- Part 5: For the preceding part double click ID:nRSV5561Sd
-2015.08.05. Company filed an appleal and the case is under 2nd instant court
-2016.06.30. Courts judgment was delivered (Company partially won the case)
-2016.07.06. Company was awarded 1.7 billion won additionally (including interest and litigation cost)
-2016.07.22. Both parties appealed to the Supreme Court respectively
Further schedule and plan of litigation -Currently, legal principles are reviewed by a bench in the Supreme Court and we have a plan to respond thereto depending on how things go
Impact of outcome on the Company - Based on the judgment delivered by the Supreme Court, additional profit or cost may be gained or incurred
※ Standard for important litigations of the Company: Litigations that significantly affect the finance of the Company, or
litigations with a litigation amount over 10 billion won.
※ Further information can be found in note 36 (on contingent liabilities and contract details) of 3. Group Accounts and
note 35 (on contingent liabilities and contract details) of 5. Financial Statements of III. Finance-related contents.
2. Bills or checks provided as collateral
Lotte Card, which is a subordinate company, bears the warranty responsibility in the event of failure of asset backed card
debenture to equip itself with appropriate requisites or in the event of occurrence of causes such as overdue. In the case
of trust format of liquidation, the trust company can request Lotte Card to put assets in excess of a prescribed amount
into trust additionally if the assets being assigned fail to be maintained at or above a prescribed level. In addition, in
the event of asset liquidation, if prescribed causes such as when the average portfolio profit rate over the 3 continuous
settlement terms falls below the average basic cost rate over the same period or when the revised balance of the principal
of liquefied assets as of the date of the termination date of each of the settlement terms falls below the minimum balance
of the principal of liquefied assets, etc. agreed upon under the relevant contract materialize, then, the limited company
specializing in asset liquidation shall bear the responsibility for early redemption of the asset backed securities.
(2) Lotte Shopping has the right to purchase 5.1% of the entire stocks of Hyundai Logistics Co., Ltd. that Aegis First
owns. With the advent of the period of exercising during the current half year, exercising of the call option was notified
to Aegis First and the procedure for the stock purchase contract in accordance with the exercising of the call option as at
the end of the current half year is being carried out. On the other hand, the entire amount of the stocks of Aegis First
(with book value of 4,571,544,000 Won) that Lotte Shopping owns has been offered as collateral to the Mizuho Bank in
relations to the loan by Aegis First
3. Use of proceeds from private placements
- N/A
4. Other Contingent Liabilities
a. Detail of paymentguarantees on behalf of specially related parties
Details of guarantee or payment guarantees provided by the Company in favour of its specially related parties are as
follows. There are no guarantee or payment guarantees provided by such specially related parties in favour of the
Company.
(Unit : local currency)
Lotte Shopping RUS Ltd. KEB USD 5,000,000 2014.05.02. ~2017.05.02. Guarantee of payment for financing
Shandong Longzhile Shinhan Bank CNY 24,000,000 2014.06.23. ~2017.06.23.
Cinema Co., Ltd.
International BusinessCenter Company limited KEXIM USD 15,000,000 2016. 04.06. ~ 2019 04.06.
Standard Chartered Bank Korea VND 110,000,000,000 2016.04.06. ~2017.04.06.
Lotte Properties(Shenyang) KEXIM USD 30,500,000 2016. 03.30. ~2019. 03.30.
Limited
Woori Bank USD 31,500,000 2016. 04.25. ~2019. 04.25.
Korea Development Bank USD 57,500,000 2016. 05.04. ~2019. 05.04.
LOTTE PROPERTIES KEB USD 140,000,000 2014. 03. 20. ~
(CHENGDU)HK LIMITED 2017. 03. 20.
Shinhan Bank USD 50,000,000
Lotte Shopping Holdings Standard Chartered Bank Korea USD 38,135,750 2014. 06. 03. ~
(Hong Kong) Co., Limited 2017. 06. 02.
BNP Paribas USD 38,135,000
Citibank, N.A. , USD 38,135,000
Hong Kong Branch
SMBC USD 38,135,000
ING USD 120,213,804 2015. 01. 20. ~
2018. 01. 19.
Shinhan Bank HKD 8,000,000 2015. 11. 10. ~
2017. 11. 10.
HSBC USD 95,297,610 2015. 11. 30. ~
2018. 11. 30.
BNP Paribas USD 104,818,169 2016.05.16. ~ 2019.05.16.
PT. LOTTE Shopping Avenue DBS USD 20,000,000 2014. 09. 23. ~
Indonesia 2017. 09. 23.
JP Morgan IDR 200,000,000,000 2015. 12. 21. ~
2018. 12. 21.
Lotte Business Management (Tianjin) Co., Ltd. BNP Paribas CNY 150,000,000 2016.06.21. ~ 2018.06.21.
LOTTE DEPARTMENT STORE (TIANJIN) CO., LTD. KEB Hana Bank CNY 170,000,000 2016.06.15. ~ 2018.06.15.
Lucky Pai (Shanghai) Trading Co., Ltd. KEB Hana Bank CNY 58,000,000 2015. 11. 26. ~
2017. 11. 26.
KEB Hana Bank CNY 39,900,000
KEB Hana Bank CNY 20,100,000
KEB Hana Bank CNY 57,000,000 2016.02.29.~ 2017.03.06.
Shinhan Bank CNY 14,000,000 2015.11.19. ~ 2016.11.15.
Industriall Bank of Korea CNY 46,000,000 2016.01.15. ~ 2017.01.13
Woori Bank CNY 15,000,000 2016.03.03. ~ 2017.03.02
Lotte Department Store (Shenyang) Co., Ltd. BNP Paribas CNY 50,000,000 2016.07.11 ~2018.07.11
Jiangsu Times Supermarket Co., Ltd DBS CNY 330,000,000 2016.08.30 ~ 2017.08.29
2016.07.11 ~2018.07.11
Jiangsu Times Supermarket Co., Ltd
DBS
CNY 330,000,000
2016.08.30 ~ 2017.08.29
※ Besides the above guarantee of payment, the Company has guaranteed the execution of contract of THE CINEMA OF KOREA with
CJ CGV by 50% each during the VPF contract signing with THE CINEMA OF KOREA and the Twentieth Century Fox Film Corporation
in October 2008.
※ The Company has guaranteed the execution of the contract of Burger King Japan Co., Ltd. regarding the loyalty contract
(3.0% of the net sales, 25,000 USD per an opening of a new store) between Burger King Japan Co., Ltd. and BK ASIAPAC, PTE.
Ltd.
※ As of the end of the current quarter, the Company has a contract of supplementing capital in case of difficulty of
returning the original principal and interest by the issuing companies of H&D Able 2nd Corporation, Suwon Landmark 2nd
Corporation, Invest Farmland Corporation, and KS 1nd Corporation, regarding the asset-backed corporate paper of Lotte
Incheon Development Co., Ltd (face value of 700 billion KRW, due to expire on 23 February 2018), asset-backed corporate
paper of Lotte Suwon Stn. Shopping Town (face value of 250 billion KRW, due to expire on 28 May 2018), electronic
short-term private loan of Lotte Incheon Town (face value of 34 billion KRW, due to expire on 29 Dec 2016), and
asset-backed corporate paper of Lotte Ulsan Development Co., Ltd (face value of 266 billion KRW, due to expire on 23 Nov
2018).
※ The Company has been providing a payment guarantee from 2014 on the rent that the Lotte Suwon Stn. Shopping Town has to
pay to the landlord during the lending peiord (20 years).
Issuance of hybrid securities recognized as equity
(As of 30 September 2016) (Unit: million Won)
Issuance number Issue No. 1-1, 2 of Lotte Shopping subordinated hybrid securities
Issuance date 15 November 2013
Issued amount Won 270 billion (No. 1-1: Won 240 billion, No. 1-2: Won 30 billion)
Purpose of issuance Repayment of borrowings and general corporate purposes
Type of offering Private placement
Listed/Unlisted Unlisted
Outstanding balance Won 270 billion (No. 1-1: Won 240 billion, No. 1-2: Won 30 billion)
Equity recognition Recognition for accounting purposes Issued securities were recognized as equity shares as they are not considered as part of assets that may be collected for money owed to creditors. However, no dividend may be paid until all interest has been paid.
Credit rating agencies' equity recognition ratios Moody's: 50%, Fitch: 50%
Unpaid accumulated interest None
Maturity and early redemption Maturity: 30 years (but may be extended)
Call options are exercisable five years after issuance date.
Interest rate (with conditions for rate adjustment) 4.723% (the rate will be recalculated every five years after issuance date as 5-year government bond yield+1.5%, with an additional 1% at 10 years after issuance)
Seniority Issued securities will be considered pari passu with the lowest ranked preferred stock of the Company and are senior to common stock of the Company. Subordinated to all
other obligations of the Company other than existing preferred shares and other obligations specified to be pari passu with the securities.
Impact on financial structure after debt classification Debt ratio increase (An increase to 64.99% from 67.90% As of 30 September 2016)
Impact on financial structure after debt classification
Debt ratio increase (An increase to 64.99% from 67.90% As of 30 September 2016)
5. Sanctions and Fines
a. Lotte Shopping
In July 2013, the Seoul Regional Tax Office commenced a regular tax investigation into the Company and assessed additional
taxes, which were paid in full by the Company in February 2014.
b. Lotte Card
Business segment Company Date Sanction / fine Reason Measures taken to prevent reoccurrence
Card Lotte Card 2014.01.21 Advisory from the Financial Supervisory Service and imposition of fine (W500 million) Improper operation of board of directors.(Specialized Credit Finance Business Act Article 50) Strengthening of management of board of directors operation.
One employee was issued a "cautionary warning"
2014.02.11 Warning from the Financial Supervisory Service and imposition of fine (W1,000 Insurance solicitation with misleading information about insurance products.(Insurance Business Act Article 97) Employee training.
million)
One employee was issued an official "reprimand"
2014.02.16 Partial suspension of operations for 3 months from the Financial Services Commission Leaking of customer information.(Specialized Credit Finance Business Act Article 24, Use and Protection of Credit Information Act Article 19) Reinforcement of information security (physical and IT-related).
2014.10.28 Imposition of penalty surcharge (W50,000,000) and fine (W 6,000,000) from the Violation of the prohibited acts relating to credit card businesses, etc., Violation of duty to maintain sound business practice in recruiting credit card holders(Specialized Credit Finance Business Act Article 24, etc.) Reinforcement of relevant standards. Employee training.Strengthening of management supervision.
Financial Services Commission
Three managing directors- Former managing director (13 years and 7 months of tenure), an official "reprimand"-Former managing director (12 years of tenure), three months of salary reduction-Current managing director (15 years and 5 months of tenure), an official "reprimand"
2014.10.28 Two representative directors-Former representative director (5 years and 8 months of Lack of supervision and management with regard to developing and maintaining measures for personal credit information protection Replacement of representative directors.Strengthening of management supervision
tenure), an equivalent of "cautionary warning" -Former representative director (10
years and 11 months of tenure), an equivalent of recommendation of discharge
2014.10.28 Five managing directors-Former managing director (12 years of tenure), three months Neglectful supervision, development and management of security measures with regard to user personal information usage, Failing to convert user information when testing the electronic system.Lack of supervision, etc. Expansion of IT security infrastructures and work force.Regular employee training.Strengthening of internal regulation.
of salary reduction-Former managing director (7 years and 6 months of tenure), an
equivalent of an official "reprimand"-Former managing director (6 years and 4 months
of tenure), an equivalent of dismissal-Current managing director (10 years and 2
months of tenure), an official "reprimand"-Current managing director (10 years and 4
months of tenure), three months of salary reduction
2014.10.30 Imposition of fine (W 12,000,000) from the Ministry of Security and Public Violation of the rules relevant to personal information retention, etc. Regular employee training.Strengthening of internal regulation.
Administration
2015.02.12 Cautioned and imposition of fine (5 million Won)by the Financial Supervisor Service Failure to exhaustively manage and monitor the recruitment of members for issuance of credit card, etc. Full time educationfor the staffs and reinforcement of internal control
C, Woori Home Shopping
Distribution Woori Home Shopping 2015.03.25 Large scale distribution business act - Failure to issue in writing in advance, etc. and failure to issue a contract (delayed issuance) and oral placement of an order in advance, delayed payment of the amount for sales, passing on of the sales promotional cost, demanding of management information, method of receiving of fees, and provision of disadvantages through inducing of mobile orders Correction order / Notification order Payment of the fine
Subject period: 12.01.1~14.12.4 Fine imposed: 3.74 Billion Won Inauguration of TFT for fair trading
Currently reducing the disadvantages of the cooperative companies
2015.05.14 Indicated advertisement law - Omission of public announcement of important Imposition of the fine of 62.5 million Won Fine paid
information of broadcasting of tour package products including the cost of guide and Indication of omitted items
cost of elective tour items, etc.
Subject period: 14.09.01~11.09
2015.06.12 Electronic trading law -Falsified and exaggerated advertisement and TV broadcasting Corrective order / Payment of fine
sales / Lirikos ample cosmetic productsBroadcasting of the falsified and exaggerated Imposition of fine of 8 million Won Disciplinary action taken on the personnel in charge through the Personnel Management Committee
advertisement of appearing to offer commercially sold item when in fact only sample
products are handed out
Subjected broadcasting: Nov. 23, 2014
2016.05.27 Re-approval that is inappropriate to the broadcasting law and omission of the Stoppage in business for 6 hours a day from 8~11 AM and 8~11 PM everyday over a period of 6 months (prohibition of transmittance of broadcasting on introduction and sales of products), grant of a 4 month grace period from the date of the notification of the measures to be taken (stoppage from Sep. 28, 2016) Submit a petition for provisional injunction against the stoppage of business Aug. 5, 2016Must be strict in preparation for administrative suit citing application for provisional disposition with the court (09/07/2016)
broadcasting business operator / reapproved business plan itemalthough the criminal
activities and history of criminal punishment that was imposed on the current and
former executive company need to be included in the application of the re-approval of
the business plan, the business plan was written differently from the actual facts
and submitted. Accordingly, re-approval was acquired in falsified and other unjust
methods.
Corrective order /
Imposition of fine of 8 million Won
Payment of fine
Disciplinary action taken on the personnel in charge through the Personnel Management Committee
2016.05.27
Re-approval that is inappropriate to the broadcasting law and omission of the broadcasting business operator / reapproved
business plan itemalthough the criminal activities and history of criminal punishment that was imposed on the current and
former executive company need to be included in the application of the re-approval of the business plan, the business plan
was written differently from the actual facts and submitted. Accordingly, re-approval was acquired in falsified and other
unjust methods.
Stoppage in business for 6 hours a day from 8~11 AM and 8~11 PM everyday over a period of 6 months (prohibition of
transmittance of broadcasting on introduction and sales of products), grant of a 4 month grace period from the date of the
notification of the measures to be taken (stoppage from Sep. 28, 2016)
Submit a petition for provisional injunction against the stoppage of business Aug. 5, 2016Must be strict in preparation for
administrative suit citing application for provisional disposition with the court (09/07/2016)
The above table summary does not include minor sanctions and fines.
C. Inventory Status
(Unit: million Won)
Department store Merchandise 1,643,582 1,631,087 1,645,156
Goods - - -
Goods in process - - -
Half-finished goods - - -
Raw materials - - -
Component materials - - -
Stored goods - - -
Goods not delivered - - -
Unsold property - - -
Completed property - - -
Uncompleted property - - -
Land site - - -
Sub-total 1,643,582 1,631,087 1,645,156
Discount store Merchandise 651,861 633,462 645,588
Goods - - -
Goods in process - - -
Half-finished goods - - -
Raw materials - - -
Component materials - - -
Stored goods 38 42 417
Goods not delivered 4,067 1,122 530
Unsold property 10,286 29,412 -
Completed property - - -
Uncompleted property - - 23,756
Land site - - 16,061
Sub-total 666,252 664,038 686,352
Finance Merchandise 4,307 3,049 2,564
Goods - - -
Goods in process - - -
Half-finished goods - - -
Raw materials - - -
Component materials - - -
Stored goods - - -
Goods not delivered - - -
Unsold property - - -
Completed property - - -
Uncompleted property - - -
Land site - - -
Sub-total 4,307 3,049 2,564
Electronics Merchandise 493,851 416,081 357,113
Goods - - -
Goods in process - - -
Half-finished goods - - -
Raw materials - - -
Component materials - - -
Stored goods - - -
Goods not delivered 207 142 -
Unsold property - - -
Completed property - - -
Uncompleted property - - -
Land site - - -
Sub-total 494,058 416,223 357,113
Convenience store Merchandise 79,142 71,258 53,173
Goods - - -
Goods in process - - -
Half-finished goods - - -
Raw materials - - -
Component materials - - -
Stored goods 706 755 787
Goods not delivered - - -
Unsold property - - -
Completed property - - -
Uncompleted property - - -
Land site - - -
Sub-total 79,848 72,013 53,960
Others Merchandise 193,505 176,103 174,114
Goods 9,340 12,780 12,227
Goods in process 918 968 943
Half-finished goods - - -
Raw materials 1,320 848 873
Component materials - 23 9
Stored goods 917 1,447 964
Goods not delivered 429 886 1,676
Unsold property - - -
Completed property - - -
Uncompleted property 319,719 286,532 225,103
Land site - - -
Sub-total 526,148 479,587 415,909
Total Merchandise 3,066,248 2,931,040 2,877,708
Goods 9,340 12,780 12,227
Goods in process 918 968 943
Half-finished goods - - -
Raw materials 1,320 848 873
Component materials - 23 9
Stored goods 1,661 2,244 2,168
Goods not delivered 4,703 2,150 2,206
Unsold property 10,286 29,412 -
Completed property - - -
Uncompleted property 319,719 286,532 248,859
Land site - - 16,061
Sub-total 3,414,195 3,265,997 3,161,054
Inventory as percentage of total assets (%) Inventory÷Assets×100 8.33% 8.03% 7.89%
Inventory turnover (times)[Annualized cost of sales÷{(Period start inventory+Period end inventory)÷2}] 6.0 6.3 6.2
7.89%
Inventory turnover (times)[Annualized cost of sales÷{(Period start inventory+Period end inventory)÷2}]
6.0
6.3
6.2
Due diligence of inventories
Business unit Department store Discount store Others
- More to follow, for following part double click ID:nRSV5561Sf