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.17 Provisions

Provisions are measured at the present value of the expenditures expected to be required to settle

the obligation and the increase in the provision due to passage of time is recognized as interest

expense.

2.18 Employee Benefits

(a) Post-employment benefits

The Group has both defined benefit and defined contribution plans. A defined contribution plan is a

pension plan under which the Group pays fixed contributions into a separate entity. The

contributions are recognized as an expense when an employee has rendered service.

A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined

benefit plans define an amount of pension benefit that an employee will receive on retirement,

usually dependent on one or more factors such as age, years of service and compensation. The

liability recognized in the statement of financial position in respect of defined benefit pension plans

is the present value of the defined benefit obligation at the end of the reporting period less the fair

value of plan assets. The defined benefit obligation is calculated annually by independent

actuaries using the projected unit credit method. The present value of the defined benefit

obligation is determined by discounting the estimated future cash outflows using interest rates of

high-quality corporate bonds and that have terms to maturity approximating to the terms of the

related pension obligation. The remeasurements of the net defined benefit liability are recognized

in other comprehensive income.

If any plan amendments, curtailments, or settlements occur, past service costs or any gains or

losses on settlement are recognized as profit or loss for the year.



22

2.19 Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents

amounts receivable for goods and services supplied, stated net of discounts, returns and value

added taxes, after elimination of intra-company transactions.

The Group recognizes revenue when the amount of revenue can be reliably measured; when it is

probable that future economic benefits will flow to the entity; and when specific criteria have been

met for each of the Group’s activities, as described below. The revenue can be reliably measured

only when any contingency related to sales is resolved. The Group bases its estimate on historical

results, taking into consideration the type of customer, the type of transaction and the specifics of

each arrangement.

(a) Sales of goods

The Group manufactures and sells cosmetics and personal care of goods. Sales of goods are

recognized when products are delivered to the purchaser.

(b) Rendering of services

When the outcome of a transaction involving the rendering of services can be estimated reliably,

revenue associated with such a transaction is recognised by reference to the stage of performance

of the services. When the outcome of the transaction involving the rendering of services cannot be

estimated reliably, revenue is recognized only to the extent of the expenses recognised that are

recoverable.

(c) Royalty income

Royalty income is recognized on an accrual basis in accordance with the substance of the relevant

agreements.

(d) Interest income

Interest income is recognized using the effective interest method according to the time passed.

When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable

amount and continues unwinding the discount as interest income. Interest income on impaired loan

and receivables is recognized using the original effective interest rate.

(e) Dividend income

Dividend income is recognized when the right to receive payment is established.

(f) Rental income

Rental income from rental property is recognized on a straight-line basis over a rental period.



23

(g) Customer Loyalty Programs

The Group operates a customer loyalty program in which customers are granted rewards to receive

discounts on future purchases when purchasing products. The fair value of consideration to give or

given for a sale is allocated to the reward points and remaining of initial sale, and the consideration

allocated to the reward points is measured based on the fair value of reward in exchange of reward

points, which is the fair value of reward points considered the proportion of reward points that are

not expected to be redeemed. Revenue from the award credits is recognized when it is redeemed,

and the unredeemed proportion by customers is expected to be forfeited within 12 months after the

initial sale.

2.20 Lease

A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or

series of payments, the right to use an asset for an agreed period of time. Leases where all the

risks and rewards of ownership are not transferred to the Group are classified as operating leases.

Lease payments under operating leases are recognized as expenses on a straight-line basis over

the lease term.

Leases where the Group has substantially all the risks and rewards of ownership are classified as

finance leases and recognized as lease assets and liabilities at the lower of the fair value of the

leased property and the present value of the minimum lease payments on the opening date of the

lease period.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards

incidental to ownership at the inception of the lease. A lease other than a finance lease is

classified as an operating lease. Lease income from operating leases is recognized in income on a

straight-line basis over the lease term. Initial direct costs incurred by the lessor in negotiating and

arranging an operating lease is added to the carrying amount of the leased asset and recognized

as an expense over the lease term on the same basis as the lease income.

2.21 Non-current Assets (or Disposal Group) Held-for-sale and Discontinued Operations

Non-current assets (or disposal group) are classified as assets held for sale when their carrying

amount is to be recovered principally through a sale transaction. They are stated at the lower of

carrying amount and fair value less costs to sell.

When a component of the Group representing a separate major line of business or geographical

area of operation has been disposed of, or is subject to a sale plan involving loss of control of a

subsidiary, the Group discloses in the income statement the post-tax profit or loss of discontinued

operations and the post-tax gain or loss recognised on the measurement to fair value less costs to

sell or on the disposal of the assets or disposal groups constituting the discontinued operation. The

net cash flows attributable to the operating, investing and financing activities of discontinued

operations are presented in the notes to the financial statements.



24

2.22 Approval of Issuance of the Financial Statements

The issuance of the December 31, 2013 consolidated financial statements of the Group was

approved by the Board of Directors on February 6, 2014, which is subject to change with approval

at the annual shareholder’s meeting.

3. Critical Accounting Estimates and Judgments

The Group makes estimates and assumptions concerning the future. The estimates and

assumptions are continuously evaluated with consideration to factors such as events reasonably

predictable in the foreseeable future within the present circumstance according to historical

experience. The resulting accounting estimates will, by definition, seldom equal the related actual

results. The estimates and assumptions that have a significant risk of causing a material

adjustment to the carrying amounts of assets and liabilities within the next financial year are

addressed below.

(a) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment. The recoverable

amounts of cash-generating units have been determined based on value-in-use calculations.

(Note 14).

(b) Income taxes

The Group is operating in numerous countries and the income generated from these operations is

subject to income taxes based on tax laws and interpretations of tax authorities in numerous

jurisdictions. There are many transactions and calculations for which the ultimate tax determination

is uncertain (Note 26).

(c) Fair value of financial instruments

The fair value of financial instruments that are not traded in an active market is determined by

using valuation techniques. The Group uses its judgment to select a variety of methods and make

assumptions that are mainly based on market conditions existing at the end of each reporting

period (Note 40).

(d) Provisions

As described in Note 19, the Company recognizes provisions for estimated returns, profit-sharing

and bonuses as of the reporting date. The amounts are estimated based on historical data.

(e) Customer loyalty programs

By customer loyalty programs, the Group allocates the consideration receivable to the award

credits by reference to the fair value of goods providing, taking into account redemption rates and

timing of redemption based on historical data.



25

(f) Net defined benefit liability

The present value of net defined benefit liability depends on a number of factors that are

determined on an actuarial basis using a number of assumptions including the discount rate (Note

21).

4. U.S. Dollar Amounts

The Company operates primarily in Korean won and its accounting records are maintained in

Korean won. The U.S. dollars amounts, provided herein, represent supplementary information,

solely for the convenience of the reader. All won amounts are expressed in U.S. dollars at US$1:

￦1,055.30, the exchange rate in effect on December 31, 2013. Such presentation is not in

accordance with accounting principles generally accepted in either the Republic of Korea or the

United States, and should not be construed as a representation that the won amounts shown could

be readily converted, realized or settled in U.S. dollars at this or any other rate.

The December 31, 2012 U.S. dollar amounts, which were previously expressed at US$1:

￦1,071.10, the rate in effect on December 31, 2012, have been restated to reflect the exchange

rate in effect on December 31, 2013.

5. Segment Information

Management has determined the operating segments based on the information reviewed by the

chief operating decision-maker who formulates the strategic. Chief operating decision-maker

considers the business from perspective of products of each segment.

The main products of each business division are as follows:

Divisions Products

Cosmetics Cosmetics and household products

Pharmaceuticals Medicines

Others Cosmetics containers and hair products

The segment information for revenue and operating profit for the years ended December 31, 2013

and 2012, is as follows:

(in millions of Korean won) 2013 2012

Revenue

Operating

profit

Depreciation

and

amortization Revenue

Operating

profit

Depreciation

and

amortization

Cosmetics \3,729,647 \ 448,564 \ 144,069 \ 3,350,833 \ 428,631 \ 116,580

Pharmaceuticals 125,439 4,254 2,721 141,247 6,900 1,484

Others 193,268 16,717 8,522 175,374 15,634 7,278

\4,048,354 \ 469,535 \ 155,312 \ 3,667,454 \ 451,165 \ 125,342



26

Adjustments from total segment revenue to the Group’s revenue for the years ended December 31,

2013 and 2012, are as follows:


Total segment revenue \ 4,048,354 \ 3,667,454

Elimination of intercompany transactions and others (152,963) (235,721)

Group revenue \ 3,895,391 \ 3,431,733

Adjustments from total segment operating profit to the Group’s operating profit for the years ended

December 31, 2013 and 2012, are as follows:


Total segment operating profit \ 469,535 \ 451,165

Intersegment revenue(expense) 216 (749)

Operating profit \ 469,751 \ 450,416

Assets and liabilities as of December 31, 2013 and 2012, are as follows:


Assets Liabilities Assets Liabilities

Cosmetics ￦ 3,962,710 ￦ 904,829 ￦ 3,519,531 ￦ 770,677

Pharmaceuticals 133,035 42,308 144,480 56,311

Others 1,897,434 86,004 1,857,857 85,829

Total reportable segment assets and liabilities 5,993,179 1,033,141 5,521,868 912,817

Elimination of intercompany transactions and others (1,071,323) (20,232) (1,005,913) (31,075)

Total Group assets and liabilities ￦ 4,921,856 ￦ 1,012,909 ￦ 4,515,955 ￦ 881,742

Additions1

to non-current assets for the years ended December 31, 2013 and 2012, are as follows:


Cosmetics \ 365,172 \ 284,904

Pharmaceuticals 7,831 29,438

Others 16,294 25,199

\ 389,297 \ 339,541

1Financial instruments are excluded.



27

External revenues by geographical areas for the years ended December 31, 2013 and 2012, and

non-current assets as December 31, 2013 and 2012, are as follows:

(in millions of Korean won) Revenue Non-current assets1

2013 2012 2013 2012

Korea \ 3,355,880 \ 2,942,478 \ 2,709,887 \ 2,611,966

North America 23,489 27,196 249 609

Europe 74,193 79,659 56,530 59,936

China 336,518 280,308 152,701 53,397

Others 105,311 102,092 19,755 13,456

\ 3,895,391 \ 3,431,733 \ 2,939,122 \ 2,739,364

1Non-current assets consist of property, plant and equipment, and intangible assets.

There is no external customer attributing to more than 10% of total revenues for the years ended

December 31, 2013 and 2012.

6. Financial Instruments by Category

Categorizations of financial assets as of December 31, 2013 and 2012, are as follows:


Loans and receivables Cash and cash equivalents \ 364,548 \ 227,459

Current bank deposits 529,193 535,799

Non-current bank deposits 7,525 5,603

Trade receivables 243,296 221,531

Current other receivables 7,391 9,183

Non-current other receivables 135,208 109,713

Other current assets1

4,269 5,581

Available-for-sale Marketable equity securities - 4,211

financial assets Non-marketable equity securities 25,357 23,418

Debt securities 5,630 4,743

\ 1,322,417 \ 1,147,241

1Other current assets mainly represent accrued revenues (Note 16).



28

Categorizations of financial liabilities as December 31, 2013 and 2012, are as follows:


Financial liabilities Trade payables \ 110,831 \ 116,411

at amortized cost Short-term borrowings 84,237 24,812

Long-term borrowings 68,992 51,750

Other payables 221,750 202,861

Other current liabilities2

19,024 8,952

Other non-current liabilities3

20,319 25,991

Financial liabilities atfair value throughprofit or loss

Other non-current liabilities⁴181 -

\ 525,334 \ 430,777

2Other current liabilities consist of dividend payables and accrued expenses (Note 20).

3Other non-current liabilities consist of deposits received, long-term accrued expenses and

financial lease liabilities (Note 20).4Other non-current liabilities consist of derivative financial liabilities (Note 17).

Income and loss of financial instruments by category for the years ended December 31, 2013 and

2012, are as follows:


Available-for-sale financial assets

Gain(Loss) on valuation (Other comprehensive income(loss)) \ (3,883) \ 785

Gain on disposal (Profit or loss) 3,240 1,947

Gain on disposal (Reclassification1) 3,207 2,215

Interest income 85 95

Dividend income 808 899

Loans and receivables

Interest income 25,889 29,351

Loss on foreign currency translation (1,642) (3,301)

Loss on impairment - 3,841

Financial liabilities at amortized cost

Interest expense (3,140) (2,298)

Gain on foreign currency translation 467 471

Financial liabilities at fair value through profit or loss

Gain(Loss) on valuation (185) -

1Reclassification to profit/loss represents amounts transferred from components of other

comprehensive income.



29

7. Credit Quality of Financial Assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by

reference to external credit ratings (if available) or to historical information about counterparty

default rates as of December 31, 2013 and 2012:

7.1 Credit Quality of Trade Receivables


Counterparties with external credit rating

A \ 126,979 \ 111,358

BBB 759 303

127,738 111,661

Counterparties without external credit rating

Group 11

4,093 2,689

Group 22

80,007 76,478

Group 33

1 964

84,101 80,131

\ 211,839 \ 191,792

1New customers/related parties (less than 6 months)

2Existing customers/related parties (more than 6 months) with no defaults in the past

3Existing customers/related parties (more than 6 months) with some defaults in the past.

All defaults were fully recovered.

7.2 Credit Quality of Other Financial Assets


Counterparties with external credit rating

A \ 2,667 \ 2,695

2,667 2,695

Counterparties without external credit rating

Group 1 663 3,195

Group 2 139,269 109,796

139,932 112,991

\ 142,599 \ 115,686



30


Cash equivalents and bank deposits

AAA \ 889,206 \ 746,725

AA 12,000 22,000

\ 901,206 \ 768,725

8. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2013 and 2012, are as follows:


Cash on hand \ 60 \ 136

Ordinary deposits 28,127 42,999

Checking accounts 60,138 23,802

MMDA 276,223 160,522

\ 364,548 \ 227,459

9. Trade and Other Receivables

Trade and other receivables as of December 31, 2013 and 2012, are as follows:


Trade receivables \ 246,327 \ 224,723

Less: provision for impairment (3,031) (3,192)

Trade receivables, net \ 243,296 \ 221,531

Current other receivables \ 7,882 \ 9,671

Less: provision for impairment (491) (488)

Current other receivables, net \ 7,391 \ 9,183

Non-current other receivables \ 135,208 \ 109,713

Less: provision for impairment - -

Non-current other receivables, net \ 135,208 \ 109,713



31

Details of other receivables are as follows:


Current Non-current Current Non-current

Non-trade receivables \ 7,391 \ 84 \ 9,183 \ 113

Loans - 29,353 - 24,162

Deposits provided - 105,771 - 85,438

\ 7,391 \ 135,208 \ 9,183 \ 109,713

The aging analysis of trade and other receivables as December 31, 2013 and 2012, is as follows:


Tradereceivables

Otherreceivables

Tradereceivables

Otherreceivables

Receivables not past due \ 211,839 \ 142,348 \ 191,792 \ 115,686

Past due but not impaired

Up to 3 months 21,012 43 20,957 1,195

4 to 6 months 4,748 - 4,150 1,959

7 to 12 months 3,382 - 1,879 54

Over 12 months 2,315 208 981 1

Impaired receivables 3,031 491 4,964 488

\ 246,327 \ 143,090 \ 224,723 \ 119,384

Movements on provisions for impairment of trade receivables for the years ended December 31,



Beginning balance \ 3,192 \ 7,099

Provisions for impaired receivables 311 (3,841)

Receivables written off during the year as uncollectible (198) (66)

Classified as held-for-sale (274) -

Ending balance \ 3,031 \ 3,192

The creation and release of provision for impaired receivables have been included in ‘selling and

administrative expenses’ in the statement of income (Note 29). Amounts charged to the allowance

account are generally written off, when there is no expectation of recovering additional cash.

The Group’s trade and other receivables are spread to a great number of customers, so there is

no important credit risk concentrated. The maximum exposure of trade and other receivables to

credit risk at the reporting date is the carrying value of each class of receivable mentioned above.



32

10. Inventories

Inventories as of December 31, 2013 and 2012, are as follows:


Merchandise \ 93,202 \ 78,309

Finished goods 124,888 122,058

Semi-finished goods 27,757 32,900

Work-in-process 3,966 5,226

Raw materials 38,223 49,331

Subsidiary materials 26,215 22,996

Supplies 5,402 4,001

Materials-in-transit 22,480 19,168

\ 342,133 \ 333,989

The cost of inventories recognized as expense and included in ‘cost of sales’ amounts to

\1,026,594 million (2012: \818,134 million).

Movements on the provision for impairment of inventories for the years ended December 31, 2013

and 2012, are as follows:


Loss on valuation of inventories \ 4,738 \ 629

Loss on disposal of inventories 23,885 19,386

\ 28,623 \ 20,015



33

11. Available-for-sale Financial Assets

Available-for-sale financial assets as of December 31, 2013 and 2012, are as follows:


Available-for-sale debt securities

Government-issued securities \ 5,630 \ 4,743

Available-for-sale equity securities

ANTERIOS, INC. 4,067 4,067

CAPSUM 549 549

Regen Prime Co., Ltd. 500 500

Lithera, Inc. 2,147 2,147

Obalon Therapeutics 5,378 5,378

Brickell Biotech 1,083 -

TRIA BEAUTY INC 1,688 -

Pacific Metals Co., Ltd. 6,080 6,080

I’M Investment Securities Co., Ltd. 2,541 3,373

GL Pharm Tech Co., Ltd. 191 191

Welskin Co., Ltd. 48 48

The Korea Economic Daily 81 81

Biogenics Co., Ltd. 1,000 1,000

Chungbuk Printing Association 1 1

ELANDRETAIL Ltd. 3 3

Marketable equity securities

Medy-tox Inc. - 4,211

\ 30,987 \ 32,372

Marketable equities are measured at fair value using quoted price in an active market. The equity

of I’M Investment & Securities, among the non-marketable equities, is measured at fair value using

recent arm's length market transactions between knowledgeable, willing parties, since the market

for this equity is not active.

Non-marketable equities other than the equity of I’M Investment & Securities are measured at cost,

because the variability of estimated cash flows is significant and the probabilities of the various

estimates cannot be reasonably assessed, or the difference between their fair values and their

acquisition costs is immaterial. Debt investments are measured at cost, since the difference

between the fair value and the acquisition cost is immaterial.



34

The changes in available-for-sale financial assets as of December 31, 2013 and 2012, are as

follows:



Additions 4,180 7,929

Reclassification - 6,080

Disposals (623) (874)

Gains(Losses) on valuation (831) 3,859

Losses reclassified from equity1

(4,111) (2,923)

Ending balance \ 30,987 \ 32,372

1The Company reclassified gain on valuation of ₩4,111 million (deferred tax: ₩ 904 million) from

equity to profit or loss in 2013, and the gain on valuation of ₩ 2,923 million (deferred tax: ₩ 708

million) were transferred to profit or loss in 2012 (Notes 6 and 22).

The maximum exposure to credit risk at the reporting date is the carrying value of the debt

securities classified as available-for-sale.

None of the available-for-sale financial assets is either past due or impaired.

12. Associates

Associates as of December 31, 2013 and 2012, are as follows:

(in millions of Korean won) 2013

Percentage ofownership(%)

Acquisitioncost

Bookvalue

Net assetvalue

Taiwan AMORE Co.,Ltd. 50 \ 131 \ 1,935 \ 2,118

AMOREPACIFIC HongKong Co.,Limited 30 1,220 5,951 7,371

BBDO Korea lnc. 30 949 3,496 3,496

Anhui Pacific Tea Co., Ltd.1

80 786 236 236

\ 3,086 \ 11,618 \ 13,221


Percentage ofownership(%)

Acquisitioncost

Bookvalue

Net assetvalue

Taiwan AMORE Co.,Ltd. 50 \ 131 \ 1,808 \ 1,953

AMOREPACIFIC HongKong Co.,Limited 30 1,220 3,285 4,744

BBDO Korea lnc. 30 949 3,583 3,583

Anhui Pacific Tea Co., Ltd.1

80 786 236 236

\ 3,086 \ 8,912 \ 10,516

1A subsidiary for consolidation but not included in the scope of consolidation due to its

immateriality.



35

Changes in investments in associates for the years ended December 31, 2013 and 2012, are as

follows:


Taiwan AMORECo., Ltd.

AMOREPACIFICHongKong

Co., LimitedBBDO

Korea Inc.Anhui PacificTea Co., Ltd. Total

Beginning balance ￦ 1,808 ￦ 3,285 ￦ 3,583 ￦ 236 ￦ 8,912

Share of profit 260 2,896 1,174 - 4,330

Changes in other comprehensive income (95) (191) - - (286)

Dividends - - (1,261) - (1,261)

Exchange differences (38) (39) - - (77)

Ending balance ￦ 1,935 ￦ 5,951 ￦ 3,496 ￦ 236 ￦ 11,618


TaiwanAMORECo., Ltd.

AMOREPACIFICHongKong

Co., Limited

AMOREPACIFIC(Thailand)LIMITED

BBDOKorea Inc.

AnhuiPacific Tea

Co., Ltd. Total

Beginning balance ￦ 1,715 ￦ 2,836 ￦ 114 ￦ 3,596 ￦ 253 ￦ 8,514

Share of profit 383 1,292 - 1,247 - 2,922

Loss on impairment - - - - (17) (17)

Changes in other comprehensive income (16) (135) - - - (151)

Dividends (124) (436) - (1,260) - (1,820)

Exchange differences (150) (272) - - - (422)

Disposal - - (114) - - (114)

Ending balance ￦ 1,808 ￦ 3,285 ￦ - ￦ 3,583 ￦ 236 ￦ 8,912



36

Summary of financial information of associates as of and for the years ended December 31, 2013

and 2012, follows:


Totalassets

Totalliabilities Revenue Net income

Comprehensiveincome

Taiwan AMORE Co., Ltd. ￦ 5,198 ￦ 962 ￦ 7,530 ￦ 520 ￦ 330

AMOREPACIFIC HongKong Co., Limited 40,176 15,607 84,766 9,330 8,755

BBDO Korea Inc. 37,353 25,699 27,335 3,912 3,912

Anhui Pacific Tea Co., Ltd. 316 - - - -


Totalassets

Totalliabilities Revenue Net income

Comprehensiveincome

Taiwan AMORE Co., Ltd. ￦ 5,129 ￦ 1,223 ￦ 7,174 ￦ 766 ￦ 636

AMOREPACIFIC HongKong Co., Limited 28,936 13,122 66,524 5,222 4,148

BBDO Korea Inc. 47,429 35,488 30,327 4,156 4,156

Anhui Pacific Tea Co., Ltd. 316 - - - -

13. Property, Plant and Equipment

Property, plant and equipment as of December 31, 2013 and 2012, are as follows:


Acquisitioncost

Accumulateddepreciation

Bookvalue

Acquisitioncost


Bookvalue

Land \ 1,084,471 \ - \ 1,084,471 \ 1,033,619 \ - \ 1,033,619

Buildings 620,178 (106,726) 513,452 592,022 (100,436) 491,586

Structures 57,480 (18,293) 39,187 56,891 (16,656) 40,235

Machinery 403,177 (181,314) 221,863 355,587 (157,551) 198,036

Vehicles 3,895 (2,661) 1,234 3,741 (2,703) 1,038

Tools 150,521 (127,751) 22,770 138,271 (115,028) 23,243

Fixtures and furniture 667,804 (456,567) 211,237 567,324 (381,575) 185,749

Others 7,741 (2,447) 5,294 7,178 (1,991) 5,187

Construction-in-progress 188,861 - 188,861 123,877 - 123,877

\ 3,184,128 \ (895,759) \ 2,288,369 2,878,510 \ (775,940) \ 2,102,570



37

Changes in property, plant and equipment for the years ended December 31, 2013 and 2012, are

as follows:

(in millions of Korean

won)

2013

Beginningbalance Acquisition Reclass1 Disposal Depreciation

Classified asheld-for-sale

Exchangedifferences

Endingbalance

Land \ 1,033,619 \ 646 \ 51,091 \ (957) \ - \ - \ 72 \ 1,084,471

Buildings 491,586 14,775 50,848 (26,264) (17,743) - 250 513,452

Structures 40,235 354 1,990 (498) (2,905) - 11 39,187

Machinery 198,036 12,030 37,390 (616) (25,086) - 109 221,863

Vehicles 1,038 485 56 (7) (340) - 2 1,234

Tools 23,243 13,896 94 (2) (14,464) - 3 22,770

Fixtures and furniture 185,749 91,996 19,830 (3,570) (81,818) (45) (905) 211,237

Other 5,187 854 - (36) (677) - (34) 5,294

Construction in progress 123,877 230,561 (163,867) - - - (1,710) 188,861

\ 2,102,570 \ 365,597 \ (2,568) \ (31,950) \ (143,033) \ (45) \ (2,202) \ 2,288,369


won)

2012

Beginningbalance Acquisition Reclass1 Disposal Depreciation

Acquisitionin a

businesscombination

Exchangedifferences

Endingbalance

Land \ 986,207 \ 10,284 \ 62,257 \ (24,985) \ - \ - \ (144) \ 1,033,619

Buildings 470,433 3,168 36,695 (951) (16,579) - (1,180) 491,586

Structures 40,463 545 2,145 (12) (2,914) - 8 40,235

Machinery 171,763 14,665 32,546 (6) (20,609) - (323) 198,036

Vehicles 1,114 213 45 (41) (290) - (3) 1,038

Tools 18,969 15,442 1,653 - (12,771) - (51) 23,243

Fixtures and furniture 152,766 88,373 8,943 (2,684) (60,932) 426 (1,143) 185,749

Other 4,830 474 551 (19) (618) - (31) 5,187

Construction in progress 106,265 181,568 (162,410) (1,100) - 91 (537) 123,877

\1,952,810 \ 314,732 \ (17,575) \ (29,798) \ (114,713) \ 517 \ (3,404) \ 2,102,570

1During 2013, the Group moved its headquarters to build a new building of the Company. The

Company recognized impairment losses on existing buildings and structures with carrying

amounts of ₩17,764 million and ₩284 million, and recorded these amounts as non-operating

expenses (Note 31).

Depreciation of property, plant and equipment is charged to the following accounts:


Selling and administrative expenses1 \ 71,233 \ 60,298

Cost of sales 71,800 54,415

\ 143,033 \ 114,713

1Depreciation expense is included in research and development expenses.



38

Details of property, plant and equipment provided as collaterals as of December 31, 2013 and


(in millions ofKorean won)

2013

Carryingamount

Securedamount Related line item

Relatedamount Secured party

Land and buildings \ 54,088 \ 2,842 Deposits received \ 1,968 Wooribank

Land and buildings 319 415 Deposits received 319 Samsung Life Insurance Co., Ltd.

Land and buildings 961 1,249 Deposits received 961 National Pension Service

Land and buildings 56 73 Deposits received 56 Hanwha General Insurance Co., Ltd.


2012

Carryingamount

Securedamount Related line item

Relatedamount Secured party

Land and buildings \ 55,410 \ 2,842 Deposits received \ 1,968 Wooribank

Land and buildings 319 415 Deposits received 319 Samsung Life Insurance

Land and buildings 961 1,249 Deposits received 961 National Pension Service

Land and buildings 56 73 Deposits received 56 Hanwha General Insurance

Land and buildings 459 597 Deposits received 459 AJU CAPITAL CO., LTD

Land and buildings 1,246 1,752 Deposits received 1,246 Wooribank

Details of finance lease as of December 31, 2013 and 2012, are as follows:

One of the subsidiaries, AMOREPACIFIC EUROPE S.A.S leases land and buildings under non-

cancellable finance lease agreements. The lease terms are until the year 2018, and ownership of

the assets will be transferred to AMOREPACIFIC EUROPE S.A.S after the lease terms are

terminated.

Details of property, plant and equipment classified as a finance lease as of December 31, 2013



Land Buildings Land Buildings

Cost- capitalized finance leases \ 1,777 \ 18,851 \ 2,613 \ 26,051

Accumulated depreciation - (5,712) - (7,625)

Net book value \ 1,777 \ 13,139 \ 2,613 \ 18,426



39

The total of future minimum lease payments as of December 31, 2013 and 2012, are as follows:


Total minimum lease payments

No later than 1 year \ 1,803 \ 2,601

1 year to 5 years 7,212 10,093

Later than 5 years - 1,753

\ 9,015 \ 14,447

Unearned finance cost \ (769) \ (1,524)

Net minimum lease payments

No later than 1 year 1,526 2,103

1 year to 5 years 6,720 9,091

Later than 5 years - 1,729

\ 8,246 \ 12,923

The Group leases certain office, warehouse, and computer equipment under non-cancellable

operating lease agreements. The lease terms are between 1 and 5 years. The lease payment

recognized as expense for the year ended December 31, 2013, amount to \112,790 million (2012:

\83,217 million).

The total of future minimum lease payments under non-cancellable operating lease agreements as

of December 31, 2013 and 2012, are as follows:


No later than 1 year \ 87,326 \ 76,232

1 year to 5 years 74,678 58,940

\ 162,004 \ 135,172



40

14. Intangible Assets

Changes in intangible assets for the years ended December 31, 2013 and 2012, are as follows:


GoodwillIndustrialproperty Software Others Total

Beginning balance ￦ 536,991 ￦ 10,962 ￦ 29,514 ￦ 59,327 ￦ 636,794

Acquisition - 3,976 4,468 15,256 23,700

Reclassification - 18 11,477 (8,927) 2,568

Disposal - - (165) (657) (822)

Amortization - (1,166) (10,536) (577) (12,279)

Loss on impairment - - - (47) (47)

Classified as held-for-sale - (1) - - (1)

Exchange differences 301 69 9 461 840

Ending balance ￦ 537,292 ￦ 13,858 ￦ 34,767 ￦ 64,836 ￦ 650,753


GoodwillIndustrialproperty Software Others Total

Beginning balance ￦ 535,660 ￦ 11,080 ￦ 26,776 ￦ 52,399 ￦ 625,915

Acquisition - 1,221 5,891 17,697 24,809

Reclassification - - 6,203 (7,797) (1,594)

Disposal - (223) (1) (1,027) (1,251)

Amortization - (977) (9,282) (370) (10,629)

Loss on impairment - - - (130) (130)

Acquisition in a business combination 4,771 - 6 - 4,777

Exchange differences (3,440) (139) (79) (1,445) (5,103)

Ending balance ￦ 536,991 ￦ 10,962 ￦ 29,514 ￦ 59,327 ￦ 636,794

Amortization of intangible assets is charged to the following accounts:


Selling and administrative expenses1 \ 10,744 \ 9,586

Cost of sales 1,535 1,043

\ 12,279 \ 10,629

1Amortization expense is included in research and development expenses.

The Group recognized research and development costs as expenses totaling ₩64,673 million

(2012: ₩63,967 million).



41

14.1 Impairment Tests for Goodwill

Goodwill is monitored by the management at the cash-generating units. The following is a

summary of goodwill allocation for each operating segment:


Cosmetics CGU \ 500,319 \ 500,320

Annick Goutal CGU 24,171 23,507

China CGU 4,233 4,179

Vietnam CGU 3,640 3,742

Singapore CGU 3,406 3,581

Thailand CGU 513 559

Indonesia CGU 335 429

Others 675 674

\ 537,292 \ 536,991

The recoverable amounts of all CGUs have been determined based on value-in-use calculations,

and the key assumptions used for value-in-use calculations in 2013 are as follows:

(in percentage, %)Cosmetics

CGUAnnick Goutal

CGUChinaCGU

VietnamCGU

SingaporeEtude House

CGU

Gross margin rate 15.03 6.42 0.70 0.15 2.23

Growth rate1

9.05 8.60 29.8 17.92 6.63

Pre-tax discount rate2

10.46 8.65 12.10 14.99 7.91

1Weighted average revenue growth rate used to extrapolate cash flows for a five-year period is

measured based on the past performance and expectation of market development.

2Pre-tax discount rate applied to pre-tax cash flow projections.

As of December 31, 2013, the recoverable amount of the Annick Goutal operating segment

exceeded its carrying value by\373 million. Nevertheless, there is a possibility that reasonable

changes in key assumptions may offset the excess amount. A reduction in gross margin of 6.31%,

a fall in growth rate to 7.37% and a rise in discount rate to 8.71% would offset the excess amount.



42

15. Investment Property

Details of investment property as of December 31, 2013 and 2012, are as follows:

(in millions of 2013 2012Korean won)

Acquisitioncost


Bookvalue

Acquisitioncost


Bookvalue

Land \ 185,551 \ - \ 185,551 \ 185,546 \ - \ 185,546

Buildings 39,259 (24,542) 14,717 39,259 (23,099) 16,160

Structures 5,082 (3,718) 1,364 5,082 (3,556) 1,526

\ 229,892 \ (28,260) \ 201,632 \ 229,887 \ (26,655) \ 203,232

Changes in investment property for the years ended December 31, 2013 and 2012, are as follows:


won)

2013 2012

Land Buildings Structures Total Land Buildings Structures Total

Beginning balance \ 185,546 \ 16,160 \ 1,526 \203,232 \185,546 \ - \ - \185,546

Acquisition 5 - - 5 - - - -Reclassification - - - - - 17,497 1,678 19,175Depreciation - (1,443) (162) (1,605) - (1,337) (152) (1,489)Disposal - - - - - - - -

Ending balance \185,551 \ 14,717 \ 1,364 \201,632 \185,546 \ 16,160 \ 1,526 \203,232

Fair value of investment property as of December 31, 2013, is \223,798 million (2012: \220,230

million).

No income related to investment property was recognized for the years ended December 31, 2013

and 2012.

16. Other Assets

Other assets as of December 31, 2013 and 2012, are as follows:



Accrued revenues \ 4,269 \ - \ 5,581 \ -

Advance payments 11,266 - 20,320 -

Prepaid expenses 23,437 22 18,843 18

Others 540 11 3,645 -

\ 39,512 \ 33 \ 48,389 \ 18



43

17. Derivative Financial Instruments

Details of derivative financial instruments as of December 31, 2013 and 2012, are as follows:



Non-current derivative instruments

Currency forward exchange contracts \ - \ 181 \ - \ -

The maximum exposure to credit risk as of the reporting date is the fair value of derivatives as of

December 31, 2013. The Group entered into the currency forward contracts to hedge the risk of

changes in borrowings related to changes in foreign exchange rates. The details of currency

forward contracts as of December 31, 2013 are as follows:

(in millions of Korean won, CNY and USD)

Contract amount Profit or Loss

TypeCounter-

party Contract period Sales PurchaseGain on

valuationLoss onvaluation

CurrencyForward Citibank Sep 9,2013~July 8,2016 CNY 192,264,000 USD 30,000,000 \ - \ 185



44

18. Borrowings

Details of borrowings as of December 31, 2013 and 2012, are as follows:

(in millions of Korean won, EUR, USD, JPY)Creditor

Interest rate(%),Dec. 31, 2013 2013 2012

Short-term borrowings

Bank overdrafts of EUR 13,313,954 Credit Agricole and others 1.4 \ 19,389 \ 6,193

(2012: EUR 4,372,954)

Loans for working capital of EUR 5,000,000 Citibank 1.4 7,281 7,082

(2012: EUR 5,000,000)

Bank overdrafts of USD - Citibank 2.31 - 185

(2012: USD 173,136)

Loans for working capital of JPY 600,000,000 Shinhan Bank Japan 1.15 6,028 5,352

(2012: JPY 429,000,000)

Loans for working capital Industrial Bank of Korea 3.65 5,000 5,000

Loans for facility Woori Bank - - 1,000

Bank overdrafts of EUR 2,973,329 KEB 1.9 4,330 -

42,028 24,812

Current portion of long-term borrowings

Loans for working capital of USD 40,000,000 Citibank and others 1.75 42,209 -

42,209 -

Long-term borrowings

Loans for working capital of USD 65,000,000 Citibank and others 1.55 68,992 42,850

(2012: USD 40,000,000)

Loans for facility Woori Bank - - 1,000

Loans for facility Industrial Bank of Korea - - 7,900

68,992 51,750

\ 153,229 \ 76,562

Annual redemption plan as of the reporting date is as follows:


January 1, 2014 ~ December 31, 2014 \ 42,209

January 1, 2015 ~ December 31, 2016 68,992

\ 111,201



45

19. Provisions for Liabilities and Charges

Changes of provisions for liabilities and charges as of December 31, 2013 and 2012, are as

follows:


won)

2013 2012

Provisionfor sales

returnProfit-sharingand bonuses Restructuring Total

Provisionfor sales

returnProfit-sharingand bonuses Restructuring Total

Beginning balance \ 7,503 \ 80 \ 4,151 \ 11,734 \ 10,866 \ 138 \ - \ 11,004

Increase 3,040 1,791 - 4,831 2,591 43,076 4,245 49,912

Decrease (3,124) (1,772) (4,260) (9,156) (5,925) (43,121) - (49,046)

Exchange differences (3) 3 109 109 (29) (13) (94) (136)

Ending balance \ 7,416 \ 102 \ - \ 7,518 \ 7,503 \ 80 \ 4,151 \ 11,734

20. Other Liabilities

Other liabilities as of December 31, 2013 and 2012, are as follows:



Withholdings \ 12,817 \ - \ 11,155 \ -

Value added tax withheld 26,941 - 25,328 -

Advances from customers 24,296 3,002 20,479 3,002

Deposits received - 8,935 - 10,363

Accrued expenses 18,751 3,138 8,699 2,705

Finance lease liabilities - 8,246 - 12,923

Dividends payable 273 - 253 -

Others 1,407 926 1,525 640

\ 84,485 \ 24,247 \ 67,439 \ 29,633



46

21. Post-employment Benefits

21.1 Defined Benefit Plan

Details of net defined benefit liabilities recognized in the statements of financial position as of



Present value of funded defined benefit obligations \ 195,008 \ 185,091

Present value of unfunded defined benefit obligations 2,000 2,188

Total 197,008 187,279

Fair value of plan assets1

(142,979) (129,168)

Liability in the statement of financial position \ 54,029 \ 58,112

1The contributions to the National Pension Fund of \369 million are included in the fair value of

plan assets as of December 31, 2013 (2012: \470 million).

Changes in the defined benefit obligations for the years ended December 31, 2013 and 2012, are

as follows:



Current service cost 28,636 25,799

Interest expense 8,357 8,780

Remeasurements

Actuarial gains and losses arising from changes in demographic assumptions - 1,263

Actuarial gains and losses arising from changes in financial assumptions (6,017) 10,907

Actuarial gains and losses arising from experience adjustments 6,067 3,694

Exchange differences (135) (100)

Payments from plans

Benefit payments (20,687) (14,730)

Classified as held-for-sale (6,435) -

Others (57) -

Ending balance \ 197,008 \ 187,279



47

Changes in the fair value of plan assets for the years ended December 31, 2013 and 2012, are as

follows:



Interest income 5,870 6,141

Remeasurements

Return on plan assets (1,716) (1,738)

Contributions

Employees 31,450 33,691

Payments from plans

Benefit payments (17,353) (11,033)

Classified as held-for-sale (4,144) -

Others (296) -

Ending balance \ 142,979 \ 129,168

The principal actuarial assumptions as of December 31, 2013 and 2012, are as follows:

(in percentage, %) 2013 2012

Discount rate 3.15 ~ 5.00 2.75 ~ 4.75

Salary growth rate 3.00 ~ 6.42 3.42 ~ 6.74

The sensitivity of the defined benefit obligations as of December 31, 2013, to changes in the

weighted principal assumptions is:

(in percentage, %) Effect on defined benefit obligation

Changes in principalassumption

Increase in principalassumption

Decrease in principalassumption

Discount rate 1.00% 7.22% decrease 7.51% increase

Salary growth rate 1.00% 8.46% increase 7.49% decrease

The defined benefit liabilities are exposed to a significant risk from changes in the corporate bond

yields used as the discount rate.

The above sensitivity analyses are based on a change in an assumption while holding all other

assumptions constant. In practice, this is unlikely to occur, and changes in some of the

assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in

principal actuarial assumptions is calculated using the projected unit credit method, the same

method applied when calculating the defined benefit obligations recognized on the statement of

financial position.

The methods and types of assumptions used in preparing the sensitivity analysis did not change

compared to the previous period.



48

Plan assets as of December 31, 2013 and 2012, consist of as follows:


Unquoted price Composition Unquoted price Composition

Deposits \ 142,609 99.70% \ 128,698 99.60%

Deposits to the National Pension Service 370 0.30% 470 0.40%

\ 142,979 100.00% \ 129,168 100.00%

The Group reviews the funding level on an annual basis and has a policy to contribute in the fund.

Expected contributions to post-employment benefit plans for the year ended December 31, 2014

are \28,148 million.

Expected maturity analysis of undiscounted pension benefits as of December 31, 2013, is as

follows:

(in millions of Korean won)Less than 1

yearBetween 1

and 2 yearsBetween 2

and 5 yearsOver 5years Total

Pension benefits \ 16,684 \ 18,917 \ 63,238 \ 139,651 \ 238,490

The weighted average maturity of the defined benefit obligations is 8.05 years

21. 2 Defined Contribution Plan

Recognized expense related to the defined contribution plan for the year ended December 31,

2013, is\73 million (\84 million).

22. Other Components of Equity

Other components of equity as December 31, 2013 and 2012, are as follows:


Treasury shares1 \ (139,647) \ (133,330)

Other capital adjustments (1,183) (1,177)

\ (140,830) \ (134,507)

1Represents 554,964 common shares and 6,327 preferred shares of treasury shares. The

Company intends to dispose of the remaining treasury shares depending on the market

conditions within the range of not incurring or minimizing loss on disposal of treasury shares as

possible.



49

23. Accumulated Other Comprehensive Income

Accumulated other comprehensive income as of December 31, 2013 and 2012, consists of the

following:


Gain(Loss) on valuation of available-for-sale financial assets \ (2,990) \ 1,199

Currency translation differences (4,671) (4,115)

Share of other comprehensive income of associates 338 437

\ (7,323) \ (2,479)

Changes in accumulated other comprehensive income for the years ended December 31, 2013



Beginningbalance

Increase(Decrease)

Reclassificationto profit or loss

Transfer tonon-controlling

interestEndingbalance

Gain(Loss) on valuation of

available-for-sale financial assets ￦ 1,199 ￦ (676) ￦ (3,207) ￦ (306) ￦ (2,990)

Currency translation differences (4,115) (1,978) - 1,422 (4,671)

Share of other comprehensive

income of associates 437 (286) - 187 338

￦ (2,479) ￦ (2,940) ￦ (3,207) ￦ 1,303 ￦ (7,323)


Beginningbalance

Increase(Decrease)

Reclassificationto profit or loss

Transfer tonon-controlling

interestEndingbalance

Gain(Loss) on valuation of

available-for-sale financial assets ￦ 93 ￦ 3,000 ￦ (2,215) ￦ 321 ￦ 1,199

Currency translation differences (1,076) (8,750) - 5,711 (4,115)

Share of other comprehensive

income of associates 2,776 (2,447) - 108 437

￦ 1,793 ￦ (8,197) ￦ (2,215) ￦ 6,140 ￦ (2,479)



50

24. Retained Earnings

Retained earnings as of December 31, 2013 and 2012, consist of:


Legal reserves1 \ 28,608 \ 28,612

Discretionary reserves 765,168 659,337

Unappropriated retained earnings 739,886 702,558

\ 1,533,662 \ 1,390,507

1The Commercial Code of the Republic of Korea requires the Company to appropriate for each

financial period, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid

until such reserve equals 50% of its issued capital stock. The reserve is not available for cash

dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit.

When the accumulated legal reserves (the sum of capital reserves and earned profit reserves) are

greater than 1.5 times the paid-in capital amount, the excess legal reserves may be distributed (in

accordance with a resolution of the shareholders’ meeting).

25. Dividends

The dividends paid for the years ended December 31, 2013 and 2012, are as follows:

2013 2012

Commonstock

Preferredstock

Convertiblepreferred

stock

Commonstock

Preferredstock

Convertiblepreferred

stock

Dividends paid \16,712 millions \1,443 millions \ 600 millions \14,855 millions \1,286 millions \533 millions

Dividends per share 2,250 2,300 2,250 2,000 2,050 2,000

Dividends in respect of the year ended December 31, 2013, of \2,500 per common share and

\2,550 per preferred share, amounting to a total dividend of \18,560 million on common shares

and\2,294 million on preferred shares, are to be proposed at the annual general shareholders’

meeting on March 21, 2014. These financial statements do not reflect these dividend payables.

26. Tax Expense and Deferred Tax

Income tax expense for the years ended December 31, 2013 and 2012, consists of:


Current income tax \ 122,181 \ 107,766

Deferred income tax 4,706 16,237

Income tax expense \ 126,887 \ 124,003



51

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using

the weighted average tax rate applicable to profits of the consolidated entities as follows:


Profit before tax \ 481,892 \ 470,711

Tax calculated at domestic tax ratesapplicable to profits in the respective countries \

122,698\

116,910

Tax effects of:

Income not subject to tax (9,278) (9,987)

Expenses not deductible for tax purposes 4,738 7,018

Change in deferred tax based on future realizability 4,883 3,695

Tax credits (3,684) (5,698)

Effect of changes in tax rate (377) 38

Adjustment in respect of prior years 3,469 13,274

Others 4,438 (1,247)

Income tax expense \ 126,887 \ 124,003

The weighted average applicable tax rate of the Group is 26.33% (2012: 26.34%).

Income tax effects related to components of other comprehensive income for the years ended



Before tax Tax effect After tax Before tax Tax effect After tax

Gain(Loss) on valuation of available-for-sale assets \ (4,982) \ 1,099 \ (3,883) \ 904 \ (119) \ 785

Remeasurements (Actuarial gain or loss) (1,767) 437 (1,330) (17,602) 3,999 (13,603)

Share of other comprehensive income of associates (286) - (286) (2,871) 424 (2,447)

Currency translation differences (1,978) - (1,978) (8,750) - (8,750)

\ (9,013) \ 1,536 \ (7,477) \ (28,319) \ 4,304 \ (24,015)

The analysis of deferred tax assets and liabilities as of December 31, 2013 and 2012, is as follows:


Deferred tax assets

Deferred tax asset to be recovered after more than 12 months \ 86,214 \ 79,399

Deferred tax asset to be recovered within 12 months 12,318 13,336

98,532 92,735

Deferred tax liabilities

Deferred tax liability to be recovered after more than 12 months (272,844) (263,981)

Deferred tax liability to be recovered within 12 months (3,565) (4,204)

(276,409) (268,185)

Deferred tax assets (liabilities), net \ (177,877) \ (175,450)



52

Changes in deferred tax assets and liabilities for the years ended December 31, 2013 and 2012,

without taking into consideration the offsetting of balances within the same tax jurisdiction, are as

follows:


Beginningbalance

Profit orloss

Othercomprehensive

income

Effect ofchanges in

tax rateExchange

differencesEndingbalance

Deferred tax assets

Allowance for doubtful accounts \ 157 \ (43) \ - \ - \ - \ 114

Selling and administrative expenses 1,999 (441) - - - 1,558

Inventories 1,209 608 - - - 1,817

Other current liabilities 1,083 (1,083) - - - -

Deferred revenue 18,148 (2,497) - (106) 17 15,562

Post-employment benefit obligation 31,981 5,706 395 (162) 6 37,926

Property, plant and equipment 4,767 306 - (49) 6 5,030

Intangible assets 178 1 - - - 179

Government grants 772 182 - (43) - 911

Provisions for liabilities 1,739 30 - (37) 4 1,736

Available-for-sale financial assets 841 - 185 - - 1,026

Investment in subsidiaries 3,353 338 1 (143) - 3,549

Accrued expenses 2,150 2,475 - - (28) 4,597

Tax loss carryforwards 22,813 162 - - 644 23,619

Other receivables 827 (210) - (56) - 561

Tax credits 40 (40) - - - -

Others 680 (325) - (8) - 347

92,737 5,169 581 (604) 649 98,532


Accrued revenue (1,248) 267 - 10 - (971)

Reserve for technology development (58,937) (2,942) - (89) - (61,968)

Selling and administrative expenses (2,728) 431 - - - (2,297)

Plan assets (27,967) (6,553) 42 169 - (34,309)

Advanced depreciation provision (14,442) - - - - (14,442)

Available-for-sale financial assets (794) (1) 913 - - 118

Property, plant and equipment (114,289) (169) - 82 - (114,376)

Intangible assests (4,319) (172) - - 94 (4,397)

Other receivables (839) 198 - 54 - (587)

Investment in subsidiaries (16,816) (3,138) - - - (19,954)

Treasury shares (25,577) 2,650 - - - (22,927)

Other assets (2) 1 - - - (1)

Others (229) (71) - 2 - (298)

(268,187) (9,499) 955 228 94 (276,409)

\ (175,450) \ (4,330) \ 1,536 \ (376) \ 743 \ (177,877)



53


Beginningbalance

Profit orloss

Othercomprehensive

income

Effect ofchanges in

tax rateExchange

differencesEndingbalance

Deferred tax assets

Allowance for doubtful accounts \ 548 \ (391) \ - \ - \ - \ 157

Loss on foreign currency translation 1 (1) - - - -

Selling and administrative expenses 241 1,758 - - - 1,999

Inventories 1,895 (651) - - (35) 1,209

Other current liabilities 1,562 (479) - - - 1,083

Deferred revenue 18,873 (617) - - (108) 18,148

Post-employment benefit obligation 22,805 5,518 3,999 (331) (10) 31,981

Property, plant and equipment 8,580 (3,696) - (46) (71) 4,767

Intangible assets 503 (325) - - - 178

Government grants 826 58 - (112) - 772

Provisions for liabilities 2,617 (869) - - (9) 1,739

Available-for-sale financial assets 849 (31) 23 - - 841

Investment in subsidiaries 2,310 1,277 (91) (143) - 3,353

Accrued expenses 2,315 (31) - - (134) 2,150

Tax loss carryforwards 19,265 4,654 - - (1,106) 22,813

Other receivables 557 270 - - - 827

Tax credits - 40 - - - 40

Others 712 (32) - - - 680

84,459 6,452 3,931 (632) (1,473) 92,737


Accrued revenue (1,001) (247) - - - (1,248)

Reserve for technology development (40,924) (18,013) - - - (58,937)

Selling and administrative expenses (1,229) (1,499) - - - (2,728)

Plan assets (21,748) (6,475) - 256 - (27,967)

Advanced depreciation provision (14,445) 3 - - - (14,442)

Available-for-sale financial assets (652) - (142) - - (794)

Property, plant and equipment (121,517) 6,889 - 339 - (114,289)

Intangible assests (5,148) 191 - - 638 (4,319)

Other receivables (680) (159) - - - (839)

Investment in subsidiaries (14,141) (3,190) 515 - - (16,816)

Treasury shares (25,577) - - - - (25,577)

Other assets - (2) - - - (2)

Gain on foreign currency translation (4) 4 - - - -

Others (146) (83) - - - (229)

(247,212) (22,581) 373 595 638 (268,187)

\ (162,753) \ (16,129) \ 4,304 \ (37) \ (835) \ (175,450)

Deferred income tax assets are recognized for tax loss carryforwards to the extent that the

realization of the related tax benefit through future taxable profits is probable. The Group did not

recognize deferred income tax assets of \11,940 million (2012: \13,879 million) in respect of

losses amounting to \35,285 million (2012: \41,640 million) that can be carried forward against

future taxable income. There is no limit to expiration of tax loss carryforwards.



54

The temporary differences from the subsidiaries whose disposal is not in the foreseeable future

were not recognized because of the uncertainty in realizability of the deferred tax assets, and the

amount as of December 31, 2013 and 2012, are as follows:


Taxable temporary differences \ (253,256) \ (255,455)

Deductible temporary differences 32,396 36,006

\ (220,860) \ (219,449)

27. Revenue

Revenue for the years ended December 31, 2013 and 2012, consist of the following:


Sales of goods

Sales of finished goods \ 2,482,427 \ 2,314,020

Sales of merchandise 1,396,258 1,090,844

3,878,685 3,404,864

Rendering of services 11,045 21,274

Others

Rental income 2,621 2,971

Royalty income 1,954 1,324

Others 1,086 1,300

5,661 5,595

\ 3,895,391 \ 3,431,733



55

28. Expenses by Nature

Expenses by nature for the years ended December 31, 2013 and 2012, are as follows:


Changes in inventories \ (18,319) \ (47,646)

Purchase of raw materials and merchandise 1,044,913 865,780

Employee benefit expense 526,547 485,692

Depreciation and amortization 155,312 125,342

Advertising expense 465,819 467,190

Research and development expenses 64,673 64,396

Service fees 353,868 305,456

Distribution commission 525,107 437,525

Other expenses 307,720 277,583

Total1 \ 3,425,640 \ 2,981,318

1Sum of cost of sales, and selling and administrative expenses in the statements of

comprehensive income.

29. Selling and Administrative Expenses

Selling and administrative expenses for the years ended December 31, 2013 and 2012, are as

follows:


Salaries and post-employment benefits \ 387,461 \ 351,963

Employee benefits 58,640 52,915

Advertising expense 465,819 472,794

Depreciation 81,978 63,967

Service fees 303,650 268,283

Distribution commission 525,107 427,979

Freight expense 84,925 71,092

Taxes and dues 37,905 30,560

Research and development 64,673 63,967

Others 216,021 163,904

\ 2,226,179 \ 1,967,424



56

30. Financial Income and Costs

Financial income and costs for the years ended December 31, 2013 and 2012, are as follows:


Finance income

Interest income on loans and receivables \ 25,889 \ 29,351

Interest income on available-for-sale financial assets 85 95

\ 25,974 \ 29,446


Finance costs

Interest expense on financial liabilities carried at amortized cost \ (3,140) \ (2,298)

Loss on valuation of financial liabilities at fair value through profit or loss (185) -

\ (3,325) \ (2,298)



57

31. Other non-operating gains(losses)

Other non-operating gains(losses) for the years ended December 31, 2013 and 2012, consist of:


Other non-operating gains

Gain on foreign currency transactions \ 5,298 \ 2,742

Gain on foreign currency translation 1,642 531

Gain on disposal of property, plant and equipment 8,426 7,909

Gain on disposal of non-current assets held for sale - 9,373

Gain on disposal of intangible assets 367 279

Gain on disposal of available-for-sale financial assets 6,447 4,162

Dividend income 808 899

Others 9,888 8,385

32,876 34,280

Other non-operating losses

Loss on foreign currency transactions (5,211) (4,953)

Loss on foreign currency translation (2,904) (1,150)

Loss on disposal of property, plant and equipment (8,950) (3,037)

Loss on disposal of intangible assets (127) (22)

Loss on impairment of property, plant and equipment (18,048) -

Loss on impairment of intangible assets (47) -

Loss on disposal of investments in associates - (156)

Donations (6,004) (4,590)

Others (6,423) (30,146)

(47,714) (44,054)

\ (14,838) \ (9,774)



58

32. Earnings per Share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the

Company by the weighted average number of ordinary shares in issue during the year, excluding

treasury shares.

Basic earnings per common share for the years ended December 31, 2013 and 2012, is as

follows:

2013 2012

Profit attributable to equity holders of the Company \ 163,011 million \ 154,828 million

Profit attributable to the ordinary equity holders 149,487 million 142,187 million

Weighted average number of ordinary shares in issue (unit: shares) 7,436,397 7,427,541

Basic earnings per share to the ordinary equity holders 20,102 19,143

Basic earnings per preferred share for the years ended December 31, 2013 and 2012, is as

follows:

2013 2012

Profit attributable to equity holders of the Company \ 163,011 million \ 154,828 million

Profit attributable to the preferred equity holders 12,857 million 12,041 million

Weighted average number of preferred shares in issue (unit: shares) 637,856 627,352

Basic earnings per share to the preferred equity holders 20,157 19,193

Net income attributable to common share and preferred share for the years ended December 31,

2013 and 2012, is as follows:

2013 2012

Profit attributable to equity holders of the Company (A) \ 163,011 \ 154,828

Dividends of convertible preferred shares (B) 667 600

Adjusted profit attributable to equity holders of the Company (C=A+B) \ 162,344 \ 154,228

Profit attributable to the ordinary equity holders \ 149,487 \ 142,187

Profit attributable to the preferred equity holders 12,857 12,041



59

Diluted earnings per preferred share for the years ended December 31, 2013 and 2012, is as

follows:

2013 2012

Diluted profit attributable to the ordinary equity holders \ 150,513 million \ 143,127 million

Weighted average number of ordinary shares in issue (unit: shares) 7,703,117 7,694,261

Diluted earnings per share to the ordinary equity holders 19,539 18,602

1Includes 266,720 shares of convertible preference shares.

Diluted earnings per preferred share for the years ended December 31, 2013 and 2012, is as

follows:

2013 2012

Diluted profit attributable to the preferred equity holders \ 12,498 million \ 11,701 million

Weighted average number of preferred shares in issue (unit: shares) 637,856 627,352

Diluted earnings per share for to the preferred equity holders 19,594 18,652

Diluted net income attributable to common shares and preferred shares for the years ended December

31, 2013 and 2012, is as follows:

2013 2012

Adjusted profit attributable to equity holders of the Company (A) \ 162,344 \ 154,228

Dividends of convertible preferred shares (B) 667 600

Adjusted diluted profit attributable to equity holders of the Company (C=A+B) \ 163,011 \ 154,828

Diluted profit attributable to the ordinary equity holders \ 150,513 \ 143,127

Diluted profit attributable to the preferred equity holders 12,498 11,701



60

33. Cash Generated from Operations

(a) Cash generated from operations

Details of cash generated from operations for the years ended December 31, 2013 and 2012, are

as follows:


Net income \ 355,005 \ 346,709

Adjustments for

Interest income, net (22,649) (25,449)

Loss on foreign currency translation, net 1,314 1,184

Depreciation and amortization 156,917 126,831

Loss on impairment 18,096 -

Loss(gain) on disposal of property, plant and equipment and intangible assets 266 (4,999)

Gain on disposal of non-current assets held-for-sale - (9,373)

Income tax expense 126,887 124,003

Share of profits from associates (4,330) (2,921)

Gain on disposal of available-for-sale financial assets (6,447) (4,162)

Post-employment benefits 31,123 28,438

Others 3,623 636

Changes in working capital

Increase in trade receivables (42,319) (9,272)

Decrease(Increase) in other receivables (377) 7,398

Increase in inventories (10,891) (49,261)

Decrease(increase) in other assets 3,708 (15,084)

Decrease in trade payables (650) (6,739)

Increase(Decrease) in other payables 41,395 (31,344)

Increase(Decrease) in provisions (3,415) 730

Increase(Decrease) in other liabilities 10,770 (10,373)

Payment of post-employment benefits (20,687) (14,730)

Increase in plan assets, net (14,097) (22,658)

Cash generated from operations \ 623,242 \ 429,564



61

(b) Non-cash transactions

Significant transactions not affecting cash flows for the years ended December 31, 2013 and 2012,

are as follows:


Reclassification of construction in-progress to property, plant and equipment ₩ 172,629 ₩ 164,009

Reclassification of land to investment property - 19,175

Offset of non-current assets held-for-sale and long-term advances from customers - 16,876

Reclassification of non-current assets held-for-sale to available-for-sale financial assets - 6,080

Change in other payables related to the acquisition of property, plant and equipment 19,792 9,642

Reclassification of current portion of long-term borrowings 43,788 1,000

34. Commitments and Contingencies

Important contracts entered into with financial institutions as of the reporting dates are as follows:

AMOREPACIFIC Corporation

As of the end of the reporting period, the Company has a bank overdraft agreement with a limit of

\8,000 million and a loan agreement with a limit of \25,000 million with Woori Bank with trade

receivables as collateral in which the Company guarantees payment to the bank if the factoring of

trade receivables takes place before the payment is due. As of the end of the reporting period, the

outstanding balance of the loan agreement secured by credit sales that has not yet reached

maturity is\7,807 million (2012: \12,320 million). Additionally, as of the end of the reporting

period, the Company has a letter of credit agreement with a limit of USD 4,000 thousand with

Woori Bank and the amount USD 311 thousand (2011: USD 49 thousand) has been drawn.

As of the end of the reporting period, Seoul Guarantee Insurance has provided the Company with

payment guarantees such as court bond guarantees, performance guarantees and others

amounting to \2,135 million (2012: \2,284 million).

Etude Corporation

Etude Corporation has a loan agreement secured by credit sales of up to ₩5,000 million and a

bank overdraft agreement of up to ₩1,000 million with Woori Bank as of the reporting date. The


maturity is ₩1,223 million (2012: ₩2,333 million) as of the reporting date.



amounting to \50 million.

Innisfree Corporation

Innisfree Corporation has a loan agreement secured by credit sales of up to ₩2,000 million and a



62

bank overdraft agreement of up to ₩1,000 million with Woori Bank as of the reporting date. The


maturity is ₩396 million (2012: ₩158 million) as of the reporting date.



amounting to \71 million.

AMOS Professional Corporation

AMOS Professional has a loan agreement secured by its credit sales of up to ₩4,000 million and

a bank overdraft agreement of up to ₩1,000 million with Woori Bank as of the reporting date. The

outstanding balance of the loan agreement secured by its credit sales that has not yet reached

maturity is ₩36 million (2012: ₩474 million) as of the reporting date.

PACIFICPHARMA Corporation

As of the reporting date, this subsidiary has a facilities fund loan agreement of up to ₩10,000

million (2012: ₩10,000 million) with Industrial Bank of Korea for which no amount (2012: ₩7,900

million) is outstanding. And this subsidiary has an operating fund loan agreement of up to

₩20,000 million with Woori Bank for which no amount is outstanding as of the reporting date.

Additionally, this subsidiary has a loan agreement secured by its credit sales of up to ₩ 30,000

million with Woori Bank as of the reporting date. The outstanding balance of the loan on credit

sales that has not yet reached maturity is ₩1,021 million (2012: ₩2,485 million) as of the

reporting date.

Seoul Guarantee Insurance has provided this subsidiary with payment guarantees such as

performance guarantees and others amounting to \371 million as of the reporting date.

According to the announcement ‘Notice of change in maintenance plans for registered medicine’

of Ministry of Health and Welfare (Article 2011-354(2011/06/22)), this subsidiary should maintain

contingent benefits during the clinical test period, which is conducted to determine the usefulness

of ‘Livital Tab’. Otherwise, the subsidiary has to repay ₩635,662 thousand to National Health

Insurance Corporation.

PACIFICGLAS, Inc.

PACIFICGLAS, Inc. has a loan agreement secured by its credit sales of up to ₩5,000 million and

a bank overdraft agreement of up to ₩3,000 million with Woori Bank as of the reporting date. The


maturity is ₩9 million (2012: ₩20 million) as of the reporting date. And there is a letter of credit

agreement of up to EUR 4,000 thousand with Woori Bank for which no amount is outstanding as

of the reporting date. This subsidiary has an operating fund loan agreement of up to ₩5,000

million with Woori Bank, and the outstanding balance is ₩5,000 million as of the reporting date.

As of the reporting date, Seoul Guarantee Insurance has provided this subsidiary with payment

guarantees such as court bond guarantees, performance guarantees and others amounting to

\94 million.



63

PACIFICPACKAGE Corporation

PACIFICPACKAGE Corporation has a loan agreement secured by its credit sales of up to ₩3,000

million and a bank overdraft agreement of up to ₩1,000 million. There is no outstanding balance

(2012: ₩2 million) of the loan agreement secured by its credit sales that has not yet reached

maturity as of the reporting date.

As of the reporting date, Seoul Guarantee Insurance has provided this subsidiary with payment

guarantees such as court bond guarantees, performance guarantees and others amounting to

\193 million.

Jangwon Co., Ltd.

Jangwon Co., Ltd. has a loan agreement of up to ₩1,000 million with Woori Bank but there is no

balance of amount used as of the reporting date.

Seoul Guarantee Insurance has provided this subsidiary with payment guarantees such as court

bond guarantees, performance guarantees and others amounting to ₩42 million.

COSVISION CO.,LTD.

This subsidiary has a loan agreement secured by its credit sales of up to ₩2,000 million, a bank

overdraft agreement of up to ₩1,000 million with Woori Bank as of the reporting date. There is no


maturity as of the reporting date.

AMOREPACIFIC Global Operations Limited

This subsidiary has a syndicated loan agreement with Citi Bank and five other banks with a limit of

USD 40,000 thousand and the outstanding balance is USD 40,000 thousand (2012: USD 40,000

thousand). And this subsidiary has a bank overdraft agreement with a limit of USD 10,000

thousand with Citi Bank for which there is no outstanding balance (2012: USD 173 thousand).

AMOREPACIFIC Trading Co., Ltd.

This subsidiary has a bank overdraft agreement with a limit of USD 10,000 thousand with Citibank

and there is no outstanding balance.

AMOREPACIFIC EUROPE S.A.S

This subsidiary has a finance lease agreement with Societe Generale Bank and one other bank

amounting to EUR 8,765 thousand, and a loan agreement with Societe Generale Bank and two

other banks with a limit of EUR 20,000 thousand and the outstanding balance is EUR 18,314

thousand (2012: EUR 9,373 thousand).

Annick Goutal S.A.S

This subsidiary has a bank overdraft agreement with a limit of EUR 3,000 thousand with Korea

Exchange Bank and the outstanding balance is EUR 2,973 thousand.

AMOREPACIFIC Japan Co., Ltd.

This subsidiary has a bank overdraft agreement with a limit of JPY 1,000,000 thousand with

Shinhan Bank-Japan and the outstanding balance is JPY 600,000 thousand (2012: JPY 429,000



64

thousand).

AMOREPACIFIC Cosmetics New (Shanghai) Co.,Ltd.

This subsidiary has a syndicated loan agreement with Citi Bank and two other banks with a limit of

USD 65,000 thousand and the outstanding balance is USD 65,000 thousand.

As of the reporting date, current bank deposits amounting to \20,500 million (2012:\25,000

million) and non-current bank deposits amounting to \33 million (2012: \33 million) are restricted

in use for guarantees provided for subsidiaries’ borrowings and as guarantee deposits for the

maintenance of checking accounts. Non-current bank deposits amounting to \3,482 million (RMB

20,000 thousand) (2012: \3,483 million (RMB 20,000 thousand)) is restricted in use for

permission of door-to-door sales.

PACIFICPAKAGE Co., Ltd. is jointly liable for the obligations of the newly spun off company,

Taeshin Inpack Corporation, including its contingent liabilities that existed prior to the spin-off.

35. Disposal Group Held-for-Sale

Details of assets of disposal group classified as held-for-sale as of December 31, 2013 and 2012,

are as follows:

(In millions of Korean won) 2013 2012

Land in Yongin, Gyeonggi Province1 \ 2,299 \ 2,299

1 The Group had an agreement to sell land situated in Yongin, Gyeonggi Province, but the

ownership was not transferred because the license relating to the sale was not received. In 2012,

the Group recognized a gain on disposal of \7,685 million because the license relating to the

sale was received except for some land.

Also, in relation to the sales contract of the pharmaceutical segment of PACIFIC PHARMA

Corporation during 2013, the Group classified the following assets and liabilities as assets and

liabilities held-for-sale (Note 41):


Assets held-for-sale Liabilities held-for-sale

Trade receivables \ 18,964 Trade payables \ 4,878

Inventories 2,710 Other payables 2,826

Other receivables 2,166 Post-employment benefit obligation 2,291

Property, plant and equipment 45 Provision for sales returns 801

Intangible assets 1 Withholdings 118

\ 23,886 \ 10,914



65

36. Related Party Transactions

Details of the parents and subsidiaries as of the reporting date are as follows:

Classification Name

Ultimate parent Kyung- Bae Suh

Ultimate parent company in the preparation of

consolidated financial statements for disclosure AMOREPACIFIC Group, Inc.

Subsidiaries AMOREPACIFIC Corporation

Etude Corporation

Innisfree Corporation

AMOS Professional Corporation

PACIFICPHARMA Corporation

PACIFICGLAS, Inc.

PACIFICPACKAGE Corporation

Jangwon Co., Ltd.

COSVISION CO.,LTD.

AMOREPACIFIC Global Operations Limited.

AMOREPACIFIC GLOBAL OPERATIONS PTE. LTD.

AMORE Cosmetics (Shanghai) Co.,Ltd.

AMOREPACIFIC Cosmetics New (Shanghai) Co.,Ltd.

AMOREPACIFIC (Shanghai) R&I Center Co.,Ltd.

AMOREPACIFIC Trading Co.Ltd.

AMOREPACIFIC EUROPE S.A.S

Annick Goutal S.A.S

AMOREPACIFIC US, INC.

AMOREPACIFIC Japan Co.,Ltd.

AMOREPACIFIC Taiwan Co.,Ltd.

AMOREPACIFIC SINGAPORE PTE., LTD.

AMOREPACIFIC MALAYSIA SDN. BHD.

AMOREPACIFIC VIETNAM JSC

AMOREPACIFIC (Thailand) LIMITED

PT. LANEIGE INDONESIA PACIFIC

Innisfree Cosmetics India Private Limited

Associates BBDO Korea Inc.

AMOREPACIFIC Hong Kong Co.,Limited

Taiwan AMORE Co.,Ltd.

Other related parties Taeshin Inpack Corporation



66

Significant transactions with related parties for the years ended December 31, 2013 and 2012, are

as follows:


Sales Purchases Sales Purchases

Associates

Taiwan AMORE Co.,Ltd. \ 249 \ - \ 332 \ -

AMOREPACIFIC HongKong Co.,Limited 17,911 - 16,496 -

BBDO Korea Inc. 443 22,453 441 19,382

Other related parties

Taeshin Inpack Corporation - 19,425 - 22,037

\ 18,603 \ 41,878 \ 17,269 \ 41,419

Balances with related parties as of December 31, 2013 and 2012, are as follows:


Receivables Payables

Tradereceivables

Otherreceivables

Tradepayables

Otherpayables

Associates

Taiwan AMORE Co.,Ltd. \ 118 \ - \ - \ -

AMOREPACIFIC HongKong Co.,Limited 2,829 - - -

BBDO Korea Inc. - - 6,037 229

Other related parties - - - -

Taeshin Inpack Corporation - - 2,576 -

\ 2,947 \ - \ 8,613 \ 229


Receivables Payables

Tradereceivables

Otherreceivables

Tradepayables

Otherpayables

Associates

Taiwan AMORE Co.,Ltd. \ 29 \ - \ - \ -

AMOREPACIFIC HongKong Co.,Limited 2,746 - - -

BBDO Korea Inc. - - 5,020 -

Other related parties - - - -

Taeshin Inpack Corporation - - 3,091 -

\ 2,775 \ - \ 8,111 \ -



67

The trade receivables from related parties are due two months after the date of sale. The

receivables from related parties are unsecured in nature and bear no interest.

There are no fund transactions with related parties for the years ended December 31, 2013 and

2012.

There are no collaterals nor payment guarantees provided by the Group for the funding sources of

the related parties as of December 31, 2013, and no collaterals and payment guarantees are

provided by the related parties

Compensation for key management for the years ended December 31, 2013 and 2012, consists

of:


Short-term employee benefits \ 10,195 \ 14,635

Post-employment benefits 1,267 2,198

\ 11,462 \ 16,833

37. Acquisition of subsidiaries

37.1 AMOREPACIFIC (Thailand) LIMITED

On January 30, 2012, the Group’s subsidiary, AMOREPACIFIC Global Operations Limited acquired

an additional 51% ownership in AMOREPACIFIC (Thailand) LIMITED, on top of its 49% ownership,

to expand its cosmetic market and strengthen competitiveness.

The fair value of consideration transferred and the assets acquired and liabilities assumed at the

date of acquisition are summarized below:


Cash and cash equivalents \ 2,435

Trade and other receivables1

164

Other assets 80

Inventories 132

Property, plant and equipment 117

Intangible assets 6

Trade payables (87)

Borrowings (108)

Other liabilities (137)

Net assets acquired \ 2,602



68

1 Fair value of trade and other receivables is ₩164 million, and trade receivables amounting to

₩163 million are included. Gross amount of trade and other receivables on arrangement at

acquisition date is ₩164 million. There are no receivables expected to be uncollectible.

The amount of goodwill recognized is as follows:


Gross consideration transferred \ 3,179

Fair value of net assets (2,602)

Goodwill1 \ 577

1None of the goodwill recognized is expected to be deductible for income tax purposes.

Net cash flow following the acquisition of AMOREPACIFIC (Thailand) LIMITED is as follows:



Deducted: cash and cash equivalents of acquiree (2,435)

Deducted: investments in associates (114)

Cash and cash equivalents \ 630

All consideration are in the form of cash and cash equivalents.

The Group provided acquisition-related costs such as legal fees and due diligence fees amounting

to ₩69 million, and recognized it as selling and administrative expenses in the consolidated

statement of comprehensive income.

The revenue and net income included in consolidated statement of comprehensive income

contributed by AMOREPACIFIC (Thailand) LIMITED amount to ₩2,867 million and ₩(723) million,

respectively in 2012.



69

37.2 AMOREPACIFIC SINGAPORE PTE., LTD.’s acquisition of Etude House

On July 1, 2012, the Group’s subsidiary, AMOREPACIFIC SINGAPORE PTE., LTD acquired Etude

House CGU to expand its cosmetic market and strengthen competitiveness.





Other receivables1

561

Inventories 175


Trade payables (202)

Net assets acquired \ 952

1Fair value of other receivables are ₩561 million. Gross amount of other receivables on

arrangement at acquisition date is ₩561 million. There are no receivables expected to be

uncollectible.




Fair value of net assets (952)

Goodwill1 \ 3,720


Net cash flow following the acquisition of Etude House is as follows:



Deducted: cash and cash equivalents of acquiree (74)

Cash and cash equivalents \ 4,598

The Group provided acquisition-related costs such as legal fees and due diligence fees amounting

to ₩214 million, and recognized it as selling and administrative expenses in the consolidated

statement of comprehensive income.



70

The amount of revenue and net income included in consolidated statement of comprehensive

income contributed by Etude House amount to ₩3,390 million and ₩(93) million, respectively in

2012.

37.3 PT. LANEIGE INDONESIA PACIFIC

On July 1, 2012, the Group’s subsidiary AMOREPACIFIC Global Operations Limited obtained

control of PT. LANEIGE INDONESIA PACIFIC by an additional acquiring 70% ownership to expand

its cosmetic market and strengthen competitiveness. As of December 31, 2012, the

AMOREPACIFIC Global Operations Limited owns 94.18% of PT. LANEIGE INDONESIA PACIFIC

through its paid-in capital increase. As of December 31, 2013, the Group owns 90.58% of PT.

LANEIGE INDONESIA PACIFIC.





Other assets 6


Trade payables (218)

Borrowings (379)

Net assets acquired \ (519)



Gross consideration transferred \ 110

Fair value of net assets 519

Deducted: investments in associates1

(156)

Goodwill2 \ 473

1The Group’s subsidiary, AMOREPACIFIC Global Operations Limited has stopped applying the

equity method on its 30% ownership at the acquisition date. Thus, \156 million of loss for the

year relating to fair value of net assets was adjusted.




71

Net cash flow following the acquisition of PT. LANEIGE INDONESIA PACIFIC is as follows:


Gross consideration transferred \ 110

Deducted: cash and cash equivalents of acquiree (16)


All consideration are in the form of cash and cash equivalents.

There is no revenue, but the net income included in consolidated statement of comprehensive

income contributed by PT. LANEIGE INDONESIA PACIFIC amounts to ₩(394) million in 2012.

38. Information About Non-controlling Interests

38.1 Changes in Accumulated Non-controlling Interests

The profit or loss allocated to non-controlling interests and accumulated non-controlling interests

of subsidiaries that are material to the Group for the years ended December 31, 2013 and 2012, is

as follows:


Percentageof non-

controllinginterests

Accumulatednon-controllinginterests at the

beginning ofthe year

Profit or lossallocated to

non-controllinginterests

Dividendspaid to


Changes innon-

controllinginterests Others

Accumulatednon-controllinginterests at theend of the year

AMOREPACIFIC Corporation 64.60% \ 1,596,016 \ 181,013 \ (30,446) \ 4,438 \ (1,936) \ 1,749,085

Etude Corporation 19.52% 13,467 3,869 (1,089) - (105) 16,142

Innisfree Corporation 18.18% 11,780 7,097 (889) - (16) 17,972

PACIFICPHARMA Corporation -% 34,388 (21) (278) (34,618) 529 -

Others 109 35 - 5 - 149

\ 1,655,760 \ 191,993 \ (32,702) \ (30,175) \ (1,528) \ 1,783,348


Percentageof non-

controllinginterests

Accumulatednon-controllinginterests at the

beginning ofthe year

Profit or lossallocated to


Dividendspaid to


Changes innon-

controllinginterests Others

Accumulatednon-controllinginterests at theend of the year

AMOREPACIFIC Corporation 64.60% \ 1,456,037 \ 182,985 \ (30,446) \ 1,784 \(14,344) \ 1,596,016

Etude Corporation 19.52% 11,002 3,409 (908) - (36) 13,467

Innisfree Corporation 18.18% 7,160 5,114 (444) - (50) 11,780

PACIFICPHARMA Corporation 65.13% 33,718 547 (284) - 407 34,388

Others (1,098) (174) - 1,193 188 109

\ 1,506,819 \ 191,881 \ (32,082) \ 2,977 \(13,835) \ 1,655,760



72

38.2 Summarized Financial Information on Subsidiaries

The summarized financial information for each subsidiary with non-controlling interests that are

material to the Group before inter-company eliminations is as follows:

Summarized consolidated statements of financial position as of December 31, 2013 and 2012, are

as follows:


AMOREPACIFICCorporation

EtudeCorporation

InnisfreeCorporation

Current assets \ 967,574 \ 70,956 \ 102,694

Non-current assets 2,434,275 46,805 43,923

Current liabilities 542,699 32,568 46,413

Non-current liabilities 291,018 1,077 744

Equity 2,568,132 84,116 99,460



EtudeCorporation


PACIFICPHARMACorporation

Current assets \ 804,189 \ 64,100 \ 70,766 \ 73,092

Non-current assets 2,222,004 44,851 35,181 71,388

Current liabilities 417,240 36,737 39,768 37,282

Non-current liabilities 265,166 1,494 1,089 19,029

Equity 2,343,787 70,720 65,090 88,169



73

Summarized consolidated statements of comprehensive income for the years ended December 31,




EtudeCorporation


Sales \ 3,100,413 \ 337,239 \ 332,759

Profit or loss for the year 267,359 19,467 39,348

Other comprehensive income (2,565) (491) (88)

Total comprehensive income \ 264,794 \ 18,976 \ 39,260



EtudeCorporation



Sales \ 2,849,462 \ 280,507 \ 229,416 \ 141,247

Profit or loss for the year 269,258 18,629 28,295 1,194

Other comprehensive income (20,749) (219) (253) 1,130

Total comprehensive income \ 248,509 \ 18,410 \ 28,042 \ 2,324

Summarized consolidated statements of cash flows for the years ended December 31, 2013 and




EtudeCorporation


Cash flows from operating activities \ 426,657 \ 17,984 \ 42,522

Cash flows from investing activities (348,843) (2,564) (34,624)

Cash flows from financing activities 49,196 (5,580) (4,888)

Net increase in cash and cash equivalents 127,010 9,840 3,010

Cash and cash equivalents at beginning of year 170,707 4,540 7,056

Exchange losses on cash and cash equivalents (3,705) - -

Cash and cash equivalents at end of year \ 294,012 \ 14,380 \ 10,066



EtudeCorporation



Cash flows from operating activities \ 275,581 \ 20,109 \ 40,637 \ (1,612)

Cash flows from investing activities (253,849) (21,564) (47,293) (19,330)

Cash flows from financing activities (35,312) (4,649) (2,445) 7,189

Net decrease in cash and cash equivalents (13,580) (6,104) (9,101) (13,753)

Cash and cash equivalents at beginning of year 187,708 10,644 16,157 34,105

Exchange losses on cash and cash equivalents (3,421) - - -

Cash and cash equivalents at end of year \ 170,707 \ 4,540 \ 7,056 \ 20,352



74

38.3 Transactions with Non-controlling Interests

(a) Acquisition of additional interest in a subsidiary

As of March 11, 2013, the Group paid ₩16,279 million in cash and ₩8,003 million in treasury stock

and acquired the remaining 81.7% of preferred shares and 34.9% of common shares of PACIFIC

PHARMA. As a result, the Group holds 100% of preferred shares and common shares of PACIFIC

PHARMA. At that time the Group acquired additional interests, the carrying amount of non-

controlling interests was ₩34,618 million. This amount has been eliminated as a result of the

above transaction and ₩10,337 million has been booked as an increase of asset that is

attributable to equity holders. Assets attributable to the equity holders after the change of

ownership are as follows:


Carrying amount of non-controlling interests acquired \ 34,618

Consideration paid to non-controlling interests (24,281)

Excess of consideration paid recognized in parent’s equity \ 10,337

Loss on disposal of treasury shares recognized in relation to the above transaction with non-

controlling interests is as follows:

(in millions of Korean won) 2013 Note

Fair value of treasury shares at disposal \ 8,003

Book value of treasury shares (5,542) Increase in other components of equity

Compensation of unit shares (158)

Pre-tax gain on disposal of treasury shares 2,303

Post-tax gain on disposal of treasury shares 1,746 Increase in capital surplus

39. Risk Management

39.1 Financial Risk Management

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk,

fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s

overall risk management program focuses on the unpredictability of financial markets and seeks to

minimize potential adverse effects on the Group’s financial performance.

Risk management is carried out by a treasury department under policies approved by the board of

directors. The treasury department identifies, evaluates and hedges financial risks in close co-

operation with the Group’s operating units. The treasury department provides written principles for

overall risk management, as well as written policies covering specific areas, such as foreign

exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-

derivative financial instruments, and investment of excess liquidity.



75

(a) Market risk

i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various

currency exposures, primarily with respect to the US dollar, Euro and the Japanese yen.

The purpose of foreign exchange risk management is to maximize the Group’s value by minimizing

the uncertainty and volatility of foreign exchange gains and losses from foreign exchange rate

fluctuations.

The Company’s financial instruments denominated in major foreign currencies as of December 31,




USD \ 61,918 \ 66,742 \ 36,865 \ 65,249

EUR 5,932 2,181 4,954 494

JPY 713 1,885 767 2,588

\ 68,563 \ 70,808 \ 42,586 \ 68,331

As of December 31, 2013 and 2012, if the foreign exchange rate of the Korean won fluctuated by

10% while other variables were fixed, the effects on income before tax would be as follows:


10%Increase

10%Decrease

10%Increase

10%Decrease

USD \ (482) \ 482 \ (2,838) \ 2,838

EUR 375 (375) 446 (446)

JPY (117) 117 (182) 182

The above sensitivity analysis is done with foreign currency denominated assets and liabilities

which are not in the Parent Company’s functional currency.

ii) Interest rate risk

The Group is exposed to interest rate risk through changes in interest-bearing liabilities or assets.

The risk mainly arises from borrowings and financial deposits with variable interest rates linked to

market interest rate changes in the future. The objective of interest rate risk management lies in

maximizing corporate value by minimizing uncertainty caused by fluctuations in interest rates and

minimizing net interest expense.



76

To mitigate interest rate risk, the Group manages interest rate risk proactively by: minimizing

external borrowings by maximizing internal cash sharing, reducing borrowings with high interest

rates, maintaining an adequate mix between short-term and long-term liabilities and between fixed

and variable interest rates and monitoring weekly and monthly interest rate trends in domestic and

international markets.

The Group invests in fixed interest assets with maturities of one year or less, and if the market

interest rate increases, there is risk of decrease in fair value. However, the risk of changes in fair

value is minor as the investments are short-term deposits.

At the end of the reporting period, if interest rates on floating rate borrowings had been 1%

higher/lower with all other variables held constant, profit before income tax for the year would have

been ₩1,090 million lower/higher, mainly as a result of higher/lower interest expense on floating

rate borrowings.

(b) Credit Risk

Credit risk is managed by the Group as a whole. Credit risk arises from cash and cash equivalents

and deposits with banks and financial institutions, as well as credit exposures to customers,

including outstanding receivables and committed transactions.

For banks and financial institutions, only independently rated parties with a minimum rating of ’A’

are accepted. For general customer, the Group evaluates and manages the collaterals (real estate,

pledged deposit, payment guarantees, guarantee insurance and others) Also, to decrease credit

risk, only 50~75% of market price of real states are acknowledged as collateral value. If the market

price changes suddenly, the Group adjusts the collateral value, calculates credit limit and executes

it strictly with authorized discretionary power and procedures.

(c) Liquidity Risk

The Group holds sufficient amount of cash and cash equivalents and maintains a flexible fund

capacity within credit limit by brisk business. Financial liabilities involved in sales except borrowings

are basically paid within maximum three months after purchasing (average within two months), so

maturity of all financial liabilities (with or without payment condition) are within three months. The

Group manages liquidity by holding more cash and cash equivalents than monthly payments.



77

The table below analyses the Group’s non-derivative financial liabilities into relevant maturity

groupings based on the remaining period at the statement of financial position date to the

contractual maturity date. The amounts disclosed in the table are the contractual undiscounted

cash flows. These contracts are managed on a net-fair value basis rather than by maturity date.


2013

Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Total Book value

Trade payables \ 110,831 \ - \ - \ - \ 110,831 \ 110,831

Borrowings 87,210 1,119 69,457 - 157,786 153,228

Other payables 221,750 - - - 221,750 221,750

Other liabilities 19,025 12,073 - 8,246 39,344 39,344

Derivative liabilities - - 181 - - 181


2012

Up to 1 year 1 to 2 years 2 to 5 years Over 5 years Total Book value

Trade payables \ 116,411 \ - \ - \ - \ 116,411 \ 116,411

Borrowings 25,271 44,330 7,419 - 77,020 76,561

Other payables 202,861 - - - 202,861 202,861

Other liabilities 11,525 18,184 7,493 1,753 38,955 34,942

39.2 Capital Management

The Group’s capital risk management purpose is maximising shareholders’ value through

maintaining a sound capital structure. The Group monitors financial ratios, such as liability to equity

ratio and net borrowing ratio each month and implements required action plan to improve the

capital structure.

Debt-to-equity ratio and net borrowing ratio are as follows:


Liabilities (A) \ 1,012,909 \ 881,742

Equity (B) 3,908,947 3,634,213

Cash and cash equivalents, and current financial deposits (C) 901,267 768,861

Borrowings (D) 153,228 76,561

Debt-to-equity ratio (A/B) 25.91% 24.26%

Net borrowings ratio (D-C)/B (-)19.14% (-)19.05%



78

40. Fair Value Estimation

40.1 Fair Value of Financial Instruments by Category

The Group classifies fair value measurements using a fair value hierarchy that reflects the

significance 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, either

directly or indirectly.

Level 3: inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs).


Level 1 Level 2 Level 3 Total

Recurring fair value measurements

Available-for-sale financial assets - 2,541 - 2,541

Derivative liabilities - 181 - 181

Disclosed fair value

Investment property - - 223,798 223,798


Level 1 Level 2 Level 3 Total

Recurring fair value measurements

Available-for-sale financial assets 4,211 3,373 - 7,584

Disclosed fair value

Investment property - - 220,230 220,230

40.2 Valuation Technique

Valuation techniques used in the recurring fair value measurements categorized within Level 2 and

Level 3 of the fair value hierarchy as of December 31, 2013, are as follows:

(a) Derivative financial instruments

The fair value of derivative financial instruments is determined by using valuation techniques

based on current market conditions. These valuation techniques maximize the use of observable

market data whenever possible and rely as little as possible on entity specific estimates. The fair

value of derivative financial instruments is measured at discount using forward exchange rate as

of the reporting date.



79

(b) Availabe-for-sale financial assets

The fair value of available-for-sale financial assets is determined using recent transactions which

are in an arm’s length transaction.

(c) Investment property

The fair value of investment property is measured on the basis of valuation either by an

independent appraiser who holds recognized and relevant professional qualifications or by the

local government in Korea for property tax assessment purposes, or by using similar recent

transaction prices which are available.

40.3 Financial Instruments Measured at Cost

Details of financial instruments measured at cost as of December 31, 2013 and 2012, are as

follows:


Available-for-sale debt securities

Government-issued securities \ 5,630 \ 4,743

Available-for-sale equity securities

ANTERIOS, INC. 4,067 4,067

CAPSUM 549 549

Regen Prime Co., Ltd. 500 500

Lithera, Inc. 2,147 2,147

Obalon Therapeutics 5,378 5,378

Brickell Biotech 1,083 -

TRIA BEAUTY INC 1,688 -

Pacific Metals Co., Ltd. 6,080 6,080

GL Pharm Tech Co., Ltd. 191 191

Welskin Co., Ltd. 48 48

The Korea Economic Daily 81 81

Biogenics Co., Ltd. 1,000 1,000

Chungbuk Printing Association 1 1

ELANDRETAIL Ltd. 3 3

\ 28,446 \ 24,788

The above equity securities are measured at cost, because the variability of estimated cash flows

is significant and the probabilities of the various estimates cannot be reasonably assessed, or the

difference between their fair values and their acquisition costs is immaterial. Available-for-sale debt

securities are measured at fair values, because the difference between their fair values and the

acquisition costs is immaterial.



80

Other financial assets and liabilities whose carrying amount is a reasonable approximation of fair

value are excluded from the separate fair value disclosures.

41. Events after the Reporting Period and Assets and Liabilities Held-for-Sale

On January 1, 2014, AMOREPACIFIC Global Operations Limited., a subsidiary, acquired control

over AMOREPACIFIC Hong Kong Co., Ltd., which was classified as an associate with 30% of

equity ratio, by acquiring an additional 47% of interests in order to increase its cosmetic market

share in Hong Kong and strengthen its competitiveness.

During 2013, PACIFIC PHARMA Corporation entered into a contract regarding the sale of the

pharmaceutical operating segment with Handok Inc. and a final agreement was reached on

February 14, 2014. The total contract amount for the sales is ₩57,500 million and receivables and

payables of the pharmaceutical operating segment as of February 14, 2014, is transferred to

Handok Inc.


Assets held-for-sale Liabilities held-for-sale

Trade receivables \ 18,964 Trade payables \ 4,878

Inventories 2,710 Other payables 2,826

Other receivables 2,166 Post-employment benefit obligation 2,291

Property, plant and equipment 45 Provision for sales returns 801

Intangible assets 1 Withholdings 118

\ 23,886 \ 10,914

AMOREPACIFIC Group, Inc. and...

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